INCOME TAX ACT, 1961

Section 69

Income from undisclosed sources - Addition under section 69 - Undisclosed income - Assessee admitted additional income on account of excess stock

Assessee was engaged in the business of wholesale trade of cloth and readymade garments. He was also the partner in the firm, M/s L along with his wife and both of them are having the share of 1/6th each. AO found that the proprietor's capital was shown at Rs. 2,06,31,026 and in immediately preceding assessment year it was shown at Rs. 'Nil'. Thus, he held that there was suspicion regarding the source of introduction of capital and made addition on account of unexplained income.Held: All the partners of the firm in which assessee and his wife were also partners had distributed the sales and taken to their personal balance sheets. In the same manner, the assessee also had taken the share of his income generated out of the excess stock found during the course of survey and brought to his capital account. The assessee filed paper book with regard to two other partners, wherein, the department had completed the assessment under section 143(1) without making separate addition on account of excess stock distributed by the partners. Since the assessee had admitted the additional income on account of excess stock and the said excess stock was not reverted back to the books of account of the firm, assessee had rightly taken the sale proceeds to their individual capital accounts. Once the assessee had admitted the additional income, the said income is available to the assessee in the form of cash or kind which the assessee is permitted to take as source for application of funds. Thus, when assessee explained the source for credits in the capital accounts, there was no unexplained investment required to be brought to tax.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2016-17

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