survey by Income tax department
This query is : Resolved
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
14 September 2016
increase stock and cash on one side and increase capital on other side
14 September 2016
pur A/c dr
cash A/c dr.
to Capital
14 September 2016
is it correct?
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.
---
### Scenario recap:
* Excess stock found: ₹10,00,000
* Excess cash found: ₹1,20,000
* IT Dept treats this as **undisclosed income** and raises demand.
---
### 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).
---
### 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.
---
### 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
```
---
If you want, I can help you draft a detailed note or accounting policy for this!
---
### Scenario recap:
* Excess stock found: ₹10,00,000
* Excess cash found: ₹1,20,000
* IT Dept treats this as **undisclosed income** and raises demand.
---
### 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).
---
### 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.
---
### 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
```
---
If you want, I can help you draft a detailed note or accounting policy for this!
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