2024 (2) TMI 520 - AT - Income Tax

Additional income offered on account of excess stock during the course of survey - business income of the assessee OR income from other sources liable to be taxed at a higher rate prescribed u/s 115BBE - HELD THAT - As decided in case of M/s. Brij Mohandas Devi Prasad 2023 (7) TMI 1086 - ITAT INDORE alleged excess stock was not kept separately at any other place and was part of the total business tock found at the assessee s business premises are sufficient enough to indicate that the alleged investment in excess stock is part of the business income. We also find that alleged excess stock was duly accepted by assessee as part of unaccounted business and source thereof stated during the course of search itself and no other incriminating material was found during search proceedings and therefore is not an undisclosed income as held by the ld. AO. We, therefore, find no infirmity in the finding of CIT(A) rightly holding that the provision of section 115BBE of the Act are not applicable on the surrendered income on account of excess stock found during the course of search. Thus once the facts emerging from record shows that the excess stock found during survey was a part of entire lot of stock of assessee, part of which is recorded in books of account and part of the same was not found recorded and therefore, treated as excess stock at the time of survey and consequently surrendered by the assessee and also offered to tax in the return of income then the excess stock cannot be treated as deemed income u/s 69 or 69B . Decided in favour of assessee.

Issues Involved:
1. Classification of Additional Income from Excess Stock
2. Applicability of Section 115BBE
3. Tax Calculation on Excess Stock
4. Entry of Excess Stock in Books of Accounts
5. Evidence Supporting Business Income Claim

Summary:

1. Classification of Additional Income from Excess Stock:
The primary issue was whether the additional income of Rs. 1,20,49,234/- declared during a survey due to excess stock should be classified as business income or income from other sources. The CIT(A) held that this income was business income, as the director of the assessee explained that the excess stock represented undisclosed business income accumulated over the past 4-5 years. This explanation was accepted by the CIT(A), who noted that the excess stock was recorded in the regular books of account and made available for future sales and taxation on profit thereon.

2. Applicability of Section 115BBE:
The Revenue argued that the excess stock should be taxed under Section 69B of the I.T. Act, which pertains to undisclosed investments, and thus subject to the higher tax rate under Section 115BBE. However, the CIT(A) and the Tribunal found that the excess stock was part of the business income and not a separate, identifiable asset. Therefore, the provisions of Section 115BBE were deemed not applicable.

3. Tax Calculation on Excess Stock:
The CIT(A) directed that the tax on the additional income from excess stock should be calculated at the normal rate applicable to business income, rather than the higher rate under Section 115BBE. The Tribunal upheld this decision, emphasizing that the excess stock was part of the business's regular stock and not a separate investment.

4. Entry of Excess Stock in Books of Accounts:
The Revenue contended that the excess stock was only entered into the books of account after the survey and not at the assessee's own instance. The CIT(A) countered this by noting that the excess stock was incorporated into the regular books of account and was part of the business's ongoing operations. The Tribunal supported this view, stating that the excess stock was not kept separately and was part of the overall physical stock found during the survey.

5. Evidence Supporting Business Income Claim:
The Revenue argued that the assessee failed to produce corroborative evidence to justify the claim that the excess stock was generated from business income. The CIT(A) and the Tribunal found that the explanation provided by the assessee, supported by the director's statement during the survey, was sufficient to establish that the excess stock was indeed business income. The Tribunal cited several judicial precedents supporting the view that excess stock found during a survey, when part of the regular business stock, should be treated as business income.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision that the additional income from excess stock is business income and should be taxed at the normal rate applicable to business income, not under Section 115BBE. The Tribunal emphasized that the excess stock was part of the regular business operations and not a separate, undisclosed investment.

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