The Chennai bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the addition of unexplained investments based on the stock valuation difference. The assessee admitted the difference of Rs.1,04,00,600/- as income, which has to be taxed as ‘normal business income’ and not as ‘unexplained investment’ under section 69B of the Income Tax Act, 1961.
Ethiraj Hotel Mart, the assessee is engaged in the business of wholesale trading of stainless steel items, crockery, aluminium and electric items. A survey under section 133A of the Act was carried out on the business premises of the assessee on 06.02.2019.
The Assessing Officer( AO ) completed the assessment under section 143(3) of the Act, vide order dated 30.09.2021 by noting that physical stock available at the business premises of the assessee was inventoried during the survey and when it was compared with the stock with the books of accounts, the survey party found excess stock valued at Rs.1,04,00,600/-. A sum of Rs.1,04,00,600/- was offered for taxation.
The assessee submitted that excess stock has been offered as ‘business income’ and hence it does not warrant addition under section 69B of the Act. The AO relied on the decision of the High Court of Madras in the case of M/s.SVS Oils Mills vs. ACIT simpliciter without discussing any of the facts held that excess stock amounting to Rs.1,04,00,600/- is to be treated as unexplained investment under section 69B of the Act and subjected to tax as per the provisions of section 115BBE of the Act. Accordingly, he charged the income offered during the survey as an unexplained investment under section 69B of the Act and assessed to tax under section 115BBE of the Act.
The CIT( A ) after considering the submissions of the assessee upheld the action of the AO by noting that the investment in excess stock was found to be assessed as an ‘unaccounted investment’ and not as ‘business income’.
A two-member bench of Shri Mahavir Singh, ( Vice President ) and Shri Manjunatha G, ( Accountant ) Member observed that the assessee has declared additional income towards excess stock found during the survey and the assessee has explained the source for excess stock found during the survey i.e., that it was out of income earned from current year business or earlier years business and surrendered the amount, the AO has not done anything to dispute the claim of the assessee that the source was not from the business income. Hence, the AO cannot apply the provisions of section 115BBE of the Act.
The assessee also admitted the difference of Rs.1,04,00,600/- as income, which is not disputed but has to be taxed as ‘normal business income’ and not as ‘unexplained investment’ under section 69B of the Act. The ITAT allowed the grounds of appeal of the assessee and reversed the orders of CIT( A ) and that of the AO on this.
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