ITAT Panaji: ₹5.25 Crore Excess Stock Taxable as Business Income, Not Section 69

ACIT Vs Rajguru Foods (ITAT Panaji)

Stock Valuation Difference Does Not Automatically Attract Section 115BBE: Business Nexus Matters

The Controversy

An amount surrendered during a survey does not automatically become unexplained investment merely because the disclosure arose from an alleged stock discrepancy. In this case, the Tribunal held that ₹5.25 crore offered towards alleged excess stock was business income taxable at normal rates, rather than unexplained investment under section 69 attracting section 115BBE.

The decision turned on the circumstances surrounding the disclosure: the alleged excess stock formed part of the regular business stock, the survey authorities had not established a quantitative difference, and no material evidencing unaccounted purchases was found.

Background of the Case

Rajguru Foods, a partnership firm, carried on the business of trading, processing, handling and storage of foodgrains. It procured agricultural commodities from farmers and supplied them to various industries.

A survey under section 133A was conducted at its business premises on 8 March 2018. The survey team valued the physical stock and alleged that it exceeded the stock reflected in the books. One of the partners agreed to offer ₹5.25 crore as additional income, while maintaining that, to his knowledge, the available stock should tally with the books. The disclosure was stated to have been made to buy peace with the Department.

The firm incorporated the amount in its accounts and filed its return declaring total income of approximately ₹5.45 crore, including the surrendered income.

The Assessing Officer nevertheless treated the ₹5.25 crore as unexplained investment under section 69 and applied the higher taxation prescribed by section 115BBE. Thus, the principal controversy concerned the character and tax treatment of income already offered in the return.

Why the Stock Valuation Was Disputed

The assessee challenged the methodology adopted by the survey team. Its warehouses contained approximately 5.40 lakh bags of different agricultural commodities, stored in bags of varying sizes and in uneven heaps. According to the assessee, accurately counting and valuing this stock within the available survey time was impracticable.

It also disputed the adoption of uniform rates despite variations in purchase prices, purchase periods, commodity quality and bag sizes. The assessee pointed out that bag weight had not been appropriately excluded and that the basis of certain estimates had not been disclosed.

Further, goods worth approximately ₹68 lakh purchased on the survey date, which were yet to be brought into the books, had been included in the physical inventory.

These submissions were relevant because a difference in valuation need not establish an actual excess in quantity, much less an investment made from an unexplained source.

Findings of the Appellate Authorities

The CIT(A) accepted that the surrendered amount constituted business income. The alleged excess stock was part of the common stock at the business premises and had no separate identifiable existence. The assessee had explained its source as the foodgrain business and incorporated the disclosure in its accounts.

The Tribunal upheld this conclusion. It specifically observed that the survey team had not depicted any quantitative variation in stock. The alleged excess had been calculated through valuation.

No document, slip or loose paper indicating purchases outside the books had been identified. The photographs of the warehouses also lent weight to the assessee’s objections regarding the survey team’s stock-taking exercise.

The stock was kept together with the remaining business stock, and no separate location had been earmarked for any alleged unaccounted stock. The firm carried on only the foodgrain business and had no other source of income.

The Tribunal further noted that stock records and year-end quantitative details were available, the turnover was not disputed, and the gross profit rate was broadly consistent with the preceding year. On these facts, the Department had not established an unexplained investment warranting section 69 treatment.

Judicial Support and Result

The Tribunal relied on decisions dealing with excess stock connected with the assessee’s existing business, including Overseas Leathers v. DCIT, where the source of surrendered stock was explained as income generated from the business.

Applying those principles, it held that the ₹5.25 crore was business income liable to normal taxation and that the Assessing Officer had erred in invoking section 69 read with section 115BBE.

The Revenue’s appeal was dismissed. The assessee’s cross-objection was dismissed as infructuous, as further adjudication was considered academic after the Revenue’s appeal failed. The surrendered income itself was not deleted.

Author’s Comments

A surrender settles an amount; it does not necessarily settle its statutory character. An admission of additional income cannot, by itself, dispense with examining whether the conditions of section 69 are satisfied.

The strongest feature here is the Tribunal’s finding that no quantitative stock difference was established. Treating a disputed valuation exercise as proof of unexplained investment would collapse two distinct enquiries into one.

At the same time, this decision should not be read as granting automatic immunity from section 115BBE whenever stock is found at business premises or a disclosure is credited to the profit and loss account. The explanation of source and the supporting facts remain decisive. Here, the business nexus, stock records, absence of evidence of unaccounted purchases and shortcomings in the valuation exercise collectively supported normal taxation.

Cases Discussed

• Overseas Leathers Vs DCIT (ITAT Chennai) – (2023) 152 taxmann.com; relied upon regarding excess stock forming part of regular business inventory.
• Pr. CIT Vs Bajargan Traders (Rajasthan High Court) – ITA No. 258/2017, dated 12 September 2017; relied upon regarding surrendered business stock.
• DCIT Vs Shri Krishna Kumar Verma (ITAT Indore) – cited regarding classification of surrendered income.
• Veer Enterprises Vs DCIT (ITAT Chandigarh) – ITA No. 255/Chd/2023, order dated 23 January 2024.
• Fashion World Vs ACIT (ITAT Ahmedabad) – ITA No. 1634/Ahd/2006.
• Chokshi Hiralal Maganlal Vs DCIT (ITAT Ahmedabad) – 141 TTJ 1, as cited in the order.
• ACIT Vs Sanjay Bairathi Gems Ltd. (ITAT Jaipur) – ITA No. 157/JPR/2017.
• DCIT Vs Ramnarayan Birla (ITAT Jaipur) – ITA No. 482/JP/2015.
• CIT Vs Rahil Agencies (ITAT Mumbai) – ITA No. 4413/Mum/2014, as cited in the order.
• Pillala Ramakrishna Rao Vs ACIT (ITAT Visakhapatnam) – ITA No. 81/Vizag/2016.
• Shri Lovish Singhal Vs ITO (ITAT Jodhpur) – ITA No. 143/Jodh/2018, as cited in the order.
• Gaurish Steels (P.) Ltd. Vs ACIT (ITAT Chandigarh) – 82 taxmann.com 337, as cited in the order.
• Kulkarni & Sahu Buildcon Products Pvt. Ltd. Vs DCIT (ITAT Raipur) – ITA No. 30/Rpr/2016.
• SVS Oil Mills Vs ACIT (Madras High Court) – distinguished in the quoted Overseas Leathers decision.
• PCIT Vs Kushi Ram and Sons (Punjab & Haryana High Court) – Income Tax Appeal No. 126 of 2015, dated 21 July 2016; distinguished.
• PCIT Vs Kanak Impex (India) Ltd. (Bombay High Court) – Income Tax Appeal No. 791 of 2021, dated 3 March 2025; distinguished.

FULL TEXT OF THE ORDER OF ITAT PANAJI

The captioned appeal at the instance of Revenue and Cross Objection by the assessee pertaining to A.Y. 2018-19 are directed against the order dated 17.02.2025 of ld. CIT(A)-2, Panaji emanating out of Assessment Order dated 30.06.2021 passed u/s.143(3) of the Income Tax Act, 1961 (in short ‘the Act’).

2. Revenue has raised following grounds of appeal:

“1. Whether, on the facts and in the circumstances of the case, the CIT(A) was right in law in holding that the excess stock found during the course of survey u/s 133A of the Act is not unexplained investment only because the excess stock found was not separately identifiable.

2. Whether, on the facts and in the circumstances of the case, the CIT(A) erred in not considering Rs.5.25 crore on account of excess stock being unaccounted investment which was admitted by the partner of the assessee-firm, Shri Kishore Jain and also included in the return of income filed.

3. Whether, on the facts and in the circumstances of the case, the CIT(A) was justified in not considering the income surrendered during the course of survey which constitute unexplained investments for the purpose of Section 69 of the Act ignoring the fact that the alleged stock was included in the books of account only after a survey u/s 133A of the Act was conducted and excess stock was found.

4. Whether, on the facts and in the circumstances of the case, the CIT(A) was justified in not considering the fact that the assessee has admitted the disclosure made during the survey which proves in clear terms that the assessee has indulged in the suppression of the true affairs of its business and therefore not valued the stock correctly which resulted in the accumulation of large stock which remained unaccounted and outside the books of account till the date of survey.”

3. Assessee in its Cross objection has raised following grounds of appeal:

“1. The order of the Learned Assessing Officer (‘LAO’) and the Learned Commissioner of Income Tax (Appeals) (‘Ld. CIT(A)’) in so far as it is against the Appellant is opposed to law, equity, weight of evidence, probabilities and the facts and circumstances in the Appellant’s case.

2. A. The LAO erred in holding that the income of Rs. 5.25 crores on account of excess stock being unaccounted investment as taxable without considering that the stock records of the Appellant have been consistently accepted by the Income-tax Department, and even during the impugned assessment proceedings, the Appellant’s stock records or its books of account were perused and accepted. The Ld. CIT(A) did not furnish a finding on this issue.

B. The LAO erred in not holding that the income of Rs. 5.25 crores on account of excess stock being unaccounted investment as taxable without considering that addition under excess stock cannot be made unless the valuation of the stock as per the books of account is rejected by the LAO based on verifiable evidence. The Ld. CIT(A) did not furnish a finding on this issue.

3. The LAO erred in not appreciating that the said income of Rs. 5.25 crores was not real income but was offered to tax only to buy peace with the departments given the health condition of the Appellant. The Ld. CIT(A) did not furnish a finding on this issue.

4. The LAO erred in not holding that the income taxable of Rs. 5.25 crores is solely based on the sworn statement made by the partner of the Appellant Firm, Shri Kishore Jain. The Ld. CIT(A) did not furnish a finding on this issue.

B. The LAO erred in not holding the income taxable of Rs. 5.25 crores is solely based on the sworn statement made by the partner of the Appellant Firm, Shri Kishore Jain which was made under duress. The Ld. CIT(A) did not furnish a finding on this issue.

5. A. Without prejudice to the preceding grounds, the LAO and the Ld. CIT(A) erred in holding the income of Rs. 5.25 crores as taxable without considering that the said amount is itself based on unwarranted and incorrect conjectures, surmises, hunches and presumptions of the survey party of the Income-tax Department. The Ld. CIT(A) did not furnish a finding on this issue, but held that this submission is an afterthought.

B. The LAO and the Ld. CIT(A) erred in not concluding that the income of Rs. 5.25 crores on account of differences in valuation of stock was due to incorrect/ faulty methodology adopted by the survey party of the Income- tax Department without application of mind. The Ld. CIT(A) did not furnish a finding on this issue, but held that this submission is an afterthought and cryptically holding that no reconciliation was furnished by the Appellant.

C. The LAO and the Ld. CIT(A) erred in holding the difference in valuation methodology to be a mere after thought without considering the facts, explanations and the documentary evidences provided during the proceedings. The Ld. CIT(A) cryptically held that no reconciliation was furnished by the Appellant without noting that against an incorrect valuation, no reconciliation can be furnished.

PRAYER

The Appellant prays to take the appeal on record and grant appropriate relief. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal so decide this appeal according to law.”

ITA No.77/PAN/2025 and CO No.4/PAN/2025 M/s. Rajguru Foods

4. Brief facts of the case are that the assessee is a partnership firm engaged in the business of Trading, Processing, Handling and Storage of foodgrains and procures the foodgrains from farmers and supply it to various industries. A survey u/s.133A of the Act conducted at the business premises of the assessee on 08.03.2018. During the course of survey, on account of excess stock found, the assessee offered additional income of Rs.5.25 crore. Subsequently, in the return for A.Y. 2018-19 e-filed on 26.10.2018, the assessee duly incorporating the additional income offered during the course of survey at Rs.5.25 crore, declared total income at Rs.5,45,30,680/-. Return processed u/s.143(1)(a) of the Act and subsequently the case selected for scrutiny for which valid notice u/s.143(2) of the Act duly served upon the assessee followed by detailed questionnaire attached along with notice u/s.142(1) of the Act. During the course of assessment proceedings, even though the assessee has offered the income of Rs.5.25 crore in the Income Tax Return, Ld. Assessing Officer again took up the same issue stating that the excess stock has not been accounted for in the books as on the date of survey and the same remained unexplained and therefore why it should not be treated as unexplained investment invoking provisions of section 69 r.w.s.115BBE of the Act. In reply, the assessee made detailed submissions and stated that assessee maintained regular books of account and stock tally. Since the quantity of stock as well as size of placing the stock is very huge and manually not possible to take total stock in it few hours the Department has taken the physical stock of such huge quantity in a single day by merely adding stacks of the Foodgrains Bags and it was not possible to reconcile on the very same day. Therefore, the partner of the assessee firm even though firmly believed that there is no difference in the stock in hand but still to buy peace with the Department and not to carry on further litigation has offered additional income of Rs.5.25 crore. It was also submitted that methodology adopted by survey team for computing the physical inventory is defective and incorrect and the valuation done in haste.

5. Further, in order to support the contention that physical stock taken by the Department is faulty, it was submitted that the assessee is engaged in multiple agricultural commodities which are sourced from the Farmers and kept at the warehouses and they are collected in Gunny bags of different/uneven/non-standard size and put in a heap. Even the goods purchased on the date of survey valued worth Rs.68.00 lakh was yet to be valued and brought into books but included in physical stock. Further, no distinction was made of the uneven/non-standard size of the bags and uniform rate was adopted for all the Maize bags/Toor Dal bags. It was also submitted that no incriminating material was found at the premises in the nature of any unaccounted investment in the stock and that merely on the basis of statement given during the course of survey, the income offered by the assessee has been considered as excess stock. It was also submitted that the income so offered is purely business income and there is no evidence to indicate that any unaccounted investment has been made and therefore since it is a business income, therefore, provisions of section 69 r.w.s.115BBE of the Act cannot be invoked. Reliance also placed on plethora of decisions which are appearing in page 5 of the assessment order. However, ld. Assessing Officer duly taking the submissions of the assessee under consideration, concluded the assessment proceedings observing that unless the subsequent recording done in the books of account for any particular business/production is supported by bills/challans/vouchers and the funds being received/transferred through banking channel the linkage of such  transactions/entries to the regular business income does not get established so as to take such transactions/size to be part of the same business income for which accounts were being maintained and such income would fall into residual head of income from other sources and not as business income. Ld. Assessing Officer thus treated the additional income offered by the assessee at Rs.5.25 crore as unexplained investment u/s.69 and also invoked section 115BBE of the Act.

6. Aggrieved assessee preferred appeal before ld.CIT(A) and in the written submissions placed relied on plethora of judicial pronouncements. Assessee again reiterated same submissions as were made before the Assessing Officer and also submitted that the additional income of Rs.5.25 crore is not a Real income but it has been offered to tax only to buy peace and there being no incriminating material found during the course of survey which could indicate that any unexplained investment has been made, the income offered is purely based on the statement given by the partner and is part of the business income. Ld.CIT(A) held that provisions of section 69 r.w.s.115BBE of the Act are not invokable in the present case as the additional income offered to tax is business income and finding of ld.CIT(A) reads as under:

“4.0 Finding of CIT(A)

I have perused the assessment order and grounds of appeal. The Ld. AO has carried out addition on account of excess stock found from business premises of the appellant during the survey by treating it as unexplained investment u/s 69 of the IT Act. The Ld. AO treated the same as unexplained investment and invoked provision of section 115BBE. Aggrieved by said assessment order, the appellant has field appeal with multiple ground of appeal which are adjudicated as under.

4.1 Ground 1

It is generic ground of appeal and thus no adjudication is warranted.

4.2 Ground 2,3,4,5, 6 and 7

A survey U/s 133A of the Income Tax Act. 1961 was conducted in the business premises of the assessee at Plot No.90-93, Sy No. 215, KIADB Industrial Area Vijyapur on 08.03.2018.

As per the stock inventory taken from the business premises of the assessee during the Survey. the value of stock is worked out at Rs.54,74,83,081/- whereas stock as per books of account valued at Rs. 49.34.49.798/-. Thus, the Ld. AO contested that Stock has not been accounted fully in the books of account as on date of survey and the excess of stock to the tune of Rs.5.40.33.283/-which remained unexplained as on date of survey. Being unable to explain the difference the appellant admitted to disclose the excess stock valuing of Rs.5.25,00,000/- offered to tax as income of the firm for the assessment year under consideration and the same was treated as unexplained investment u/s 69. The appellant had recorded said stock in its books of accounts as well and offered the same to tax while filing income tax return.

The assessee has admitted total turnover of Rs.1,41,26,28.354/- and net profit @ 3.85% of Rs. 5,44,50,455/- including the declaration made during the survey proceedings of Rs.5.25.00.000/- for the Assessment Year in question

During the assessment proceedings, the Ld. AO contested that the alleged stock was an investment of the appellant, and the appellant could not offer explanation about the nature and source thereof. Thus, the alleged stock amounts to unexplained investment and subjected to Section 115BBE.

The appellant contested that it had recorded alleged stock in books while filing return of income and thus the Ld. AO erred in treating excess stock as unexplained investment and erred in treating them as income from other sources by invoking section 115BBE. The alleged ‘undisclosed stock can only have a nexus with the existing business income of the Appellant and therefore the excess stock, at best, should be regarded as ‘business income (as the Appellant has done) and not as undisclosed investment.

The appellant also contested that the alleged unaccounted stock of business, is not clearly identifiable, it does not have a separate identity, but is integral and inseparable from the declared asset that is falling under the head of the ‘business income.

Moreover, the stock was found from business premises of the appellant and the only source of income for appellant was the underlined business activity of dealing in grains. The Ld. AO has not brought up any other source from which alleged stock was earned/ accumulated by the appellant. The appellant also relied on various judicial precedents to substantiate his contention.

During the appellate proceedings, the appellant pointed out that the valuation exercise carried out by the survey team was flawed in various ways which resulted into artificially inflation of prices of stock. It is humanly impossible to count 5.40.792 bags in a single day for the survey team given its size. Also, such huge quantities of stock needs to be counted using layer method and cannot be accurately counted on bag to bag basis Also, only an experienced person can conduct the counting using various methods No experts were engaged by the revenue to undertake the rectification. The different variety of pulses and grains were valued at blanket rate by the survey team. Thus, there shall not be any addition. However, the appellant to buy peace of mind, had accepted to offer sum of Rs.5,25,00,000/- as additional income in form of un- accounted stock.

I have considered the contention of the appellant and found to be partially acceptable. It is pertinent to note that during the course of survey it was detected that physical stock found at the business premises of the appellant was excess in comparison to the stock recorded in the books of account. It is not the case that the excess stock found during the survey was separated from other stock of the appellant. It was one and common nature of stock found during survey, only the quantity of the stock on physical verification was found to be excess in comparison to the stock recorded in books of accounts. In a case when there is NO separate identifiable stock found during survey, which was kept at business premises of the appellant then the excess stock found shall be construed to be held in the normal course of business activities of the appellant and not as any investments.

Moreover, the appellant has also explained the source of said excess stock i.e. business dealings. Once the stock found during survey is part of total stock of business then the said excess stock cannot be given a separate identity (i.e. unexplained investment) than the other stock of appellant

Further, in case of finding of having excess stock during survey, which was not recorded in the books of accounts, the appellant was at liberty to incorporate said excess stock in books of account at the time of finalizing accounts, Which, is also the present appellant has done which is evident from a separate credit entry made in Profit & Loss A/c.

The AO found appellant guilty of invoking provisions of section 69 of the Act and has re-classified the excess stock as income of the appellant u/s 69 of the Act. Before moving ahead, I find it important to quote relevant provision section 69 of the Income Tax Act which is as under-

69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not in the opinion of the Assessing Officer,  satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year

(emphasis supplied]

Any appellant can be held guilty of invoking provisions of section 69 of the Income Tax Act if

(i) where in any financial year, the appellant is found to have made certain investments.

(ii) such investments are not recorded in the books of account, if any, maintained by the appellant:

(iii) the appellant offers no explanation about the nature and source of such investments: and finally.

(iv) even if any explanation is offered by the appellant, such explanation in the opinion of the Assessing Officer is not satisfactory.

Conditions (i) and (ii) are mandatory in nature and out of condition (iii) and (iv) only one or both as the case may be fulfilled

In the instant case, as discussed above, the underlined stock was common stock thus the same cannot be given colour of investment and said stock was recorded in books of accounts. Therefore condition no (i) and (ii) has been fulfilled by the appellant ie. there is existence of stock which is very well recorded in books of accounts while filing return of income. Section 69 is primarily applicable to cases when the investment is not receded in books of accounts. Therefore, when a particular investment is recorded in books of accounts, the provisions of section 69 shall not operate.

Further, during the course of assessment proceedings, the appellant has specifically and clearly admitted that the alleged stock has been earned out of business income in the relevant previous years, thus, the appellant has also submitted source of said investment as well. Thus, the appellant fulfils the condition no (ii) as well.

However, the appellant has attempted to retract its declaration by stating that there were flaws in valuation methodology adopted by the Survey team. Such stand is an afterthought and in absence of any reconciliation between the value of stock recoded in books of accounts, and value arrived by survey team, said contention cannot be accepted.

In view of the above, I am of the considerate opinion that once the facts emerging from record shows that the excess stock found during survey was a part of entire lot of common stock of appellant and it was found from same business premises then unrecorded stock cannot be given a different identity of investments. It shall very well belong to class of business assets i.e, current assets.

The above contention is being upheld in various judicial precedents such as under:

• • Rajasthan High Court (‘HC’) in Pr. CIT v. Bajagan Traders (ITA 258/2017 dated 12.09.2017)
  • MP HC in Krishna Kumar Verma (ITA 130 of 2023 dated 19 March 2024)
  • Fashion World v. ACIT (ITA 1634/Ahd/2006)
  • Chokshi Hiralal Maganlal v. DCIT (141 TTJ 1)
  • ACIT v. Sanjay Bairathi Gems Ltd. (ITA No. 157/JPR/2017)
  • DCIT v. Ramnarayan Birla (ITA 482/Jp/2015)
  • CIT v. Rahil Agencies (ITA 4413/Mum/2014)
  • Pillala Ramakrishna Rao v. ACIT (ITA 81/Vizag/2016)
  • Shri Lovish Singhal v. ITO (ITA 143/Jodh/2018)
  • Gaurish Steels (P.) Ltd. v. ACIT (82 taxmann.com 337)
  • Veer Enterprises v. DCIT (ITA 255/Chd/2023 dated 23 Jan 2024)
  • Kulkarni & Sahu Buildcon Products Pvt. Ltd. v. DCIT (ITA 30/Rpr/2016)

Therefore, treating un-accounted stock as unexplained investment u/s 69 and invoking section 115BBE is not found to be correct and being quashed. Thus, the Ld. AO is directed to tax said excess stock worth Rs. 5.25,00,000/- at normal rate applicable to business income of the appellant and not at special rate prescribed u/s 115BBE

Accordingly, Ground 2,3,4,5, 6 and 7 of the appeal are allowed.”

7. Aggrieved Revenue is in appeal before the Tribunal. Ld. Departmental Representative vehemently argued supporting the order of Assessing Officer and stated that assessee has been unable to explain the source of excess stock and therefore ld. Assessing Officer has rightly treated it as unaccounted investment invoking section 69 r.w.s.115BBE of the Act.

8. On the other hand, ld. Counsel for the assessee vehemently argued referring to the following written submissions :

Open PDFPDF · 565.9 KB

9. We have heard the rival submissions and perused the record placed before us. So far as the Revenue’s appeal is concerned, grounds of appeal raised are against the finding of ld.CIT(A) holding that additional income of Rs.5.25 crore offered by the assessee during the course of survey is business income and not unexplained investment u/s.69 of the Act and therefore provisions of section 115BBE of the Act cannot be invoked. We observe that the assessee is into business of trading of Foodgrains and mainly procures the Foodgrains which majorly includes Maize, Toor Dal, Bajra, Bengal Gram, Kradle and others to various industries. Survey u/s.133A of the Act conducted at the business premises of the assessee on 08.03.2018. Survey team took the physical stock and inspite of huge quantity of stock stacked in 540792 bags containing items namely 259025 quintals of Maize, 41335 quintals of Toor Dal, 13208 quintals of Bajra, 679 quintals of Bengal Gram and 1905 quintals of Kadle and that too stacked in Bardhanas of multiple quantities and the survey team by applying the rate per katta for different quantities of Foodgrains, calculated the value of physical stock at Rs.54,74,83,089/- as against stock appearing in the books at Rs.49,81,24,069/-. During the course of survey proceedings itself, one of the partner of the assessee firm namely Mr. Kishore Kumar Jain even though stated that as per his knowledge the stock available should be as per the books of account but still in order to buy peace accepted to offer additional income of Rs.5.25 crore towards excess stock and agreed to pay taxes. During the course of assessment proceedings carried out subsequent to search, ld. Assessing Officer observed that the assessee has duly offered the additional income of Rs.5.25 crore in the Income Tax Return, however, ld. Assessing Officer treated it as unexplained investment and invoked section 69 r.w.s.115BBE of the Act and charged higher amount of tax. Against the said action in the appellate proceedings, assessee made detailed submissions along with placing reliance on plethora of decisions and after duly considering the same ld.CIT(A) held that the underlined stock was common stock and it cannot be given any colour of investment and that they were duly recorded in the books of account. Ld.CIT(A) further held that no incriminating documents indicating unaccounted investment in the stock in hand were found during the course of search and section 69 is primarily applicable to a case where the investment is not recorded in the books of account. Ld.CIT(A) also held that appellant has specifically and clearly admitted that alleged stock has been out of business income and even though there were flaws in the valuation adopted by the survey team assessee has opted to buy peace and offered the additional income of Rs.5.25 crore. Ld.CIT(A) also observed that excess stock found during the course of search was part of the entire lot of common stock and found from the same business premises, therefore, the unrecorded stock cannot be given a different identity of investment and it shall very well belong to class of business assets, i.e. current assets.

10. We observe that in the written submissions filed on behalf of the assessee before this Tribunal as well as before the lower authorities, consistent stand is taken questioning the methodology adopted by the survey team to count such huge quantity of stock which is humanly impossible to do so in eight hours. It is claimed that the assessee is dealing into variety of products and they are stacked in bags which are not uniform but in different sizes. Further, the stock in hand available with the assessee is not pertaining only from the purchases made during the year but even the preceeding year purchases also. For instance, Maize purchased in December, 2017 at an average rate of Rs.1192.68 per quintal while in February, 2018 it was purchased at an average price of Rs.1150/- per quintal. Similar is the situation for other products also and therefore application of rates by the survey team on the date of survey will certainly give inflated value of stock. It has also been claimed that almost 540792 bags were accounted on the date of survey but the rate adopted was uniform for Maize, Toor dal and the basis for applying such rate has not been shared with the assessee. The stock of pulses were held for more than two years and certainly the assessee who normally takes the physical stock once a year, the quantity of such pulses increases due to moisture. Further, weight of the bags was also not reduced to complete the inventory. The weight of the commodities in the heaps was estimated and the basis thereof was also not shared with the assessee. Further, it is also alleged that authorities incorrectly factored the numerous miscellaneous agricultural commodities at Fast Moving Consumer Goods (FMCG) goods and adopted blanket rate of 2400 per bag. Also the goods wroth Rs.68.0 lakh which were purchased by the assessee on the date of survey and yet to be valued and brought into books were also accounted in the physical stock. Based on these observations, it is claimed that even though the assessee maintains regular books of stock but due to above stated reasons the stock value calculated by the survey team is on a much much higher side but still the assessee in order to buy peace has admitted the additional business income of Rs.5.25 crore.

11. We find it is also not in dispute that the survey team has not referred to any incriminating material in the form of any document/slip/loose paper indicating any purchase of goods out of books and only physical stock has been taken. It is also noticed that variation in quantity is not depicted in the statement prepared by the Revenue authorities and only valuation of the stock has been done and excess stock has been calculated. The contentions of the assessee raised above questioning the calculation of physical stock seems to carry weight looking to the photographs of the godown placed at pages 81 to 89 of the paper book showing heaps of various products kept in the warehouse which are not even uniformly stacked. Inspite of these deficiencies pointed out by the asessee in the physical stock carried out by survey team, the assessee has offered additional income as business income in the Income Tax Return. Ld. Assessing Officer has invoked section 69 r.w.s.115BBE of the Act treating such additional income as unexplained investment. We find that the stock found during the course of survey was kept with the remaining stock and no other place was earmarked where such unaccounted stock allegedly has been kept. No loose paper or incriminating material has been found showing that assessee has indulged into making unaccounted purchases. The assessee is a partnership firm and it is only carrying on the business of Foodgrains and has no other source of income.

12. Under these given facts and circumstances, we would take note of the decision of Coordinate Bench, Chennai in the case of Overseas Leathers Vs. DCIT reported in (2023) 152 taxmann.com (Chennai-Trib.) wherein identical set of facts have been considered and the Tribunal has held that the excess stock found is business income as the assessee has explained the source of excess stock to be from the income generated from the current business and the finding of the Tribunal reads under:

“10. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The fact with regard to the impugned dispute are that a survey operation u/s. 133A of  the Act was conducted on 14.03.2018 and during the course of survey, inventory of physical stock was taken which resulted in detection of excess physical stock of Rs. 5.08 crores. A statement u/s. 131 of the Act was recorded from the managing partner of the assessee Mr. M. Srinivasa Reddy, where he had, in response to a specific question admitted that excess stock found during the course of survey is acquired out of unaccounted income generated from the business for the current financial year. The assessee had admitted a sum of Rs. 5.08 crores towards excess stock found during the course of survey under the head profits and gains from business and profession and also paid taxes. These are undisputed facts. The only dispute is with regard to head of income under which additional income offered towards excess stock to be assessed, whether it is under the head profits and gains of business or profession or unexplained investment as per section 69B of the Act.

11. The provisions of section 69B of the Act deals with, where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article and the Assessing Officer finds that the amount expended on making such investments exceeds amount recorded in this behalf in the books of accounts maintained by the assessee for any source of income,:-17-: ITA. No:962/Chny/2022 and the assessee offers no explanation or the explanation offered by the assessee is not in the opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee in such financial year. In order to assess any investment or other bullion, jewellery or any other valuable asset, two things must be satisfied. Firstly, the assessee must expended amount towards investment or in acquiring some asset and is not recorded in the books of accounts maintained for that financial year and further, the assessee offers no explanation or explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory. In this case, the assessee has offered explanation towards excess stock found during the course of survey, in response to a specific question and stated that such excess stock is generated out of the business income of the current financial year, which will be offered to tax as an additional income of the firm for the assessment year 2018-19. From the above, it is very clear that it is not a case of the AO that the assessee has not offered any explanation towards excess stock found during the course of survey, but it is a case of explanation offered by the assessee is not satisfactory with the opinion of the Assessing Officer. Therefore, it is necessary to examine the issue in light of explanation offered by the assessee towards excess stock found during the course of survey to ascertain whether source for such excess stock is generated out of business income or income from undisclosed source.

12. During the course of survey, excess stock of leather and allied products has been found and such excess stock was noticed when physical inventory of stock in trade of the assessee was taken up. Further, said stock is mixed with regular stock in trade of the assessee. The assessee has explained before the Assessing Officer that it could not immediately reconcile difference in stock and thus, to buy peace from Department, additional income has been offered under the head income from business, equivalent to the amount of excess stock found during the course of survey. The explanation offered by the assessee either during the course of survey or during the assessment proceedings is not negated with any other evidences to disprove the claim of the assessee that source for acquisition of stock in trade is other than business income of the assessee. Moreover, the assessee derives only one source of income from manufacturing and trading in leather and allied products, which is evident from income declared for the impugned assessment year and earlier assessment years. Further, when the assessee has explained source for excess stock found during the course of survey, is out of income earned from current year business, the AO did not go further to disprove the claim of the assessee that said source is not from income from business. Moreover, it is a general practice in trade that income generated is either ploughed back into the business in the form of stock in trade or receivables or spent for other purpose like acquisition of asset outside the business. In this case, during the course of survey except stock difference, no other investment with any other asset was found. Therefore, from the above it is very clear that explanation offered by the assessee that source for excess stock is out of income generated from business activity of the current year appears to be plausible explanation. Therefore, we are of the considered view that when the assessee has explained the source for acquisition of stock out of business income, the AO ought to have accepted the explanation of the assessee and assessed the income under the head profits and gains of business or profession, but not under the head unexplained investment u/s. 69B of the Act. This is because, excess stock found during the course of survey does not have any independent identity as the asset is a mixed part of overall stock found in the business premises of the assessee, which in our considered view represents business income.

13. Coming back to the case laws relied upon by the AO and the Ld. Counsel for the assessee. The AO has relied upon the decision of Hon’ble High Court of Madras in the case of SVS SVS Oils Mills vs ACIT (Supra). We find that in the said case, although excess stock was found during the course of survey u/s. 133A of the Act, which the assessee did not accounted in his books of accounts and also not brought to tax in the relevant assessment years. The AO has made additions towards excess stock as unexplained investment u/s. 69B of the Act in absence of necessary explanation with regard to source for said excess stock. Under those facts, the Hon’ble Madras High Court came to the conclusion that excess stock found during the course of survey should be assessed u/s. 69B of the Act. In this case, facts are entirely different. The excess stock found during the course of survey was mixed with regular stock in trade of the assessee in its business. The survey team was also not identified excess stock separately, but was valued because the assessee could not reconcile the difference in stock in trade when compared to book stock. Further, the assessee has explained the source for excess stock and argued that it is out of current year income generated from the business. The explanation of the assessee was not disproved. Therefore, we are of the considered view that the facts of the present case are not applicable to the case laws relied upon to the Assessing Officer.

14. At this stage, it is relevant to discuss the decision of Hon’ble Rajasthan High Court in the case of Bajargan Traders vs PCIT (supra). The Hon’ble High Court considered an identical issue and held that when excess stock found during the course of survey is related to stock in trade dealt by the assessee, then investment in procurement of such stock is clearly identifiable and related to regular business stock of the assessee and thus, said investment in excess stock has to be brought to the tax under the head business income and not under the head unexplained investment. The relevant findings of the Hon’ble High Court are as under:

“3. The Tribunal while considering the matter has observed as under:-

“2.7. It is further submitted that the real issue in this case is whether the excess stock surrendered should be made as a part of business income or not and if so, assessee can claim deduction on account of payment of remuneration to partners on account u/s 40b(v). In this regard, our reference was drawn to the decision of Co- ordinate Bench in case of Shri Ramnarayan Birla (in ITA No. 482/JP/15 dted 30.09.2016). In that case, the question before the Coordinate Bench was “whether the CIT(A)-2, Udaipur has erred in directing the AO to assess the unexplained investment surrendered by the assessee under the head “income from Business” ignoring the decision of the Hon’ble Gujarat High Court in the case of Fakir Mohd. Hazi Hasan 247 ITR 290 that unaccounted income ought to be categorized under the residuary head of ‘Income from other sources’. In respect to the said issue, the findings of the Coordinate Bench are as follows:

“We have heard the rival contentions and perused the material available on record. Undisputed facts emerged from the record that at the time of survey excess stock was found. It is also not disputed that assessee is engaged in the business of jewellery. During the course of survey excess stock valuing Rs. 77,66,887/- was found in respect of gold and jewellery. The Coordinate Bench in the case of Choksi Hiralal Mangnlal vs. DCIT 131, TTJ (Ahd.) 1 has held that in a cases where source of investment/expenditure is clearly identifiable and alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment/expenditure then first what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure it should be considered to be taxed u/s 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. Therefore, the first attempt of the assessing authority should be to find out link of undeclared investment/expenditure with the known head, give opportunity to the assessee to establish nexus and if it is satisfactorily established then first such investment should be considered as undeclared receipt under that particular head. It is observed that there is no conflict with the decision of Hon’ble Gujarat High Court in the case of Fakir Mohd. Jajihasan (supra) where investment in an asset or expenditure is not identifiable and no nexus was established then with any head of income and thus was not available for set off against any loss under any other head. Therefore, the Hon’ble Coordinate Bench held that where asset in which undeclared investment is sought to be taxed is not clearly identifiable or does not have independent identity but is integral and inseparable (mixed) part of declared asset falling under a particular head, then the difference should be treated as undeclared business income explaining the investment. In the present case the excess stock was part of the stock. The revenue has not pointed out that the excess stock has any nexus with any other receipts. Therefore, we do not find any fault with the decision of the ld. CIT(A) directing the AO to treat the surrendered amount as excess stock qua the excess stock found.”

2.10. We have heard the rival contentions and perused the material available on record. During the course of survey, the assessee has surrendered an amount of Rs. 70,04,814/- towards investment in stock of rice which had not been recorded in the books of accounts. Subsequently, in the books of accounts, the assessee has incorporated this transaction by debiting the purchase account and crediting the income from undisclosed sources. In the annual accounts, the purchases of Rs. 70,04,814/- were finally reflected as part of total purchases amounting to Rs. 33,47,19,658/- in the profit and loss account and the same also found included as part of the closing stock amount to Rs. 1,94,42,569/- in the profit/loss account since the said stock of rice was not sold out. In addition to the purchase and the closing stock, the amount of RS. 70,04,814/- also found credited in the profit and loss account as income from undisclosed sources. The net effect of this double entry accounting treatment is that firstly the unrecorded stock of rice has been brought on the books and now forms part of the recorded stock which can be subsequently sold out and the profit/loss therefrom would be subject to tax as any other normal business transaction. Secondly, the unreco4rded investment which has gone in purchase of such unrecorded stock of rice has been recorded in the books of accounts and offered to tax by crediting the said amount in the profit and loss account. Had this investment been made out of known source, there was no necessity for assessee to credit the profit/loss account and offer the same to tax. Accordingly, we do not see any infirmity in assessee’s bringing such transaction in its books of accounts and the accounting treatment thereof so as to regularise its books of accounts. In fact, the same provides a credible base for Revenue to bring to tax subsequent profit/loss on sale of such stock of rice in future.

2.11. Having said that, the next issue that arises for consideration is whether the amount surrendered by way of investment in the unrecorded stock of rice has to be brought to tax under the head “business income” or “income from other sources”. In the present case, the assessee is dealing in sale of foodgrains, rice and oil seeds, and the excess stock which has been found during the course of survey is stock of rice. Therefore, the investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. The decision of the Co-ordinate Bench in case of Shri Ramnarayan Birla (supra) supports the case of the assessee in this regard. Therefore, the investment in the excess stock has to be brought to tax under the head “business income” and not under the head income from other sources”. In the result, ground No. 1 of the assessee is allowed.

3.2. The ld. AR of the assessee submitted that at the outset, it may be noted that the AO has made addition on account of notional interest of Rs.1,39,366/-. There cannot be any addition on account of notional income as held by the Hon’ble Supreme Court in case of E.D. Sassoon & Co. & Ors. vs. CIT (1954) 26 ITR 27 and Godhra Electricity Co. Ltd. vs. CIT (1997) 225 ITR 746 where it was held that only real income can be taxed, hypothetical income cannot be taxed nor income can be taxed in vacuum. Therefore, the addition made by the AO is not as per law and the same be deleted. The ld. CIT(A) has confirmed the addition by stating that it is the disallowance of interest. It is submitted that the lower authorities have not disputed about the commercial expediency about the advance given to Smt. Rita Gupta. In fact, the advance was given to Smt. Rita Gupta in earlier years for construction of godown and the same was given on rent by the assessee. Therefore once commercial expediency for giving the advance is established, no part of the interest expenditure can be disallowed in view of the decision of Hon’ble Supreme Court in case of S.A. Builders 288 ITR 1 and Hero Cycles Pvt. Ltd. vs. CIT 379 ITR 347 where it was held that the Revenue cannot justifiably claim to put itself in the arm- chair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. If further held that no businessman can be compelled to maximize his profit and that the income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own viewpoint but that of a prudent businessman. Further, in past, no such disallowance/addition was made. Therefore, neither the addition of notional interest made by the AO or disallowance of interest as held by the ld. CIT(A) is Rs. 1,96,73,637/-. Partners are paid interest @ 12% the balance in the partners account is much more than the amount advanced to Smt. Rita Gupta who is a wife of one of the partner. Therefore, even the disallowance made @ 4% is not justified and the same should be restricted @ 2% only. Reliance is also placed on the following cases..CIT vs. Ram Kishan Verma (2016) 132 DTR 107/132 Taxman 107 (Raj.)(HC). CIT vs. Vijay Solvex Ltd. (2015) 113 DTR 382 (Raj.) (HC)

4. We are in complete agreement with the view taken by the Tribunal. No substantial question of law arises.”

15. A similar view has been taken by the Coordinate bench of ITAT, Jaipur in the case of ACIT vs Sanjay Bairathi Gems Ltd in Ahmedabad Bench of ITAT in the case of Chokshi Hiralal Maganlal vs DCIT in ITA NO. 486/AHD/2008.

16. In this view of the matter and considering facts and circumstances of the case and also by following the case laws discussed herein above, we are of the considered view that when the assessee has explained source for excess stock found during the course of survey, is out of income generated from current year business and explanation offered by the assessee is plausible explanation, then income offered towards excess stock cannot be treated as unexplained investment u/s.69B of the Act, and also provisions of section 115BBE of the Act. The AO and the Ld. CIT(A) without appreciating relevant facts assessed additional income offered towards excess stock as unexplained investment u/s. 69B of the Act and levied tax u/s. 115BBE of the Act. Thus, we set aside the order passed by the ld. CIT(A) and direct the AO to assess additional income offered towards excess stock found during the course of survey under the head profits and gains of business and profession as considered by the assessee.”

13. We also take note of the decision of this Tribunal in the case of DCIT Vs. Kirti Gold Limited – ITA No.411/PUN/2024 dated 06.05.2026 observing as under:

“12. We have heard the rival contentions and perused the record placed before us and carefully gone through the decisions relied on by both the sides. The only issue under consideration raised by the Revenue is that ld.CIT(A) erred in treating the unaccounted excess stock of Rs.40,12,36,100/- as business income as against the deemed income u/s.69B rws 115BBE of the Act by the Assessing Officer. We note that the assessee is a Limited Company and is engaged in the manufacturing business of vegetable crude oil and deoiled cake. In the survey action conducted on 01.03.2019, as per the physical stock take value of soyabean seeds located at factory premises, i.e. C-17 old MIDC, Latur and at Boramani, Solapur amounted to Rs.40,79,81,728/- and Rs.1,77,42,450/-. The regular books of account were not updated and Tentative Trading account was prepared showing closing stock of Rs.2,44,88,178/-. Thus, value of excess stock of soyabean seeds arose of Rs.40,12,36,100/-. There is difference between the actual stock found and the stock as per Tentative Trading account. Assessee has offered excess stock as business income and paid the due tax but ld. Assessing Officer treated as deemed income u/s.69B rws 115BBE of the Act. Before ld.CIT(A) assessee made detailed submissions along with reliance placed on plethora of decisions including that of Hon’ble  Rajasthan High Court in the case of CIT Vs. Bajargan Traders (2017) 86 taxmann.com 295 (Rajasthan) holding that excess stock found during the course of survey and surrender of income thereof is taxable under the head business and profession. Ld.CIT(A) has dealt with the facts of the case as well as judicial precedents and has held that the alleged unaccounted excess stock is business income liable to normal taxation and not to be treated as deemed income u/s.69 rws 115BBE of the Act. Relevant finding of ld.CIT(A) reads as under:

“Findings:

7. I have considered the facts of the case and the submissions made by the appellant. The issue involved in this appeal is that when there is a survey action wherein certain undisclosed income is found, under which head can it be brought to tax and at what rate, the tax should be charged. This issue has been discussed by various High Courts and Tribunals from time to time and depending on the facts of the case, it was decided as to whether such income was taxable as ‘business income’ or ‘deemed income assessable u/s 68, 69 or 69A to 69D of the Act. Some of these decisions are discussed as under:

Decisions where it was held that the surrendered income is taxable under the provisions of section 68, 69, 69A to 69D of the Act:

8.1 The Hon’ble Gujrat High Court in case of Fakir Mohmed Haji Hasan vs CIT 120 TAXMAN 11 (Gujarat)had to decide question whether value of gold found during search is to be included in income where no explanation about source of investment made is provided. The Hon’ble High Court was also concerned with the question whether any deduction in relation to confiscated gold is to be given. The relevant assessment year was AY 1984-85 (i.e. prior to introduction of section 115BBE in the Act). The facts disclosed in customs proceedings, which were relied on in the income tax proceedings were that specific information was received by the Customs Department indicating that the taxpayer would bring imported gold in his car and would make delivery thereof. The car was seized and at that time during search gold bars of foreign markings were recovered. A bag containing currency notes was also recovered. The statements which were recorded under section 108 of the Customs Act were considered in the adjudication proceedings. The Hon’ble High Court upheld the decision of Tribunal that the value of gold was liable to be included in the income of the assessee as the source of investment in the gold or of its acquisition was not explained and that the assessee was not entitled to claim that the value of the gold should be allowed as a deduction from his income. The relevant portion of the judgement is as under.

6. Under section 4 of the Act, income-tax is to be charged in accordance with the provisions of the Act in respect of the total income of the previous year of every person. As provided by section 5 of the Act, total income of any previous year of a person would, inter alia, include all income from whatever source derived which is received or is deemed to be received by such person, subject to the provisions of the Act. It will be seen from section 69A that where the bullion, jewellery or other valuable article is not recorded in the books of account and there is no explanation about the nature and source of its acquisition, or the explanation is not satisfactory, the value thereof may be deemed to be the income of the assessee of the financial year immediately preceding the assessment year in which the assessee is found to be the owner of such bullion, etc.

6.1 The scheme of sections 69, 69A, 69B and 69C of the Act would show that in cases where the nature and source of investments made by the assessee or the nature and source of acquisition of money, bullion, etc., owned by the assessee or the source of expenditure incurred by the assessee are not explained at all, or not satisfactorily explained, then the value of such investments and money, or value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. However, when these provisions apply because no source is disclosed at all on the basis of which the income can be classified under one of the heads of income under section 14 of the Act, it would not be possible to classify such deemed income under any of these heads including “Income from other sources” which have to be sources known or explained. When the income cannot be so classified under any one of the heads of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any one of those heads by virtue of a satisfactory explanation being given, then these provisions of sections 69, 69A, 69B and 69C will not apply, in which event the provisions regarding deductions, etc., applicable to the relevant head of income under which such income falls will automatically be attracted.

6.2 The opening words of section 14 ‘Save as otherwise provided by this Act’ clearly leave scope for ‘deemed income’ of the nature covered under the scheme of sections 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from ‘other sources’ because the provisions of sections 69, 69A, 698, and 69C treat unexplained investments, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head, ‘Income from other sources. Therefore, the corresponding deductions, which are applicable to the incomes under any of these various heads, will not be attracted in case of deemed incomes which are covered under the provisions of sections 69, 69A, 69B and 69C in view of the scheme of those provisions.

7. It is, therefore, clear that, when the investment in or acquisition of gold, which was recovered from the assessee was not recorded in the books of account and the assessee offered no explanation about the nature and source of such investment or acquisition and the value of such gold was not recorded in the books of account, nor the nature and source of its acquisition explained, there could arise no question of treating the value of such gold, which was deemed to be the income of the assessee, as a deductible trading loss on its confiscation, because such deemed income did not fall under the head of income ‘Profits and gains of business or profession’.

8. In our opinion, therefore, the Tribunal was perfectly right in holding that the value of the gold was liable to be included in the income of the assessee as the source of investment in the gold or of its acquisition was not explained and that the assessee was not entitled to claim that the value of the gold should be allowed as a deduction from his income.

8.2 The Hon’ble Punjab and Haryana High Court in case of Kim Pharma Pvt Ltd vs. CIT [2013] 216 Taxman 153 (P&H), has held that where amount surrendered during survey was not reflected in books of account and no source of income from where it was derived is declared by the taxpayer then it was assessable as deemed income of the assessee u/s 69A of the Act and not as business income.

8.3 The Hon’ble Madras HC in case of M/s. SVS Oils Mills vs. ACIT [2020] 113 taxmann.com 388 (Madras), has held that where there was a clear admission by assessee firm that excess stock found during survey was added in its stock register but no corresponding entry was passed in books of account, it could be considered that investment in such stock was made out of undisclosed source. Thus, addition was to be made under section 69B in respect of such excess stock.

Decisions where it was held that sections 68, 69, 69A to 69D are not applicable:

9. On the other hand, in following decisions, it was held that sources of surrendered/ undisclosed income are explained, deemed income provisions under sections 68, 69, 69A to 69D are not applicable and consequently, tax rate u/s 115BBE is also not applicable.

9.1 The Hon’ble Rajasthan High Court in case of CIT vs Bajargan Traders [2017] 86 taxmann.com 295 (Rajasthan) has held that when the assessee is dealing in sale of food grains, rice and oil seeds and the excess stock which is found during survey is stock of rice then, it can be said that investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. Therefore, the investment in the excess stock is to be brought to tax under head “business income” and not under the head income from other sources.

9.2 In case of Shri Lovish Singhal vs ITO (ITA No 142 to 146/Jodh/2018 for AY 2014-15 dated 25 May 2018), the Jodhpur Tribunal applying the proposition of law laid down by the Hon’ble Rajasthan High Court in the Bajargan Traders (supra), held that the lower authorities were not justified in taxing the surrender made on account of excess stock and excess cash found U/s 69 of the Act and accordingly held that there is no justification for taxing such income U/s 115BBE of the Act.

9.3 In case of Oberoi Motors vs ACIT [ITA No. 3512/Del/2018 AY 2012- 13 dated 16 July 2021), the taxpayer had declared surrendered income after set-off of business loss. The lower authorities did not accept the above treatment and held that the surrendered amount is deemed income and does not fall under any of the head of income and therefore no set off of business losses could be allowed. The Hon’ble Tribunal held that as the assessee had already introduced the transactions in books of accounts, it would not be reasonable to say that such income does not fall under any of the head of income or that such deemed income does not allow any set off of business losses. Accordingly, the Tribunal accepted that the surrendered income amounts to business income.

9.4 In case of DCIT vs Ram Narayan Birla (ITA No. 482/JPR/2015 for AY 2011-12 dated 30 September 2019), also on the surrendered stock during search or survey action, it was held that the Revenue had not pointed out that the excess stock had any nexus with any other receipts found. Hence, the surrendered excess stock considered at par with the other business stock.

10. It can be seen from the above judicial precedents that whether the undisclosed income found during the search or survey action is taxable under any of the five heads of income as specified in section 14 of the Act or it is to be taxed as ‘deemed income taxable under section 68 to 69D of the Act’, is essentially a question of fact and it entirely depends on whether the assessee has been able to satisfactorily explain the source of such undisclosed income or not. If, a satisfactory explanation is provided about the nature and the source, in that case the source would stand explained and therefore, the income would be computed under the appropriate head of income as per the provisions of the Act. However, when no source is explained based on which the income can be classified under any of the heads of income specified under section 14, then it would be classified as deemed income and shall be taxed as per the rates provided under section 115BBE of the Act.

11. It is also important to mention here that the Hon’ble Supreme Court in case of Kale Khan Mohammad Hanif vs CIT [1963] 50 ITR 1 (SC) held that onus of proving the source of a sum of money found to have been received by the assessee is on him. However, if the taxpayer disputes the levy of tax on the same then it is up to him to show either the receipt is not income, or it is exempt from taxation under the provisions of the Act. In the absence of proof, the tax officer is entitled to treat the same as taxable income. Thus, the onus of explaining the source of undisclosed income found during search or survey is on the assessee and not the other way. In other way, the onus of proving that the income detected is not taxable under sections 68, 69, 69A to 69D read with section 115BBE is on the assessee.

12. To sum up, before assessing the surrendered income under sections 68, 69, 69A to 69D and levy of higher rate of tax u/s 115BBE, following factors are required to be considered –

• • • • • • Whether nature of income is clearly explained during the survey or during assessment proceedings
          • Whether income can be classified under a particular head of income based on nature so as to demonstrate that it is flowing from one of the specific sources of income of the assessee
          • Whether supporting evidences for the above are available because the onus to satisfactorily explain the nature and source is on the assessee

13. The facts of the present case suggest that at the time of the survey operation the appellant company has offered additional income under the excess stock is part of the business activities and no other activity is carried out by the appellant company and in this respect entry was also made in the books of account during the financial year 2018-19 relevant to assessment year 2019-20 and said additional income in the form excess stock was offered for taxation under the head of ‘business income’.

14. In the present case, the appellant had confirmed in its statement that this unrecorded/excess stock was its regular business income. The relevant portion of the statement is as under.

“Q.No.26: Do you want to say anything else?

Ans: Yes, I, voluntarily offer an additional income of Rs. 40,12,36,100/- for our company M/s. Kirti Gold Ltd in addition to the regular business income for A.Y. 2019-20 and I have paid the tax of Rs. 3,00,00,000/- today and the challan is furnished herewith. As fa as the remaining tax amount is concerned I assure to pay the due taxes on this additional income declared. I hereby confirm that enough rest was given to me while recording this statement”.

The above reply clearly indicates that the appellant has established that the investment in the excess stock was its regular business income. Thus, the appellant company filed its return of income on 01.11.2019 wherein the said additional income of Rs. 40,12,36,100/- was declared as income from business and paid the taxes at normal rates.

15. For this proposition the appellant has relied upon the following jurisdictional Hon’ble ITAT, Pune decisions.

a) Vijay Shriram Gunadale Vs ACIT, Central Circle-1 Pune vide ITA 79/PUN/2023 dated 03.08.2023, which was held that assessee offered the excess stock as business income and not as unexplained investment. Thus, excess stock should be treated as business income and provisions under section 69B should not apply.

b) Abhijit Vivek Swam vs ACIT vide ITA 319/PUN/2023 dated 21.04.2023, which was held that “though the assesse offered  income during the course of survey and included it in his return of income the same does not fall for consideration u/s 68 so as to attract the rigour of section 115BBE of the Act. the income of Rs. 13,83,663/-was not properly taxed at the increased rate u/s 115BBE and was correctly offered by the assesse at the regular rate.”

c) Ashok K Kriplani Vs DCIT, Central Circle-1, Nashik vide ITA 252/PUN/2023 dated 03.07.2023, observed that ratio laid down by the Hon’ble High Court of Rajasthan in the case of Bajargan Traders (supra) which was followed by the Jodhpur Benches of Tribunal.

d) Ashokkumar Kesharchand Pande vide ITA 389/PUN/2023 dated 31/07/2023

16. The appellant has also submitted that it is a settled principles of law that additional income declared on account of excess stock is business of the assessee unless proved otherwise. This proposition finds support from the following case laws.

a) DCIT (Central)-2, Indore Vs. Ashish Porwal ITA No. 185/Ind/2020.

b) Bajrang Traders vs. ACIT (Circle)-2 Alwar ITA no. 137/jp/17 dated 17.03.2017

c) DCIT (Central), Ajmer vs. Ramnarayan Birla (ITA No. 482/Jp/2018 dated 30.09.2016.7

d) Fashion World vs. ACIT (Central)-12, Ahemedbad (ITA No. 1634/Ahd/2016 dated 12.02.2010.

e) ChokshiHiralal Maganlal Vs. DCIT Ahemadabad (3281/Ahd/2009 dated 05.08.2011.

f) Shr iLovish Singhal Vs. ITO, Ward-2, Sriganganagar (ITA No 143/Jodh/2018 dated 25.05.2018

g) ACIT Vs. Sanjay Bairathi Gems Ltd. 189 TTJ 487/492 (Jp)

h) Md Serajuddin & Brothers Vs. CIT-24 Taxman.com 46 (Cal) 210 Taxman 84 (Cal)

i) Surekh Jewellers Vs. DCIT ITA No. 18/PN/2016 dated 12.06.2016.

j) M/s Solanki Jewellers Vs. DCIT IT No. 858PN72016 dated 18.11.2016

17. In view of the above discussion and the above judicial pronouncements, it is held that the impugned amount of Rs. 40,12,36,100/- cannot be taxed as deemed income u/s 69B of the Act as done by the assessing officer. Accordingly, the provisions of section 155BBE cannot be made applicable to the income of Rs. 40,12,36,100/-. Thus, the grounds no. 1 to 3 raised by the appellant are hereby allowed.”

13. Now in light of the above settled judicial precedents referred by ld.CIT(A), we further take note of the financial data of the assessee company for the year under consideration as well as preceding year. It is noted that the assessee is a Limited Company and mainly engaged in the business of manufacturing vegetable crude oil and deoiled cake and major activity is crushing of soyabean seeds for making the oil. Admittedly, Limited Companies are required to follow various procedures and norms fixed by the SEBI and details are to be furnished on periodical basis. Ld. Counsel for the assessee has highlighted the drastic increase in the total turnover of the asseessee company, which shooted up from Rs.318.06 crore during F.Y. 2017-18 to Rs.551.74 crore from F.Y. 2018- 19 relevant to A.Y. 2019-20. Sales have increased by almost Rs.234 crores. Increased sales has also given rise to increased net profits and with utmost utilisation of the installed capacity assessee has also successfully saved by proportionately decreasing the expenses. Books of account were not completed on the date of survey as the financial year 2018-19 has not closed and assessee had sufficient time to complete the books, get them audited and file the return of income for impugned assessment year. Net profits have also increased from approximately Rs.9.34 crore to Rs.48.89 crore. Excess stock taken up by the survey team is also not based on the actual Stock Register but is on the Tentative Trading account which means that the GP rate of the earlier period have been applied to calculate the closing stock on the date of survey.

14. We also observe that daily reports are prepared for the purchase of soyabean showing the Goods GR No., Name of party, station, broker, Truck numbers, Bags, Quantity and thereafter the shortages at the time of accounting the receipt of goods. These daily reports are part of the records seized during the course of survey and placed at paper book from pages 42 to 67. These details indicate that the major purchases of the assessee are soyabean seeds and the details of such purchases are mainly for the year under consideration during which the goods have moved into the assessee’s factory premises. One fact which has been placed before us by the ld. Counsel for the assessee is that the life cycle of the soyabean seeds is only 7-8 months and such soyabean seeds have to be crushed within this period to manufacture the oil. Basically, in the stock cycle, the raw material is purchased, put into the manufacturing system, finished goods are produced and in the meantime when the sales are realised or funds are arranged the assessee again makes the purchases and carries on the cycle. Now the Tax Audit report provides the quantitative details of the main raw material of soyabean seeds showing that all the figures in Tonnes and opening stock is 1752 purchases during the year is 56640 and consumption is 55898 and closing stock at 2493. This shows that major part of the purchases during the year have been consumed to manufacture the finished goods. Excess stock in the instant case is of soyabean seeds. Their purchases have been made majorly during the year and therefore the source thereof is from the income earned during the year. There is no indication as to any unaccounted income of the preceding years having been utilised for making the purchases of soyabean seeds. There is no other business activity/source of income of the assessee company. These facts indicate that due to increased turnover the business cycle of the assessee moved faster, profits increased due to saving in expenses therefore the fresh purchases were made and by the time assessee could prepare the final books of account and offer the income to tax, rather much prior to the closing of the financial year survey has been conducted. Considering all these facts including the drastic increase in the turnover, improved gross profit and net saving in expenses, profit rate, the life cycle of the soyabean seeds brings us to the conclusion that unaccounted business income earned during the year has been applied for making the purchases of soyabean seeds therefore the source of unaccounted excess stock is the business income for the year which has been duly offered to tax in the return of income. It is also an admitted fact that the excess stock has been calculated by the survey team based on the closing stock figure of the Tentative Trading account which is normally on estimate basis. Even the key person of the assessee company has also referred to the transactions entered in the Zadti which is basically the complete record maintained for purchase of soyabean seeds and each transactions in the daily report are accounted for in the regular books of account before the closure of the financial year. Coming to the judicial precedents, we note that Hon’ble Rajasthan High Court in the case of Bajargan Traders (supra) confirmed the decision of Coordinate Bench, Jaipur in the case of Shri Ram Narayan Birla while dealing with similar issue in the case of assesseee dealing and has held that investment in such procurement of stock rise is identifiable and related to the regular business stock of the assessee and that the investment in excess stock has to be taxed under the head business income.

15. We further take note of the decision of this Tribunal in the case of Late Harilal Mavjibhai Patel vs. ACIT – ITA No.2698/Pun/2024 order dated 25.04.2025 where also the similar issue of treatment of excess stock as income from other sources by the Assessing Officer as against the business income contended by the assessee. Finding of Tribunal reads as under:

“6. We have heard the rival contentions and perused the record placed before us. The only issue for our consideration is whether the ld.CIT(A) was justified in affirming the action of the AO of treating the excess stock as income from other sources and applying tax rate u/s.115BBE of the Act as against the excess stock being declared as regular business income by the assessee and having paid normal taxes. We notice that the assessee was subjected to survey proceedings u/s.133A of the Act on 13.02.2019. Stock of the assessee was located at multiple godowns and in total there are 11 locations where the stock of the assessee was kept and further going through the paper book at pages 40 to 49 we notice that the excess stock in hand contains various items based on thickness/size/measurement and are hundreds in numbers. Further, we also notice that assessee was not maintaining regular quantitative stock records and the survey team estimated the opening stock as on 13.02.2019 on the basis of tentative trading account. Undisputedly, excess stock of Rs.40,05,210/- was calculated by the survey team and the same was accepted by the assessee as normal business income and duly offered to tax by including the excess stock in its profit and loss account and paying due taxes. Now during the course of survey the assessee was confronted with the issue of excess stock. Reply of the assessee to question No.20 is relevant wherein it was specifically asked to explain the difference of excess stock and the same reads as under: Q.No.20 On going through the tentative Trading Account in respect of M/s. Kaneeta Enterprises, it is seen the stock as on 12.02.2019 is at Rs.49,05,313/- whereas the stock as per the inventories recorded by the survey party totals to Rs.89,10,523/. Thus, there is a difference of Rs.40,05,210/. Please explain the difference.

Ans. The excess stock found of Rs.40,05,210/ at the business and godown premises during the survey is not separately and clearly identifiable. but is a mixed part of lots of stock found at the business and godown premises which includes other regular stock also. The resultant difference in stock may be on account of various reasons. However, to cover up the irregularities, the resultant so-called difference in stock worked out on the basis of tentative Trading Account is offered to tax as our regular business income over and above current year’s (i.e. AY 2019-20) normal income.”

7. Now from going through the above reply of the assessee given during the course of survey and also considering the estimated opening stock as on the date of survey calculated by the survey team, huge number of items of stock held at the assessee’s business premises located at 11 locations, we find that the assessee has duly explained the source of excess stock and same is from business income and is therefore liable to be taxed as regular business income and both the lower authorities have erred in treating it as income from other sources and taxing the assessee u/s.115BBE of the Act. Our view is further supported by the recent decision of Coordinate Bench in the case of Kolhapur Timber And Furniture Mart Vs. ACIT vide ITA No.2697/Pun/2024 order dated 27.03.2025 where also similar issue has been raised and this Tribunal after referring to various decisions and decided the issue in favour of the assessee holding that the source of excess stock is business income observing as follows:

“8. We have heard rival contentions and perused the record placed before us. The only issue for our consideration is whether the value of excess stock found at the premises of the assessee during the course of survey u/s 133A of the Act on 12.02.2019 is to be treated as ‘business income’ or ‘income from other sources’. We note that the assessee is a partnership firm and its only source of income is from machinery packing small furniture items, small cupboard etc. and other packing material. The alleged excess stock was calculated by the Department on the basis of Tentative Trading Account prepared on the date of survey. During the course of survey, the assessee was asked to explain the difference found in the stock of Rs.50,05,145/-. It was specifically stated in reply to question no.20 that the stock at the business showroom and godown premises are not separately and clearly identifiable but it is mixed part of lots of stock which includes regular stock also. It was further stated that the resultant difference in stock is part of business income and will be offered to tax as regular business income.

9. We further notice that the nature of business of the assessee is such that full sheet of timber, rubber ply or other material is taken as cost for deciding/quoting sale price, but actually pieces and parts remains which are used and because of this reason gross profit is estimated and specific detail of each and every small items could not be prepared. We further notice that no incriminating document/evidence was found during the course of survey which could prove that there were some out of record transactions carried out by the assessee or proof of any other undisclosed income. Also no other document was found towards unrecorded sales/unrecorded purchases. Considering the facts and circumstances of the case, in our considered view, source of alleged excess stock is business income and the assessee had given necessary explanation to explain the excess stock.

10. We are thus of the considered view that the excess stock found during the course of survey is from regular business income of assessee firm having no other source of income and has been rightly disclosed at business income in the audited financial statements as well as computation of income as business income and both the learned lower authorities erred in treating it as income from other sources and further erred in invoking section 68 r.w.s. 115BBE of the Act. Under similar set of facts and circumstances, this Tribunal in plethora of decisions have consistently held that if the unexplained income is from business sources then section 115BBE cannot be invoked. We would like to reproduce below to finding of Co-ordinate Bench of Indore Tribunal in the case of M/s. Suresh Aluminium vs. ACIT vide ITA No.62/Ind/2024 dated 09.08.2024 and the same reads as under:-

“6. I have heard rival contentions and perused the record placed before me and have carefully gone through the decisions referred and relied by both the sides. The only issue for my consideration is that whether Ld. CIT(A) erred in confirming the action of the Ld. A.O applying the provisions of Section 115BBE of the Act for taxing the surrendered income in the form of excess stock at Rs.52,25,297/- found during the course of survey u/s 133A of the Act. I observe that the assessee has accepted the excess stock and have offered it to tax and paid due taxes as per the normal provisions of Income Tax Act. Ld. A.O invoked provisions of Section 115BBE of the Act treating the surrendered income as unexplained investment and thus calculated the tax on higher rate as provided u/s 115BBE of the Act.

6.1 The question before me is whether the surrendered income is to be treated as ‘business income or as Income from other source u/s 69 of the Act’. For this the nature of surrendered income needs to be examined. Undisputedly except the physical stock taken and calculation of excess stock, no other incriminating material was found during the course of survey nor any other reference to any evidence has been made in the assessment order which could indicate that the assessee carries out any other activity or has income from any other source. Now coming to the surrender of excess stock, I note that on the day of survey physical stock was taken and as per the inventory of stock sheet placed at page 37 of paper book 6 items are mentioned and after taking the quantity and applying the rate, value of physical stock calculated at Rs.79,84,723/-. Now for calculating the excess stock, survey team has to take note of the value of stock shown in the books of accounts. Now the assessee admittedly is not maintaining the stock records. This fact is proved firstly, at the time of survey no stock record was found and secondly even in the tax audit report, auditor has not mentioned about any stock records being maintained by the assessee nor any quantitative details is appearing in Form 3CD annexed to Form 3CB. The assessee admits to be calculated the closing stock on an estimated basis applied the method cost or market value, whichever is less and taking gross profit rate into consideration. In other words the closing stock is estimated by the assessee. Now on the date of survey when the survey team noticed that assessee is not maintaining any stock records then they based on the records of opening and closing stock as well as gross turnover calculated the stock in hand as per books as on 27.02.2019 at Rs.27,59,426/- and same is referred in Question-18 in the statement recorded during the survey proceedings (copy placed at page-35 of the paper book). I find that there is no calculation by the survey team as to how they arrived at the book stock of Rs.27,59,426/-. It itself proves that survey team has estimated the stock in hand and then calculated the excess stock after reducing the value of physical stock calculated by them. Now the Ld. A.O has invoked the provisions of Section 69 of the Act which provides that “where in the financial year immediately preceding the assessment year, the assessee has made investment which are not recorded in the books of accounts, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of investment or explanation offered by him, is not in the information of the A.O, satisfactory the value of the investments may be deemed to be the income  of the assessee of such financial year’. So far as the contentions of the Ld. Counsel for the assessee, it has been claimed through out the proceedings and further supported by the affidavit placed before Ld. CIT(A) that there is no unexplained investment but it is purely business income which accumulated from past period and now offered to tax. Now provisions of Section 69 of the Act comes into play when there are certain investment which are not recorded in the books of accounts but in the case of the assessee since the stock records are not maintained and they are merely estimated there is no concrete evidence of any unaccounted investment in stock. Had there been the stock records available at the time of survey and the quantitative details of the same was available in the stock records and then during the course of survey if the excess stock in quantitative form had been found then the case of the revenue could have been more stronger.

6.2 But in the instant case I observe that the assessee estimated the stock at the year end and even the revenue authority have estimated the stock in hand on survey date at Rs.27,59,426/-. But the method applied by survey team for calculating such stock and whether it was actually the stock as per books is nowhere discernable from the records. Further it is also noted that no other incriminating material was found during the survey proceedings. So in all it is purely an exercise based on estimation and there is no concrete evidence put-forth by the revenue authorities which could support their action of treating the alleged surrender as Income from other sources and not business Income for invoking Section 115BBE of the Act.

6.3 Under these given facts and circumstances I find that the alleged sum surrendered by the assessee was only to buy peace of mind and it was admittedly business income which has been offered to tax and by no canon can be treated as unexplained investment u/s 69 of the Act. Ld. CIT(A) thus erred in confirming the addition of Ld. A.O of taxing the excess income as per the provisions of Section 115BBE of the Act. Though plethora of decisions have been referred by Ld. Counsel for the assessee which supports the view taken by me, however I would like to first refer and rely to the finding of this Tribunal in the case of Italian Edibles Pvt. Ltd (supra) wherein the Tribunal referring to plethora of decisions held as under:

“11. Therefore, once the facts emerging from record shows that the excess stock found during survey was a part of entire lot of stock of assessee, part of which is recorded in books of account and part of the same was not found recorded and therefore, treated as excess stock at the time of survey and consequently surrendered by the assessee and also offered to tax in the return of income then the excess stock cannot be treated as deemed income u/s 69 or 69B of the act in view of the judgment of Hon’ble Rajasthan High Court and Coordinate Bench of this Tribunal cited above. Accordingly, this issue is decided in favour of the assessee and against the revenue. The orders of the authorities below qua this issue is set aside. The assessee succeeds to this extent. Accordingly in the facts and circumstances of the case and by following the decision of this tribunal in M/s Brij Mohandas Devi Prasad (supra), we do not find any error or illegality in the impugned order of the CIT(A) same is upheld.” 6.4 Further reliance is placed on the following finding given in the decision of this Tribunal in the case of DCIT V/s Krishna Kumar Verma (supra) as under: “7. After considering the above factual matrix of the case now we proceed to consider the proposition relied by learned representative of both the sides. The Ld. Senior DR has relied on the judgment of Punjab & Haryana High Court in the case of Kim Pharma (P.) Ltd. vs. CIT(supra) to submit that where the amount surrendered during survey was not reflected in the books of accounts and no source from where it was derived was declared by the assessee, then it is assessable as deemed income of assessee u/s. 69A of the Act and not as business income. In this case the Assessing Officer made addition of surrendered amount u/s. 69 of the Act as the assessee could not explain the source from where it was derived by the assessee. In the present case undisputedly the Assessing Officer has not made any addition u/s. 69 or any provision of the Act and has accepted return income of the assessee. In the present case we are in agreement with the contention of the learned AR that the orders of the authorities below clearly reveal that the amount of excess stock & excess cash found during the course of survey business income of the assessee as the assessee is in the business of trading in jewellery, metal of bullion and the excess stock found during the search & survey was accumulated from transaction of metal of bullion carried out in the forward community trading and mediation and the same was surrendered as excess stock and offered to taxation as business of the assessee. The Ld. CIT(DR) could not dislodge the contention and observations of the Ld. CIT(A) that the surrendered amount was pertaining to excess stock & excess cash which was business income of the assessee and such additional income offered by the assessee for taxation was nothing but business income of the assessee. Therefore it was offered for taxation under the head income from business and profession. In the present case since the assessee in his statement recorded during the course of search & survey explained that the source of excess stock was the income earned during the relevant financial period from the trading of bullion, jewellery etc. and income from Adat/dalali and regarding excess cash found in his business premises the assessee also explained that though it was not recorded in the books of accounts but it was accrued to him on account of sale of jewellery in cash and the same pertains to his business activity of trading in business of jewellery. Therefore in the present case the assessee has successfully explained the source of excess stock and excess cash found during the course of search & survey operation and surrendered during the said operation. The Ld. CIT(DR) has not disputed or controverted very factual position that the assessee filed return of income including the surrendered amount and which was acceptedby the Assessing Officer without any dispute and without making any further addition in the hands of assessee u/s. 69A or any other section of the Act. In view of above as the assessee has successfully explained and established the source of excess stock and excess cash as his business activity and of trading in jewellery and gems and activity of Adat/dalali thus the benefit of proposition rendered by Hon’ble Punjab & Haryana High Court in the case Kim Pharma (P.) Ltd. vs. Commissioner of Income Tax (supra) is not available for the department in the present case.

8. In view of forgoing discussion we reach to a logical conclusion that the Assessing Officer without making any addition u/s. 69A or any other provision of the Act has accepted returned income of the assessee wherein the assessee has included surrendered amount on account of excess stock and excess cash as business income and has successfully explained the source from where the said surrendered excess stock and excess cash was earned, which was business activity of assessee of trading in jewellery & gems and Adat/dalali in the same field. The coordinate bench of the Tribunal in the various orders including order in the case of Shri Lovish Singhal v/s. ITO (supra) by following the judgment of Hon’ble Rajasthan High Court in the case of Bajrang Traders (supra) observed that the excess stock found during the course of survey and surrendered made thereof was found to be taxable as business income under the head “Income from business & profession”. Identical facts and circumstances as noted above have been found to be existing in the present case then the Ld. CIT(A) was correct and justified in dismissing the contention of the AO and holding that the AO was not right in observing that the assessee is liable to be taxed as per provision of section 115BBE. Therefore, we too have no hesitation in concluding that the facts of present case do nothing the impugned income in the clutches of section 69/69A/69B and therefore do not warrant application of section 115BBE at all. We conclude so and dismiss the ground raised by revenue being devoid of merit.”

6.5 Reliance is further placed on the decision of this Tribunal in the case of ACIT V/s Anoop Neema (supra) wherein this Tribunal observed as under:

“8. We on perusal of the above finding and the various judgments and decisions referred hereinabove by Ld. CIT(A) find that the alleged excess stock was not kept separately at any other place and was part of the total business tock found at the assessee’s business premises are sufficient enough to indicate that the alleged investment in excess stock is part of the business income we also find that alleged excess stock was duly accepted by assessee as part of unaccounted business and source thereof stated during the course of search itself and no other incriminating material was found during search proceedings and therefore is not an undisclosed income as held by the L.d. AO. We, therefore, find no infirmity in the finding of Ld. CIT(A) rightly holding that the provision of Section 115BBE of the Act are not applicable on the surrendered income on account of excess stock valuing at Rs. 1,41,75,568/-found during the course of search. Thus, grounds no. 1 to 3 raised by the revenue are dismissed”.

6.6 On examining the facts of the instant case and in the light of the above decisions I find that the ratio laid down in these decision is applicable on the facts placed before me and therefore respectfully following the same and also considering the fact that the alleged excess stock was found at the business premises and related to the same business which is carried out by the assessee and more importantly there is no case of difference in quantity of excess stock being found at the business premises and lastly the excess stock has been calculated by the survey team on estimated basis only, I reverse the finding of Ld. CIT(A) and Ld. A.O is directed to calculate the tax on the surrendered stock under normal provisions of I.T. Act and not to apply the provisions of Section 115BBE of the Act. In the result Ground No.1 & 2 raised by the assessee are allowed. Ground No.3 being general in nature which needs no adjudication.

7. In the result appeal of the assessee is allowed.”

11. Similar view also taken by Co-ordinate Bench of Pune in the case of Vijay Shriram Gundale vs. ACIT vide ITA No.79/PUN/2023 and others dated 03.08.2023 and the same reads as under:-

“7. Heard both the parties and perused the material available on record. There is no dispute regarding offering of additional income on account of excess stock for an amount of Rs.37,00,000/- during the course of survey. We note that as rightly pointed by the ld. AR which is not disputed by the ld. DR crediting the said additional income to profit and loss account and by including in the computation of income in the total income of the assessee which clearly demonstrate the assessee offered the same as business income. The ld. AR vehemently submitted the assessee explained the difference in valuation stock as per the books explained by the assessee through answers to Q. Nos. 10 and 11 of the statement u/s. 131 of the Act and also in response to notice invoking the provisions u/s. 115BBE of the Act during the course of assessment proceedings. We note that the Q. No. 10 is reproduced by the CIT(A) at page No. 10 of the impugned order and on perusal of the same, we note that the assessee explained the difference of Rs.37,00,000/- as stock purchased on high demand during the marriage seasons and bills will be received late. Therefore, it can be fairly concluded that the excess stock as found during the course of survey is nothing but business income flowing from assessee’s regular business.

8. The Hon’ble High Court of Rajasthan in the case of Bajargan Traders reported in (2017) 86 taxmann.com 295 (Rajasthan) was pleased to observe that the amount surrendered under unrecorded stock has to be brought to tax under the head “business income” as the excess stock which has been found during the course of survey is the investment in procurement of such stock is clearly identifiable and related to the regular business stock of the assessee. The Hon’ble High Court clearly held the investment in excess stock has to be brought to tax under the head “business income” but not under the head “income from other sources”. The Mumbai Benches of the Tribunal in the case of Govind Godomal Lulla (supra) held undisclosed investment in the case of excess stock found during carrying on business and the same is generated out of business income, no provisions of section 69B of the Act would attract. Further, the Jodhpur Benches of the Tribunal in the case of Shri Lovish Singhal (supra) held the excess stock/cash found during the course of survey is taxable under the business and no provision u/s. 115BBE of the Act is attracted. In the present case as discussed above without any dispute the assessee offered additional income under excess stock during the course of survey and same was entered in the books of account as on the last day of financial year ending on 31-03-2019 and offered the said amounts to tax under the business income. Therefore, in our opinion, the ratio laid down by the Hon’ble High Court of Rajasthan in the case of Bajargan Traders (supra) which was followed by the Jodhpur Benches of Tribunal is similar and identical to the issue in the present case. Therefore, the CIT(A) is not justified in confirming the order of AO in excluding the alleged additional income offered during the course of survey and attracting the provisions u/s. 69B of the Act, consequently, the charging u/s. 115BBE of the Act. Thus, the order of CIT(A) is set aside and the grounds raised by the assessee are allowed.

9. The ld. AR submits that the assessee is not interested to prosecute additional grounds. Hence, the same are dismissed as not pressed.

10. In the result, the appeal of assessee is allowed.”

12. Respectfully following the decisions of Co-ordinate Benches and taking the consistent view, we are inclined to hold in favour of the assessee. Accordingly, finding of Ld. CIT(A)/NFAC is set-aside and the excess stock offered by the assessee in its books of accounts is held to be from business income and therefore Ld. Assessing Officer erred in invoking section 68 r.w.s. 115BBE of the Act. Effective grounds of appeal raised by the assessee are allowed.”

8. From going through the above finding of this Tribunal and examining the facts of the instant case in light thereof, we find that the same is squarely applicable on the instant case since the source of excess stock found during the course of survey is from business income and has been rightly offered by the assessee as business income and paid due taxes. Therefore, in our considered view, the excess stock found during the course of survey at assessee’s business premises is Business Income and ld.CIT(A) grossly erred in holding the excess stock of Rs.40,05,210/- as Income from other sources. Thus finding of ld.CIT(A) is reversed and grounds of appeal raised by the assessee are allowed.”

16. So far as the decisions referred and relied on by the ld. DR are concerned, we note that the decision of Hon’ble Punjab & Haryana High Court in the case of The PCIT Vs. M/s.Kushi Ram and Sons – Income Tax Appeal No.126 of 2015 dated 21.07.2016 deals with the revisionary order u/s.263 of the Act which is not the case before us. Similarly, so far as the decision in the case of Hon’ble Bombay High Court in the case of PCIT Vs. Kanak Impex (India) Ltd. Income Tax Appeal No.791 of 2021 dated 03.03.2025 is concerned, the issue dealt therein is the bogus purchases which is also not the case before us. Therefore, the decisions referred and relied on by ld. DR are not applicable on the facts of the instant case.

17. We therefore conclude that above settled judicial precedents relied upon by ld. Counsel for the assessee and ld.CIT(A) are squarely applicable on the facts of the instant case and therefore hold that the excess stock found during the course of survey at the assessee’s premises has been rightly held to be business income by ld.CIT(A) and that ld. Assessing Officer erred in treating it as deemed income u/s.69B rws 115BBE of the Act. We thus fail to find any infirmity in the finding of ld.CIT(A). Grounds of appeal raised by the Revenue are dismissed.”

14. In light of the above judicial precedents and on examining the facts of the instant case, we find that there is absence of any observation by the Revenue authorities placing any evidence on record found during the course of survey indicating that assessee has made unaccounted investment in the stock found during the course of survey. We also find that assessee’s average stock is more than Rs.14.07 crore during A.Y. 2015-16 and Rs.38.23 crore during F.Y. 2017-18 more specifically the opening stock as on 01.04.2017 has increased from Rs.26.08 crore to Rs.50.39 crore, the gross profit declared by the assessee is approximately 4% which is in consonance to the preceeding year gross profit rate. We find that assessee maintains stock records and the same are exhibited in the Audited Balance sheet and complete quantitative details of stock at the year end is available. Gross Turnover during the year is not under dispute which means there are no unaccounted sales. Quantitative difference in stock is not found by the survey team and only stock valuation is basis adopted for alleging excess stock. We therefore find that the source of the additional income offered by the assessee is purely from business and there being no other source of income of the assessee firm, therefore, ld.CIT(A) made no error in holding that the additional income offered by the assessee is business income liable to normal tax rate and that ld. Assessing Officer grossly erred in invoking section 69 r.w.s.115BBE of the Act. No interference is called for in the finding of ld.CIT(A). Grounds of appeal raised by the Revenue are dismissed.

15. So far as the grounds of appeal raised by the assessee in the Cross Objection is concerned, they are mainly supporting the finding of ld.CIT(A). Since we have already dismissed the Revenue’s appeal and held that additional income of Rs.5.25 crore offered by the assessee is business income, therefore, dealing with grounds raised in the Cross Objection would be merely academic in nature and therefore the same are dismissed as Infructuous.

16. In the result, the appeal of the Revenue as well as cross objection of the assessee are dismissed as per the terms indicated hereinabove.

Order pronounced on 09th October 2026 under Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963.