survey by Income tax department

This query is : Resolved

Jitendra Singh Kachchhawah (Querist)
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11 September 2016 if survey , income tax department found excessive stock of 1000k and cash of 120k . department issued demand order considereing it undisclosed income....what would be accounting treatment of stock nd cash .please tell me in detail

amit gaur

amit gaur (Expert)
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14 September 2016 increase stock and cash on one side and increase capital on other side

Jitendra Singh Kachchhawah

Jitendra Singh Kachchhawah (Querist)
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14 September 2016 pur A/c dr cash A/c dr. to Capital

Jitendra Singh Kachchhawah

Jitendra Singh Kachchhawah (Querist)
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14 September 2016 is it correct?

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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26 July 2025 Got it! You want to know the proper **accounting treatment** when Income Tax department finds **excess stock and cash during a survey**, treats it as undisclosed income, and issues a demand.

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### Scenario recap:

* Excess stock found: ₹10,00,000
* Excess cash found: ₹1,20,000
* IT Dept treats this as **undisclosed income** and raises demand.

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### Accounting treatment:

Since these amounts represent **undisclosed income** (not recorded earlier), you need to **record them in books** to reflect the true financial position.

**Journal entry suggested:**

| Particulars | Debit (Dr) | Credit (Cr) |
| ------------------------------------------ | ---------- | ----------- |
| Stock Account | ₹10,00,000 | |
| Cash Account | ₹1,20,000 | |
| To Capital Account (or Suspense Account)\* | | ₹11,20,000 |

**Explanation:**

* You are **increasing the stock and cash** accounts to bring them into books.
* The balancing entry goes to **Capital Account** (if you treat as owner's income) or **Suspense Account** (if treatment is uncertain or pending final resolution).

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### Points to consider:

* **Capital Account Credit:**
This reflects that this undisclosed income belongs to the proprietor/partner/shareholder as their capital or undisclosed profit.

* **Alternatively Suspense Account:**
Sometimes it’s booked to Suspense Account until the matter is fully resolved legally.

* **Tax impact:**
The IT department will charge tax and penalty on this amount as undisclosed income.

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### Summary:

Yes, your idea is **correct** — debit Stock and Cash accounts, credit Capital account (or Suspense). Your journal entry:

```plaintext
Purchase A/c Dr (if stock is purchased newly) - usually no
Stock A/c Dr ₹10,00,000
Cash A/c Dr ₹1,20,000
To Capital A/c ₹11,20,000
```

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If you want, I can help you draft a detailed note or accounting policy for this!

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