2024 (1) TMI 380 - AT - Income Tax

Excess gold silver stock in jewelry business deemed regular inventory not unexplained investment under Section 69B

Shri Suresh Ogadram Versus The Dy. Commissioner of Income Tax, Central Circle-3 (3), Chennai

Shri Suresh Ogadram Versus The Dy. Commissioner of Income Tax, Central Circle-3 (3), Chennai - TMI Issues Involved:1. Addition of excess stock as unexplained investment under Section 69B.2. Addition of excess cash as unexplained money under Section 69A.3. Application of Section 115BBE for taxing the excess stock and cash.4. Alleged procedural lapses and violation of principles of natural justice.Summary:1. Addition of Excess Stock as Unexplained Investment under Section 69B:The assessee, engaged in the business of Jewellery and Pawn Broking, was subject to a survey operation under Section 133A, where excess stock of gold and silver was found. The Assessing Officer (AO) added the value of the excess stock (Rs. 1,78,22,940) as unexplained investment under Section 69B, as the assessee failed to provide documentary evidence to substantiate the source of the excess stock. The CIT(A) upheld this addition, referencing the jurisdictional Madras High Court decision in M/s SVS Oil Mills vs. ACIT, which held that excess stock should be assessed as undisclosed income and not as business income.2. Addition of Excess Cash as Unexplained Money under Section 69A:During the survey, excess cash of Rs. 3,38,300 was also found, which the assessee could not explain. The AO added this amount as unexplained money under Section 69A. The CIT(A) confirmed this addition, noting the lack of evidence provided by the assessee to explain the excess cash.3. Application of Section 115BBE for Taxing the Excess Stock and Cash:The AO applied Section 115BBE, which imposes a higher tax rate on unexplained investments and money. The assessee contended that the excess stock was part of the regular business and should be taxed as business income. The Tribunal considered recent decisions, including the Chennai Tribunal's ruling in M/s Overseas Leathers vs. DCIT, which held that excess stock found during a survey should be assessed as business income if it is part of the regular business stock. The Tribunal noted that the excess stock was mixed with regular business stock and not separately identified, thus supporting the assessee's claim that it should be taxed as business income.4. Alleged Procedural Lapses and Violation of Principles of Natural Justice:The assessee argued that the CIT(A) ignored submissions and violated principles of natural justice by not providing a proper opportunity to present the case. The Tribunal did not specifically address these procedural issues but focused on the substantive matter of how the excess stock and cash should be taxed.Conclusion:The Tribunal set aside the orders of the CIT(A) and the AO, ruling that the excess stock of gold and silver found during the survey should be considered part of the regular business stock and taxed as business income, not as unexplained investment under Section 69B. Consequently, the application of Section 115BBE was deemed inappropriate. The appeal of the assessee was allowed.