By Aparna. M – On May 2, 2023 7:30 am – 3 mins read
The Chennai bench of Income Tax Appellate Tribunal (ITAT) has recently held that income offered towards excess stock could not be treated as unexplained investment under Section 69B of the Income Tax Act, 1961. Thus it ruled that no tax is to be levied under Section 115BBE of the Income Tax Act, 1961.
Section 69B of the Income Tax Act states that if the assessee incurred any expenditure and did not provide the details of such expenditure, and then such expenditure shall be considered as the income of the assessee for the particular financial year.
Assessee is a partnership firm engaged in the business of manufacturing and sale of finished leather and allied products.
The assessee has filed its return of income for the assessment year 2018-19.
A survey operation under Section 133A of the Income Tax Act, 1961 was conducted at the business premises of the assessee firm. During the course of survey proceedings, inventory of physical stock was taken which resulted in excess physical stock of Rs. 5.08 crores.
The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that the assessee firm has declared additional income of Rs. 5.08 crores towards excess stock found during the course of survey under the head ‘profits and gains from business and profession’.
The Assessing Officer, after considering relevant submissions of the assessee, found that assessee had not furnished any documentary evidence to substantiate the claim that entire amount of additional income of Rs. 5.08 crores offered towards excess stock found during the course of survey is generated and earned from regular business activity from the current financial year.
Therefore, the AO opined that additional income offered towards excess stock found during the course of survey is assessable under the head unexplained investment under Section 69B of the Act and thus, additional income of Rs. 5.08 crores has been treated as unexplained investment and levied tax as per Section 115BBE of the Income Tax Act.
Aggrieved assessee filed appeal before the CIT (A).
Before the CIT (A), D. Anand, counsel for the assessee submitted that stock found during the course of survey has been expended out of regular business income earned in the current financial year.
The CIT(A), after considering relevant submissions observed, “ the assessee could not provide any cognizant evidence as to how the amount of Rs. 5.08 crores was generated in its business, in terms of proof for purchases made, source for said unaccounted purchase, and unaccounted sales made out of such unaccounted purchases and further how the proceeds were ploughed back to business to generate unaccounted income”
Thereafter, the aggrieved assessee filed a second appeal before the tribunal.
Before the bench, counsel for the assessee, D. Anand pointed out that the assessee had explained the source for excess stock found during the course of the survey and claimed that it is out of business income earned in the current financial year and also declared additional income under the head income from business.
P. Sajit Kumar, counsel for the revenue submitted that the assessee could not explain before the AO that the excess stock found during the course of survey was purchased and source for said purchases came out of business income with evidence for under invoicing of stock or purchases without any bills.
Moreover in this case, the assessee has admitted excess stock found during the course of the survey, but could not explain the source of said stock. Therefore, the AO has rightly assessed the difference as unexplained investment and levied tax under Section 115BBE of the Income Tax Act.
After considering the submissions of the both parties, the two-member bench comprising Aby T. Varey, (Judicial Member) and Manjunatha. G, (Accountant Member) allowed the appeal filed by the assessee and observed 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 could not be treated as unexplained investment under Section 69B of the Income Tax Act, and also provisions of section 115BBE of the Income Tax Act.”To Read the full text of the Order CLICK HERE
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M/s. Overseas Leathers vs Deputy Commissioner of Income-tax
CITATION: 2023 TAXSCAN (ITAT) 884
Counsel for Appellant: Shri. D. Anand
Counsel for Respondent: Shri. P. Sajit Kumar
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