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Facts
A survey was conducted at the assessee's hardware business premises, revealing a stock discrepancy of ₹35,87,244/- between physical inventory and declared stock. The assessee admitted this discrepancy and disclosed the amount as additional income under 'Income from other sources' in her ITR. The Assessing Officer, however, treated this amount as unexplained investment under section 69 and taxed it under section 115BBE, a decision upheld by the CIT(A).
Held
The Tribunal noted the facts were identical to the case of *Pawan Agarwal vs. ACIT*. Following the precedent, the Tribunal set aside the CIT(A)'s order and remanded the matter back to the AO. The AO is directed to frame a fresh assessment after re-examining the impounded books of account, recorded statements, and recomputing the undisclosed income. If the assessee cannot explain the source of the additional income, the addition made by the AO shall be confirmed.
Key Issues
Whether the additional income declared by the assessee due to a stock discrepancy found during a survey should be treated as unexplained investment under section 69 and taxed under section 115BBE, or as business income, and the procedural validity of the assessment.
Sections Cited
Section 143(3), Section 250, Section 133A, Section 131, Section 69, Section 115BBE
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Income Tax Appellate Tribunal, GUWAHATI BENCH AT KOLKATA
Before: SHRI MANOMOHAN DAS & SHRI RAKESH MISHRA
PER RAKESH MISHRA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of the Commissioner of Income Tax (Appeals)-Central NER, Guwahati [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2018-19 dated I.T.A. No.: 67/GTY/2024 Assessment Year: 2018-19 Ritu Agarwala. 20.02.2024, which has been passed against the assessment order passed by the u/s 143(3) of the Act, dated 18.04.2021. 2. The assessee is in appeal before the Tribunal raising the following grounds of appeal:
“1. For that the Ld. CIT(A) ought to have hold that the order of assessment passed by the Ld. ACIT, Central Circle-2, Guwahati (AO) under section 143(3) of the Act on 18.04.2021 was bad in law, facts and procedure.
For that the Ld. CIT(A) was not justified in not holding that in absence of any valid notice under section 143(2) of the Act having been issued by the Juri ictional Assessing Officer, the order of assessment passed under section 143(3) of the Act by the Ld. AO is without juri iction, void and bad in law.
For that the Ld. CIT(A) ought to have hold that in absence of any valid order under section 127 of the Act having been passed and served upon the appellant, the impugned order of assessment passed by the Ld. ACIT, Central Circle-2, Guwahati is without juri iction and is void ab-initio.
For that on the facts and circumstances of the case, the Ld. CIT(A) was not justified in not holding that the Ld. AO was not justified in arbitrarily treating additional business income of Rs. 35,87,244/-on account of difference in valuation of stock as unexplained investment in stock within the meaning of section 69 of the Act and consequently, charging the same to tax under section 11588E of the Act.
For that on the facts and circumstances of the case and in absence of any material to show that the appellant has actually made any purchase of stock of which source could not be explained by it, the Ld. CIT(A) ought to have hold that the treatment by the Ld. AO of the amount of Rs. 35,87,244/- as assessable under section 69 of the Act is without juri iction and bad in law.
For that on the facts and circumstances of the case, the Ld. CIT(A) has erred in not holding that the assessment of Rs. 35,87,244/- as Income of the appellant is bad in law and is liable to be deleted in its entirety.
For that the Ld. CIT(A) ought to have hold that the order of assessment was passed by the Ld. AO by ignoring and not considering and without controverting the submissions, explanations and reply of the appellant to the Show Cause Notice filed before passing of the said order of assessment and therefore, the order of assessment so passed is bad in law and unsustainable on this count alone. I.T.A. No.: 67/GTY/2024 Assessment Year: 2018-19 Ritu Agarwala.
For that the Ld. CIT(A) ought to have hold that the order of assessment has been passed by the Ld. AO in gross violation of principles of natural justice and without allowing reasonable opportunity of hearing to the appellant, the same is bad in law and is liable to be quashed.
For that the impugned appellate order passed by the Ld. CIT(A) being in gross violation of principles of natural justice, the same is bad in law and untenable.
For that your appellant craves leave of your honours to take additional ground or grounds and/or to modify any ground(s) of appeal at or before the time of hearing.”
Brief facts of the case are that the assessee had furnished her return of income for AY 2018-19 on 04.10.2018 showing total income of ₹ 44,99,940/-. A survey u/s 133A of the Act was conducted in the business premise of the assessee on 15.03.2018. In the course of survey books of accounts marked as DEG-01 to DEG-04 were impounded and on examination of the Survey Report, it was revealed that the assessee was engaged in the retail business of hardware items. During the course of survey on 15.03.2018 in the business premise of the assessee, physical inventory of stock was taken and found to be ₹ 1,05,87,244/- and in the statement recoded u/s 133A of the Act, the assessee disclosed the stock as on date of survey to be that of ₹ 70,00,000/-. Thus, there was a discrepancy of valuation of closing stock as on 14.03.2018 was detected to the extent of ₹ 35,87,244/-. In response to the summons issued and statement recorded u/s 131 of the Act on 29.03.2018 the assessee admitted the discrepancy and disclosed additional income of ₹ 35,87,244/-. The statement recorded on 29.03.2018 on account of undisclosed stock found during the course of the survey and the same was declared in the return as Income-tax Disclosure under the head ‘Income from other sources’ for AY 2018-19. The Assessing Officer (hereinafter referred to as Ld. 'AO') thereafter, I.T.A. No.: 67/GTY/2024 Assessment Year: 2018-19 Ritu Agarwala. issued a show cause notice to the assessee requiring to explain as to why the additional income of ₹ 35,87,244/- should not be treated as deemed income within the meaning of section 69 of the Act and charged to income-tax u/s 115BBE of the Act. There was no compliance by the assessee which was inferred by the Ld. AO as that the assessee had no explanation to offer in this regard and a sum of ₹ 35,87,244/- was added as unexplained investment in stock within the meaning of section 69 of the Act and charged to tax u/s 115BBE of the Act. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A). In the appeal memo, the statement of facts was stated to be “In terms of grounds of appeal”. The assessee raised several legal issues and also agitated against the treatment of a sum of ₹ 35,87,244/- as unexplained investment in stock u/s 69 of the Act treating as additional business income. The Ld. CIT(A) has reproduced the assessment order, gone through the submission of the assessee and thereafter dismissed the appeal of the assessee by holding as under:
“6. 5. Decision on Ground(s) of Appeal No(s). 6,7 & 8: 6.5. 1. The appellant contended that addition u/s 69 of Rs. 35,87,244/- made on account of stock discrepancy needs to be deleted. It is observed that the Appellant had declared Rs. 35,87,244/- as 'Disclosure during Income Tax Survey on 14.03.2018' under the Head Income from Other Sources in her ITR for the relevant year. When the SCN was issued by the AO to explain why additional income 'disclosed in the ITR on account of 'Undisclosed stock should not be treated as deemed income u/s 69 of the Act, there was no compliance on the part of the appellant. The AO proceeded to make the addition accordingly. The appellant now contends that excess business stock was found only due to difference in valuation of stock by Appellant and the survey officials. It was further averred that no investment was made during the year that was not recorded in the books of account. However, the appellant has not furnished any documentary evidence in this office which suggests that all the purchases, payments, investments and stock details are duly recorded in the books. The AO relied on the documents I.T.A. No.: 67/GTY/2024 Assessment Year: 2018-19 Ritu Agarwala. impounded during the survey but the appellant did not contradict the contents of the same till date. 6.5. 2. The Appellant relied on the decision of the Hon'ble Rajasthan High Court in the case of Bajargan Traders. In the said case, the investments in procurement of excess stock found during survey was stated to be clearly identifiable and relatable to the business stock of the assessee. However, in the instant case, the appellant has not furnished any details regarding purchases and actual stock. The 'disclosure made in the ITR was done in an arbitrary manner without any explanation regarding camouflage of 'excess stock' as 'regular business stock' and declaring 'additional income' within the scope of 'regular income'. 6.5. 3. Reliance was also placed on the decision of the Hon'ble ITAT, Ahd in the Chokshi H Maganlal case wherein it was held that investment in excess stock may be treated as business income, subject to certain conditions. In the said case, the assessee was able to prove that the value of excess stock was included in the closing stock inventory. However, in the instant case, the Appellant was unable to explain as to why the declared stock as per books on the date of survey was different from physical stock found on the same day. Further, the appellant failed to establish that the discrepancy was accounted for in the closing stock for the relevant year. Thus, the above judgment does not support the appellant's case. The appellant quoted a long list of judicial pronouncements but did not elaborate as to how they are applicable in the instant case. 6.5. 4. The undersigned has granted further opportunity to the appellant to substantiate her claims. A notice u/s 250 of the IT Act dated 11/01/2024 was issued and the following details were called for:
Copy of return of income filed for the relevant year reflecting detailed computation of income and taxes paid.
Audited financials and Audit Report.
Method of valuation of stock.
Reconciliation of the inventory of stock found during the survey with the stock recorded in the books of account as on date of survey and as on last day of the financial year
Details of purchase of stock during the year along with sources.
Ledger extracts from the Books of account highlighting the entries pertaining to undisclosed income. I.T.A. No.: 67/GTY/2024 Assessment Year: 2018-19 Ritu Agarwala.
Gross Profit ratio analysis for the year under consideration with the earlier 3 Financial Years. The appellant did not respond to the aforesaid notice. The Questionnaire was issued to verify the claims of the appellant regarding genuineness of Books of account and stock valuation. Further, Gross Profit comparison with earlier years is required to ascertain the extent to which profit in the year under consideration was adjusted downwards to incorporate 'additional income' into the 'regular income'. Further, another reminder was issued vide letter dated 30/01/2024. The appellant replied vide letter dated 10/02/2024 wherein it is stated that the undersigned has to rely on the earlier submissions. The details called for in the questionnaire have not yet been furnished. 6.5. 5. It can be inferred that the Appellant has nothing further to say in this matter. The appellant does not intend to submit the details of stock or ledger extracts from the books because such details would further strengthen the observations made in the assessment order. It is clear that the appellant is trying to suppress the facts of her own case while relying on the facts of other cases in the judicial Pronouncements In such circumstances, it can be concluded that the stock discrepancy remains unexplained and the same needs to be considered as Unexplained Investment and deemed income within the meaning of provisions of Section 69 of the IT Act. Hence, addition u/s 69 of the IT Act amounting to Rs. 35,87,244/- is hereby confirmed. Grounds 6,7, & 8 are dismissed accordingly.”
1 Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal.
Rival contentions were heard and the submissions made and the paper book filed have been examined. During the course of the appeal before us, the Ld. AR pressed only ground no. 4 and stated that the assessee is in the business of hardware and the survey u/s 133A of the Act was conducted in the business premises on 15.03.2018 in the course of which documents marked as DEG-01 to DEG-04 have been impounded. The inventory was valued as per the physical verification and was found to be of ₹ 1,05,87,244/-. In the preliminary statement recorded on the date of survey, the assessee disclosed her stock as on I.T.A. No.: 67/GTY/2024 Assessment Year: 2018-19 Ritu Agarwala. the date of the survey to be of Rs. 70 Lakh. A copy of the inventory prepared has been filed before us but the statement recorded at the time of the survey has not been filed nor the extract of the same is available in the assessment order of the Lakh. Another statement was recorded on oath u/s 131 of the Act on 29.03.2018 wherein the assessee admitted the discrepancy and admitted additional income of ₹ 35,87,244/- on account of undisclosed stock detected during the course of the survey which was shown in the return of income as “'Disclosure during Income Tax Survey on 14.03.2018” under the head ‘Income from Other Sources’ in the return of income relevant for AY 2018-19. The same has, however, been added u/s 69A of the Act by the Ld. AO tax has been charged u/s 115BBE of the Act. The assessee is challenging the finding of the Ld. AO in this regard.
The facts are identical to the facts of the case of Pawan Agarwal vs. ACIT, Central Circle-2, Guwahati in ITA No. 151/GTY/2024 order dated 20.06.2025, therefore, following the decision of the Coordinate Bench in the case of Pawan Agarwal (supra) the order of the Ld. CIT(A) is hereby set aside to the Ld. AO who is directed to frame the assessment afresh as per the directions issued in the case of Pawan Agarwal (supra) vide para 6 of the Tribunal order. The relevant extracts from the order of Pawan Agarwal (supra) are as under:
“6. We have considered the submission made. The assessee’s statement was recorded on two occasions i.e. on 14.03.2018 before the start of the survey and on 29.03.2018 i.e. subsequent to the survey which was carried out on 14.03.2018. Subsequent to the survey, the assessee had filed the return of income on 30.01.2019 i.e. after nine months after the survey in which the excess amount was disclosed under the head ‘Income from other sources’. While the inventory of the stock prepared is detailed however, in the absence of books of account, it cannot be ascertained as to what was the value of stock on the date of survey as per the books of account. The books of account found were marked as Annexures MH-01 to MH-25 but no I.T.A. No.: 67/GTY/2024 Assessment Year: 2018-19 Ritu Agarwala. working appears to have been carried out so as to ascertain the stock as per the books of account and there after work out the excess stock found in the course of the survey. In the statement recorded of the assessee, not only the excess stock was worked out on the basis of statement recorded but the stock register etc. was not found while in the decisions relied upon by the assessee, not only the items were also similar but also the excess was worked out on the basis of the books of account, therefore, the findings were made on peculiar facts of the case and the case is being distinguishable on facts are not directly applicable to the facts of the case of the assessee. In the case of the assessee, the assessee had himself only given a preliminary statement of the stock being of an amount of ₹70 Lakh without working out the same as per the books of account. Even the survey team has not worked out the stock as per the books of account. However, there was no compulsion for the assessee to disclose the income as ‘income from other sources’ which in the absence of no defined source of income, as even the income from other sources has to have some known source, has been added by the Ld. AO u/s 69 of the Act. However, in order to be fair to the assessee as well as to the Revenue, the orders of the Ld. CIT(A) as well as the assessment order are hereby set aside and the matter is remanded to the Ld. AO to pass the assessment order de novo after examining the impounded books of account, the statements recorded on 14/03/2018 and 29.03.2018 and thereafter work out the stock of the assessee as per the books of account on the date of the survey and recompute the undisclosed income of the assessee. In case, the same is at par with the income from other sources shown in the return of income, the Ld. AO shall, on the basis of the documents filed and in view of the judicial pronouncements relied upon the assessee, examine as to whether the excess stock is to be added u/s 69 of the Act as the business income or the difference if any in case the excess is less than the amount computed, under the head ‘income from other sources’. In case no excess stock is worked out, and the assessee is not able to explain the source of additional income, the addition made by the Ld. AO shall be confirmed. Since in the appeal before us, the assessee had argued only ground no. 4 and did not make any other submissions either in the course of the hearing or even in the paper book on other grounds of appeal, the ground nos. 5, 6, 7 and 8 are allowed for statistical purposes while other grounds of appeal being academic in nature do not need separate adjudication.”
Since the facts are similar and there is no evidence as the excess was worked out on the basis of books of account, therefore, the Ld. AO is directed to frame the assessment afresh, re-examine the matter and make the addition accordingly, if warranted. In case, the assessee is not I.T.A. No.: 67/GTY/2024 Assessment Year: 2018-19 Ritu Agarwala. able to explain the source of additional income, the addition made by the Ld. AO shall be confirmed. Since the assessee had argued only ground no. 4 and did not make any other submission either in the course of hearing or even in the paper book on other grounds of appeal, the other grounds of appeal i.e. ground nos. 5, 6, 7 and 8 are allowed for statistical purposes while other grounds of appeal being academic in nature do not need separate adjudication.
In the result, In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced on 07th July, 2025 under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963. [Manomohan Das] [Rakesh Mishra] Judicial Member Accountant Member Dated: 07.07.2025 Bidhan (P.S.) I.T.A. No.: 67/GTY/2024 Assessment Year: 2018-19 Ritu Agarwala. Copy of the order forwarded to:
Ritu Agarwala, Maruti Hardware, 29 Cantonment, Shillong, Meghalaya, 793001. 2. ACIT, Central Circle-2, Guwahati.
CIT(A)- Central NER, Guwahati.
CIT-
CIT(DR), Guwahati Benches, Guwahati.
Guard File. //// By order