KAMLESH, CHENNAI V. DCIT,CENTRAL CIRCLE-3(3), CHENNAI

ITA 1104/CHNY/2022

AI Insights

The case revolves around an appeal by Mr. Kamlesh against the order of the Commissioner of Income Tax (Appeals)-18, Chennai, which pertained to the assessment year 2018-19. The primary issue was the classification of excess stock found during a survey at the assessee's business premises. The Assessing Officer (AO) had treated this excess stock as unexplained investment under section 69B of the Income Tax Act, leading to a higher tax rate under section 115BBE. The assessee contended that this stock was part of regular business operations and should be taxed as business income. The Tribunal, referencing decisions from the Madras High Court and other ITAT decisions, sided with the assessee, emphasizing that the stock was not separately identified and was part of the regular business operations.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127892 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-08-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 21-12-2022
• Other Referred Cases: M/s.SVS Oil Mills v. ACIT, M/s.Overseas Leathers v. DCIT, M/s.Mookambika v. DCIT, CIT v. Bajargan Traders, Lakshmichand Baijnath v. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Gift; Business income; Principle of natural justice
• Section: 69B; 113

Judgement Text

आयकर अपील सं./ITA No.1104/Chny/2022 िनधा रण वष /Assessment Year: 2018-19 Mr.Kamlesh, No.50, Pilliar Koil Street, Triplicane, Chennai-600 005. v. The Dy. Commissioner- of Income Tax, Central Circle-3(3), Chennai. [PAN: AAIPK 5495 M] (अपीलाथ /Appellant) ( थ /Respondent) अपीलाथ की ओर से/ Appellant by : Mr.D. Anand, Adv. थ की ओर से /Respondent by : Mr.D. Hema Bhupal, JCIT सुनवाई की तारीख/Date of Hearing : 02.08.2023 घोषणा की तारीख /Date of Pronouncement : 30.08.2023 आदेश / O R D E R PER MANJUNATHA. G, AM: This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-18, Chennai, dated 21.11.2022, and pertains to assessment year 2018-19. 2. The assessee has raised the following grounds of appeal: 1. The order of the Learned Commissioner of Income Tax (Appeals) ("CIT(A)") is bad in law, and against the principles of natural justice. 2. The Learned CIT(A) erred in passing the order without due consideration of facts and submissions; आयकर अपीलीय अिधकरण, ‘बी’ "ायपीठ, चे%ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH: CHENNAI 'ी मंजूनाथा .जी, लेखा सद( एवं ी मनोमोहन दास, ाियक सद के सम BEFORE SHRI MANJUNATHA. G, ACCOUNTANT MEMBER AND SHRI MANOMOHAN DAS, JUDICIAL MEMBER ITA No.1104/Chny/2022 :: 2 :: 3. The Learned CIT(A) has failed to realise that the Appellant has sufficiently and vide evidence explained the nature and source of additional stock found at the premises of the Appellant. 4. The Learned CIT(A) failed to consider the fact that the Learned Assessing Officer had failed to bring any material to light to justify that the additional jewellery was that belonging to the Appellant apart from vague allegations. 5. The Learned CIT(A) has erred in making the addition u/s 69B of the act as the Appellant is not the owner of any bullion, jewellery or other valuable article was found at the time of the survey and the real owners have been identified and confirmed that the said jewellery belongs to them. 6. The Learned CIT(A) has failed to realize that the Appellant has only offered the said sum to income to buy peace with the department. 7. The Learned CIT(A) overlooked a plethora of cases in favour of the Appellant's claim and dismissed the appeal without going into the relied case laws 8. The Learned CIT(A) has failed to understand the facts of the case and passed the arbitrary order. For these and other grounds that may be rendered at the time of hearing it is most humbly prayed that the Hon'ble Tribunal may be pleased to allow the Appellants claim and thus render justice. 3. The brief facts of the case are that the assessee is an individual and engaged in the business of manufacturing and trading of gold jewellery under the name and style of M/s.K.S.Jewellery (Proprietor). A survey operation u/s.133A of the Income Tax Act, 1961 (in short “the Act") was conducted at the business premises of the assessee on 30.10.2018. During the course of survey, excess stock of gold weighing 4935.21 grams of gold at Rs.2,822/- amounting to Rs.1,39,37,171/- was found and the assessee admitted additional income towards excess stock. The assessee has filed its return of income on 30.10.2018 declaring total income of Rs.1,74,84,250/-, which includes additional income offered during the course of survey towards excess stock found valuing Rs.1,39,27,171/-. During the course of assessment, the AO called upon the assessee to explain source for excess stock found during the course of survey and in ITA No.1104/Chny/2022 :: 3 :: response, the assessee submits that such excess stock is on account of jewellery received form customers for repairs and in this connection, a list of customers has been furnished to the AO. The AO issued notices u/s.133(6) of the Act, to all parties and requested to furnish necessary details. The notice issued u/s.133(6) of the Act, returned unserved with a comment ‘no such person’. In few cases, parties have submitted certain details. The AO after considering relevant submissions of the assessee and also taken note of enquiry conducted during the course of assessment proceedings opined that the assessee could not substantiate its claim of excess stock found during the course of survey and thus, assessed excess stock valuing Rs.1,39,27,171 u/s.69B of the Act and computed tax u/s.115BBE of the Act. 4. Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has filed written submissions on the issue which has been reproduced at Para No.6 on Page Nos.8-14 of the Ld.CIT(A)’s order. The sum and substance of the arguments of the assessee before the Ld.CIT(A) are that additional income offered during the course of survey towards discrepancy in stock is out of business income generated for assessment year in question and further, the excess stock found during the course of survey, was not separately identified, to say that, it was purchased out of unexplained source. The Ld.CIT(A) after considering relevant submissions of the assessee and also taken note of certain judicial precedents, including the decision of the ITA No.1104/Chny/2022 :: 4 :: Hon’ble jurisdictional High Court of Madras in the case of M/s.SVS Oil Mills v. ACIT reported in [2020] 113 taxmann.com 388 (Mad.) observed that although, the assessee claims to have explained excess stock is out of business income, but could not substantiate its claim with necessary evidences, including bills for purchase of stock and details of income earned from business. Therefore, rejected the arguments of the assessee and sustained assessment of additional income under the head ‘income from other sources’ u/s.69B of the Act r.w.s.115BBE of the Act. The relevant findings of the Ld.CIT(A) are as under: 7. Decision along with Reasons: 7.1 I have considered the submissions of the appellant. The assessee has disclosed the excess stock amounting to Rs.1,39,27,171/- as his income during the survey; such disclosure was backed by stock inventory- taken at the time of survey. Therefore, the disclosure is not just a bald statement, but has been backed by the physical stock inventory. The assessee has also duly shown it as income in its return of income. Even after showing it as income in the return, the assessee during the assessment proceedings tried to say that the excess jewellery found during the course of survey belong to customers who gave them for repairs. The AO during the assessment has broken this argument by his investigations u/s.133(6) narrated in the assessment order. Therefore, all the grounds in this regard are not tenable and hence rejected. The assessee has come up with appeal primarily because he is of the opinion that the excess stock found during survey was generated out of his business and hence it. has to be taxed as business income (subject to 30% tax), whereas the AO has taxed it as undisclosed investment u/s.69B (subject to tax rate of 60% u/s.115BBE), However, he has not given any evidence to back his opinion. 7.2 The assessee has not proved with any cogent evidence as to how the excess stock amounting to Rs.1,39,27,171/- was generated in his business to tax it as business income, in terms of proof for purchases made, source for such unaccounted purchases, the unaccounted sales made out of such unaccounted purchases, how the proceeds were ploughed back to generate the unaccounted stock amounting to Rs,1,39,27,171/-. 7.3 The AC) duly recorded in the assessment order as: The assessee has not furnished any documentary evidence to substantiate the claim of the assessee that the excess stock had been earned from regular business activity done during the current financial year only. The assessee has failed to explain the source for purcha.se of excess stock. The assessee has not furnished any bills invoices also to substantiate the purchase of excess stock arid the source for purchase of such excess stock. 7.4 Without tendering any evidence for it, the assessee tries to force-' the department to assume that, the unaccounted stock was generated out of his business only. Such assumption is not possible without any backing evidence tendered by the assessee to that effect. In the lack of positive evidence for business income, the only possibility is to assess it as income from other sources - unexplained investment u/s.69B. In fact, the capital account of the assessee supports this stand of revenue; ITA No.1104/Chny/2022 :: 5 :: Capital account By Opening Balance; - 4,01,32,560.91 By Gift received from Prakashchand (father) - 10,50,000.00 By Declaration during the course of survey - 1,39,27,171.00 By Net profit - 39,78,819.32 To Corporation & Property Tax {Shop No.159 Mint Street) 39,675.80 - To Corporation & Property Tax (Shop No.166 Mint Street) 56,795.00 - To Demat Charges 182.52 - To L.I.P. 54,662.00 - To Tuition fees 1,87,270.00 - To Medclaim 6,070.00 - To Income Tax 74,49,611,00 To Houses Rent 2,89,200.00 - To Drawings 4,85,102.00 - To Closing balance 5,05,19,962.91 - Total 5,90,88,551.23 5,90,88,551.23 It can be seen from the capital account above that the amount of Rs.1.39,27,171/- has been added as "Declaration during the course of survey' and not as net. profit arising from business. A separate net profit entry appears in the capital account. 7.5 Similar issue had come up for consideration before the jurisdictional; Madras High court in the ease of Ms. SVS Oils Mills Vs. The Assistant Commissioner of Income Tax in ITA No.765 of 2018 wherein it was clearly held that the investment in excess stock found should be assessed as undisclosed income and not as business income. It is well settled principle of law that if there is conflicting views rendered by different High Courts, the view taken by the jurisdictional High Court: is binding in the jurisdictional area of the respective High Court, The Hon'ble Bombay High Court in the case of Subrarnaniam -vs.- Siemens India Ltd. (.1985) 156 1TR 11 (Bom.) held that so far as the legal position is concerned, the JTO would be bound by a decision of the Supreme Court as also by a decision of the High Court of the State within whose jurisdiction he is functioning, irrespective of the pendency of any appeal or special leave application against the judgment. He would equally be bound by a decision of another High Court on the point, because not to follow that decision would be to cause grave prejudice to the assessee. However, in the case where there is conflict of views between different High Courts, ITO must follow the decision of the High Court within whose jurisdiction he is functioning. In view of the above settled law, I am bound to follow the jurisdictional Madras High Court in the case of SVS Oil Mills relied on by the AO and have no other alternative except to confirm the order of the AO assessing the unexplained excess stock as unexplained investment u/s 69B of the Act, I therefore sustain the assessment of excess stock found during survey u/s.69B and taxed under the rates u/s.I15BBE and dismiss the grounds raised. 5. The Ld.Counsel for the assessee referring to the decision of ITAT Chennai Benches in the case of M/s.Overseas Leathers v. DCIT in ITA No.962/Chny/2022 submits that the issue is squarely covered in favour of the assessee by the decision of the Tribunal, where under identical set of ITA No.1104/Chny/2022 :: 6 :: facts, the Tribunal by considering the decision of the Hon’ble jurisdictional High Court in the case of M/s.SVS Oil Mills v. ACIT (supra) held that excess stock found during the course of survey cannot be assessed u/s.69B of the Act, when the assessee has explained excess stock with known source of income. The Ld.Counsel for the assessee further submits that the assessee is involved only in one business of trading in gold and silver jewellery and stock found during the course of survey, is not separately identified so as to be treated as unexplained investment. When the stock is mixed with regular business stock, then, it can be easily said that said stock is acquired out of business income earned for impugned assessment year. The AO and the Ld.CIT(A) without appreciating the relevant facts simply assessed excess stock u/s.69B of the Act. 6. The Sr.DR supporting the order of the Ld.CIT(A) submits that during the course of survey, excess quantity of physical stock was found over and above book stock and the assessee could not explain source for excess stock found during the course of survey. Therefore, the AO and the Ld.CIT(A) has rightly assessed additional income offered during the course of survey u/s.69B of the Act, and their orders should be upheld. 7. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. During the course of survey, excess stock was found when compared to book stock. The assessee has offered additional income towards excess stock found during the course of survey and also paid necessary taxes by offering income ITA No.1104/Chny/2022 :: 7 :: under the head ‘income from business & profession’. The AO assessed excess stock found during the course of survey u/s.69B of the Act, as unexplained investment on the ground that the assessee could not explain source for excess stock found during the course of survey. We find that the excess stock found during the course of survey was mixed with regular stock in trade employed by the assessee in his business. The stock was not separately identified so as to assess it under the head ‘unexplained investment’. The assessee is having only one source of income i.e. income from trading in gold jewellery and silver articles. From the above, it is very clear that the entire stock found during the course of survey was available for trade at the business premise of the assessee and it was part and parcel of the regular business stock. Once, it is considered as regular business stock, then, obviously the source for acquisition of said stock is out of business income earned for the relevant assessment year, because, it is a general practice in business that whatever excess income earned is kept in the form of stock and debtors. Since the excess stock found during the course of survey was not separately identified and was mixed with regular business income, the assessee has rightly offered additional income declared during the course of survey under the head ‘income from business & profession’, and this position is supported by the decision of the Rajasthan High Court in the case of CIT v. Bajargan Traders in ITA No.258/2017 dated 12.09.2017. This issue is further supported by the decision of the co-ordinate Bench of ITAT, in the case of M/s.Overseas ITA No.1104/Chny/2022 :: 8 :: Leathers in ITA No.962/Chny/2022, wherein, under identical set of facts, the Tribunal by considering the decision of the Hon’ble High Court of Madras in the case of M/s.SVS Oil Mills v. ACIT (supra) held that excess stock found during the course of survey is assessable under the head ‘income from business’, but not u/s.69B of the Act, as unexplained investment. A similar view has been taken by the co-ordinate Bench of the ITAT Chennai Benches in the case of M/s.Mookambika in ITA No.299/Chny/2023 dated 26.07.2023 and relevant findings of the Tribunal are as under: 3. From the fact it emerges that the only source of assessee’s income is ‘Business income’ arising out of sale of gold jewellery and silver articles. During survey proceedings, quantitative differences were found in the physical stock vis-à-vis book stock. The assessee brought the same into books of account by way of credit to partners’ capital account with corresponding increase in book-stock. The excess stock was included in the stock register. Accordingly, the differential was separately offered to tax in the return of income as ‘Business Income’. Naturally, the excess stock was acquired out of excess income regenerated from business activity only since the assessee do not have any other source of income since its inception. The entire stock was accumulated out of income from jewellery business. The undisclosed business income was ploughed back into business to acquire further stock. In such a case, the excess stock could be said to have arisen out of normal business activity only and therefore, the same would be assessable as ‘business income’ only in terms of decision of Hon’ble Rajasthan High Court in the case of CIT vs Bajargan Traders (supra) wherein it was held that with respect to such excess stock found during the survey, it could be said that the investment in procurement of such stock was clearly identifiable and related to regular business stock of the assessee. Therefore, the same should be considered as ‘Business Income only. In the present case, the stock difference has arisen in the course of day-to-day business activity only and not otherwise. The entire stock was available as trading stock at the business premises and it was part and parcel of regular business stock. The decision of Hon’ble Supreme court in the case of Lakshmichand Baijnath vs CIT (supra) also support the said conclusion. It was held by Hon’ble Court that when an amount is credited in the business books, it is not an unreasonable inference to draw that it is a receipt from business. Therefore, the impugned income, in our considered opinion, would be assessable as ‘Business Income’ only. Similar view has been taken in the decision of Chennai Tribunal in M/s Overseas Leathers vs. DCIT (ITA No.962/Chny/22 dated 05.04.2023). We find that facts in that case are quite identical to the facts of the present appeal before us. 4. After going through the case law of Hon’ble High Court of Madras in the case of M/s SVS Oil Mills vs. ACIT (supra), we find that said case is distinguishable on facts. In that case, though stock was added in the stock register but there was no corresponding credit in the books of accounts. It was thus held that stock could not come in from vacuum. Therefore, the excess stock was held to be unexplained ITA No.1104/Chny/2022 :: 9 :: investment. However, in the present case, there is corresponding credit to partners’ capital account. Therefore, this case law is distinguishable on facts. 5. In the result, the appeal stand allowed in terms of our above order. 8. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that the AO and the Ld.CIT(A) are erred in assessing additional income declared towards excess stock found during the course of survey u/s.69B of the Act r.w.s. 115BBE of the Act, and thus, we direct the AO to assess the income under the head ‘income from business & profession’ as declared by the assessee. 9. In the result, appeal filed by the assessee is allowed. Order pronounced on the 30 th day of August, 2023, in Chennai. Sd/- (मनोमोहन दास) (MANOMOHAN DAS) "ाियक सद(/JUDICIAL MEMBER Sd/- (मंजूनाथा.जी) (MANJUNATHA.G) लेखा सद(/ACCOUNTANT MEMBER चे%ई/Chennai, िदनांक/Dated: 30 th August, 2023. TLN आदेश की ितिलिप अ*ेिषत/Copy to: 1. अपीलाथ /Appellant 3. आयकर आयु+/CIT 5. गाड फाईल/GF 2. थ /Respondent 4.िवभागीय ितिनिध/DR