Stock difference should be taxed as business income and not unexplained investment: ITAT Chennai.

Taxation and Statutary Compaliances News

Ethiraj Hotel Mart (ITA No.: 1086/CHNY/2022)

⏩1. The appellant/assessee operates in the wholesale trading sector, dealing with stainless steel items, crockery, aluminium, and electric items. A survey was conducted at the business premises of the assessee.

⏩2. The AO concluded the assessment by noting that the physical stock at the business premises exceeded the inventory recorded during the survey. Upon comparing it with the stock in the books of accounts, the survey team identified excess stock valued at Rs. 1,04,00,600.

⏩3. Upon being notified, the assessee voluntarily included a sum of Rs. 1,04,00,600 for taxation. The assessee argued that the excess stock had been categorized as ‘business income’ and therefore should not be considered for addition under Section 69B of the Income Tax Act.

⏩4. However, the Assessing Officer (AO) determined that the excess stock should be treated as an unexplained investment under Section 69B and subjected to taxation according to the provisions of Section 115BBE. Consequently, the AO assessed the income offered during the survey as an unexplained investment and levied tax.

Note: The income earned from undisclosed sources is taxed at a flat rate of 60% under Section 115BBE, significantly higher than the normal rate.

ITAT Chennai held as under:
⏩1. The assessee has declared additional income attributable to excess stock discovered during the survey as arising from business income earned during the current year or previous year.

⏩2. The AO has not done anything to dispute the claim of the assessee that the source of excess stock was from the Business income.

⏩3. Thus, the admitted difference of Rs. 1,04,00,600 should be taxed as ‘normal business income’ and not as an ‘unexplained investment’ under Section 69B of the Income Tax Act.,

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