Unexplained Investment under section 69: survey-based excess additions are unsustainable; retain amount consistent with audited accounts.

Where a survey-based stock computation produced a higher unexplained investment figure, the article explains that the reconciled closing stock shown in audited accounts and the return controls; the legal principle applied is that unexplained investment under section 69 must reflect reconciled trading-account figures rather than an unreconciled survey valuation, and an addition exceeding the audited-return-based difference is unsustainable. Operative effect: retain only the unexplained investment amount consistent with audited accounts and the return, and disallow the excess survey-based addition.

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Issues: Whether the addition of Rs. 5,469,543 as unexplained investment under section 69 of the Income-tax Act, 1961, based on difference between physical stock and book stock found during survey, is sustainable or whether only Rs. 1,946,342 (already offered in the return) can be treated as addition.

Analysis: The issue requires comparison of stock valuation arrived at by the survey party with the closing stock as per audited accounts filed subsequently in the return for the relevant year. The survey party's working of closing stock (using opening stock as on 1 April 2016, purchases and sales up to the survey date) produced a closing stock figure which, when compared with physical inventory, generated an alleged unexplained investment of Rs. 5,469,543. However, audited accounts and the return filed for the relevant year record a closing stock of Rs. 9,019,955 and the trading account computation based on those audited figures yields a difference on the date of survey of Rs. 1,946,342. The assessing officer had computed income starting from the return filed under section 139(1) and the amount of Rs. 1,946,342 had been included in the return, although the return was held invalid for some purposes. The assessing officer nevertheless proceeded to make additional addition of Rs. 5,469,543 without reconciling the audited closing stock and the trading account computation based on the audited figures.

Conclusion: The addition of Rs. 5,469,543 is not sustainable; only Rs. 1,946,342 (the amount reflected in the return/audited accounts and already offered) may be retained as unexplained investment under section 69 of the Income-tax Act, 1961. The appeal is partly allowed to that extent.

Ratio Decidendi: Where audited annual accounts and the return filed for the relevant year establish a reconciled closing stock figure that has been included in the assessing officer's computation, an additional unexplained investment based on survey valuation exceeding that reconciled amount cannot be sustained under section 69 of the Income-tax Act, 1961.

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