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Facts
During a survey, an excess stock of gold and silver valued at Rs. 2,06,97,491/- was detected. The assessee explained that this excess stock was acquired through business income and offered it as income. The Assessing Officer (AO) treated this as unexplained investment under Section 69B of the Income Tax Act.
Held
The Tribunal held that the assessee had provided a plausible explanation that the excess stock was acquired from business income and had been accounted for in the books. The AO and CIT(A) erred in treating it as unexplained investment under Section 69B. The case law cited by the revenue was not applicable as the assessee had accounted for the stock.
Key Issues
Whether the excess stock found during the survey, explained by the assessee as acquired from business income and accounted for, should be treated as unexplained investment under Section 69B.
Sections Cited
69B, 115BBE, 133A, 139
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI AMITABH SHUKLA
: 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
:: 2 :: 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 for the other appeal No.410/Chny/2024.
Grounds of appeal raised by the assessee in are as under:-
The order of the learned Commissioner Of Income Tax (Appeals)-20, is wrong, illegal and is opposed to law.
2. 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.
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.
Brief facts are that both the assessee’s are engaged in the business of trading of gold and the assessee in 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, 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
:: 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.
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 :: 6 ::
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 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
:: 8 :: 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 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 for AY 2019-20 order dated 26.07.2023, wherein excess stock was claimed to be out of current years income and 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.
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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
:: 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.
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 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 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. 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
Order pronounced on the 16th day of October, 2024, in Chennai.