TaxTMI 
TaxTMI 
2026 (3) TMI 607
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.... to AY 2018-19 for which we are concerned. During survey proceeding, the Statements of assessee were recorded wherein the assessee surrendered excess stock of Rs. 75,00,770/- of gold items and profit of Rs. 8,691/- on short stock of Rs. 1,73,829/- of silver items. Thereafter, in the return of income filed to Income-tax Department, the assessee honoured the surrender and disclosed "additional income" of Rs. 76,74,599/- [Rs. 75,00,770/- of gold + Rs. 1,73,829/- of silver] as "Income from Business" u/s 28 and paid tax @ normal rate as applicable to business income. (ii) The case of assessee was selected for scrutiny assessment and the AO issued notices u/s 143(2)/142(1). During scrutiny proceedings, the AO asked assessee to explain as to why the surrendered income should not be treated as unexplained income u/s 68 to 69D r.w.s. 115BBE of the Act. In response, the assessee filed a detailed reply citing the facts of his case as well as judicial rulings holding the proposition that the provisions of section 68 to 69D r.w.s. 115BBE cannot be applied to his case. The assessee's reply is re-produced by AO in Para 5 / Pages 2 to 13 of assessment-order. However, vide Paras 6 to 8....
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....rther craves leave to add, alter, and OR to amend the aforesaid grounds of appeal as when necessary. 4. That the learned Commissioner of Income tax (A) erred in law in not considering overall facts and circumstances i.e. not only the nature of business but also the fact that the appellant had explained the excess stock of gold ornaments to the extent of 1860 grams which was not considered satisfactorily in spite of documentary evidences found during survey itself. The appellant was did not retract the surrender made during survey just to avoid litigation and to buy peace of mind but bonafide and true explanation given regarding excess stock should have been considered legitimate instead of unexplained investment u/s 69B of the Act. Levy of tax at higher rate u/s 115BBE of the Act is wholly unjustified, improper, bad in law and deserves to be quashed. 5. Without prejudice to above, the learned Commissioner of Income tax (A) further erred in law in not considering the fact that in case of small business entities, it is practically not possible to prepare physical inventory of stock at the close of the year and as per normal trade practice and tradition the stock val....
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....0;े प्रतिस्थान चलते है तथा उनमें प्रोपराइटर कौन-कौन है, उनसे आपका क्या संबंध है । उत्तर- इस परिसर में सिर्फ समरथ ज्वेलर्स के नाम से ही व्यवसाय होता है इसके अलावा कोई व्यवसाय यहां से संचलित नहीं होता है । प्र.5 ....
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....ी सूची एनेक्सर BF (पेज 1 एवं 2) तैयार की गई है, यह अभी दस्तावेज एवं इनमें दर्ज समस्त लेनदेन हमारे व्यवसाय से संबंधित है । प्र.30 आज सर्वे कार्यवाही के दौरान आपके व्यवसायिक स्थल पर भौतिक सत्यापन पर पाए गए स्वर्ण आभूë....
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....4;, मूल्य एवं मात्रा मेरी उपस्थिति में दर्शाये गए है एवं मैं इससे पूर्णतया सहमत हूँ । प्र. 31 सर्वेक्षण के दौरान भौतिक सत्यापन पर पाए गए स्टॉक के संबंध में तैयार सूची (मूल्यांकन रिपोर्ट) में दर्शाये अनुसार स्व....
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....#2352;े में आपको क्या कहना है। उत्तर - मैं इस संबंध में अनुरोध करना चाहता हूँ कि भौतिक सत्यापन पर जो वजन एवं मूल्य स्टॉक का आया है वह बिलकुल सही है, साथ ही मेरा यह भी निवेदन है कि इसमें 2101.500 ग्राम स्वर्ण आभूषण A.R. Plus, मुंबई कí....
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....2;न 2181.251 ग्राम स्टॉक (रु. 75,00,770/-) अधिक पाया गया है। मैं उपरोक्त खरीदी एवं approval पर आये सामान की कॉपी आपको दे रहा हूँ। उपरोक्त अंतर की राशि रु. 75,00,770/- को वित्तीय वर्ष 2017-18 के लिए अपनी व्यवसायिक आय में से स्टॉक में किए गए विनियोजन के तौर &#....
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.... was in the practice of carrying unrecorded business. (ii) That, the Q.No. 31 relates to the difference in stock of gold and silver. The survey authorities found physical stock of 14,569.43 grams and concluded that as per books of assessee, the stock should have been 6,700.879 grams, accordingly a difference of 7,868.551 grams was observed. From this difference, credit was allowed for 5,687.300 grams of gold purchased by assessee to be recorded in books and the net excess stock of 2,181.251 grams of gold was determined and the same was valued at Rs. 75,00,770/-. Further, the authorities found short stock of 4,428 grams of silver and the same was valued at Rs. 1,73,829/-. When the authorities questioned assessee to explain these differences, the assessee admitted excess stock of gold of Rs. 75,00,770/- as "व्यावसायिक आय" (i.e. "business income") invested in stock. Further, the assessee also accepted the short stock of silver of Rs. 1,73,829/- as unaccounted sales and admitted to declare profit of Rs. 8,691/- thereon but, ultimately, the assessee offered entire undisclosed sales of 1,73,829/- of silver. ....
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....d 12.02.2010, relevant paras are re- produced below: "12. Thus the important aspect that emerges from the entire discussion is that for invoking deeming provisions under sections 69, 69A, 69B & 69C there should be clearly identifiable asset or expenditure. In the present case we find that entire physical stock of Rs. 25,14,306/- was part of the same business. Both kind of stock i.e. what is recorded in the books and what was found over and above the stock recorded in the books, were held and dealt uniformly by the assessee. There was no physical distinction between the accounted stock or unaccounted stock. No such physical distinction was found by the Revenue either. The assessee has repeatedly claimed that unaccounted business income is invested in stock and there is no amount separately taxable under section 69. The department has ignored this claim of the assessee and sought to tax the difference between book-stock and physical-stock as unaccounted investment under section 69 without considering the claim of the assessee that first the business receipt has to be considered and then investment should be treated as coming out of such unaccounted income. The difference in ....
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....eclared investment is sought to be taxed is not clearly identifiable or does not have independent identity but is integral and inseparable (mixed) part of declared asset, falling under a particular head, then the difference should be treated as undeclared business income explaining the investment. 14. To conclude sum of Rs. 8,10,011/- being difference in stock is represented by undeclared business income. It does not have a separate physical identity. It is to be only taxed under the head 'business'. Other assets have separate physical identity being furniture and fixtures, air conditioners etc. They cannot have a direct nexus with business and therefore investment therein has to be considered under section 69 only." (iv) That, in Q.No. 2, the authorities queried assessee qua the sources of income. In reply, the assessee submitted that he was carrying the ancestral business of gold/silver ornaments as proprietor in the name of "M/s Samarth Jewellers". In Q.No. 4, the authorities again queried assessee qua the businesses carried in survey premise. In reply, the assessee submitted that there was only business of "M/s Samarth Jewellers" and no other business.....
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....s premises of the assessee was excess in comparison to the stock recorded in the books of account. It is not the case of the AO that the excess stock found during the survey was separated from other stock of the assessee but it is one and common nature of stock found during survey except the quantity of the stock on physical verification was found to be excess in comparison to the stock recorded in books of accounts. Thus, there is no separable identifiable stock found during survey then the stock regularly held by assessee in the normal course of business of jewellery. Once the stock found during survey is part of total stock of business, then the said excess stock cannot be given a separate identity than the other stock of assessee. Further, even if excess stock found during survey was not recorded in the books of account but when the survey was conducted before closure of financial year then the assessee was at liberty to incorporate excess stock in books of account at the time of finalizing accounts, which also the present assessee has done which is evident from a separate credit entry made in Profit & Loss A/c. The Hon'ble Rajasthan High Court in case of Pr. CIT vs. Bajara....
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....s valued at Rs. 5,67,73,734/-, however, the value of gold as per books of accounts of the assessee was at 19,423.678 gms valued at Rs. 4,25,98,165/-. Therefore, a difference in stock of 6433.812 gms was found amounting to Rs. 1,41,75,569/-. Statement of Shri Anoop Nema was recorded on oath on 16.12.2016, wherein, he has accepted value of excess stock of gold as additional income for FY 2016-17 (AY 2017-18). The relevant extract of statement is also scanned on page no 4 & 5 in the body of assessment order. The AO during the course of assessment proceedings observed that the assessee has declared excess stock as undisclosed income in return of income for AY 2017-18. However, the AO required the assessee to separately credit the excess stock of Rs. 1,41,75,568/- in P/L account but the same was not done by him. The AO therefore, considering the excess stock as unexplained investment made addition of Rs. 1,41,75,568/- to the income of the appellant u/s 69 r.w.s 115BBE of the Act. 4.1.1 The appellant during the course of appellate proceedings has stated that an excess stock of gold was found during the course of search and the same was also not recorded in regular books of accou....
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.... of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year." [emphasis supplied] Any assessee can be held guilty of invoking provisions of section 69 of the Income Tax Act if, (i) where in any financial year, the assessee is found to have made certain investments; (ii) such investments are not recorded in the books of account, if any, maintained by the assessee; (iii) the assessee offers no explanation about the nature and source of such investments; and finally, (iv) even if any explanation is offered by the assessee, such explanation in the opinion of the Assessing Officer is not satisfactory. Conditions (i) and (ii) are mandatory in nature and out of condition (iii) and (iv) only one or both as the case may be fulfilled. In the instant case condition no (i) and (ii) has been fulfilled by the appellant, however, on perusal of copy of assessment order it has been observed that neither the search party nor the AO has ever enquired about source of acquisition of excess stock. During the course of search statement of appellant was also recorded on oath u/s 132(4) of the Act wherein in r....
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.... is a settled law that additional income declared on account of excess stock is business income of the assessee. This proposition finds support from the following case laws :- (a) Bajrang Traders Vs. ACIT (Circle)-2, Alwar (ITA No. 137/Jp/17 dated 17.03.2017). In this case, it is held as under :- 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 t....
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.... stock was part of the stock. The revenue has not pointed out that the excess stock has any nexus with any other receipts. Therefore, we do not find any fault with the decision of the ld. CIT(A) directing the AO to treat the surrendered amount as excess stock qua the excess stock found. (c) Fashion World Vs. ACIT (Circle)-12, Ahemdabad (ITA No. 1634/Ahd/2016 dated 12.02.2010) In this case, it is held as under :- 12. Thus the important aspect that emerges from the entire discussion is that for invoking deeming provisions under sections 69, 69A, 69B & 69C there should be clearly identifiable asset or expenditure. In the present case we find that entire physical stock of Rs. 25,14,306/- was part of the same business. Both kind of stock i.e. what is recorded in the books and what was found over and above the stock recorded in the books, were held and dealt uniformly by the assessee. There was no physical distinction between the accounted stock or unaccounted stock. No such physical distinction was found by the Revenue either. The assessee has repeatedly claimed that unaccounted business income is invested in stock and there is no amount separately taxable under sectio....
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....ndent physical existence of its own. Since excess stock is a result of suppression of profit from business other the years and has not been kept identifiable separately but i.e. the part of overall physical stock found, the investment in the excess stock 'has to be treated as business income as per detailed reasons given in the case of Fashion World (supra). Once excess stock is treated as business income then assessee is entitled for higher remuneration to the partners as per section 40(b). As a result, this ground -of assessee is allowed. (e) Shri Lovish Singhal Vs. ITO, Ward-2, Sriganganagar (ITA No. 143/Jodh/2018 dated 25.05.2018) In this case, it is held as under :- I have heard the rival contentions and record perused. I have also carefully gone through the orders of the authorities below. I have also deliberated on the judicial pronouncements referred by the lower authorities in their respective orders as well as cited by the ld AR during the course of hearing before the ITAT in the context of factual matrix of the case. From 18 ITA 142 to 146/Jodh/2018 Vasu Singhal Vs ITO with 4 Ors. cases the record, I find that during the course of survey, income was....
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....ents referred by lower authorities in their respective orders as well as cited by ld. DR and AR during the course of hearing before us. From the record we found that the assessee a partnership firm is in the business of trading, import, export, manufacturing, wholesale and retail dealing in diamonds, gems and jewellery The main object of the assessee firm is to carrying out the business of import, export, manufacturing, wholesale and retail dealing in diamonds, gems and jewellery. The partnership business was of importers, exporters, manufacturers, processors, investors, wholesalers, distributors, retailers, dealers and indenting agent of diamonds, synthetic stones, gems and jewellery, precious and semi- precious metals and miners and ornaments and article made thereof including jewellery, decorative and precious objects of arts and crafts and to cut, design polish rough diamond, gems and precious stones and that of investment and lending and to do any other business as may be mutually agreed upon by the partners. In the return of income filed for the year under consideration, the assessee has shown income under the head profit and gains of business and profession and other sources....
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....ount is required to be assessed under the head' Income from Business or profession. Thus, the undisclosed income of 13,47,63,640/- declared voluntarily by the assessee for A. Y. 2011-12, is undisclosed stock held under the customary trading of the business and hence should be treated as the business income of the assessee firm and not as undisclosed investment as held by the AO. If all the three conditions of Section 69 exist together, the unrecorded investment or value of assets can be deemed to be assessee's income of the relevant financial year. In the present case all three conditions as required under section 69 are not fulfilled because the appellant has offered explanation and nature of source of acquisition as undisclosed stock received from the unaccounted trading of diamond as source of income. The partner of the firm has time and again stated in his statement that diamond found in the premises during the search is out of unrecorded trading of diamonds hence the third part of section 69 is not satisfied hence the said stock is not taxable under section 69 of the Act." (h) M/s Surekh Jewellers vs DCIT ITA No 18/PN/2016 dated 12.06.2016. (i) M/s Si....
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....of the authorities below qua this issue is set aside. The assessee succeeds to this extent." (vi) A strong reliance is also placed on the decision of ITAT, Indore in DCIT Vs. Shri Krishna Kumar Verma (2023) 46 ITJ 345 which stands upheld by Hon'ble Jurisdictional High Court of M.P. in Appeal No. 130 of 2023 order dated 19.03.2024. We quote relevant paras of the order of ITAT and Hon'ble High Court both for an immediate reference: ITAT Indore Bench: "7. After considering the above factual matrix of the case now we proceed to consider the proposition relied by learned representative of both the sides. The Ld. Senior DR has relied on the judgment of Punjab & Haryana High Court in the case of Kim Pharma (P.) Ltd. vs. CIT (supra) to submit that where the amount surrendered during survey was not reflected in the books of accounts and no source from where it was derived was declared by the assessee, then it is assessable as deemed income of assessee u/s. 69A of the Act and not as business income. In this case the Assessing Officer made addition of surrendered amount u/s. 69 of the Act as the assessee could not explain the source from where it was derived....
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....usiness activity and of trading in jewellery and gems and activity of Adat/dalali thus the benefit of proposition rendered by Hon'ble Punjab & Haryana High Court in the case Kim Pharma (P.) Ltd. vs. Commissioner of Income Tax (supra) is not available for the department in the present case. 8. In view of forgoing discussion we reach to a logical conclusion that the Assessing Officer without making any addition u/s. 69A or any other provision of the Act has accepted returned income of the assessee wherein the assessee has included surrendered amount on account of excess stock and excess cash as business income and has successfully explained the source from where the said surrendered excess stock and excess cash was earned, which was business activity of assessee of trading in jewellery & gems and Adat/dalali in the same field. The coordinate bench of the Tribunal in the various orders including order in the case of Shri Lovish Singhal v/s. ITO (supra) by following the judgment of Hon'ble Rajasthan High Court in the case of Bajrang Traders (supra) observed that the excess stock found during the course of survey and surrendered made thereof was found to be taxable as b....
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.... order dated 10.02.2023 on the ground that the Assessing Officer without making any addition under Section 69A or other provisions of the Act, has accepted the returned income wherein the assessee has included the surrendered amount on account of excess stock and excess cash as business income and successfully explained the source from where the said surrendered amount was earned, which was the business activity of the assessee of trading in jewellery and gems. There was no application of Section 115BBE of the Act. XXX 18. When tested on the anvil of the aforesaid legal principles, we are of the opinion that in the instant case no substantial question of law arises from the order of the Tribunal as the appellant has raised all the question of facts and have disputed the fact findings of the ITAT in the garb of substantial questions of law which is not permitted by the statute itself. This Court refrains from entertaining this appeal as there is no perversity in the order passed by the ITAT since the ITAT has dealt with all the grounds raised by the appellant in the order impugned and has passed a well reasoned and speaking order taking into consideration all the m....
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....issioner of Income-tax, ITA No. 765 of 2018 (Madras HC) relied by lower authorities, the AO, CIT(A) and ITAT, all three authorities, recorded a clear finding that the assessee neither recorded the excess-stock in books of account nor declared in the return of income and based on such finding, the Hon'ble High Court was pleased to hold that no substantial question of law arose in assessee's appeal. But, in the present case, the assessee has recorded excess-stock in books of account, credited to P&L A/c and finally included in the Return of Income as additional business income. Further, in Para 3.1.26 of impugned order, the CIT(A) has noted about Principal Commissioner of Income-tax Vs. Deccan Tobacco Company (2022) 137 taxmann.com 470 (SC) but in that case, the Hon'ble Supreme Court has only admitted the SLP filed by revenue against the Judgement of Hon'ble Andhra Pradesh High Court in favour of assessee and issued notice to parties but, however, the matter is still pending before Hon'ble Supreme Court and not yet decided. Therefore, as of now the decision rendered by Hon'ble High Court of Andhra Pradesh in favour of assessee is applicable which also supports....
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....ssed business income over the years is fully credible and acceptable. (ii) It is also pertinent to note that during the course of survey what was detected in respect of the stock, was mere possession of physical stock by assessee in excess of the stock recorded in books of account. It is not the case of the AO that the excess stock found during the survey was separated from other stock of the assessee but it is one and common nature of stock found during survey except the quantity of the stock on physical verification was found to be excess in comparison to the stock recorded in books of accounts. Thus, there is no separable identifiable stock found during survey than the stock regularly held by assessee in the normal course of business of jewellery. Once the stock found during survey is a part of total stock of business, then the said excess stock arrived during survey, which is only a mathematical expression, cannot be given a separate identity than the recorded stock of assessee. Further, even if excess stock found during survey was not recorded in the books of account but when the survey was conducted before closure of financial year, then the assessee was at liberty t....