PRAKASH CHAND HARISH KUMAR,CHENGALPET vs. ACIT CENTRAL CIRCLE 3(3), CHENNAI

4. The learned Commissioner of Income Tax (Appeals)-20 ought to have seen that the total value of closing stock recorded in the books of account included the excess stock accumulated and purchased from unregistered dealers and customers amounting to Rs.2,06,97,491/- detected at the time of survey and the corresponding amounts offered as business income by writing off the sundry creditors in the credit side of Profit & Loss Account.

5. The Ld. Commissioner of Income Tax (Appeals)-20 ought to have seen that the appellant while accounting for difference in surplus stocks, found at the time of survey, by adding the same in the stock register and passing corresponding entry in financial books, has also given proper explanation for the source from which the surplus stock was acquired which stands uncontroverted by the revenue.

6. The Ld. Commissioner of Income Tax (Appeals)-20 ought to have seen that the excess stock found at the time of survey is part of the mixed stock and cannot be :: 3 ::

clearly identified from declared stock as per the books of accounts maintained by the appellant.

7. The Ld. Commissioner of Income Tax (Appeals)-20 erred in relying on certain case laws which are clearly distinguishable on facts in as much as in the said case laws although the difference in stock was added in the stock register corresponding entries were not passed in the financial books.

For these and other grounds that may be rendered at the time of hearing it is most humbly prayed that the Hon'ble Tribunal may be pleased to allow the appellants appeal and thus render justice.

3. From the perusal of the grounds of appeal raised by the assessee, it is noted that the main grievance of the assessee is against action of the Ld.CIT(A) dismissing the appeal preferred by the assessee and confirming the addition made by the AO amounting to Rs.2,06,97,491/- u/s.69B of the Act.

:: 4 :: inventorized and found that there was an excess stock of new gold of 4446.443 grams valued at Rs.1,66,89,591/-, old gold of 1475 grams of Rs.36,85,500/- and silver of 8010 grams of Rs.3,20,400/-. The assessee was asked to explain the discrepancy and according to the survey-team, the assessee couldn’t properly explain the excess stock and undertook to pay the corresponding tax for the difference in stock of Rs.2,06,97,491/-.

However, according to the assessee, what he meant was that he could offer it as business income of Rs.2,06,97,491/- as business income.

During the assessment proceedings, the AO asked for assessee’s explanation and justification that the excess stock was sourced from business income; and pursuant to it, the assessee’s reply is noted by the AO at Para 10, Page Nos.4-5 of his assessment order, which is reproduced as under:

...The assessee is engaged in the business of retail in gold jewellery and silver from the past 15 years in the name and style of M/s. Suresh Gold House. Further, it is customary in nature of trade that when our regular customers comes to buy new Jewellery, either part or full payment is made by exchange of old gold jewellery. This is regular practice carried on by the assessee in his business for several years. The above stated receipt of gold jewellery from customers is not recorded in the regular books of accounts. Hence, the sales consideration in respect of new gold jewellery is shown in full and the remaining amount which is not received from the customer is out of unaccounted Income generated from retail trade of business of gold jewellery which is infused in the business of the assessee. Further, it is pertinent to mention here that the assessee used to accept old gold jewelry only from known customers who had purchased the said jewellery from the assessee in the past.

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Further, the assessee have also made purchases of gold jewellery from unregistered dealers out of the business income not recorded in the regular books of accounts. Therefore, the assessee stated that the total stock in trade found during the course of survey proceedings in the business premises of the assessee is generated and accumulated from both accounted as well unaccounted income of the same business activities.

Furthermore, the assessee stated that the alleged excess stock in trade is accumulated by way of purchases from unregistered dealers and customers and, hence, the books of accounts of the assessee is debited by purchases made from unregistered dealers. As a result, the stock of the business entity has increased in the books of accounts. Further, the amount outstanding in the name of unregistered dealers is written off in the books of accounts and the same is shown as business income in the credit side of the profit and Loss Account. The assessee paid the taxes before filing of the return of income u/s.139 of the Income Tax Act-1961.

And even though the assessee brought the transaction/purchase of excess stock in his audited books and reconciled the excess stock in his books during the assessment proceedings, the AO didn’t accept the assessee’s consistent stand that the excess-stock was purchased from unaccounted business income of the current year. According to the AO, the assessee failed to explain the source for purchase of excess stock by not furnishing any documentary evidence to substantiate the purchase of excess stock and the source for such excess stock [viz., details of the dealers, customers, PAN, present communication address from whom such purchases have been made, etc.]. And the AO cited the decision of the Hon’ble Madras High Court in the case of M/s.SVS Oils Mills v. ACIT in :: 6 ::

Rs.2,06,97,491/- needs to be treated as unexplained investment u/s.69B of the Act.

According to the Ld.CIT(A), when the assessee claimed that purchases from unregistered dealers having happened over a period of time i.e. number of years, the Ld.CIT(A) wondered as to how come the purchases relatable to previous years be recorded in books maintained for current year and therefore, he didn’t accept the contentions of the assessee and dismissed the appeal. Aggrieved by the impugned action of the Ld.CIT(A), the assessee is before us.

Suresh Jewellery. Pursuant to the survey in the premise of the assessee on 05.08.2019, Survey Team did physical inventory which revealed detection of excess stock of gold (new & old) as well as silver valued at Rs.2,06,97,491/-. A statement was recorded from the assessee by survey-team in respect of the excess stock who expressed his difficulty in explaining difference and expressed that “it may be due to old stock” and also offered to pay corresponding tax for the difference in stock to the tune of Rs.2,06,97,491/- in addition to his regular income for AY 2020-

:: 8 :: further stock. But the Ld.CIT(A) didn’t agree and confirmed the action of the AO.

In the present case, the assessee’s consistent stand about the excess stock found during survey which we note has been reproduced by the AO at Para No.10 of the assessment order, wherein, assessee is noted to have admitted that “…..total stock in trade found during the course of survey proceedings from the business premise of the assessee is generated and accumulated as well as unaccounted income of the same business activity” meaning that the excess stock found during the course of survey on 05.08.2019 i.e. Rs.2,06,97,491/- was generated out of the business income of the assessee during the current year which has been offered to tax as additional income of the assessee for AY 2020-21.

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Since, the assessee has explained the source for excess stock and asserted that it is out of current year income generated from the jewellery business, it can’t be said that the assessee has not given any explanation regarding the source of excess stock. Hence, the AO didn’t accept the explanation given by the assessee regarding the excess stock. Therefore, in the facts and circumstances of the case, we have to examine whether the assessee’s explanation regarding excess stock was generated from business income or income from undisclosed income?

:: 12 :: note that the assessee is only into the business of trading in gold/silver and has no other source of income which fact is evidenced from the earlier year financials viz., return of income as well as the balance sheet, P&L A/c etc.; and it is not the case of the AO that the assessee had any other source of income other than trading of gold/silver. The assessee’s explanation that source of acquisition of excess gold/silver was from business of the assessee has not been disproved by the AO. Further, it is a common knowledge that income generated is either ploughed back in the form of stock in trade or receivables or spent for other purpose like acquisition of assets outside the business. In this case, it is pertinent to note that during the course of survey except stock difference, no other investment with any other asset was found, which lends credence to assessee’s explanation that the source of purchase of excess stock was business income of the assessee.

Order pronounced on the 16th day of October, 2024, in Chennai.