Income Tax Appellate Tribunal - Pune
Dy. Commissioner Of Income Tax, Central ... vs Kirti Gold Limited , Latur on 6 May, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCHES "A", PUNE
BEFORE DR.MANISH BORAD, ACCOUNTANT MEMBER
AND SHRI VINAY BHAMORE, JUDICIAL MEMBER
आयकर अपील सं. / ITA No.411/PUN/2024
Assessment Year : 2019-20
DCIT, Central Circle-1, Vs. Kirti Gold Limited,
Aurangabad 78-C, Market Yard,
Kava Road, Latur-413512
Maharashtra
PAN : AAHCS7405B
Appellant Respondent
Assessee by : Shri Kishor B. Phadke
Revenue by : Shri Amol Khairnar
Date of hearing : 24.03.2026
Date of pronouncement : 06.05.2026
आदे श / ORDER
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The captioned appeal at the instance of Revenue pertaining to A.Y. 2019-20 is directed against the order dated 22.12.2023 framed by CIT(A), Pune-12 arising out of Assessment Order dated 22.09.2021 passed u/s.143(3) of the Income Tax Act, 1961 (in short 'the Act').
2. Revenue has raised following grounds of appeal :
"1. Whether on the facts and in the circumstances of the case, the ld.CIT(A) has erred in law and in facts by deleting the tax calculated on special rates as per provisions of section 69B r.w.s.115BBE of the I.T. Act on declaration made of Rs.40,12,36,100/- on account of excess stock found.
2. Whether on the facts and in the circumstances of the case and in law, the ld.CIT(A) has erred in law and in facts by not appreciating the facts that the assessee has failed to substantiate the source of excess cash found along with supporting documentary evidence, 2 ITA No.411/PUN/2024 Kirti Gold Limited
3. The appellant craves leave to add, alter, modify, delete and amend any of the grounds, as per the circumstances of the case."
3. Brief facts of the case as culled out from the records are that the assessee is a Limited Company engaged in manufacturing of vegetable crude oil and deoiled cake by processing oilseeds and cakes mostly made out of the soyabean seeds. A survey action u/s.133A of the Act carried out on 01.03.2019. During the course of survey, excess stock of soyabean seeds found at the business premises amounting to Rs.40,12,36,100/-. Assessee accepted unaccounted excess stock and offered it to tax in the return of income for A.Y.2019-20 furnished on 01.11.2019 declaring total income of Rs.45,29,85,860/-. Thereafter case selected for scrutiny as per the Manual Selection guidelines followed by validly serving notice u/s.143(2) of the Act. During the course of the assessment proceedings ld. Assessing Officer confronted the assessee with the statement recorded during the course of survey about the excess stock of soyabean seeds as to why not the same should be treated as deemed income u/s.69B of the Act. In response the assessee vide letter dated 17.09.2021 submitted that it is a business income arisen out of the regular business activity during the year and therefore the same needs to be assessed under the head profits and gains of business. Assessee also placed reliance on the decision of Coordinate Bench, Ahmedabad in the case of ACIT Vs. Hiren Jaswantrai Shah vs. DCIT 141 TTJ Ahmedabad 1 dated 21.01.2011, Coordinate Bench, Jaipur in the case of DCIT vs. Shri Ram Narayan Birla ITA No. 482/JP/2015 dated 30.09.2015. Assessee also relied on the judgment of Hon'ble 3 ITA No.411/PUN/2024 Kirti Gold Limited Rajasthan High Court in the case of CIT vs. Bajargan Traders (2017 86 taxmann.com 295 (Rajasthan) ITA No.258/2017 dated 12.09.2017 consistently holding that excess stock found during the course of survey is taxable under the head business and profession. However, ld. Assessing Officer was not satisfied with these submissions and has observed that merely providing the nature of activity/transaction resulting in undisclosed income which has been disclosed subsequently without proving the source also, will render such income still being classified as income from unknown/unexplained source under deeming provisions. Drawing inference from the Judgment of Hon'ble Madras High Court in the case of M/s.SVS oil mills vs. ACIT- Tax Appeal No. No.765/2018, ld. Assessing Officer treated the unaccounted excess stock as deemed income u/s.69B of the Act rws 115BBE of the Act. Relevant observation of the ld. Assessing Officer in para 4.4 of the assessment order reads as under :
"4.4. The above decision of Madras High Court also supports the view that mere subsequent recording in books of accounts for his business, does not take away such income representing undisclosed assets such as stock/ cash/money/ bullion etc. out of sweep of Section 69/69A/69B etc. and they do not ipso facto be treated as part of business income. Recording of such entries to make them as part of business income can be permissible only when the entries subsequently recorded as part of business transactions are based on other collateral evidences already found during search/ survey such as bills/ challans/ debit/ credit notes/ vouchers for expenses/receipts, funds being received/ transferred through banking channels, etc. even though not recorded in books till the date of survey. Therefore, unless the subsequent recording done in books of accounts maintained for any particular business/ profession and the same is supported by bills/ challans/ debit/credit notes/vouchers for expenses/ receipts, funds being received/ transferred through banking channels, etc. available during search/ survey, the linkage of such transactions/entries to the regular business income does not get established so as to take such transactions/assets to be part of the same business income for 4 ITA No.411/PUN/2024 Kirti Gold Limited which accounts were being maintained. Such income would fall into residual head of income and not as business income."
4. Ld. Assessing Officer accordingly concluded the assessment proceedings accepting the total income declared in the return but charged the unaccounted excess stock to tax as per provisions of section 69B rws 115BBE of the Act.
5. Aggrieved assessee preferred appeal before ld.CIT(A) and made following submissions :
"07. It was also claimed before then Assessing Officer that surrender income declared by the Appellant Company is part of the business activities and no other activities is carried out by the Appellant Company and also no material evidence brought on record by the either Survey party or the Assessing Officer. And as such the income declared in the nature of business income and the provisions of section 69 is not applicable. Consequently, the provision of section 115BBE is also not applicable in the Appellant Company's case.
08. That it was also claimed before the then Assessing Officer that during the course of survey action u/s 133A, in statement recorded by the survey party, it was explained source of investment in excess stock and no other incriminating material was found to establish investment in stock from undisclosed source of income. Thus nexus of investment in stock have been explained. Hence, now it cannot be held as unexplained investment in stock and taxing it u/s 69B of the I.T. Act, 1961.
09. It was also submitted before the then learned Assessing Officer that the alleged additional income on account of excess stock found is supported by the documentary evidence inventoried under annexure A1 containing list of purchases (called Zadati) which did not form part of the stock accounted in the books of accounts. Thus the assertion of the learned Assessing Officer in para 4.1 of not furnishing supporting documentary evidence with regard to unaccounted excess stock is baseless and as per whims.
Thus one of the requirements to repel the provisions of deemed income u/s 68 to 69D in respect of nature of transaction/activity assets is fulfilled. A documentary evidence in this regard is already seized by the survey party and placed under annexure A-1 to the statement recorded on 05/03/2019.5 ITA No.411/PUN/2024
Kirti Gold Limited As far as second requirement to repel the provisions of deemed income u/s 68 to 69D in respect of Source, and it was claimed before the learned Assessing Officer that nexus of surrendered income is established with name and identity, creditworthiness of persons which whom such activity/transaction was done. Details of the same was given in the annexure A-1 to the statement recorded by the survey team on 05/03/2019.
However, the learned Assessing Officer failed to consider the same and goes of treating the surrendered income as unexplained u/s 68 to 69D, which may kindly be dropped. This act is against natural justice and hence provisions of section 69B may kindly not to be applied.
10. That then learned Assessing Officer failed to appreciate contention and submission of the Appellant Company and goes on taxing the additional income u/s 69B by invoking section 115BBD of the Income Tax Act, 1961.
11. That in view of the above discussion, we humbly summarized glaring facts of the case as under.
a) A survey operation was carried out on business premises of Appellant Company and additional income was offered for taxation.
b) The additional income offered is disclosed in the regular return of income u/s 139(1) of the I.T. Act, 1961.
c) In compulsory scrutiny u/s 143(3) the Assessing Officer enumerated the twin requirement of to repel the provisions of deemed income u/s 68 to 69D i.e (i) it's nature and (ii) source, which had been fulfilled and placed to the file of the Appellant Company.
12. Without prejudice to the above claim, we humbly submit that jurisdictional Income Tax Appellate Tribunal, Pune authority adjudicated by holding that even if income is declared in survey is business income and rigors of section 115BBE cannot be applicable. In support of the above we are submitting herewith few case laws of jurisdictional Pune Income Tax Appellate Tribunal for your kind perusal as under.
a) The ITAT, Pune 'B' Bench in the case of Vijay Shriram Gundale Vs ACIT, Central Circle-1, ITA 79/PUN/2023 dated 03/08/2023, noted and observed that Assessee offered the excess stock as business income and not as unexplained investment. And Hon. ITAT Pune 'B' Bench ruled that excess stock should be treated as business income and provisions under section 69B should not apply.6 ITA No.411/PUN/2024
Kirti Gold Limited
b) The ITAT, SMC Bench, Pune in the case of Abhijit Vivek Swam Vs ACIT, ITA 319/PUN/2023 dated 21/04/2023, held that "though the assessee offered income during the course of survey and included it in his return of income the same does not fall for consideration u/s 68 so as to attract the rigour of section 115BBE of the Act. the income of Rs.
13,83,663/- was not properly taxed at the increased rate u/s 115BBE and was correctly offered by the assesse at the regular rate."
c) The ITAT, 'A' Bench, Pune in the case of Ashok K. Kriplani Vs DCIT, Central Circle-1, Nashik, ITA 252/PUN/2023 dated 03/07/2023, observed that ratio laid down by the Hon'ble High Court of Rajasthan in the case of Bajargan Traders (supra) which was followed by the Jodhpur Benches of Tribunal.
d) Similar observation was taken by the ITAT, Bench, Pune in the case of Ashokkumar Kesharchand Pande ITA 389/PUN/2023 dated 31/07/2023.
13. Further, we humbly submit that the several higher judicial authorities adjudicated that undisclosed income in the form the investment in stock are business income and cannot the taxed u/s 69 of the I.T. Act, 1961. In support of the above we are submitting herewith few case laws for your kind perusal.
i) The Hon'ble High Court of Rajasthan Bench at Jaipur in the case of Pt. Commissioner of Income Tax Vs Bajargan Traders Appeal No. 258/2017 observed in para 2.11 that the amount excess stock which has been found during the course of survey is clearly identifiable and related to the regular business stock of the assessee. And Hon'ble High Court clearly held that the investment in the excess stock has to be brought to tax under the head "business income" and not under the head "income from other sources".
ii) Similar view was taken by the Mumbai Benches of Tribunal in the case of Govind Godomal Lulla (supra) that undisclosed investment in the case of excess stock found during carrying on business and the same is generated out of business income, no provision of section 69 of the Income Tax Act would attract.
iii) Further, the Jodhpur Benches of the Tribunal in the case of Shri Lovish Singhal (supra) held the excess stock/cash found during the course of survey is taxable under the business and no provision u/s 115BBE of the Act is attracted.
7 ITA No.411/PUN/2024Kirti Gold Limited
iv) The ITAT, Indore Bench in the case of ACIT vs. Shri Anoop Neema, reported as 2022 9(1) TMI 683-ITAT Indore, held that explanation of source undisclosed investment in stock given and no incrimination documents found then cannot be treated as undisclosed income and provisions of section 115BBE is not applicable.
v) The ITAT, Chandigarh in the case of Famina Knit Fabs vs. DCIT reported in as (2019) 104 taxman.com 306 (Chandigarh - Trib) observed that surrendered additional income on of unaccounted receivable which is partly assessable as deemed business income and partly assessable as deemed income under section 68 to 69 as part of business income then amended provisions of section 115BBE is not applicable.
vi) Similar view was taken in the case of Jain Plywood ITA 588/CHD/2022 dated 27/07/2023 and it was held that :
"Stock physically found was value and then compared with stock as recorded in the books of accounts, thus, there was clear nexus of stock with the assessee's business. There is no finding that the difference in stock so found out by the authorities has any independent indent and the same was thus part and parcel of entire stock. Therefore, it cannot be said that there is an undisclosed assets which existed independently and thus, what is not declared ot the department is receipt form business and not any investment as it cannot be co-related with any specific asset and the difference should therefore be treated as undeclared business income rather than deemed income."
14. That it is settled principles of law that additional income declared on account of excess stock is business of the assessee. This proposition finds support from the following case laws :
a) DCIT (Central)-2, Indore Vs. Ashish Porwal ITA No. 185/Ind/2020.
b) Bajrang Traders vs. ACIT (Circle)-2 Alwar ITA no.
137/jp/17 dated 17.03.2017
c) DCIT (Central), Ajmer vs. Ramnarayan Birla (ITA No. 482/Jp/2018 dated 30.09.2016.
d) Fashion World vs. ACIT (Central)-12, Ahmedabad (ITA No. 1634/Ahd/2016 dated 12.02.2010.
e) Chokshi Hiralal Maganlal Vs. DCIT, Ahmedabad (ITA No 3281/Ahd/2009 dated 05.08.2011.
8 ITA No.411/PUN/2024 Kirti Gold Limited f) Shri Lovish Singhal Vs. ITO, Ward-2, Sriganganagar (ITA No 143/Jodh/2018 dated 25.05.2018 g) ACIT Vs. Sanjay Bairathi Gems Ltd. 189 TTJ 487/492 (Jp)
h) Md Serajuddin & Brothers Vs. CIT-24 Taxman.com 46 (Cal) 210 Taxman 84 (Cal)
i) Surekh Jewellers Vs. DCIT ITA No. 18/PN/2016 dated 12.06.2016. i)
j) M/s Solanki Jewellers Vs. DCIT IT No. 858PN72016 dated 18.11.2016
15. In view of the above, we claim and humbly submit that in present Appellant case also the Appellant Company offered additional income under the excess stock during the course of survey and in this respect entry was also made in the books of account during the financial year 2018-19 relevant to A.Y. 2019-20 and said additional income in the form excess stock offered for taxation under the head of "business income"
16. We claim that ratio laid down by the Hon'ble High Court of Rajasthan in the case of Bajargan Traders (supra) which was followed by Jurisdictional benches of Pune Tribunal, Mumbai Tribunalis similar and identical issue in Appellant Company's case. Hence, we humbly request your Honour to be kind enough to allow the appeal and direct the Assessing Officer to tax the additional income of Rs. 40, 12,36, 100/-at normal rate instead of special rate by invoking provision of section 115BBE.
17. Without prejudice to the above claim and submission ratio laid by the Hon'ble High Court of Rajasthan in the case of Bajargan Traders followed by the Jurisdictional Benches of Pune Tribunal and decision of Hon. Pune ITAT does have binding effect as being of JURISIDICATIONAL ITAT. Hence, we hereby humbly request your Honour to be kind enough to direct the Assessing Officer to treat the additional income of Rs.40,12,36,100/- in survey as income from business and taxing it at applicable rate
18. Further other ground of appeal is related to the charging of surcharge and Interest u/s 234 and consequential effect taxing additional income at applicable rate may kindly given.
19. Under such circumstances we request your Honour to be kind enough to allow the appeal of the Appellant Company.
9 ITA No.411/PUN/2024Kirti Gold Limited And if your Honour requires any further details or information, we shall be pleased to furnish the same and we request you to give us further opportunity to support our arguments."
6. On due considerations of the submissions of the assessee, ld. CIT(A) discussed the facts of the case at length and also dealt with judicial precedents in favour of the assessee as well as Revenue and came to the conclusion that at the time of survey operation the appellant company has offered additional income under the excess stock as part of the business activity as no other activity has carried out by the appellant company and in this respect entry was also made in the books of accounts during F.Y.2018-19 relevant to A.Y.2019-20 and the said additional income in the form of excess stock has been rightly offered to tax under the head business income and therefore cannot be taxed as deemed income u/s.69B rws 115BBE of the Act.
7. Aggrieved Revenue is now in appeal before this Tribunal. Ld. DR referred to the observation made by the ld. Assessing Officer and submitted that had the survey been not conducted at the assessee's business premises, excess stock would not have been offered to tax. He further submitted that the assessee failed to give any proper explanation about the nature and source of the excess stock of soyabean seeds found during the course of survey and therefore deeming provisions u/s.69B rws 115BBE of the Act applies on the excess stock offered by the assessee during the course of survey. Ld. DR relied on the following decisions :
10 ITA No.411/PUN/2024Kirti Gold Limited i. Hon'ble Punjab & Haryana High Court at Chandigarh in the case of PCIT Vs. M/s. Khushi Ram and Sons Foods (P) Ltd. judgment dated 21.07.2016 ii. Hon'ble Bombay High Court in the case of PCIT Vs. Kanak Impex (India) Ltd. - Income Tax Appeal No.791/2021 judgment dated 03.03.2025
8. On the other hand, ld. Counsel for the assessee firstly referred to the written submissions filed before the Assessing Officer on 17.09.2021 which reads as under :
"Respected Sir, Kind attention is invited to the above reference and subject, our authorized representative CA S.V. Gandhi attended on 16/09/2021. During the course assessment proceeding, it was asked by your Honour to explain and clarify as regard to applicability provisions of section 115BBE in respect of income surrender and declared during the course of survey action u/s 133A of the Income Tax Act, 1961. In this respect, we have to submit as under.
1) The Assessee Company is engaged in the manufacturing of vegetable crude oil and de-oiled cake by processing of oil seeds /oil cakes. The basic raw material is of Soyabean Seeds.
2) That survey action u/s 133A of the I.T. Act, 1961 was carried on the business premises of the Assessee Company on 01/03/2019.
During the course of survey action, Survey Officer found unaccounted excess stock of Soyabean Seeds in the business premises of the Assessee Company and same was inventoried and valued at Rs.40,12,36,100/-. Consequently, Assessee Company declared this amount as difference in stock for the year under consideration and said declaration was accepted by the Survey Officer. In response the Survey Officer released the stock after valuation and not impounded/seized. A statement of director Shri Arjun Bhutada of the Assessee Company was recorded on 01/03/2019, wherein in reply to question No.25., he has stated undisclosed income of Rs.40,12,36,100/- generated through unrecorded purchases of soyabean seeds. The survey team also seized the papers giving the details of soyabean seeds purchased.
3) That such excess stock is a business stock which has arisen out of the unrecorded business activity of purchases and therefore same needs to be assessed under the head profit and gains of the business. For the this purpose reliance is placed on the decision of ITAT Ahmedabad Bench in case of Chikshi Hiralal Maganlal vs. DCIT 141 TTJ (Ahd) 1 dt. 21/01/2011, wherein the Tribunal held 11 ITA No.411/PUN/2024 Kirti Gold Limited that excess stock found during the survey is not separately and clearly identifiable but is part of mixed lots of stock found at the premises which included declared stock as per books and also the excess stock as computed by the Survey Officers.
Recently, the Hon'ble ITAT Jaipur Bench in the case of DCIT vs. Ramnarayan Birla 482/JP/2015 dated 30.09.2016 in the similar facts held that the excess stock is to be assessed as part of the normal stock and to be taxed under the head income from business.
Similar view was taken by the Hon'ble Rajasthan High Court in the case of CIT vs. Bajrang Traders D.B. Income Tax Appeal No.258/2017 dated 12/09/2017 and observed that excess stock found during the course of survey and surrender made thereof was found to be taxable under the head business and profession'.
In view of the above, surrender income declared by the Assessee Company s part of the business activities and no other activities is carried out by the Assessee Company and also no material evidence brought on record by the Department. And as such the income declared in the nature of business income and the provisions of section 69 is not applicable. Consequently, the provision of section 115BBE is also not applicable in the Assessee Company's case. Hence, we humbly request your Honour provision of section 115BBE may not be applied in respect of surrendered income.
Such unrecorded excess stock of Soyabean Seeds amounting Rs.40,12,36,100/- brought on the books of accounts by crediting profit and loss account in para Revenue from Operations against ledger head Business income - undisclosed stock and enhancing the closing stock. Thus the unrecorded stock forms the part of the books stock which can be subsequently processed or sold out and profit / loss therefrom would to be subject to tax as any other normal business transactions.
4) That the such investment in undisclosed stock of Sobabean Seeds of Rs.40,12,36,100/- is clearly identifiable and related to the regular business stock of the Assessee Company. Therefore, the investment in the excess stock brought to tax under the head "business income". Accordingly, the appellant company offered the amount of R s.40,12,36,100/- for taxation as business income.
In response, the assessee company declared income from business activities at Rs.44,82,01,545/- and Short Term Capital Gain of Rs.47,84,310/-, aggregating Rs.45,29,85,855/-. This income includes amount of income of Rs.40,12,36,100/-, which surrendered u/s 133A of the I.T. Act, 1961.
In view of the above facts and circumstances of the case we submit and it was established in various judicial pronouncements cited above and recent judgment in the case of Lovish Singal vs. ITO, Sriganganagar ITA 143/Jodh/2018 dated 23/05/2018 and the 12 ITA No.411/PUN/2024 Kirti Gold Limited decision of Hon'ble Rajasthan High Court in the case of Bajrang Traders in Income Tax Appeal No. 258/2017 dated 12/09/2017 it was observed that the Hon'ble High Court in respect of excess stock found during the course of survey and surrender made thereof was found to be taxable under the head 'business and profession'.
Thus income surrender at Rs.40,12,36,100/- may not kindly be taxed u/s 69 and hence provision of section 115BBE may not be applied.
Hope the above explanation will suffice your Honour. We hereby request you to be kind enough to complete the assessment proceedings for AY 2019-20.
Thanking you, Yours faithfully For Kirti Gold Ltd."
9. Thereafter reference was made to the written submission filed before this Tribunal explaining the source of the excess stock and also on the taxability of excess stock as business income u/s.69B of the Act :
"1. Background Appellant is a public limited company, engaged in the manufacturing business of vegetable crude oil and de-oiled cake, by processing oil seeds and cakes made out of the grains, mostly Soyabean. A survey action u/s 133A of the ITA, 1961 was carried out on 01/03/2019, and books of accounts & other documents were impounded during the survey action. During the survey action, the I- T department observed existence of excess stock of Rs. 40.12 Cr, as compared to book stock. Survey statements of the directors and recording of stock at the time of survey are supplied as Sr. Nos 4 & 6 of the PB. The appellant, at the time of finalising the books for the year ending 31/03/2019, incorporated the stock of Rs. 40.12 Cr and related income was offered to tax as "business income", duly reflected in the financial statement and computation at Sr no 1 & 3 of PB. The case of the assessee was selected for scrutiny. Learned AO held that, the excess stock of Rs. 40.12 Cr was not fully disclosed in books of account, and hence, undisclosed income taxable u/s 698 of the ITA, 1961, instead of normal" business income". As a sequel, learned AO taxed the said amount of rs. 40.12 Cr at higher tax rates as per 115BBE, instead of normal tax rates applicable to routine "business income".
2. Decision of CIT(A) learned CIT(A) considered detailed submission of the assessee along with numerous decisions / judicial precedents, taking a vuew that, when, excess stock found during the survey is offered as normal business income, the same can't be 13 ITA No.411/PUN/2024 Kirti Gold Limited taxed u/s 69B of the ITA, 1961. Learned CIT(A) also held that, when primary onus is discharged by assessee, the further onus shifts to the I-T department. Learnd CIT(A) also took into account the declaration of additional stock found during survey, contentions that the said stock is its regular business stock, voluntary offered income, etc. and finally held that, the excess stock declared as additional income, is related to its business and ought not to be considered u/s 69B of the ITA, 1961.
3. Appeal of I-T department Subsequently, the I-T Department filed appeal before the Hon'ble ITAT, Pune, in which the following two (2) issues:
i) Appellant failed to substantiate the source of the excess stock
ii) CIT(A) erred in taxing as business income instead of 698
4. Explanations of the assessee-
a) Source of the excess stock:
Appellant submits that the survey action took place on 01/03/2019. Assessee, operating from mofussil area, was not having any real time integrated books and stock system. In fact, assessee was aiming to install a full-fledged ERP, which was an ongoing process at the time of survey. Assessee submits that the excess stock during survey was sourced from the current year's earnings /profits only. A comparable chart of the profits / earnings as compared to previous year's audited accounts was submitted during the course of hearing before Honourable ITAT, which is enclosed herewith as Annexure-1.
From the said Annexure-1, it will reveal that, during AY 2019-20, substantial saving has been ensured by assessee in various direct / indirect costs. This will be revealing from following favourable variances -
a) Material consumption: Sales ratio has improved,
b) spares consumption: Sales ratio has improved,
c) direct expenses: sales ratio has improved
d) Transport cost: Sales ratio has improved Even the interest cost of AY 2019-20 was lower than the corresponding interest cost of the earlier year. Now, all these cost savings were despite the increased sales volume. The sales revenue has increased from Rs. 318 CR (AY 2018-19) to Rs. 552 CR (AY 2019-20).
As an effect of increased sales volume and decreased costs, the GP ratio has increased from 5.50% (AY 2018-19) to 8.99% (AY 2019-20). Further, the net profit ratio has improved 0.95% to 8.05%. Such an increase of about 7% in net profit ratio itself, leads to additional 14 ITA No.411/PUN/2024 Kirti Gold Limited cash-flow of about Rs. 39 CR in AY 2019-20. Coupled with other routine profits and considering impact of depreciation of about Rs. 3 CR, assessee was having it's own business earnings, for increasing business activities further. Due to these favourable variances, indicating improved business profits / business earnings, assessee was having extra resources to be used for business purposes. Assessee, in normal course of business, kept on increasing the procurements of stocks of Soyabeen seeds, etc. which simply were reflected through the excess stock of Rs. 40.12 Cr. A copy of all the financial statements is enclosed at Sr. no 1 and 7 of PB.
b) Taxing as business income instead of 69B During the survey action, the department has found the stock of the soyabean which is essential commodity used in the business of the appellant also, it is mentioned that the survey was conducted on 01/03/2019 and at that time the books of accounts of the appellant was not completed and finalised. However, the appellant has incorporated all the stock available on the closing in the books of accounts for the current AY. Considering the usual growth in business, considering that no any adverse leading to any plausible undisclosed income, it was logical that, the stock of Rs. 40.12 CR be considered as normal "business income" as against taxation u/s 69B for alleged excess stock of which, sources can't be explained. Here was a case where, extra profitability leading to extra cash-flow flowing out of own business activity was the only reason for the declared stock of Rs. 40.12 CR. Further, the said excess stock was duly incorporated in books. In absence of any adverse findings during survey, and considering improved financial position, there was no reason to resort to section 69B. Assessee relied on the following precedents / court decisions, in which, it was held that the additional income declared in account of the excess stock is normal business and not any undisclosed income, and as such, section 69/69A/69B do not apply -
a) CIT vs Bajargan Traders [2017] 86 taxmann.com 295 (Rajasthan)
b) Surekh Jewellers vs DCIT ITA No. 18/PUN/2016
c) M/s Solanki Jewellers vs DCIT ITA No. 858/PUN/2016
10. In addition to the decisions referred in the written submissions filed by the assessee before the Assessing Officer as well as before this Tribunal, reliance also placed on the following decisions :
15 ITA No.411/PUN/2024Kirti Gold Limited i. DCIT vs Vaishali Agro Soya Products (ITA No. 634/PUN/2024) ii. Vijay Shriram Gundale vs ACIT (ITA No. 79/PUN/2023) iii. Yash Construction Co. vs ACIT (ITA Nos. 676 & 677/PUN/2024) iv. Anil Prabhakar Korgaonkar (HUF) vs ACIT (ITA No. 308, 1022 & 499/PUN/2006) V. Bajargan Traders vs ACIT (ITA No. 137/JP/17) vi. Ashok K. Kriplani (ITA Nos. 252 & 253/PUN/2023)
11. Ld. Counsel for the assessee also referred to the financial data of the Assessment Year under consideration and the immediately preceding year and stated that the turnover during A.Y.2018-19 has increased from Rs.318.06 crore to Rs.551.74 crore showing the growth of the turnover by Rs.233 crore. Purchases also increased from Rs.101.32 crores to Rs.328.33 crores. He also highlighted about the expenses on consumption of spares, power and fuel, transportation and freight and forwarding where due to increase in turnover the cost has drastically decreased and the assessee has saved cost almost around Rs.30 crore on account of increase in sales. Net profit before financial cost and depreciation has also increased from Rs.9.34 crore to Rs.48.89 crore. He stated that all the financial ratios have shown great improvement and since the books of account were not complete and the survey stands conducted on 01.03.2019 i.e a month prior to the closure of the year and the assessee had the time to file the regular return of income u/s.139(1) of the Act and offer the increased income to tax, the excess stock is basically the income generated during the year from reduction of expenses and that source of excess stock is the business income generated during the year and therefore it has to be treated as business 16 ITA No.411/PUN/2024 Kirti Gold Limited income and not as deemed income u/s.69B rws 115BBE of the Act.
12. We have heard the rival contentions and perused the record placed before us and carefully gone through the decisions relied on by both the sides. The only issue under consideration raised by the Revenue is that ld.CIT(A) erred in treating the unaccounted excess stock of Rs.40,12,36,100/- as business income as against the deemed income u/s.69B rws 115BBE of the Act by the Assessing Officer. We note that the assessee is a Limited Company and is engaged in the manufacturing business of vegetable crude oil and deoiled cake. In the survey action conducted on 01.03.2019, as per the physical stock take value of soyabean seeds located at factory premises, i.e. C-17 old MIDC, Latur and at Boramani, Solapur amounted to Rs.40,79,81,728/- and Rs.1,77,42,450/-. The regular books of account were not updated and Tentative Trading account was prepared showing closing stock of Rs.2,44,88,178/-. Thus, value of excess stock of soyabean seeds arose of Rs.40,12,36,100/-. There is difference between the actual stock found and the stock as per Tentative Trading account. Assessee has offered excess stock as business income and paid the due tax but ld. Assessing Officer treated as deemed income u/s.69B rws 115BBE of the Act. Before ld.CIT(A) assessee made detailed submissions along with reliance placed on plethora of decisions including that of Hon'ble Rajasthan High Court in the case of CIT Vs. Bajargan Traders (2017) 86 taxmann.com 295 (Rajasthan) holding that excess stock found during the course of survey and surrender of income thereof is taxable under the head 17 ITA No.411/PUN/2024 Kirti Gold Limited business and profession. Ld.CIT(A) has dealt with the facts of the case as well as judicial precedents and has held that the alleged unaccounted excess stock is business income liable to normal taxation and not to be treated as deemed income u/s.69 rws 115BBE of the Act. Relevant finding of ld.CIT(A) reads as under :
"Findings:
7. I have considered the facts of the case and the submissions made by the appellant. The issue involved in this appeal is that when there is a survey action wherein certain undisclosed income is found, under which head can it be brought to tax and at what rate, the tax should be charged. This issue has been discussed by various High Courts and Tribunals from time to time and depending on the facts of the case, it was decided as to whether such income was taxable as 'business income' or 'deemed income assessable u/s 68, 69 or 69A to 69D of the Act. Some of these decisions are discussed as under:
Decisions where it was held that the surrendered income is taxable under the provisions of section 68, 69, 69A to 69D of the Act:
8.1 The Hon'ble Gujrat High Court in case of Fakir Mohmed Haji Hasan vs CIT 120 TAXMAN 11 (Gujarat)had to decide question whether value of gold found during search is to be included in income where no explanation about source of investment made is provided. The Hon'ble High Court was also concerned with the question whether any deduction in relation to confiscated gold is to be given. The relevant assessment year was AY 1984-85 (i.e. prior to introduction of section 115BBE in the Act). The facts disclosed in customs proceedings, which were relied on in the income tax proceedings were that specific information was received by the Customs Department indicating that the taxpayer would bring imported gold in his car and would make delivery thereof. The car was seized and at that time during search gold bars of foreign markings were recovered. A bag containing currency notes was also recovered. The statements which were recorded under section 108 of the Customs Act were considered in the adjudication proceedings.
The Hon'ble High Court upheld the decision of Tribunal that the value of gold was liable to be included in the income of the assessee as the source of investment in the gold or of its acquisition was not explained and that the assessee was not entitled to claim that the value of the gold should be allowed as a deduction from his income. The relevant portion of the judgement is as under.
18 ITA No.411/PUN/2024Kirti Gold Limited
6. Under section 4 of the Act, income-tax is to be charged in accordance with the provisions of the Act in respect of the total income of the previous year of every person. As provided by section 5 of the Act, total income of any previous year of a person would, inter alia, include all income from whatever source derived which is received or is deemed to be received by such person, subject to the provisions of the Act. It will be seen from section 69A that where the bullion, jewellery or other valuable article is not recorded in the books of account and there is no explanation about the nature and source of its acquisition, or the explanation is not satisfactory, the value thereof may be deemed to be the income of the assessee of the financial year immediately preceding the assessment year in which the assessee is found to be the owner of such bullion, etc. 6.1 The scheme of sections 69, 69A, 69B and 69C of the Act would show that in cases where the nature and source of investments made by the assessee or the nature and source of acquisition of money, bullion, etc., owned by the assessee or the source of expenditure incurred by the assessee are not explained at all, or not satisfactorily explained, then the value of such investments and money, or value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. However, when these provisions apply because no source is disclosed at all on the basis of which the income can be classified under one of the heads of income under section 14 of the Act, it would not be possible to classify such deemed income under any of these heads including "Income from other sources" which have to be sources known or explained. When the income cannot be so classified under any one of the heads of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any one of those heads by virtue of a satisfactory explanation being given, then these provisions of sections 69, 69A, 69B and 69C will not apply, in which event the provisions regarding deductions, etc., applicable to the relevant head of income under which such income falls will automatically be attracted.
6.2 The opening words of section 14 'Save as otherwise provided by this Act' clearly leave scope for 'deemed income' of the nature covered under the scheme of sections 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from 'other sources' because the provisions of sections 69, 69A, 698, and 69C treat unexplained investments, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not 19 ITA No.411/PUN/2024 Kirti Gold Limited been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head, 'Income from other sources. Therefore, the corresponding deductions, which are applicable to the incomes under any of these various heads, will not be attracted in case of deemed incomes which are covered under the provisions of sections 69, 69A, 69B and 69C in view of the scheme of those provisions.
7. It is, therefore, clear that, when the investment in or acquisition of gold, which was recovered from the assessee was not recorded in the books of account and the assessee offered no explanation about the nature and source of such investment or acquisition and the value of such gold was not recorded in the books of account, nor the nature and source of its acquisition explained, there could arise no question of treating the value of such gold, which was deemed to be the income of the assessee, as a deductible trading loss on its confiscation, because such deemed income did not fall under the head of income 'Profits and gains of business or profession'.
8. In our opinion, therefore, the Tribunal was perfectly right in holding that the value of the gold was liable to be included in the income of the assessee as the source of investment in the gold or of its acquisition was not explained and that the assessee was not entitled to claim that the value of the gold should be allowed as a deduction from his income.
8.2 The Hon'ble Punjab and Haryana High Court in case of Kim Pharma Pvt Ltd vs. CIT [2013] 216 Taxman 153 (P&H), has held that where amount surrendered during survey was not reflected in books of account and no source of income from where it was derived is declared by the taxpayer then it was assessable as deemed income of the assessee u/s 69A of the Act and not as business income.
8.3 The Hon'ble Madras HC in case of M/s. SVS Oils Mills vs. ACIT [2020] 113 taxmann.com 388 (Madras), has held that where there was a clear admission by assessee firm that excess stock found during survey was added in its stock register but no corresponding entry was passed in books of account, it could be considered that investment in such stock was made out of undisclosed source. Thus, addition was to be made under section 69B in respect of such excess stock.
Decisions where it was held that sections 68, 69, 69A to 69D are not applicable:
9. On the other hand, in following decisions, it was held that sources of surrendered/ undisclosed income are explained, deemed income provisions under sections 68, 69, 69A to 69D are not applicable and consequently, tax rate u/s 115BBE is also not applicable.
9.1 The Hon'ble Rajasthan High Court in case of CIT vs Bajargan Traders [2017] 86 taxmann.com 295 (Rajasthan) has held that when 20 ITA No.411/PUN/2024 Kirti Gold Limited the assessee is dealing in sale of food grains, rice and oil seeds and the excess stock which is found during survey is stock of rice then, it can be said that investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. Therefore, the investment in the excess stock is to be brought to tax under head "business income" and not under the head income from other sources.
9.2 In case of Shri Lovish Singhal vs ITO (ITA No 142 to 146/Jodh/2018 for AY 2014-15 dated 25 May 2018), the Jodhpur Tribunal applying the proposition of law laid down by the Hon'ble Rajasthan High Court in the Bajargan Traders (supra), held that the lower authorities were not justified in taxing the surrender made on account of excess stock and excess cash found U/s 69 of the Act and accordingly held that there is no justification for taxing such income U/s 115BBE of the Act.
9.3 In case of Oberoi Motors vs ACIT [ITA No. 3512/Del/2018 AY 2012-13 dated 16 July 2021), the taxpayer had declared surrendered income after set-off of business loss. The lower authorities did not accept the above treatment and held that the surrendered amount is deemed income and does not fall under any of the head of income and therefore no set off of business losses could be allowed. The Hon'ble Tribunal held that as the assessee had already introduced the transactions in books of accounts, it would not be reasonable to say that such income does not fall under any of the head of income or that such deemed income does not allow any set off of business losses. Accordingly, the Tribunal accepted that the surrendered income amounts to business income.
9.4 In case of DCIT vs Ram Narayan Birla (ITA No. 482/JPR/2015 for AY 2011-12 dated 30 September 2019), also on the surrendered stock during search or survey action, it was held that the Revenue had not pointed out that the excess stock had any nexus with any other receipts found. Hence, the surrendered excess stock considered at par with the other business stock.
10. It can be seen from the above judicial precedents that whether the undisclosed income found during the search or survey action is taxable under any of the five heads of income as specified in section 14 of the Act or it is to be taxed as 'deemed income taxable under section 68 to 69D of the Act', is essentially a question of fact and it entirely depends on whether the assessee has been able to satisfactorily explain the source of such undisclosed income or not. If, a satisfactory explanation is provided about the nature and the source, in that case the source would stand explained and therefore, the income would be computed under the appropriate head of income as per the provisions of the Act. However, when no source is explained based on which the income can be classified under any of the heads of income specified under section 14, then it would be classified as deemed income and shall be taxed as per the rates provided under section 115BBE of the Act.
21 ITA No.411/PUN/2024Kirti Gold Limited
11. It is also important to mention here that the Hon'ble Supreme Court in case of Kale Khan Mohammad Hanif vs CIT [1963] 50 ITR 1 (SC) held that onus of proving the source of a sum of money found to have been received by the assessee is on him. However, if the taxpayer disputes the levy of tax on the same then it is up to him to show either the receipt is not income, or it is exempt from taxation under the provisions of the Act. In the absence of proof, the tax officer is entitled to treat the same as taxable income. Thus, the onus of explaining the source of undisclosed income found during search or survey is on the assessee and not the other way. In other way, the onus of proving that the income detected is not taxable under sections 68, 69, 69A to 69D read with section 115BBE is on the assessee.
12. To sum up, before assessing the surrendered income under sections 68, 69, 69A to 69D and levy of higher rate of tax u/s 115BBE, following factors are required to be considered -
• Whether nature of income is clearly explained during the survey or during assessment proceedings • Whether income can be classified under a particular head of income based on nature so as to demonstrate that it is flowing from one of the specific sources of income of the assessee • Whether supporting evidences for the above are available because the onus to satisfactorily explain the nature and source is on the assessee
13. The facts of the present case suggest that at the time of the survey operation the appellant company has offered additional income under the excess stock is part of the business activities and no other activity is carried out by the appellant company and in this respect entry was also made in the books of account during the financial year 2018-19 relevant to assessment year 2019-20 and said additional income in the form excess stock was offered for taxation under the head of 'business income'.
14. In the present case, the appellant had confirmed in its statement that this unrecorded/excess stock was its regular business income. The relevant portion of the statement is as under.
"Q.No.26: Do you want to say anything else?
Ans: Yes, I, voluntarily offer an additional income of Rs. 40,12,36,100/- for our company M/s. Kirti Gold Ltd in addition to the regular business income for A.Y. 2019-20 and I have paid the tax of Rs. 3,00,00,000/- today and the challan is furnished herewith. As fa as the remaining tax amount is concerned I assure to pay the due taxes on this additional 22 ITA No.411/PUN/2024 Kirti Gold Limited income declared. I hereby confirm that enough rest was given to me while recording this statement".
The above reply clearly indicates that the appellant has established that the investment in the excess stock was its regular business income. Thus, the appellant company filed its return of income on 01.11.2019 wherein the said additional income of Rs. 40,12,36,100/- was declared as income from business and paid the taxes at normal rates.
15. For this proposition the appellant has relied upon the following jurisdictional Hon'ble ITAT, Pune decisions.
a) Vijay Shriram Gunadale Vs ACIT, Central Circle-1 Pune vide ITA 79/PUN/2023 dated 03.08.2023, which was held that assessee offered the excess stock as business income and not as unexplained investment. Thus, excess stock should be treated as business income and provisions under section 69B should not apply.
b) Abhijit Vivek Swam vs ACIT vide ITA 319/PUN/2023 dated 21.04.2023, which was held that "though the assesse offered income during the course of survey and included it in his return of income the same does not fall for consideration u/s 68 so as to attract the rigour of section 115BBE of the Act. the income of Rs. 13,83,663/-was not properly taxed at the increased rate u/s 115BBE and was correctly offered by the assesse at the regular rate."
c) Ashok K Kriplani Vs DCIT, Central Circle-1, Nashik vide ITA 252/PUN/2023 dated 03.07.2023, observed that ratio laid down by the Hon'ble High Court of Rajasthan in the case of Bajargan Traders (supra) which was followed by the Jodhpur Benches of Tribunal.
d) Ashokkumar Kesharchand Pande vide ITA 389/PUN/2023 dated 31/07/2023
16. The appellant has also submitted that it is a settled principles of law that additional income declared on account of excess stock is business of the assessee unless proved otherwise. This proposition finds support from the following case laws.
a) DCIT (Central)-2, Indore Vs. Ashish Porwal ITA No. 185/Ind/2020.
b) Bajrang Traders vs. ACIT (Circle)-2 Alwar ITA no. 137/jp/17 dated 17.03.2017
c) DCIT (Central), Ajmer vs. Ramnarayan Birla (ITA No. 482/Jp/2018 dated 30.09.2016.7 23 ITA No.411/PUN/2024 Kirti Gold Limited
d) Fashion World vs. ACIT (Central)-12, Ahemedbad (ITA No. 1634/Ahd/2016 dated 12.02.2010.
e) ChokshiHiralal Maganlal Vs. DCIT Ahemadabad (3281/Ahd/2009 dated 05.08.2011.
f) Shr iLovish Singhal Vs. ITO, Ward-2, Sriganganagar (ITA No 143/Jodh/2018 dated 25.05.2018
g) ACIT Vs. Sanjay Bairathi Gems Ltd. 189 TTJ 487/492 (Jp)
h) Md Serajuddin & Brothers Vs. CIT-24 Taxman.com 46 (Cal) 210 Taxman 84 (Cal)
i) Surekh Jewellers Vs. DCIT ITA No. 18/PN/2016 dated 12.06.2016.
j) M/s Solanki Jewellers Vs. DCIT IT No. 858PN72016 dated 18.11.2016
17. In view of the above discussion and the above judicial pronouncements, it is held that the impugned amount of Rs. 40,12,36,100/- cannot be taxed as deemed income u/s 69B of the Act as done by the assessing officer. Accordingly, the provisions of section 155BBE cannot be made applicable to the income of Rs. 40,12,36,100/-. Thus, the grounds no. 1 to 3 raised by the appellant are hereby allowed."
13. Now in light of the above settled judicial precedents referred by ld.CIT(A), we further take note of the financial data of the assessee company for the year under consideration as well as preceding year. It is noted that the assessee is a Limited Company and mainly engaged in the business of manufacturing vegetable crude oil and deoiled cake and major activity is crushing of soyabean seeds for making the oil. Admittedly, Limited Companies are required to follow various procedures and norms fixed by the SEBI and details are to be furnished on periodical basis. Ld. Counsel for the assessee has highlighted the drastic increase in the total turnover of the asseessee company, which shooted up from Rs.318.06 crore during F.Y. 2017-18 to Rs.551.74 crore from F.Y. 2018-19 24 ITA No.411/PUN/2024 Kirti Gold Limited relevant to A.Y. 2019-20. Sales have increased by almost Rs.234 crores. Increased sales has also given rise to increased net profits and with utmost utilisation of the installed capacity assessee has also successfully saved by proportionately decreasing the expenses. Books of account were not completed on the date of survey as the financial year 2018-19 has not closed and assessee had sufficient time to complete the books, get them audited and file the return of income for impugned assessment year. Net profits have also increased from approximately Rs.9.34 crore to Rs.48.89 crore. Excess stock taken up by the survey team is also not based on the actual Stock Register but is on the Tentative Trading account which means that the GP rate of the earlier period have been applied to calculate the closing stock on the date of survey.
14. We also observe that daily reports are prepared for the purchase of soyabean showing the Goods GR No., Name of party, station, broker, Truck numbers, Bags, Quantity and thereafter the shortages at the time of accounting the receipt of goods. These daily reports are part of the records seized during the course of survey and placed at paper book from pages 42 to 67. These details indicate that the major purchases of the assessee are soyabean seeds and the details of such purchases are mainly for the year under consideration during which the goods have moved into the assessee's factory premises. One fact which has been placed before us by the ld. Counsel for the assessee is that the life cycle of the soyabean seeds is only 7-8 months and such soyabean seeds have to be crushed within this period to manufacture the oil. Basically, in the stock cycle, the raw material is purchased, put into the 25 ITA No.411/PUN/2024 Kirti Gold Limited manufacturing system, finished goods are produced and in the meantime when the sales are realised or funds are arranged the assessee again makes the purchases and carries on the cycle. Now the Tax Audit report provides the quantitative details of the main raw material of soyabean seeds showing that all the figures in Tonnes and opening stock is 1752 purchases during the year is 56640 and consumption is 55898 and closing stock at 2493. This shows that major part of the purchases during the year have been consumed to manufacture the finished goods. Excess stock in the instant case is of soyabean seeds. Their purchases have been made majorly during the year and therefore the source thereof is from the income earned during the year. There is no indication as to any unaccounted income of the preceding years having been utilised for making the purchases of soyabean seeds. There is no other business activity/source of income of the assessee company. These facts indicate that due to increased turnover the business cycle of the assessee moved faster, profits increased due to saving in expenses therefore the fresh purchases were made and by the time assessee could prepare the final books of account and offer the income to tax, rather much prior to the closing of the financial year survey has been conducted. Considering all these facts including the drastic increase in the turnover, improved gross profit and net saving in expenses, profit rate, the life cycle of the soyabean seeds brings us to the conclusion that unaccounted business income earned during the year has been applied for making the purchases of soyabean seeds therefore the source of unaccounted excess stock is the business income for the year which has been duly offered to 26 ITA No.411/PUN/2024 Kirti Gold Limited tax in the return of income. It is also an admitted fact that the excess stock has been calculated by the survey team based on the closing stock figure of the Tentative Trading account which is normally on estimate basis. Even the key person of the assessee company has also referred to the transactions entered in the Zadti which is basically the complete record maintained for purchase of soyabean seeds and each transactions in the daily report are accounted for in the regular books of account before the closure of the financial year. Coming to the judicial precedents, we note that Hon'ble Rajasthan High Court in the case of Bajargan Traders (supra) confirmed the decision of Coordinate Bench, Jaipur in the case of Shri Ram Narayan Birla while dealing with similar issue in the case of assesseee dealing and has held that investment in such procurement of stock rise is identifiable and related to the regular business stock of the assessee and that the investment in excess stock has to be taxed under the head business income.
15. We further take note of the decision of this Tribunal in the case of Late Harilal Mavjibhai Patel vs. ACIT - ITA No.2698/Pun/2024 order dated 25.04.2025 where also the similar issue of treatment of excess stock as income from other sources by the Assessing Officer as against the business income contended by the assessee. Finding of Tribunal reads as under :
"6. We have heard the rival contentions and perused the record placed before us. The only issue for our consideration is whether the ld.CIT(A) was justified in affirming the action of the AO of treating the excess stock as income from other sources and applying tax rate u/s.115BBE of the Act as against the excess stock being declared 27 ITA No.411/PUN/2024 Kirti Gold Limited as regular business income by the assessee and having paid normal taxes. We notice that the assessee was subjected to survey proceedings u/s.133A of the Act on 13.02.2019. Stock of the assessee was located at multiple godowns and in total there are 11 locations where the stock of the assessee was kept and further going through the paper book at pages 40 to 49 we notice that the excess stock in hand contains various items based on thickness/size/measurement and are hundreds in numbers. Further, we also notice that assessee was not maintaining regular quantitative stock records and the survey team estimated the opening stock as on 13.02.2019 on the basis of tentative trading account. Undisputedly, excess stock of Rs.40,05,210/- was calculated by the survey team and the same was accepted by the assessee as normal business income and duly offered to tax by including the excess stock in its profit and loss account and paying due taxes. Now during the course of survey the assessee was confronted with the issue of excess stock. Reply of the assessee to question No.20 is relevant wherein it was specifically asked to explain the difference of excess stock and the same reads as under :
Q.No.20 On going through the tentative Trading Account in respect of M/s. Kaneeta Enterprises, it is seen the stock as on 12.02.2019 is at Rs.49,05,313/- whereas the stock as per the inventories recorded by the survey party totals to Rs.89,10,523/. Thus, there is a difference of Rs.40,05,210/.
Please explain the difference.
Ans. The excess stock found of Rs.40,05,210/ at the business and godown premises during the survey is not separately and clearly identifiable. but is a mixed part of lots of stock found at the business and godown premises which includes other regular stock also. The resultant difference in stock may be on account of various reasons. However, to cover up the irregularities, the resultant so-called difference in stock worked out on the basis of tentative Trading Account is offered to tax as our regular business income over and above current year's (i.e. AY 2019-20) normal income."
7. Now from going through the above reply of the assessee given during the course of survey and also considering the estimated opening stock as on the date of survey calculated by the survey team, huge number of items of stock held at the assessee's business premises located at 11 locations, we find that the assessee has duly explained the source of excess stock and same is from business income and is therefore liable to be taxed as regular business income and both the lower authorities have erred in treating it as income from other sources and taxing the assessee u/s.115BBE of the Act. Our view is further supported by the recent decision of Coordinate Bench in the case of Kolhapur Timber And Furniture Mart Vs. ACIT vide ITA No.2697/Pun/2024 order dated 27.03.2025 where also similar issue has been raised and this Tribunal after 28 ITA No.411/PUN/2024 Kirti Gold Limited referring to various decisions and decided the issue in favour of the assessee holding that the source of excess stock is business income observing as follows :
"8. We have heard rival contentions and perused the record placed before us. The only issue for our consideration is whether the value of excess stock found at the premises of the assessee during the course of survey u/s 133A of the Act on 12.02.2019 is to be treated as 'business income' or 'income from other sources'. We note that the assessee is a partnership firm and its only source of income is from machinery packing small furniture items, small cupboard etc. and other packing material. The alleged excess stock was calculated by the Department on the basis of Tentative Trading Account prepared on the date of survey. During the course of survey, the assessee was asked to explain the difference found in the stock of Rs.50,05,145/-. It was specifically stated in reply to question no.20 that the stock at the business showroom and godown premises are not separately and clearly identifiable but it is mixed part of lots of stock which includes regular stock also. It was further stated that the resultant difference in stock is part of business income and will be offered to tax as regular business income.
9. We further notice that the nature of business of the assessee is such that full sheet of timber, rubber ply or other material is taken as cost for deciding/quoting sale price, but actually pieces and parts remains which are used and because of this reason gross profit is estimated and specific detail of each and every small items could not be prepared. We further notice that no incriminating document/evidence was found during the course of survey which could prove that there were some out of record transactions carried out by the assessee or proof of any other undisclosed income. Also no other document was found towards unrecorded sales/unrecorded purchases. Considering the facts and circumstances of the case, in our considered view, source of alleged excess stock is business income and the assessee had given necessary explanation to explain the excess stock.
10. We are thus of the considered view that the excess stock found during the course of survey is from regular business income of assessee firm having no other source of income and has been rightly disclosed at business income in the audited financial statements as well as computation of income as business income and both the learned lower authorities erred in treating it as income from other sources and further erred in invoking section 68 r.w.s. 115BBE of the Act. Under similar set of facts and circumstances, this Tribunal in plethora of decisions have consistently held that if the unexplained income is from business sources then section 115BBE cannot be invoked. We would like to reproduce below to finding of Co-ordinate Bench of Indore Tribunal in the case of M/s. Suresh Aluminium vs. ACIT vide ITA No.62/Ind/2024 dated 09.08.2024 and the same reads as under :-
"6. I have heard rival contentions and perused the record placed before me and have carefully gone through the decisions referred and relied by both the sides. The only issue for my 29 ITA No.411/PUN/2024 Kirti Gold Limited consideration is that whether Ld. CIT(A) erred in confirming the action of the Ld. A.O applying the provisions of Section 115BBE of the Act for taxing the surrendered income in the form of excess stock at Rs.52,25,297/- found during the course of survey u/s 133A of the Act. I observe that the assessee has accepted the excess stock and have offered it to tax and paid due taxes as per the normal provisions of Income Tax Act. Ld. A.O invoked provisions of Section 115BBE of the Act treating the surrendered income as unexplained investment and thus calculated the tax on higher rate as provided u/s 115BBE of the Act.
6.1 The question before me is whether the surrendered income is to be treated as 'business income or as Income from other source u/s 69 of the Act'. For this the nature of surrendered income needs to be examined. Undisputedly except the physical stock taken and calculation of excess stock, no other incriminating material was found during the course of survey nor any other reference to any evidence has been made in the assessment order which could indicate that the assessee carries out any other activity or has income from any other source. Now coming to the surrender of excess stock, I note that on the day of survey physical stock was taken and as per the inventory of stock sheet placed at page 37 of paper book 6 items are mentioned and after taking the quantity and applying the rate, value of physical stock calculated at Rs.79,84,723/-. Now for calculating the excess stock, survey team has to take note of the value of stock shown in the books of accounts. Now the assessee admittedly is not maintaining the stock records. This fact is proved firstly, at the time of survey no stock record was found and secondly even in the tax audit report, auditor has not mentioned about any stock records being maintained by the assessee nor any quantitative details is appearing in Form 3CD annexed to Form 3CB. The assessee admits to be calculated the closing stock on an estimated basis applied the method cost or market value, whichever is less and taking gross profit rate into consideration. In other words the closing stock is estimated by the assessee. Now on the date of survey when the survey team noticed that assessee is not maintaining any stock records then they based on the records of opening and closing stock as well as gross turnover calculated the stock in hand as per books as on 27.02.2019 at Rs.27,59,426/- and same is referred in Question-18 in the statement recorded during the survey proceedings (copy placed at page-35 of the paper book). I find that there is no calculation by the survey team as to how they arrived at the book stock of Rs.27,59,426/-. It itself proves that survey team has estimated the stock in hand and then calculated the excess stock after reducing the value of physical stock calculated by them. Now the Ld. A.O has invoked the provisions of Section 69 of the Act which provides that "where in the financial year immediately preceding the assessment year, the assessee has made investment which are not recorded in the books of accounts, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of 30 ITA No.411/PUN/2024 Kirti Gold Limited investment or explanation offered by him, is not in the information of the A.O, satisfactory the value of the investments may be deemed to be the income of the assessee of such financial year'. So far as the contentions of the Ld. Counsel for the assessee, it has been claimed through out the proceedings and further supported by the affidavit placed before Ld. CIT(A) that there is no unexplained investment but it is purely business income which accumulated from past period and now offered to tax. Now provisions of Section 69 of the Act comes into play when there are certain investment which are not recorded in the books of accounts but in the case of the assessee since the stock records are not maintained and they are merely estimated there is no concrete evidence of any unaccounted investment in stock. Had there been the stock records available at the time of survey and the quantitative details of the same was available in the stock records and then during the course of survey if the excess stock in quantitative form had been found then the case of the revenue could have been more stronger.
6.2 But in the instant case I observe that the assessee estimated the stock at the year end and even the revenue authority have estimated the stock in hand on survey date at Rs.27,59,426/-. But the method applied by survey team for calculating such stock and whether it was actually the stock as per books is nowhere discernable from the records. Further it is also noted that no other incriminating material was found during the survey proceedings. So in all it is purely an exercise based on estimation and there is no concrete evidence put-forth by the revenue authorities which could support their action of treating the alleged surrender as Income from other sources and not business Income for invoking Section 115BBE of the Act.
6.3 Under these given facts and circumstances I find that the alleged sum surrendered by the assessee was only to buy peace of mind and it was admittedly business income which has been offered to tax and by no canon can be treated as unexplained investment u/s 69 of the Act. Ld. CIT(A) thus erred in confirming the addition of Ld. A.O of taxing the excess income as per the provisions of Section 115BBE of the Act. Though plethora of decisions have been referred by Ld. Counsel for the assessee which supports the view taken by me, however I would like to first refer and rely to the finding of this Tribunal in the case of Italian Edibles Pvt. Ltd (supra) wherein the Tribunal referring to plethora of decisions held as under:
"11. Therefore, once the facts emerging from record shows that the excess stock found during survey was a part of entire lot of stock of assessee, part of which is recorded in books of account and part of the same was not found recorded and therefore, treated as excess stock at the time of survey and consequently surrendered by the assessee and also offered to tax in the return of income then the excess stock cannot be treated as deemed income u/s 69 or 69B 31 ITA No.411/PUN/2024 Kirti Gold Limited of the act in view of the judgment of Hon'ble Rajasthan High Court and Coordinate Bench of this Tribunal cited above. Accordingly, this issue is decided in favour of the assessee and against the revenue. The orders of the authorities below qua this issue is set aside. The assessee succeeds to this extent. Accordingly in the facts and circumstances of the case and by following the decision of this tribunal in M/s Brij Mohandas Devi Prasad (supra), we do not find any error or illegality in the impugned order of the CIT(A) same is upheld."
6.4 Further reliance is placed on the following finding given in the decision of this Tribunal in the case of DCIT V/s Krishna Kumar Verma (supra) as under:
"7. After considering the above factual matrix of the case now we proceed to consider the proposition relied by learned representative of both the sides. The Ld. Senior DR has relied on the judgment of Punjab & Haryana High Court in the case of Kim Pharma (P.) Ltd. vs. CIT(supra) to submit that where the amount surrendered during survey was not reflected in the books of accounts and no source from where it was derived was declared by the assessee, then it is assessable as deemed income of assessee u/s. 69A of the Act and not as business income. In this case the Assessing Officer made addition of surrendered amount u/s. 69 of the Act as the assessee could not explain the source from where it was derived by the assessee. In the present case undisputedly the Assessing Officer has not made any addition u/s. 69 or any provision of the Act and has accepted return income of the assessee. In the present case we are in agreement with the contention of the learned AR that the orders of the authorities below clearly reveal that the amount of excess stock & excess cash found during the course of survey business income of the assessee as the assessee is in the business of trading in jewellery, metal of bullion and the excess stock found during the search & survey was accumulated from transaction of metal of bullion carried out in the forward community trading and mediation and the same was surrendered as excess stock and offered to taxation as business of the assessee. The Ld. CIT(DR) could not dislodge the contention and observations of the Ld. CIT(A) that the surrendered amount was pertaining to excess stock & excess cash which was business income of the assessee and such additional income offered by the assessee for taxation was nothing but business income of the assessee. Therefore it was offered for taxation under the head income from business and profession. In the present case since the assessee in his statement recorded during the course of search & survey explained that the source of excess stock was the income earned during the relevant financial period from the trading of bullion, jewellery etc. and income from Adat/dalali and regarding excess cash found in his business premises the assessee also explained that though it was not recorded in the books of accounts but it was accrued to him on account of sale of jewellery in cash and the same pertains to his business activity of trading in business of jewellery. Therefore in the present case the assessee has successfully explained the source of excess stock and excess cash 32 ITA No.411/PUN/2024 Kirti Gold Limited found during the course of search & survey operation and surrendered during the said operation. The Ld. CIT(DR) has not disputed or controverted very factual position that the assessee filed return of income including the surrendered amount and which was acceptedby the Assessing Officer without any dispute and without making any further addition in the hands of assessee u/s. 69A or any other section of the Act. In view of above as the assessee has successfully explained and established the source of excess stock and excess cash as his business activity and of trading in jewellery and gems and activity of Adat/dalali thus the benefit of proposition rendered by Hon'ble Punjab & Haryana High Court in the case Kim Pharma (P.) Ltd. vs. Commissioner of Income Tax (supra) is not available for the department in the present case.
8. In view of forgoing discussion we reach to a logical conclusion that the Assessing Officer without making any addition u/s. 69A or any other provision of the Act has accepted returned income of the assessee wherein the assessee has included surrendered amount on account of excess stock and excess cash as business income and has successfully explained the source from where the said surrendered excess stock and excess cash was earned, which was business activity of assessee of trading in jewellery & gems and Adat/dalali in the same field. The coordinate bench of the Tribunal in the various orders including order in the case of Shri Lovish Singhal v/s. ITO (supra) by following the judgment of Hon'ble Rajasthan High Court in the case of Bajrang Traders (supra) observed that the excess stock found during the course of survey and surrendered made thereof was found to be taxable as business income under the head "Income from business & profession". Identical facts and circumstances as noted above have been found to be existing in the present case then the Ld. CIT(A) was correct and justified in dismissing the contention of the AO and holding that the AO was not right in observing that the assessee is liable to be taxed as per provision of section 115BBE. Therefore, we too have no hesitation in concluding that the facts of present case do nothing the impugned income in the clutches of section 69/69A/69B and therefore do not warrant application of section 115BBE at all. We conclude so and dismiss the ground raised by revenue being devoid of merit."
6.5 Reliance is further placed on the decision of this Tribunal in the case of ACIT V/s Anoop Neema (supra) wherein this Tribunal observed as under:
"8. We on perusal of the above finding and the various judgments and decisions referred hereinabove by Ld. CIT(A) find that the alleged excess stock was not kept separately at any other place and was part of the total business tock found at the assessee's business premises are sufficient enough to indicate that the alleged investment in excess stock is part of the business income we also find that alleged excess stock was duly accepted by assessee as part of unaccounted business and source thereof stated 33 ITA No.411/PUN/2024 Kirti Gold Limited during the course of search itself and no other incriminating material was found during search proceedings and therefore is not an undisclosed income as held by the L.d. AO. We, therefore, find no infirmity in the finding of Ld. CIT(A) rightly holding that the provision of Section 115BBE of the Act are not applicable on the surrendered income on account of excess stock valuing at Rs. 1,41,75,568/-found during the course of search. Thus, grounds no. 1 to 3 raised by the revenue are dismissed".
6.6 On examining the facts of the instant case and in the light of the above decisions I find that the ratio laid down in these decision is applicable on the facts placed before me and therefore respectfully following the same and also considering the fact that the alleged excess stock was found at the business premises and related to the same business which is carried out by the assessee and more importantly there is no case of difference in quantity of excess stock being found at the business premises and lastly the excess stock has been calculated by the survey team on estimated basis only, I reverse the finding of Ld. CIT(A) and Ld. A.O is directed to calculate the tax on the surrendered stock under normal provisions of I.T. Act and not to apply the provisions of Section 115BBE of the Act. In the result Ground No.1 & 2 raised by the assessee are allowed. Ground No.3 being general in nature which needs no adjudication.
7. In the result appeal of the assessee is allowed."
11. Similar view also taken by Co-ordinate Bench of Pune in the case of Vijay Shriram Gundale vs. ACIT vide ITA No.79/PUN/2023 and others dated 03.08.2023 and the same reads as under :-
"7. Heard both the parties and perused the material available on record. There is no dispute regarding offering of additional income on account of excess stock for an amount of Rs.37,00,000/- during the course of survey. We note that as rightly pointed by the ld. AR which is not disputed by the ld. DR crediting the said additional income to profit and loss account and by including in the computation of income in the total income of the assessee which clearly demonstrate the assessee offered the same as business income. The ld. AR vehemently submitted the assessee explained the difference in valuation stock as per the books explained by the assessee through answers to Q. Nos. 10 and 11 of the statement u/s. 131 of the Act and also in response to notice invoking the provisions u/s. 115BBE of the Act during the course of assessment proceedings. We note that the Q. No. 10 is reproduced by the CIT(A) at page No. 10 of the impugned order and on perusal of the same, we note that the assessee explained the difference of Rs.37,00,000/- as stock purchased on high demand during the marriage seasons and bills will be received late. Therefore, it can be fairly concluded that the excess stock as found 34 ITA No.411/PUN/2024 Kirti Gold Limited during the course of survey is nothing but business income flowing from assessee's regular business.
8. The Hon'ble High Court of Rajasthan in the case of Bajargan Traders reported in (2017) 86 taxmann.com 295 (Rajasthan) was pleased to observe that the amount surrendered under unrecorded stock has to be brought to tax under the head "business income" as the excess stock which has been found during the course of survey is the investment in procurement of such stock is clearly identifiable and related to the regular business stock of the assessee. The Hon'ble High Court clearly held the investment in excess stock has to be brought to tax under the head "business income" but not under the head "income from other sources". The Mumbai Benches of the Tribunal in the case of Govind Godomal Lulla (supra) held undisclosed investment in the case of excess stock found during carrying on business and the same is generated out of business income, no provisions of section 69B of the Act would attract. Further, the Jodhpur Benches of the Tribunal in the case of Shri Lovish Singhal (supra) held the excess stock/cash found during the course of survey is taxable under the business and no provision u/s. 115BBE of the Act is attracted. In the present case as discussed above without any dispute the assessee offered additional income under excess stock during the course of survey and same was entered in the books of account as on the last day of financial year ending on 31-03-2019 and offered the said amounts to tax under the business income. Therefore, in our opinion, the ratio laid down by the Hon'ble High Court of Rajasthan in the case of Bajargan Traders (supra) which was followed by the Jodhpur Benches of Tribunal is similar and identical to the issue in the present case. Therefore, the CIT(A) is not justified in confirming the order of AO in excluding the alleged additional income offered during the course of survey and attracting the provisions u/s. 69B of the Act, consequently, the charging u/s. 115BBE of the Act. Thus, the order of CIT(A) is set aside and the grounds raised by the assessee are allowed.
9. The ld. AR submits that the assessee is not interested to prosecute additional grounds. Hence, the same are dismissed as not pressed.
10. In the result, the appeal of assessee is allowed."
12. Respectfully following the decisions of Co-ordinate Benches and taking the consistent view, we are inclined to hold in favour of the assessee. Accordingly, finding of Ld. CIT(A)/NFAC is set-aside and the excess stock offered by the assessee in its books of accounts is held to be from business income and therefore Ld. Assessing Officer erred in invoking section 68 r.w.s. 115BBE of the Act. Effective grounds of appeal raised by the assessee are allowed."
35 ITA No.411/PUN/2024Kirti Gold Limited
8. From going through the above finding of this Tribunal and examining the facts of the instant case in light thereof, we find that the same is squarely applicable on the instant case since the source of excess stock found during the course of survey is from business income and has been rightly offered by the assessee as business income and paid due taxes. Therefore, in our considered view, the excess stock found during the course of survey at assessee's business premises is Business Income and ld.CIT(A) grossly erred in holding the excess stock of Rs.40,05,210/- as Income from other sources. Thus finding of ld.CIT(A) is reversed and grounds of appeal raised by the assessee are allowed."
16. So far as the decisions referred and relied on by the ld. DR are concerned, we note that the decision of Hon'ble Punjab & Haryana High Court in the case of The PCIT Vs. M/s.Kushi Ram and Sons - Income Tax Appeal No.126 of 2015 dated 21.07.2016 deals with the revisionary order u/s.263 of the Act which is not the case before us. Similarly, so far as the decision in the case of Hon'ble Bombay High Court in the case of PCIT Vs. Kanak Impex (India) Ltd. Income Tax Appeal No.791 of 2021 dated 03.03.2025 is concerned, the issue dealt therein is the bogus purchases which is also not the case before us. Therefore, the decisions referred and relied on by ld. DR are not applicable on the facts of the instant case.
17. We therefore conclude that above settled judicial precedents relied upon by ld. Counsel for the assessee and ld.CIT(A) are squarely applicable on the facts of the instant case and therefore hold that the excess stock found during the course of survey at the assessee's premises has been rightly held to be business income by ld.CIT(A) and that ld. Assessing Officer erred in treating it as deemed income u/s.69B rws 115BBE of the Act. We thus fail to find any infirmity in the 36 ITA No.411/PUN/2024 Kirti Gold Limited finding of ld.CIT(A). Grounds of appeal raised by the Revenue are dismissed.
18. In the result, the appeal of the Revenue is dismissed.
Order pronounced on this 06th day of May, 2026.
Sd/- Sd/- (VINAY BHAMORE) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER पण ु े / Pune; दिन ांक / Dated : 06th May, 2026. Satish
Satish Kumar Madishetty Digitally signed by Satish Kumar Madishetty Date: 2026.05.07 15:14:28 +05'30' आदे श की प्रतिलिपि अग्रेपिि / Copy of the Order forwarded to :
1. अपील र्थी / The Appellant.
2. प्रत्यर्थी / The Respondent.
3. The Pr. CIT concerned.
4. विभ गीय प्रतितनधि, आयकर अपीलीय अधिकरण, "A" बेंच, पुणे / DR, ITAT, "A" Bench, Pune.
5. ग र्ड फ़ इल / Guard File.
आिे श नुस र / BY ORDER, // True Copy // Assistant Registrar, आयsकर अपीलीय अधिकरण, पुणे / ITAT, Pune.