TMI Blog2019 (9) TMI 859X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the assessee. We, therefore, find ourselves in agreement with the CIT(Appeals) that the value of surplus stock in the facts and circumstances of the assessee s case did not represent assessee s unexplained investment under section 69 and it constituted its regular business income for the year under consideration. Set off current year s business loss against the income on account of surplus value of stock - HELD THAT:- We also agree with the alternative basis given by the CIT(Appeals) for giving relief to the assessee by holding that the assessee was entitled to set off current year s business loss of ₹ 1,17,55,657/- against the income on account of surplus value of stock even if it is presumed for the sake of argument that the same was assessable under section 69 as the same is duly supported by the decision of the Hon ble Madras High Court in the case of CIT vs.-Chensing Ventures [ 2007 (4) TMI 204 - MADRAS HIGH COURT] and CIT vs.- Shilpa Dyeing Printing Mills (P) Limited [ 2015 (7) TMI 691 - GUJARAT HIGH COURT] The prohibition against allowing such set off was statutorily provided by the Finance Act, 2016 w.e.f. 1st April, 2017 and there was thus no su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essarily fall u/s 69 if a particular amount disclosed in search or survey is not found recorded in books of account on the date of search or survey. 3. In the facts and circumstances of the case, the Ld. CIT(A) has failed to perform his statutory coterminous and coextensive power with that of the Assessing Officer as held in by the Hon'ble Supreme Court in the case of Kanpur Coal Syndicate (Se) 53 ITR 225. 4. In the facts and circumstances of the case, the Ld. CIT(A) erred in law in allowing set off of business loss against the undisclosed income assessable u/s 69 . 2. The assessee in the present case is a Company, which is engaged in the business of manufacturing of leather goods. A search under section 132 was conducted in the case of the assessee on 20.03.2015. Thereafter the return of income for the year under consideration was filed by the assessee-company on 30.09.2015 declaring total income of ₹ 3,52,98,520/-. During the course of search, certain documents were found showing surplus stock of leather amounting to ₹ 4,70,54,450/- and in the statement recorded during the course of search, the Director of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against income assessed u/s 69 of the Act. In the impugned order the AO noted that in the course of search u/s 132 conducted against the appellant on 20/03/2015 documents were found which indicated undervaluation of stock to the extent of ₹ 10.75 crores by two operating companies of the Group namely, Industrial Safety Products Pvt. Ltd and New Horizon Ltd i.e. the assessee herein. In reply to the show cause issued, the assessee stated that the excess stock found on physical verification on 01/03/2015 relating to the assessee was ₹ 4,70,54,450/- and the same was properly accounted in the books for the financial year 2014-15. The excess stock found during physical verification was reflected in the books of accounts and hence there was no question of suppression of any profit made by the company. In this regard attention of the AO was drawn by the assessee to Note No. 34 of the financial statement wherein it was clarified that surplus stock of leather measuring 10,32,002 sq.ft. of ₹ 4,70,54,450/ - was found during the course of physical verification of inventory during the month of January February 2015 was subsequently disclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been duly accounted for in books of accounts. It is further noted from the submissions of the A/R and also from the documents on record that in the month of January/February 2015, the Units-in-charge of the appellant company were instructed to conduct comprehensive physical verification of the inventory held at different manufacturing locations and report the differences, if any and also to identify report quantities of unusable obsolete items. Accordingly stock taking exercise was conducted at different manufacturing locations in February/March 2015 and detailed inventory inspection reports prepared at these locations were forwarded to the Head Office in Kolkata in first week of March 2015. On completing stock taking exercise the instructions were issued to the respective unit heads for incorporating correction entries in the stock records by suitably increasing the physical quantities of the respective inventory items. Accordingly necessary entries in the stock records were passed in the month of March 2015 itself. It is further noted that the search started on 20/03/2015 was temporarily concluded on that date and a prohibitory order u/s 132(3) was placed and thereafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er u/s 143(3) dated 31.03.2016 in the case of Industrial Safety Products Pvt. Ltd, the same AO assessed the sum of ₹ 6,04,95,015/- in relation to excess stock found as part of assessee's regular business income and did not assess it separately u/s 69 of the Act. I therefore find that even though the factual matrix of both the cases was identical, only in the appellant's case such income was assessed u/s 69 of the Act whereas in other case it was considered part of regular income. On these facts therefore I hold that the sum of ₹ 4,70,54,450/- being value of excess inventory found on physical inspection did not represent assessee's unexplained investment u/s 69 but it was part of regular income which was offered to tax by incorporating in the regular books of the assessee. Even otherwise I find that the AO's action of not allowing the set-off of current year's business loss was not in accordance with the provisions of law as were in force in the relevant assessment year 2015-16. A bare perusal of the assessment order shows that the AO per se did not question or dispute the book results of the assessee. Excluding the value of excess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the learned standing counsel appearing for the revenue is also unable to explain or give reasons why the assessee is not entitled to the benefit of section 71 of the Act. The reasons given by the Tribunal are based on valid materials and evidence and the same is in accordance with the provisions of section 71 of the Act. We find no error or legal infirmity in the impugned order . The Gujarat High Court in the case of CIT Vs Shilpa Dyeing Printing Mills (P) Ltd (supra), it was held as follows: Section. 71 permits an assessee to set off loss other than that of capital gains against income from other head. This very issue came up for consideration before the Madras High Court in case of CIT v. Chensing Ventures [2007J 291 ITR 258/163 Taxman 175, wherein it was held that income tax is only one tax and levied on the sum total of the income classified and chargeable under the various heads. Section 14 has classified the different heads of income and income under each head is separately computed. Income which is computed in accordance with law is one income and it is not a collection of distinct tax levied separately on each head of income and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. He also contended that the value of excess stock found during the course of search was assessable to tax in the hands of the assessee under section 69, which falls under the separate chapter and the assessee-company, therefore, was not entitled to set off the business loss of the current year against the said income as rightly held by the Assessing Officer. 5. The ld. Counsel for the assessee, on the other hand, submitted that the search action was commenced on 20.03.2015 and after revoking the Prohibitory Order, the said action was resumed and concluded on 05.05.2015. He submitted that the assessee-company had done the physical verification of stock in the month of January and February, 2015 itself and the surplus stock found on such verification was duly incorporated in the books of account for the year ended 31st March, 2015. He contended that it was thus not a case of unexplained investment found to be made by the assessee in stock during the course of search and what was found during the course of search was only the statement prepared during the month of January and February, 2015 on physical verification showing surplus stock. He contend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view all these facts of the case, we are of the view that the amount in question representing excess stock found on physical verification carried out by the assessee-company on its own well before the search action and duly accounted for in the books of account of the assessee-company constituted its business income. As noted by the ld. CIT(Appeals) in his impugned order, the Assessing Officer himself in the case of M/s. Industrial Safety Products Pvt. Limited, a sister concern of the assessee had brought to tax the value of similar excess stock in identical facts and circumstances as regular business income of the assessee. We, therefore, find ourselves in agreement with the ld. CIT(Appeals) that the value of surplus stock in the facts and circumstances of the assessee s case did not represent assessee s unexplained investment under section 69 and it constituted its regular business income for the year under consideration. We also agree with the alternative basis given by the ld. CIT(Appeals) for giving relief to the assessee by holding that the assessee was entitled to set off current year s business loss of ₹ 1,17,55,657/- against the income on account ..... X X X X Extracts X X X X X X X X Extracts X X X X
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