NITIN SUWALAL SHINGAVI,AHMEDNAGAR vs. DCIT, CENTRAL CIRCLE-1(2), PUNE, PUNE

ORDER

PER DR. DIPAK P. RIPOTE, AM:

1. The learned CIT(A)-11, Pune has erred in law and on facts in confirming the action of the AO of taxing the amount of excess stock of Rs.25,10,000/- declared in the Survey U/Sec 133 A of the Act as deemed income U/Sec.69B r.w.s 115BBE of the Act. 2. The confirmation of the assessment by the learned CIT(A)-11, Pune without appreciating the appellant's submissions regarding the nature of the business and the inclusion of excess stock in the appropriate income head is unjust and against the principles of natural justice.

3. The learned CIT(A)-11, Pune has erred in confirming the action of the AO of taxing Rs.25,10,000/- declared on account excess stock deemed income U/Sec.69B r.w.s 115BBE of the Act on the ground that appellant has r furnished the nature of income at the time of survey and also before the AO the assessment proceedings.

.” Brief Facts of the case :

2. In this case the assessee filed return of Income for A.Y.2018- 19 on 30/09/2018. The assessee is engaged in the business of Trading of Gold and Silver ornaments. In the case of the assessee there was a Survey u/sec.133A of the Income Tax Act on 06/03/2018. During the Survey, Physical stock found was as under : Item Value in Rs. Gold 2,18,11,793/- Silver 22,24,305/- Alloy 8,000/- Total Stock 2,40,44,098/- 2.1 A tentative trading account was prepared for the period 01/04/2017 to 05/03/2018. The value of Stock worked out as per tentative trading account was as under : Item Value in Rs. Gold 1,90,84,719/- Silver 24,43,921/- Alloy 10,518/- Total Stock 2,15,39,160/- 2.2 During the survey the assessee was asked to explain the difference in the stock. The assessee submitted in the statement that Excess Stock of Rs.25,10,000/- as his additional income over and above regular income for AY 2018-19. In the Return of Income filed by the assessee for A.Y.2018-19, the assessee has shown the declared amount of Rs.25,10,000/- in the Profit and Loss account separately on Credit side as “Income declared in form of Gold”. During the Assessment proceedings the Assessing Officer(AO) asked assessee to explain why the declared amount should not be taxed u/s 69B of the Act. The assessee submitted letter dated 20/04/2021 in which assessee submitted that Stock declared is not unexplained investments and it was duly accounted in the books. It was submitted by the assessee in the said letter that the excess gold was on account of metal advance against orders from customers, from labourers and relatives. However, the AO treated the income of Rs. 25,10,000/- as unexplained investments u/s69B and taxed as per provisions of section 115BBE. The AO accepted Returned Income. Aggrieved by the Assessment Order the assessee filed Appeal before ld.CIT(A) who confirmed the Assessment order. Aggrieved by the same the assessee filed appeal before this Tribunal.

Submission of Ld.AR :

and as advised by survey party declared Rs.25,10,000/- over and above the normal business income in the statement given under oath to survey party.

The assessing officer issued notice u/s 142(1) of the Income Tax Act by issuing show cause therein that why the declared stock during survey proceedings should not be treated as unexplained investment u/s 68 and why this income should not be taxed at higher rates u/s 115BBE of the Income Tax Act.

To the show cause notice the assessee replied in detail with supporting case law. As per the submission to the said show cause notice it was stated that the excess stock of Rs. 25,10,000/- was metal advance received from customers, labours etc. After that assessee passed accounting entries in his books of accounts and incorporated the impugned stock over and above his stock as per books of accounts and there after credited the income on account of excess stock declared during survey separately to profit and loss account in order to give effect to the statement given under oath to the survey party.

The excess stock found is part of overall physical stock found in business premises. The nature and source of alleged excess stock is derived and part and parcel of regular business income and to be charged under income from business under the normal provisions rates of tax. It is not the case of the AO that excess stock found during survey was separated from other stock of the assessee but it is one and common nature of stock found during the survey except the quantity of stock on physical verification was found to be excess in comparison to the stock recorded in the books of accounts. Thus, there is not separate identifiable stock found during survey than the stock regularly held by the assessee in the normal course of business of jewellery.

The assessee has no other business except business of jewellery thus the deeming provisions u/s. 69B of the Act are not applicable to the facts on hand as excess stock was offered and credited to the profit and loss account. Therefore, it can be fairly concluded that the excess stock as found during the course of survey is nothing but business income flowing from assessee’s regular business.”

3.1 The assessee relied on the following case laws :  PCIT, vs Bajargan Traders, C/o Kalani 85 Co, 86 taxmann.com 295 (Raj- HC)

 Vijay Shriram Gundale vs ACIT, order dated 03.08.2023, (Pune - Trib)  Ashok K. Kriplani vs DCIT, order dated 03.07.2023 (Pune - Trib).  Govind Gidomal Lulla vs CIT, order dated 11.04.2023, (Mumbai - Trib).  ACIT vs M/s. Italian Edibles Pvt. Ltd (2) TMI 520, (Indore - Trib)  ACIT vs M/s Sanjay Bairathi Gems Ltd (Jaipur Trib).

 M/s.Brij Mohandas Devi Prasad vs ACIT, order dated 17.07.2023, (Indore - Trib)

 ACIT vs. Shri Anoop Neema, order dated 06.01.2022 (Indore - Trib).  ACIT vs M/s Rahil Agencies, order dated 23.11.2016 (Mumbai - Trib).  ACIT vs Sudesh Kumar Gupta, order dated 09.06.2020, (Jaipur - Trib).

Submission of Ld.DR: 4. The Ld.Departmental Representative(ld.DR) for the Revenue relied on the order of the CIT(A) and AO. Findings and Analysis : 5. We have heard both the parties and perused the records. The Trading Account filed in the paper book is reproduced as under :

5.1 The P&L account filed in the paper book is reproduced as under :

5.2 Thus on one hand the assessee has credited Rs.25,10,000/- and on another hand also debited Rs.25,10,000/-. The AO has not asked any question during the assessment proceedings about the Debit of Rs.25,10,000/-. It means the AO has accepted that assessee has purchased Gold weighing 1038.059 grams valuing Rs.25,10,000/-. The said Gold is reflected in the Trading Account of the assessee.

5.3 Now, the only question before us is that whether the Excess Stock of Gold is to be treated as Business income or Unexplained investments u/sec.69B of the Act.

5.4 During the Assessment Proceedings the Assessee submitted that Stock declared is not unexplained investments and it was duly accounted in the books. It was submitted by the assessee in the said letter that the excess gold was on account of metal advance against orders from customers, from labourers and relatives. Thus, during the Assessment proceedings the Assessee explained the source of investment in Gold as Advance Received from Customers. The AO has not bothered to verify the reply filed by the assessee. The AO has not rebutted the submission of the assessee but merely brushed it aside as not acceptable. Even before the Ld.CIT(A) the assessee made the same submission which is reproduced by CIT(A) in paragraph 6 of the order. However, the Ld.CIT(A) has failed to verify the claim of the assessee that the investment in Gold was from Advance received from Customers. Ld.CIT(A) has not rebutted the claim of the assessee. In these circumstances, since the AO and Ld.CIT(A) failed to rebut the claim of the assessee, it is presumed to be true. Admittedly, the assessee is in the business of Gold Ornaments, the assessee’s explanation that investment in excess stock is sourced from Advances received from customers, explains that the investment is not unexplained .

5.5 Hon’ble Bombay High Court has observed in the case of R.B.N.J. Naidu vs CIT (1956) 29 ITR194 as under : Quote, “The broad fact, however, is that the assessee has prima facie made out a case which the taxing authorities have no material or information to rebut. In these circumstances, the source of the receipt should be deemed to be established, and consequently the money was not liable to be treated as the assessee's income merely because he could not explain satisfactorily how his wife made the saving and why she did not deposit it in the bank at any earlier date. In Narayandas Kedarnath v. Commissioner of Income-tax, Central [1952] 22 ITR 18, the assessee firm was held to have discharged its burden when it proved the source of the moneys even though it was unable to explain how the partners got them in their native place. The same reasoning is applicable to the instant case. Our answer to the question is, therefore, in the negative.” Unquote.

5.6 The decision of Hon’ble Bombay High Court (supra) is applicable in the facts of the case, in the case of the Assessee Shingavi Jewellers, the assessee has made out a prima facie case and the AO has no material to rebut the claim of the assessee. Therefore, following the Hon’ble Jurisdictional High Court (supra) the source of investment seems to be explained.

5.7 The Ld.CIT(A) has relied on the decision of Hon’ble Madras High Court in the case of SVS Oils Mills Vs. ACIT 418 ITR 0442 (Mad). However, it is distinguishable on facts .In the case under consideration the AO has accepted the Recording of Purchases of Rs.25,10,000/- in the trading account, and subsequent closing stock as on 31st March 2018. The AO has accepted returned Income. The closing remarks of the assessment order is reproduced here as under : 5.6 In view of the above, the income of the assessee re- computed as under : Computation of Total Income Total returned Income Rs.29,93,370/- Assessed Income Rs.29,93,370/- 5.8 Therefore, the decision of Hon’ble Madras High Court is distinguishable on facts in the case of the assessee.

5.9 Therefore, for all the reason discussed above, we direct the AO to treat the Income of Rs.25,10,000/- as business income and hence section 115BBE is not applicable in the case of the assessee. Accordingly Ground Number 1-4 of the assessee are allowed in above terms.