2016 (9) TMI 1354 - AT - Income Tax

Assessment of unaccounted income - Unexplained investment by the assessee treated under the head Income from business - investment surrendered by the assessee - income from other sources - Held that - There is no conflict with the decision of Hon ble Gujarat High Court in the case of Fakir Mohd. HajiHasan (2000 (8) TMI 44 - GUJARAT High Court) where investment in an asset or expenditure is not identifiable and no nexus was established then with any head of income and thus was not available for set off against any loss under any other head. Therefore, the Hon ble Coordinate Bench held that where asset in which undeclared investment is sought to be taxed is not clearly identifiable or does not have independent identity but is integral and inseparable (mixed) part of declared asset, falling under a particular head, then the difference should be treated as undeclared business income explaining the investment. In the present case the excess stock was part of the stock. The revenue has not pointed out that the excess stock has any nexus with any other receipts. Therefore, we do not find any fault with the decision of the ld. CIT (A) directing the AO to treat the surrendered amount as excess stock qua the excess stock found. Addition on account of change of method of valuation of closing stock - Held that - The change in the method of valuation of the stock is bona fide and the AO himself in the subsequent year has accepted the same. The various cases laws relied by the ld. AR also support the case of the appellant. As in case of Anil Kumar Tantia v. ITO 2013 (5) TMI 948 - ITAT JODHPUR held that the appellant who was dealer of precious metal like gold and silver and previously adopting the method of valuation of closing stock at market rate but the changed the same to weighted average cost price for which bona fide reasons exist considering the fluctuation in the rates, the same needs to be accepted. Considering all these facts find that the change in the method of valuation of the stock is bona fide. Accordingly, the addition made by the AO is deleted. Addition on account of making charges on unaccounted excess stock - element of making charges paid by the assessee on such excess stock - Held that - CIT (A) has rightly deleted the addition observing that the valuer has valued the jewellery and not the pure gold. The excess stock found during search is valued by registered valuer and neither anything against the said valuation is pointed out against by AO nor any action against the valuer has been taken by the department under the WT Act. Obviously, the jewellery valued includes making charges in very applying the rate by the valuer. As find that AO is not an expert to change the valuation of valuables found during the search. There is no basis for assumption by the AO that the making charges which would have incurred in creating above jewellery were not included in the valuation. The AO has not brought any evidence to prove that the valuer has valued the jewellery without considering making charges. No specific reasons are advanced by the AO for making separate addition for making charges. Such addition cannot be sustained.

Summary

Issues involved:
1. Assessment of unexplained investment under the head 'Income from Business'
2. Deletion of addition on account of change in method of valuation of closing stock
3. Deletion of addition made on account of making charges on unaccounted excess stock found

Analysis:

Issue 1: Assessment of unexplained investment under the head 'Income from Business'
The appeal by the revenue contested the direction of the ld. CIT (A) to assess the unexplained investment surrendered by the assessee under the head 'Income from Business.' The revenue argued that the decision did not align with the judgment of the Hon'ble Gujarat High Court in a specific case. However, the assessee's counsel supported the decision, citing a relevant case law. The Tribunal analyzed the facts, noting that the excess stock found during the survey was part of the overall stock and had no independent identity. The Tribunal referred to precedents and held that if the excess stock does not have a separate physical identity and is integral to the declared assets, it should be treated as undeclared business income. Consequently, the Tribunal upheld the decision of the ld. CIT (A) to assess the surrendered amount as excess stock under the business income category.

Issue 2: Deletion of addition on account of change in method of valuation of closing stock
The second ground of appeal was against the deletion of an addition made on account of a change in the method of valuation of closing stock. The ld. CIT (A) had ruled in favor of the assessee, stating that the change in valuation method was bona fide and consistently followed. The Tribunal reviewed the facts and found that the change in valuation method was justifiable, especially considering the fluctuation in gold and silver rates. Additionally, the Tribunal noted that the AO had accepted the changed method in the subsequent year. As the revenue did not present any contradictory evidence, the Tribunal upheld the decision of the ld. CIT (A) to delete the addition.

Issue 3: Deletion of addition made on account of making charges on unaccounted excess stock found
The third ground of appeal concerned the deletion of an addition made on account of making charges on unaccounted excess stock found. The ld. CIT (A) had ruled in favor of the assessee, emphasizing that the valuation of the excess stock included making charges and the AO had not provided evidence to the contrary. The Tribunal reviewed the findings and observed that the valuation report considered the making charges, and the AO's assumption for a separate addition lacked basis. As the revenue failed to present any opposing evidence, the Tribunal upheld the decision of the ld. CIT (A) to delete the addition.

In conclusion, the Tribunal dismissed the revenue's appeal, upholding the decisions of the ld. CIT (A) on all three grounds. The order was pronounced on 30/09/2016.