PRAKASH CHAND HARISH KUMAR,CHENGALPET vs. ACIT CENTRAL CIRCLE 3(3), CHENNAI
Facts
During a survey on the premises of the assessees, engaged in the gold and silver trading business, an excess stock of gold and silver valued at Rs. 2,06,97,491/- was detected. The assessees explained this excess stock as arising from their business income, acquired through various means including exchange of old gold jewellery from customers and purchases from unregistered dealers. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] treated this excess stock as unexplained investment under Section 69B of the Income Tax Act.
Held
The Tribunal held that the assessees had provided a plausible explanation for the excess stock, considering their business practices and the nature of their trade. The Tribunal found that the excess stock was part of the overall stock-in-trade and was acquired from the business income of the current year, which had been offered to tax. The Tribunal distinguished the present case from the case law relied upon by the AO, where the excess stock was not accounted for in the books. Therefore, the addition made under Section 69B of the Act was considered erroneous.
Key Issues
Whether the excess stock found during the survey, which the assessee claims to be from business income, can be treated as unexplained investment under Section 69B of the Income Tax Act.
Sections Cited
69B, 115BBE, 133A
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI AMITABH SHUKLA
आयकर अपील�य अ�धकरण, ‘ए’ �यायपीठ, चे�नई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH: CHENNAI �ी एबी टी. वक�, �ाियक सद� एवं एवं एवं एवं �ी अिमताभ शु�ा, लेखा सद� के सम� BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.409/Chny/2024 �नधा�रण वष�/Assessment Year: 2020-21 v. Mr. Prakash Chand Harish Kumar, The ACIT, No.51, High Road, Chengalpet, Central Circle-3(3), Tamil Nadu-603 001. Chennai. [PAN: AAFPK 5543 D] (अपीलाथ�/Appellant) (��यथ�/Respondent)
आयकर अपील सं./ITA No.410/Chny/2024 �नधा�रण वष�/Assessment Year: 2020-21 v. Mr. Shanthilal Kishore Kumar, The ACIT, No.18, Big Maniakara Street, Central Circle-3(3), Sowcarpet, Chennai. Chengalpet-603 001. [PAN: AAFPK 5538 G] (अपीलाथ�/Appellant) (��यथ�/Respondent)
: अपीलाथ� क ओर से/ Appellant by Mr.D. Anand, Advocate : Dr. Samuel Pitta, JCIT ��यथ� क ओर से /Respondent by : 12.08.2024 सुनवाईक तार�ख/Date of Hearing : घोषणाक तार�ख /Date of Pronouncement 16.10.2024 आदेश / O R D E R PER ABY T. VARKEY, JM: These are appeals preferred by the two different assessee’s against
the order of the Learned Commissioner of Income Tax (Appeals)/NFAC,
(hereinafter in short "the Ld.CIT(A)”), Chennai-20, both dated 29.12.2023
ITA No.409/Chny/2024 (AY 2020-21) Mr. Prakash Chand Harish Kumar & ITA No.410/Chny/2024 (AY 2020-21) Mr. Shanthilal Kishore Kumar
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for the Assessment Year (hereinafter in short "AY”) 2020-21. Both parties
agreed that the facts as well as the grounds of appeal raised in both the
appeals are similar/identical, except the figure of addition u/s.69B of the
Income Tax Act, 1961 (hereinafter in short "the Act”). Therefore, we take
ITA No.409/Chny/2024 as the lead case, result of which will be followed
for the other appeal No.410/Chny/2024.
Grounds of appeal raised by the assessee in ITA No.409/Chny/2024
are as under:-
The order of the learned Commissioner Of Income Tax (Appeals)-20, is wrong, illegal and is opposed to law.
The Ld. Commissioner of Income Tax (Appeals)-20 erred in upholding the order of assessment by assessing the business income offered by the appellant as unexplained investment under section 69B r.w.s 115BBE of the Income Tax Act.
The Ld. Commissioner of Income Tax (Appeals)-20 ought to have seen that addition under section 69B r.w.s 115BBE of the Income Tax Act is warranted only if the twin condition that the excess stock found at the time of survey in not recorded in the books of account and the appellant offers no satisfactory explanation. In the instant case the appellant has offered satisfactory explanation that the surplus stock found at the time of survey is generated out of business income, which source stands uncontroverted by the learned Assessing officer.
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.
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.
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
ITA No.409/Chny/2024 (AY 2020-21) Mr. Prakash Chand Harish Kumar & ITA No.410/Chny/2024 (AY 2020-21) Mr. Shanthilal Kishore Kumar
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clearly identified from declared stock as per the books of accounts maintained by the appellant.
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.
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.
Brief facts are that both the assessee’s are engaged in the business
of trading of gold and the assessee in ITA No.409/Chny/2024, runs the
same, in the name and style of M/s.Suresh Gold House; and the survey
u/s.133A of the Act was conducted at the premise of the assessee on
05.09.2019 (for AY 2020-21 i.e. the relevant assessment year under
consideration). The assessee filed his return of income (RoI) for AY 2020-
21 on 26.03.2021 declaring total income of Rs.2,17,20,650/- whereas,
the other assessee in ITA No.410/Chny/2024 had declared total income of
Rs.79,92,600/-. The AO noted that during the course of survey, physical
stock available at the business premise of the assessee was duly
ITA No.409/Chny/2024 (AY 2020-21) Mr. Prakash Chand Harish Kumar & ITA No.410/Chny/2024 (AY 2020-21) Mr. Shanthilal Kishore Kumar
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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.
ITA No.409/Chny/2024 (AY 2020-21) Mr. Prakash Chand Harish Kumar & ITA No.410/Chny/2024 (AY 2020-21) Mr. Shanthilal Kishore Kumar
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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.
However, the AO didn’t agree to the contention of the assessee.
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
ITA No.765 of 2018, and held that the excess stock amounting to
ITA No.409/Chny/2024 (AY 2020-21) Mr. Prakash Chand Harish Kumar & ITA No.410/Chny/2024 (AY 2020-21) Mr. Shanthilal Kishore Kumar
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Rs.2,06,97,491/- needs to be treated as unexplained investment u/s.69B
of the Act.
Aggrieved, the assessee preferred an appeal before the Ld.CIT(A),
who was pleased to dismiss the appeal of the assessee by observing that
the assessee has passed journal entry with respect to unregistered
purchases and sundry creditors written off, without giving any details.
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.
We have heard both the parties and perused the material available
on record. We note that the assessee is an individual engaged in the
business of trading of gold jewellery/silver in the name & style of M/s.
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
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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-
Thereafter, the assessee has filed the return of income on
26.03.2021 for AY 2020-21 declaring total income of Rs.2,17,20,650/-
(which included Rs.2,06,97,491/- shown as sundry creditors written off
and asserted that this was the income which he offered during the
survey). During the appellate proceedings, the assessee asserted that he
was not carrying out any other business and the stock difference
happened in the course of its day to day business and explained the
modus-operandi and pointed out that excess stock was mixed with old
stock-in-trade and not separately identifiable and the entire stock
including excess stock was found at the business premise are thus, part
and parcel of the regular stock in trade and thus asserted that excess
stock was nothing but business stock in trade . Further, the assessee also
claimed that entire stock (including excess stock) was acquired out of
income from jewellery business meaning the excess stock was also out of
income from jewellery business but not disclosed. In other words, the
undisclosed business income was ploughed back into business to acquire
ITA No.409/Chny/2024 (AY 2020-21) Mr. Prakash Chand Harish Kumar & ITA No.410/Chny/2024 (AY 2020-21) Mr. Shanthilal Kishore Kumar
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further stock. But the Ld.CIT(A) didn’t agree and confirmed the action of
the AO.
The aforesaid facts are undisputed; and the only dispute is
regarding the “head of income” under which additional income offered in
respect of excess stock needs to be assessed i.e. whether it is under the
head “profits & gains of business or profession” or “under unexplained
investment u/s.69B of the Act”. The provisions of section 69B of the Act
deals with, where in any financial year the assessee has made
investments or is found to be the owner of any bullion, jewellery or other
valuable article and the Assessing Officer finds that the amount expended
on making such investments exceeds amount recorded in this behalf in
the books of accounts maintained by the assessee from any source of
income, and the assessee offers no explanation or the explanation offered
by the assessee is not in the opinion of the Assessing Officer, satisfactory,
the excess amount may be deemed to be the income of the assessee in
such financial year. Therefore, in order to assess any investment or
bullion, jewellery or other valuable asset, two conditions must be
satisfied. Firstly, the assessee must have expended amount towards
investment or in acquiring some asset and secondly, it is not recorded in
the books of accounts maintained for that financial year and further, the
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assessee neither offers any explanation nor explanation offered by the
assessee in the opinion of the Assessing Officer is not satisfactory, then
the deeming provision u/s.69B can be said to have been attracted.
However, in the present case, survey took place on 05.08.2019 and
assessee closed his books on 31.03.2020, audited the same, which was
produced before the authorities below and a perusal of it reveals that the
assessee has recorded the transaction (excess stock) in the audited
books; and note in this respect that the assessee has filed P & L a/c by
crediting the P & L a/c an amount of Rs.2,06,97,497/- as “sundry
creditors written off” which has been offered as income during the survey
and the same has been credited to the capital account of the Proprietor by
transferring the net profit as on 31.03.2020. By recording the aforesaid
transaction in the books of accounts, the assessee has reduced the
sundry creditors as on 31.03.2020 by Rs.2,06,97,497/- and has given
corresponding credit to the P & L a/c [credit side] which increases the
current years income and the same has been transferred to the capital
account of the Proprietor. And as rightly contended by the Ld.AR, the
present case is found to be similar to M/s.Mookambika Impex vs. DCIT in
ITA No.299/Chny/2023 for AY 2019-20 order dated 26.07.2023, wherein
excess stock was claimed to be out of current years income and
ITA No.409/Chny/2024 (AY 2020-21) Mr. Prakash Chand Harish Kumar & ITA No.410/Chny/2024 (AY 2020-21) Mr. Shanthilal Kishore Kumar
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consequent, relevant entries in the books was recorded by crediting
capital account of partners and corresponding increase was made in stock
in hand. In this case also, the corresponding income has been credited to
the Proprietor’s capital account in the form of profit and correspondingly
the sundry creditors has been written off. In this context, it would be
gainful to refer to the decision of the Hon’ble Supreme Court in the case
of Lakshmichand Baijnath v. CIT 35 ITR 416, wherein, the Hon’ble Apex
Court held that when an amount is credited in the business books of the
assessee, it is not an unreasonable inference to draw that it is receipt
from business about the excess stock found during the course of survey.
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.
ITA No.409/Chny/2024 (AY 2020-21) Mr. Prakash Chand Harish Kumar & ITA No.410/Chny/2024 (AY 2020-21) Mr. Shanthilal Kishore Kumar
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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?
In this regard, we note that the gold (new & old) as well as silver
found along with the stock shown by the assessee in the regular books
(as on 31.03.2019) shows closing stock at Rs.3,04,04,320/- which is the
opening stock as on 01.04.2019 and there was stock available from it at
the time of survey on 05.08.2019 (i.e. after four (4) months), and
therefore, the assessee’s assertion that the excess stock found on
05.08.2019 was mixed with regular stock in trade of the assessee can’t be
rejected unless there is material to disprove it. The assessee’s explanation
before the survey team during the course of survey and also before the
AO during assessment proceedings that source of acquisition of stock in
trade, is from the business income of the assessee, which explanation has
not been negated by the AO by producing evidence. In this context, we
ITA No.409/Chny/2024 (AY 2020-21) Mr. Prakash Chand Harish Kumar & ITA No.410/Chny/2024 (AY 2020-21) Mr. Shanthilal Kishore Kumar
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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.
In the light of the aforesaid discussion, the explanation offered by
the assessee that source of excess stock is out of income generated from
the business activity of the current year appears to be plausible
explanation and therefore, we are of the considered view that when the
assessee has explained the source for acquisition of excess stock was out
of business income, the AO ought to have accepted the explanation of the
ITA No.409/Chny/2024 (AY 2020-21) Mr. Prakash Chand Harish Kumar & ITA No.410/Chny/2024 (AY 2020-21) Mr. Shanthilal Kishore Kumar
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assessee and assessed the income under the head “profits and gains of
business or profession”, but not under the head “unexplained investment”
u/s. 69B of the Act. This is because, excess stock found during the course
of survey does not have any independent identity as the asset is a mixed
part of overall stock-in-trade found in the business premises of the
assessee, which in our considered view related to the business stock of
the assessee. Therefore, the AO/Ld.CIT(A) erred in treating the excess
stock u/s.69B of the Act and therefore, we direct deletion of addition of
Rs.2,06,97,497/-.
In the light of the discussion (supra), the case Law relied upon by
the Ld.DR in M/s. SVS Oils Mills (supra) is not applicable, because in that
case, the excess stock found during survey, the assessee didn’t account it
in its books of accounts and also not brought to tax in the relevant AY and
therefore, the AO in the absence of explanation about the source of
excess stock, had no other alternative but to make addition u/s.69B of
the Act towards excess stock. Under those peculiar facts, the Hon’ble
High Court observed that excess stock can’t come from vacuum and
upheld the action of the AO making addition u/s.69B of the Act. Whereas,
that is not the facts in the present case, and assessee has satisfactorily
explained the source of excess stock and brought the transaction in the
ITA No.409/Chny/2024 (AY 2020-21) Mr. Prakash Chand Harish Kumar & ITA No.410/Chny/2024 (AY 2020-21) Mr. Shanthilal Kishore Kumar
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books as noted supra. Therefore, the reliance made by the AO on the
case Law in the case of SVS Oils Ltd., (supra) is incorrect being not
applicable.
Similarly coming to ITA No.410/Chny/2024, since the facts and
grounds are identical, on the same reasoning mutatis-mutandis, we direct
deletion of Rs.79,92,600/-
In the result, appeals filed by both the assessee’s in ITA
No.409/Chny/2024 & ITA No.410/Chny/2024 are allowed.
Order pronounced on the 16th day of October, 2024, in Chennai.
Sd/- Sd/- (एबी टी. वक�) (अिमताभ शु�ा) (ABY T. VARKEY) (AMITABH SHUKLA) �या�यक सद*य/JUDICIAL MEMBER लेखा सद*य/ACCOUNTANT MEMBER
चे�नई/Chennai, +दनांक/Dated:16th October, 2024. TLN, Sr.PS आदेश क ��त,ल-प अ.े-षत/Copy to:
अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF
