NEW ROYAL EMPORIUM,PUDUCHERRY vs. ITO, WARD-2,, PONDICHERRY

The Assessee raised the following grounds of appeal :

Brief facts of the case are that the appellant is a partnership-firm duly incorporated under the provisions of Partnership Act. It is engaged in the business of dealing in textiles. No regular return of income under the provisions of section 139 of the Act, 1961 was filed by the appellant for the Assessment year 2015-16. The Assessing Officer had conducted survey operations u/s.133A of the Act in the business premises of the appellant on 03.02.2015. During the course of survey operations, it was stated that the appellant had admitted excess stock of Rs.55 lakhs and agreed to offer the same to tax. Based on this information, the Assessing Officer formed an opinion that the income got escaped assessment from tax, accordingly, a notice u/s.148 of the Tax was issued on 28.08.2017 calling upon the appellant to file the return of income. In response to notice u/s.148 of the Act, the appellant filed return of income on 29.01.2018 disclosing income of Rs.41,27,940/-. Against the said return of income, the assessment was completed by the ITO, Ward-2, Pondicherry (hereinafter called ‘AO’) vide order dated 29.12.2018 passed u/s.143(3) r.w.s 147 of the Act at a total income of Rs.96,27,940/-. While doing so, the Assessing Officer made addition of Rs.55 lakhs on account closing stock. The factual background leading to the above additions is as under :

The Assessing Officer conducted survey operations u/s.133A of the Act in the business premises of appellant on 03.02.2015. During the course of survey operations, the Assessing Officer found excess stock of Rs.55 lakhs. When the appellant was confronted on this, he had agreed to offer the same to tax. During the course of assessment proceedings, the appellant had filed the details of closing stock of Rs.65,19,00,000/-. It was submitted that the value of closing stock includes the amount of excess stock admitted during the course of survey proceedings of Rs.55 lakhs. However, the Assessing Officer rejected the above explanation proceeded to hold that the excess stock was not accounted in the books of accounts, therefore, presumed that excess stock was purchased outside the books of accounts, accordingly, invoking the provisions of section 69C of the Act, made addition of Rs.55 lakhs and also taxed at the rate prescribed u/s.115BBE of the Act.

Being aggrieved by the addition, an appeal was filed before the learned CIT(A), contending that the Assessing Officer ought not have taxed the excess stock at the rates prescribed u/s.115BBE of the “Act which is included as a part of the closing stock. The investment in procurements of such stock is out of regular business receipts. The appellant only under valued stock, but it had not resorted to any unaccounted purchases and no purchases were made outside the books of accounts. During the course of survey proceedings, it was clearly submitted that the excess stock only represent the valuation difference, not on account of unaccounted purchases. Once it is considered as a part of the business stock, the question of taxing the income at the rates prescribed u/s.115BBE of the Act does not arise. In this connection, the assessee had placed reliance on the decision of Hon’ble Rajasthan High Court in the case of CIT Vs. Bajarang Traders. However, the Learned CIT(A) confirmed the action of the Assessing Office by holding that the explanation offered by the assessee remains unsubstantiated and the assessee had failed to prove the nature and source of acquisition with creditable evidences, accordingly, upheld the action of the Assessing Officer.

Being aggrieved by the order of the Learned CIT(A), appellant preferred an appeal before this Tribunal in the present appeal. The Learned Counsel submits that the appellant has not made any unaccounted purchases. The excess stock was found on account of the under valuation of the closing stock and therefore, the question of addition u/s.69C does not arise. The excess stock so found was included as a part of closing stock. The source for making purchases were duly accounted in the books of accounts. The statement recorded during the course of survey proceedings had clearly stated that the excess stock is only on account of valuation difference not because of unaccounted purchases and reliance was placed on the several decisions. Therefore, addition u/s.69C of the Act is unwarranted.

On the other hand, the Learned Sr.DR passed the above submissions and submits that the excess stock was not included as part of closing stock.

We heard the rival submissions and perused the material on record. The issue that arises for our consideration is whether the Learned CIT(A) was justified in confirming the addition on account of closing stock. Undisputedly, during the course of survey operations conducted u/s.133A of the Act, in the business premises of the appellant, the appellant admitted an amount of Rs.55 lakhs on account of closing stock. It is the contention of the appellant that the amount admitted during the course of survey operations was already included in the value of closing stock credited to profit and loss account and offered to tax. It was further contended that the amount so admitted was on account of under valuation of the closing stock. It is not on account of unaccounted purchases made by the appellant. However, the Assessing Officer had not agreed with these above submissions and chose to make addition u/s.69C of the Act and taxed at the rates prescribed u/s.115BBE of the Act. And the Learned CIT(A) also confirmed the action of the Assessing Officer. We find that the submissions made by the appellant were neither referred to nor dealt with by the Lower Authorities, nor the Assessing Officer brought on record material to show that the assessee made purchases outside the books of accounts, nor he referred to the statement, if any, made by the appellant during the course of survey proceedings to say that he had made unaccounted purchases. Therefore, the addition made by the Assessing Officer cannot be sustained, accordingly, we direct the Assessing Officer to delete the addition.

In the result, appeal filed by the Assessee stands allowed. Order pronounced in the open Court on 2nd November, 2026. (ABY T VARKEY) ACCOUNTANT MEMBER Chennai; िदनांक / Dated : 2nd Nov, 2026 SGR, Sr.PS आदेश क" "ितिलिप अ"ेिषत / Copy of the Order forwarded to : अपीलाथ" / The Appellant.

GANGADHARA RAO SALEELA Date: 2026.11.10 18:42:43 +05'30'