INCOME TAX ACT, 1961

Section 69B

Income from undisclosed sources - Addition under section 69B - Excess book stock than physical stock (shortfall in physical stock) -

Assessees were subject to search and seizure operation under section 132(1). As per the reports submitted by MECL, the average iron grade of the saleable stock of iron ore (1,35,681.6 MT/Table 1A) was in the range of 50% and above, varying between a low of 50.12% (Dump B) to a high of 54.32% (Dump F). The same therefore meant that the entire stock of 1,35,681.6 MT of iron ore was saleable as regular production. These results were compared with the details of the stock-in-hand as reported by the assessee to IBM (i.e., the Regional Controller of Mines, Jabalpur) per it's monthly return. The assessee, in the view of the assessing officer (AO), thus, had an excess stock of iron ore The excess physical stock meant that the assessee was engaged in under-reporting of production and, consequently, out-of-book sales of ore production. This was further sought to be refurbished by the AO with reference to the statements under section 132(4) of Shri GP, Mining Manager. CIT(A) in his view, however, could not be said that the assessee had thereby explained the entire shortfall (in physical stock), which he estimated at 35% of the alleged excess book-stock (36,400 MT). The balance 65% (i.e., 23,660 MT) remained unexplained, implying its unaccounted sale. Held: While a positive difference (excess physical stock) would translate into an addition irrespective of any addition made on that count (or for undisclosed assets), it may not necessarily be so in the case of a negative difference (excess book-stock), which indicates, among others, unaccounted disposal of the relevant stock (i.e., as of the date of the physical verification), so that income concomitant to that disposal had escaped assessment (as on that date). It is, accordingly, open to the assessee to make out a case that the past unaccounted income, since admitted and returned, arose on account of such undisclosed disposal. That is, the said escaped income, being sought to be brought to tax for the current year, had already suffered tax in an earlier year. Again, a further clarification may be in order. That is, in a case as the present one, where the escapement of income was on account of unaccounted disposal, the assessee realizes it's value (Rs. 100, say), which gets disclosed/returned on the corresponding asset/money being discovered (by the Revenue). The income on this sale, however, would only be after deducting its cost, incurred and reflected in accounts (Rs. 40, say), i.e., Rs. 60. This is as the balance Rs. 40, though realized through sale, continues to be reflected in accounts, albeit does not represent an actual capital (of the reporting entity). This needs to be borne in mind, and once again emphasizes the need for bringing the accounts to actuals. The orders of the Revenue authorities were accordingly set aside, and additions was thus, deleted.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2015-16

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