2014 (7) TMI 602 - AT - Income Tax

Unexplained stock - Excess stock found during survey Held that - The claim of the assessee that excess gold and silver found at the time of survey represented the gold and silver received from the customers for remaking/remodelling was not correct - The claim of the assessee is that the goods inventorized at the time of survey also include the goods which were not owned by the assessee but were received by the assessee from its customers for remodeling - AO has not accepted the contention of the assessee on the ground that at the time of the survey, it was stated that the goods received from customers were handed over to the karigars immediately i.e. such goods were not present in the premises of the assessee and consequently not included in the inventory prepared at the time of the survey - copy of the statement which was recorded at the time of the survey was not produced to rebut the contention of the AO - Copy of inventory prepared at the time of survey was also not produced before us by the assessee to point out therefrom that such inventory included the goods received from customers for remaking or remodeling CIT(A) pointed out that in the affidavits of the karigars it is not stated that they carried out work of repairing/remodelling at the premises of the assessee and kept such goods at the premises of the assessee - no material was brought to controvert the point highlighted by the CIT(A) - in absence of any material, there was no reason to interfere with the orders Decided against Revenue. Disallowance of Labour payment Held that - The assessee has shown receipt for labour charges which was accepted by the AO as income of the assessee - to hold that no labour charge expenses were incurred for earning the labour charges income is not justified without cogent material CIT(A) allowed labour charge expenses at the rate of 50% of the labour charge receipt which is also without any basis - In absence of any specific defect being pointed out in the vouchers of labour charge expenses, the disallowance made by the CIT(A) is unsustainable thus, the disallowance under the head labour charge expenses is set aside Decided in favour of Assessee. Disallowance u/s 40(a)(ia) of the Act - Hallmark checking expenses - Held that - CIT(A) has found that the aggregate of the payments made to Gujarat Board Centre exceeds ₹ 50,000/- during the year and therefore, the assessee was liable to deduct tax at source from payment made to Gujarat Board Centre - assessee could not controvert the finding of the CIT(A) - no infirmity in the order of the CIT(A) in confirming disallowance paid under the head hallmark checking expenses from out of the total expenditure Decided against Assessee. Deletion of unaccounted income Held that - The assessee was asked to furnish details of stocks as per books of account - The documents contained therein reveal that the opening stock of gold available assessee sold gold weighing 4081.660 gms from 1/4/2007 up to the date of survey - the stock of gold available with the assessee out of the earlier stock of gold on the date of survey was 12,620.201 gms. - After considering the purchase of gold weighing 6712.337gms the AO has worked out the gold available with the appellant on the date of survey as 15,250.878 gms by taking the stock of gold available with the assessee out of the old gold at 538.541 gms. - Revenue supported the order of the AO whereas the assessee supported the order of the CIT(A) - No material has been brought by the Revenue to rebut the finding of the CIT(A) there was no reason to interfere with the order of the CIT(A) Decided against Revenue.

Issues Involved:
1. Addition on account of alleged excess stock found during survey proceedings.
2. Disallowance of labour payment.
3. Disallowance under section 40(a)(ia) for hallmark checking expenses.
4. Addition of unaccounted income by the Revenue.

Detailed Analysis:

1. Addition on Account of Alleged Excess Stock:
The first issue pertains to the addition of Rs. 26,04,315/- for unexplained stock of gold and silver found during a survey conducted under section 133A of the Income Tax Act on 05.03.2008. The stock found was 21610.620 grams of gold and 111.493 kg of silver, while the book stock was 19332.578 grams of gold and 106.916 kg of silver. The difference, valued at Rs. 26,04,350/-, was admitted by the partner of the assessee firm as unaccounted income but was not included in the income return for the assessment year 2008-09. The assessee later retracted, claiming the excess stock belonged to customers for remodeling, supported by affidavits and job bills. However, the Assessing Officer and Commissioner of Income Tax (Appeals) rejected this claim, citing lack of evidence and discrepancies in the affidavits. The Tribunal upheld the lower authorities' decision, emphasizing the absence of material to support the assessee's claim.

2. Disallowance of Labour Payment:
The second issue concerns the disallowance of Rs. 66,459/- out of the total labour payment of Rs. 2,90,981/-. The Assessing Officer disallowed the entire amount, arguing it was shown only to justify the excess stock. The Commissioner of Income Tax (Appeals) reduced the disallowance to Rs. 66,459/-, reasoning that some karigars (artisans) were salaried employees, and the assessee had received labour charges of Rs. 4,49,043/-. The Tribunal found no specific defects in the vouchers and deleted the disallowance, stating the disallowance was unsustainable without cogent material.

3. Disallowance under Section 40(a)(ia) for Hallmark Checking Expenses:
The third issue involves the disallowance of Rs. 75,601/- under section 40(a)(ia) for hallmark checking expenses. The assessee argued that hallmark certification did not attract TDS and that the majority of the bills were below Rs. 500/-. The Assessing Officer and Commissioner of Income Tax (Appeals) disagreed, noting the aggregate payments exceeded Rs. 50,000/-, necessitating TDS deduction. The Tribunal upheld the disallowance, rejecting the assessee's contentions due to lack of supporting material.

4. Addition of Unaccounted Income by the Revenue:
The final issue in the Revenue's appeal relates to the addition of Rs. 45,40,891/- for unaccounted income. The Assessing Officer recalculated the excess stock, resulting in a total value of Rs. 71,45,241/- and added the difference of Rs. 45,40,891/- to the income. The Commissioner of Income Tax (Appeals) corrected the calculation, noting the correct opening stock and reducing the addition to Rs. 26,04,350/-. The Tribunal found no material to rebut the Commissioner's findings and dismissed the Revenue's appeal.

Conclusion:
The Tribunal dismissed the assessee's appeal regarding the addition of unexplained stock and upheld the deletion of the disallowance for labour payment. It also confirmed the disallowance under section 40(a)(ia) for hallmark checking expenses. The Revenue's appeal for additional unaccounted income was dismissed, affirming the Commissioner of Income Tax (Appeals)'s corrected calculation.

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