TaxTMI 
TaxTMI 
2016 (7) TMI 189
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....trader of readymade jewellery items since last 20 years. The system of accounting was mercantile and the valuation method of closing stock was "Average Cost" on LIFO basis which was followed consistently by the assessee ever since inception of his business. That on 24.03.2009 survey under section 133A was conducted by the I. T. Department, but no excess gold was detected on physical verification, nor there was any disclosure made on the spot by the assessee Mr. Samar Kumar Sen. No regular Books of Accounts like Cash Book, Ledger, Journal, Stock Book, Karigar A/c. Book etc. were impounded save and except Identification Marks were affixed on Karigar Maal Joma Book-SJE-18, Karigar A/c Book-SJE-19, Purchase Memo (Old Broken Ornaments, Standard Bar & Stone Purchase) Book No.1-SJE-20, Book No.2-SJE-21, One Flat File (small) containing Gold Received from Karigars-SJE-22, One small Flat File containing Gold Issue to Karigars-SJE-23, and Loose Sheets containing Purchase Memos from various Parties with serially marked (Page from 1 to 101)-SJE-27 by the I.T. Department. Only SJE-24, 25 and 26 were impounded which consisted two small hard bound daily cash books and one Item wise stock Register....
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.... documents in support of the above. However, the documents produced by the assessee needed cross verification to ascertain the correctness and veracity of the claim of the assessee and the assessee deliberately produced the same on the last date of the calendar year so as to ensure that independent verification of purchases and sales, which were claimed to have been wrongly entered in the accounts, is not made. Accordingly, the ld. AO brought the sum of Rs. 1,24,61,915/- to tax and added to the total income of the assessee. 2.2. Before the ld. CITA , the assessee stated that the reconciliation statement assailing the negative stock was duly filed before the department immediately after the survey stating that there is a positive stock of 819 .49 grams and also before the ld. AO on 5.12.2011. Only the supporting evidences in respect of the same were filed before the ld. AO on 30.12.2011 as desired by the ld. AO. It was also stated that the assessee had not taken any adjournment on a single occasion and all the details were filed before the ld. AO as and when called for. The supporting evidences were admittedly called for by the ld. AO only on 30.12.11 which were duly filed before....
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.... (r) 2388.180 Gr 978.04 2335724.80 N.G. Or.22 Ct (M) 25268.52 Gr 797.58 20153741.48 N.G. Or.22 Ct (R) (-) 10580.396 Gr 1177.83 (-) 12461914.91 Whereas stock statement consisted of following other three major items also O.G. Or. 22Ct (A) 8290.77 Gr 1039.29 86,16,504.24 O.G. Or. 22Ct (S) 1358.360 Gr 1168.18 1586807.67 Solid Bar 24 Ct 4810.940 Gr 1214.98 5845218.35 The Ld. A. O. was well aware about the nature of these items. In question no. 17 in the statement he has asked following question: "Summary of stock as on 20.03.2009 reflect closing balance of Gold Bar (24 Carats) at Rs. 58,45,218/ - (4811 gm) and stock of Old Gold at Rs. 1,02,03,312/- (9649gms) , whereas We have found no gold bar in your shop and value of Gold Bar found in your shop was Rs. 2,32,203/- only. How do you explain this?" The assessee replied to this question as "The closing stock of gold bar and old gold include the opening stock and new purchases as well. The Gold Bar and old gold issued to the Karigars for making new gold ornaments have not been posted/ adjusted in the accounting system." These items were obvi....
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....t. 2.2.3. The ld. CITA considered the following reconciliation statement as below:- Reconciliation Statement Stock of Jewellery as per stock statement on 24.03.2009 In Gms N. G. Or. 18 Ct (M) (-)29.49 ` N.G. Or. 18 Ct (R) 2388.18 N.G. Or 22 Ct. (M) ` 25268.52 N.G. Or 22 Ct. (R) (-)10580.40 17046.81 Less: Sales not entered in accounts 96.44 16950.37 Add: Excess Sales entered in account 2327.67 Add: Purchase not entered by mistake 526.50 19804.54 Add: Jewellery obtained from Gold and other 12848.29 broken jewellery 32652.83 Less: Making loss 159.99 32492.84 Less: Sent to following karigars for polishing and petty repairs Jayanta Das 809.88 Tarak Roy 1836.46 Tanuj Basak 1681.10 Lacchiram Pincha 39.60 4367.04 Closing Stock 28125.95 Less: Lying with Karigars Undelivered 953.65 27172.15 Physical stock 27074.66 Difference 97.49 (b) From the above explanation it is very clear that there is only nominal difference of 97.49 gm between the book stock and physical....
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....l the details called for by the ld. AO were filed in the appointed date of hearing. Moreover, the reconciliation statement was filed by the assessee on 16.4.2009 immediately after the survey and the ld. AO was fully aware of the explanation offered by the assessee with regard to the negative stock. He argued that the assessee had been maintaining its stand that there is no negative stock as alleged by the revenue and had the reconciliation statement been properly considered, it only results in positive stock and hence there is no case for making any addition. He also argued that the stock summary found on the date of survey admittedly comprises of 22 Ct new gold ornaments, gold bars, etc. No discrepancy was found with regard to the stocks found in respect of other items by the ld. AO which is also prepared by the same team of officials. It is quite likely that the books and stock records could not be updated till the date of survey and the same would contain some posting errors, omission and commission errors etc. That is the precise purpose of undergoing audit of an entity wherein these errors would get rectified. Admittedly, the assessee could not explain the discrepancy of negat....
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..... We also find that the reconciliation statement had been filed by the assessee immediately after the survey and also before the ld. AO on 5.12.2011 stating that there is no negative stock as contended by the department. It is now well settled that the statement recorded during survey has got no evidentiary value and the ld. AO has no jurisdiction to record a statement on oath u/s 133A during the survey proceedings since the officer is not empowered u/s 133A to administer oath. Reliance is placed in this regard on the following decisions:- Paul Mathew & Sons vs CIT reported in (2003) 263 ITR 101 (Ker) Sec 133A of the Act does not empower any ITO to examine any person on oath . Thus the statement elicited during the survey operation has no evidentiary value. CIT vs S Khader Khan Son reported in (2008) 300 ITR 157 (Mad) "An admission is an extremely important piece of evidence , but it cannot be said that it is conclusive and it is open to the person , who made it, to show it has incorrectly been made and the person, making the statement should be given proper opportunity to show that it does not show the correct state of facts." This judgment of Hon'ble Madras High Co....
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....t mean that there will be an automatic addition on account of differences - Held, yes - Assessee was engaged in business of trading and manufacturing of edible oil - A survey was conducted at business premises of assessee - Pursuant to survey proceedings, revenue authorities made certain addition to assessee's taxable income on account of variation in closing stock - Whether in view of fact that assessee had reconciled differences with reasons and revenue authorities did not point out anything contrary that how reconciliation done by assessee was incorrect, impugned addition made by authorities below was to be deleted - Held, yes." 2.5.2. In view of the aforesaid findings and respectfully following the judicial precedents relied upon hereinabove, we find no infirmity in the order of the ld. CITA in this regard and accordingly the ground no. 1 raised by the revenue is dismissed. 3. The next issue to be decided in this appeal is as to whether the ld. CITA is justified in deleting the addition made towards concealed profit in the facts and circumstances of the case. 3.1. The brief facts of this issue is that pursuant to the survey, the survey team prepared a profit and lo....
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....al, he had shown a healthy gross profit of nearly 25% and net profit of 19% which was higher than the gross profit of 21% and net profit of 15% respectively in immediate previous year. It was argued that the method of accounting regularly employed by the assessee may be discarded only if in the opinion of the taxing authorities the income of the trade cannot be properly deduced therefrom. Therefore, the valuation of closing stock of the assessee as per the audited accounts as at 31.3.2009 showing total value of Rs. 3,23,77,712/- should not be disturbed. It was further argued that the ld. AO after conducting hearings on various dates and after calling for various details from the books of accounts from time to time as could be evident from the order sheet entries, strangely resorted to rejection of books of accounts and net profit declared by the assessee. The assessee produced the trading results for the period from 1.4.08 to 23.3.09 and for the period from 24.3.09 to 31.3.09 separately and stated that it had actually earned a profit of Rs. 1,10,54,018/- for the period upto 23.3.09 and had incurred loss of Rs. 18,86,200/- for the remaining 8 days as all the adjustment entries for c....
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....s worked out only upto 23.3.09 by ignoring the profit or loss for the remaining period from 24.3.09 to 31.3.09. Admittedly, the assessee had filed separate trading results duly audited for the period 1.4.08 to 23.3.09 and from 24.3.09 to 31.3.09 wherein he had earned profit of Rs. 1,10,54,018/- and loss of Rs. 18,86,200/- respectively. The reason for the loss incurred in the latter part of the year has been duly explained by the assessee as admittedly the adjustment entries of conversion in case of new manufactured gold ornaments of 22 Ct from 24 Ct standard gold bar, refining loss / melting loss, making loss /wastage, karigars payment, depreciation , etc were incorporated in the books of accounts in the year end. We also find that the method of accounting regularly employed for valuation of stock by adopting Average Cost Price (LIFO method) which is one of the recognized method for valuing stock and which has been consistently followed by the assessee for several years has been discarded without giving any reason by the ld. AO and the valuation of stock of gold was done at market price thereby increasing the profit of the assessee notionally which is without any basis or reasoning....
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....6.77%) 31.03.2008 44204942.00 9221724.00 (20.86%) 6570535.00 (14.86%) 31.03.2009 45417889.00 11782918.00(25.89%) 9167818.00 (20.18%) We find that ignoring the aforesaid profit and adopting the notional profit arrived by the ld. AO at Rs. 2,48,71,438/- would only result in assessee deriving abnormal profit at 54.76% which is practically not possible in the business of the assessee. 3.3.3. Taking into account the totality of the facts and circumstances of the case, we find that the ld. CITA had made a fair determination of profit after giving due effect to the discrepancies of the ld. AO in his computation. Hence we find no infirmity in the order of the ld. CITA in this regard and accordingly the ground no.2 raised by the revenue is dismissed. 4. The last ground to be decided in this appeal is as to whether an addition in the sum of Rs. 3,51,916/- towards unexplained investment in purchase of flat could be made in the facts and circumstances of the case. 4.1. The brief facts of this issue is that that during the course of survey, a loose sheet was found wherein the details of investment made in purchase of flat at Puri were recorded....