2016 (1) TMI 170 - AT - Income Tax

Disallowance of expenditure - AO repeated that since there was no date in the vouchers and the amount was not recorded in the current year s accounts the same was rightly added - Held that - Firstly there was a totaling mistake of ₹ 76500/- (Rs. 8500/- taken as ₹ 85000/-), which is not disputed by the AO in the remand report. The AO has not disputed the claim of the assessee that out of the total of ₹ 12,11,301/- (after correcting the totaling mistake) the vouchers for a sum of ₹ 10,71,599/- were duly recorded in the earlier year s books for which specified amount wise details were filed before the AO in course of assessment proceedings and have not been adversely commented by the AO even in the assessment order. Therefore simply because there was no date on the vouchers but specific amount was found debited in the earlier year s cash book and there was no evidence to suggest that these expenses related to this year, the addition was not justified - Decided in favour of assessee Disallowance of certain expenses from the impounded papers - Held that - The modus operand of the assessee s business is that apart from its own sale of jewellery, the small gold smiths who also manufactures some jewellery on their own from the small portion of gold retained by them in course of labour work, also gives their jewellery for sale to the assessee. The assessee keeps the said jewellery in the show room and sales the same to the customers and on sale the payment is made thereafter to the gold smiths. This will be apparent from the seized paper MS-5 wherein the payment for small items of jewellery is made to such gold smiths. The assessee has already admitted the sale of jewellery amounting to ₹ 16,89,700/- outside the books and on the said undisclosed sale the AO has already estimated net profit at 14.68%. We find from records that in course of survey the AO found that some of the purchased jewellery as well as the labour charges were not accounted for, as mentioned above, which is not accounted for. AO himself has presumed outgoings for such sale (Rs.16,89,700- ₹ 2,40,048) at 14,41,652/-. The AO has found in the impounded papers the payment amounting to ₹ 10,57,336/-, which is much less than the outgoing estimated by the AO on such sales. Therefore these outgoings can be telescoped with the actual expenses accepted by department to have been incurred for achieving the undisclosed sales of ₹ 16,89,700/-. Thus the addition was not justified - Decided in favour of assessee Unexplained investment - CIT(A) deleted addition - Held that - While making the tabulation in the assessment order, the AO has mixed up the amount in terms of money and the weight in terms of grams and therefore, confusion has arisen. In all there are 27 items. The assessee has filed complete details of all the 27 items segregating the items in terms of the money i.e Rupees and in terms of grams from the seized papers. We find that the payment to the labour is 23636.50 and the total weight of silver involved was 8753.63 grms and from accounts of the assessee that the total silver manufactured during the year was 26915.64 gms. and the labour charges for manufacturing silver was 2,87,010, 54,570/- and ₹ 8,555/-. Therefore the total silver manufactured during the year as well as the labour charges incurred was much more than what the AO found in the impounded papers. In fact the entire confusion has arisen because of the mistaken belief of recording the figures in terms the money as well as grams as if the same was weight of the silver dealt with. In view of the above facts and circumstances of the case, we are of the view that CIT(A) has rightly deleted this addition - Decided in favour of assessee Addition made on account of unexplained investment made in excess stock - CIT(A) deleted addition - Held that - AO observed that the assessee disclosed higher side Jewellery found than during the course of Survey. It is also mentioned earlier that during the course of Survey no cash book, ledger, account, etc. was found and the assessee stated that the same was lying with Accountant for Audit purpose. But she failed to disclose name of the Accountant during the course of deposition. It appears that this action of the assessee is intentional for the purpose of avoiding enquiry. As there was no book of accounts found during the course of survey, the purchase recorded as claimed by the assessee is not accepted and the same was added back as excess stock. But we find that the assessee reconciled the excess stock with that the books of account and the reconciliation submitted by the assessee, the assessee had excess stock of jewellery recorded in its books of account as compared to the physical stock found at the time of survey. We find that once the AO had accepted the stock as per books reconciled by the assessee. No deficiency or mistake is found or pointed out in the said reconciliation then AO cannot make any addition on this account. If the books of account show higher figure of stock then what was found in the course of survey, such excess cannot be added as undisclosed investment. Accordingly, this addition has rightly been deleted by CIT(A) - Decided in favour of assessee Addition made on account of customers gold lying in stock treating the same as unexplained investment - CIT(A) deleted addition - Held that - The AO has not disputed the said receipts and has accepted the assessee s stand that the assessee has received the remaking charges of old jewellery given for remaking by the customers. It is of common knowledge that such remaking takes a month or two and in between such jewellery remains with the assessee. We have also gone through the reconciliation submitted on which the AO has relied on the while making addition of ₹ 797234 vide para 11 of the assessment order while considering the stock discrepancy. The AO has accepted the gold ornaments belonging to customers at 13649 gms. Having accepted and relied on the said statement he cannot deny the said availability of gold while making another addition. He should have accepted his own finding as recorded in para 11, Page 14. The AO has also accepted the fact that some gold was lying with the job works for making or remaking. The AO cannot reject the explanation partly. Therefore, we are of the view that CIT(A) has rightly deleted the addition and we confirm the order of CIT(A) on this issue.- Decided in favour of assessee Addition on account of difference in valuation treating the same as unexplained investment - CIT(A) deleted addition - Held that - Even the CBDT in its Press Note dated 11.5.94 has directed even that even in search and seizure relating to house hold jewellery not to treat the jewellery as unexplained if the weight of the jewellery found tallies with the weight disclosed by the assessee. It has been shown by the assessee that the assessee had sufficient stock of the stones as on the date of survey and further there was direct evidences of the purchase of the stones vide MS-4 page-34. Hence the stones found in the inventory the weight of which was 3015.980 Gms is explained. For the sake of repetition, it is again mentioned that the DVO has taken the market value and not the cost price and there was evidence of purchase of 2578 gms immediately within one month before the date of survey and there was stock of stones b/f from earlier period, the weight of stones found at the time of survey was covered of the stock in hand as explained above. In view of the above facts and circumstances of the case, we are of the view that CIT(A) has rightly deleted the addition - Decided in favour of assessee

Summary

Issues Involved:
1. Unexplained expenditure of Rs. 12,88,301/-.
2. Unexplained expenditure of Rs. 9,16,935/-.
3. Unexplained investment of Rs. 7,45,959/-.
4. Excess stock considered as unexplained investment of Rs. 7,97,234/-.
5. Customers' gold treated as unexplained investment of Rs. 51,53,238/-.
6. Difference in valuation treated as unexplained investment of Rs. 39,16,154/-.

Issue-wise Detailed Analysis:

1. Unexplained expenditure of Rs. 12,88,301/-:
The revenue challenged the deletion of Rs. 12,88,301/- by the CIT(A), which was added by the AO based on undated vouchers found during the survey. The AO assumed these vouchers related to the FY 2006-07 and added the amount as unexplained expenditure. The CIT(A) found that the assessee had provided detailed statements showing these expenses were recorded in previous years' books and the AO made a totaling mistake. The Tribunal confirmed that most of the expenses were indeed recorded in the books, and the remaining amount could be correlated with unrecorded sales. Thus, the Tribunal upheld the CIT(A)'s deletion of the addition.

2. Unexplained expenditure of Rs. 9,16,935/-:
The AO added Rs. 9,16,935/- as unexplained expenditure based on impounded documents. The CIT(A) deleted the addition, noting that these expenses were correlated with unrecorded sales of Rs. 16,89,700/-, on which the AO had already estimated a profit of Rs. 2,40,048/-. The Tribunal confirmed the CIT(A)'s decision, acknowledging that the unrecorded expenses were covered by the unrecorded sales.

3. Unexplained investment of Rs. 7,45,959/-:
The AO added Rs. 7,45,959/- as unexplained investment based on impounded documents showing silver jewellery/utensils not recorded in the books. The CIT(A) found that the AO had mixed up figures in terms of weight and money, and the actual figures were already accounted for in the assessee's books. The Tribunal upheld the CIT(A)'s deletion of the addition, noting that the AO's confusion led to the incorrect addition.

4. Excess stock considered as unexplained investment of Rs. 7,97,234/-:
The AO added Rs. 7,97,234/- as undisclosed investment based on excess stock found during the survey. The CIT(A) deleted the addition, stating that the excess stock recorded in the books could not be treated as undisclosed investment. The Tribunal confirmed the CIT(A)'s decision, noting that the reconciliation provided by the assessee showed no discrepancy.

5. Customers' gold treated as unexplained investment of Rs. 51,53,238/-:
The AO added Rs. 51,53,238/- as unexplained investment, claiming the assessee could not prove the gold belonged to customers. The CIT(A) deleted the addition, noting that the assessee had provided sufficient evidence of receiving gold from customers for job work, and some customers had confirmed transactions. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO had accepted part of the assessee's explanation and could not reject it partially.

6. Difference in valuation treated as unexplained investment of Rs. 39,16,154/-:
The AO added Rs. 39,16,154/- as unexplained investment based on a valuation report showing differences in quality, weight, and value of stones. The CIT(A) deleted the addition, finding that the stones' cost price matched the purchase records and the assessee had sufficient stock. The Tribunal confirmed the CIT(A)'s decision, noting that the valuation report's market value should not be used to add back the cost price already accounted for.

Conclusion:
The Tribunal dismissed the revenue's appeal, confirming the CIT(A)'s deletions of the various additions made by the AO. The Tribunal found that the assessee had adequately explained and accounted for the expenditures and investments in question, and the AO's additions were based on misunderstandings and incorrect assumptions.