Case Law Details
Bhawarlal (HUF) Vs DCIT (ITAT Bangalore)
Bangalore ITAT: Excess Stock Found During Survey Is Business Income, Not Deemed Income u/s 69A
The Bangalore ITAT held that excess cash and excess stock found during a survey at a jewellery business cannot automatically be taxed as unexplained income under Sections 69/69A merely because they were detected during survey proceedings. Where the assessee has disclosed the amount as business income in the return and the excess stock is clearly relatable to the regular business, the income must be assessed under the head “Profits and Gains of Business or Profession” and not subjected to the harsh tax provisions of Section 115BBE.
In this case, a survey at the premises of Bhawarlal (HUF), a jeweller, resulted in detection of excess cash of ₹1.50 lakh and excess stock of ₹47.15 lakh. The assessee voluntarily disclosed the aggregate amount of ₹48.65 lakh as additional income and reflected it in the books, profit and loss account, and return of income as business income. However, the Assessing Officer treated the amount as unexplained investment/unexplained money under Sections 69 and 69A and sought to tax it under Section 115BBE.
The Tribunal observed that no evidence was found during survey to suggest that the excess stock or cash arose from any source other than the assessee’s jewellery business. The excess stock was part of the trading stock of the business, and the assessee consistently maintained that the excess cash represented undisclosed sales while the excess stock was acquired out of business profits. In the absence of any material showing an independent source of income, the addition could at best represent undeclared business income, but not unexplained income falling under Sections 69/69A.
Distinguishing the Madras High Court decision in SVS Oil Mills, the Tribunal held that the facts of the present case clearly established a nexus between the excess stock and the assessee’s regular business activity. It therefore directed the Assessing Officer to treat both the excess cash and excess stock as business income, thereby excluding the application of Section 115BBE. The appeal of the assessee was partly allowed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal is filed by BHAWARLAL (HUF) [the Assessee] against the order of Ld. CIT(Appeals)-11, Bengaluru [ld. CIT(A)]dated 13-Dec-2024 for the Assessment Year 2019-2020 wherein the wherein the appeal filed by the assessee against the assessment order passed under section 143 (3) of the Act on 30 September 2021 by the DCIT, Central Circle – 1 (1), Bangalore was dismissed. Therefore assessee is aggrieved and has preferred this appeal.
2. At the first instance the Registry has pointed out that the appeal filed by the assessee is time barred by 161 days for the reason that the order of the ld. CIT(A) was received by the assessee on 13 December 2024 however the appeal was filed by the assessee on 8 August 2025.
3. The assessee has filed a petition for condonation of the delay. The reason stated by the assessee is that the assessee was not aware of the passing of the appellate order as the registered email ID on the portal was pertaining to the earlier auditor and the petitioner was not aware of the fact that the registered email ID given on the portal was of previous auditor. Further the assessee has not received any short messaging services alert regarding passing of the appellate order. The assessee came to know about the order only in the first week of August when the assessee logged into the portal to download AIS & Form No. 26AS for the assessment year 2025 – 26 because the assessee wanted to file the return of income for that that year. Petitioner also checked the status of the appeal already filed for the impugned assessment year and it was found that the appellate order was already passed on 13/12/2024 which remained unattended and therefore assessee visited the office of the chartered accountant who advised to file the appeal immediately against the appellate order before the Tribunal. Therefore the arrangements were made by the assessee to file the appeal before the ITAT which could be filed only on 8 August 2025. Therefore the claim of the assessee is that the bone fide reason and sufficient cause is shown for delay caused of 1 61 days in filing of the appeal, which may be condoned and appeal of the assessee be admitted.
4. The ld. Smt. Suman Lunkar, CA vehemently supported the affidavit and the petition for condonation of delay filed by the assessee. She reiterated that the delay caused is for sufficient cause which needs to be condoned. She further pressed into service several judicial precedents to show that a lenient approach should be adopted in condoning the delay.
5. The ld. Sr. DR, Shri Balusamy N., JCIT vehemently submitted that the delay of 161 days in filing of the appeal is not for the sufficient cause and therefore the same need not be condoned and appeal of the assessee deserves to be dismissed without admitting.
6. We have carefully considered the rival contention and perused the condonation petition filed by the assessee. We find that the assessee has not received the appellate order. The email address mentioned in the form No. 35 admittedly was of the auditor of the company/assessee and not of the assessee itself. The assessee came to know about the existence of such appellate order where the appeal of the assessee was dismissed, only when he logged into the ITBA portal for filing the return of income of the assessee for assessment year 2025 – 26. The law of limitation says that when the assessee came to know about the assessment order, the limitation of performing a particular Act starts from that date. However even otherwise, we find that though the appellate order was passed on 13 December 2024, the assessee also stated in form No. 36 that he has received the appellate order on the same date, therefore, the delay caused of 161 days is required to be explained by the assessee by showing sufficient cause. We find that the condonation petition as well as the affidavit filed by the assessee clearly shows that there is a sufficient cause which caused delay in filing of appeal of 161 days. The delay is for bona fide purposes and did not have any negligent attitude of the assessee, therefore, the delay is condoned and appeal is admitted.
7. Coming to the merits of the case, we find that the assessee is a Hindu Undivided Family running a proprietary ship concern in the name of Mahalaxmi Jewellers and engaged in the business of buying and selling of gold and silver jewelry. Survey under section 133A of the Act was conducted at the premises of the appellant on 31st of January 2019. During the course of the survey the assessee has offered a sum of ₹ 4,865,331 as an extra income which was resulting on account of physical cash found of ₹ 150,000 and excess stock of ₹ 4,715,331.
8. The return of income was filed by the assessee on 31st of August 2019 at a total income of ₹ 5,157,750. The return was picked up for scrutiny and notice under section 143 (2) of the Act was issued on 29 September 2020. The only issue is that during the survey proceedings it was observed that the assessee was not maintaining cash book and a physical cash of ₹ 155,050/– was found in the business premises of the assessee. The assessee explained the source of the physical cash found in the premises unsatisfactorily and therefore the ld. AO made the addition of the same income invoking the provisions of section 69A of the Act. Further during the course of survey proceedings stock difference of ₹ 4,715,331 between the physical stock available in the premises and the stock maintained as per the stop book was found. The assessee was confronted with the same which could not be explained by the assessee and therefore the stock difference of ₹ 4,715,331 was also added to the total income of the assessee. Accordingly the assessment order was passed making an addition of ₹ 4,715,331 as unexplained investment under section 69 of the Act.
9. The assessee preferred an appeal before the learned CIT – A against the addition contesting that that the assessee has offered this income in the return of income, however despite the above fact the ld. AO has initiated the provisions of section 115BBE of the Act and same should not have been applied. It was the claim of the assessee that the same is the business income of the assessee. The learned CIT – A considered the explanation of the assessee however relying on the decision of the Hon’ble Madras High Court in case of SVS Oil Mills in Appeal No. 765 of 2018 on the same issue held that the excess top found during the survey is an undisclosed income of the assessee. Accordingly the ground of appeal of the assessee was rejected as the assessee did not offer any explanation with respect to the nature and source of cash as well as excess stock found during the survey. Thus the appeal of the assessee was rejected.
10. The ld. AR submitted a detailed paper book containing 74 pages wherein the assessee’s return of income as well as the copy of the financial statement for assessment year 2019 – 20 was shown. As per the balance sheet and the profit and loss account it was submitted that that the disclosure made in the survey proceedings were shown in the profit and loss account as excess sales and excess of stock as a business income. She further referred to the computation of the total income showing that the assessee has offered profits and gains of business or profession of ₹ 5,225,910 which also included the above sum. She further referred to the statement made by the Karta of HUF of assessee during the course of survey wherein in answer to question No. 6 it was answered that the assessee would declare total sum of ₹ 4,865,331 as his additional income. She further referred to the inventory of the jewellery to show that these are all business assets of the assessee. Thus the claim of the assessee is that the above income shown by the assessee should be considered as business income and cannot be taxed as unexplained income under section 69A of the Act resulting into a higher taxation under section 115BBE of the Act. To support her contention she relied upon several judicial precedents in a compilation of case law wherein she relied upon 8 different judicial precedents. Over and above, she also relied upon the decision of the coordinate bench in ITA No. 2285/MUM/2022 for assessment year 2019 – 20 dated 11 April 2023 wherein on identical facts and circumstances it was held that assessee has rightly offered the excess stock found as his business income and consequently the provisions of section 115BBE is not applicable. Accordingly she submitted that the addition made under section 69A of the Act of the same sum which was already offered by the assessee as business income is not valid and the assessee cannot be charged to tax under section 115BBE of the Act.
11. The ld. DR vehemently referred to the decision of the Hon’ble Kerala High Court referred to by the learned CIT – A. Further in the statement recorded of the Karta of HUF, assessee could not explain the addition of ₹ 4,865,331 with relation to its business, therefore he was of the view that the addition made by the ld. AO u/s. 69A of the Act is correct and therefore consequently the tax charged u/s. 115BBE is also correct.
12. We have carefully considered the rival contention and perused the orders of the learned lower authorities. The only issue involved in this appeal is there is an excess cash of Rs.1,50,000 as well as the excess stock of ₹ 4,715,331 found during the course of search in case of a jeweller at his premises during the course of survey under section 133A of the Act, whether such sum can be added under section 69A of the Act when the assessee has disclosed the same as its business income in the return of income as well as offered the same in the computation of income under the head profits and gains of business. When during the course of survey, the assessee was asked about the excess cash found as well as the gold and silver jewellery stock difference, it was the answer of the assessee in answer to question No. 5 that the declaration is made by him during the course of survey proceedings as his additional income. Further the same answer was also repeated in response to question No. 6. During the course of survey there is no evidence found by the survey party that the excess stock was acquired by the assessee not as a business income of the assessee and further there was no evidence found that assessee is carrying on any other business or any other activity. In fact the assessee during the course of assessment proceedings has explained that the above cash is undisclosed sales of the assessee and the excess stock is also purchased out of his business profits. It can be a case of an undeclared business income, but it cannot be a case of undisclosed income of the assessee. Neither during the course of survey nor in the statement or any other evidence found during the course of survey shows that there is any other source of income of the assessee other than the business. Naturally therefore in case of excess stock found during the carrying on of the business such stock is generated out of the business income and therefore the provisions of section 69A has no applicability. This was also the mandate of the decision of the coordinate bench in case of ITA No. 2285/MU M/2022 dated 11 April 2023 and several other judicial precedents are also cited before us which are also in similar line holding that the excess stock found cannot be considered as business income of the assessee.
13. The learned CIT – A has relied upon the decision of the Hon’ble Madras High Court in case of SVS Oil Mills in appeal No. 765 of 2018 wherein it was held that the three lower authorities have given a finding of the facts against the assessee and on the admission of the assessee during the statement recorded under section 131 of the Act as well as before the lower authorities. However we find that in the present case before us the assessee has shown that the surplus stock was clearly identified at the time of survey and entries were passed in the books of accounts for the value of such stock which has been also disclosed in the profit and loss account as other income. The decision of the Hon’ble Madras High Court is on different aspects which is recorded in paragraph No. 8.5 of the order of the learned CIT – A. In view of this we find that the case of the Hon’ble Madras High Court is distinguishable on facts.
14. In view of the above facts we allow ground No. 3 and 4 of the appeal of the assessee directing the learned Assessing Officer to treat the excess cash found and the excess stock found as business income of the assessee.
15. All other grounds are consequential or general in nature and does not require separate adjudication and hence dismissed.
16. In the result appeal of the assessee is partly allowed.
Order pronounced in the open court on 8th June, 2026.
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