2023 (8) TMI 1643 - AT - Income Tax

Excess stock surrendered u/s. 133A - Unexplained investment u/s. 69B - charging under the provisions of section 115BBE - amount surrendered under unrecorded stock - HELD THAT - There is no dispute regarding offering of additional income on account of excess stock for an amount during the course of survey. We note that as rightly pointed by the AR which is not disputed by the DR crediting the said additional income to profit and loss account and by including in the computation of income in the total income of the assessee which clearly demonstrate the assessee offered the same as business income. AR vehemently submitted the assessee explained the difference in valuation stock as per the books explained by the assessee through answers to Q. Nos. 10 and 11 of the statement u/s. 131 of the Act and also in response to notice invoking the provisions u/s. 115BBE of the Act during the course of assessment proceedings. We note that the Q. No. 10 is reproduced by the CIT(A) at page No. 10 of the impugned order and on perusal of the same we note that the assessee explained the difference as stock purchased on high demand during the marriage seasons and bills will be received late. Therefore it can be fairly concluded that the excess stock as found during the course of survey is nothing but business income flowing from assessee s regular business. As in the case of Bajargan Traders 2017 (11) TMI 388 - RAJASTHAN HIGH COURT was pleased to observe that the amount surrendered under unrecorded stock has to be brought to tax under the head business income as the excess stock which has been found during the course of survey is the investment in procurement of such stock is clearly identifiable and related to the regular business stock of the assessee. The Hon ble High Court clearly held the investment in excess stock has to be brought to tax under the head business income but not under the head income from other sources . CIT(A) is not justified in confirming the order of AO in excluding the alleged additional income offered during the course of survey and attracting the provisions u/s. 69B consequently the charging u/s. 115BBE. Thus the order of CIT(A) is set aside and the grounds raised by the assessee are allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered by the Tribunal was whether the amount of excess stock valued at Rs. 37,00,000/- detected during a survey action under section 133A of the Income Tax Act, and subsequently offered as income by the assessee, could be treated as unexplained investment under section 69B of the Act and taxed under the deeming provisions of section 115BBE, or whether it should be treated as business income assessable under the normal provisions of the Act.

Since the appeals involved identical facts and issues, the Tribunal consolidated the matters and addressed the following key issues:

• Whether the excess stock found during the survey and offered as income by the assessee constitutes unexplained investment under section 69B of the Income Tax Act.
• Whether the provisions of section 115BBE, which apply to unexplained investments or income, are applicable in the present facts.
• Whether the excess stock should be treated as business income, given that it was offered and credited to the profit and loss account by the assessee.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of Section 69B to Excess Stock Found During Survey

Relevant legal framework and precedents: Section 69B of the Income Tax Act deals with unexplained investments and allows the Assessing Officer (AO) to treat such investments as income of the assessee if the assessee fails to explain the nature and source of such investments satisfactorily. Section 115BBE imposes tax at a special rate on such unexplained income. The Tribunal considered judicial precedents, notably the decision of the Hon'ble High Court of Rajasthan in Bajargan Traders, which held that excess stock found during survey, when identifiable as part of regular business stock, should be treated as business income and not as unexplained investment under section 69B. Further, the Mumbai Bench of the Tribunal in Govind Godomal Lulla and the Jodhpur Bench in Shri Lovish Singhal supported the view that excess stock found during business operations and generated out of business income does not attract section 69B or section 115BBE.

Court's interpretation and reasoning: The Tribunal noted that the assessee had offered the amount of Rs. 37,00,000/- as additional income during the course of the survey and credited it to the profit and loss account. The assessee explained the excess stock as stock purchased in anticipation of high demand during marriage seasons, with bills expected to be received later. This explanation was supported by answers given under section 131 of the Act and during assessment proceedings. The Tribunal found no dispute that the amount was offered as business income.

Key evidence and findings: The assessee's statement under section 131, particularly answers to question numbers 10 and 11, clarified that the excess stock was part of regular business operations. The assessee's return of income included this amount as business income. The AO and CIT(A) had treated the amount as unexplained investment and applied section 115BBE, which the Tribunal found to be incorrect.

Application of law to facts: Given the explanation and the manner in which the amount was accounted for, the Tribunal held that the excess stock was not unexplained investment but business income. The deeming provisions of section 69B and the special tax provisions of section 115BBE were thus not applicable.

Treatment of competing arguments: The Revenue relied on the AO and CIT(A) orders confirming the application of section 69B and 115BBE. The assessee argued that the excess stock was explained and accounted for as business income. The Tribunal accepted the assessee's explanation and rejected the Revenue's contention.

Conclusions: The Tribunal concluded that the CIT(A) was not justified in confirming the AO's order treating the excess stock as unexplained investment and taxing it under section 115BBE. The excess stock should be treated as business income assessable under normal provisions.

Issue 2: Applicability of Section 115BBE on the Excess Stock Amount

Relevant legal framework and precedents: Section 115BBE applies to income deemed under sections like 69B, providing for a special tax rate on unexplained income or investments. The precedents cited above also clarified that if the income is explained and offered as business income, section 115BBE does not apply.

Court's interpretation and reasoning: Since the Tribunal held that the excess stock was explained and offered as business income, the deeming provisions under section 115BBE were not attracted.

Key evidence and findings: The inclusion of the excess stock amount in the profit and loss account and return of income as business income was decisive.

Application of law to facts: The Tribunal applied the principle that special provisions like section 115BBE apply only when income is unexplained and not offered under normal heads of income.

Treatment of competing arguments: The Revenue's reliance on section 115BBE was dismissed as the foundational condition of unexplained income was not met.

Conclusions: Section 115BBE was held inapplicable in the present facts.

3. SIGNIFICANT HOLDINGS

The Tribunal held that "the excess stock as found during the course of survey is nothing but business income flowing from assessee's regular business" and that "the investment in excess stock has to be brought to tax under the head 'business income' but not under the head 'income from other sources'."

It was emphasized that "crediting the said additional income to profit and loss account and including in the computation of income clearly demonstrate the assessee offered the same as business income."

The Tribunal set aside the CIT(A)'s order confirming the AO's treatment of the amount as unexplained investment under section 69B and the consequent charging of tax under section 115BBE, allowing the appeals of the assessees.

The core principle established is that excess stock found during survey, when explained as part of regular business stock and offered as business income, cannot be treated as unexplained investment under section 69B, nor taxed under the special provisions of section 115BBE.