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TMI Blog2023 (4) TMI 1207X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of business and profession as considered by the assessee. Appeal filed by the assessee is allowed. - Shri Aby T. Varkey, Hon ble Judicial Member And Shri Manjunatha. G, Hon ble Accountant Member For the Appellant : Shri. D. Anand, Advocate For the Respondent : Shri. P. Sajit Kumar, JCIT ORDER PER G. MANJUNATHA, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-18, Chennai, dated 22.09.2022 and pertains to assessment year 2018-19. 2. The assessee has raised the following grounds of appeal: 1. The order of the learned Commissioner of Income (Appeals)-18, Chennai, is wrong, illegal and is opposed to law. 2. That the Ld. CIT (A) erred in law in confirming the action of the Assessing Officer in changing the head of income from business to other sources by invoking the provision of Section 115BBE of the Income Tax Act, in doing so, the learned CIT(A) erred in confirming the applicability of provision of Section 115BBE of the Income Tax Act, 1961. 3. The learned CIT(A) ought to have seen that the only business of the appellant is manufacture and sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings other than the excess stock was detected which could lead to a conclusion that source for excess physical stock is other than the business income. 9. The Learned CIT(A) erred in relying in Jurisdictional High Court decision in the case of SVS Oil Mills which is clearly distinguishable on facts and law. The said decision was rendered under the circumstance whether leverage should be given to the appellant to claim certain deduction while making additions under section 69B/69C, however in the instant case no such claim is made and the source of the excess stock is identifiable from business income of the appellant. 10. The learned CIT(A) ought to have seen that the jurisdiction high court decision in SVS oil Mills is not applicable in so far as in the instant case the excess stock found during the survey is not separately and clearly identifiable but is a part of mixed lots of stocks found at the remises which included stocks found as per books and also excess stock found during survey. 11. The case law relied by the revenue authorities are clearly distinguishable on facts since in the instant case the computation of excess stock is based upon entries found in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, the assessee could not reconcile the stock found during the course of survey to book stock. However to buy peace from the Department, the same has been offered to tax as income generated from the business activity for the relevant assessment year. Therefore, submitted that the question of assessment of additional income under the head unexplained investment does not arise. 5. The Assessing Officer, after considering relevant submissions of the assessee and also by following the decision of Hon ble High Court of Madras in the case of M/s. SVS Oils Mills vs ACIT [2019] 418 ITR 0442, opined that the assessee has not furnished any documentary evidence to substantiate the claim that entire amount of additional income of Rs. 5.08 crores offered towards excess stock found during the course of survey is generated and earned from regular business activity from the current financial year. The AO, further observed that the assessee has failed to explain the source for purchase of excess stock and also not furnished any bills/invoices to substantiate the purchase of excess stock and the source for purchase of said excess stock. Therefore, the AO opined that additional income offer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the books of accounts. Stock cannot come in from vacuum. When stock is introduced in the stock register, there has to be a corresponding entry in the financial books of accounts. Either it has to be a purchase or shown as paid out of explained or unexplained source. Once stock to the extent of the surplus found at the date of survey, is included in the Stock register, assessee has to give an explanation for the source from which it acquired such stock. ......Assessee having not passed any entry in financial books, addition of stock made by it, in its stock register, can only be considered as made out of undisclosed source. The addition in our opinion was rightly done by the lower authorities. Coming to the decision of Ahmedabad Bench of the Tribunal in the case of Chokshi Hiralal Mangnlal (supra). there is a clear finding that excess stock found during the survey was not separated or clearty identified, but, was part of mixed stock which was included in the declared stock, as per books of accounts. Facts here are entirely different. There is no case for the assessee that surplus stock was clearly identified at the time of survey or entries passed in its cash book, journal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove have been enacted with a view to bring to tax the unexplained debit balances in the Balance Sheet of the Assessee either in the form of Unexplained Investments, Expenses or Stocks, etc., or unexplained Assets, Money, Bulion, Jewellery, etc., and therefore, such unexplained investments and expenses intended to be brought to tax as Undisclosed Income, these provisions are not only clearly worded but also indicated to plug the loopholes and check the menace of black money. Likewise, unexplained credits in the Balance Sheet are also brought to tax under Section 68 of the Act. 9. In the light of the above, the contention raised by the learned counsel for the Assessee has essentially emanated from a misconception that the Additions made under Section 69B/69C have to be reduced to some extent by giving leverage to the Assessee to claim Some deductions from these Additions as well. If the contention of the learned counsel for the Assessee was to be accepted viz., by allowing the purchases corresponding to the alleged excess stock, the Assessee will have to now record verifiable purchases in his Books of Accounts and for that he will have valid purchase Invoices from genuine and ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 69B of the Act. In this regard, the assessee relied upon the decision of Hon ble Rajasthan High Court in the case of Bajargan Traders vs PCIT in Income Tax No. 258/2017 dated 12.09.2017. 7. The Ld. CIT(A), after considering relevant submissions of the assessee and also taken note of various facts and also following the decision of jurisdictional Madras High Court in the case of SVS Oils Mills vs ACIT (supra), observed that the assessee could not provide any cognizant evidence as to how the amount of Rs. 5.08 crores was generated in its business, in terms of proof for purchases made, source for said unaccounted purchase, and unaccounted sales made out of such unaccounted purchases and further how the proceeds were ploughed back to business to generate unaccounted income. The relevant findings of the CIT(A) are as under: 7.2 I have considered the submissions of the appellant. The asessee has not proved with any cogent evidence as to how the amount of Rs. 5,08,00,000/- was generated in its business, in terms of proof for purchases made, source for such unaccounted purchases, the unaccounted sales made out of such unaccounted purchases, how the proceeds were ploughed back to ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 115BBE of the Act, without appreciating fact that the excess stock found during the course of survey was not separately identified but was mixed with regular business stock of the assessee. Further, the assessee has explained source for excess stock found during the course of survey and claimed that it is out of business income earned in the current financial year and also declared additional income under the head income from business. The ld. CIT(A), without appreciating relevant fact simply sustained additions made by the AO. In this regard, he relied upon the decision of Hon ble Rajasthan High Court in the case of CIT vs Bajargan Traders (Supra). 9. The ld. DR, on the other hand supporting the order of the Ld. CIT(A) submitted that the assessee could not file any evidences to prove that it has earned business income outside the books of accounts and the same has been ploughed back into the business, which is in the form of stock in trade and thus, the AO has rightly assessed additional income towards difference in stock as unexplained investment u/s. 69B of the Act. The Ld. DR, further submitted that, the assessee could not explained before the AO excess stock found duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her bullion, jewellery or any other valuable asset, two things must be satisfied. Firstly, the assessee must expended amount towards investment or in acquiring some asset and is not recorded in the books of accounts maintained for that financial year and further, the assessee offers no explanation or explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory. In this case, the assessee has offered explanation towards excess stock found during the course of survey, in response to a specific question and stated that such excess stock is generated out of the business income of the current financial year, which will be offered to tax as an additional income of the firm for the assessment year 2018-19. From the above, it is very clear that it is not a case of the AO that the assessee has not offered any explanation towards excess stock found during the course of survey, but it is a case of explanation offered by the assessee is not satisfactory with the opinion of the Assessing Officer. Therefore, it is necessary to examine the issue in light of explanation offered by the assessee towards excess stock found during the course of survey to ascertain wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock found during the course of survey does not have any independent identity as the asset is a mixed part of overall stock found in the business premises of the assessee, which in our considered view represents business income. 13. Coming back to the case laws relied upon by the AO and the Ld. Counsel for the assessee. The AO has relied upon the decision of Hon ble High Court of Madras in the case of SVS SVS Oils Mills vs ACIT (Supra). We find that in the said case, although excess stock was found during the course of survey u/s. 133A of the Act, which the assessee did not accounted in his books of accounts and also not brought to tax in the relevant assessment years. The AO has made additions towards excess stock as unexplained investment u/s. 69B of the Act in absence of necessary explanation with regard to source for said excess stock. Under those facts, the Hon ble Madras High Court came to the conclusion that excess stock found during the course of survey should be assessed u/s. 69B of the Act. In this case, facts are entirely different. The excess stock found during the course of survey was mixed with regular stock in trade of the assessee in its business. The survey team ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the business of jewellery. During the course of survey excess stock valuing Rs. 77,66,887/- was found in respect of gold and jewellery. The Coordinate Bench in the case of Choksi Hiralal Mangnlal vs. DCIT 131, TTJ (Ahd.) 1 has held that in a cases where source of investment/expenditure is clearly identifiable and alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment/expenditure then first what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure it should be considered to be taxed u/s 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. Therefore, the first attempt of the assessing authority should be to find out link of undeclared investment/expenditure with the known head, give opportunity to the assessee to establish nexus and if it is satisfactorily established then first such investment should be considered as undec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k of rice has been recorded in the books of accounts and offered to tax by crediting the said amount in the profit and loss account. Had this investment been made out of known source, there was no necessity for assessee to credit the profit/loss account and offer the same to tax. Accordingly, we do not see any infirmity in assessee s bringing such transaction in its books of accounts and the accounting treatment thereof so as to regularise its books of accounts. In fact, the same provides a credible base for Revenue to bring to tax subsequent profit/loss on sale of such stock of rice in future. 2.11. Having said that, the next issue that arises for consideration is whether the amount surrendered by way of investment in the unrecorded stock of rice has to be brought to tax under the head business income or income from other sources . In the present case, the assessee is dealing in sale of foodgrains, rice and oil seeds, and the excess stock which has been found during the course of survey is stock of rice. Therefore, the investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. The decision of the Co-or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the amount advanced to Smt. Rita Gupta who is a wife of one of the partner. Therefore, even the disallowance made @ 4% is not justified and the same should be restricted @ 2% only. Reliance is also placed on the following cases. .CIT vs. Ram Kishan Verma (2016) 132 DTR 107/132 Taxman 107 (Raj.)(HC) . CIT vs. Vijay Solvex Ltd. (2015) 113 DTR 382 (Raj.) (HC) 4. We are in complete agreement with the view taken by the Tribunal. No substantial question of law arises. 15. A similar view has been taken by the Coordinate bench of ITAT, Jaipur in the case of ACIT vs Sanjay Bairathi Gems Ltd in ITA No. 157/JPR/2017, dated 08.08.2017 and also the Ahmedabad Bench of ITAT in the case of Chokshi Hiralal Maganlal vs DCIT in ITA NO. 486/AHD/2008. 16. In this view of the matter and considering facts and circumstances of the case and also by following the case laws discussed herein above, we are of the considered view that when the assessee has explained source for excess stock found during the course of survey, is out of income generated from current year business and explanation offered by the assessee is plausible explanation, then income offered towards excess stock cannot be trea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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