Asstt. CIT v. New Horizons Ltd.

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The Tax Publishers2019 TaxPub(DT) 6499 (Kol-Trib)

INCOME TAX ACT, 1961

Section 69

Amount in question representing excess stock found on physical verification carried out by assessee-company on its own well before the search action and duly accounted for in books of account of assessee constituted its business income and could not be said to have been found as a result of search representing any undisclosed income of assessee. chargeable to tax under section 69. Even if it was presumed for the sake of argument that same was assessable under section 69. Assessee was entitled to set-off current year's business loss against the income on account of surplus value of stock.

Income from undisclosed sources - Addition under section 69 - Statement showing excess stock during search - Assessee having already accounted for surplus stock before search

Search under section 132 was conducted in case of assessee and the same commenced on 20-3-2015 was temporarily concluded when Prohibitory Order was issued. The said Prohibitory Order then was revoked and the search was commenced on 5-5-2015 when the statements prepared in the months of January and February, 2015 showing excess stock on physical verification was found by search team. AO held that surplus stock was chargeable to tax in the hands of assessee under section 69 being unexplained investment and assessee was not entitled to set-off business loss incurred during the year under consideration against income assessable under a separate chapter. Held: Physical verification of stock was carried out by assessee-company on its own as a matter of internal control in the months of January and February, 2015 well before the search and surplus stock found on such physical verification having been accounted for by the assessee-company in its books of account in the month of March, 2015 itself, therefore, same could not be said to have been found as a result of search representing any undisclosed income of assessee chargeable to tax under section 69. Even if it was presumed for the sake of argument that same was assessable under section 69, assessee was entitled to set off current year's business loss against the income on account of surplus value of stock.

Supported by:CIT v. Chensing Venures (2007) 291 ITR 258 (Mad) : 2007 TaxPub(DT) 1146 (Mad-HC), and CIT v. Shilpa Dyeing & Printing Mills (P Ltd. (2013) 219 Taxman 279 (Guj) : 2014 TaxPub(DT) 164 (Guj-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. :

IN THE ITAT, KOLKATA BENCH