The Income Tax Appellate Tribunal (ITAT) Indore bench held that Section 115BBE of the Income Tax Act, 1961 is not applicable on surrendered income on account of excess stock found during the course of Survey . Even if excess stock found during survey was not recorded in the books of account but during the filing of return it was surrendered and entered the books of account of assessee would not be considered as unexplained investment.
Brij Mohandas Devi Prasad, the taxpayer, is a partnership firm engaged in the retail business of gold and silver items. When a survey proceedings was carried out the premises of assessee, after recording the statement of assessee partner, the department determined the excess stock and excess cash from assessee.
Thereafter, while filing return of income of relevant Assessment year the assessee faithfully honoured the surrender made by partner and disclosed additional income of Rs. 3,03,37,828/- as “Income from Business” under Section 28 of the Income Tax Act and paid taxes at normal rate of tax as applicable to business income.
Further ,The AO during the assessment proceedings treated the excess sock as unexplained investment under section 69 of Income Tax Act.
Aggrieved by the order, the assessee filed objections before the Commissioner of Income Tax (Appeal){ CIT(A)}, who upheld the decision of the AO. Thereafter the assesee filed another appeal before tribunal.
Before the tribunal, Kunal Agrawal, Counsel for assessee submitted that all the details regarding the excess stock was mentioned in the books of assessee and which was confirmed by the assessee partner also the differences included the books and before reh authority.
Further the counsel argued that the excess stock was merely a mathematical expression of the difference arrived at by the survey-team in the value of available stock and stock that ought to have been from books of account.
Ashish Porwal, Counsel for Revenue submitted that the during survey, assessee’s partner has not stated that the excess stock and excess cash represented income earned from business.
It was determined by the tribunal that the even if excess stock found during survey was not recorded in the books of account but when the survey was conducted before closure of financial year then the assessee was at liberty to incorporate excess stock in books of account at the time of finalizing accounts, which also the present assessee has done which is evident from a separate credit entry made in Profit & Loss Account .
Further, the tribunal relied upon the decision of Rajasthan High Court in case of Pr. CIT vs. Bajarang Traders that “excess stock found during the survey is not separable and identifiable but it is part of mixed stock found at the premises which includes declared stock as per books as computed by the survey team.”
After reviewing the facts and submissions of the both parties, the two member bench of B.M. Biyani (Accountant Member) andVijay Pal Rao (Judicial Member) held that excess stock found during survey was a part of entire lot of stock of assessee, part of which is recorded in books of account. Therefore, the assessee surrendered the excess stock and also offered to tax in the return of income then the excess stock could not be treated as deemed income under Section 69 of the Income Tax Act.
Thus the bench decided the issue in favour of assesse.
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