2019 (5) TMI 1392 - HC - Income Tax

Sections 69B and 69C: Additions upheld for unexplained investments and excess stock; no deduction for post-facto invoices

MADRAS HC upheld additions under provisions dealing with unexplained investments/stock (69B/69C), holding that erroneously mentioning a wrong section does ... Addition u/s 69C - excess stock found during the Survey - unexplained Expenditure OR investments - mentioning of wrong section - 69B OR 69C - HELD THAT:- We are of the clear opinion that mentioning of wrong section would not upset the Additions made by the Assessing Authorities below in the present case. All these 5 provisions enumerated above have been enacted with a view to bring to tax the unexplained debit balances in the Balance Sheet of the Assessee either in the form of Unexplained Investments, Expenses or Stocks, etc., or unexplained Assets, Money, Bullion, Jewellery, etc., and therefore, such unexplained investments and expenses intended to be brought to tax as Undisclosed Income, these provisions are not only clearly worded but also indicated to plug the loopholes and check the menace of black money. Likewise, unexplained credits in the Balance Sheet are also brought to tax u/s 68. Addition u/s 69C - allowing deduction of purchases corresponding to the alleged excess stock found during the Survey - HELD THAT:- Contention raised by the Assessee has essentially emanated from a misconception that the Additions made u/s 69B/69C have to be reduced to some extent by giving leverage to the Assessee to claim some deductions from these Additions as well. If the contention of the learned counsel for the Assessee was to be accepted viz., by allowing the purchases corresponding to the alleged excess stock, the Assessee will have to now record verifiable purchases in his Books of Accounts and for that he will have valid purchase Invoices from genuine and existing Sellers which is not possible. When the excess stocks were found during the Survey, there is no question of allowing the Assessee to record any additional purchases because such purchases had already been recorded in the books of accounts of the Assessee. Therefore, the excess stock, per se, has to be naturally brought to tax as 'undisclosed income' by itself and there is no question of any corresponding deduction from that in such cases. Tribunal as well as the Authorities below were justified in bringing to tax the Undisclosed Income u/s 69B/69C and such findings of fact do not give rise to any substantial question of law. The order passed by the learned Income Tax Appellate Tribunal, Ahmedabad Bench [2018 (10) TMI 292 - ITAT AHMEDABAD] does not enure to the benefit of the arguments advanced by the learned Senior Counsel as there also Tribunal has rightly held that the value of excess stock of ₹ 58,02,095/- should suffer tax and by inclusion of those Stocks in the value of Closing Stock the Assessee has recognised income over and above recorded in its Books of Accounts. Such Additions of the excess Stocks declared by the Assessee during the course of search in the closing stock does not amount to double taxation as contended. Mere remand of the case by the Ahmedabad Bench of Income Tax Appellate Tribunal to the Assessing Authority for verifying the figures, does not lay down any principle as contended by the learned Senior Counsel for the Assessee. Issues Involved:1. Justification for separate addition of excess stock under Section 69B/69C.2. Avoidance of double taxation concerning the addition of excess stock.3. Legitimacy of the Appellate Tribunal's decision to sustain the addition of stock.Detailed Analysis:1. Justification for Separate Addition of Excess Stock under Section 69B/69C:The Assessee challenged the addition of Rs. 2,50,31,815/- as excess stock found during a survey, arguing that this was already included in the stock register and reported sales. However, the Tribunal found that the excess stock was not accounted for in the financial books, indicating it came from an undisclosed source. The Tribunal stated, 'Stock cannot come in from vacuum. When stock is introduced in the stock register, there has to be a corresponding entry in the financial books of accounts.' The Tribunal upheld the addition as undisclosed income under Section 69C, noting that the Assessee failed to explain the source of the excess stock.2. Avoidance of Double Taxation Concerning the Addition of Excess Stock:The Assessee argued that the addition of excess stock resulted in double taxation because the value of the excess stock was already included in the closing stock and taxed. The Tribunal rejected this argument, stating that the Assessee did not provide evidence of corresponding entries in the financial books. The Tribunal emphasized that 'the addition of stock made by it, in its stock register, can only be considered as made out of undisclosed source.' The Tribunal referenced the case of Ambuja Ginning Pressing & Oil Co. P. Ltd., where the excess stock should suffer tax unless already included in the closing stock without corresponding expenses debited. The Tribunal concluded that no double taxation occurred as the excess stock was not properly accounted for in the books.3. Legitimacy of the Appellate Tribunal's Decision to Sustain the Addition of Stock:The Tribunal's decision to sustain the addition of stock was based on the Assessee's admission during the survey and the lack of corresponding entries in the financial books. The Tribunal found that 'the finding of facts of all the three Authorities concurrently rendered against the Assessee in the present case cannot be held to be perverse or wrong in any manner.' The Tribunal noted that Section 69B, which deals with unexplained investments, was more appropriate for the addition but upheld the addition under Section 69C nonetheless. The Tribunal clarified that the provisions aim to tax unexplained investments or expenses as undisclosed income without deductions for corresponding purchases, as such purchases would require verifiable invoices from genuine sellers, which the Assessee did not provide.Conclusion:The Tribunal upheld the addition of Rs. 2,50,31,815/- as undisclosed income under Section 69C, rejecting the Assessee's arguments of double taxation and improper accounting. The Tribunal emphasized that unexplained investments or expenses must be taxed as undisclosed income without deductions for corresponding purchases. The appeal was dismissed, affirming the decisions of the lower authorities.