2015 (11) TMI 729 - AT - Income Tax

Addition on excess stock found at the premises of the assessee during the course of survey - Held that - The first and the foremost circumstance which is to be considered is the human conduct of the director at the time of survey. 3,000 grams of the gold is not a small quantity which might have not struck to the mind of the director when survey was going on. The learned first appellate authority, while appreciating this aspect has observed that conduct of the director is little unusual when he brought to the notice of jewellery purchased from M/s. Oasis Jewels. It is strange that the director informed one purchase but forgot to inform about other purchases. It is also pertinent to note that all the stocks as well as other details were brought to the notice of director. The employees were present and they were having ample time to recall this transaction. The learned first appellate authority also observed that as per market practice the owner of jewellery shop knew the gold purchase made in the recent past by heart because the purchase in terms of money is quite big. Keeping in mind this background, we have to appreciate the alleged evidence produced by the assessee along with the explanation. The first is the bank statement of Vijaya Bank. This is the statement of the assessee s account. In this bank statement, payments to M/s. Jain Creation through account-payee cheques are available, starting from August 14, August 18, and August 19, these payments were of ₹ 42 lakhs then on August 21st and 23rd, again the assessee paid ₹ 10 lakhs. It is not discernable against which purchases these payments have been given set off. The purchases of the jewellery on August 21, has been alleged to ₹ 35,68,000 but payments of ₹ 42 lakhs were made before August 19. If this amount was to be accounted for purchase of the jewellery then what was the need to make payment of ₹ 10 lakhs more on August 21st and 22nd. Though the confirmation is available at pages 33 given by M/s. Jain Creation do indicate that the gold was sold to the assesse and it was delivered to the assesse on August 21, 2008 but neither the assessee nor M/s. Jain Creation is able to substantiate this stand with any other corroborative evidence. To our mind, this evidence has been brought in picture by the assessee during the course of assessment proceedings in an anticipation that certain payments are reflecting in the bank account to M/s. Jain Creation, therefore, an effort should be made that these payments represent purchases of gold bars from M/s. Jain Creation. If it was true story then it would not have slipped from the mind of the director when his statement was recorded. The learned Commissioner of Income-tax (Appeals) has rightly observed that while delivering gold at the premises of the assessee, something written on paper must have accompanied, because that would insulate the carrier from any inquiry on the way, if caught by any agency. On an analysis of the evidence available on record, we are of the view that the learned first appellate authority has appreciated the controversy in right perspective and no interference is called for in the order of the Commissioner of Income-tax (Appeals). We do not find any merit in this appeal. It is dismissed. - Decided against assessee.

Summary

Issues Involved:
1. Addition of Rs. 26,68,441 on account of alleged excess stock found during the survey.
2. Reconciliation and explanation of the excess stock by the assessee.
3. Acceptance of the explanation provided by the assessee regarding the purchase of gold from M/s. Jain Creation.

Issue-wise Detailed Analysis:

1. Addition of Rs. 26,68,441 on Account of Alleged Excess Stock Found During the Survey:
The primary grievance of the assessee was the confirmation of the addition of Rs. 26,68,441 by the Commissioner of Income-tax (Appeals) (CIT(A)), which was initially added by the Assessing Officer (AO) due to alleged excess stock found during a survey conducted under section 133A at the assessee's business premises. The survey revealed excess stock valued at Rs. 85,17,439, which was computed by comparing the physical inventory with the stock as per the books of account.

2. Reconciliation and Explanation of the Excess Stock by the Assessee:
During the survey, the director of the assessee company acknowledged the excess stock and indicated that it would be disclosed in the return of income. However, the assessee declared an investment in stock of Rs. 58,48,997 only. The assessee contended that it had received 2,500 grams of gold from M/s. Oasis Jewells, which was later confirmed to be 1,662.64 grams, leading to an admission of 837.36 grams as unaccounted. Additionally, the assessee claimed to have received 3,000 grams of gold from M/s. Jain Creation, which was not accounted for at the time of the survey.

3. Acceptance of the Explanation Provided by the Assessee Regarding the Purchase of Gold from M/s. Jain Creation:
The AO rejected the assessee's explanation, considering it an afterthought, as the director did not mention this purchase during the survey. The CIT(A) also confirmed the addition, noting that the assessee did not inform the survey party about the purchase from M/s. Jain Creation, despite having ample time and resources to recall the transaction. The CIT(A) found it unusual that the assessee mentioned one purchase but forgot the other, and emphasized that no documentation, such as a challan, was presented during the survey to support the claim.

Detailed Judgment Analysis:
The Tribunal considered the rival contentions and the evidence on record. It noted that the human conduct of the director at the time of the survey was a significant factor. The director's failure to mention the 3,000 grams of gold from M/s. Jain Creation during the survey raised doubts about the credibility of the claim. The Tribunal observed that the payments to M/s. Jain Creation, as reflected in the bank statement, did not conclusively prove the purchase of gold bars. The Tribunal also highlighted the lack of corroborative evidence to support the assessee's explanation.

The Tribunal upheld the CIT(A)'s decision, agreeing that the explanation provided by the assessee was not convincing and appeared to be an afterthought. The Tribunal emphasized that the assessee's failure to mention the purchase during the survey and the absence of supporting documentation weakened the credibility of the claim. Consequently, the Tribunal dismissed the appeal, confirming the addition of Rs. 26,68,441.

Conclusion:
The Tribunal concluded that the assessee's explanation regarding the excess stock was not credible and upheld the addition made by the AO and confirmed by the CIT(A). The appeal was dismissed, and the order was pronounced in the open court on May 26, 2015.