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2017 (3) TMI 1828 - AT - Income TaxExcess stock found during the survey - partner of the assessee firm admitted that the investment had been made out of undisclosed sources - Suddenly in the books of accounts, the assessee has incorporated this transaction by debiting the purchase account and crediting the income from undisclosed sources - HELD THAT:- The net effect of this double entry accounting treatment is that firstly the unrecorded stock of rice has been brought on the books and now forms part of the recorded stock which can be subsequently sold out and the profit/loss therefrom would be subject to tax as any other normal business transaction. Secondly, the unrecorded investment which has gone in purchase of such unrecorded stock 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 sources, there was no necessity for assessee to credit the profit/loss account and offer the same to tax. No 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. 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-ordinate Bench in case of Shri Ramnarayan Birla [2016 (9) TMI 1354 - ITAT JAIPUR] supports the case of the assessee in this regard. Therefore, the investment in the excess stock has to be brought to tax under the head “business income” and not under the head income from other sources”. In the result, ground No.1 of the assessee is allowed. Addition of interest - assessee has given loan and advances to Smt. Rita Gupta and charged interest @ 10%, whereas assessee firm was paying interest @ 14%-17% on loans availed by it - HELD THAT:- It is noted that the advance was given to Smt. Rita Gupta in earlier years for construction of godown and the same was given on rent by the assessee. The test of commercial expediency for giving the advance having being established, the AO is not correct to challenge the rate of interest which has been charged by the assessee. Further, no nexus has been established between the borrowed funds and funds advanced to Smt Rita Gupta. In the result, the ground no. 2 of the assessee is allowed.
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