Excess Stock found during Survey is Business Income, Not Other Income: Pune ITAT

Late Harilal Mavjibhai Patel Vs ACIT (ITAT Pune)

Income Tax Appellate Tribunal (ITAT), Pune Bench, has delivered a verdict in favor of Late Harilal Mavjibhai Patel (represented by M/s. Kaneeta Enterprises), affirming that excess stock found during a survey operation should be treated as business income rather than unexplained income subject to higher taxation rates. The ruling, issued on April 25, 2025, for the assessment year 2019-20, reverses the orders of the Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)].

The case originated from a survey conducted under Section 133A of the Income Tax Act on February 13, 2019, at the business premises of M/s. Kaneeta Enterprises, a sole proprietorship engaged in trading building materials, hardware, laminates, and plywoods. During the survey, the team prepared a tentative trading account, showing a closing stock of ₹49,05,313/- as on February 12, 2019. However, a physical inventory count on February 13, 2019, revealed the stock to be ₹89,10,523/-, resulting in an excess stock of ₹40,05,210/-.

When questioned, the assessee explained that the business and godown premises were not clearly demarcated, leading to a mixed stock that included regular inventory. Crucially, the assessee voluntarily offered this excess stock as regular business income for the current year. Subsequently, a return of income was filed on October 22, 2019, reflecting an income of ₹45,62,440/-, which included the declared excess stock.