ITAT Rules Excess Stock in Jewellery Business to Be Taxed as Regular Business Income, Not Unexplained Investment

The present appeals have been filed by the Deputy Commissioner of Income Tax, Central Circle – 1(3), Bengaluru (Appellant), against a company named M/s. Mangaldeep Chains (Respondent), in the Income Tax Appellate Tribunal (ITAT) ‘B’ Bench, Bangalore, before Shri Laxmi Prasad Sahu (Accountant Member) and Shri Keshav Dubey (Judicial Member). The case is related to the assessment years 2017-18 and 2020-21, was heard on October 08, 2025, and the final decision was announced on October 31, 2025.

These two appeals have been filed by the Income Tax Department against two separate orders passed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The first order (for Assessment Year 2017-18) was issued on September 27, 2024, and the second order (for Assessment Year 2020-21) was issued on September 17, 2024.

The key issue in this case is that during a tax survey at the jewellery business of M/s. Mangaldeep Chains on January 27, 2020, the tax authorities discovered that the business had extra stock (unaccounted) worth Rs. 79,568,477 more than what was shown in the books of accounts. Now, the question was-Should this extra stock be taxed as business income or as unexplained income (which is taxed at a higher rate under a specific section of the law)?

The assessee admitted this extra stock and declared it as part of its business income in its Income Tax Return (ITR). Now the dispute was that the assessing officer (AO) did not agree with the filed ITR, treating this excess stock as business income. Instead, they considered it an unexplained investment under Section 69B, taxed at a much higher rate under Section 115BBE (i.e., approx. 60%).

When the case was taken before the ITAT Bangalore, it ruled in favour of the assessee and ruled the follows:

• Since the excess stock was part of business activities and was connected to trading operations, it should be taxed as normal business income, not as unexplained income under Section 69B.
• Merely because the stock was not recorded in the books doesn’t make it an “unexplained investment”, especially when it’s part of regular, undeclared business sales or purchases.
• The Tribunal also relied on CBDT Circular No. 11/2019 and several past court decisions supporting such treatment.
• In its final decision, ITAT Bangalore deleted Additions made under Section 69B and the harsher tax rate imposed under Section 115BBE. The excess stock was allowed to be taxed as normal business income.