2022 (7) TMI 536 - AT - Income Tax

Tribunal allows appeal, deletes addition, treats discrepancies as regular business, income as business income.

M/s C.M. Jewellers Versus The DCIT, Central Circle-II Chandigarh

M/s C.M. Jewellers Versus The DCIT, Central Circle-II Chandigarh - TMI Issues Involved:1. Confirmation of addition by CIT(A) of Rs. 8,60,778/- on account of excess stock of jewelry found during survey.2. Application of Section 69A instead of treating it as Income from Business.3. Application of tax rate under Section 115BBE.4. Non-consideration of discrepancies of stock against Income offered under PMGKY.Detailed Analysis:1. Confirmation of Addition by CIT(A) of Rs. 8,60,778/- on Account of Excess Stock of Jewelry Found During Survey:The assessee, a partnership firm, was subjected to a search and seizure operation as well as a survey operation under sections 132(1) and 133A of the Income Tax Act on 21.03.2017. During the survey, excess silver stock of 24.104 Kg was found, which was not recorded in the books of accounts. The assessee contended that this discrepancy was covered under a disclosure of Rs. 3 Crores made under the Pradhan Mantri Garib Kalyan Yojana (PMGKY). The Assessing Officer (AO) rejected this explanation and made an addition of Rs. 8,60,778/- under Section 69A of the Income Tax Act, which was confirmed by the CIT(A).2. Application of Section 69A Instead of Treating it as Income from Business:The assessee argued that the excess silver stock was a trading item and should be treated as business income rather than unexplained income under Section 69A. The AO and CIT(A) did not accept this argument, maintaining that the unexplained stock should be treated as unexplained money under Section 69A or as an unexplained investment under Section 69B.3. Application of Tax Rate Under Section 115BBE:The AO applied the tax rate under Section 115BBE, which pertains to tax on income referred to in Sections 68, 69, 69A, 69B, 69C, and 69D. The assessee contested this application, arguing that the income should be treated as business income and not under Section 69A.4. Non-Consideration of Discrepancies of Stock Against Income Offered Under PMGKY:The assessee had made a disclosure of Rs. 3 Crores under PMGKY to cover discrepancies found during the survey, which included the excess silver stock. The AO and CIT(A) did not consider this disclosure while making the addition. The assessee argued that the PMGKY scheme allowed for the declaration of undisclosed income for assessment years up to 2017-18 and that the discrepancies, including the excess silver stock, were covered under this scheme.Tribunal's Findings:The Tribunal found that the AO incorrectly invoked Section 69A and that the CIT(A) was not justified in sustaining the addition. The Tribunal noted that the discrepancies in the silver stock were in the regular course of the assessee's business. The Tribunal also considered the PMGKY scheme and the Circulars No. 2/2017 and 9/2017, which clarified the scheme. The Tribunal concluded that the addition could not be sustained as the discrepancies were covered under the PMGKY disclosure.Conclusion:The Tribunal allowed the appeal of the assessee and directed the deletion of the addition of Rs. 8,60,778/-. The Tribunal emphasized that the discrepancies in the silver stock were part of the regular business and were covered under the PMGKY scheme. The addition under Section 69A was deemed incorrect, and the income was to be treated as business income. The order was pronounced on 23rd June 2022.