Satchidananda Agro Tech Pvt. Ltd. Vs ACIT (ITAT Kolkata)
The appeal filed by Satchidananda Agro Tech Pvt. Ltd., a private limited company engaged in the paddy mill business, concerned an addition of Rs.31,78,588/- made on account of excess stock found during a survey conducted under Section 133A of the Income-tax Act, 1961, for the Assessment Year 2015-16. The Assessing Officer (AO) had made a total addition of Rs.1,34,84,653/- under various heads, which the Ld. CIT(A) partly reduced. Crucially, the Ld. CIT(A) deleted an addition for undisclosed investment in stock but confirmed the addition for the excess stock of Rs.31,78,588/-. The Ld. CIT(A) had, however, accepted the assessee’s contention that the income arising from the excess stock was business income. The Revenue did not contest this finding. Before the ITAT, the assessee argued that since the excess stock was confirmed as being part of the business income, the addition should be restricted only to the profit element embedded within that stock, as is the judicially settled practice for income acknowledged as business revenue.
Considering the established principle that only the profit component of undisclosed business income should be taxed, the ITAT reviewed the submissions and the uncontested finding that the excess stock was part of the assessee’s business. The Tribunal noted the assessee’s financial statements showed a Gross Profit (GP) rate, and the assessee volunteered to offer 12% of the excess stock value as income to settle the dispute. With a view to ending the litigation, the ITAT accepted this concession. The Tribunal, therefore, restricted the addition on account of the undisclosed closing stock to Rs.3,51,430/- (which is 12% of Rs.31,78,588/-), significantly reducing the confirmed addition. The ITAT’s decision affirms the judicial stance that when undisclosed stock or purchases are accepted as being integrated with the taxpayer’s regular business activity, only the profit component, not the entire value of the stock, should be brought to tax. The assessee’s appeal was thus partially allowed.
