TaxTMI 
TaxTMI 
2023 (7) TMI 1456
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....IT(A), NFAC has erred on facts and in law in not appreciating that the excess stock of Rs.36,96,223/- offered for tax is correctly assessed by AO as business income taxable under normal provision of the Act and not u/s 115BBE for which AO passed the order u/s 154 of the Act. 2.1 Brief facts of the case are that the assessee is proprietor of M/s Hardik Jewellers engaged in trading of gold, silver & diamond jewellery. A survey u/s 133A of the Act was conducted at the business premises of assessee on 10.10.2014 where the value of physical stock was determined at Rs.1,82,97,343/- as against book stock of Rs.1,46,00,235/-. After considering the purchases yet to be recorded of Rs.11.00 lacs, the excess stock was determined at Rs.23,97,108/- against which assessee offered Rs.25 lacs for tax. Further on the basis of some loose slips, the assessee offered Rs.10,28,700/-. Thus the total income offered for tax is Rs.35,28,700/-. However, in the return of income assessee offered income of Rs.36,96,223/- (1,82,97,343 minus 1,46,00,235-885 cash shortage) by debiting the purchase account and crediting indirect income in the P&L A/c. It is noted that the AO framed the assessment order u/s 143(3....
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....d the surrendered income as current year's business income. In the assessment completed u/s 143(3), AO charged the tax and interest at normal rates of tax for individual. There is nothing stated either in the pre-amended or post-amended provisions of sec. 115BBE that where the assessee surrenders undisclosed income during the search action for the relevant year, the tax rate has to be charged as per provision of sec. 115BBE. In the assessment order passed u/s 143(3), there is no finding by the AO that the income so surrendered has been determined as income referred to in sec. 68, sec. 69, sec. 69A, sec. 69B, sec. 69C or sec. 69D. Secondly, in the computation of tax liability, the tax liability on the undisclosed income has been determined as per slab rate of taxation applicable to an individual and not @ 30% as specified in sec. 115BBE. Thus, none of the aforesaid provisions referred in sec. 115BBE has been invoked by AO during the assessment proceedings and therefore, the contention of the revenue that during the assessment proceedings the tax rate has been charged @ 30% on surrendered income u/s 115BBE is not factually correct. Hence, the action of AO in increasing the rate o....
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....undisclosed sources. In the annual accounts, the purchases of Rs.70,04,814/- were finally reflected as part of total purchases amounting to Rs.33,47,19,658/- in the profit and loss account and the same also found included as part of the closing stock amounting to Rs.1,94,42,569/- in the profit/loss account since the said stock of rice was not sold out. In addition to the purchase and the closing stock, the amount of Rs.70,04,814/- also found credited in the profit and loss account as income from undisclosed sources. The net effect of this double entry accounting treatment is that firstly the unrecorded stock of rice has been brought on the books and now forms part of the recorded stock which can be subsequently sold out and the profit/loss therefrom would be subject to tax as any other normal business transaction. Secondly, the unrecorded investment which has gone in purchase of such unrecorded stock of rice has been recorded in the books of accounts and offered to tax by crediting the said amount in the profit and loss account. Had this investment been made out of known source, there was no necessity for assessee to credit the profit/loss account and offer the same to tax. Accordi....
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....y of such investment/expenditure then first what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure it should be considered to be taxed under section 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. Therefore, the first attempt of the assessing authority should be to find out link of undeclared investment/expenditure with the known head, give opportunity to the assessee to establish nexus and if it is satisfactorily established then first such investment should be considered as undeclared receipt under that particular head. It is observed that there is no conflict with the decision of Hon'ble Gujarat High Court in the case of Fakir Mohd. HajiHasan (supra) where investment in an asset or expenditure is not identifiable and no nexus was established then with any head of income and thus was not available for set off against any loss under any other head. Therefore, the Hon'ble Coordinate Ben....
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....s determined at Rs.23,97,108/- against which assessee offered Rs.25.00 lacs for tax. Further on the basis of loose slips, the assessee offered Rs.10,28,700/-. Thus the total income offered for tax is Rs.35,28,700/-. In the return, the assessee offered business income of Rs.36,96,223/- on account of stock difference and even in reply to Question No. 15 and statement made on 11-10-2014 which is at PB Pages 16-17, the assessee has explained the reason for the same but still offered the same for tax as business income and paid tax on it under the normal provisions of the Act. The AO in the order passed u/s 154 of the Act has held the same to be taxable u/s 115BBE of the Act. It is noted that ld. 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 of the Act. It is worthwhile to mention that the ld. CIT(A) misint....
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.... business income under the normal provisions of the Act. In this regard, we take into consideration the following decisions relied upon by the ld. AR of the assessee. PCIT Vs. Deccan Jewellers Pvt. Ltd. (2021) 438 ITR 131 (AP) (HC) (Case laws compilation PB 1-6) The head note of the decision reads as under:- Income from undisclosed sources-Vis-a-vis business income-Excess stock found during search-Explanations have been offered by the assessees that excess stock was a result of suppression of profits from business over the years and is a part of the overall stock found and therefore excess stock could not have been treated as 'undisclosed investment' under s. 69 but assessable as business income-No contrary view either of any High Court or the apex Court has been placed to demonstrate that the explanations offered by the assessees in the course of assessment were either perverse or contrary to law-Tribunal was correct in law in holding that unaccounted and excess stock found during the course of search shall be assessed as business income PCIT Vs. Bajargan Traders DBITA No.258/2017 order dt. 12.09.2017 (Raj.) (HC) (Case laws compilation PB 7-11) ....
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....act, the same provides a credible base for Revenue to bring to tax subsequent profit/loss on sale of such stock of rice in future. 2.11. Having said that, the next issue that arises for consideration is whether the amount surrendered by way of investment in the unrecorded stock of rice has to be brought to tax under the head "business income" or "income from other sources". In the present case, the assessee is dealing in sale of food grains, rice and oil seeds, and the excess stock which has been found during the course of survey is stock of rice. Therefore, the investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. The decision of the Co-ordinate Bench in case of Shri Ramnarayan Birla (supra) supports the case of the assessee in this regard. Therefore, the investment in the excess stock has to be brought to tax under the head "business income" and not under the head income from other sources". In the result, ground No. 1 of the assessee is allowed." On further appeal by department, Hon'ble Rajasthan High Court upheld the above findings of ITAT and dismissed the appeal filed by the departm....