1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR -------------------------------------------------------- INCOME TAX APPEAL No. 92 of 2006 C I T JODHPUR V/S M/S MEHTA GWAR GUM AND COMPANY Mr. K.K.BISSA, for the appellant. Mr. ANJAY KOTHARI, for the respondent. Date of Order : 22.8.2008 HON'BLE SHRI N P GUPTA,J. HON'BLE SHRI KISHAN SWAROOP CHAUDHARI,J. ORDER ----- This appeal has been filed by the revenue, against the judgment of the Tribunal, confirming the order of the Commissioner Income Tax (Appeals), whereby he had allowed deductions to the assessee, under Sec. 80 I A of the Income Tax Act, on the amount of Rupees 4,76,154/-, finding it to be business income. The appeal was admitted on 22.8.2006, by framing following substantial question of law: “Whether on the facts and in the circumstances of the case, additions made in the income of the assessee as income from the undisclosed sources can be considered as income from the business, which is eligible for deduction under Section 80 I A of the Income Tax Act, 1961”. The necessary facts are that a survey was conducted on 2 the business premises of the assessee, on 31.12.1999, and according to the department, excess stock, in the tune of Rs. 4,51,010/- was found. The assessee did not object to this excess stock. Thereafter, the assessee filed return for the relevant previous year, on 31.10.2000, which was selected for scrutiny, and notice under Sec. 143 (2) was issued on 18.4.2001, and onwards. The assessee, in the return has shown the total sales worth Rs. 05,48,01,800/-, and had shown gross profit @ 00.93%. The assessing officer, for the reasons recorded, rejected the books of account, within the meaning of Sec. 145 (3), and then applied the gross profit rate of 3%, as against 00.93%, shown by the assessee, and accepting the amount of total sales, at the figure shown by the assessee, addition of an amount of Rs. 19,57,521/- was made, then the assessing officer proceeded to find, that during the course of survey, excess stock to the above extent was found, this figure of excess stock was included by the assessee, in the profit and loss account only, and it was treated by the assessing officer to be income of the assessee, from undisclosed sources, under Sec. 69, and charged to the tax. In appeal, the learned commissioner found, that since 100 per cent of the profit and gains, declared by the assessee, during the relevant year, is eligible to 3 deduction under Sec. 80 I A, and such deduction had been allowed by the assessing officer, he failed to allow the deductions in respect of the addition without assigning any reason. It was held, that even after the addition, the income so worked out, is eligible for deductions, under Sec. 80 I A. For this purpose, learned Commissioner relied upon two other judgments of the tribunal. In appeal by the revenue, the learned tribunal found, that the departmental representative has not been able to substantiate the claim, that such an exemption is not allowable to the assessee. It was found, that the business of the assessee firm, which falls in the category of Sec. 80 I A (4), thereunder, the assessee is eligible for deduction, equal to 100% of profits and gains from business, for ten consecutive assessment years, and that the assessing officer did not consider this amount, to be eligible, for deduction, under Sec. 80 I A, without assigning any reason. Thus, the appeal was dismissed. In our view, the question as framed on 22.8.2006, does not really, arise in the appeal. On the other hand, the question, that precisely arises is, as to whether addition could be made, with respect to the aforesaid amount, under Sec. 69? Obviously, the assessee had filed regular return, and 4 had disclosed therein a particular amount of sales, and had shown the gross profit, at the rate of 00.93%. Obviously, the return was for the entire financial year, and the stock in question was also duly accounted for thereunder, in the books of account. Much stress was laid to the effect, that the books of account has been rejected under Sec. 145 and, therefore, the stock was required to be taken in the account for addition. In our view, it would suffice to say, that ofcourse, books of accounts were rejected, but then, at the same time, the exact figure of sales, as given by the assessee, had been accepted, by the assessing officer, and that figure has not been disputed. According to the books of account, even as rejected, the figure of sales was arrived at after duly accounting for, the alleged excess stock, found during survey, on 31.12.1999. In that view of the matter, mere rejection of books of accounts, which has come out to be only for the purpose of assessing gross profit rate, which has been increased form 00.93% to 3%, it cannot be said, that the stock in question could be added, as income from undisclosed sources. Then, even according to the assessing officer, the addition was made, treating the amount, to be the undisclosed investment under Sec. 69 of the Income Tax Act. We may here gainfully quote the provisions of Sec. 69, which reads as under: 5 “Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the (Assessing) Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.” A reading of above section makes it clear, that the basic condition, for attracting the provisions of Sec. 69 is, that the investments made in the financial year concerned, should not be recorded in the books of account, maintained by the assessee, for any source of income, and secondly, the assessee should have not offered any explanation, about the nature and sources of investments, or the explanation offered should not be satisfactory, in the opinion of the assessing officer. In the present case, the relevant financial year is 1999-2000, and in the books of accounts of that year, this stock has been duly accounted for, and after so accounting for the same, the figure of sales, as noticed above, has been accepted by the department, and enhanced gross profit rate has been applied thereto. In that view of the matter, it cannot be said, that an 6 investment has been made, which was not recorded in the books of account. Thus, in our view, the provisions of Sec. 69 cannot be said to be attracted to the price of stock in question. Though, not necessary, but still it may be considered and observed, that during the relevant year, the entire income of the assessee was exempted under Sec. 80 I A, and thus there was, possibly no reason, for the assessee to conceal the stock in trade, as thereby, the assessee was not to gain anything. The net result is that, we do not find any force in the appeal, and the same is therefor, dismissed. ( KISHAN SWAROOP CHAUDHARI ),J. ( N P GUPTA ),J. /ns./