Deputy Commissioner of Income Tax, Central Circle-2(2), Bangalore V. Sri. Krishna Diamonds and Jewellery , Bangalore

ITA 453/BANG/2023

AI Insights

The case revolves around a survey conducted at the premises of Sri Krishna Diamonds and Jewellery, where excess stock of gold, silver, and precious stones was found and valued at Rs.2,50,51,072. The assessee admitted to the excess stock during the survey and subsequently declared it as business income in their tax return. However, the Assessing Officer (AO) treated this excess stock as unexplained investment under Section 69 of the Income Tax Act, leading to an appeal by the assessee to the CIT(A), who reversed the AO's decision. The Revenue then appealed to the ITAT, which upheld the CIT(A)'s decision, emphasizing that the excess stock was part of the regular business and should be taxed as business income.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124862 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2023
• Appeal Filed By: Department
• Order Result: DismissedDismissed
• Bench Allotted: B
• Next Hearing Date: 25-07-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 12-06-2023
• Other Referred Cases: Ragays Diagnostic & Research Centre Pvt Ltd ITA np. 423/Bang/2022, Mala Verneker vs DCIT ITA no. 1012/Bang/2022, Suresh Vasudev Vernekar vs DCIT ITA no. 1010/Bang/2022, CIT Vs S.K. Srigiri & Bros (kar) 171 Taxman 264, PCIT Vs Bajargan Traders (Raj) ITA no. 258/2017, Chokshi Hiralal Maganlal Vs DCIT (Ahd) ITA no. 3281/Ahd/2009
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Business income; Deemed to accrue or arise in india; Valuation report
• Section: 69; 133A; 264; 73; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B’’ BENCH: BANGALORE BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA No.453/Bang/2023 Assessment Year: 2018-19 The Dy. Commissioner of Income Tax, Central Circle- 2(2), Bangalore. Vs. Sri Krishna Diamonds and Jewellery, Commercial Street, Bangalore. . APPELLANT RESPONDENT Appellant by : Ms. Suman Lunkar, C.A Respondent by : Smt. Supriya Rao, O.N, Addl. CIT (DR) Date of Hearing : 26.07.2023 Date of Pronouncement : 01.08.2023 O R D E R PER LAXMI PRASAD SAHU, ACCOUNTANT MEMBER: This appeal filed by the Revenue is against the order dated 08.05.2023 passed by the CIT(A) on the following grounds of appeal:- “i) Whether on the facts and circumstances of the case and in Law, the CIT(A) was correct in holding that the excess stock found during the course of Survey U/s 133A admitted by the assessee and voluntarily declared in the return of income was normal business income and not unaccounted investment U/s 69 or 69B? ii) Whether on the facts and circumstances of the case and in Law, the CIT(A) was correct in holding that the excess stock found during the course of Survey U/s 133A admitted by the assessee and voluntarily declared in the return of income was business income subject to normal rate of tax? 2 of page 11 ITA No.453/Bang/2023 iii) Whether on the facts and circumstances of the case and in Law, the CIT(A) was correct in considering the investment in excess stock as business income of the assessee when the assessee had not brought anything on record to prove the source of such investment? iv) Whether on the facts and circumstances of the case and in Law, the CIT(A) was correct in holding that the onus was on the AO to show that the excess stock found during the course of Survey U/s 133A and admitted by the assessee, was not relating to its normal business?” 2. The brief facts of the case are that a survey was carried out at the business premises of M/s Sri Krishna Diamonds and Jewellery on 04/01/2018 at its registered address at No.1, Kamaraj Road, Commercial Street, Bangalore-560 001. The case was selected for compulsory scrutiny and statutory notices were issued to the assessee. During the course of assessment proceedings, the AO noted that on the basis of survey, it was found that there was excess stock with regard to gold and gold ornaments of 3756.50 grams, precious stones of 36.9 cent and silver article of 376 kgs and valued at Rs.2,50,51,072/- as per approved valuer, which was not disputed by the assessee at the time of recording of statement and the assessee accepted that it is excess stock which were not recorded in the books of account and agreed for paying the tax on it. The statement is as under:- “0.26 The complete valuation of the gold articles and other articles was done during the course of the survey and the entire valuation report was enclosed herewith as an annexure. As per the valuation report there is excess in various categories of the stock. The certificate is as follows:- The excess is appearing in the books in some of the categories as shown in the valuation report. Please. comment. 3 of page 11 ITA No.453/Bang/2023 Ans. Sir, I agree that the valuation is done by government authorized valuers ad also I agree that there is excess god and saver in some of the categories. The total value c the excess god present in the premises comes to Rs.1,00,11,072/-. Further as per the books the total silver articles present in the premises as per the books is 25,43,499.000 grams. In addition, there is an excess of 376 kgs of silver kept in the premises as per the valuation repot which is not accounted in the books of account. The current market rates is at 40/kg is Rs.1,50,40.000/-. Accordingly the total value of the excess stock of gold and silver present in the premises is 2,50.51,072/- I will include this value of the excess stock in the return of income for the AY 2018-19 and file the return within the due date and pay the applicable taxes within the stipulated time.” 3. Further, during the course of assessment proceedings, the AO verified from the income-tax return and computation of income and found that the assessee had offered the same as income from business and paid tax . In this regard, the assessee submitted that the difference stock found during the course of survey appeared in the profit and loss account and the assets are reflected in the financial statement as on 31/03/2018, hence, sec. 69 will not be attracted and the regular tax due has been paid. From the submission made by the assessee, the AO was not satisfied and he applied sec. 69 after discussing in detail and relying on some case laws, it was concluded that the excess stock found during the course of survey amounting to Rs.2,50,51,072/- was unexplained stock and the same was added back to the income of the assessee u/s 69 of the Act. 4. Aggrieved from the above order, the assesee filed appeal before the CIT(A). The ld.CIT(A) after examining the details and relying on the case laws, allowed the appeal of the assessee. 5. Aggrieved from the order of the CIT(A), the Revenue has filed appeal before the ITAT. 4 of page 11 ITA No.453/Bang/2023 6. The ld.DR relied on the order of the AO and submitted that during the course of survey proceedings on 04/01/2018, the survey team found excess stock of jewellery, which were not recorded in the books of accounts of the assessee. Therefore, the AO has rightly applied sec. 69 of the IT Act. She also submitted that mere relying on the books of account subsequently without any corroborating evidences to support such entries and offering the same to tax in the return of income after the survey, would not meet the conditions of satisfactory explanation with regard to nature and source thereof, therefore, the section 69 of the Act will apply. Section 69 of the Act states that where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year. Even if the assessee offered the same suo moto as income in the return of income, it does not take way such income out of category of deemed income u/s 69 of the Act for the financial year in which they are found. She further submitted that had the survey not taken place, the relevant income of excess stock would have escaped assessment. Accordingly, she submitted that the order of the AO should be upheld. 7. The ld.AR relied on the order of the CIT(A), she also relied on the submissions made before the CIT(A) & further submitted that the excess stock found during the survey was part of the regular stock and 5 of page 11 ITA No.453/Bang/2023 the AO has not pointed out that the excess stock had any nexus with any other receipts. She also submitted that during the course of survey in the statements recorded, the assessee has accepted it as a business income, on which the assessee has paid taxes at normal rate and entered in the books of accounts, therefore, sec. 69 will not apply in this case. 8. The ld.AR of the assessee filed paper book containing pages 1 to 115 including the case laws relied on from page nos. 78 to 115 which are as under:- 1. Ragays Diagnostic & Research Centre Pvt Ltd ITA np. 423/Bang/2022 2. Mala Verneker vs DCIT ITA no. 1012/Bang/2022 3. Suresh Vasudev Vernekar vs DCIT ITA no. 1010/Bang/2022 4. CIT Vs S.K. Srigiri & Bros (kar) 171 Taxman 264 5. PCIT Vs Bajargan Traders (Raj) ITA no. 258/2017 6. Chokshi Hiralal Maganlal Vs DCIT (Ahd) ITA no. 3281/Ahd/2009” 9. After hearing rival contentions, we note that the assessee is dealing in gold jewellery, silver articles, diamond, platinum, other precious stones, semi precious stones and dealing in bullion etc. A survey was conducted on 04/01/2018 and the excess stocks were found of Rs. 2,50,51,072/- . During the assessment AO treated the same as Income from other source and applied sec. 69 of the Act. The CIT(A) has allowed the appeal of the assessee by observing that the AO has not pointed out that the excess stock has any nexus with any other receipts. After discussing in detail and considering on the some judgments, he found that the assessee is engaged in jewellery business as noted supra and no other business is carried out by the assesee. We note that the assessee has stated that excess stock is kept in the premises and it was not recorded in the books of accounts. As per the submission of the ld. AR, after the survey, the assessee has made 6 of page 11 ITA No.453/Bang/2023 necessary entries in its books of account and offered it as regular business income. The answer to question No.26 in the statement recorded is very much clear that the assessee has offered it as excess stock of its business assets. The AO has not further established that the excess stock found was not in the nature of business assets/income and also not pointed out any adverse information that it is not regular business income. The CIT(A) has allowed the appeal of the assessee by observing as under:- “9.0 The appellant during the course of appellate proceedings has filed written submissions in support of his claim and also relied on various judicial judgements. The relevant part of the same is reproduced as under. 14.1 As stated above, in the case of appellant, a survey u's 133A was conducted on 04.01.2018 in the business premises of the appellant which is before the end of financial year 31.03.2018. In the course of survey, value of excess stock of Gold Jewellery and silver articles was declared. The stock declared under survey was credited to the capital account of the partners of appellant. Further, the stock was found in the business premises of the appellant for which the source is income from business only. The excess stock found during the course of survey and surrender made thereof was correctly returned under the head "Business and Profession' only in the Return of Income. As stated above, the appellant is dealing in Gold jewellery, Silver articles, Diamond, Platinum and other precious / semi precious, etc., and the excess stock which has been found during the course of survey is stock of Gold jewellery and Silver articles only. Therefore, the investment in procurement of such stock of Gold jewellery and Silver articles is clearly identifiable and related to the profit of regular business of the appellant only. 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" and provisions of Section 69/115BBE would accordingly be not applicable. 14.2 Even in the statement recorded u/s 133A on 04.01.2018 from the appellant at the time of survey u's 133A, the appellant had stated that the extra income offered is over and above the normal profits of the appellant firm and such income declared is to be assessed as business income only. The relevant question no. 26 along with the answers are reproduced as follows; The complete valuation of the gold articles and other articles was done during the course of the survey and the entire valuation report was enclosed herewith as an annexure. As per the valuation report there is excess in various categories of the stock. Table The excess is appearing in the books on some of the categories as shown in the valuation report please comment- Ans: Sir, I agree that the valuation is done by government authorized valuers and also I agree that there is excess gold and silver in some of the categories. The total value of the excess gold present in the premises comes to Rs.1,00,11,072/-. Further as per the books the total silver articles present in the premises as per the books is 25,43,499.000 grams in addition, there is an excess 7 of page 11 ITA No.453/Bang/2023 of 376 kgs of other as kept in the premises as per the valuation report which is not accounted in. 14.3 Thus, it is clear from answer to question 26 from the statement recorded at the time of survey that the income declared is on account of excess stock found in the business premises of the appellant and accordingly appellant had declared extra income in the form of excess stock of gold jewellery and silver articles under the head Income from Business only. 15 In this regard the appellant would like to rely upon several Judicial precedents wherein it has been held that income declared under survey proceedings are to be assessed as Business income only and not as Income from other sources and consequently the provision of Section 115BBE will not apply. • CIT v/s. S.K. Srigiri 298 ITR 13(kar). • ACIT Cen Cir 13, Mumbai vs Rahil Agencies, Mumbai on 23 November, 2016 • Shri Ram Swaroop Singha7 & others Vs. ACIT Circle (ITA No. 145/Jodh/2018) • Pr.CIT Vs. BaJrang Traders, C/o. Kalani and Co., ITA No. 258/2017 • Lakshminath Baijnath Vs. CIT(1959) 35 ITR 46 (SC) • DCIT vs. Ramnarayan Bir7a ITA No. 482/JP/2015 • Chandigarh ITAT- Famina Knit Fabs vs ACIT (2019) 176 ITD 246 • (2021) 123 taxmann.com 8 (Jaipur- Trib.) In the ITAT Jaipur Bench `A' Hari NarainGattani vs. Deputy Commissioner of Income Tax, Circle-04, Jaipur • Hon'ble ITAT, Indore Bench, Indore in the case of M/s Shahnai V/s ITO 1(1), Ujjain, vide ITA No. 658/Ind/2014, dated 15-052015. • ACIT, Circle -1(1), Ujjain V/s M/s. A one Enclave, 3687/1, Hariphatak Road, Ujjain ITA No. 828/Ind/2018 • Chokshi Hiralal Maganlal Vs. Dy. CIT (2011) 9 taxmann.com300/45 SOT 349 (Ahd.- Trib) • Principal Commissioner of Income Tax vs. Deccan jewellers (P.) Ltd.dated 02- 08-2021(2021) 132 taxmann.com 73 (Andhra Pradesh)/(2021) 438 ITR 13 ( HC of Andhra Pradesh) 9.1 I have heard the AR of the appellant and duly considered the submissions made. The assessing officer has considered excess stock found during the course of survey proceedings amounting to Rs. 2,50,51,072/- as unexplained stock and the same is added back to the income under section 69 of the Income tax Act, 1961. The assessing officer has relied on the decisions of Hon'ble High Court of Rajasthan in the case of PCIT Aiwar vs Bajargan Traders in ITA No. 258/2017 dated 1209-2017 and also on the decision of Hon'ble High Court of Madras in the case of M/s. SVS Oils Mills vs. The Assistant Commissioner of Income Tax in ITA No. 765 of 2018. The Hon'ble High Court of Rajasthan in the case of PCIT Alwar vs Bajargan Traders in ITA No. 258/2017 dated 12-09-2017 held as follows. 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/JPI15 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 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: 8 of page 11 ITA No.453/Bang/2023 "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, TT) (Ahd.) 1 has held that ina 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 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'b]e 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 Jany 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 Id. 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 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 and the accounting 9 of page 11 ITA No.453/Bang/2023 treatment thereof so as to regularise its books of accounts. In fact, the same provides a cred-ible 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 dssessee 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. 9.2 The Hon'ble High Court of Rajasthan in the case or PCIT Alwar vs. Bajargan Traders in ITA No. 258/2017 (supra) has affirmed the decisions of ITAT which had held that in a cases where source of investment/expenditure is clearly identifiable and related to the regular business stock of the appellant then the investment in excess stock found during the course of survey has to be brought under the head "Business Income" and not under the head "Income from other sources". 9.3 The appellant has relied on the decision of Hon'ble High Court of Rajasthan in the case of PCIT Alwar vs. Bajargan Traders in ITA No. 258/2017 dated 12- 09-2017 and also on other various judicial decisions. It is seen that the facts of the case under consideration are similar to that of PCIT Alwar vs. Bajargan Traders in ITA No. 258/2017 dated 12-09-2017 (Supra). In the instant case, the appellant is engaged in the business of jewellery. During the course of survey excess stock amounting to Rs.2,50,51,072/- was found in respect of gold and jewellery. Further, the AO has not identified any source of income apart from the business income of the appellant, to which excess stock found during the course of survey can be attributed. In the given case, the excess stock found during the course of survey proceedings is clearly identifiable and the same is related to regular business stock of the appellant therefore, the same is to brought under the head "Business income" and not under the head "Income from other source". The AO was not justified in considering the excess stock found during the course of search as unexplained stock and assessed to tax as per the provisions of section 69 of the Income Tax Act since in the present case the excess stock was part of the stock and the AO has not pointed that the excess stock had any nexus with any other receipts. As such, ground nos. 2 to 4 as raised by the appellant is allowed” 10. On going through the above order of the CIT(A), we do not find any infirmity in the order of the CIT(A) and he has passed a reasoned order. We further note that the case laws relied by the CIT(A) as well as the ld.AR of the assessee noted supra, supports the case of the assessee and the excess stock found during the course of survey cannot be taxed u/s 69 of the Act because excess stock was part of the regular 10 of page 11 ITA No.453/Bang/2023 business of the assessee and the AO has not brought on record anything to show that the excess stock has nexus with any other business receipts or that it was not the part of the regular business of the assessee. Considering the entire facts, we uphold the order of the ld. CIT(A) and dismiss the appeal of the revenue. 11. In the result, the appeal of the revenue is dismissed. Order pronounced in the open court on 01 st August , 2023. Sd/- (George George K) Vice President Sd/- (Laxmi Prasad Sahu) Accountant Member Bangalore, Dated 01 st August, 2023 Vms Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. By order Asst. Registrar/ITAT, Bangalore