Excess stock found during survey is taxable as business income and not as unexplained income under sections 69/69B: Jaipur ITAT
Across many 133A survey cases, taxpayers are seeing a default attempt to push surrendered income into sections 69/69B + 115BBE – straight to an effective 78% tax.
But recent ITAT rulings are quietly redrawing the line.
The Case in Focus – Business Income vs. Deemed Income
In a recent Jaipur ITAT matter (Nikhaar Fashions v. ACIT), the assessee, a partnership firm in designer sarees & lehengas, faced a 133A survey.
– Physical stock found: ₹3.14 crore
– Book stock: ₹2.14 crore
– Difference ~ ₹1 crore was surrendered during survey
In the return for AY 2017-18, this amount was offered as business income
The AO, however, treated the excess stock as unexplained investment u/s 69B and taxed it under section 115BBE as “income from other sources”, and CIT(A) confirmed.
The ITAT stepped in and held: this excess stock is part of regular trading activity and, in absence of any other source, it must be taxed as business income u/s 28, not as deemed income under sections 69/69B read with 115BBE.
Key Legal Takeaways for 133A / 115BBE Cases
1. Survey ≠ Automatic 115BBE: A 133A survey by itself does not trigger sections 69–69D or 115BBE. Deeming provisions require specific findings on unexplained nature of investment/money/expenditure.
2. Single Source? Then Business Income: If the assessee’s only source is business and: excess stock, excess cash, or unrecorded receivables are linked to that very business, courts/tribunals are consistently treating them as business income taxable at normal rates, not as deemed income.
3. Statement in Survey is Evidence, Not Final Fate
Statement under section 133A is an important piece of evidence – but not conclusive. Assessee can demonstrate: nature of surrendered item, and
that it arises from regular business operations.
4. 115BBE is a Special Charging Provision – Use is Narrow: Without clear material that the income is unexplained or from a source outside the books/business, blind application of 115BBE is not sustainable.
Have you faced 115BBE being invoked mechanically in a survey case? How did you approach the characterization of surrender in your assessment/appeal strategy?
The copy of the order is as under:
