DCIT, CENTRAL CIRCLE-2, RAJKOT, RAJKOT V. M/s Marmola Vitrified Pvt Ltd, Morbi

ITA 128/RJT/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 1740 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 08-05-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 02-05-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Business income; Deemed to accrue or arise in india; Set aside
• Section: 68; 69; 69C; 143(3); 40(b); 133A; 69B; 69A

Judgement Text

आयकरअपील यअ धकरण,राजकोट यायपीठ,राजकोट। IN THE INCOMETAXAPPELLATE TRIBUNAL, RAJKOT BENCH: RAJKOT BEFORE DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER And SHRI DINESH MOHAN SINHA, JUDICIAL MEMBER आयकरअपीलसं./ITA No.128/RJT/2023 ( नधा रणवष / Assessment Year: (2018-19) (Hybrid Hearing) DCIT Central Circle-2, Rajkot Vs. M/s. Marmola Vitrified Pvt. Ltd. Old Ghuntu Road, AT-Ghuntu, 8-A, National Highway, Rajkot-363642 थायीलेखासं./जीआइआरसं./PAN/GIR No.: AANCS9558D (Appellant) (Respondent) Appellant by : Shri Shramdeep Sinha, CIT-DR Respondent by : Shri Vimal Desai, A.R. स ु नवाईक तार ख/ Date of Hearing : 09/05/2024 घोषणाक तार ख/Date of Pronouncement : 07/06/2024 आदेश / O R D E R PER SHRI DINESH MOHAN SINHA, JUDICIAL MEMBER: This appeal filed by the Revenue is directed against the order of Learned Commissioner of Income Tax (Appeals)-11, Ahmedabad [in short, “the Ld. CIT(A)”],dated 24.02.2023passed for Assessment Year (AY) 2018-19. 2. Grounds of appeal raised by the Revenue are as follows: “1. In the facts and on the circumstances of the case, the learned Commissioner (Appeals) has erred in treating the addition of Rs. 1,20,07,219/- as business income instead of deemed income u/s. 69 of the Act and should be taxed u/s. 115BB of the Act. 2. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) has erred in appreciating the fact that the AO has duly investigated and applied his mind and after satisfying himself framed the assessment on the basis of cogent material and relevant evidence on record. Page | 2 ITA No.128/RJT/2023 Assessment Year.2018-19 DCIT vs. M/s. Marmola Vitrified Pvt. Ltd. 3. In the facts and on the circumstances of the case and in law, learned Commissioner (Appeals) has erred in ignoring the facts that the assessee has disclosed such amount on the basis of discrepancies found in stock during the course of survey proceedings. 4. In the facts and on the circumstances of the case and in law, learned Commissioner (Appeals) has erred in ignoring the fact that the assessee has not provided any supporting documentary evidence in support of his claim and hence failed to explain satisfactorily the sources of the excess stock found during the survey. Accordingly, the excess stock found during survey should be taxed u/s 69 rws 115BBE of the Act. 5. In the facts on the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O. 6. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent.” 3. The brief facts of the case are that the appellant is a Private Limited Company engaged in the business of manufacturing and export of ceramic tiles. There was a survey under Section 133A of the Income Tax Act, 1961 (in short “the Act”) on 23.05.2017 at the business premises of the appellant. The survey party worked out excess stock of Rs.1,20,07,219/-. The assessee declared such difference in stock of Rs.1,20,07,219/- as additional business income and offered the same for tax by way of reduction from total cost of production. The assessee filed return of income for AY 2018-19 on 26.10.2018 declaring total income at Rs.47,57,370/- after inclusion of additional income of Rs.1,20,07,219/-. There was a loss from the regular business transactions. Further, the case of the assessee was selected for compulsory scrutiny and during the course of assessment proceedings, the assessee furnished a detailed submission vide letter dated 20.03.2021 and difference in stock of raw- materials and work-in-progress of Rs.1,20,07,219/- was arising from the regular business and the same was recorded in the books of accounts and offered as “business income”. However, the Ld.A.O. without issuing any show-cause notice,made the addition of Rs.1,20,07,219/- under Section 69 r.w.s. 115BBE of the Act on account of excess stock that the same was not recorded in the books of accounts by the assessee. Page | 3 ITA No.128/RJT/2023 Assessment Year.2018-19 DCIT vs. M/s. Marmola Vitrified Pvt. Ltd. 4. That, the assessee has already offered excess stock found during the course of survey proceedings by the Income Tax Authority as “business income” for the AY 2018-19. The Assessing Officer while making an assessment, again made the addition of Rs.1,20,07,219/- as “income from undisclosed sources” and also made Section 115BBE of the Act application and tax calculated accordingly. 5. That, the assessee moved an application for rectification, whereby it was brought into the notice that the income has also offered for tax equal to the amount of excess stock found and the return is accepted. The addition in income under Section 69 r.w.s.115BBE is bad that the Ld.ITO rectified the order of assessment with under mention remarks:- “However, the additional income so offered on account of excess stock found during the course of survey proceedings will be taxed under section 115BBE as discussed in details in original assessment order passes under 143(3) dated 28.04.2021. In the light of the facts discussed above, the total income of the assessee is rectified as under:- Income as per return of income Rs. 47,57,367 Less; disclosure on account of excess stock as the same required to be taxed under special rate as per section 115BBE Rs. 1,20,07,219 Net Income/loss under normal provision (allowed to be carried forward to next year/s) Rs. (-)72,49,852 Add: disclosure on account of excess stock (taxed u/s 69 r.w.s. 115BBE) 1,20,07,219 Thus, this rectification is disposedof accordingly.” 6. That the assessee challenged validity of the order of assessment / rectification order before Ld.CIT(A). The appeal is disposed of by relying Page | 4 ITA No.128/RJT/2023 Assessment Year.2018-19 DCIT vs. M/s. Marmola Vitrified Pvt. Ltd. on judgment of M/s. Fashion World, wherein the ITAT Ahmedabad has dealt with the identical issueby observing as under:- “Thus the important aspect that emerges from the entire discussion is that for invoking deeming provisions under sections 69, 69A, 69B & 69C there should be clearly identifiable asset or expenditure. In the present case we find that entire physical stock of Rs.25,14,306/- was part of the same business. Both kind of stock i.e. what is recorded in the books and what was found over and above the stock recorded in the books, were held and dealt uniformly by the assessee. There was no physical distinction between the accounted stock or unaccounted stock. No such physical distinction was found by the Revenue either. The assessee has repeatedly claimed that unaccounted business income is invested in stock and there is no amount separately taxable under section 69. The department has ignored this claim of the assessee and sought to tax the difference between book-stock and physical-stock as unaccounted investment under section 69 without considering the claim of the assessee that first the business receipt has to be considered and then investment should be treated as coming out of such unaccounted income. The difference in stock so worked out by the authorities below had no independent identity of its own and it is part and parcel of entire lot of stock. The difference between declared stock in the books and what is physically found would only be a mathematical expression in terms of value and not a separate independent identifiable asset. Therefore, it cannot be said that there is an undisclosed asset existed independently. Once this is so then what is not declared to the department is receipt from business and not any investment as it cannot be co-related with any specific asset.” 7. The appeal of the assessee is allowed by the Ld.CIT(A) with following observations:- “7.4 On the above reasoning, the Hon’ble ITAT held that the excess stock found during the course of the survey should be treated as the business income of the assessee. The facts and the reasoning of the above decision are applicable to the case of the appellant. In view of these factual discussion and legal matrix of the case, it is held that the excess stock of Rs. 1,20,07,219/- in the appellant’s case should be taxed as business income and not as deemed income under section 69 of the Act.Thus, the ground of appeal no. 4 is allowed.” Page | 5 ITA No.128/RJT/2023 Assessment Year.2018-19 DCIT vs. M/s. Marmola Vitrified Pvt. Ltd. 8. The appeal filed by the Department challenging the validity of the order of the Ld. CIT(A) by moving of an appeal before this Tribunal. Since it is the appeal of the Department order dated 24.02.2023,the Ld. D.R. submitted that the Income Tax Officer has rightly assessed the undisclosed stock of goods within the meaning of Section 68 and Section 69D of the Income Tax Act. The Income Tax Officer further right in determining the applicability of Section 115BBE of the Income Tax Act. The Hon’ble Commissioner order dated 24.02.2023 is need to be quashed in view of that the unaccounted stock, no source was mentioned and it should not be assessed under the head as “business income” and the decision of the Ld. CIT(A) was wrong since unaccounted purchase need to be verified. 9. On the contrary, Ld.A.R. submitted number of judgments especially one judgment in the case of J.K. Chokshi vs. ACIT Tax Appeal No.149 of 2013 order dated 22.12.2014, wherein it was elaborately discussed about the issue whether during the course of survey on the business carried on by the assessee and undisclosed stock found and the assessee did not have any other income, then in that case, observations of the Hon’ble Gujarat High Court are that these are to be considered as income from “profits and gains on business and profession”, for kind perusal, the decision of Hon’ble High Court is narrated as under:- “6. We have heard learned counsel for both the sides. It appears from the Assessment Order that there is nothing to conclusively establish that the amount offered for taxationin the return of income and credited in the books of account is not the business income of the assessee. The A.O who recorded the statement of the assessee u/s.131 did not question the source of income of assessee in respect of the disclosed income. Therefore, the stock, cash, etc. found during the course of survey indicate that the income disclosed is in respect of the business carried on by the assessee. No evidence has been brought on record by the A.O to Page | 6 ITA No.128/RJT/2023 Assessment Year.2018-19 DCIT vs. M/s. Marmola Vitrified Pvt. Ltd. establish that the assessee was doing any other activity other than the business in gold ornaments, etc. for which the amount was disclosed. It is, therefore, clear that the amount disclosed is nothing but, the business income of the assessee. 7. Once it is established that the assessee had no the source of income at the relevant time or in the past, it can be safely concluded that the assessee had no other income other than income from business. Now, when the business activity of the assessee has been accepted and no other source of income is found, then there was no justification for disallowing the salary paid to Partners at Rs.4.50Lacs. Therefore, the disallowance of Rs.4.50Lacs granted by the A.O and confirmed by the Tribunal is erroneous and deserves to be quashed and set aside. Our view is buttressed by the principle rendered by the Calcutta High Court in the case of Md. Serajuddin & Bros.v. Commissioner of Income- tax(supra). In view of the above, the question no.1 as to whether the Tribunal is right in confirming disallowance of Rs.4,50,000/made by the Assessing Officer under Section 40(b) of the Income tax Act, 1961 is answered in the negative in favour of the assessee and against the Revenue. 8. Insofar as question no.2 is concerned, it is a matter of fact that the assessee has no other source of income except income from business, as discussed in the foregoing paragraphs. Learned Standing Counsel appearing for the Revenue was not in a position to justify as to why the addition was made to the GP. Hence, the question no.2 as to whether the Tribunal is justified in treating undisclosed income offered during survey u/s.133A as "income from other sources "and not an income from" profits and gains of business or profession" especially when the assessee is not having any other source of income is answered in the negative in favour of the assessee and against the Revenue. 9. Consequently, the appeal is allowed and the impugned judgment and order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench ‘B’ in ITA No.4175/AHD/1995 dated 29.11.2002 is quashed and set aside. The order of CIT(A)dated 30.06.1995 passed in Appeal No.CAB/II175/9596 is restored. The appeal stands disposed of accordingly.” Page | 7 ITA No.128/RJT/2023 Assessment Year.2018-19 DCIT vs. M/s. Marmola Vitrified Pvt. Ltd. 10. We have heard the matter and perused the material available on record and found that the order of Ld.CIT(A) dated 24.02.2023 is on the basis of judgement of the Co-ordinate Bench passed in the case of M/s. Fashion World (supra). 10.1.We observe the order of the ITAT Chandigarh Bench passed in case of Veer Enterprises vs. DCIT reported at 158 taxmann.com 655 (Chandigarh Tribunal). The Tribunal held that where during course of survey, assessee surrendered excess stock, cash and receivables and offered same to tax as business income, however, AO treated said surrendered amount as unexplained investment under Sections 69A and 69B, since it emerged that source of income of assessee was from its business operations, income surrendered by assesse during survey could not be brought to tax under deeming provisions of Sections 69A and 69B of the Act. In the case of Baljinder Kumar vs. DCIT 157 taxmann.com 739 (Chandigarh Tribunal), the ITAT held that where there are unrecorded sales made by assessee during current financial year and receivables arising out of such unrecorded sales had been offered to tax as additional business income by assessee, such amount could not be brought to tax under Section 69 of the Act. In the case of Parmod Singla vs. ACIT 154 taxmann.com 347 (Chandigarh Tribunal), the ITAT held that mere fact that survey/search proceedings have been initiated at business premises of assessee does not mandate Assessing officer to automatically invoke deeming provisions of Sections 69 and 69A; said provisions can be invoked only where explanation offered by assessee is not found satisfactory; where from explanation offered by assessee it clearly emerged that source of income offered during survey was from his business operations, such income could not be taxed under Sections 69 and 69A of the Act. Page | 8 ITA No.128/RJT/2023 Assessment Year.2018-19 DCIT vs. M/s. Marmola Vitrified Pvt. Ltd. 10.2. We find that the Ld.CIT(A) has passed a well-reasoned order, after considering the facts and circumstances of the assessee’s case since the assessee has already declared as “business income” and the same is duly accepted by the Ld.CIT(A).Considering that the excess stock found during the course of survey under Section 133A of the Income Tax Act, assessed as “business income” and there is no applicability of Section 115BBE of the Act. 11. In the result, the appeal of the Revenue is dismissed. Order is pronounced on 07/06/2024 in the Open Court. Sd/- Sd/- (DR. ARJUN LAL SAINI) (DINESH MOHAN SINHA) ACCOUNTANT MEMBER JUDICIAL MEMBER Rajkot TRUE COPY दनांक/ Date: 07/06/2024 Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr. CIT 5. DR/AR, ITAT, Rajkot. 6.Guard File By Order, Assistant Registrar/Sr. PS/PS ITAT, Rajkot