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TMI Blog2024 (2) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER For the Assessee : Ms. Simran Bhullar, CIT-DR For the Revenue : Shri Pankaj Shah Soumya Bumb ARs ORDER Per Vijay Pal Rao, JM: This appeal by the Revenue is directed against the order dated 02.06.2022 of Commissioner of Income Tax(Appeal), for Assessment Year 2019-20. The assessee has raised following grounds of appeal: 1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that additional income offered on account of excess stock at Rs. 1,20,49,234/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts assertion. He has also overlooked that it is well settled by number of court decisions that whoever makes an assertion, must substantiate it. 2. The assesse is engaged in the business of manufacturing of confectionery and related items like candies, wafers, jellies etc. The assesse filed its return of income for the year under consideration declaring total income on 30.09.2019 at Rs.2,03,98,550/-. There was a survey u/s 133A of the Act conducted in the case of the assessee wherein the assessee has declared/surrendered income of Rs.1,20,49,234/- on account of excess stock. The case of the assesse was selected for scrutiny and the AO has involved the provision of section 115BBE in respect of the income offered/surrendered by the assessee of Rs.1,20,49,234/- on account of excess stock as per statement recorded during the course of survey. The AO applied the higher tax on the said income as per provision of section 115BBE. The assessee challenged the action of the AO before Ld. CIT(A). The CIT(A) decided the issue in favour of the assesse and held that the income offered by the assessee on account of excess stock is business income and liable to be taxed under the head income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of CIT vs. Kerala Sponge Ltd. 379 ITR 330. 4. On the other hand, Ld. AR of the assessee has submitted that the assessee has explained the source of the investment in excess stock in the statement recorded during the survey. He has referred to the statement of the director of the assessee and particularly question no.11 and submitted that the assessee has explained the source as the undisclosed income of the assessee company from its business for last 4-5 years is reflected in the excess stock found during the survey. He has relied upon the impugned order of the CIT(A) as well as the decision of this Tribunal dated 17.07.2023 in case of M/s. Brij Mohandas Devi Prasad vs. ACIT/DCIT in ITANo.428/Ind/2022. 5. We have considered the rival submissions as well as relevant material on record. The solitary issue in this case is whether the income declared by the assessee during the course of survey on account of excess stock found would be treated as the business income of the assessee or income from other sources liable to be taxed at a higher rate prescribed u/s 115BBE of the Act. At the outset, we note that in the statement recorded during the survey the director of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, in its stock register, can only be considered as made out of undisclosed source . Hon'ble ITAT has distinguished the decision of Hon'ble ITAT, Ahmedabad in the case of Choksi Hirala Maganlal,ITA No. 3281/Ahd/2009 on which the assessee had placed reliance and held that there is a clear finding that excess stock found during the survey was not separated or clearly indentified, 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 indentified at the time of survey or entries passed in its cash book, journal or ledger for the value of such stock. In the circumstances, we do not find any reason to interfere with the order of the learned Commissioner of Income Tax (Appeals). Appeal of the assessee stands dismissed. The case of the appellant is squarely covered by the above decision of Choksi Hirala Maganlal (Supra). Hence, the above decision relied upon by the Ld.AO is not applicable to this case. On the other hand the appellant has successfully established that the excess stock is business income. In the case of Kerala Sponge Ltd 379 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d either disclosed by the assessee or unearthed by the Revenue. The preponderance of probability therefore is that the debtors were sourced from the business of the assessee. Therefore, there is no question of treating it as deemed income from undisclosed sources u/s 69, 69A, 69B and 69C of the Act and the same is held to be in the nature of Business Income of the assessee. Having held so, the same was assessable under the head business and profession' and as stated above, the benefit of set off of losses both current and brought forward was allowable to the assessee in accordance with law. 24. As far as the surrender made on account of investment in Kothi of Rs.60 lacs, neither is the same disclosed in the books of the assessee nor source of the same disclosed. Therefore, the same is to be assessed as deemed income w/s 69 of the Act. The same applies to the surrender of Rs.10 lacs made to cover the miscellaneous discrepancies in loose paper of Rs. 10 lacs. Neither the nature of the discrepancies, nor any source relating to the same has been disclosed and therefore, the same is also to be assessed as deemed income u/ss 69, 694, 69B and 69C of the Act. 25. As far as the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income and the assessee claims that the excess-stock was outcome of suppressed business income over the years. 10. Secondly, it is pertinent to note that during the course of survey what was detected in respect of the stock was that the physical stock found at the business premises of the assessee was excess in comparison to the stock recorded in the books of account. It is not the case of the AO that the excess stock found during the survey was separated from other stock of the assessee but it is one and common nature of stock found during survey except the quantity of the stock on physical verification was found to be excess in comparison to the stock recorded in books of accounts. Thus, there is no separable identifiable stock found during survey then the stock regularly held by assessee in the normal course of business of jewellery. Once the stock found during survey is part of total stock of business, then the said excess stock cannot be given a separate identity than the other stock of assessee. Further, even if excess stock found during survey was not recorded in the books of account but when the survey was conducted before closure of financial year then the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reating of Rs. 1,41,75,568/- declared during search as unexplained investment u/s 69 r.w.s 115BBE of the Act and not as a business income. During the course of search, valuation of stock was taken by registered valuer and net weight of gold was found at 25,857.490 gms valued at Rs. 5,67,73,734/-, however, the value of gold as per books of accounts of the assessee was at 19,423.678 gms valued at Rs. 4,25,98,165/-. Therefore, a difference in stock of 6433.812 gms was found amounting to Rs. 1,41,75,569/-. Statement of Shri Anoop Nema was recorded on oath on 16.12.2016, wherein, he has accepted value of excess stock of gold as additional income for FY 2016-17 (AY 2017-18). The relevant extract of statement is also scanned on page no 4 5 in the body of assessment order. The AO during the course of assessment proceedings observed that the assessee has declared excess stock as undisclosed income in return of income for AY 2017-18. However, the AO required the assessee to separately credit the excess stock of Rs. 1,41,75,568/- in P/L account but the same was not done by him. The AO therefore, considering the excess stock as unexplained investment made addition of Rs. 1,41,75,568/- to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year. [emphasis supplied] Any assessee can be held guilty of invoking provisions of section 69 of the Income Tax Act if, (i) where in any financial year, the assessee is found to have made certain investments; (ii) such investments are not recorded in the books of account, if any, maintained by the assessee; (iii) the assessee offers no explanation about the nature and source of such investments; and finally, (iv) even if any explanation is offered by the assessee, such explanation in the opinion of the Assessing Officer is not satisfactory. Conditions (i) and (ii) are mandatory in nature and out of condition (iii) and (iv) only one or both as the case may be fulfilled. In the instant case condition no (i) and (ii) has been fulfilled by the appellant, however, on perusal of copy of assessment ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as business income. Similar, view has been taken by Hon ble jurisdictional Indore tribunal in the case of M/s Shahnai Shriram Market vs ITO 1(1), Ujjain (ITA No 658/Ind/2014 dated 15.05.2015. (a)(i) It is a settled law that additional income declared on account of excess stock is business income of the assessee. This proposition finds support from the following case laws:- (a) Bajrang Traders Vs. ACIT (Circle)-2, Alwar (ITA No. 137/Jp/17 dated 17.03.2017). In this case, it is held as under:- 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 food grains, 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-ordinate Bench in case of Shri Ramnarayan Birla (supra) supports the case of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inseparable (mixed) part of declared asset, falling under a particular head, then the difference should be treated as undeclared business income explaining the investment. In the present case the excess stock was part of the stock. The revenue has not pointed out that the excess stock has any nexus with any other receipts. Therefore, we do not find any fault with the decision of the ld. CIT (A) directing the AO to treat the surrendered amount as excess stock qua the excess stock found. ( c) Fashion World Vs. ACIT (Circle)-12, Ahmedabad (ITA No. 1634/Ahd/2016 dated 12.02.2010) In this case, it is held as under:- 12. Thus the important aspect that emerges from the entire discussion is that for invoking deeming provisions under sections 69, 69A, 69B 69C there should be clearly identifiable asset or expenditure. In the present case we find that entire physical stock of Rs.25,14,306/- was part of the same business. Both kind of stock i.e. what is recorded in the books and what was found over and above the stock recorded in the books, were held and dealt uniformly by the assessee. There was no physical distinction between the accounted stock or unaccounted stock. No suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be made applicable as primary condition for invoking the provisions of section 69A, 69B is that the asset should be separately identifiable and it should have independent physical existence of its own. Since excess stock is a result of suppression of profit from business other the years and has not been kept identifiable separately but i.e. the part of overall physical stock found, the investment in the excess stock 'has to be treated as business income as per detailed reasons given in the case of Fashion World (supra). Once excess stock is treated as business income then assessee is entitled for higher remuneration to the partners as per section 40(b). As a result, this ground -of assessee is allowed. (e) Shri Lovish Singhal Vs. ITO, Ward-2, Sriganganagar (ITA No. 143/Jodh/2018 dated 25.05.2018) In this case, it is held as under:- I have heard the rival contentions and record perused. I have also carefully gone through the orders of the authorities below. I have also deliberated on the judicial pronouncements referred by the lower authorities in their respective orders as well as cited by the ld AR during the course of hearing before the ITAT in the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. We have considered rival contentions, carefully gone through the orders of the authorities below and also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by ld. DR and AR during the course of hearing before us. From the record we found that the assessee a partnership firm is in the business of trading, import, export, manufacturing, wholesale and retail dealing in diamonds, gems and jewellery The main object of the assessee firm is to carrying out the business of import, export, manufacturing, wholesale and retail dealing in diamonds, gems and jewellery. The partnership business was of importers, exporters, manufacturers, processors, investors, wholesalers, distributors, retailers, dealers and indenting agent of diamonds, synthetic stones, gems and jewellery, precious and semi-precious metals and miners and ornaments and article made thereof including jewellery, decorative and precious objects of arts and crafts and to cut, design polish rough diamond, gems and precious stones and that of investment and lending and to do any other business as may be mutually agreed upon by the partners. In the return of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is clear from the above facts that the declaration was related to business stock in trade hence it is evident that the declaration amount is required to be assessed under the head' Income from Business or profession. Thus, the undisclosed income of 13,47,63,640/- declared voluntarily by the assessee for A.Y. 2011-12, is undisclosed stock held under the customary trading of the business and hence should be treated as the business income of the assessee firm and not as undisclosed investment as held by the AO. If all the three conditions of Section 69 exist together, the unrecorded investment or value of assets can be deemed to be assessee's income of the relevant financial year. In the present case all three conditions as required under section 69 are not fulfilled because the appellant has offered explanation and nature of source of acquisition as undisclosed stock received from the unaccounted trading of diamond as source of income. The partner of the firm has time and again stated in his statement that diamond found in the premises during the search is out of unrecorded trading of diamonds hence the third part of section 69 is not satisfied hence the said stock ..... 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