In Bajargan Traders C/o Kalani & Co v. ACIT, the Jaipur bench of the Income Tax Appellate Tribunal (ITAT) held that investment in the excess stock has to be brought to tax under the head “business income” and not under the head income from other sources when the investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee.
During survey operations, the AO detected a major discrepancy in stock. Following this, the assessee admitted that the investment had been made out of undisclosed sources. The due tax amount has been paid by the assessee on such undisclosed amount of stock.
The AO held that the said amount is taxable under the head “income from other sources”. The assessee contended that it trades in rice and that the inclusion of the amount of undisclosed investment in purchases shall not result in decline in GP ratio. It was therefore, contended that the said amount is liable to be charged to tax under the head ”business income.“
Considering the question whether the amount surrendered by way of investment in the unrecorded stock of rice has to be brought to tax under the head “business income” or “income from other sources”, the bench noticed that the assessee is dealing in sale of food grains, rice and oil seeds, and the excess stock which has been found during the course of survey is stock of rice.
“Therefore, the investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. The decision of the Co-ordinate Bench in case of Shri Ramnarayan Birla (supra) supports the case of the assessee in this regard. Therefore, the investment in the excess stock has to be brought to tax under the head “business income” and not under the head ‘income from other sources’.”
Read the full text of the order below.
