TaxTMI 
TaxTMI 
2020 (12) TMI 15
X X X X Extracts X X X X
X X X X Extracts X X X X
....oss which was declared in the original return. Subsequently, the Assessing Officer (AO) has taken up the case for scrutiny and notices were issued u/s 143(2) and 142(1) and assessment was completed on total income of Rs. 7,95,21,933/-. The AO estimated the income @2.15% on total turnover of Rs. 85,19,30,587/- and arrived at the net profit of Rs. 1,82,75,649/-. Further the AO made the addition of Rs. 6,12,46,284/- as excess stock declared during the course of search. Thus, the AO computed the total income as under : Income computed and accepted by the assessee's net profit @2.15% on G.T. of Rs. 85,19,30,587/- : Rs. 1,82,75,649 Add : undisclosed income declared during the course of search (on account of excess stock) : Rs. 6,12,46,284 Assessed Income : Rs. 7,95,21,933 The entire income was taxed at normal rates i.e @30% by the AO. Subsequently, the Pr.CIT(Central), Visakhapatnam has taken up the case for revision u/s 263 and found that the AO has taxed the stock of Rs. 6,12,46.284/- @30% instead of 60% in contravention of provisions of section 115BBE of the Act. Subsequently, Pr.CIT (Central), Visakhapatnam has called for the records and examined the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... taxed @ 60% as per sec 115BBE, it will have to be examined as to how much amount is to be taxed under the said section. Though as per the notice it was intended to bring entire amount of undisclosed income i.e. Rs. 6,12,46,184/- to be brought to tax @ 60%; on perusal of facts it is observed that an amount of Rs. 86,66,619/-being excess claim of purification loss is in the nature of business income and hence the same was correctly taxed at 30% by the assessing officer. 8.7. As regards to the excess stock the facts are perused. There is overall deficit in stock of gold and silver when the total of all branches is taken into consideration. It is presumed that there can be inter-branch transfers /adjustments which are reasonably to be considered. Therefore, it is held that in the assessee's case there is no excess stock in gold and silver. Therefore, the excess stock of diamonds amounting to Rs. 4,93,39,000/- only is considered as unexplained investments in the stock of diamonds, which is liable for taxation u/s.115BBE. Giving further benefit of doubt it is judicially assumed that an amount of Rs. 3,13,972/- (4,02,724 being deficit stock at two branches minus 87,752 being....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cribed for such type of income. Since the twin conditions are satisfied, by virtue of powers vested u/s 263, I hereby direct the assessing officer to tax the Income of Rs. 4,91,13,985/- @ 60% in accordance with the provisions of sec 115 BBE." Accordingly, the Pr.CIT held that the order passed by the AO is erroneous and prejudicial to the interest of the revenue, hence directed the AO to tax the excess stock of Rs. 4,91,13,985/- @60% instead of 30% by the AO. 3. Against which the assessee is in appeal before this Tribunal. During the appeal hearing, the Ld.AR argued that excess stock found during the course of search is business income as held by various High Courts. He further argued that the amount of Rs. 4,91,13,985/- was admitted as additional income under the head profits and gains of the business in Part A of the return filed in the relevant assessment year. The assessee has relied on various decisions of Tribunal to hold that excess stock is part of business income because it is an accumulation of stock over the period of time. He relied on the decisions cited supra and argued that the excess stock admitted by the assessee required to be assessed as business income, hen....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Act. Once the excess stock required to be assessed as unexplained investment u/s 69 of the Act, it is mandatory on the part of the AO to apply section 115BBE of the Act. Since the AO has applied the normal rates the assessment made by the AO u/s 143(3) dated 28.12.2018 is erroneous and prejudicial to the interest of revenue, hence, argued that the Ld.Pr.CIT has rightly taken up the case for revision u/s 263 and therefore, requested to uphold the order of the Ld.Pr.CIT and dismiss the appeal of the assessee. 5. We have heard both the parties and perused the material placed on record. Search u/s 132 was conducted in the assessee's case and subsequently notice u/s 142(1) was issued by the AO and in response to the notice issued u/s 142(1), the assessee filed the return of income declaring loss of Rs. 9,43,92,456/-. The AO estimated the income @2.15% on total turnover of Rs. 85,19,30,587/- and arrived at the net profit of Rs. 1,82,75,649/-. Further the AO made the addition of Rs. 6,12,46,284/- as excess stock declared during the course of search. In the return of income the assessee has admitted the income under the head 'profits and gains of the business or profession'. The AO....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,11,59,592 as undisclosed business income. However, it is stated in the notice under section 142(1) that such unaccounted income is assessable under section 69 and liable for tax under section I15BBE and no set off of losses permitted and asked our objections if any in this regard. In this regard we submit that that the excess stock found during the search operation is not separately and clearly identifiable but is part of mixed lots of stock found at the premises which included declared stock as per books and also the excess stock as computed by the Authorized Officers during the search operation at the premise. Since excess stock is a result of suppression of profit from business over the years and has not been kept identifiable separately but is the part of overall physical stock found, the provisions of section 69 cannot be made applicable as primary condition for invoking the provisions of the section is that the asset should be separately identifiable and it should have independent physical existence of its own., Since excess stock is result of suppression of profit from business over the years and has not been kept identifiable separately but i.e. the part of overall physica....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me. It is an undisputed fact from the record that at the time of survey excess stock was found. It is also not disputed that we are engaged in the business of jewellery. In view of our submissions acceptance of excess stocks as undeclared income is to be treated at only business income and provisions of section 69 and 115BBE are not applicable in our case. In this regard we bring the following judicial pronouncements supporting our above claim a) Chokshi Hiralal Maganlal Vs DCIT, ITA No.3281/Ahd/2009; b) CIT V Ms Sanjay Bairathi Gems Ltd, ITA No.157/JP/17; c) Cy. CIT v. Ram Narayan BirIa, 2017 TaxPub(DT) 4439 (Jp-Trib) d) M/s Kim Pharma (P) Ltd. Vs CIT, ITA No. 106 of 2011 (P&H); CIT another v. S.K. Srigiri and Bros. [2008] 298 ITR 13 (Karn). 5.1. From the explanation offered by the assessee, we observe that two views are possible with regard to excess stock found during the course of search in the premises of the assessee. According to the decisions relied upon by the assessee, the same forms part of business income and the same cannot be assessed u/s 69 or 69A of the Act. Since two views are possible on assessment of excess stock as business income as well as unexplained inves....