2014 (3) TMI 651 - HC - Income Tax

Suppressed sale Excess consumption of gold in manufacture - Whether the Tribunal were right in raising inference on fact and in law that the alleged excess consumption of gold in manufacture of gold ornaments through various artisans, were suppressed sales within the country and liable to be treated as the income of the assessee Held that - The CIT A observed that if the gold ornaments were carrying greater purity value, and therefore, greater content of gold, the assessee had no reason to make a mis-declaration - assessee was meeting with the minimum standard of 22 carat gold - What the assessee had to charge from its importers had nothing to do with what the assessee may declare in the export documents regarding the purity of gold - As per the bylateral understanding, even if the importers would have paid the assessee for the gold purity at 91.66%, there was no reason why the assessee should shy away from declaring that the correct purity of the gold ornaments is 93.37%, if that was the real case - The CIT A also made a significant point in observing that the assessee could import only that much quantity of gold that was exported - By making misdeclaration therefore, the assessee was seriously reducing quantity of gold that would be available for import against the export undertaken by it - The analysis made by the Customs authorities also matched with that of the assessee s own declaration regarding purity of gold. The difference between the two sets of declarations was not minor or insignificant - It could not have been passed off as mixing of impurity or error in measuring standards - It was simply a case where the assessee utterly failed to explain the considerable difference in the gold quantity in two sets of documents maintained by itself - the contention that in absence of proof of local sale, it must be presumed to have been exported, is fallacious - It is not even the case of the assessee, barring his explanation about the higher purity of gold being exported when lower purity gold is declared in the export documents, that such gold was in some form or the other, separately or independently exported - When the authorities did not accept the assessee s explanation, it comes to a situation where such differential quantity of gold did not form part of the assessee s exports the authority rightly reached at was that the gold was subjected to local sale the order of the Tribunal upheld Decided against Assessee.

Issues Involved:
1. Whether the Authorities of the Department were right in inferring that the alleged excess consumption of gold valued at Rs. 28,31,418/- in the manufacture of gold ornaments was suppressed sales within the country and liable to be treated as the income of the assessee.
2. Whether the Tribunal ignored the settled trade practice relied upon by the assessee, supported by certificates issued by the Gems & Jewellery Export Promotion Council and receipts from the artisans, while inferring suppressed sales.

Detailed Analysis:

Issue 1: Excess Consumption of Gold and Suppressed Sales
The assessee, engaged in the business of manufacturing and exporting gold ornaments, faced scrutiny from the Assessing Officer (AO) for discrepancies in the weight and purity of gold recorded during manufacturing and export. The AO noticed that the gold ornaments, recorded as having a higher purity in the assessee's books (93.37% for 22 Carat), were shown to have a lower purity (91.66%) in export documents and Customs certificates. Similar discrepancies were observed in gold ornaments of other purities (20, 18, and 14 Carat).

The AO concluded that the purity recorded in the books (e.g., 0.917 fineness for 22 Carat) was not higher than what was shown in the export vouchers, indicating no wastage or loss during manufacturing. The AO computed the unaccounted gold as 12,910.189 grams, valued at Rs. 38,46,004/-, considering it as unrecorded local sales.

The Commissioner of Income-tax (Appeals) [CIT(A)] partially agreed but revised the figure to Rs. 28,31,480/-, acknowledging a minor error in the AO's calculation regarding the purity of standard gold bars. The Tribunal upheld the CIT(A)'s revised figure, concluding that the assessee failed to explain the excess consumption of gold, leading to the inference that the excess gold was sold locally, unaccounted for in the books.

Issue 2: Ignoring Settled Trade Practice and Certificates
The assessee argued that the manufacturing process was strictly monitored under the Gold Control Act, with all transactions recorded and certified, including those by the Gems & Jewellery Export Promotion Council. The assessee claimed that the ornaments were manufactured with slightly higher purity to meet stringent international standards, and the difference in gold purity was recovered through higher labor charges.

However, the Tribunal found that the assessee consistently declared a lower purity (91.66%) in export documents, contrary to the higher purity (93.37%) recorded in the books. This discrepancy was substantial and could not be justified as a trade practice. The Tribunal noted that the assessee's explanation was not convincing, as declaring the correct higher purity would have allowed for more gold imports, benefiting the assessee.

Conclusion:
The High Court found no perversity in the findings of the Revenue authorities and the Tribunal. The authorities' conclusion that the excess gold was sold locally was based on detailed analysis and evidence. The court dismissed the appeal, deciding both questions against the assessee. The authorities did not ignore the certificates from the Gems & Jewellery Export Promotion Council but found the explanation for the discrepancies inadequate. The appeal was dismissed, confirming the addition of Rs. 28,31,480/- as the assessee's income from unrecorded local sales.

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