Govind Gidomal Lulla Vs CIT (ITAT Mumbai)
Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has delivered a ruling in favor of Govind Gidomal Lulla, determining that excess stock discovered during a survey, if it originates from and is part of the assessee’s regular business operations, constitutes “undeclared business income” rather than “unexplained investment” under Section 69 of the Income Tax Act, 1961. This distinction is critical as it exempts such income from the higher tax rates stipulated under Section 115BBE.
The appeal stemmed from an assessment for the Assessment Year 2019-20. A survey action under Section 133A of the Act was conducted on January 15, 2019, at the business premises of M/s. Jhama Sweets, where the assessee is involved in the manufacturing of sweets. During the survey, a significant discrepancy was noted between the stock recorded in the books (Rs. 2,82,400/-) and the physical inventory (Rs. 25,21,196/-). This resulted in an excess stock of Rs. 22,38,769/-. The assessee subsequently accepted this discrepancy and offered the amount for taxation as business income.
However, the Assessing Officer (AO) classified this excess stock as “undisclosed investment” under Section 69, leading to the application of Section 115BBE and a higher tax rate. The CIT(A) upheld the AO’s decision, stating that the assessee failed to explain the source of investment in the undisclosed stock.
