Vishwakarma Jewellers Vs DCIT (ITAT Nagpur)
Excess Stock During Survey is Business Income, Not u/s 69B- 115BBE Cannot Apply – Tribunal Rules Survey Surrender Taxable at Normal Rates- Nagpur ITAT; Partners’ Remuneration Restored – Surrendered Income Held Business Income
Assessee, a partnership firm engaged in jewellery trading, started its business on 01.06.2016 by taking over an erstwhile proprietorship concern. A survey u/s 133A was conducted on 18.01.2017, where stock was valued at ₹13.43 crore by Government Valuer as against ₹12.60 crore per trial balance. The difference of ₹82.58 lakh along with cash difference of ₹61,377 was offered by Assessee as additional income, totalling ₹85 lakh, & declared in return filed on 09.10.2017. AO however treated the surrendered amount as unexplained investment in stock u/s 69B, taxed it at higher rate u/s 115BBE, & reduced partners’ remuneration accordingly.
On appeal, CIT(A) partly upheld AO’s view. He restricted addition u/s 69B to ₹69,37,859 representing unexplained investment in silver, diamonds, precious stones & platinum jewellery, while ₹15,62,141 was treated as valuation difference & accepted as business income. He also confirmed denial of partners’ remuneration on deemed income portion, though directed recomputation after restricting addition.
Before Tribunal, Assessee did not dispute surrender of ₹85 lakh but argued that ₹69,37,859 could not be treated as undisclosed investment since excess stock formed part of mixed lot of declared stock, hence income had direct nexus with business. It was contended that such income should be assessed as business income, eligible for normal rates & partner remuneration, not u/s 69B/115BBE. Reliance was placed on various precedents including Veer Enterprises v. DCIT (Chandigarh ITAT), Chokshi Hiralal Maganlal v. DCIT (Ahd ITAT), Ram Narayan Birla (JP ITAT), Bajargan Traders (JP ITAT, affirmed by Raj HC), Famina Knit Fabs (Chd ITAT) & Sham Jewellers (Chd ITAT).
