WHEN STOCK DULY ACCOUNTED FOR CANNOT BE TREATED AS UNDISCLOS

WHEN STOCK DULY ACCOUNTED FOR CANNOT BE TREATED AS UNDISCLOSED INVESTMENT DESPITE REJECTION OF BOOKS OF ACCOUNTS RATIO DECIDENDI Mere rejection of books of accounts, which has come out to be only for the purpose of assessing gross profit at the increased rate, the stock in question cannot be added as income from undisclosed sources. HIGH COURT OF RAJASTHAN CIT v. Mehta Gwar Gum & Co. ITA NO. 92 OF 2006 AUGUST 22, 2008 RELEVANT EXTRACTS : ** ** ** ** ** ** 8. Obviously, the assessee had filed regular return, and had disclosed therein a particular amount of sales, and had shown the gross profit, at the rate of 00.93 per cent. 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 Section 145 and, therefore, the stock was required to be taken in the account for addition. In our view, it would suffice to say, that of course, 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 from 00.93 per cent to 3 per cent, it cannot be said, that the stock in question could be added, as income from undisclosed sources. 9. Then, even according to the assessing officer, the addition was made, treating the amount, to be the undisclosed investment under Section 69 of the Income-tax Act. We may here gainfully quote the provisions of Section 69, which reads as under : “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.” 10. A reading of above section makes it clear, that the basic condition, for attracting the provisions of section 69 is, that the investments made in the financial year concerned, should not be recorded in the books of accousnt, 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. 11. 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. 12. In that view of the matter, it cannot be said, that an investment has been made, which was not recorded in the books of account. 13. Thus, in our view, the provisions of section 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 section 80 IA, 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.