SWAROOP NARAIN SHIV NARAIN,JAIPUR, RAJASTHAN vs ACIT, CENTRAL CIRCLE - 3, JAIPUR, JAIPUR, RAJASTHAN

Income Tax Appellate Tribunal, JAIPUR BENCHES, “A” JAIPUR

Before: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM

For Appellant: Shri Rajeev Sogani, CA

For Respondent: Shri Arvind Kumar, CIT-DR

Hearing: 10/09/2024Pronounced: 17/10/2024

Aggrieved from the order of Assessing Officer, assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below:

“Conclusion:

Swaroop Narain Shiv Narain vs. ACIT The appellant has not been able to explain the source of funds for making expenditure for buying the stock in trade as found excess. In case it is claimed that it is from business income the appellant is required to show how the same is from business sources and not from any other sources.”

As per CIT v. M.Ganapathi Mudaliar [1964] 53 ITR 623 (SC), A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC), the Revenue is not to find out the source and the assesse is required to explain the source with supportings.

If it is out of some undisclosed purchases then the question arises from where such purchases were paid and such undisclosed money/unexplained expenditure itself is also taxable. If some credit were received from some unexplained source (to pay for purchases) the same itself is taxable. Be that as it may, the onus is on the assesse to explain and substantiate the source. Roshan Di Hatti v. Commissioner of Income-tax [1977] 107 ITR 938 (SC)[08- 03- 1977], Kale Khan Mohammad Hanif v. Commissioner of Income-tax [1963] 50 ITR 1 (SC)[08-02-1963]] Unexplained stock cannot be presumed to be business income. If the assesse claims so, the assesse is required to prove the same. [Hon'ble Supreme Court in the case of Commissioner of Income-tax v. Devi Prasad Vishwanath [1969] 72 ITR 194 (SC)[01-08-1968] Once it was found by Assessing Officer that there was excess stock, in absence of explanation by assessee, conclusion was inescapable that excess stock, if any, was from undisclosed sources - Further once assessee's explanation, if any, had not been accepted, resultant position was that there was excess stock undisclosed in books of account and non disclosure was only with a view to suppress income. [Suraj Bhan Oil (P.) Ltd. v. Deputy Commissioner of Income- tax [2022] 138 taxmann.com 19 (Madhya Pradesh)] [SLP against this judgement was dismissed reported at [2022] 141 taxmann.com 477 (SC)/12022] 288 Taxman 635 (SC)[25-07-2022]. Further excess stock found cannot be presumed to be from business income of the year as the sources of buying unaccounted excess stock can be numerous.

It has also not been shown with sources details that it is only the earlier earned (during the same year) business income (manner of earning and source of earning of such income) which has been invested in the excess stock.

Swaroop Narain Shiv Narain vs. ACIT Respectfully following the judgements of Hon'ble Supreme Court in the cases of Commissioner of Income-tax v. Devi Prasad Vishwanath [1969] 72 ITR 194 (SC)[01-08-1968), Suraj Bhan Oil (P.) Ltd. v. Deputy Commissioner of Income- tax [2022] 141 taxmann.com 477 (SC)/[2022] 288 Taxman 635 (SC)[25-07- 2022] and Principal Commissioner of Income-tax v. Deccan Tobacco Company [2022] 137 taxmann.com 470 (SC)/[2022] 286 Taxman 558 (SC)[11- 03-2022), and other judgements, there can be no dispute in the facts of the present case regarding the applicability of sections 69 of the Act. In view of the above the action of the Id. AO in the assessment order is upheld. The unexplained stock found during the course of survey action is alternatively also held to be taxable under section 69B of the Act. Accordingly the applicability of section 115BBE of the Act is also upheld.

Accordingly this ground of appeal is hereby dismissed.”

5. As the assessee did not find any favour, from the appeal so filed before the ld. CIT(A)/NFAC, the assessee has preferred the present appeal before this Tribunal on the ground as reproduced hereinabove. To support the various grounds so raised by the ld.

AR of the assessee, has filed the written submissions in respect of the various grounds raised by the assessee and the same is reproduced herein below:

I. Appellant is a Partnership Firm which came into existence on 20.10.2012 with the main object of carrying on the business of trading of Timbre, Ply, Sunmica, Jute and similar items.

II. A search operation was carried on 28.09.2017 against “Swaroop Narain Shiv Narain & Kumawat Group”. The Appellant Firm happens to be part of Swaroop Narain Shiv Narain Group. Survey operations were carried out at the business premises of the Appellant Firm.

III. Return of Income for the A.Y. 2018-19 was e-filed on 19.09.2018 declaring total income of Rs. 21,99,550/- wherein additional income of Swaroop Narain Shiv Narain vs. ACIT Rs. 5,095/- was offered as undisclosed business income on account of difference in stock between physically found and balance as per books of accounts. The assessment was completed under section 143(3) r.w.s. 153A of the IT Act, 1961 vide order dated 30.12.2019 at a total income of Rs. 44,67,880/-. The only addition made was amounting to Rs. 22,68,327/- on account of alleged excess stock found during the course of survey.

GROUND NOs 1 to 6: Addition of Rs. 22,68,327/- on account of alleged excess stock found at the time of survey 1. ASSESSMENT PROCEEDINGS

1.1. During the course of survey action; Stock of Plywood, Chip, Vinear Wood, Cylinderical Wood, Board, Sunmica etc. was found at the following business premises:

S. No. Business Place Amount (in Rs.) i. 212, Kishanpole bazar, Jaipur 11,44,197 ii. D-46, Hathibabu Marg, Banipark, Jaipur 109,67,478 iii 1, Near Lal Piyau, Pareek College Road, 1,20,32,659 Station Road, Jaipur

2,41,44,334

1.2. The stock as per books, as on that date, was derived at Rs. 2,18,76,007/. Accordingly, excess stock amounting to Rs. 22,68,327 (2,41,44,334 – 2,18,76,007) was determined as on the date of survey. The inventory prepared by the Department is appearing at PB 58- 96. Statements of Shri Ashok Kumar Somani employee of the Appellant Firm were recorded during the course of survey which are placed at PB 97- 104.

1.3. In the post search enquiry, the Appellant Firm vide letter dated 26.04.2018 [PB 109- 112] informed the DDI Wing that there is no excess stock. It was explained, with supporting evidences, that Assessee Firm was dealing in number of varieties of the same item. Each variety had 1.4. During the course of assessment proceedings, it was explained that there was excess stock of Rs. 5,095/- only. The erroneous valuation taken by the survey team was explained. Ld. AO could not find any fault in the explanation furnished by the Assessee Firm. However, ld. AO added the alleged difference for the sole reason that “the valuation of stock was done in the presence of the employees of the firm and two independent witness, hence its valuation per say is authentic and can’t be questioned” (AO page 3, last para). Ld. AO further invoked the provisions of section 115BBE for taxing the said alleged excess stock.

2. CIT(A)

2.1. Before ld. CIT(A) the same evidences were produced to substantiate that higher rates have been adopted for valuation of stock by the Department resulting into alleged excess stock. Ld. CIT(A) confirmed the action of ld. AO with the following observation at page 10 of his Order:

“However in the case of the appellant stock register is not maintained and further the nature of items remaining in the closing stock are not separately identified and not identifiable through opening stock purchase and sales etc. considering the nature of the business and the nature of the products being traded by the appellant.

In view of the above discussion this ground of appeal of the appellant is hereby dismissed.”

SUBMISSIONS

3.1. It is submitted that ld. CIT(A) has not expressed any disagreement with the fact that Assessee was dealing in different varieties and qualities of the same item. Ld. CIT(A) has also not disputed the documentary evidence that there was significant difference in the rates of different varieties. Ld. CIT(A) has also not disagreed that the valuation is done with reference to the rate of the highest variety of that item. It is submitted that when these facts are not in dispute then merely

3.2. It is significant to note that ld. AO has not rejected the books and even ld. CIT(A), using his powers, has not rejected the books.

3.3. During the year under consideration Assessee had declared a GP of 10.53% on turnover of 17.12 crores as compared to GP of 8.86% declared on a turnover of 18.66 crores during the immediately preceding previous year. It is submitted that if the said addition of Rs. 22,68,327/- is added to the declared trading results then the GP is worked out to be 11.85 % which makes this GP to be 33.86% higher than the immediately preceding year’s GP.

3.4. Complete working to substantiate the error committed by Department in assigning value to certain items at the highest rate in respect of different qualities of that item is enclosed as Annexure to this submission. Necessary bills of purchases of the quantity remaining in stock as on the date of the survey are also placed in Paper Book to support the correct valuation to be assigned to the inventory [PB 24- 57].

3.5. It is also submitted that post survey Assessee Firm had prepared correct inventory. The Assessee Firm had brought on record the error which was against the Assessee Firm wherein Department had undervalued the stock of waterproof sheet by Rs. 4,00,081/- (value taken by Department 13,185/- against the actual value of 4,13,265/- CIT (A) Page 6).

3.6. It is submitted that it is unbelievable and against the human probabilities that when assessee was dealing in various varieties and qualities of the same item, the stock, as on the date of survey, would consist that of highest variety only. Reliance is placed on the decision of the Hon’ble Supreme Court in the case of Sumati Dayal v. CIT, [1195] 214 ITR 801 (SC) which has propounded the theory of human probability.

3.7. Ld. CIT(A) has referred to certain judicial pronouncements regarding the validity of retraction (Bachittar Singh CIT(A) Page 8, Dr. SC Gupta CIT(A) Page 9). It is submitted that it is not a case of retraction. It is a case where certain patent errors have been committed by the Department and the same have been highlighted at the earliest Swaroop Narain Shiv Narain vs. ACIT point by way of submission dated 26.04.2018 before the Investigation Wing immediately after search. Even the judicial pronouncements have laid down the law that if assessee substantiates the retraction with documentary evidences then mere earlier admission should not result into any adverse inference against the assessee. Reliance is placed on the judgment of the Hon’ble Supreme Court in the case of Pullangode Rubber Produce Co. [1973] 91 ITR 18 (SC).

3.8. It is submitted that during survey proceedings, statements of one employee Shri Ashok Kumar Somani were recorded that were only w.r.t. stock found at one of the THREE shops namely at 212, Kishanpole Bazar, Jaipur where stock found was only Rs. 11,44,797/- [PB 103- Q No. 25]. Therefore, the stand taken by lower authorities that stock taken was accepted by the employee of the Assessee Firm in statements recorded under section 131 is erroneous, without any basis and contrary to facts on record.

3.9. It is submitted that none of the partners were questioned about excess stock and accordingly no one had admitted about excess stock. Thus, there is no question of retraction of any admission.

3.10. Ld. AO at page 2 para 5 of his Order, has mentioned that stock was valued “…as per the rates provided by the employees of the assessee who were present there on behalf of M/s Swaroop Narain Shiv Narain….”. It is submitted that survey team was duty bound to verify the rates from purchase invoices. Making additions merely on the basis of information given by employees, without verifying the same is illegal. Reliance is placed on the following judicial pronouncement:

• CIT v. Planet Hollywood India (P.) Ltd. (2024) 114 ITR (Trib.) (S. No. 22) (Mumbai)

“the cash deposits in the assessee’s bank account were out of the cash balance available in the books of account, which was generated from cash sales made by the assessee to its members. As the Assessing Officer had not rejected the books of account, there was no reason to reject the explanations given by the assessee. When the evidence in the form of books of account were available, it was necessary for the Assessing Officer to address it and prove the books of account unreliable. Admittedly, the Assessing Officer did not do so. Hence, the Assessing Officer fell into error in relying upon the statements given by Swaroop Narain Shiv Narain vs. ACIT the employees of the assessee and another concern, who were not aware of the entire business activities of the assessee as clearly expressed by them in their respective statements. Therefore, the Commissioner (Appeals) was justified in deleting the addition.” 3.11. Ld. Lower Authorities have over emphasized the role of witnesses. The presence of witnesses only suggests that survey was conducted in fair manner without using third degree measures. Witnesses have no role in deciding fairness of stock valuation. In view of the above, the addition of Rs. 22,68,327/- may please be deleted. GROUND NO. 7: Invoking the provisions of section 115BBE Alternatively, without prejudice and without agreeing, following submission in respect of invoking the provisions of section 115BBE be considered.

Since there is no excess stock except to the tune of Rs. 5,095/- therefore, provisions of section 69 have no relevance and consequently provisions of section 115BBE have no application.

It is submitted that even if excess stock is worked out the same has to be taxed as business income under the head income from Business and Profession.

3. It is submitted that Assessee Firm has been dealing in the items since last so many years which have been found in excess at the time of survey. Before ld. CIT(A), reliance was placed on the judgment of the Jurisdictional High Court in the case of PCIT v. Bajargan Traders 86 Taxmann.com 295 (Rajasthan) 466 ITR 397(Raj) to substantiate the legal proposition that the excess stock of the items regularly traded in is generated/accumulated out of the business income of dealing in the same items. Reliance was also placed on the following decisions of different Benches of Hon’ble ITAT which have accepted the above legal proposition and consequently non-applicability of the provisions of section 115BBE:

• Govind Gidomal Lulla v. CIT • Deepak Setia v. DCIT 106 ITR (T) 125 (Amritsar- Trib.) • Pramod Singla v. ACIT 154 Taxmann.com 347 (Chandigarh) • ITO v. Riddhi Siddhi Jewellers 107 ITR (Trib) 662 (Rajkot) • Overseas Leather v. DCIT 107 ITR (Trib) 688 (Chennai)

Swaroop Narain Shiv Narain vs. ACIT 4. Further reliance is placed on a recent decision of Hon’ble ITAT, Amritsar Bench in the case of Milki Mal Des Raj Jain v. ACIT, (2024) 114 ITR (Trib.) 17 (Amritsar), which has followed the Rajasthan High Court Judgment in the case of Bajargan Traders (supra).

In addition to above it is submitted that Hon’ble Coordinate Bench of ITAT Jaipur has held that excess stock found of the items dealt with by the assessee is to be taxed as business income and, therefore, provisions of section 115BBE are not applicable in such situations:

• Mukesh Kumar Saini vs. The Pr. Commissioner of Income Tax- (Central), Jaipur-05. ITA No. 477/JPR/2024

6. Ld. CIT(A) has tried to distinguish the judgment of the Hon’ble Jurisdictional High Court in the case of Bajargan Traders (supra) by misinterpreting the ratio laid down by the Hon’ble High Court. The Hon’ble High Court, in fact, has held:

“In a cases where source of investment /expenditure is clearly identifiable and alleged undisclosed asset has no independent existence of its own or there is no separate physical identity 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 u/s 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identifiable.”

It is undisputed that there was no independent physical existence of the excess stock. This has been so admitted by ld. CIT(A) at second last line of page 10 of his Order. In fact the excess stock is only on account of higher rate applied for valuing the stock. Alternatively, it is submitted that valuation of stock involves estimation. Assessee, undisputedly, is not maintaining stock records. Therefore, assuming, without agreeing, the rates applied are correct still the difference is on account of earlier errors committed by the Assessee Firm itself in assigning the rates to different variety of items in its stock. Therefore, the difference in valuation is possibly a cumulative effect of error of such estimation in earlier years and is taxed as business income in the year it is surfaced.

7. Ld. CIT(A) has also attempted to distinguish the above judgment of Jurisdictional High Court in the case of Bajargan (supra) by observing at page 18 of his Order that the Assessee Firm has disputed the excess stock and, therefore, for this very reason the judgment is not applicable. It is submitted

8. The ld. CIT(A) has erred in relying on the following judicial pronouncements to shift the burden of proving the source of investment on the assessee. All the following judgments are related to section 68 where definitely the burden is on the Assessee because amount is credited in his books: • CIT v. Devi Prasad Vishwanath [1969] 72 ITR 194 (SC) • Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC) • Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 (SC) • CIT v. M. Ganapathi Mudaliar [1964] 53 ITR 623 (SC) • Navin Shantilal Mehta v. IT) [2018] 90 taxmann.com 16 (Mumbai- Trib.)

The above decisions have no applicability because nothing was found credited in the books of the Assessee Firm. The excess stock was of the same items in which the Firm was dealing since so many years. There was no separate physical existence of these items. The difference was only on account of higher rates adopted. Therefore, it in itself, is established that excess stock was out of the business dealings of the same items.

9. Ld. CIT(A) has also erred in placing reliance on the following judicial pronouncements which have no relevance or context to the present issue involving applicability of section 115BBE. These following cases were prior to the introduction of section 115BBE and, therefore, when the excess stock was found to be taxable that made no difference, regarding rate of tax, whether taxed as business income or as income from other sources. Therefore, these decisions had no occasion to decide the issue in the context of applicability of section 115BBE. • Neeraj Agrawal v. DCIT [2023] 152 taxmann.com 632 (Allahabad- Trib.) • Suraj Bhan Oil (P.) Ltd. v. DCIT [2022] 446 ITR 539 (Madhya Pradesh)

10.

Ld. CIT(A) has also misplaced his reliance on the judgment of the Hon’ble Supreme Court in the case of PCIT v. Deccan Tobacco Company [2022] 137 taxmann.com 470 (SC) for the following reasons: • The Hon’ble Supreme Court has simply admitted the SLP which in itself, does not become the judgment of the Hon’ble Supreme Court.

Swaroop Narain Shiv Narain vs. ACIT • The issue has been decided in favour of the assessee by the Hon’ble High Court and unless it is reversed by the Hon’ble Supreme Court, the judgment of Hon’ble High Court remains in force and which is in favour of the Assessee. • The matter was related to section 263 of the IT Act, 1961.

11. Similarly, ld. CIT(A) has further misplaced his reliance on the judgment of the Hon’ble Madras High Court in the case of SVS Oil Mills v. ACIT [2019] 418 ITR 442 [Madras] for the reason that the issue involved was with reference to allowability of deduction under section 69C and not with reference to taxability of excess stock.

12.

Ld. CIT(A) has also discussed the issue of “No Double Taxation” as well as “verifiable purchase behind the stock otherwise unexplained” at page 25 of his Order, which issues have not at all been raised by the Assessee nor there exists any controversy in this regard.

In view of the above, invoking of the provisions of section 115BBE may please be quashed. ”

In addition to the above written submission, the ld. AR appearing on behalf of the assessee submitted following charts for the contention on the valuation which reads as under :

SUNMICA

Supplier Name Date Quantity Rate PB Patel Wood Product 28-06-2017 660 220 26 Patel Golden Plywood Co 29-06-2017 630 220 27 Swaroop Narain Shiv Narain vs. ACIT • It is evidenced that, product of similar description having different brand / variety was also purchased by the assessee @Rs.220 per piece. Therefore, the quantity of 550+600=1150 remaining in closing stock as on the date of Survey out of these purchases of 660+630=1290, should be valued @Rs.220 per piece.

Supplier Name Date Quantity Rate PB

Patel golden Plywood Co 27-05-2017 825 174 29 Patel golden Plywood Co 16-05-2017 900 174 30 Patel golden Plywood Co 08-04-2017 1539 180.16 31

• It is evidenced that, product of similar description having different brand / variety was also purchased by the assessee @Rs.174, Rs.180.16 per piece respectively. Therefore, the quantity remaining in stock, out of these purchases, should be valued @Rs.174, Rs.180.16 per piece respectively.

PLYWOOD

• It is evidenced that, product of similar description having different brand / variety was also purchased by the assessee @Rs.133 per sq.mtr. Therefore, the quantity remaining in stock, out of these purchases, should be valued @Rs.133 per sq.mtr.

Supplier Name Date Quantity Rate PB (Alt)

Steel Wood & Veneer 01-06-2016 893 53 32 Swaroop Narain Shiv Narain vs. ACIT • It is evidenced that, product of similar description having different brand / variety was also purchased by the assessee @Rs.53 per sq.mtr. Therefore, the quantity remaining in stock, out of these purchases, should be valued @Rs.53 per sq.mtr. In the instant case, the actual rate is more , therefore, the correct valuation has increased.

Supplier Name Date Quantity Rate PB

Vidhya Ply and Board P Ltd 18-04-2015 409.43 48.2 33 Vidhya Ply and Board P Ltd 18-04-2015 22.77 48.2 33

• It is evidenced that, product of similar description having different brand / variety was also purchased by the assessee @Rs.48.2 per sq. mtr. Therefore, the quantity remaining in stock, out of these purchases, should be valued @Rs.48.2 per sq. mtr.

Supplier Name Date Quantity Rate PB

Steel Wood & Veneer 01-06-2016 893 53 32

• It is evidenced that, product of similar description having different brand / variety was also purchased by the assessee @Rs.53 per sq.mtr. Therefore, the quantity remaining in stock, out of these purchases, should be valued @Rs.53 per sq.mtr. In the instant case, the actual rate is more , therefore, the correct valuation has increased.

Supplier Name Date Quantity Rate PB

Supplier Name Date Quantity Rate PB Steel Wood & Veneer 01-06-2016 893 53 32

• It is evidenced that, product of similar description having different brand / variety was also purchased by the assessee @Rs.153 per sq.mtr. Therefore, the quantity remaining in stock, out of these purchases, should be valued @Rs.153 per sq.mtr.

Supplier Name Date Quantity Rate PB Vidhya Ply and Board P Ltd 18-04-2015 409.43 48.2 33 Vidhya Ply and Board P Ltd 18-04-2015 22.77 48.2 33

• It is evidenced that, product of similar description having different brand / variety was also purchased by the assessee @Rs.48.2 per sq.mtr. Therefore, the quantity remaining in stock, out of these purchases, should be valued @Rs.48.2 per sq.mtr.

Swaroop Narain Shiv Narain vs. ACIT • It is evidenced that, product of similar description having different brand / variety was also purchased by the assessee @Rs.53 per sq.mtr. Therefore, the quantity remaining in stock, out of these purchases, should be valued @Rs.53 per sq.mtr. In the instant case, the actual rate is more , therefore, the correct valuation has increased. FLUSH DOOR WOOD

Quantity (Sq. Supplier Name Date Mtr) Rate PB

Vijay Plywood Ind. 30-06-2017 900 287 40

• It is evidenced that, product of similar description having different brand / variety was also purchased by the assessee @Rs.287 per sq.mtr. Therefore, the quantity remaining in stock, out of these purchases, should be valued @Rs.287 per sq.mtr.

Quantity (Sq. Supplier Name Date Mtr) Rate PB Vijay Plywood Ind. 30-06-2017 900 287 40

Supplier Name Date Quantity (Sq. Mtr) Rate PB

Vijay Plywood Ind. 06-03-2017 1012.50 287 41