ITAT Deletes Addition Of Unexplained Investment In Stock Valuation Difference

The Chennai Bench of Income Tax Appellate Tribunal (ITAT) has deleted the addition of unexplained investment in stock as a difference in the valuation of stock.

The bench of Mahavir Singh (Vice President) and Manjunatha. G. (Accountant Member) has observed that the assessee has declared additional income towards excess stock found during the course of the survey, and the assessee has explained the source for excess stock found during the course of the survey, i.e., that it was out of income earned from current year business or earlier years business, and surrendered the amount. The AO has not done anything to dispute the claim of the assessee that the source was not from business income.

The appellant/assessee is engaged in the business of wholesale trading of stainless steel items, crockery, aluminium, and electric items. A survey was carried out on the business premises of the assessee. The AO completed the assessment by noting that physical stock available at the business premises of the assessee was inventoried during the course of the survey, and when it was compared with the stock in the books of accounts, the survey party found excess stock valued at Rs. 1,04,00,600.

When it was pointed out to the assessee, a sum of Rs. 1,04,00,600 was offered for taxation. The assessee submitted that excess stock has been offered as 'business income' and hence does not warrant addition under Section 69B of the Income Tax Act. The AO held that excess stock is to be treated as an unexplained investment under Section 69B and subjected to tax as per the provisions of Section 115BBE. Accordingly, he charged the income offered during the survey as an unexplained investment and assessed tax.

The assessee preferred an appeal before CIT (A). The CIT(A), after considering the submissions of the assessee, upheld the action of the AO by noting that the investment in excess stock was found to be assessed as 'unaccounted investment' and not as 'business income'.

The tribunal held that the AO cannot apply the provisions of Section 115BBE. The assessee also admitted the difference of Rs. 1,04,00,600 as income, which is not disputed but has to be taxed as 'normal business income' and not as 'unexplained investment' under Section 69B of the Income Tax Act.

Counsel For Appellant: Heema Murli Krishnan

Counsel For Respondent: D. Hema Bhupal

Case Title: Ethiraj Hotel Mart Versus DCIT

Case No.: ITA No.: 1086/CHNY/2022

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