Smt. Nandini Sharma Vs ACIT/DCIT Central Circle (ITAT Amritsar)
ITAT Amritsar held that provisions of section 115BBE of the Income Tax Act cannot be made applicable where assessee has made a statement that the excess stock was a result of suppression of profit in respect of sales made outside the books of accounts.
Facts- During survey operations, stock of Rs.54,94,959/- was found as against stock of Rs. 48,68,459/- as per Books of Account. Thus, an excess stock of Rs.6,26,500/- was found.
The assessment for the Ay 2019-20 was completed u/s 143(3) by invoking the provisions of section 115BBE on excess stock amounting to Rs. 6,26,500/- as alleged by the department.
The appellant has preferred an appeal before the CIT(Appeals) on the limited issue of whether provisions of section 115BBE can be invoked on the alleged excess stock. The CIT(A) confirmed the action of AO invoking provisions of section 115BBE by observing that once the assessee has voluntarily surrendered the income, and included the same in ITR and paid taxes. This act of the assessee validates the action of department that the assessee was having undisclosed income offered for tax at Rs 6,26,500/-.
Conclusion- Even otherwise the provisions of section 115BBE cannot be made applicable particularly where the assessee has made a statement that the excess stock was a result of suppression of profit in respect of sales made outside the books of accounts. Therefore, in the present case, investment in excess stock computed by the department is liable to be treated as business income and to be taxed under normal provisions and not under the chapter no XII.
In the case of ‘M/S BAJAJ SONS LTD. VERSUS THE DCIT’, it has been held that provisions of section 115BBE are not applicable where Surrender is made to cover any discrepancy.
Considering the factual matrix and judicial precedent cited, the action of the lower authorities in invoking provisions of Section 115BBE on the surrender income is perverse to the facts on record and held to be bad in law. Therefore, the AO is directed to compute the said surrendered income under normal provisions as applicable to the business income of the assessee.
FULL TEXT OF THE ORDER OF ITAT AMRITSAR
This appeal has been filed by the assessee against the order dated 03.06.2022 passed by the Ld. Commissioner of Income Tax (Appeals)-5, Ludhiana, in respect of Assessment Year 2019-20.
2. The assessee has raised the following grounds of appeal:
“1. That the order passed u/s 250(6) of the Income Tax Act, is bad in law 3hd against the facts of the case.
2. That the Ld. CIT(Appeals)-5 has erred in law and in facts in sustaining the order passed by the DCIT in which the Ld. AO has wrongly invoked provisions of section 69 by considering the difference as excess stock instead of short stock as noticed by the department without appreciating the fact that no excess stock was found. As such the provisions of section 115BBE r.w.s 69 cannot be invoked on income offered at Rs. 626500/-.
3. That the Ld. CIT(Appeals)-5 has erred in not appreciating the facts that the stock as per books of accounts was Rs, 4868459/- as against the correct physical stock found at Rs. 4107259/-. That the Ld. CIT has erred in appreciating the fact that the stock pertaining to sister concern Prabhat Traders has also been included to derive the excess stock of Rs. 626500/. Therefore, it is not the case of excess stock, instead, there was shortage of stock to the tune of Rs. 761200/- [4868459-4107259],
4. That the Id. CIT (Appeals)-5 has erred in ignoring the submissions and evidence brought on record by the assessee to explain the genuineness of the business income surrendered by the assessee. That the Ld. CIT (Appeals)-5 has erred in not appreciating the fact that the statement of husband of the assessee was recorded u/s 133A on 27.02.2019 in which it was duly stated that the additional income was earned out of business income.
5. That without prejudice to ground no 4 above, the CIT (Appeals) has erred in confirming the action of the AO without appreciating the fact that the statement recorded u/s 133A has no evidentiary value.
6. That Ld. CIT (Appeals) has erred in confirming the action of the AO for application of section 115BBE on the surrender as made by the assessee without appreciating that no excess stock was found. That the CIT (A) has further failed to appreciate that the surrender as made by the assessee in books of accounts takes care of gross profit on actual shortage of stock of Rs. 761200/-.
7. That the appellant craves leave to add or amend the grounds of appeal before the appeal is heard and disposed off.”
3. Briefly, the facts on record are that the appellant is an individual engaged in the business of trading of furniture and the appellant had filed return of income for the AY 2019-20 on 30.10.2019 at a total income of Rs. 1727530/- and that a survey operation u/s 133A was conducted on 26.02.2019 and stock of Rs.54,94,959/- was found as against stock of Rs. 48,68,459/- as per Books of Account. Thus, an excess stock of Rs.6,26,500/- was found. The assessment for the Ay 2019-20 was completed u/s 143(3) by invoking the provisions of section 115BBE on excess stock amounting to Rs. 6,26,500/- as alleged by the department. Further, the assessee has also offered Rs. 10,00,000/- on account of noting’s in respect of repair to building for which is not under dispute.
4. The appellant has preferred an appeal before the CIT(Appeals) on the limited issue of whether provisions of section 115BBE can be invoked on the alleged excess stock. The CIT(Appeal) dismissed the appeal of the assessee vide order dated 13.10.2021 passed u/s 250(6) on the ground that the assessee has himself offered a sum of Rs. 626500/- in the balance sheet and as such, the stand of the department was correct. The CIT(A) confirmed the action of AO invoking provisions of section 115BBE by observing that once the assessee has voluntarily surrendered the income, and included the same in ITR and paid taxes. This act of the assessee validates the action of department that the assessee was having undisclosed income offered for tax at Rs 6,26,500/-.
5. The Ld. AR explained before us that in reality, there was no excess stock and in fact, there was shortage of stock. The AR submitted that the Department prepared total stock inventoried at Rs.54,04,959/- including stock of sister concern Prabhat Traders to the tune of Rs.13,87,700/- and thus, the actual stock related the appellant was only to the tune of Rs.4107259/-. Therefore, this is a case of shortage of stock to the tune of Rs. 7,61,200/- [Stock as per books of accounts Rs.48,68,459/- Less stock found Rs.41,07,259/-].
6. The Ld. AR contended that the CIT(A) has erred in confirming the order of the AO as there was no excess stock and entries made in the books of accounts cannot be taken as conclusive to invoke the provisions of section 115BBE. It was also clarified by the AR that the appellant had offered a sum of Rs. 626500/- in the return of income as against the GP element worked out at 32% on shortage of stock of Rs. 761200/- which comes out to Rs. 243584/-. Therefore, it can be a case of shortage of stock and the balance amount of Rs. 382416/- i.e. Rs. 626500 (-) Rs. 243584 at the most can be said to be offered to cover any other discrepancy and by no stretch of imagination the provisions of section 115BBE can be invoked.
7. The Ld. AR for the assessee has submitted on legal issue of applicability of provisions of section 115BBE and on factual material on record, in respect of excess/ shortage of stock found during the course of survey. The relevant part of the submissions made by the Ld. AR of the assessee are re-produced as under: –
11. That before discussing the grounds of appeal, it is very much necessary to acquaint your honors with the facts of the present case. That the assessee is engaged in the business of trading in furniture and allied items from registered office at Mehta Road, Maqboolpura, Amritsar. It is pertinent to mention here that the sister concern M/s Prabhat Traders Prop. Santosh Sharma is also carrying out the business of wholesale trading of various cloth items, carpets, curtains and other allied items from the same premises. That during survey operation u/s 133A the inventory of stock of all the concerns were inventoried by the department and the summary for the same is as under:
