MR.PONNUSWAMY KARUNANITHY, CHENNAI V. DCIT, CENTRAL CIRCLE-3(3), CHENNAI

ITA 195/CHNY/2023

• Counselvise Citation: [2023] 101 COUNSELVISE.COM (IT) 9337 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 19-12-2023
• Assessment Year: 2019-2020
• Appeal Filed On: 14-02-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Business income
• Section: 69B

Judgement Text

आयकर अपीलीय अिधकरण, ‘ए’, ᭠यायपीठ, चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL, ‘ A ’ BENCH : CHENNAI ᮰ी महावीर ᳲसंह, उपा᭟यᭃ एवं ᮰ी मंजुनाथ. जी, लेखा सद᭭य के समᭃ BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT AND SHRI MANJUNATHA.G, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. 195/CHNY/2023 िनधाᭅरण वषᭅ /Assessment year :2019-2020 Shri. Ponnuswamy Karunanithy, New No.66, Old no. 300, Thambu Chetty Street, Parrys, Chennai 600 001. [PAN AAKPK 1396F] Vs. The Deputy Commissioner of Income Tax, Central Circle 3(3) Chennai. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/ Appellant by : Shri. N. Quadir Hoseyn, Adv. & Dr. L. Natarajan, C.A., ᮧ᭜यथᱮ कᳱ ओर से /Respondent by : Shri. ARV Sreenivasan, Addl. CIT सुनवाई कᳱ तारीख/Date of Hearing : 20.12.2023. घोषणा कᳱ तारीख /Date of Pronouncement : 29.12.2023. आदेश / O R D E R PER MAHAVIR SINGH, VICE PRESIDENT: This appeal filed by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals)-18, Chennai in Appeal Reference No. CIT(A), Chennai-18/10763/2018-19, dated 24.01.2023. The assessment was framed by the Deputy Commissioner of Income Tax, ITA No.195/Mds/2023. :- 2 -: Central Circle 3(3), Chennai for the assessment year 2019-2020 u/s.143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’), vide order dated 30.09.2021. 2. The first issue in this appeal of assessee is as regards to the order of ld. CIT(A) confirming the addition made by the ld. Assessing Officer being excess stock found during the course of survey and added as unexplained investment u/s.69B of the Act amounting to ₹54,89,056/-. 3. For this assessee has raised ground Nos. 1 to 5 which are argumentative and exhaustive, hence need not be reproduced. 4. Brief facts of the case are that assessee is an individual engaged in the business of trading in textile and manufacturing of textiles handloom etc. A survey u/s.133A of the Act was conducted in the business premises of the assessee on 06.02.2019. Assessee filed his return of income for the assessment year 2019-2020 on 26.12.2019 admitting a total income of ₹75,40,970/- including the excess stock of ₹54,89,056/- which was found during survey. The ld. Assessing Officer accepted the returned income but reduced from assessed income declared by assessee as business income and again added as unexplained investment u/s.69B of the Act amounting to ₹54,89,056/-. Aggrieved, the assessee preferred an appeal before the ld. CIT(A). ITA No.195/Mds/2023. :- 3 -: 5. Ld. CIT(A) vide detailed order running into thirty one pages dismissed the appeal of the assessee and held that unexplained excess stock found during the course of survey was being assessed as unexplained investment u/s.69B of the Act by observing as under in para 7.18 of his order:- ‘’7.18 The assessee contended that the limbs of section 69B are not satisfied. The question here is whether the stock is unaccounted and whether the source is fully and satisfactorily explained. In the instant case, the excess unaccounted stock was arrived at in the presence of the assessee during survey and the assessee has never explained how the source for investment in excess stock emerged from his business. As both the limbs of section 69B gets satisfied, it is assessable under that section 69B. Mere showing it under Other Sources head will not distinguish his case. It is to be noted that this income shown is over and above the net profit from the accounted business. No proof given to show how it has arisen from his business. Thus, SVS Oil Mills case squarely applies in the assessee's case and not that of Hon'ble Rajasthan High Court decision in the case of Pr. CIT vs. Bajargan Traders in ITA No.258 of 2017. Even if it is taken that there are conflicting views, 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 Subramaniam -vs.- Siemens India Ltd. (1985) 156 ITR 11 (Bom.) held that so far as the legal position is concerned, the ITO 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 and have no other alternative except to confirm the order of the AO assessing the unexplained excess stock as unexplained ITA No.195/Mds/2023. :- 4 -: investment u/s 69B of the Act. Even during the appeal proceeding, the assesse except stating that the AO was wrong in treating the impugned amount as unexplained investment, no corroborative evidence was furnished. I therefore sustain the assessment of unaccounted excess stock found during survey as unexplained investment u/s.69B’’. Aggrieved, the assessee preferred an appeal before us. 6. We have heard rival contentions and gone through the facts and circumstances of the case. We noted that during the course of survey operation u/s.133A of the Act on 06.02.2019, vide question No.17 has brought out how the Assessing Officer computed excess stock which reads as under:- ‘’Q.17 After physical verification of the stock available in the various floors of the premises at New no. 66, Old No. 300, Thambu Chetty street, Chennai, it is seen that there is total stock of Rs.4,40,46,209/-. When compared to the closing stock going by the Tally accounting details there is an excess stock of Rs.1,96,34,424 /-. The detailed computation of the computation of the stock as per the books and as per the physical verification is given as under. Closing stock as on 31-03-2018 as per P & L account of the return of income for the assessment year 2018-19 (F.Y 2017-18) Rs. 4,89,19,852/- Add: Purchases accounted in the tally accounting maintained at Thambu Chetty Street, Chennai till 06-02-2019 Rs. 3,39,20,828/- Total Rs. 8,28,40,680/- Add: Gross Profit @22% Rs. 1,24,90,226/- ITA No.195/Mds/2023. :- 5 -: Less: Sales accounted in the tally accounting maintained at Thambu Chetty Street, Chennai till 06-02-2019 (-) Rs. 5,67,73,753/- Total (Closing stock as per books) Rs. 3,85,57,153/- Stock as inventorised on physical verification at Thambu chetty premises on 06-02-2019 Rs. 4,40,46,209/- Excess stock found after physical inventory Rs. 54,89,056/- We note that the assessee has produced copies of purchase ledger account wherein closing balance declared is ₹3,38,76,490/- as against closing stock taken by the department at ₹4,40,46,209/-. Closing stock as per books as on 31.03.2018 is at ₹4,89,19,852/-. The Department computed closing stock i.e excess stock by applying gross profit rate @22%. We note that the assessee before survey team or before the ld. Assessing Officer pointed out that it had arrived closing stock value at ₹3,85,57,153/- by applying gross profit rate of 22% whereas gross profit rate comes to 28.61% as declared by the assessee in the last three preceding years is as under:- Assessment year Gross Profit Ratio 2016-2017 26.84% 2017-2018 27.51% 2018-2019 31.48% According to assessee, if we apply this profit rate the stock will almost come close to book stock. It means that there is some discrepancies in the physical verification done because it is not possible to estimate stocks ITA No.195/Mds/2023. :- 6 -: of textile and handloom within one day. Even otherwise, the Revenue could not point out how they have valued each items because they have not valued in term of quality i.e value of the textile and handloom. In view of the above, it cannot be said that excess stock found, which is also based on estimate only, is unexplained investment. In view of the above, the same is to be assessed as business income as declared by the assessee and it cannot be charged at special rate of tax u/s.115BBE of the Act. Hence, we direct the Assessing Officer to assess the income of excess closing stock found during the survey operation in the business premises of the assessee as ‘’business income’’ and not as unexplained investment u/s.69B of the Act. 7. The last issue in this appeal of the assessee is with regard to the order of the ld. CIT(A) confirming the action of the ld. Assessing Officer in making disallowance of expenditure @30%. 8. We have heard rival contentions and gone through the facts and circumstances of the case. We note that the ld. Assessing Officer without going into the details estimated disallowance of expenditure at 30% out of total expenditure of ₹12,54,207/- and disallowed a sum of ₹3,76,262/-. In the absence of details of expenses, the ld. CIT(A) confirmed the action of the ld. Assessing Officer. After going through the facts of the case, we are of the view that in the absence of evidence, it cannot be denied that ITA No.195/Mds/2023. :- 7 -: there will be no indirect expenses. Hence, we restrict the disallowance at 20% and direct the Assessing Officer accordingly. 9. In the result, the appeal of the assessee is party allowed. Order pronounced on 29th day of December, 2023, at Chennai. Sd/- Sd/- (मंजुनाथ. जी) (MANJUNATHA.G) लेखा सद˟ /ACCOUNTANT MEMBER (महावीर िसंह ) (MAHAVIR SINGH) उपाȯƗ /VICE PRESIDENT चे᳖ई/Chennai ᳰदनांक/Dated:29.12.2023. KV आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. अपीलाथᱮ/Appellant 2. ᮧ᭜यथᱮ/Respondent 3.. आयकर आयुᲦ/CIT 4. िवभागीय ᮧितिनिध/ DR 5. गाडᭅ फाईल/GF