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33.  Value of Unexplained Investment -Assessable under Section 69 of the I.T. Act

Disputes do arise sometimes between the Income-tax payers and the IT Department. Recently the Chhattisgarh High Court in the case of Dhanush General Stores v. CIT (2011) 339 ITR 651 has held that the value of unexplained investment is assessable to income-tax under Section 69 of the IT Act.

The assessee was a partnership firm and as such it was assessed. Survey under Section 133A of the IT Act, 1961, was conducted in the shop premises of the assessee on 27.10.1997. Physical verification of


the stock was done and inventory was accordingly prepared showing excess stock of ` 88,918. The assessee offered the same for taxation. In the trading and profit and loss account for the financial year 1997-98, the assessee showed an excess stock of ` 89,000 and thereby inflated the gross profit and net profit by that amount.

The assessing authority issued a notice thereto; a reply was filed on 23.8.2000, stating that the excess stock worked out at ` 87,000 and the stock and profit was increased by ` 89,000.

The assessing authority came to the conclusion that the assessee had surrendered the amount of
` 88,918 as excess stock. However, the assessee did not disclose the surrendered amount in its return of income. Thus, it became the income, of the year 1997-98 under Section 69 of the IT Act. A penalty was initiated separately under Section 271 (1)(c) of the IT Act.
The Assessing Officer held that those credits were appearing in the books of account for which no description as regard to from whom money on account of credit had been received. Also there was no mention in the ledger regarding those transactions. The practice followed by the assessee was that the assessee used to issue receipts in token of having received the amount and made the entries in the register captioned as daily wage from 1.4.1997 to 31.3.1998. The entries relating to the above credits were not reflected in this register nor any receipts were issued. During the course of. assessment proceedings, the assessee was required to explain the position. However, no explanation was put forth. In view of this matter a letter dated 12.1.2001 was issued to the assessee. The assessee was confronted with the facts that an amount of
` 1,94,088 was proposed to be assessed as income of the assessee under Section 69 of the IT Act. Further, scrutiny of register for credit sales on 5.4.1997. showed total receipts of ` 2,700, vide cash receipt Nos. 905 and 906 issued by the firm. However, in the cash book dated 5.4.1997, an amount of ` 3,700 was credited towards receipt from credit sales. The assessee was, therefore, required to show cause why ` 1,000 should not be added to its total income. For this purpose, the case was fixed for final hearing on 18.1.2001, at 3.30 P.M. sharp. The aforesaid letter was duly served on the assessee on 17.1.2001. However, on the


date of hearing, i.e., 18.1.2001, none attended nor any application seeking adjournment was received till the date of passing of the assessment order. From the discussion, it was clear that the assessee had introduced the cash of ` 1,94,088 and since no satisfactory explanation was of fered a sum of ` 1,75,088 was added to the total income of the assessee.

An appeal was preferred before the CiT (Appeals) against the above order. The CIT (Appeals) vide its order dated 24.5.2001 deleted the addition of ` 88,918. Thereafter, an appeal was preferred by the assessee before the Tribunal. The Tribunal found that the surrendered income was on account of undisclosed investment and the excess stock found at the time of survey because the assessee was not able to explain the source of investment in the excess stock. Therefore, the investment was to be taxed as the assessee’ s income under the deeming provisions of Section 69B of the IT Act. It was held that this was not a business income as it was not taken directly to the computation of income but in the trading account or the profit and loss account only.

After hearing the parties the High Court was of the view that the assessee had shown surrendered income in the trading account or profit and loss account, but not in the computation of income. Thus, it could not be held as business income, as if the income was treated as business income that must find place in the computation of income, which was not done in this case. The Tribunal rightly came to the conclusion that on survey the excess stock valued at
` 89,000 was found which was not shown in the computation of income. Thus, the assessee had not deposited the income-tax on the real income by showing in the trading account or the profit and loss account. The assessee could not claim that this should be treated as income. Hence, the appeal failed and was accordingly dismissed.

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