2024 (5) TMI 697 - AT - Income Tax

Determine the head of income - survey u/s 133A - difference in stock as offered to tax by the assessee in statement recorded during survey - Business Income Or Unexplained investment - as per DR excess sock was an investment which was not fully explained therefore the aforesaid income was to be assessed u/s 69B which would be subjected to special higher rate of tax u/s 115BBE - HELD THAT - AO has disturbed the closing stock of earlier year or opening stock of this year by adopting GP rate of 7% on sales. The computation of differential in stock is based on mathematical formula only. However no discrepancy in the physical stock vis- -vis book quantities has been noted by Ld. AO. The assessee has merely accepted the computations made by AO and voluntarily agreed to increase the closing stock of earlier years by way of credit to Profit Loss Account. All the sales and purchase as per admission have taken place through bank transfers only. Unless discrepancy is pointed out in the physical quantities no case of unexplained investment in our considered opinion could be made out against the assessee. As undisputed fact that the assessee is assessed to tax for past several years and its only source of income is Business income only. In such a case whatever discrepancies are noted the same would be part and parcel of business operations and could be considered to be Business income only and not from any other sources. It could very well be said that entire stock was accumulated out of income from business and the undisclosed business income if any was ploughed back into business to acquire further stock. In such a case the excess stock could be said to have arisen out of normal business activity only and therefore the same would be assessable as business income only in terms of decision of Chennai Tribunal in M/s Mookambika Impex 2023 (7) TMI 1159 - ITAT CHENNAI We would hold that the impugned additions have to be assessed as Business Income only . The provisions of Sec.69B r.w.s. 115BBE would have no application. AO is directed to recompute the tax payable by the assessee. Assessee appeal allowed.

Summary

Issues Involved:
1. Determination of the head of income under which the impugned additions would be assessable.
2. Application of Section 69B and Section 115BBE of the Income Tax Act.

Summary:

Issue 1: Determination of the Head of Income

The assessee, a rice mill, was subjected to a survey u/s 133A on 27-02-2018, revealing a discrepancy between the physical stock valued at Rs. 607.86 Lacs and the book stock valued at Rs. 321.55 Lacs. The difference of Rs. 286.31 Lacs was offered to tax by the assessee as 'Business Income'. The assessee argued that the excess stock was part of the regular business operations and should be assessed under 'Business Income'. The Tribunal noted that the entire stock was accumulated from the business income and any discrepancies should be considered part of the business operations. It was held that the impugned additions should be assessed as 'Business Income' and not under any other head.

Issue 2: Application of Section 69B and Section 115BBE

The Ld. AO treated the excess stock as unexplained investment u/s 69B, subjecting it to a higher tax rate u/s 115BBE. The assessee contended that the stock was a current asset and not an investment, and thus, Section 69B was not applicable. The Tribunal observed that the stock was part of the business operations and not an unexplained investment. It was held that the provisions of Section 69B and Section 115BBE were not applicable in this case. The Tribunal directed the Ld. AO to recompute the tax payable by the assessee under the head 'Business Income'.

Conclusion:

The appeal was allowed, and the additions were directed to be assessed as 'Business Income' only, with no application of Section 69B r.w.s. 115BBE. The Ld. AO was instructed to recompute the tax payable accordingly.