The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) ruled that additional income from excess cash and stock found during the search should be taxed as business income instead of unexplained investment under Section 69A of Income Tax Act,1961.
The Revenue-appellant appealed against the order dated 26.12.2023 passed by CIT(A) for the Assessment Year(AY) 2020-21. In this case, Raj Diamonds, respondent-assessee, was in the business of manufacturing and trading jewellery and diamonds. A search on June 28, 2019, for the assessment year 2020-21 found ₹40,58,450 in cash, while the books recorded only ₹5,93,448, leaving an excess of ₹34,65,000. The assessee admitted it as unaccounted cash.
Excess stock worth ₹1,38,36,083 was also found and acknowledged as unrecorded. During assessment, the assessee failed to explain the source of the cash and stock. It later claimed the cash as customer advances, but the Assessing Officer (AO) rejected this and added the amount to the income.
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The assessee appealed to the Commissioner of Income Tax (Appeals)[CIT(A)] against the AO’s order. The CIT(A) rejected the explanation for the seized cash but treated it as business income instead of taxing it under Section 69A. Similarly, the excess stock of ₹1,38,36,083 was taxed as business income under Section 68 instead of Section 69A of the Act.
The Revenue appealed before the tribunal aggrieved by the decision of CIT(A).
The two member bench comprising Prakash Chand Yadav(Judicial Member) and Laxmi Prasad Sahu(Accountant Member) reviewed the case and noted that excess cash and stock found during the search were admitted as business income. It observed that incriminating material was found, and the respondent-assessee did not retract its statement under Sections 132(4) and 131.
Referring to the Supreme Court’s ruling in Roshan Lal Sanchiti, the appellate tribunal stated that statements recorded under Section 132(4) have evidentiary value unless rebutted with strong evidence. However, the lower authorities failed to prove that the excess cash and stock were not business income, and the AO did not challenge the audited books.
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The tribunal found that the Madras High Court’s ruling in SVS Oil Mills did not apply, as it involved a survey, not a search. Instead, it relied on the Chennai Bench ruling in Overseas Leathers, where excess stock was treated as business income. Since the facts were similar, the ITAT ruled that the additional income from cash and stock should be taxed as business income, not as unexplained investment under Section 69A of the Act.
In conclusion,the appeal filed by the revenue was dismissed.
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