2023 (7) TMI 1456 - AT - Income Tax

Surrendered income from unaccounted stock taxable as business income under normal provisions, not section 115BBE

ITAT Jaipur allowed the appeal, quashing the AO's rectification order u/s 154 that sought to tax surrendered income from unaccounted stock at 30% u/s ... Validity of Rectification u/s 154 - unaccounted stock found during survey - income surrendered should be charged to tax @ 30% u/s 115BBE - whether rectification sought by the appellant is not the rectification of a ‘’mistake apparent from the records’’ ? HELD THAT:- CIT(A) while reaching to the conclusion held that such rectification do not come under the purview of Section 154. It is also noted that the ld.CIT(A) also mentioned in his order that rectification sought by the assessee is not the rectification of mistake within the confines of the provision of Section 154 of the Act whereas factually no rectification application was filed by the assesee rather it was AO’s rectification u/s 154. It is worthwhile to mention that the ld. CIT(A) misinterpreted the facts and dismissed the appeal of the assessee, however, the facts still remain that the assessee had offered the income with regard to stock difference by considering it as business income and the AO also accepted the same. Even otherwise, there was no finding in the order of the assessment that income so surrendered has been determined as income referred to in Sec. 68, Sec. 69, Sec. 69A, Sec. 69B, Sec. 69C or Sec. 69D. Therefore, while drawing the strength from the decision of Shri Hari Narain Gattani [2020 (10) TMI 559 - ITAT JAIPUR] wherein income surrendered by the assesee was taxed u/s 115BBE of the Act @ 60% by passing order u/s 154 of the Act but the same was quashed by the ITAT. Thus we are of the view that the unaccounted stock found during survey is related to business and thus assessable as business income under the normal provisions of the Act. Therefore, the order passed by the AO u/s 154 is quashed and thus the appeal of the assessee is allowed. Issues Involved:1. Whether the rectification sought by the AO under Section 154 of the I.T. Act, 1961 is valid.2. Whether the excess stock of Rs. 36,96,223/- should be taxed under normal provisions as business income or under Section 115BBE of the I.T. Act, 1961.Issue-wise Detailed Analysis:1. Validity of Rectification under Section 154:The assessee contended that the rectification sought by the AO under Section 154 was not valid as it did not pertain to a 'mistake apparent from the records.' The CIT(A) dismissed the appeal, holding that the rectification did not fall within the confines of Section 154. However, it was noted that the rectification was initiated by the AO, not the assessee. The ITAT observed that the CIT(A) misinterpreted the facts, as no rectification application was filed by the assessee. The rectification by the AO was not justified as it did not involve an obvious and patent mistake, but rather a debatable point of law, which is not covered under Section 154.2. Taxation of Excess Stock:The assessee, a proprietor of M/s Hardik Jewellers, offered the excess stock of Rs. 36,96,223/- as business income and paid tax under the normal provisions of the Act. The AO, in the rectification order under Section 154, taxed this amount under Section 115BBE at 30%. The ITAT referred to the case of Hari Narain Gattani vs. DCIT, where it was held that surrendered income during the search should be taxed as business income under normal provisions if not specifically determined as income under Sections 68, 69, 69A, 69B, 69C, or 69D. The ITAT found that the AO had accepted the income as business income initially and there was no finding that the surrendered income was determined under the mentioned sections.The ITAT also considered several precedents:- PCIT vs. Deccan Jewellers Pvt. Ltd.: Excess stock found during search was assessed as business income, not as undisclosed investment under Section 69.- PCIT vs. Bajargan Traders: Excess stock of rice found during survey was taxed as business income since it was related to regular business stock.- DCIT vs. Sh. Ram Narayan Birla: Excess stock was assessed as part of normal stock and taxed under business income.- ACIT vs. Mangaldeep: Unaccounted stock found during survey was related to business and assessed under business income, not under Section 69A.The ITAT concluded that the excess stock was rightly taxed as business income under normal provisions and not under Section 115BBE. The rectification order by the AO under Section 154 was quashed, and the appeal of the assessee was allowed.Conclusion:The appeal was allowed, holding that the rectification by the AO under Section 154 was not valid and the excess stock should be taxed as business income under normal provisions, not under Section 115BBE.