ITAT Rejects Revenue’s Appeal on Excess Stock, Upholds Tax Addition under Section 69A

The case involves two appeals filed by the Revenue to challenge the order of CIT(A) for AY 2017-18 and 2020-21. For both the assessment years, the assessee’s case was selected for scrutiny under CASS.

For A.Y. 2017-18, the assessee, Mangaldeep Chains, after the scrutiny, filed an income tax return (ITR), declaring an income of Rs 8,27,71,190, which was found to be mentioned under the head “Profit gains/business profession” instead of listing as “unexplained money” under Section 69A. The assessment was completed, and the income was stated as unexplained money under section 69A and section 115BEE was applied.

Similarly, for A.Y. 2020-21, a survey under section 133A was conducted, during which stock mismatches were found. The assessing officer treated it as unexplained investments under section 69B, but the assessee again treated it as business income.

The assessee filed an appeal before the CIT(A), which allowed the assessee’s appeal in both assessment years, stating the excess stock as business income instead of unexplained income or investments. Therefore, aggrieved by the order of CIT(A), the revenue filed an appeal before the Income Tax Appellate Tribunal (ITAT), Bangalore.

For A.Y. 2017-18, the ITAT agreed with the addition made by the AO and said that the CIT(A) had ignored the statements recorded during the survey and allowed the appeal based on the past judgements. The tribunal found that the partner (assessee) admitted the stock as undisclosed income and could not explain its source. Therefore, the tribunal upheld the AO’s addition.

For the AY 2020-21, the assessee argued that the unaccounted stocks were a part of the business. The Tribunal reviewed the statements and found that the purchases and sales were recorded before the survey, but the stock difference was due to discrepancies in the stock maintained. Therefore, the court accepted that the excess stock discrepancies were part of normal business, so they should be taxed as business income, not unexplained income. The ITAT, therefore, dismissed the appeal filed by the revenue for AY 2020-21.