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TMI Blog2019 (9) TMI 859X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the books of account and to buy peace and to co-operate with the department, he offered though stating to be voluntarily but after detection by the search party and after being confronted, the sum as the undisclosed income of the assessee company. 2. In the facts and circumstances of the case, the Ld. CIT(A) erred in law in not considering the undisclosed income declared during search in a statement recorded u/s 132(4) as deemed income assessable u/s 68, 69 etc. of Chapter VI of Income Tax Act by not following a settled position of law that what is brought to tax under Chapter IV of the Act is an income from known source i.e. a particular source from which income flows but if source of an income for an undisclosed income declared during search or survey is not disclosed, it cannot be assessed under any particular head of income of Chapter IV, particularly as business income or income from other sources and such income would necessarily fall u/s 69 if a particular amount disclosed in search or survey is not found recorded in books of account on the date of search or survey. 3. In the facts and circumstances of the case, the Ld. CIT(A) has failed to perform his statutory cot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 143(3), an appeal was preferred by the assessee before the ld. CIT(Appeals) and after considering the submissions made by the assessee and the material available on record, the ld. CIT(Appeals) decided the issue after recording his findings and observations in his impugned order as under:- "I have carefully considered the submissions of the A/R and perused the assessment order. I have also given consideration to various judicial decisions relied upon by the A/R in his submissions. In the present appeal principally two issues are required to be adjudicated. Viz:(a) whether the AO was justified in assessing sum of Rs. 4,70,54,450/- by way of unexplained investment" in stocks u/s 69 of the Act and (b) whether the AO was justified in not allowing benefit of set off of current year's business loss against income assessed u/s 69 of the Act. In the impugned order the AO noted that in the course of search u/s 132 conducted against the appellant on 20/03/2015 documents were found which indicated undervaluation of stock to the extent of Rs. 10.75 crores by two operating companies of the Group namely, Industrial Safety Products Pvt. Ltd and New Horizon Ltd i.e. the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found and valued by the search party on the date of search. There is also nothing in the assessment order from which one can infer that in the course of search inventory inspection was conducted to determine excess stock, held by the assessee on the date of search. On the contrary I find that on Page-2 of the assessment order, the AO extracted from the Notes on Accounts given by the auditor which certified that the surplus stock of leather measuring 10,32,002 sq.ft. of Rs. 4,70,54,450/- was found during the course of physical verification of inventory during the months of January/February 2015 and this was subsequently disclosed in the statement recorded in the proceedings u/s 132 of the Act and has been duly accounted for in books of accounts. It is further noted from the submissions of the A/R and also from the documents on record that in the month of January/February 2015, the Units-in-charge of the appellant company were instructed to conduct comprehensive physical verification of the inventory held at different manufacturing locations and report the differences, if any and also to identify & report quantities of unusable & obsolete items. Accordingly stock taking exercise was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -16. In fact I note that AO's such finding is also contrary to the stand taken in the assessment order passed in the case of associate concern, namely, Industrial Safety Products Pvt. Ltd. As observed by the AO in the impugned order, in the course of search, documents were found and seized which reported excess inventory of Rs.I0.75 crores belonging to Industrial Safety Products Pvt. Ltd. and the appellant herein. Out of the same, inventory valued at Rs. 6,04,95,015/- belonged to Industrial Safety Products Pvt. Ltd and the remaining inventory of Rs. 4,70,54,450/- belonged to assessee which was accounted in the assessee's books. In the order u/s 143(3) dated 31.03.2016 in the case of Industrial Safety Products Pvt. Ltd, the same AO assessed the sum of Rs. 6,04,95,015/- in relation to excess stock found as part of assessee's regular business income and did not assess it separately u/s 69 of the Act. I therefore find that even though the factual matrix of both the cases was identical, only in the appellant's case such income was assessed u/s 69 of the Act whereas in other case it was considered part of regular income. On these facts therefore I hold that the sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder each head may be well below the taxable limit. Hence the loss sustained in any year under any heads of income will have to be set off against income under any other head. In this case, the Assessing Officer made addition of Rs. 28,50,000/- as undisclosed income under section 69 of the Act. Once the loss is determined, the same should be set off against the income determined under any other head of income. In the assessment, no reasons were given by the Assessing Officer to deny the benefit of section 71 of the Act. The benefit provided under section 71 of the Act cannot be denied and the learned standing counsel appearing for the revenue is also unable to explain or give reasons why the assessee is not entitled to the benefit of section 71 of the Act. The reasons given by the Tribunal are based on valid materials and evidence and the same is in accordance with the provisions of section 71 of the Act. We find no error or legal infirmity in the impugned order". The Gujarat High Court in the case of CIT Vs Shilpa Dyeing & Printing Mills (P) Ltd (supra), it was held as follows: "Section. 71 permits an assessee to set off loss other than that of capital gains against income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-company, however, declared total income of Rs. 3.52 crores only in the return of income filed for the year under consideration and the additional income surrendered during the course of search on account of excess stock was not declared by the assessee-company in its return of income. He contended that this vital aspect was ignored by the ld. CIT(Appeals) while allowing relief to the assessee on the issue under consideration. He also contended that the value of excess stock found during the course of search was assessable to tax in the hands of the assessee under section 69, which falls under the separate chapter and the assessee-company, therefore, was not entitled to set off the business loss of the current year against the said income as rightly held by the Assessing Officer. 5. The ld. Counsel for the assessee, on the other hand, submitted that the search action was commenced on 20.03.2015 and after revoking the Prohibitory Order, the said action was resumed and concluded on 05.05.2015. He submitted that the assessee-company had done the physical verification of stock in the month of January and February, 2015 itself and the surplus stock found on such verification was duly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ol in the month of January and February, 2015 well before the search and the surplus stock found on such physical verification having been accounted for by the assessee-company in its books of account in the month of March, 2015 itself, the same, in our opinion, cannot be treated as unexplained investment of the assessee, which is chargeable to tax under section 69. Keeping in view all these facts of the case, we are of the view that the amount in question representing excess stock found on physical verification carried out by the assessee-company on its own well before the search action and duly accounted for in the books of account of the assessee-company constituted its business income. As noted by the ld. CIT(Appeals) in his impugned order, the Assessing Officer himself in the case of M/s. Industrial Safety Products Pvt. Limited, a sister concern of the assessee had brought to tax the value of similar excess stock in identical facts and circumstances as regular business income of the assessee. We, therefore, find ourselves in agreement with the ld. CIT(Appeals) that the value of surplus stock in the facts and circumstances of the assessee's case did not represent assessee's une ..... X X X X Extracts X X X X X X X X Extracts X X X X
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