The Income Tax Appellate Tribunal (ITAT), Amritsar Bench has held that excess stock discovered during the survey by tax authorities should be treated as regular business income of the assessee and not deemed income under Section 69B of the Income Tax Act, 1961 as long as it pertains to the regular business activities of the assessee and is fully disclosed in the books of accounts. The bench found that Section 115BBE of the Income Tax Act, which imposes a higher tax rate on deemed income, is inapplicable in this case.
The decision came in response to the appeal filed by Shri Bunty Kumar against the order passed by the Commissioner of Income Tax (Appeals) for the Assessment Year 2018-2019.
The appellant, Shri Bunty Kumar, represented by Shri Rohit Kapoor and Shri V.S. Aggarwal, challenged the treatment of income amounting to Rs.18,85,319/- as unexplained stock under Section 69B of the Income Tax Act. The tax authorities had invoked the provisions of Section 115BBE, which deals with tax on income assessed under Section 69B.
The issue before the bench was whether the excess stock discovered during the survey conducted by the tax authorities should be considered as deemed income under Section 69B of the Income Tax Act or as regular business income, given that it was fully disclosed in the books of accounts.
The appellant argued that the excess stock was earned through regular business activities and should be treated as business income.
The bench emphasised that since the excess stock primarily pertained to the business carried out by the appellant and was surrendered as business income during the survey, it should be considered as income under the head of “business income”, rather than “deemed income”. The bench also noted that the value of the stock was fully disclosed in the books of accounts.
The bench relied on a recent judgment by the Supreme Court in the case of M/s D. N. Singh v. CIT, Central, wherein it was held that excess stock found during a survey is part of the total stock and cannot be considered an investment in specified assets or valuable articles as per Section 69B of the Income Tax Act. The Supreme Court emphasised that the excess stock must be in the nature of valuable articles like bullion and jewellery to fall under Section 69B.
The bench also cited the principle of “ejusdem generis” and “noscitur a sociis”, which means that a generic word in a statute should be interpreted in the context of specific terms used in the provision.
In this case, since Section 69B specifically mentions bullion and jewellery, the bench ruled that other valuable articles should be of a similar nature, possessing liquidity and negotiability like money or currency. Excess stock, which is not separable from the entire lot of stock and generated as a result of business activities, does not meet these criteria and, therefore, cannot be brought under Section 69B of the Income Tax Act.
The decision aligns with the judgment of the ITAT Indore Bench in the case of M/s. Supremo India Pvt. Ltd. v. ACIT, Central -3, Indore, where a similar conclusion was reached.
In conclusion, the two-member bench comprising Dr. M. L. Meena (Accountant Member) and Shri Anikesh Banerjee (Judicial Member) provided clarity on the treatment of excess stock discovered during tax surveys. It emphasised that when such excess stock is fully disclosed in the books of accounts and is generated from regular business activities, it should be considered as regular business income and not deemed income under Section 69B and is not subjected to higher tax rates under Section 115BBE of Income Tax Act for income that is essentially a part of their legitimate business operations.
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