Mixed-stock doctrine applied: excess inventory linked to business receipts treated as business income, not unexplained investment.

Whether excess stock found on survey is taxable as unexplained investment or as business income was decided by applying the mixed-stock principle: deeming provisions apply only where the asset is separately identifiable or the assessee fails to satisfactorily explain source. Here the excess stock formed part of mixed business inventory, documentary records and surveyed admissions linked it to business receipts, and the assessee offered it as additional business income; accordingly the amount was treated as business income rather than unexplained investment.

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Issues: Whether the excess stock of Rs. 75,00,770/- discovered during survey and surrendered by the assessee is taxable as unexplained investment under Section 69B read with Section 115BBE of the Income-tax Act, 1961, or is assessable as business income.

Analysis: The excess stock was physically part of the mixed business stock and was not kept separately identifiable; documentary annexures located at the premises related to the assessee's business; the assessee admitted in surveyed statements that the excess stock derived from business receipts and offered the amount as additional business income in the return, with a separate credit entry in profit and loss account. Established legal framework requires that deeming provisions (Sections 69/69B) apply only where the alleged investment or asset is separately identifiable or where the assessee fails to satisfactorily explain the nature and source of the investment; where the excess stock lacks independent physical identity and a nexus with business receipts is shown or credibly explained, such amount is to be treated as business income. Coordinate Tribunal and High Court decisions applying the mixed-stock doctrine and upholding taxation as business income were relied upon and are factually analogous.

Conclusion: The excess stock of Rs. 75,00,770/- is assessable as business income and not as unexplained investment under Section 69B read with Section 115BBE of the Income-tax Act, 1961; decision is in favour of the assessee.

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