Excess stock surrendered during survey can be treated as unexplained income?
The ITAT bench of Indore in the case of- Brij Mohandas Devi Prasad v. DCIT,[ ITA No. 428/Ind/2022] has held that surrendered income on account of excess stock found during the course of the survey cannot be treated as unexplained income.
The issue was whether the excess stock found during a survey should be treated as undisclosed investment or as business income, and whether the provisions of section 69 or 69B r.w.s, 115BBE of the Income Tax Act are applicable in this case.
The ITAT bench has held that the excess stock found during the survey is not separately identifiable but is part of the overall physical stock found at the premises. It’s established that the excess stock is a result of suppressed business income accumulated over the years and is not separately identifiable. Therefore, the investment in the excess stock should be treated as business income rather than deemed income under sections 69 or 69B of the Income Tax Act and the provisions of section 115BBE do not apply to the surrendered income from excess stock. Therefore, the ITAT ruled in favor of the assessee and against the revenue, setting aside the orders of the authorities below on this issue.
The reliance was placed on the decision of Hon’ble Rajasthan High Court in Pr. CIT vs. Bajarang Traders (2017) 86 Taxmann.com 295 and Co-ordinate Bench of ITAT, Indore in ACIT vs. Shri Anoop Neema, ITA No. 05/Ind/2020 order dated 06.01.2022.
The case detail is as under:
Brij Mohandas Devi Prasad