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Shrimati Nandini Sharma vs. Assistant Commissioner Of Income Tax - (Income Tax Appellate Tribunal) (10 Oct 2022)

Investment in excess stock computed by the department is liable to be treated as business income


Direct Taxation

The Appellant is an individual engaged in the business of trading of furniture and the Appellant had filed return of income. A survey operation was conducted and stock of Rs.54,94,959 was found as against stock of Rs. 48,68,459 as per Books of Account. Thus, an excess stock of Rs.6,26,500 was found.

The Appellant has preferred an appeal before the CIT(Appeals) on the limited issue of whether provisions of Section 115BBE of Income Tax Act, 1961 (IT Act) can be invoked on the alleged excess stock. The CIT(Appeal) dismissed the appeal of the assessee vide order on the ground that the assessee has himself offered a sum of Rs. 626500 in the balance sheet and as such, the stand of the department was correct. The CIT(A) confirmed the action of AO invoking provisions of Section 115BBE of IT Act by observing that once the assessee has voluntarily surrendered the income, and included the same in ITR and paid taxes. This act of the assessee validates the action of department that the assessee was having undisclosed income offered for tax at Rs 6,26,500.

It is evident from the record that, the excess stock found during the survey was nothing but the Business Stock carried on by assessee which was not declared in the books of accounts and since there is direct nexus of stock found during survey and business carried on by the assessee. Therefore, the excess stock is only to be treated as income under the head Business and not under deemed income. The excess stock found during the survey was not separately and clearly identifiable but was part of mixed lots of stock found at the premises which included the declared stock and stock of sister concern also. In these circumstances, the provisions of Section 69 of IT Act cannot be invoked and it should be taxable as business income.

Under the facts and circumstances of the case, the applicability of provisions of Section 115BBE of IT Act are not relevant in the present case as no excess stock was found. Even otherwise the provisions of Section 115BBE of IT Act cannot be made applicable particularly where the assessee has made a statement that the excess stock was a result of suppression of profit in respect of sales made outside the books of accounts. Therefore, in the present case, investment in excess stock computed by the department is liable to be treated as business income. In the case of Bajaj Sons Ltd. Vs. DCIT, it has been held that provisions of Section 115BBE of IT Act are not applicable where Surrender is made to cover any discrepancy.

The action of the lower authorities in invoking provisions of Section 115BBE of IT Act on the surrender income is perverse to the facts on record and held to be bad in law. Therefore, the AO is directed to compute the said surrendered income under normal provisions as applicable to the business income of the assessee. The appeal filed by the assessee is allowed.


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