Mala Vernekar, Koppal V. Deputy Commissioner Of Income Tax, Central Circle, Bellary

ITA 1012/BANG/2022

AI Insights

Mala Vernekar, engaged in the retail sale of jewelry, appealed against the assessment order for the year 2018-19, which included an addition of Rs. 3,02,400 as unexplained investment under Section 69B of the Income Tax Act. The addition was based on excess stock found during a survey. The assessee contended that this stock was part of her business and should be taxed as business income, not as unexplained investment. The Tribunal, referencing similar cases, ruled in favor of the assessee, allowing the appeal and rejecting the specific tax treatment applied to the excess stock.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 129216 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 05-02-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 20-10-2022
• Other Referred Cases: Shri Suresh Vasudev Vernekar and Shri Badari Narayan Vasudev Vernekar in ITA Nos.1010 & 1011/Bang/2022, Ragavs Diagnostic & Research Centre Pvt. Ltd. vs. ACIT in ITA No. 423/Bang/2022, M/s. Chokshi Hiralal Maganlal vs. DCIT in ITA No. 3281/Ahd/2009
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Unexplained expenditure; Business income
• Section: 69; 69C; 234B; 69B; 69A; 44AB

Judgement Text

ITA No.1012/Bang/2022 Mala Vernekar, Koppal IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” “A’’ BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA No.1012/Bang/2022 Assessment Year: 2018-19 Mala Vernekar No.4/5/437, 4/4/368, V.K. Vernekar and Sons Jawahar Road Koppal Karnataka PAN NO : ADMPV2999Q Vs. DCIT Central Circle Bellary APPELLANT RESPONDENT Appellant by : Shri Raghavendra Chakravarthy, A.R. Respondent by : Shri Ganesh R. Ghale, Standing Counsel for Revenue Date of Hearing : 06.02.2023 Date of Pronouncement : 06.02.2023 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal by the assessee is directed against order of CIT(A) dated 16.8.2022 for the assessment year 2018-19. The assessee has raised following grounds of appeal:- 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.3,02,400/- under the facts and circumstances of the case. ITA No.1012/Bang/2022 Mala Vernekar, Koppal Page 2 of 9 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 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.” ITA No.1012/Bang/2022 Mala Vernekar, Koppal Page 3 of 9 2. At the time of hearing, the assessee has not pressed ground Nos.4 to 6. Accordingly, these grounds are dismissed as not pressed. 3. Facts of the case are that the assessee being aggrieved by the order of assessment passed under section 143[3] of the Income Tax Act, 1961 [hereinafter referred to as the 'Act'] by the learned Deputy Commissioner of Income Tax, Circle-1, Bellary, dated 01/03/2021 filed this appeal for the redressal of the grievances voiced in the grounds of appeal. The precise and relevant facts for appreciation of the grievances of the assessee are mentioned hereunder:- 3.1 The assessee is an individual assessee and is engaged in the business of retail sale of jewellary and silver articles under the name and style Vasudev Jewellars and Bros. The assessee for the impugned assessment year 2018-19 filed her return of income declaring a total income of Rs. 3,79,170/- on 23/07/2018. The return of income filed was processed u/s. 143[1] of the Act. 3.2 The case of the assessee was selected for scrutiny manually by ITO Ward I Koppal and later it was assigned to DCIT central circle Bellary by Pr. CIT Hubli vide his order dated 01/02/2021 and statutory notices were issued. The learned assessing officer called for various details and information which were filed by the assessee from time to time to the satisfaction of the learned assessing officer. 3.3 The learned assessing officer concluded the assessment vide assessment order under Section 143[3] of the Act dated ITA No.1012/Bang/2022 Mala Vernekar, Koppal Page 4 of 9 01/03/2021 determining the total income at Rs. 3,79,170/-. The breakup of the assessed income is as under; SI. No. Particulars Amount [Rs.] Returned Income 3.79.170/- Income to be taxed at normal rates 76,770/- Income admitted as a result of survey declared by the assessee in return charged to tax as unexplained investment u/s 69/69B r.w.s 115BE of the Act 3,02,400/- 3.4 The learned Assessing Officer levied tax at specified rates on the Income of Rs. 3,02,400/-being amount declared during survey as excess stock as unexplained investment u/s 69/69B r.w.s 115BE of the Act. 3.5 Aggrieved by the order of the learned Assessing Officer, the assessee filed this statutory appeal before this Tribunal under the provisions of section 253 of the Act. The brief facts in support of the case of the assessee are brought out in the following paragraphs. The issues involved in this appeal is as follows: a)whether Excess stock found in the business premises of the assessee during Survey amounting to Rs. 3,02,400/-is Business Income or Income from other sources u/s. 69A r.w.s. 115BBE of the Act? [1] The learned assessing officer without appreciating the submissions of the assessee, completed the Assessment on the premise that the assessee has not offered any acceptable and cogent explanation regarding the source of such Excess stock found in the business premises of the assessee during Survey ITA No.1012/Bang/2022 Mala Vernekar, Koppal Page 5 of 9 amounting to Rs. 3,02,400/- u/s. 69A r.w.s. 115BBE of the Act. The assessing Authority has squarely erred in not distinguishing between INVESTMENT and STOCK. [2] Further, the learned assessing officer erred in assessing Excess stock found in the business premises of the assessee amounting to Rs. 3,02,400/- by invoking Section 69A of the Act. For the sake of appreciation of the contentions, the assessee reproduced the provisions of section 69A of the Income Tax Act. Section 69A of the Income Tax Act, 1961 reads as under: `Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the boo/6 of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.' [3] From the reading of the section it is clear that section 69A requires the following two conditions to be fulfilled: [a]There should be money, bullion, jewellery or other valuable article which are not recorded in the Books of Account, if any, maintained by the assessee for any source of income; and [b]The Assessee offers no or satisfactory explanation about the nature and source of acquisition of the said money, bullion, jewellery or other valuable article. ITA No.1012/Bang/2022 Mala Vernekar, Koppal Page 6 of 9 [4] The assessee further submitted that she has satisfactorily explained about the nature and source of the acquisition of the said stock. It is also relevant to note that the provision contains the language 'may' be deemed to be the income of the assessee and not the word 'shall'. Thus, the invoking of section 69A of the Act is not applicable. [5] The assessee relied on the decisions of the Supreme Court, High Courts and Tribunals which were squarely rejected by learned A.O. [6] In view of the above the assessee prayed that the assessment made by the learned assessing officer amounting to Rs. 3,02,400/- by invoking the provisions of section 69A of the Act requires to be deleted in toto for the advancement of substantial cause of justice. [7] Levy of Interest Under Section 234B & 234C of the Act: Without prejudice to the right to seek waiver with the CCIT/DG, the assessee denied itself liable to be charged to interest u/s. 234B & 234C of the Act, which under the facts and in the circumstances of the assessee’s case and the same deserves to be cancelled. The levy of interest under section 234B & 234C is not in accordance with law as the rate, period and quantum on which interest has been levied is not discernible. The levy is not in accordance with law and further the assessee was not given the basis and method of calculation of interest under section 234B & 234C of the Act for the purpose of verification of the correctness of the charge of interest. ITA No.1012/Bang/2022 Mala Vernekar, Koppal Page 7 of 9 [8] Wherefore in the light of the above facts and circumstances of the case the assessee prayed to allow the appeal preferred by the assessee for the advancement of substantial cause of justice. 4. After hearing both the parties, I am of the opinion that similar issue came for consideration in the case of Shri Suresh Vasudev Vernekar and Shri Badari Narayan Vasudev Vernekar in ITA Nos.1010 & 1011/Bang/2022 dated 24.1.2023 for the AY 2018-19 wherein the Tribunal has decided the issue as follows: “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 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 ITA No.1012/Bang/2022 Mala Vernekar, Koppal Page 8 of 9 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.” 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.” 1. 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. 2. 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 (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 r esult, bot h the appe als of the a ss essee I TA No-1010/ Bang/ 2022 & ITA No-1011/Bang/2022 are allowed.” 4.1 In view of the above order of the Tribunal, taking a consistent view, the appeal of the assessee is allowed in similar terms. ITA No.1012/Bang/2022 Mala Vernekar, Koppal Page 9 of 9 5. In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 6 th Feb, 2023 Sd/- (Chandra Poojari) Accountant Member Bangalore, Dated 6 th Feb, 2023 VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.