Vinod Kumar vs ACIT

PER MANISH AGARWAL, AM : The present appeal is filed by assessee against the order dated 06.05.2024 by Ld. Commissioner of Income Tax (A)-3, Noida [“Ld. CIT(A)”] in Appeal No. CIT(A), Kanpur-4/10957/2017-18 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 12.01.2021 passed u/s 143(3) of the Act pertaining to Assessment Year 2018-19.

Brief facts of the case are that the assessee is an individual and is engaged in the business of trading of jewellery. A survey operation u/s 133A was conducted on 16.03.2018 at the business premises of the assessee at M/s. New Modern Jewellers, 214, Kanhaiya Lal Market, New Gate, Chopla Mandir, Ghaziabad. The assessee filed return of income, declaring total income of INR 39,29,230/-. During the course of survey, stock of the assessee was physically quantified and valued by the approved valuer who valued the same at INR 3,65,49,885/-. The survey team based on the books of the accounts of the assessee completed on the date of survey, has taken the value of the closing stock as on the date of survey at INR 1,39,09,931/-and excess stock worked out at INR 2,26,39,954/- was offered as additional income by the assessee for FY 2017-18 as per reply given to Question No.18 & 19 in the statements recorded during the course of survey. Thereafter, since the assessee has not offered for tax the admitted additional income towards excess stock found and quantified during the survey in the return of income filed, therefore, the AO show-caused the assessee to explain why the said amount should not be included in the total income. However, the assessee offered no explanation and thus, the AO has made the addition of the excess stock of INR 2,26,39,954/- as unexplained income u/s 68 r.w.s.115BBE of the Act. Besides this, AO observed that there is a difference of INR 1,03,30,025/- between the purchases as per the trading account upto the date of survey, submitted before the authorities and as per Final trading account based on which the return of income filed. Accordingly, AO made separate addition of INR 1,03,30,025/- as unexplained expenditure u/s 69C/115BBE of the Act.

Aggrieved by the said order, the assessee filed appeal before Ld.CIT(A) who vide impugned order dated 06.05.2024, dismissed the appeal of the assessee and further, changed the section from 68 to section 69 of the Act on account of excess stock.

Against the order of Ld. CIT(A), assessee filed the present appeal before the Tribunal.

Ground of appeal Nos. 1 & 2 raised by the assessee are general in nature hence, not adjudicated.

Ground of appeal Nos.3 to 3.2 raised by the assessee are with respect to the confirmation of the addition made on account of excess stock by changing the section from section 68 to section 69 of the Act without following the procedure of enhancement as provided u/s 251(1) of the Act.

Before us, Ld.AR for the assessee submits that Ld.CIT(A) has changed the section for addition on account of excess stock of INR 2,26,39,954/- from section 68 to section 69 without issuing any show cause notice as contemplated u/s 251(1) of the Act. As per ld. AR change of section under which the addition is made, tantamount to enhancement of income which could not be done without issue of show cause notice. In this regard, reliance is placed on the judgment of Delhi Bench of Tribunal in the case of Prashant Pitti vs ACIT-2024 [2] TMI 486 (Del.). Ld.AR thus, requested to delete the addition made and confirmed by the lower authorities.

The assessee also placed reliance on various judgments of Co-ordinate Bench of Delhi and Chennai Tribunal which are as under:-

On the other hand, Ld. Sr. DR for the Revenue submits that AO has made addition on the basis of the excess stock quantified during the course of survey and categorically admitted by the assessee in the statements recorded during the survey. However, the AO inadvertently invoked the provision of section 68 of the Act for making the addition as against the correct section 69 of the Act which error was corrected by Ld. CIT(A). Ld. Sr DR submits that this cannot be treated as enhancement of income as the addition made by the AO on account of excess stock remained the same. It is thus requested that the order of Ld.CIT(A) be sustained on this count.

Heard the contentions of both the parties at length and perused the material available on record. In the instant case, AO has made the addition on account of excess stock found during the course of survey however, he inadvertently invoked the provision of section 68 as against invoking the correct section i.e. 69 of the Act. Ld. CIT(A) while confirming the addition, has corrected the error and invoked the correct section i.e. section 69 of the Act. Assessee’s argument was that no show cause notice issued prior to such change of section for making/confirming the addition and for this, reliance is placed on the various judgments of the Co-ordinate Bench of the Tribunal.

After considering the overall facts, we are of the opinion that AO has committed an error of invoking incorrect section for making the addition and since Ld. CIT(A) was of the opinion that additions should have been made u/s 69 of the Act as against section 68 of the Act made by the AO, he should have issued show cause notice as provided u/s 251(1) of the Act. However, this alone cannot be made the basis for deleting the entire addition which is based on evidences found as a result of survey. Accordingly, we set aside the order of Ld.CIT(A) and remand this issue to the file of Ld.CIT(A) with the directions to provide an opportunity to the assessee before changing section the charging section from 68 to section 69 of the Act and decide the issue in accordance with law. Accordingly, Ground of appeal Nos. 3 to 3.2 raised by the assessee are allowed for statistical purposes.

Ground of appeal Nos. 4 & 5 raised by the assessee are with respect to the addition of INR 2,26,39,954/- made on account of excess stock found during the survey.

Since we have already remanded the issue of invoking the correct section for making the addition on account of excess stock to the file of Ld.CIT(A) in terms of our observations given while deciding assessee’s Grounds of appeal Nos. 3 to 3.2 herein above. Therefore, Ground of appeal Nos. 4 & 5 raised by the assessee are also remand to the file of ld. CIT(A) with the directions to consider the arguments of the assessee and decide this issue in accordance with law. These grounds of appeal taken by the assessee are thus allowed for statistical purposes.

Ground of appeal No.6 raised by the assessee is against the confirmation of the addition made by AO on account of difference in purchases of INR 1,03,30,025/- u/s 69C of the Act.

Before us, Ld.AR for the assessee submits that the assessee has duly declared the purchases in the books of accounts and once the addition on account of excess stock has been made, again making addition on account of purchases tantamount to double addition.

On the other hand, Ld. Sr. DR for the Revenue supported the orders of the lower authorities and requested for the confirmation of the same.

Heard the contentions of both the parties at length and perused the material available on record. In the instant case, there was a survey carried out at the business premises of the assessee u/s 133A of the Act on 16.03.2018 and during the course of survey, print out of Purchases from the Tally software was taken according to which the assessee has shown total purchases upto 15.03.2018 at INR 2,50,66,424/-. However, as per the final accounts prepared, the assessee has declared total purchases of INR 3,53,96,449/- thus, there is a difference of INR 1,03,30,025/-. The assessee claimed that there were some purchases bill remained to be recorded/entered in the books of accounts when survey was taken place. It is observed that the assessee has in reply to question No. 12 recorded during the survey has stated the fact that the books of accounts were incomplete. From the perusal of statement recorded, it is observed that in reply to Question No.12, assessee clearly stated that its books of accounts were completed upto 28.02.2018 and there might be certain entries which have not been updated. Thereafter, the authorised officer asked the assessee to complete books of accounts as could be seen from Question and answer No.15 and the assessee was provided 03 hours to complete the books of accounts. The assessee after making all the pending entries in the books of accounts upto 16.03.2018 i.e. date of survey, admitted the stock as per books of accounts was of INR 1,39,09,931/-. The said stock was computed as per the trading P&L Account upto 15.03.2018 available at page 12 of the Paper Book as per which total purchases declared was of INR 2,50,66,424/-. The same is reproduced herein below:-

It is an admitted position that after 15.03.2018, assessee has not made any purchases. Since the assessee was provided time to complete the books of accounts which was taken and no purchases was made after 15.03.2018 which is evident from the copy of purchase ledger available at page 20 of the Paper Book, therefore, the assessee has failed to justify the difference of INR 1,03,30,025/- in the amount of total purchase as per trading account prepared after completing the books of accounts as on the date of survey and as per final d accounts. However, if this amount of purchases is added to the total purchases declared as on the date of survey, the amount of excess stock would be reduced to this extent and thus it tantamount to double addition. Since we have already remanded the issue of excess stock to the file of ld. CIT(A), therefore, this issue is also remanded to the file of ld. CIT(A) with the directions that in case addition to this extent on account of excess stock is confirmed no separate addition for the difference in purchases is required to be made. With these directions, Ground of appeal No.6 raised by the assessee is disposed off.

Ground of appeal No.7 raised by the assessee is with respect to the invoking the provision of section 115BBE of the Act.

Heard the contentions of both the parties at length and perused the material available on record. The provision of section 115BBE of the Act has been incorporated w.e.f. 01.04.2018 and applicable from AY 2018-19 as has been held by Hon’ble Madras High Court in the case of SMILE Microfinance Ltd. v. ACIT in WP(MD) No. 2078 of 2020 & 1742 of 2020 dated 19.11.2024 (Mad.) wherein Hon’ble Madras High Court has already settled this issue and held that Section 115BBE applies from AY 2018-19 and onwards.

Since the year under appeal before us, is AY 2018-19 thus, the AO has rightly invoked the provision of section 115BBE of the Act. Therefore, Ground of appeal No.7 raised by the assessee is dismissed.

Ground of appeal Nos. 8 & 9 raised by the assessee require no separate adjunction hence, dismissed.

In the result, appeal of the assessee is partly allowed.