The Chennai bench of the Income Tax Appellate Tribunal held that undisclosed business income was ploughed back into business to acquire further stock. In such a case, the excess stock could be said to have arisen out of normal business activity only
The assessee being resident firm is stated to be engaged in sale of gold jewellery and silver articles. The assessee was subjected to survey under section 133A on 11.10.2018 wherein the physical stock was inventorized and it was noted that there was excess stock available to the extent of Rs.253.91 Lacs. The assessee admitted the excess stock as ‘Business Income’ and offered the same to tax in its return of income. Undisputedly, the said income was separately disclosed as ‘Business Income’ in the Income Tax Return.
The assessee being resident firm is stated to be engaged in sale of gold jewellery and silver articles. The assessee was subjected to survey under section 133A on 11.10.2018 wherein the physical stock was inventorized and it was noted that there was excess stock available to the extent of Rs.253.91 Lacs. The assessee admitted the excess stock as ‘Business Income’ and offered the same to tax in its return of income. Undisputedly, the said income was separately disclosed as ‘Business Income’ in the Income Tax Return.
However, rejecting assessee’s aforesaid working, AO proposed to consider the same as unexplained investment and proceeded to add the same as ‘Income from other sources’ which would be taxable at higher rates as prescribed under section 115BBE. The assessee submitted that the excess stock was out of normal business activity only and therefore, the same would be assessable as ‘business income’ only. The assessee also submitted that the sources of purchases were on account of purchase credit and therefore the same could not be treated as unexplained investment.
Rejecting the submissions of the assessee and relying on the decision of Hon’ble High Court of Madras in the case of M/s SVS Oil Mills vs. ACIT (ITA No.765 of 2018), AO held that the excess stock was to be treated as unexplained investment under section 69B which would be subjected to higher rates as prescribed under section 115BBE.
CIT(A) held that the assessee was unable to furnish party wise break of such purchases. It failed to specify as to how it generated excess income from business activity and how the purchases were made from such excess income. The assessee could not furnish any documentary evidence to substantiate that the excess stock was generated out of business activity only. Since the unaccounted stock was clearly identified as physical stock inventory during survey, the same was to be treated as unexplained investment. Aggrieved, the assessee appealed before the tribunal.
The tribunal observed that the only source of assessee’s income is ‘Business income’ arising out of sale of gold jewellery and silver articles. During survey proceedings, quantitative differences were found in the physical stock vis-à-vis book stock. The assessee brought the same into books of account by way of credit to partners’ capital account with corresponding increase in book-stock. The excess stock was included in the stock register. Accordingly, the differential was separately offered to tax in the return of income as ‘Business Income’. Naturally, the excess stock was acquired out of excess income regenerated from business activity only since the assessee do not have any other source of income since its inception. The entire stock was accumulated out of income from jewellery business.
The two member bench consisting of Mahavir Singh (Vice president) and Manoj Kumar Aggarwal (Accountant member) held that the undisclosed business income was ploughed back into business to acquire further stock. In such a case, the excess stock could be said to have arisen out of normal business activity only and therefore, the same would be assessable as ‘business income’. Thus the appeal was allowed.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
