Excess Gold Jewellery Stock found during Survey Proceedings as Stock transferred from Proprietary Concern to Partnership Firm, not unexplained Investment u/s 69B of Income Tax Act: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT) Chennai bench held that excess gold jewellery stock found during the survey proceedings as stock transferred from proprietary concern to partnership firm, which was not an unexplained investment under Section 69B of the Income Tax Act, 1961.

Assessee, Fathima Jewellers  is a firm engaged in retail business of gold and silver jewelleryWhen a survey action was conducted on the business premises of the assessee certain excess gold jewelry stock  were found.

During the scrutiny assessment the AO treated the excess stock valued at Rs.40,77,814/- as unexplained investment under Section 69B of the Income Tax Act.

Aggrieved, assessee preferred appeal before CIT(A), who dismissed the appeal of the assessee. Therefore the assessee filed second appeal before the tribunal.

B. Pratap, Counsel for the assessee argued that during the year proprietary concern was closed and the gold jewellery stock held in the showroom became part of the stock taken over in the business succession by the assessee’s firm.

Hence the assets and liabilities of this proprietary concern was taken over by three  Sons who formed partnership firm i.e., present assessee firm Fathima Jewellers amongst themselves as per Deed of Partnership.

Further the counsel for assessee submitted that The aggregate physical excess stock produced in the business of the proprietary concern over the previous several years makes up the excess stock as of the survey date, which was only acquired out of stock taken over by the proprietary business.

Therefore the counsel argued that Once a proprietary concern's business stock has been consolidated with the assessee firm or transferred from there, it cannot be considered an unexplained investment under Section 69B of the Income Tax Act.

P. Sajit Kumar, Counsel for Revenue submitted that the assessee could not prove that the excess stock belongs to the proprietary concern. Hence it was unexplained investment under Section 69B of the Income Tax  Act.

It was observed by the tribunal that gold stock in the partnership firm is taken from the proprietary concern. Hence it is clear that the excess gold jewellery stock found during the course of survey to the Income-tax Department as on 28.02.2019 is on account of stock transferred from proprietary concern to the partnership firm Fathima Jewellers.

After reviewing the contentions of the both parties  the two member bench of Manjunatha.G (Accountant Member) and Mahavir Singh, (Judicial Member) held that excess gold jewellery in stock found during the survey proceedings as stock transferred from proprietary concern to partnership firm is not an unexplained investment under Section 69B of the Income Tax Act, thus directing to tax the same as business income of assessee.

To Read the full text of the Order CLICK HERE

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