SHRI MILKHI MAL DES RAJ JIAN, AMRITSAR V. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE, AMRITSAR

ITA 178/ASR/2024

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 1072 (ITAT-AMRITSAR)
• Duration Of Justice: 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 07-05-2024
• Assessment Year: 2019-2020
• Appeal Filed On: 03-04-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRIYANKA PATEL
• Keywords: Unexplained investment; Business income
• Section: 69; 143(3); 133A; 69B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. UDAYAN DAS GUPTA, JUDICIAL MEMBER I.T.A. No.178/Asr/2024 Assessment Year: 2019-20 Milkhi Mal Des Raj Jain, 88, IDH Market, Amritsar. [PAN:AABFM3673Q] (Appellant) Vs. ACIT, Central Circle, Amritsar. (Respondent) Appellant by Sh.Tarun Bansal, Adv Respondent by Smt. Priyanka Patel, Sr. DR Date of Hearing 08.05.2024 Date of Pronouncement 08.07.2024 ORDER Per: Udayan Das Gupta, JM This appeal is preferred by the assessee against the order of the Ld. CIT (A) -5, Ludhiana, dated 27/03/2024, passed u/s 250(6) of the Act 61, which has arisen out of the order of the ACIT, Central Circle, Amritsar, passed u/s 143(3) of the Act 61 dated 17/09/2021. 2. The grounds of appeal taken by the assessee are as follows: “1. That revenue wrongly applied sec. 69 and taxed excess stock found during survey = Rs. 55 lacs u/s 115BBE, in the I.T.A. No.178/Asr/2024 Assessment Year: 2019-20 2 shop only without bringing any evidence on record for applying the said section. 2. That the revenue wrongly ignored all the documents available on record including survey and applied section 69 and 115BBE. 3. That excess business stock found during survey cannot be taxed u/s 115BBE vis-a-vis section 69 cannot be applied on that.” 3. All the three grounds relates to one single issue, in the matter of excess stock being found during survey at the business premises of the assessee and disclosed by the assessee before the survey team and considered for taxation in the return of income, has been taxed at the rates prescribed u/s 115BBE by applying the deeming provisions of section 69 of the Act 61. 4. The facts of the case in brief are that the assessee is a partnership firm carrying on the business of wholesale and retail trading of various types of cosmetic goods, and other allied products. A survey u/s 133A of the Act 61, was carried out at the business premises of the assessee on 7 th February, 2019, and in course of survey, stock inventories were taken by the survey team. During the course of survey, the assessee declared excess stock of cosmetic goods available in the shop premises amounting to Rs.55 lakhs, and surrendered the same for taxation. I.T.A. No.178/Asr/2024 Assessment Year: 2019-20 3 5. The said additional stock so surrendered by the assessee has been considered and recorded separately in a trading account as at 31/03/2019, and has been declared as business income under the head “business and profession” in addition to its normal profits, as per audited accounts, in the return of income, and due taxes at normal rates has also been paid, before filing the return. 5.1 In other words, the computation of total income for the year ended 31/03/2019 and the returned income of the assessee for the relevant year, amounting to Rs. 60,09,170/-, included the surrendered stock value of Rs. 55 lakhs, and full tax withinterest, has been paid at normal rates before filing of return. 5.2 The return of income for the year has been assessed u/s 143(3) of the Act 61, at the returned figure of Rs. 60,09,170/-, without any variation. 6. During the course of survey operation, statement of the partner of the firm has been recorded, where the partner has accepted existence of excess business stock of cosmetics and allied goods amounting to Rs. 55 lakhs, which is exactly the same nature and type of goods traded by the assessee firm in regular course of business, for which inventory has been prepared by the survey team. 7. In course of hearing before us, it is explained by the Ld.AR, that the excess stock found in the business premises, are exactly the same nature and category of cosmetics, that are mixed with the normal stock, traded by the assessee and the I.T.A. No.178/Asr/2024 Assessment Year: 2019-20 4 same cannot be identified separately and in fact the same is just roll over of business profits for so many years. It was further submitted that some of the cosmetics are old stocks which are not fast moving and are no more considered as attractive items and the same has also been valued at current rates by the survey team and the assessee accepted the said valuation without any dispute to buy peace of mind. 7.1 Subsequently, the case was under scrutiny before central circle, Amritsar, and in proceedings u/s 143(3) of the Act 61, all books of accounts, including cash book and ledger, has been furnished before the AO, supported by all bills invoices and vouchers and no defect has been found and there are no adverse findings, as such. 7.2 In specific reply to queries regarding applicability of provisions of section 115BBE of the Act 61, it has been clarified by the assessee that, the physical stocks found at the shop premises has been counted and inventorised and the nature and description of the stock is classified as “Cosmetics” which includes cosmetics and allied products, and it is the same goods which are traded by the assessee in usual course of business activity. The assessee is doing the same business since more than last 30 years, and the old stocks are also brought forward from earlier years, and business profits earned over the years are rolled back into stocks. The valuation of the stocks found has been done at present buying rates which has I.T.A. No.178/Asr/2024 Assessment Year: 2019-20 5 resulted in a higher figure of valuation difference, even though a good quantity of the stocks are old stocks. It has also been explained by the assessee that, even after carrying out of a thorough survey at the business premises, not a single item or product or article, NOT relating to cosmetics has been found, and no documents, bills or vouchers, has been found which may point towards any other business activity of the assessee, other than cosmetics. The valuation difference arising out of the valuation conducted by the survey team, amounting to Rs.55,33,130/- (rounded off to Rs. 55 Lakhs), has been accepted by the assessee on the spot and the assessee agreed to the said surrender, to buy peace of mind. Subsequently, the said surrender has been accounted for in the regular books as per accounting procedure, a fact which is borne out from the audit balance sheet as at 31/03/2019. 8. The ld. AR of the assessee has filed a synopsis in respect of the arguments that he has already made and has also relied upon the judgments of the Coordinate Bench, on identical issue: “i) Deepak Setia vs. DCIT 155 Taxmann.com 293 (Amritsar- Trib),order dated 17.07.2023. ii) Sh. Tejpal Singh Vs. Asstt. DCIT, ITA No. 266/Asr/2023, order dated 06.12.2023. iii) Sh. Ravinder Kumar Bansal vs. Pr. CIT ITA No.319/Chd/2022, order dated 19.11.2023.” I.T.A. No.178/Asr/2024 Assessment Year: 2019-20 6 9. The AO in course of assessment proceedings has accepted the return figure without variation but has applied the tax rate u/s 115BBE of the Act, on the ground that no day to day stock register has been maintained by the assessee and in absence of stock register, it was not possible to identify what exactly were the items which were forming part of disclosed business activities. As such, according to the AO the appellant was not able to bring on record to proof that difference in stock belongs to the same business. 10. The matter was carried in appeal before the ld. CIT(A). The ld. CIT(A) dismissed the appeal of the assessee as per the following observation: “I have considered the reasoning given by the AO in assessment order and in the remand report, submissions, rejoinder to remand report and documents submitted by the appellant, facts of the case and legal position. After analysis following facts emerge: (i) As per para 10 of the Tax Audit Report, the nature of the business of the appellant is Sector ‘ Wholesale and Retail Trade’ Subsector: ‘Retail sale of other products" Code ‘09028’’ I.T.A. No.178/Asr/2024 Assessment Year: 2019-20 7 Thus the exact nature of business activity was not mentioned. When the appellant has not mentioned exact nature of the business activity, then the legal obligation is cast upon the appellant to prove that the excess stock found is part of the regular business activity. The appellant has failed to do so. (ii) As per para 10 of the Tax Audit Report, books maintained were Ledger, Cash book and Day Book'. This indicates that no stock register was maintained. (iii) As per appellant’s own submission also, it has not been maintaining any stock register. Therefore, in absence of stock register, the appellant has not given any other data to identify as to what exactly were the items which were forming part of disclosed business activity. It is an undisputed fact that there were discrepancies in the stock physically found and stock as per books of account. However, the appellant has not been able to bring anything on record to prove that the difference is due to stock belonging to the same business. (iv) Further as per the appellant, it was dealing in trading of cosmetics. However, as per stock inventory prepared, there are other items as well. Eg there were various type of oil, all of which cannot be said to be part of cosmetic. (v) The appellant has heavily replied upon the case of Poonam Marwaha. As per the appellant, that was a similar case and AO has treated surrendered income in that case as business income. This contention of the appellant is not acceptable as that case is not in appeal before the undersigned and therefore, I.T.A. No.178/Asr/2024 Assessment Year: 2019-20 8 no decision can be given on the merits or similarities and differences of that case. Even otherwise the AO in his remand report has clearly pointed out the difference between that case and the case of the appellant. The Report was provided to the appellant, and it has not been able to fully controvert the finding of the AO. When the appellant is arguing its own case, it has to argue his case only. It can be supported by reported judgement of appellate authorities. However, on the order of AO in some other cases, facts of which are not truly/correctly ascertainable, cannot be a basis for decision in the appellant’s case. The appellant has also not brought explicit authority of Poonam Marwaha for disclosure of her personal financial information. (vi) The exact nature of business activity of Poonam Marwaha was also not mentioned. A loose term that both are dealing in cosmetics, has been used. This is too general a term to bring out similarity. Being in the neighborhood does not mean that the business activity is exactly identical. (vii) The decisions of Hon’ble ITAT cited by the appellant are distinguishable on facts. In all these cases, the assessee has been able to prove that the stock found was of the same business, whereas in the present case, the appellant has failed to prove so. (viii) The onus is cast upon the appellant to explain that the surrendered amount is a regular business income. However, it has failed to do so.In the light of the above discussion, it held that the AO has rightly treated the surrendered amount of I.T.A. No.178/Asr/2024 Assessment Year: 2019-20 9 Rs.55,00.000/- as unexplained u/s. 69 of the Act taxable u/s 115BBE of the Act. Therefore, the view taken by the AO is confirmed. Accordingly, these grounds of appeal are dismissed. 11. In course of hearing , the ld. DR relied upon the order of the ld. CIT(A) and has argued that stock register has not been maintained in this case, and it is very difficult to identify as to what were the items that formed part of the business stock. 11.1 He further submitted that apart from cosmetics various types of oil were also found in the business premises and the same has been listed as part of the stock in the inventory. 11.2 As such, he prayed that in this case, the provisions of section 69 is applicable and tax rate should be calculated as per provisions of section 115BBE of the Act. 12. We have heard the arguments of both the parties, and considered the materials available on record and the synopsis filed by the assessee. During the course of survey, a statement of the partner was recorded by the survey team regarding the business carried out by the firm, and question was askedrelated to discrepancy of stock: I.T.A. No.178/Asr/2024 Assessment Year: 2019-20 10 “Q. No. 11: Have you maintained books of account and where are the books of account lying and whether the books of account have been written upto date? Ans: I have maintained cash book, ledger, day book, and these are lying in the office of the auditor and the books of account has been written upto 31.01.2019. Q. No. 14: There is discrepancies in this stock found amounting to Rs.55 lacs during the course of survey u/s 133A; please explain why the same may not be treated as unaccounted stock? Ans. I agree that there is difference of stock at Rs.55 lacs and I shall pay the tax accordingly over and above the normal business income.” 12.1 We find that the stock physically found has been valued and then compared with the value of stock so recorded in the books of account and the difference in the value of stock so found belonging to the assessee firm has been offered to tax. 12.2 There is no dispute that the stock that has been found are the same stock in which the assessee is doing business. It is a mixed stock without any separate identity. The revenue has not pointed out that the excess stock has any other nexus or connection with any other receipts other than the business being carried on by the assessee. In the answer to the last question, the partner of the assessee has accepted the unaccounted stock and in order to avoid litigation she has voluntarily surrendered the said stock as normal business income for the current F.Y. over and above, the normal business profits. So, there is no doubt that the unaccounted stock I.T.A. No.178/Asr/2024 Assessment Year: 2019-20 11 has arisen out of own business and also includes roll over of business profit over the years. As such, the deeming provisions u/s 69 cannot be invoked in this case. 12.3 We also take note that in the order of the ld. CIT(A), it is stated that apart from cosmetics the stock inventory prepared consisted of some types of oil. In this respect we observe that hair oils are also oil based cosmetics products, and considered as allied products. Trading in cosmetics and hair oil are part of the assessee business transactions. 12.4 As such to arrive at conclusion,we find that the difference in stock so found by the authorities has no independent identity and the same is a mixed stock and is part and partial of the entire stock. Therefore, it cannot be said that there is undisclosed asset which existed independently, and thus what is not declared to the department is receipts from business and not from any investment because it cannot be co-related with any other assets and as such the difference should be treated as undeclared business income. We further find that it is a regular stock of cosmetics and hair oil in which the assessee deals in on a regular basis and is thus related to the business carried out by the assessee. In this instant case, there has been no physical distinction between the accounted stock and unaccounted stock and no such physical distinction has been found by the revenue. 13. Regarding the issues raised by the ld. CIT(A) in the matter of the nature of business stated in audit report,it is concluded that the survey team has actually I.T.A. No.178/Asr/2024 Assessment Year: 2019-20 12 visited the place and has conducted physical verification and taken the physical stock of goods which are all cosmetics and allied products including hair oil. The stock that existed inside the business premises of the assessee has been physically counted and inventorised by the survey team and they are stocks of cosmetics and allied product only and nothing else has been found. 13.1 As stated above, no undisclosed asset other than cosmetics has been found and what is not declared to the department are receipts from the business and not any investment and cannot be correlated with any specific asset. 13.2 At this stage, we would like to rely on the judgment of the Coordinate Bench of ITAT Chandigarh in the case of A.P. Knit Fab ITA 732/Chd/2022 order dated 15.02.2024 and also on the decision of the Hon’ble Rajasthan High Court in the case of PCIT vs. Bajargan Traders ITA 258/2017 dated 12.09.2017. Relevant portion of the Hon’ble High Court judgment is reproduced as below: “2.7. It is further submitted that the real issue in this case is whether the excess stock surrendered should be made as a part of business income or not and if so, assessee can claim deduction on account of payment of remuneration to partners on account u/s 40b(v). In this regard, our reference was drawn to the decision of Co-ordinate Bench in case of Shri Ramnarayan Birla (in ITA No. 482/JP/15 dted 30.09.2016). In that case, the question before the Coordinate Bench was “whether the CIT(A)- 2, Udaipur has erred in directing the AO to assess the I.T.A. No.178/Asr/2024 Assessment Year: 2019-20 13 unexplained investment surrendered by the assessee under the head “income from Business” ignoring the decision of the Hon’ble Gujarat High Court in the case of Fakir Mohd. Hazi Hasan 247 ITR 290 that unaccounted income ought to be categorized under the residuary head of ‘Income from other sources’. In respect to the said issue, the findings of the Coordinate Bench are as follows: “We have heard the rival contentions and perused the material available on record. Undisputed facts emerged from the record that at the time of survey excess stock was found. It is also not disputed that assessee is engaged in the business of jewellery.During the course of survey excess stock valuing Rs. 77,66,887/- was found in respect of gold and jewellery. The Coordinate Bench in the case of Choksi Hiralal Mangnlal vs. DCIT 131, TTJ (Ahd.) 1 has held that in a cases where source of investment/expenditure is clearly identifiable and alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment/expenditure then first what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure it should be considered to be taxed u/s 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed I.T.A. No.178/Asr/2024 Assessment Year: 2019-20 14 income under section 69 would not be necessary. Therefore, the first attempt of the assessing authority should be to find out link of undeclared investment/expenditure with the known head, give opportunity to the assessee to establish nexus and if it is satisfactorily established then first such investment should be considered as undeclared receipt under that particular head. It is observed that there is no conflict with the decision of Hon’ble Gujarat High Court in the case of Fakir Mohd. Jajihasan (supra) where investment in an asset or expenditure is not identifiable and no nexus was established then with any head of income and thus was not available for set off against any loss under any other head. Therefore, the Hon’ble Coordinate Bench held that where asset in which undeclared investment is sought to be taxed is not clearly identifiable or does not have independent identity but is integral and inseparable (mixed) part of declared asset falling under a particular head, then the difference should be treated as undeclared business income explaining the investment. In the present case the excess stock was part of the stock. The revenue has not pointed out that the excess stock has any nexus with any other receipts. Therefore, we do not find any fault with the decision of the ld. CIT(A) directing the AO to treat the surrendered amount as excess stock qua the excess stock found.” 2.10. We have heard the rival contentions and perused the material available on record. During the course of survey, the I.T.A. No.178/Asr/2024 Assessment Year: 2019-20 15 assessee has surrendered an amount of Rs. 70,04,814/- towards investment in stock of rice which had not been recorded in the books of accounts. Subsequently, in the books of accounts, the assessee has incorporated this transaction by debiting the purchase account and crediting the income from undisclosed sources. In the annual accounts, the purchases of Rs. 70,04,814/- were finally reflected as part of total purchases amounting to Rs. 33,47,19,658/- in the profit and loss account and the same also found included as part of the closing stock amount to Rs. 1,94,42,569/- in the profit/loss account since the said stock of rice was not sold out. In addition to the purchase and the closing stock, the amount of RS. 70,04,814/- also found credited in the profit and loss account as income from undisclosed sources. The net effect of this double entry accounting treatment is that firstly the unrecorded stock of rice has been brought on the books and now forms part of the recorded stock which can be subsequently sold out and the profit/loss therefrom would be subject to tax as any other normal business transaction. Secondly, the unreco4rded investment which has gone in purchase of such unrecorded stock of rice has been recorded in the books of accounts and offered to tax by crediting the said amount in the profit and loss account. Had this investment been made out of known source, there was no necessity for assessee to credit the profit/loss account and offer the same to tax. Accordingly, we do not see any infirmity in assessee’s bringing such transaction in its books of accounts I.T.A. No.178/Asr/2024 Assessment Year: 2019-20 16 and the accounting treatment thereof so as to regularise its books of accounts. In fact, the same provides a credible base for Revenue to bring to tax subsequent profit/loss on sale of such stock of rice in future. 2.11. Having said that, the next issue that arises for consideration is whether the amount surrendered by way of investment in the unrecorded stock of rice has to be brought to tax under the head “business income” or “income from other sources”. In the present case, the assessee is dealing in sale of foodgrains, rice and oil seeds, and the excess stock which has been found during the course of survey is stock of rice. Therefore, the investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. The decision of the Co-ordinate Bench in case of Shri Ramnarayan Birla (supra) supports the case of the assessee in this regard. Therefore, the investment in the excess stock has to be brought to tax under the head “business income” and not under the head income from other sources”. In the result, ground No. 1 of the assessee is allowed.” 14. Similarly, on an identical issue, the view expressed by the Coordinate Chandigarh Bench in case of M/s A.P. Knit Fab Vs. DCIT in ITA No. 732./Chd/2022, dated 15.02.2024 are as follows; relevant portion is reproduced below: I.T.A. No.178/Asr/2024 Assessment Year: 2019-20 17 “8.12. In the instant case as well, there is no physical distinction between the accounted stock and unaccounted stock. No such physical distinction was found by the Revenue either. We therefore find that the difference in stock so found out by the authorities has no independent identity and is in terms of value terms only and thus part and parcel of entire stock, therefore, it cannot be said that there is an undisclosed asset which existed independently and thus, 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 and the difference should thus be treated as business income. 8.13. In light of aforesaid discussion and in the entirety of facts and circumstances of the case, the income so surrendered on account of investment in excess stock during the course of survey cannot be brought to tax under the deeming provisions of section 69B of the Act and the same has to be assessed to tax under the head “business income”. In absence of deeming provisions, the question of application of section 115BBE doesn’t arise and normal tax rate shall apply. The AO is thus directed to assess the income under the head “Income from Business/profession” and apply the normal rate of tax. 9. In the result, the appeal of the assessee is allowed.” 15. Respectfully following the observation of the Hon’ble High Court in the case of Bajargan Traders (supra) and the decision of the Co-ordinate Chandigarh I.T.A. No.178/Asr/2024 Assessment Year: 2019-20 18 Bench, reproduced above, we are of the opinion, that the income so surrendered on account of excess stock during the course of survey cannot be brought to tax under the deeming provisions of section 69 of the Act 1961, and the same has to be assessed to tax under the head business income and the application of section 115BBE does not arise in this case. It shall be charged to tax at normal rates.As such the appeal of the assessee is allowed. 16. In the result, the appeal of the assessee bearing ITA No. 178/Asr/2024is allowed. Order pronounced in the open court on 08.07.2024 Sd/- Sd/- (Dr. M. L. Meena) (UDAYAN DAS GUPTA) Accountant Member Judicial Member AKV Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By order