Urgent Solution required- Excess Stock found during Survey

[Prakash Bhandari]

Income Tax Survey u/s 133A was carried out at the Business premises of our Assessee during the AY 2009-10. Excess stock to the tune of Rs. 50 Lakhs was found during the Survey, which the assessee declared and due taxes were paid. IT Return was also filed which reflects Net Taxable Income i.e. Normal profit + Income declared towards excess stock Rs.50 Lakh.

Assessee passed the entry in the books of account for excess stock on the date of Survey. He debited Excess Stock (and incrased stock with that amount, no quantity details are maintained-Business of Wood) and credited Income Declared Towards Excess Stock A/c which is transferred to Profit and Loss on credit side for FY 2008-09, During the scrutniy for AY 2009-10. Jt Com of IT cited ITAT judgement,  Income-Tax Officer. Versus Smt. Sundari Chimandas (2008 -TMI - 68947 - ITAT MADRAS , Other Citation: ITR-SUPP 309, 278) . He says though the assessee has not shown purchases and there are unexplained expenditures towards purchases, that is why excess stock came into existence. He says besides Rs.50 Lakh declared towards Excess stock, he will be making further addition of Rs. 50 Lakh as the assess has increased the stock, which he will showing/ has shown as opening stock in the next period, which as per Section 69C is not an allowable expenditure. Above case of Sundari Chimandas he cites for his action. The said case I presume was not argued properly, which results in taxing the income twice. Also in this case assessee expressly shown purchases in Trading A/c, however the whole amount as declared was brought to Tax. I have searched plethora of judgements and nowhere I could found such case as that of Sundari Chimandas. Even the IT departments own survey manual says that Excess Stock found is an Investment. While our AO says it is unexplained expenditure or say he wants to tax the declared amount of both count i.e as unexplained investment on one hand and also as unexplained expenditure u/s 69C.

Urgent opinions are needed

CA. P C Bhandari-Akola (MS)

[DEV KUMAR KOTHARI]

 2008 - TMI - 68947 - ITAT MADRAS

Income-Tax Officer. Versus Smt. Sundari Chimandas

 

[ranganath shenoy]

What is their regular method of purchase.Is it cash purchase or credit purchase ,where payment is made after realisation of sales.

AI Summary

Treatment of excess stock as unexplained investment or expenditure risks double taxation of declared stock. The assessee declared excess stock discovered in a survey, recorded a corresponding book entry and included the amount in taxable income. The assessing officer proposes a further addition treating the same amount as unexplained investment or unexplained expenditure when shown as opening stock in the next year, relying on a tribunal decision to justify taxing the amount again. The core issue is whether a taxed declaration of excess stock can be revisited as an unexplained item on subsequent reopening and thereby subjected to double treatment.