2012 (12) TMI 517 - AT - Income Tax

Undisclosed cash credit - Held that - It is revealed from the ledger account submitted with the paper book that the assessee has disclosed the addresses and telephone numbers of the members in the ledger account therefore the allegation of the AO that the details have not been furnished cannot be accepted - no infirmity in the accounting methodology as the appellant debits the cash account on receipt of monthly instalment and credits the ledger account of the customer & when the jewellery is given at that point the credits are converted into sales - in favour of assessee. Addition on account of deficit stock of Diamonds - survey under section 133A - Held that - The AO treated the deficit in stock as unaccounted sales and added an amount of Rs.5, 74, 394/- but when the assessee has produced certain evidences the same cannot be discarded on doubts and presumptions without bringing sufficient material to disprove them. It appears from the assessment order that there is no out-right denial from Sri Satish Kumar Shah regarding receipt of diamonds for assortment AO is not precluded from making any enquiry to find correctness of the claim made out by the assessee. However principles of natural justice demands the assessee must be informed about the result of such enquiry and may be given a fair chance of rebutting it - set aside this issue to the file of AO who shall make proper enquiry and come to a conclusion after affording an opportunity of being heard to the assessee in this regard. Disallowance of notional interest received on loan advances - Held that - It is seen from the balance-sheet of the assessee having enough capital to advance the loan amount of Rs.30 lakhs and the unsecured loans were all taken in the earlier years and no fresh loan has been taken in the current assessment year hence there is no nexus between the borrowed capital and loan advanced by the assessee - addition towards notional interest cannot be sustained - in favour of assessee. Monies collected as a part of the assessee s monthly gold scheme lucky draw - Held that - It is seen from the terms and conditions of the scheme that under no circumstances cash will be refunded to the member and only gold ornaments will be issued. Therefore the inference to be made is as soon as the member participates in the scheme and pays installment money there is accrual of income to the assessee since the money is not going to be refunded to the member. Therefore it cannot be said that the income has not accrued to the assessee - The assessee is showing it as a liability will not change the character of receipt which always remains as a trading receipt - against assessee. Addition on account of valuation of closing stock - Held that - As the assessee has been consistently adopting the same FIFO method of valuation of closing stock from the past years without being doubted or questioned by the department and is sought to be changed by the department it has to be backed by sound reasoning which is lacking in the present case - set aside this issue to the file of the AO who shall take a decision after affording a reasonable opportunity of being heard to the assessee.

Summary

Issues Involved:
1. Creditworthiness of Sundry Creditors.
2. Scheme Loss Disallowance.
3. Deficit in Stock of Diamonds.
4. Disallowance of Interest on Loans.
5. Addition of Monies Collected under Monthly Gold Scheme.
6. Addition of Money Refunded under Monthly Gold Scheme.
7. Valuation of Closing Stock.

Detailed Analysis:

1. Creditworthiness of Sundry Creditors:
The Revenue contended that the assessee failed to prove the creditworthiness of sundry creditors by not providing details such as addresses and telephone numbers. The AO added Rs.36,61,060/- as undisclosed cash credit under Section 68 of the Act. However, the CIT (A) deleted the addition, noting that each customer in the scheme had a separate ledger account with identifiable details. The Tribunal upheld the CIT (A)'s decision, finding no infirmity as the assessee had disclosed the necessary details in the ledger accounts.

2. Scheme Loss Disallowance:
The AO disallowed the scheme loss of Rs.3,86,880/- due to lack of details regarding sales made to customers participating in the scheme. The CIT (A) deleted this disallowance, observing that the accounting entries adopted by the assessee were proper. The Tribunal upheld the CIT (A)'s order, finding no infirmity in the accounting methodology used by the assessee.

3. Deficit in Stock of Diamonds:
The AO added Rs.5,47,394/- as unaccounted sales due to a deficit in stock of diamonds found during a survey. The assessee explained that the deficit was due to diamonds sent for assortment, supported by receipts and a delivery note. The AO dismissed these documents as flimsy. The Tribunal found that the AO violated principles of natural justice by not allowing the assessee to cross-examine the individual who provided the statement. The issue was remanded back to the AO for proper enquiry and to afford the assessee an opportunity to be heard.

4. Disallowance of Interest on Loans:
The AO added Rs.3,60,000/- as notional interest on loans advanced by the assessee without charging interest, despite the assessee paying interest on loans from family members. The CIT (A) upheld this addition. The Tribunal found that the assessee had sufficient capital to advance the loans and that the unsecured loans were from earlier years. Thus, there was no nexus between the borrowed capital and the loans advanced. The Tribunal directed the deletion of the notional interest addition.

5. Addition of Monies Collected under Monthly Gold Scheme:
The AO treated Rs.43,99,060/- collected under the monthly gold scheme as income for the year. The assessee contended that the amounts were liabilities until the scheme's completion. The CIT (A) upheld the addition, stating that the amounts accrued as income since they were non-refundable. The Tribunal agreed, noting that the amounts received were trading receipts and accrued as income upon receipt. The addition was upheld.

6. Addition of Money Refunded under Monthly Gold Scheme:
The AO disallowed Rs.1,89,000/- claimed as refunds under the gold scheme. The assessee failed to provide sufficient evidence of these refunds. The Tribunal upheld the disallowance, noting the lack of detailed evidence and membership cards.

7. Valuation of Closing Stock:
The AO valued the closing stock using the FIFO method, resulting in an addition of Rs.74,59,731/- as unaccounted sales. The CIT (A) sustained the addition on valuation grounds but not as unaccounted sales. The Tribunal found that the AO did not specify the price used for valuation and noted that the assessee had consistently followed the same valuation method in past years. The issue was remanded back to the AO for reconsideration with proper reasoning and opportunity for the assessee to be heard.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal for statistical purposes, remanding certain issues back to the AO for further consideration.