1995 (10) TMI 64 - AT - Income Tax

Summary

Issues Involved:
1. Excess stock of gold jewellery found during a survey.
2. Admission and retraction of the excess stock by the partners.
3. Allocation of excess stock value across different assessment years.
4. Claims of coercion and inducement by the Income-tax Department.
5. Applicability of sections 69 and 69A of the Income-tax Act, 1961.
6. Correct valuation and accounting of the excess stock.

Issue-wise Detailed Analysis:

1. Excess stock of gold jewellery found during a survey:
The Income-tax Department conducted a survey on 16-9-1993 at the business premises of the assessee-firm. An inventory revealed an excess stock of 8,473.256 gms of gold jewellery, valued at Rs. 33,89,302. The stock as per the books was 10,572.911 gms, indicating undisputed excess stock.

2. Admission and retraction of the excess stock by the partners:
Initially, one partner, Shri Srinivasa Shetty, admitted the excess stock and offered it as unexplained investment for income-tax purposes, requesting to spread the excess stock over the assessment years 1992-93, 1993-94, and 1994-95. The other partner, Shri P. Kishore Kumar, corroborated this admission. However, on 24-9-1993, Shri Srinivasa Shetty retracted, stating the entire excess stock should be attributed to the assessment year 1994-95 only. Shri P. Kishore Kumar later also retracted, alleging coercion by the Assessing Officer.

3. Allocation of excess stock value across different assessment years:
The Assessing Officer initially allocated 30% of the excess stock value to the assessment year 1992-93 and the remaining 70% to the assessment year 1993-94. The CIT(A) upheld these additions, stating the retraction was unsupported by evidence and the original statements were credible.

4. Claims of coercion and inducement by the Income-tax Department:
The assessee's counsel reiterated claims of coercion and inducement by the Income-tax Department. The counsel argued that the statements were recorded under duress and should not be considered valid. The Department denied these claims, stating the admissions were voluntary.

5. Applicability of sections 69 and 69A of the Income-tax Act, 1961:
The Department argued the excess stock should be assessed under section 69, which deals with unexplained investments. The Tribunal, however, found no evidence of investments made over different years and concluded that section 69A, which deals with unexplained money, bullion, jewellery, etc., should apply. The Tribunal decided the entire excess stock should be assessed in the assessment year 1994-95.

6. Correct valuation and accounting of the excess stock:
The assessee contended the value of the excess stock should be Rs. 26,78,906, allowing for a 7.5% deduction for impurities. The CIT(A) agreed in principle but did not adjust the operative portion of the order. The Tribunal noted additional discrepancies in stock accounting but deemed these issues academic since the main addition was deleted.

Conclusion:
The Tribunal reversed the lower authorities' orders, deleting the additions for the assessment years 1992-93 and 1993-94. It concluded that the entire excess stock should be assessed in the assessment year 1994-95 under section 69A. The appeals filed by the assessee were allowed.