2025 (7) TMI 1292 - AT - Income Tax

Addition of business income or u/s. 69B - excess stock found during the survey - HELD THAT - AO has not brought out any cogent material to state that the assessee had income from any other source other than the jewellery business. Hence the decision of the ld.CIT(A) in concluding the excess stock found in the premises of the assessee at the time of survey along with the regular stock held has been rightly brought to tax under the head business income by reversing the AO s action of bringing the excess u/s. 69B of the Act. No reason to interfere in the decision of the ld.CIT(A) to tax the excess stock found as income from business. In view of the above discussion we are dismissing the appeal of the revenue. Old jewellery gold stock which was recorded separately purchased from the customer in cash for less than Rs. 10, 000/- per customer and also the rate of Rs. 2, 800/- per gram adopted for valuation of excess stock found - We note that on the date of survey the assessee had furnished the statement taken from the accounts maintained in tally. However as stated by the assessee before the AO as well as the ld.CIT(A) the old gold purchases which had been recorded in the separate register in tally accounts has not been considered while computing the book stock. The separate ledger Purchase gold ornament customer showing the stock on the date of survey to the tune of 7, 806.05 grams was considered in arriving the book stock of 27, 965.853 which ought to have been increased by 7, 806.05 grams resulting in book stock of 35, 771.903 grams. Therefore the actual excess stock would be 11, 390.212 grams. The AO as well as ld.CIT(A) has simpliciter stated that the computation of book stock as detailed above has been afterthought of the assessee to bring down the excess stock as declared in his return of income without assigning any cogent reasons for rejection. As claimed by the assessee we note that the excess stock of 11, 390.212 has been shown in the GST returns filed for the months of February and March 2018 to bring the excess stock found during the survey to the books of accounts as declared in the return of income. Therefore the excess stock as declared by the assessee in his return of income cannot be said to be afterthought and hence we are inclined to restrict the addition of excess stock to 11, 390.212 grams. Rate per gram adopted by the assessee is Rs. 2, 296/- per gram for arriving the stock of gold jewellery and declared Rs. 2, 61, 51, 927/- as income towards excess stock of gold jewellery. However we note that the AO as well as ld.CIT(A) have considered the rate per gram as Rs. 2, 800/- per gram. During the assessment proceedings the assessee himself has stated that the gold jewellery is valued at Rs. 2, 409/- per gram also as per his letter dated 17.06.2021. In view of the above three rates are given in the peculiar circumstances and to end the litigation we are constrained to adopt the rate of Rs. 2, 409/- per gram of gold jewellery as agreed by the assessee in his letter dated 17.06.2021 and compute the income accordingly.

Summary

ISSUES:

Whether the excess stock of gold and silver jewellery found during survey can be treated as unexplained investment under section 69B of the Income Tax Act or as business income.Whether the valuation of excess stock at Rs. 2,800 per gram of gold jewellery by the Assessing Officer is justified, or the lower rate of Rs. 2,296 per gram adopted by the assessee is appropriate.Whether the purchase of old gold jewellery in cash below Rs. 10,000 per item from customers, reflected in the books of account, should be considered in computing the stock and income.Whether the Assessing Officer erred in making additions without verifying books of accounts, records, and without giving physical hearing.Whether the decision of the Commissioner of Income Tax (Appeals) to treat excess stock as business income and not as unexplained investment under section 69B is legally sustainable.

RULINGS / HOLDINGS:

The excess stock found during survey, after considering the old gold purchases duly reflected in the books and GST returns, is to be treated as business income and not as unexplained investment under section 69B of the Act, as there was no cogent evidence of unaccounted purchases or sales generating the stock.The valuation of gold jewellery stock at Rs. 2,800 per gram adopted by the Assessing Officer and upheld by the CIT(A) is not accepted; instead, the rate of Rs. 2,409 per gram, agreed by the assessee in its letter dated 17.06.2021 and reflecting deductions for impurities and other factors, is appropriate for valuation.The purchase of old gold jewellery in cash below Rs. 10,000 per item from customers, recorded in a separate ledger and reflected in tally accounts available at the time of survey, must be considered in computing the book stock, reducing the excess stock from 19,196.262 grams to 11,390.212 grams.The Assessing Officer erred in making additions without verifying the complete books of accounts, records, and without affording physical hearing, leading to a tailor-made order not based on complete facts.The Commissioner of Income Tax (Appeals) correctly distinguished the precedent relied upon by the Revenue and lawfully treated the excess stock as business income, given the absence of evidence for undisclosed sources; hence, the deletion of addition under section 69B is upheld.

RATIONALE:

The legal framework primarily involves section 69B of the Income Tax Act, which deals with unexplained investments, and principles governing assessment of business income versus unexplained investments.The court applied the principle that unexplained investments must be supported by cogent evidence of unaccounted sources; absence thereof mandates treating excess stock as business income.Valuation principles were guided by the Income Tax Ready Reckoner by V G Mehta and accepted accounting practices, including deductions for impurities, soldering, and varying purity levels of gold jewellery.The decision relied on judicial precedents distinguishing cases where stock additions were made without corresponding credits in books of accounts, emphasizing the necessity of documentary evidence for unaccounted income claims.The tribunal noted the procedural impropriety by the Assessing Officer in not verifying complete records or conducting physical hearings, underscoring the requirement of natural justice in assessment proceedings.