DCIT Vs Raj Diamonds (ITAT Bangalore)
Income Tax Appellate Tribunal (ITAT) Bangalore dismissed the revenue department’s appeal against Raj Diamonds, affirming that additional cash and stock found during a search should be taxed as business income rather than unexplained investment under Section 69A of the Income Tax Act. The case involved a search operation in June 2019, where tax authorities discovered excess cash of ₹34.65 lakh and unrecorded stock worth ₹1.38 crore. The assessee initially admitted to this being unaccounted income but later claimed that the cash was an advance from customers. The Assessing Officer (AO) rejected this claim and treated it as unexplained income. However, the Commissioner of Income Tax (Appeals) [CIT(A)] ruled that both cash and stock should be taxed as business income rather than under Section 69A, a decision that the ITAT upheld.
The revenue argued that the cash and stock should be treated as unexplained investments, citing a Madras High Court ruling in SVS Oil Mills. However, ITAT found that the facts differed since Raj Diamonds’ excess stock was part of regular business operations and was admitted as business income. The Tribunal also noted that the assessee did not retract their admission of unaccounted cash and stock and that no material evidence was presented to contradict their explanation. The ITAT relied on a previous Chennai ITAT ruling in Overseas Leathers vs. DCIT, which held that excess stock mixed with business inventory should be treated as business income. Accordingly, ITAT ruled in favor of the assessee, confirming that the additional income should be taxed under business income provisions rather than under Section 69A, which attracts higher tax rates under Section 115BBE.
