TMI Blog2023 (11) TMI 925X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, treated as excess stock at the time of survey and consequently surrendered by the assessee and also offered to tax in the return of income then the excess stock cannot be treated as deemed income u/s 69 or 69B of the act in view of the judgment of Bajarang Traders [ 2017 (11) TMI 388 - RAJASTHAN HIGH COURT] and Anoop Neema [ 2022 (1) TMI 683 - ITAT INDORE] . The lower-authorities are not justified to hold excess-stock as something which was not business income and thereby invoke deeming provisions of section 69 or 69B read with section 115BBE. The orders of the authorities below qua this issue is set aside. The assessee succeeds to this extent. Advances for purchase of raw-material - CIT(A) has clearly mentioned that the assessee admitted the advances as unaccounted business income during survey. Then, we also find that acting upon such admission, the assessee has recorded income in books of account and offered in income-tax return. Then in such a situation, we do not find any reason to tinker with the nature of income declared by assessee in the survey, more particularly when the advances are related to and part of business of assessee and the revenue has no ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urrender and disclosed additional income of Rs. 60,04,500/- as Income from Business u/s 28 and paid taxes @ normal rate of tax as applicable to business income. During assessment-proceeding, the AO issued notice dated 02.03.2021 asking the assessee as to why the excess stock, advances and cash should not be treated as deemed income u/s 68 to 69D. In response, the assessee filed reply which is re-produced by AO in Para No. 5 of assessment-order. The assessee submitted that he was engaged only and only in the manufacturing business of footwear and there was no income other than business income available with the assessee which could be assessed u/s 68 to 69D. The assessee also submitted that he has made surrender of income to buy peace of mind and avoid time-consuming litigation and faithfully offered the surrendered income in the return of income honoring his commitment; therefore the department must accept assessee s disclosure and should not saddle him with punishment of higher tax liability at assessment stage. However, although the AO accepted the additional income of Rs. 60,04,500/- as declared by assessee but he treated the same as deemed income u/s 69/69A/69B and thereby ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contains details of Rs. 8,16,000 given by the assessee to various persons as advance. The assessee has not shown the amount of Rs. 8,16,000/- in his books of accounts and also could not explain source of the said amounts given to various person as advance. The assessee has offered the said amount of Rs. 8,16,000/- in his Income Tax Return. In view of the same and in view of the fact that the said amount was accepted by the assessee through his aforesaid statement, and after considering all the facts and circumstances of the case, there remains no ambiguity that the amount of Rs. 8,16,000/- clearly comes under the ambit of unexplained investments as envisaged u/s 69 of the Income Tax Act, 1961. The said amount of Rs. 8,16,000/-is, therefore, considered as the assessee s income u/s 69 and is taxed u/s 115BBE of the Act at the rate of 60% + surcharge + cess. The stand is further supported by the discussions made in the preceding paras. In view of the provisions of section 271AAC of the Act, I am satisfied that the penalty proceedings must be initiated u/s 271AAC in the matter, and hence, the same are hereby initiated. 4. Aggrieved by action of AO, the assessee went in first-app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order, which is not proper. 4. That, the ld. CIT(A) -3, Bhopal erred by confirming the order passed by the ACIT Central Circle, Ujjain (MP) which is without jurisdiction. The ITO, Ward 4.4, Indore, was the jurisdictional AO in the case of the assessee and no notice u/s 127 of the I.T. Act was given to the assessee prior to transfer of the case to the ACIT, Central Circle, Ujjain from ITO, Ward-4(4), Indore. 5. That, the disclosed income of Rs. 60,04,500/- is income from business and the same has been assessed (i) u/s 69 - Cash in hand Rs. 9,35,725/- , (ii) u/s 69B Stock Rs. 42,52,775/-, (iii) u/s 69 - Advance for purchase of Raw Material - Rs. 816000/- and rate of tax has been applied u/s 115BBE of the Act is without material and without basis and is contradictory to the facts of the case. 6. The assessee craves to add, amend, alter and modify all or any of the grounds of appeal. 6. At the time of hearing, both sides did not make any pleading on Ground No. 1 to 4 and Ground No. 6. On perusal of CIT(A) s order, it is found that the assessee contested the issues raised in Ground No. 1 to 4 before CIT(A) also but the CIT(A) has dismissed assessee s claims. Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no physical distinction between the accounted stock or unaccounted stock. No such physical distinction was found by the Revenue either. The assessee has repeatedly claimed that unaccounted business income is invested in stock and there is no amount separately taxable under section 69. The department has ignored this claim of the assessee and sought to tax the difference between book-stock and physical-stock as unaccounted investment under section 69 without considering the claim of the assessee that first the business receipt has to be considered and then investment should be treated as coming out of such unaccounted income. The difference in stock so worked out by the authorities below had no independent identity of its own and it is part and parcel of entire lot of stock. The difference between declared stock in the books and what is physically found would only be a mathematical expression in terms of value and not a separate independent identifiable asset. Therefore, it cannot be said that there is an undisclosed asset existed independently. Once this is so then what is not declared to the department is receipt from business and not any investment as it cannot be co-related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hysical identity being furniture and fixtures, air conditioners etc. They cannot have a direct nexus with business and therefore investment therein has to be considered under section 69 only. Ld. AR submitted that the reliance of CIT(A) on the decision in M/S SVS Oil Mills (supra) is mis-placed. Ld. AR submitted that in that case, the AO, CIT(A) and ITAT, all three authorities, recorded a clear finding that the assessee neither recorded the excess-stock/excess- cash in books of account nor declared in the return of income and based on such finding, the Hon ble High Court was pleased to hold that no substantial question of law arose in assessee s appeal. But, in the present case, the assessee has very much recorded the excess- stock in books of account, credited to Trading A/c and thereby included in the Return of Income. Hence, the decision is clearly distinguishable and not applicable to present case of assessee. (iii) With regard to advances, it is submitted that during survey- proceeding the receipts of advances given by assessee were found which clearly showed that the advances were given for purchase of raw-material of business. Ld. AR further argued that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment with the very first and foremost contention of Ld. AR that the assessee is aged about 72 years, engaged in the business of manufacturing for over 35 years and that was the sole source of income found by authorities. Therefore, it is reasonable to accept that the excess-stock was outcome of suppressed business income over the years. 11. Secondly, it is pertinent to note that during the course of survey what was detected in respect of the stock was that the physical stock found at the business premises of the assessee was excess in comparison to the stock recorded in the books of account. It is not the case of the AO that the excess stock found during the survey was separated from other stock of the assessee but it is one and common nature of stock found during survey except the quantity of the stock on physical verification was found to be excess in comparison to the stock recorded in books of accounts. Thus, there is no separable identifiable stock found during survey then the stock regularly held by assessee in the normal course of business of manufacturing. Once the stock found during survey is part of total stock of business, then the said excess stock cannot be given a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01.04.2017 and are thus not applicable on the case of assessee as the search was carried out on 15.12.2016 observing as follows: Ground No 1 to 5: - Through these grounds of appeal, the appellant has challenged the treating of Rs. 1,41,75,568/- declared during search as unexplained investment u/s 69 r.w.s 115BBE of the Act and not as a business income. During the course of search, valuation of stock was taken by registered valuer and net weight of gold was found at 25,857.490 gms valued at Rs. 5,67,73,734/-, however, the value of gold as per books of accounts of the assessee was at 19,423.678 gms valued at Rs. 4,25,98,165/-. Therefore, a difference in stock of 6433.812 gms was found amounting to Rs. 1,41,75,569/-. Statement of Shri Anoop Nema was recorded on oath on 16.12.2016, wherein, he has accepted value of excess stock of gold as additional income for FY 2016-17 (AY 2017-18). The relevant extract of statement is also scanned on page no 4 5 in the body of assessment order. The AO during the course of assessment proceedings observed that the assessee has declared excess stock as undisclosed income in return of income for AY 2017-18. However, the AO required the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re moving ahead, I find it important to quote relevant provision section 69 of the Income Tax Act which is as under:- 69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year. [emphasis supplied] Any assessee can be held guilty of invoking provisions of section 69 of the Income Tax Act if, (i) where in any financial year, the assessee is found to have made certain investments; (ii) such investments are not recorded in the books of account, if any, maintained by the assessee; (iii) the assessee offers no explanation about the nature and source of such investments; and finally, (iv) even if any explanation is offered by the assessee, such explanation in the opinion of the Assessing Officer is not satisfactory. Conditions (i) and (ii) are mandator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the excess stock is a result of suppression of profit from business over the years and has not been kept identifiable separately but is the part of overall physical stock found, the investment in the excess stock has to be treated as business income. Similar, view has been taken by Hon ble jurisdictional Indore tribunal in the case of M/s Shahnai Shriram Market vs ITO 1(1), Ujjain (ITA No 658/Ind/2014 dated 15.05.2015. (a)(i) It is a settled law that additional income declared on account of excess stock is business income of the assessee. This proposition finds support from the following case laws:- (a) Bajrang Traders Vs. ACIT (Circle)-2, Alwar (ITA No. 137/Jp/17 dated 17.03.2017). In this case, it is held as under:- 2.11 Having said that, the next issue that arises for consideration is 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 food grains, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny other head. Therefore, the Hon ble Coordinate Bench held that where asset in which undeclared investment is sought to be taxed is not clearly identifiable or does not have independent identity but is integral and inseparable (mixed) part of declared asset, falling under a particular head, then the difference should be treated as undeclared business income explaining the investment. In the present case the excess stock was part of the stock. The revenue has not pointed out that the excess stock has any nexus with any other receipts. Therefore, we do not find any fault with the decision of the ld. CIT (A) directing the AO to treat the surrendered amount as excess stock qua the excess stock found. (c) Fashion World Vs. ACIT (Circle)-12, Ahemdabad (ITA No. 1634/Ahd/2016 dated 12.02.2010) In this case, it is held as under:- 12. Thus the important aspect that emerges from the entire discussion is that for invoking deeming provisions under sections 69, 69A, 69B 69C there should be clearly identifiable asset or expenditure. In the present case we find that entire physical stock of Rs.25,14,306/- was part of the same business. Both kind of stock i.e. what is recorded in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly identifiable but is part of mixed lots of stock found at the premises which included declared stock as per books and also the excess stock as computed by the survey officers, the provisions of section 69B cannot be made applicable as primary condition for invoking the provisions of section 69A, 69B is that the asset should be separately identifiable and it should have independent physical existence of its own. Since excess stock is a result of suppression of profit from business other the years and has not been kept identifiable separately but i.e. the part of overall physical stock found, the investment in the excess stock 'has to be treated as business income as per detailed reasons given in the case of Fashion World (supra). Once excess stock is treated as business income then assessee is entitled for higher remuneration to the partners as per section 40(b). As a result, this ground -of assessee is allowed. (e) Shri Lovish Singhal Vs. ITO, Ward-2, Sriganganagar (ITA No. 143/Jodh/2018 dated 25.05.2018) In this case, it is held as under:- I have heard the rival contentions and record perused. I have also carefully gone through the orders of the authorities below ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome into effect from 1st April, 2017. (g) ACIT vs M/s A Star Exports and M/s Asian Star Diamonds International Pvt Ltd (2015) 5 TMI 1312 (ITAT Mumbai) wherein it has been held as under:- 8. We have considered rival contentions, carefully gone through the orders of the authorities below and also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by ld. DR and AR during the course of hearing before us. From the record we found that the assessee a partnership firm is in the business of trading, import, export, manufacturing, wholesale and retail dealing in diamonds, gems and jewellery The main object of the assessee firm is to carrying out the business of import, export, manufacturing, wholesale and retail dealing in diamonds, gems and jewellery. The partnership business was of importers, exporters, manufacturers, processors, investors, wholesalers, distributors, retailers, dealers and indenting agent of diamonds, synthetic stones, gems and jewellery, precious and semi-precious metals and miners and ornaments and article made thereof including jewellery, decorative and precious objects of arts and crafts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at this undisclosed income is generated through unrecorded trading of diamonds. Q.22 Please explain as to how this undisclosed income is generated? Ans: it is through unrecorded trading of diamonds. It is clear from the above facts that the declaration was related to business stock in trade hence it is evident that the declaration amount is required to be assessed under the head' Income from Business or profession. Thus, the undisclosed income of 13,47,63,640/- declared voluntarily by the assessee for A.Y. 2011-12, is undisclosed stock held under the customary trading of the business and hence should be treated as the business income of the assessee firm and not as undisclosed investment as held by the AO. If all the three conditions of Section 69 exist together, the unrecorded investment or value of assets can be deemed to be assessee's income of the relevant financial year. In the present case all three conditions as required under section 69 are not fulfilled because the appellant has offered explanation and nature of source of acquisition as undisclosed stock received from the unaccounted trading of diamond as source of income. The partner of the firm has time a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the return of income then the excess stock cannot be treated as deemed income u/s 69 or 69B of the act in view of the judgment of Hon ble Rajasthan High Court and Coordinate Bench of this Tribunal cited above. In fact, we find from the order of first-appeal that the CIT(A) has himself made following conclusion on Page No. 32 of his order: Further, I have also followed the decisions on which the appellant has placed reliance on the issue involved here in my earlier appellate orders, but the above aspects have not been discussed by me. Therefore, I am bound to deviate from my earlier stand where the contentions of the appellants have been accepted on the basis of certain decisions. In fact, the CIT(A) has tried to justify his changed view against assessee in this particular case but we do not find, on reading of order by Ld. DR during hearing, that there is any valid or cogent reason to deviate from earlier view or from the settled judicial rulings as discussed by us in earlier paragraphs. 13. The above discussion brings us to conclude that the lower-authorities are not justified to hold excess-stock as something which was not business income and thereby invoke deeming ..... X X X X Extracts X X X X X X X X Extracts X X X X
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