Excess stock and advances treated as business income, not deemed income under sections 69/69B, but excess cash upheld under section 69A

ITAT Indore partially allowed the appeal regarding deemed income provisions under sections 69/69A/69B read with section 115BBE. The assessee, a 72-year-old footwear manufacturer, surrendered additional income during survey comprising excess stock, advances, and cash. The tribunal held that excess stock and advances for raw materials constituted business income taxable at normal rates, not deemed income under sections 69/69B, as they were part of the assessee's manufacturing business operations. However, excess cash found at business premises was upheld as deemed income under section 69A attracting higher tax rates under section 115BBE, since the assessee failed to prove it represented business income.

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Issues Involved:
1. Jurisdiction and procedural issues.
2. Classification and tax treatment of surrendered income (excess stock, advances, and excess cash).

Summary:

1. Jurisdiction and Procedural Issues:
The assessee raised several jurisdictional and procedural grounds, including the legality of the order passed without jurisdiction, the absence of notice u/s 143(2), and improper transfer of the case without notice u/s 127. However, both sides did not make any pleading on these grounds during the hearing, and the Tribunal dismissed these grounds as not pressed or pleaded.

2. Classification and Tax Treatment of Surrendered Income:

Excess Stock:
The Tribunal agreed with the assessee's contention that the excess stock found during the survey was part of the total stock of the business and not separately identifiable. The Tribunal cited various judicial rulings, including the Hon'ble Rajasthan High Court in Pr. CIT vs. Bajarang Traders and ITAT Ahmedabad in M/s Fashion World Vs. ACIT, which held that excess stock found during the survey should be treated as business income and not as deemed income u/s 69 or 69B. The Tribunal concluded that the lower authorities were not justified in treating the excess stock as deemed income and invoking section 69 or 69B read with section 115BBE. The assessee succeeded on this issue.

Advances:
The Tribunal found that the advances given by the assessee for the purchase of raw materials were part of the business and were recorded in the books of account and offered in the income-tax return. The Tribunal held that there was no justification for the lower authorities to invoke section 69 read with section 115BBE for these advances. The assessee succeeded on this issue as well.

Excess Cash:
The Tribunal held that the excess cash found during the survey could not be conclusively linked to the business income of the assessee. The Tribunal upheld the lower authorities' decision to treat the excess cash as deemed income u/s 69A and apply the higher rate of tax u/s 115BBE, relying on the decision of ITAT Indore in Shyam Lal Goyal. The assessee failed on this issue.

Conclusion:
The appeal was partly allowed, with the Tribunal setting aside the lower authorities' orders regarding excess stock and advances but upholding the treatment of excess cash as deemed income.

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