INCOME TAX ACT, 1961

Section 69

Income from undisclosed sources - Addition under section 69 - Unexplained investment - Physical stock being less than what reflected in books of account

AO found that stock of assessee-company was short by certain amount. Since the assessee was not able to explain the shortage in the stock, accordingly, the AO came to the conclusion that the assessee sold such short stock out of his books of account and profit of such unaccounted sale was estimated at 12%. He further concluded that the assessee made unaccounted investment by utilizing such amount and accordingly, he added the same as unexplained investment under section 69. Held: It is settled position that when physical stock found is less than what is reflected in the books of account, then there cannot bany addition on account of unexplained investment. In the case of shortage of stock, a valid presumption would be that the stock had been sold outside the books of accounts. Thus, under such circumstances, the only addition that could be made was that of gross profit on estimate basis. Since the stock was accounted for in the books of account, accordingly there could not be any addition on account of unexplained investments. Hence, the addition made under section 69 on account of unexplained investments was deleted.

REFERRED : Roop Niketan v. Asstt. CIT (2004) 90 TTJ (Mumbai) 1097 : 2004 TaxPub(DT) 0110 (Mum-Trib)

FAVOUR : In assessee's favour

A.Y. :

INCOME TAX ACT, 1961

Section 271(1)(c)

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