The Chennai bench of the Income Tax Appellate Tribunal ( ITAT ) has held that the discrepancy in the excess stock accumulated during normal business shall be assessable as business income and section 69B r.w.s section 115BBE of the Income Tax Act shall not be applicable in such cases.
The assessee, M/s Revathi Modern Rice Mill added the excess stock to its book-stock and filed the return of income and paid due taxes. While processing the income tax returns for the relevant year, the Assessing Officer held that the excess stock was in the nature of unexplained investment under section 69B which would be subjected to higher rate of tax as per Sec.115BBE of the Income Tax Act.
The assessee, in its defence, contended that the income was out of business income only and therefore, the difference in valuation of stock was rightly offered as ‘Business income’. While admitting the allegation of non-disclosure of income as a mere mistake, the assessee further contended that the firm had carried out this business for past 20 years and there was no scope for any income to be derived from any other source. The excess stock was only an accumulation over the past several years.
Noting the fact that the transactions including sales and purchase have taken place through bank transfer, the bench comprising Shri Manoj Kumar Aggarwal, Accountant Member and Shri Manu Kumar Giri, Judicial Member observed that “Unless, discrepancy is pointed out in the physical quantities, no case of unexplained investment, in our considered opinion, could be made out against the assessee. Further, it is undisputed fact that the assessee is assessed to tax for past several years and its only source of income is ‘Business income’ only. In such a case, whatever discrepancies are noted, the same would be part and parcel of business operations and could be considered to be Business income only and not from any other sources. It could very well be said that entire stock was accumulated out of income from business and the undisclosed business income, if any, was ploughed back into business to acquire further stock.”
Holding that the excess stock in such cases could be said to have arisen out of normal business activity only, the two-member Tribunal held in favour of the assessee and observed that the same would be assessable as ‘business income’ only and the provisions of section 69B r.w.s 115BBE shall have no application.
Shri N. Arjunraj (CA) appeared for the assessee and Shri AR V Sreenivasan (Addl.CIT) appeared for the income tax department.
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