2023 (4) TMI 1113 - AT - Income Tax

Tribunal reduces manufacturing loss rate and deletes addition for excess stock valuation errors

Shri. Cholaji Kanniyalal Versus Assistant Commissioner of Income Tax, Villupuram Circle, Villupuram

Shri. Cholaji Kanniyalal Versus Assistant Commissioner of Income Tax, Villupuram Circle, Villupuram - TMI Issues Involved:1. Estimated addition of Rs. 27,18,374/- representing manufacturing loss in the conversion of old gold into new gold.2. Addition of Rs. 33,90,758/- based on the difference in stock from the survey report.Summary:Issue 1: Estimated Addition of Rs. 27,18,374/- Representing Manufacturing LossThe appeal concerns the estimated addition of Rs. 27,18,374/- due to manufacturing loss of 1060.738 grams in converting old gold into new gold. The assessee, engaged in retail jewelry trade, was scrutinized after a survey under section 133A of the Income-tax Act, 1961. The Assessing Officer (AO) noted no manufacturing loss was claimed despite a 15% wastage charge to customers. The AO applied this rate to 7071.590 grams of old gold, resulting in the addition. The assessee argued that job work conversion involves no weight loss as goldsmiths add copper, equating old and new jewelry weights. The Tribunal, acknowledging inevitable wastage, directed the AO to apply a 7.5% rate instead of 15%. Thus, the Tribunal partly allowed the appeal on grounds 3, 4, and 5.Issue 2: Addition of Rs. 33,90,758/- Based on Difference in Stock from Survey ReportThe second issue pertains to the addition of Rs. 33,90,758/- for excess stock based on a survey. During the survey, 13262 grams of excess gold jewelry was found, but the assessee declared only 12810.920 grams in the return, valuing it at Rs. 2,93,62,629/-. The AO adopted a higher rate of Rs. 2469.717 per gram, valuing the excess at Rs. 3,27,53,387/-, and added the difference of Rs. 33,90,758/- to the income. The assessee contended that survey statements lack legal sanctity and that the AO's valuation ignored the presence of precious stones and other metals in jewelry. The Tribunal found the AO's reliance on survey statements and higher rates unjustified, noting no discrepancies in the assessee's books. It deleted the addition, allowing grounds 6, 7, 8, 9, and 10.Conclusion:The Tribunal partly allowed the appeal, reducing the manufacturing loss rate to 7.5% and deleting the addition for excess stock valuation errors. The decision underscores the importance of accurate valuation and adherence to legal standards in tax assessments.