2024 (1) TMI 28 - AT - Income Tax

Unexplained investment u/s. 69B - excess stock found during the course of survey - HELD THAT - According to assessee, if we apply this profit rate the stock will almost come close to book stock. It means that there is some discrepancies in the physical verification done because it is not possible to estimate stocks of textile and handloom within one day. Even otherwise, the Revenue could not point out how they have valued each items because they have not valued in term of quality i.e value of the textile and handloom. In view of the above, it cannot be said that excess stock found, which is also based on estimate only, is unexplained investment. In view of the above, the same is to be assessed as business income as declared by the assessee and it cannot be charged at special rate of tax u/s. 115BBE of the Act. Hence, we direct the Assessing Officer to assess the income of excess closing stock found during the survey operation in the business premises of the assessee as business income and not as unexplained investment u/s. 69B of the Act. Disallowance of expenditure @30% - We note that AO without going into the details estimated disallowance of expenditure at 30% out of total expenditure - In the absence of details of expenses, CIT(A) confirmed the action of the AO. After going through the facts of the case, we are of the view that in the absence of evidence, it cannot be denied that there will be no indirect expenses. Hence, we restrict the disallowance at 20% and direct the Assessing Officer accordingly.

Summary

Issues involved:
The judgment involves two main issues. The first issue is regarding the addition made by the Assessing Officer as unexplained investment under section 69B of the Income Tax Act, based on excess stock found during a survey. The second issue pertains to the disallowance of expenditure at a rate of 30% by the Assessing Officer.

Issue 1: Addition as unexplained investment under section 69B:
The appellant, engaged in textile trading and manufacturing, contested the addition of excess stock as unexplained investment under section 69B. The Assessing Officer accepted the returned income but added the excess stock amount as unexplained investment. The Commissioner of Income Tax (Appeals) upheld this decision, stating that both limbs of section 69B were satisfied as the source of the excess stock investment was not explained by the appellant. The appellant argued that the excess stock should be treated as business income, not unexplained investment. The Tribunal noted discrepancies in the physical verification of stock and directed the Assessing Officer to assess the excess closing stock as business income, not unexplained investment under section 69B.

Issue 2: Disallowance of expenditure at 30%:
The second issue revolved around the disallowance of expenditure at a rate of 30% by the Assessing Officer, which was confirmed by the Commissioner of Income Tax (Appeals). The Tribunal observed that without detailed evidence, a 30% disallowance was not justified. Therefore, the Tribunal restricted the disallowance to 20% and directed the Assessing Officer accordingly.

The Tribunal, after considering the arguments and facts presented, partially allowed the appeal of the assessee. The judgment highlighted the importance of providing evidence to support expenditure claims and the need for accurate valuation of stock to avoid misclassification. The decision emphasized the proper application of tax provisions and the significance of jurisdictional High Court rulings in resolving conflicting views.