TaxTMI 
TaxTMI 
2018 (10) TMI 1024
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....The learned CIT(A) has erred in law and on facts in upholding the stock of Gold Bar of 736 gms. alleged to have not been found physically though recorded in the books, as un-accounted sale in as much as that the sale there of was duly accounted for in the books. 2. He has erred in law and on facts in upholding G.P. addition of Rs. 2,48,927/- in respect of Gold bar of 736 gms. not found at the time of survey resulting into double addition. 3. He has erred in law and on facts in upholding the Gold bar of 736 gms. as shortage without appreciating the fact that as per assessee it was duly available at the time of survey and the sales thereof were duly recorded in books. 4. He has erred in law and on facts in upholding addition of Rs. 1,66,47,490/- as un-accounted stock in gold ornaments without considering the facts, the evidence adduced by the appellant , reconciling the book stock and the physical stock taken during survey proceeding. 5. He has erred in law and on facts by not accepting the contention of the assessee that the approval vouchers dated 11/10/2011 bearing no. 132 & 133 recording gold ornaments weighing 2981.650 gms. and 3230.100 gms. w....
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....survey are reproduced as under: "Question-22 To-day during survey, stock has been counted physically which is 12878.950 gms. of N.S.Jewels and 21107.580 gms. Gold ornaments of Navinchandra Shantilal Soni Jewellers. Whereas books stock of both the concerns is 34666.562 gms. Gold ornaments, 736 24 carat gold bar, and 8641.070 grms. Gold ornaments .Please explain the difference of book stock and physical stock. Answer: In my absence, the goods have been sold and bills are pending to be made which at present I am not aware which will be reported shortly. Question-23 For this , you can call for your staff or sons and furnish the details Answer : At this time my sale staff is not present and I have come from outstation then also I will give the details of difference shortly and of there is any mistake, I will correct the same and if any tax liability is there, I will pay." 4.1 The assessee during the assessment proceedings explained that the gold bar weighting 700 gms were purchased from Shyam Bullion dated 11-10-2011 and 12-10-2011. The remaining 36 gms of gold bar was carried forward from the previous balance. Further, the gold bars were given to ....
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....m Shyam Bullion on 11- 10-2011 & 12-10-2011 and filed the copies of the invoices in support of his claim. Similarly, the assessee submitted that the gold bars weighing 36 gms were carried forward from the earlier period. The assessee also submitted that these gold bars were sent to the laborers for converting them into gold ornaments. 5.2 In the letter dated 25-03-2015, the assessee submitted that the purchase of gold bars was duly accounted in the books of accounts. Subsequently, it was converted from raw form to ornaments, which was also recorded in the books of the assessee. The ornaments converted from such gold bars were also sold to the parties and the same was recorded in the books of accounts. Thus, further addition of gold bars weighing 736 gms will lead to double addition. 5.3 The assessee also submitted that 400 gms of gold bars were issued for conversion into the ornaments to the laborers vide dated 05-11-2011 and 500 gms were issued dated 23-10-2011. The assessee further submitted that the ornaments after conversion of gold bars were received by him vide receipt voucher dated 14-11-2011 and 26-10-2011. The assessee also submitted that all the issue/receipt vouche....
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....e was treated as undisclosed closing stock and accordingly, the gross profit rate was applied to determine the income on such undisclosed stock. 8.1 However, we note that the assessee has claimed that the gold bars were purchased from Shyam Bullion dated 11-10-2011 & 12-10-2011. Copies of the invoices are placed on pages 49 & 50 of the PB. 8.2 We also note that the assessee was maintaining stock ledger of gold bars which is placed on pages 46-48 of the PB in part pertaining to the month of October to December, 2011. On perusal of the same, it was noticed that the purchase of the gold bars was duly recorded in the stock register. Similarly when it was issued to the laborers for the purpose of conversion was duly recorded. We also note that the copies of the issuing vouchers for converting the gold bars into the ornaments and receipt vouchers of the converted ornaments are placed on pages 51-54 of the PB. 8.3 We also note that the assessee has claimed to have sold such ornaments converted from gold bars which are placed from pages 55-57 of the PB. On perusal of the sale invoices placed on page 56 of the PB, we note that the gold bar was converted into lagdi ornaments. 8.4....
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....on "such other materials or Information as are available with the Assessing Officer" contained in section 158BB of the Income-tax Act, 1961, would include the materials gathered during the survey operation under section 133A, vide CIT v. G. K. Senniappan [2006] 284 ITR 220 (Mad.) ; (iv) The material or information found in the course of survey proceeding could not be a basis for making any addition in the block assessment, vide decision of this court in T. C (A) No. 2620 of 2006 (between CIT v. S. Ajit Kumar [2008] 300 ITR 152 (Mad.); (v) Finally, the word "may" used in section 133A(3)(iii) of the Act, viz., "record the statement of any person which may be useful for, or relevant to, any proceeding under this Act", as already extracted above, makes it clear that the materials collected and the statement recorded during the survey under section 133A are not conclusive piece of evidence by itself. For all these reasons, particularly, when the Commissioner and the Tribunal followed the circular of the Central Board of Direct Taxes dated March 10, 2003, extracted above, for arriving at the conclusion that the materials collected and the statement, obtained un....
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....regarding the statements obtained during search and survey operation, it is undisputedly clear that the lower authorities have not collected any other evidence to prove the impugned under valuation of stock other than the statement. In view of above, we disagree with the findings of lower authorities. Accordingly we reverse the order of authorities below. 8.10 Hence, the ground of appeal of the assessee is allowed. 9. The next issue raised by the assessee in ground no. 4 to 9 & 11 is that Ld CIT(A) erred in confirming the disallowance of Rs. 1,66,47,490/- on account of unaccounted stock in gold ornaments. 10. During the survey operation, various documents were seized containing travelling/approval vouchers, which were marked as annexure-A6. As per these documents, it was noticed that the assessee has sent goods for approval without making any sale. On these approval vouchers, the name of the staff of the assessee was recorded. The assessee claimed to have sent the goods for display for marketing in the exhibition which was received back after the finishing of the concerned events. As such, there was no entry recorded in the books of accounts for sending the goods on app....
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....urvey operation, the above vouchers were found but the assessee knows the fact that no goods for approval/display was sent against such vouchers. Therefore, the argument/plea of the assessee should have been accepted by the AO. 11.3 There was also no material with the AO suggesting that the assessee has taken the stock represented in voucher no. 132 / 133 for exhibition. 11.4 Even during the course of survey, it was not admitted by the assessee that the items of ornaments were sent for the purpose of exhibition. 11.5 The assessee alternatively submitted that at most the AO can levy the tax on unaccounted stock @9.95% being the rate of net profit shown in the books of accounts. The assessee in respect of his claim relied on the judgment of Hon'ble Gujarat High Court in the case of CIT vs. President Industries reported in 258 ITR 654. 11.6 However, the Ld CIT(A) disregarded the contention of the assessee and confirmed the order of AO by observing as under: "4.4. During the appellate proceedings, the appellant has contended that the books of accounts of the assessee are audited. Sales and purchase are fully vouched and the books of accounts have been accepted by t....
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....r approval. In the absence of any other evidence other than the explanation that this stock was not taken out for exhibition it cannot be accepted that this stock was included in the stock found at the premises. The alternative contention of the appellant is also not acceptable as the assessee has filed to furnish details regarding the unaccounted stock. Accordingly the addition made by the AO is justified and the same is confirmed. Thus the grounds of/ appeal are dismissed." 11.7 Being aggrieved by the order of Ld CIT(A) assessee is in appeal before us. 12. The Ld AR before us reiterated the submissions as made before the Ld CIT(A). The Ld AR before us also alternatively claimed that the net profit can be levied on account of unaccounted stock. 13. On the other hand, the Ld DR vehemently supported the order of authorities below. 14. We have heard the rival contentions and perused the materials available on record. In the instant case, the issue relates whether the unaccounted stock as observed by the AO during the survey operation represents the unaccounted income of the assessee. As such, there was a survey operation on the premises of the assessee where diff....
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....assessee has shown its net profit in its books of accounts @9.95%. Thus, we direct the AO to make the addition of the net profit amounting to Rs. 16,67,895/- to the total income of the assessee. Thus, the ground of appeal of the assessee is partly allowed. 15. In the result, appeal of the assessee in ITA No. 511/Ahd/2017 is partly allowed. Now we take up assessee's appeal in ITA No.528/Ahd/2017 pertaining to the assessment year 2012-13: 16. Following grounds raised by the assessee in this appeal: "1. The learned CIT(A) has erred in law and on facts in upholding disallowance of Rs. 3,000/- out of telephone expenses and Rs. 25,000/- out of travelling expenses without appreciating the facts of the assessee and ignoring the fact that books of accounts are Audited as per the Income Tax Act and no personal expenses has been debited. 2. He has erred in law and on facts in upholding addition of Rs. 84,79,547/- in respect of ornaments taken on approval voucher as un-explained investment in gold ornaments without considering the facts , the affidavit of the sales man for said approval voucher adduced by the appellant reconciling the book stock and the physical stoc....
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....essed. 18. The second issue raised by the assessee in ground no.2 to 4 is that Ld CIT(A) erred in confirming the order of AO by sustaining the disallowance of Rs. 84,79,547/- on account of un-explained investment in gold ornaments. 19. Briefly stated facts are that the assessee is an individual and engaged in the business of wholesale trading in gold ornaments under the name and style of M/s Jaydeep Jewellers. 19.1 A survey operation u/s 133A of the Act was carried out at the premises of the assessee dated 13-10-2011. During the survey operation, a stock of gold ornaments as per books of accounts was found 10329.990 gms but physically it was found only 742.300 gms. 19.2 During the survey operations, certain vouchers were found numbering 9, 10 & 13 which were seized. As per these vouchers, gold ornaments weighing 12751.700 gms were sent out for approvals. Thus, the goods sent for approval were added to the physical stock available at the time of survey which worked out at 13494.000 gms (physical stock 742.300 + goods sent on approval 12751.700). 19.3 Thus, physical excess stock of gold ornaments was worked out at 3164.414 gms (physical stock 13494 - books of account s....
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....ain dispute regarding the excess stock arises due to approval voucher No.13 the appellant has furnished affidavit and other than this no other details or evidences were furnished during the course of assessment proceeding as well as appellate proceedings. In the statement recorded u/s.131 of the Act of the assessee on 28.11.2011, the assessee was specifically asked about the voucher No. 13 as under question No.27, "Question No.27 : Have you got any evidence from which it can be proved that the goods of voucher No.13 included in the goods of voucher No.9 & 10 because the date mentioned on voucher No. 13 is 13th October, 2011. According to us this goods is in addition to goods of voucher No.9 and 10. If you have any evidence from which it can be proved that the goods in voucher No.9 & 10 includes goods of voucher No. 13 then produce the evidence. Reply : The date on voucher No. 13 has been wrongly stated. I did not have any extra stock. We don't maintain item-wise stock. For this reason, no details thereof can be produced." From the above, it is seen that the appellant has specifically said that they don't maintain item-wise stock and he is....
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.... assessee has reduced to 3.21% from the last 2 years. In the last 2 years gross profit declared by the assessee was 4.74% and 5.04%. 24.1 In view of above observation, the AO proposed to reject the books of accounts u/s 145(3) of the Act by issuing a show-cause notice to the assessee. 24.2 The assessee in compliance to it submitted that he has been maintaining his books of accounts on mercantile basis for the last several years and the same were accepted by the Revenue. 24.3 The books of accounts were duly audited u/s 44AB of the Act. Therefore it was submitted by the assessee that books of accounts should not be rejected u/s 145(3) of the Act. However, the AO disregarded the contentions of the assessee after taking a note of his observation as discussed above. Accordingly, the AO worked out the gross profit on the turnover @5% which works out to Rs. 53,50,730/- against the GP declared by the assessee for Rs. 34,39,460/. 24.4 Therefore, the AO added the difference amount of Rs. 19,11,270/- (53,50,730 - 34,39,460) to the total income of the assessee. 25. Aggrieved, assessee preferred an appeal to Ld CIT(A). The assessee before the Ld CIT(A) submitted that the asses....
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....ck at the time of survey. Therefore, the allegation of the AO that the assessee is not maintaining any stock register is contrary to the facts available on record. We also note that the sales and purchases have been duly accepted by the lower authorities and there was no whisper either less reporting/ under reporting of purchase and sales. Therefore, in our considered view books of accounts cannot be rejected. Similarly, the net /gross profit declared by the assessee was duly supported on the basis of audited financial statements in respect of which no defect was pointed out. 27.1 We also note that the case law relied by the AO during the assessment proceedings are factually different from the present case. 27.2 In the case of S. N. Namasivayam Chettiar reported in 38 ITR 579, the Hon'ble Apex Court confirm the rejection of the books of accounts due to the fact that the stock register was not maintained by the assessee. However, in the case before us we note that the stock register was duly maintained. Therefore we are reluctant to place any reliance in the case of S.N. Namasivayam Chettiar (supra). 27.3 Similarly, the case law relied by the AO in the case of British....