NARAYAN DAS,RANCHI V. ACIT CENTRAL CIRCLE-1, RANCHI

ITA 77/RAN/2023

AI Insights

The case involves Narayan Das, a partnership firm engaged in wholesale trading of sarees and cloth fabrics, which faced an income tax assessment following a survey that revealed discrepancies between the physical stock and the recorded stock in the books. The Assessing Officer treated the difference as unexplained investment and added it as income under section 69B of the Income Tax Act, charging tax under section 115BBE. The CIT(A) upheld this decision. However, the Tribunal found that only the profit from the undisclosed stock should be taxed, not the entire stock value, aligning with various judicial precedents.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 471063 (ITAT-RANCHI)
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2019-2020
• Appeal Filed On: 18-04-2023
• Other Referred Cases: Pr. Commissioner of Income Tax-2 Vs. Rameshwar Textiles Mills Ltd., CIT Vs. President Industries, ITO, Ward Nagaon Vs. Smt. Manumati Boro, Commissioner of Income Tax-8 Vs. Shri Hariram Bhambhani, Murlidhar Deendayal Vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Unexplained investment; Income from undisclosed sources
• Section: 143(3); 142(1); 143(2); 250; 69B; 133A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL \"RANCHI BENCH\", RANCHI Shri Partha Sarathi Chaudhury, Judicial Member Shri Ratnesh Nandan Sahay, Accountant Member I.T.A. No.77/RAN/2023 Assessment Year: 2019-20 Narayan Das, Near Gandhi Chowk, Upper Bazar, Ranchi, Jharkhand - 834001 [PAN: AAAFN8262H] ............…...………… Appellant vs. ACIT, Central Circle-1 Ranchi ........................... Respondent Appearances by: Assessee represented by :Shri R.R. Mittal, AR Department represented by :Khubchand T. Pandya, Sr. DR Date of concluding the hearing :04.11.2024 Date of pronouncing the order :29.11.2024 ORDER Per Ratnesh Nandan Sahay, Accountant Member: This appeal filed by the Assessee is against the order of the Ld. Commissioner of Income Tax, Ranchi [hereinafter referred to as “the Ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2019-20, dated 30.03.2023. 2. The assessee has raised the following grounds of appeal: \"i) On the facts and circumstances of the case, the order passed by the Asst. Commissioner of Income Tax, Central circle- 1, Ranchi, is not based on a correct appreciation of law and fact. I.T.A. No.77/RAN/2023 Narayan Das 2 ii) The learned Asst. Commissioner of income Tax, Central Circle-1. Ranchi has erred in treating the shortage of stock in trade as excess stock found at the time of survey. iii) On the facts and circumstances of the case, the Learned. Asst. Commissioner of Income Tax, Central Circle-1. Ranchi has erred in not accepting the fact that income at 8.7 percent was offered for tax on the shortage of stock at the time of survey. (iv) for that, others ground if any will be urged at that time of hearing.\" 3. Briefly stated facts are that the assessee derives income from wholesale trading in sarees and cloth fabrics in the name and style of M/s. Narayan Das, which is a partnership firm. A survey u/s. 133A of the Act was conducted in the business premises of the assessee on 28.02.2019. Thereafter, the case was centralized to the Central circle-1, Ranchi u/s. 127 of the Act dated 12.11.2023. Statutory notices u/s. 142(1) and 143(2) of the Act were issued in this case from time to time and the assessee made necessary compliance to that and submitted the necessary documents as and when required during the course of assessment proceedings. The AO has noted in the assessment order that during the course of survey operation conducted in the business premises of the assessee, inventory of stock was found at Rs.6,10,26,882/- whereas in the books of account, the stock was shown at Rs.5,04,97,934/- Thus, there was an excess of stock of Rs.1,05,28,945/-, When the assessee was asked to explain the difference in stock, one of the partners of the I.T.A. No.77/RAN/2023 Narayan Das 3 assessee firm stated on oath in response to the question no. 27 as under: \"There is total stock difference of Rs. 1,05,28,945/- out of which stock of approx. Rs. 19 lakh is damaged stock and I disclose of Rs.87,00,000/- my unaccounted income and I agree to pay tax on the same.\" 4. Accordingly, the assessee suo moto estimated profit @ 8.7% on the total undisclosed stock of 87,00,000/- and offered a sum of ₹7,57,800/- as his undisclosed income. The Assessing Officer, however, did not accept the contention of the assessee and added a sum of ₹79,42,200/- (₹87,00,000/-₹7,57,800/-) as unexplained investment u/s. 69B of the Act and charged tax u/s. 115BBE of the Act. Penalty proceedings u/s. 271AAC of the Act was also initiated separately. 5. Aggrieved by the order of the Assessing Officer, the assessee preferred appeal before the Learned. CIT(A), who, vide the impugned order, confirmed the addition made by the Assessing Officer by holding as under: - \"However, on perusal of written submission filed with this office, the table shows physical stock on the date of survey was at 26,10,26,882/- as against the stock recorded in the books at ₹5,04,97,934/- It was also admitted by the assessee one of the partners of the firm that there was an excess stock of ₹1,05,28,148/- and after reducing a stock of damaged goods amounting to 19,00,000/- the difference was worked out by the assessee itself at ₹87,00,000/- and he worked out the only profit @8.37% on the shortage of stock of 287,00,000/- The Learned. CIT(A), therefore, concluded that the grounds taken by the assessee are at an after- thought in absence of any documentary evidence to contrary. I do not find any perversity in the assessment order dated 25.09.2021 against which this appeal has been filed I confirm the addition and dismiss all grounds in the appeal.\" I.T.A. No.77/RAN/2023 Narayan Das 4 6. Aggrieved by the order of the Learned. CIT(A), the assessee has preferred this appeal. During the appellate proceedings before us, it was submitted by the Ld. AR as under: \"In the assessment proceeding u/s 143(3) all the details have been provided and no adverse inference has been drawn. It is to be noted that entire purchase and sale transactions were duly recorded in regular books of account and were routed through regular banking channels. The source of expenditure was fully established by the assessee beyond any doubt The Assessing Officer did not doubt the sales and stock records maintained by the assessee. By submitting copies of invoices, bank statements, payments by account prove cheques, etc, the assessee had proved that purchases had taken place. The assessing Officer has completed the assessment w/s. 143(3) of the Act and no discrepancy in the books of account was found and neither Books of account of the assessee were rejected During assessment proceeding in notice u/s. 142(1) assessing officer raised query vide para 10(1). During the course of the survey proceeding held on 28.02.2019, the following observations were also made. It was observed that on physical verification, a stock amounting to 25,04,97,934/- was found out as per the books of account as on the date of the survey, a stock of 26,10.26,882/- was found. Thus, a shortage of stock of 21.05.28,945/- was reported upon. In this regard, you are required to furnish the details so as to substantiate your contention with the complete audited stock register and also required to explain the discrepancy of the stock of ₹1,05,28,945/- with cogent evidence. Subsequently, he misinterpreted the shortage of stock found to be excess of stock found during the survey and accordingly passed the assessment order u/s 143(3). In appeal, Learned. CIT(A) rejected our submission based on the observation that the assessee has stated that there was a shortage of stock of ₹1,05.28,945/- which is contrary to the fact recorded in the assessment order. It, therefore, appears that the grounds taken are an afterthought. In the absence of any documentary evidence to the contrary, I do not find any perversity in the assessment order dated 29.05.2021 against which this appeal has been filed. We are submitting the detailed working of the physical stock taking done at the time of the survey reflecting the total stock found of ₹5,04,97,934/- as well as the copy of the survey proceeding reflecting the stock found and calculation of shortage of ₹1,05,28,945/- I.T.A. No.77/RAN/2023 Narayan Das 5 Concerning the shortage of the stock found, the shortage of the stock has to be treated as an undisclosed sale only resulting in on presumptive basis as undisclosed income on total undisclosed sales has to be calculated. We rely on the following case laws in support of the above In the case of Pr. Commissioner of Income Tazx-2 Vs. Rameshwar Textiles Mills Ltd. Tax Appeal No. 527 & 528 of 2015, the Hon'ble Gujarat High court held that \"entire sales cannot be added as income of the assessee but addition can be made only to the extent of estimated profits embedded din the sales and that the income from suppressed sales should be determined by assessing the gross profit of the assessee. In the case of CIT Vs. President Industries (2002) 258 ITR 654 (Guj) date 20.04.1999, the Hon'ble Gujarat High Court held that we are satisfied that the Tribunal was justified in rejecting the application w/s. 256(1) It cannot be a matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represented the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realization of the excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that investment by way of incurring cost in acquiring goods which have been sold have been made by the assessee and that has also not been disclosed. In the absence of such a finding of fact the question of whether the entire sum of undisclosed sale proceeds can be treated as income of the relevant assessment year answers by itself in negative. In the case of ITO, Ward Nagaon Vs. Smt. Manumati Boro, ITA No. No. 111/GTY/2020 Date of Pronouncement 20.02.2023, the Hon'ble Income Tax Appellate Tribunal held that CIT(A) has rightly applied the highest of the net profit rate of the last three years on the alleged undisclosed sales. In the case of the Commissioner of Income Tax-8 Vs. Shri Hariram Bhambhani, Income Tax Appeal No. 313 of 2013 date 04.02 2005, the Hon'ble Bombay High court held that \"CIT(A) and Tribunal is right in holding that it is not the entire sales consideration which is to be brought to tax but only the profit attributable on the total wrecorded sales consideration which alone can be subject to income tax. The view taken by the authorities is a reasonable and possible view In respect of undisclosed sales only profit can be added when purchases are recorded but sales are undisclosed. Murlidhar Deendayal Vs. ITO (ITAT Jaipur) ITA 329/JP/2016 dt. 17.02.2020 I.T.A. No.77/RAN/2023 Narayan Das 6 It is submitted that in the present case, the aforesaid decision squarely applies and the order confirming the addition of the total amount of shortage has to be held as bad in law\" 7. Learned Sr. Departmental Representative, on the other hand, relied on the order of the lower authorities. 8. We have considered the rival submissions. It is found that there is no dispute on this fact that there is a difference in stock (excess or short) found during the course of survey proceedings amounting to ₹ 1,05,28,945/- The dispute, however, is on whether the Ld. CIT(A) was justified in confirming the addition made by the Assessing Officer of the entire undisclosed stock of ₹87,00,000/-. The undisclosed stock of Rs.19,00,000/- being damaged one has already been accepted by the AO. 9. We have also considered the various judicial decisions on which the Ld. Authorised Representative has placed reliance in his written submission. It was submitted by him that in view of the judicial decisions cited as above, only profit element can be added to the income of the assessee. In the present case, the total undisclosed stock was found at ₹1,05,95,915/- out of which a stock of ₹ 19,00,000/- was found to be damaged one by the survey party. Thus, the entire undisclosed stock stood at ₹ 87 lacs. The assessee applied a profit rate of 8.3% on the difference I.T.A. No.77/RAN/2023 Narayan Das 7 in the stock of ₹ 87 lacs and offered to pay a sum of ₹7,57,800/- as his undisclosed income. 11. We have considered the entire facts of the case and the judicial position in this regard. We are in agreement with the contention of the Ld. AR that only a reasonable profit can be applied on the undisclosed stock. Since, the assessee is dealing in wholesale trading in sarees and cloth fabrics, the income declared by him @ 8.3% of the undisclosed stock was found to be reasonable and therefore, accepted. The Assessing Officer is directed to apply the profit rate accordingly and charge tax as per law. 12. In the result, the appeal filed by the assessee is partly allowed. Order pronounced on 29.11.2024. Sd/- Sd/- [Partha Sarathi Chaudhury] [Ratnesh Nandan Sahay] Judicial Member Accountant Member Dated: 29.11.2024. AK, PS (on tour) Copy of the order forwarded to: 1.Narayan Das 2.ACIT, Central Circle-1 Ranchi 3. CIT(A) 4. Pr.CIT 5. CIT(DR) 6. Guard File I.T.A. No.77/RAN/2023 Narayan Das 8 //True copy// BY ORDER, (Senior Private Secretary) (On Tour), ITAT, Ranchi "