Badari Narayan Vasudev Vernekar, Koppal V. Deputy Commissioner Of Income Tax, Central Circle, Bellary

ITA 1011/BANG/2022

AI Insights

The case involves two appeals by Shri Suresh Vasudev Vernekar and Shri Badari Narayan Vasudev Vernekar against the order of the Commissioner of Income-tax (Appeals)-2, Panaji, which upheld the additions made under Section 69B of the Income Tax Act by the Deputy Commissioner of Income Tax, Central Circle, Bellary. The additions were related to the excess gold and silver jewellery stock found during a survey, valued at Rs.50,39,395. The appellants argued that this stock was part of their business and should be taxed under normal rates, not under Section 115BBE, which applies a higher tax rate on income from undisclosed sources. The Tribunal agreed with the appellants, referencing similar cases and the nature of their business income.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124494 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 22-01-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 20-10-2022
• Other Referred Cases: M/s. SVS Oils Mills vs. ACIT, Ragavs Diagnostic & Research Centre Pvt. Ltd. vs. ACIT, M/s. Chokshi Hiralal Maganlal vs. DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Business income
• Section: 69; 133A; 234B; 69B; 44AB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE BEFORE SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER AND SHRI ANIKESH BANERJEE, JUDICIAL MEMBER ITA No. 1010/Bang/2022 Assessment Year : 2018-19 Shri Suresh Vasudev Vernekar, No. 4/5/420, V.K. Vernekar and Sons, Jawahar Road, Koppal – 583 231. PAN: ADCPV4085F Vs. The Deputy Commissioner of Income Tax, Central Circle, Bellary. APPELLANT RESPONDENT & ITA No. 1011/Bang/2022 Assessment Year : 2018-19 Shri Badari Narayan Vasudev Vernekar, No. 4-4-366, Vasudev Jewellers, Jawahar Road, Koppal – 583 231. PAN: ADCPV4080A Vs. The Deputy Commissioner of Income Tax, Central Circle, Bellary. APPELLANT RESPONDENT Assessee by : Shri Raghavendra Chakravarthy, CA Revenue by : Shri Narendra Kumar Naik, Addl. CIT (DR) Date of Hearing : 23-01-2023 Date of Pronouncement : 24-01-2023 Page 2 ITA Nos. 1010 & 1011/Bang/2022 ORDER PER BENCH Instant appeals of the assessees were filed against the order of the Ld. Commissioner of Income-tax (Appeals)-2, Panaji {in brevity the CIT(A)}, DIN No. ITBA/APL/M/250/2022-23/1044672436(1) vide order dated 16.08.2022. The appeals passed u/s. 250(6) of the Income Tax Act, 1961 (in brevity the Act) for A.Y. 2018-19. The impugned order was originated from the order of Ld. DCIT, Central Circle, Bellary (in brevity the AO), date of order 15.03.202, passed u/s. 143(3). 2. The issue is involved in both these appeals of two different assessees are identical and arises out of identical facts and circumstances. We therefore deem it convenient to pass common order and the decision in ITA No.1010/Bang/2022 shall apply mutatis mutandis in ITA No.1011/Bang/2022 for the assessment year 2018-19. 3. In the outset, we advert that both the appeals are of same nature of fact. By the consent of both the parties, we take the ITA No. 1010/Bang/2022 as lead case. 4. The assessee has taken the following grounds: “1. The order of the NFAC in so far it is against the appellant is opposed to law, weight of evidence, facts and circumstances of the Appellant's case. 2. The NFAC has grossly erred in upholding the addition made u/s 69B of the Act amounting to Rs.50,39,395/- under the facts and circumstances of the case. 3. The NFAC has gross erred in upholding the addition without appreciating the fact that the excess gold and silver jewellery stock found at the business premises Page 3 ITA Nos. 1010 & 1011/Bang/2022 belongs to the personal effects of the appellant under the facts and circumstances of the case. 4. The NFAC has grossly erred in upholding the addition without giving credit to the personal belongings of the jewellery to the appellant under the facts and circumstances of the case. 5. Without prejudice to the above, the NFAC has grossly erred in upholding the addition without taking to consideration the actual purchase cost of the gold and silver jewellery under the facts and circumstances of the case. 5.1 The NFAC has grossly erred in upholding the addition which is based on the ad-hoc valuation of the gold and silver jewellery as on the date of survey under the facts and circumstances of the case. 6. Without prejudice to the above, the NFAC has grossly erred in upholding the addition without giving effect to the taxability of the addition at the rate of 8% of the taxable value after giving credit to the personal effects under the facts and circumstances of the case. 7. Without prejudice to the above, the NFAC has grossly erred in upholding the assessment order wherein the tax has been wrongly levied at the rate of 60% under the provisions of Sec. 115BBE of the Act under the facts and circumstances of the case. 8. Without prejudice to the right to seek waiver of interest, the appellant denies himself liable to be charged interest under Section 234A and. 234B of the Act under the facts and circumstances of the case. The rate and period are not discernible in the order of assessment. The rate of interest, quantum on which levied, and the period of levy is wrong and requires to be corrected in accordance of law. 9. The appellant craves to add, alter or delete the addition and grant relief for advancement of substantial cause of justice. 10. The appellant prays to admit the appeal and craves to urge such other grounds as may be deemed necessary during the time of appellate proceedings.” Page 4 ITA Nos. 1010 & 1011/Bang/2022 5. During the appeal hearing, before the ITAT, the Ld.AR had filed a synopsis which is kept in the record. The assessee is a dealer of gold and silver articles, running business under the name and style of M/s. V.K. Vernekar & Sons at Koppal, Karnataka. A survey was conducted by the revenue department. The assessee has declared the difference of stock in books and stock founded during the time of survey the difference of value amounting to Rs.50,39,395/-. The assessee had declared this difference of stock in the return of income and paid the tax accordingly under the normal rate. 6. During the assessment proceedings, the Ld.AO had confirmed the addition u/s. 69B of the Act and calculated the tax u/s. 115BBE of the Act. The basic grievance of the assessee was that the charging of tax by the ld. AO on the declared stock u/s. 115BBE is unwarranted for. The order of the assessing authority was challenged before the Ld.CIT(A). The Ld.CIT(A) had upheld the view of the Ld.AO and confirmed the order of assessment accordingly. Being aggrieved, assessee filed the appeal before us. 7. During the hearing, the Ld. Counsel argued that the addition was taxed u/s. 115BBE which is not at all accepted. The difference of stock is the nature of business. The undisclosed stock was generated from the business income. The Ld.AO had assessed by taking the stock as an income from other sources and addition was made u/s. 69B. The Ld. Counsel for the assessee invited our attention in AO’s order which is reproduced as below: “7.7 From the above, it is evident that the excess stock of gold & Silver jewellery found over and above the book stock could not be explained by the assessee also needs to Page 5 ITA Nos. 1010 & 1011/Bang/2022 be assessed to tax u/s 69/69B of the Act. The assessee himself voluntarily admitted the unexplained investment in stock of Rs.50,39,395/- and offered the same for taxation in his Statement deposed during the course of survey / post survey proceedings. Hence, question of treating the said income of Rs.50,39,395/- admitted during the course of Survey u/s 133A other than Unexplained Investments u/s 69/69B of the Act, does not arise and is against the provision of Act.” 8. The Ld. Counsel further invited our attention in the assessee’s statement recorded by the Ld. AO on the date 20.07.2017. The relevant part of the recorded statement is reproduced as below:- “Q.13. Do you have anything to say? Ans. No. However, I submit that I accept to declare excess stock under business income as I do not have any other source of income except income deriving from the business. I accept to pay advance tax on the income declared for the Asst. Year 2018-19 will be paid at the earliest. Since I have co-operated with the Departmental proceedings, it may be granted immunity in finalization of all other proceedings of the Act.” 9. The Ld. Addl.CIT-DR vehemently argued and fully relied on the order of the revenue authorities. The ld. Addl.CIT-DR in argument invited our attention to the order of CIT(A) and argued that the difference of stock is nothing but the investment from undisclosed source of income. So the entire addition should come under the tax levied u/s. 115BBE. The Addl.CIT-DR relied on the order of the Hon’ble Madras High Court in case of M/s. SVS Oils Mills vs. ACIT reported in 418 ITR 442 (Mad) (2019). 10. We heard the rival submissions and relied on the documents available in the records. In the argument, the Ld. Counsel for the assessee mentioned that the assessee is a trader and turnover during this FY 2017-18 was Page 6 ITA Nos. 1010 & 1011/Bang/2022 an amount of Rs. 10,03,840/- and assessee was not liable for the tax audit u/s. 44AB of the Act. But in business, the excess stock was declared in the trading account and the tax was paid on the difference of stock under normal rate. The Ld. Counsel relied on the order of the Coordinate Bench of ITAT, Bangalore in case of Ragavs Diagnostic & Research Centre Pvt. Ltd. vs. ACIT in ITA No. 423/Bang/2022 by order dated 09.09.2022. It was held as follows: - “13. From the plain reading of the section, it is clear that when an assessee offers no explanation or the explanation offered is not satisfactory in the opinion of the AO, then the amount of such expenditure is to be taxed as income u/s. 69C of the Act. The satisfaction to be recorded by the AO should not be objective satisfaction exercised at his discretion, but a subjective satisfaction based on the facts of the case. It would then mean that justification for exercise of the power has to be found by the authority by making a subjective satisfaction on the basis of objective material and such satisfaction must be reflected in the reasons recorded in writing while exercising the power. (Vide: Dee Vee Projects Ltd. v/s. Union of India & Ors., Writ Petition No.2 693/2021, dated 11.02.2022 (Bombay High Court)). In the present case, the assessee is in the business of running a diagnostic centre and the only source of income is the receipts from patients which is stated to be the source for unexplained expenditure. That being the case the AO has not brought any contrary material on record to state that the source for the expenditure was other than from business income and has formed the opinion based on conjectures and surmises. While exercising the quasi-judicial functions, the administrative authorities have to reach satisfaction on the basis of material available and not on conjectures and surmises. The test of reasonableness has to be satisfied which in our view failed in the case under consideration. Therefore, we are of the view that the additional income offered cannot be taxed u/s. 115BBE and the impugned addition is hereby deleted. Accordingly the assessee is allowed to set off the current year loss against the additional income offered to tax as business income.” Page 7 ITA Nos. 1010 & 1011/Bang/2022 11. The Ld. Counsel further relied on the order of ITAT, Ahmedabad Bench in case of M/s. Chokshi Hiralal Maganlal vs. DCIT in ITA No. 3281/Ahd/2009 by order dated 05.08.2011. The relevant para is extracted as below:- “14. To conclude, sum of Rs.8.10,011/- being difference in stock is represented by undeclared business income. It does not have a separate physical identity. It is to be only taxed under the head 'business'. Other assets have separate physical identity being furniture and fixtures, air conditioners etc. They cannot have a direct nexus with business and therefore investment therein has to be considered under section 69 only.” 12. In our considered view that the assessee has confirmed the identity of investment in the difference of stock which was generated from business income. During the assessment and in appeal, both the revenue authorities had not been able to bring any such contrary findings against the assessee that the source of investment on undisclosed stock which was not from business income. 13. In the recorded statement, the assessee had declared that the undisclosed stock was generated from the business income. After that the revenue had not made any queries to prove that the said investment is in nature other than business. Only on the basis of the legal view, the identity of the items cannot be changed. In referred case, the ld. DR is trying to prove that the investment in jewellery was out of income from other sources. But the assessee is the trader of jewellery and nature of investment was out of income generated from business. No contrary judgment was placed by the ld. DR against the submission of assessee. We fully rely on the orders of the Coordinate Bench in case of Ragavs Diagnostic & Research Centre Pvt. Ltd. vs. ACIT Page 8 ITA Nos. 1010 & 1011/Bang/2022 (supra). Accordingly, the application of 69B on the assessee is not warranted. So, the tax levied by the revenue on the assessee u/s. 115BBE is liable to be rejected. We order accordingly. 14. In the result, both the appeals of the assessee ITA No- 1010/Bang/2022 & ITA No-1011/Bang/2022 are allowed. Order pronounced in the open court on 24 th January, 2023. Sd/- Sd/- (LAXMI PRASAD SAHU) (ANIKESH BANERJEE) Accountant Member Judicial Member Bangalore, Dated, the 24 th January, 2023. /MS / Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, ITAT, Bangalore