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
