2015 (7) TMI 683 - AT - Income Tax

Addition quantifying the excess stock in survey - Held that - As seen from the statements on record, the excess stock was arrived at on the day of survey based on GP calculations. Be that as it may, the quantity of the gold has tallied but the difference arose only in the context of rate adopted for valuing the excess stock. It was the submission that gold was valued at ₹ 1,150 Per Gram during survey, where as the book value/ market value was at ₹ 870 Per Gram which was adopted by assessee at the end of the year. Accordingly, instead of ₹ 52,03,881/- stock excess including silver ornaments, diamonds and pearls, assessee offered ₹ 34,90,295/- which gave rise to the difference of ₹ 17,13,586/-. This contention of assessee has to be accepted as AO accepted the closing stock valuation as shown in books. Further as seen from the order of assessment passed by the AO, he determines the concealed amount at ₹ 62,13,730/-. There is no justification how this figure was arrived at and in the show cause notice issued only this amount was shown as value of excess stock. The stock as per the statements was only ₹ 52,03,881/-. Thus, there is difference of amount, may be the voluntary disclosed amount of ₹ 10 Lakhs was also included as excess stock. This indicates that AO without any application of mind has simply taken the amounts. Difference of the amount was as a result of valuation of closing stock, including excess stock found on the date of survey. On the basis of principles of valuation of closing stock i.e., cost or market price whichever is less, we do not see any reason to uphold the addition confirmed by the CIT(A) at ₹ 7,13,580/-. - Decided in favour of assessee. Addition on stock pertains to third parties - CIT(A) deleted the addition - Held that - No merit in Revenue s contentions. First of all, it was admitted that stock valued at ₹ 9,20,000/- belongs to third party customers in the survey itself. In fact in question No.13 extracted by the Ld.CIT(A), in para 5.8 of the order, assessee admitted net of the amount at ₹ 26,59,315/- from Punjagutta Branch after excluding the amount of ₹ 9,20,000/-. This itself indicate that the survey party was satisfied about the contention that stock to that extent does not belong to assessee and belong to third parties. On what basis the present AO brought it to tax as assessee s stock could not be understood. The Ld.CIT(A) has rightly considered the issue and in our opinion, deleted the same based on facts - Decided against revenue. Addition made by AO towards unaccounted dividend - CIT(A) deleted the addition - Held that - There is no basis for bringing the amount to tax on assumptions and presumptions as was done by the AO. We are unable to understand the Revenue s grounds also. The Revenue s ground says The CIT(A) should not have accepted the argument of the assessee, the chit dividend has been offered and chit loss has been claimed in the P&L A/c. The CIT(A) should have verified the P&L A/c wherein, no chit dividend has been offered neither the loss has been debited . This ground is not based on the CIT(A) s order. Even though CIT(A) did mention that assessee submitted that both chit dividend and chit loss in the P&L A/c, further statement shows that they are not taken in to P&L A/c. As facts indicate, the chit has started as early as 28-08-2005 and ended in 30-09-2007. Assessee did maintain the chit account in the Books of Accounts but neither the loss nor dividend was been taken to P&L A/c, the fact of which was admitted by the Revenue as well. In these circumstances, AO has to examine whether at the end of the chit, assessee earned any surplus or loss. Nothing was done except presuming an amount of ₹ 1 Lakh addition without any basis. Assessee has submitted relevant details before CIT(A) who after examination, deleted the amount - Decided against revenue. Addition on account of Members Gold Scheme - CIT(A) deleted the addition - Held that - We are unable to understand how the AO can make the addition and arrive at a profit of ₹ 1 Lakh minimum in the year per month, when assessee submits that only at the end of the scheme, he will pay ₹ 1,000/- to them in addition to amount deposited. As and when amount was withdrawn or taken by the party, gold was given to the party / member and the same was shown in the gold sales account. Since it is a business proposition and all the transactions having been accounted in the books of account, further addition on assumptions and presumptions does not arise. If AO was of the opinion that assessee is depositing ₹ 1 Lakh per month in the bank either ₹ 1 Lakh should be income but the same was taken for estimation of 12% on ₹ 12 Lakhs at ₹ 1,44,000/-. There is no rhyme or reason for AOs addition. It does not have any justification. First of all, the calculation itself is wrong. Even if one were to presume a rate of 12% of interest on the above amount, AO himself accepts that there will be deposit of ₹ 1 Lakh per month. How 12% interest can be worked out on ₹ 1 Lakh deposited in the last month can only be explained by the AO. The calculation itself is wrong and the basis for such calculation is devoid of any merit. Ld.CIT(A) has done the correct thing in deleting the addition. We are unable to understand how AO can come in appeal on this issue when there is no basis for making the addition itself. - Decided against revenue. Outstanding creditor s addition made by the AO - CIT(A) deleted the addition - Held that - Perusing the Paper Book and also the Balance Sheets of earlier year filed at our instance by Ld. Counsel, We do not see any reason to consider the Revenue s contentions. First of all, AO has verified the creditors and got the confirmation letters on his enquiry. The same cannot be rejected simply on the reason that those parties have replied on the same colour of covers and address flags. This cannot be a reason for rejecting the replies received from the parties. Moreover, these are all outstanding balances and without rejecting the purchases or expenditure, the outstanding balances cannot become unaccounted, just because, AO did not accept the confirmations received. It was also explained that these were amounts carried out from earlier year and that the interest payments and TDS on that was also made. These contentions were never considered/rejected by the AO. We are of the opinion that Ld.CIT(A) has rightly deleted the same, as the very basis of the addition is not justifiable. Accordingly, order of CIT(A) is upheld - Decided against revenue.

Summary

Issues Involved:
1. Excess stock determination and valuation.
2. Addition of unaccounted dividend income from chits.
3. Addition of income from gold schemes.
4. Addition of unexplained outstanding sundry creditors.

Issue-Wise Detailed Analysis:

1. Excess Stock Determination and Valuation:
The assessee, engaged in the jewellery business, filed a return declaring an income of Rs. 49,98,490/-. During a survey conducted under section 133A of the Income Tax Act, excess stock was found, leading to a declaration of additional income. The AO added Rs. 26,43,435/- as excess stock, which included Rs. 9,20,000/- claimed by the assessee to belong to third parties. The CIT(A) partly confirmed the addition at Rs. 7,13,580/-. The assessee argued that the valuation difference arose due to different rates adopted for gold valuation. The Tribunal found that the excess stock was valued based on GP calculations, and the difference was due to the valuation rate of Rs. 1,150 per gram during the survey versus Rs. 870 per gram as per the books. The Tribunal concluded that the addition confirmed by the CIT(A) was not justified as the entire excess quantity was accounted for in the books and valued accordingly. The Tribunal deleted the addition of Rs. 7,13,580/-.

2. Addition of Unaccounted Dividend Income from Chits:
The AO added Rs. 1,00,000/- as unaccounted dividend income based on an estimation from a chit fund. The assessee contended that the dividend estimation was incorrect as the chit was lifted in the previous year, and the dividend varied each month. The CIT(A) deleted the addition, stating that the AO's estimation was not justified and the chit fund account was maintained in the books. The Tribunal upheld the CIT(A)'s deletion, noting that the AO's addition was based on assumptions without any factual basis.

3. Addition of Income from Gold Schemes:
The AO added Rs. 2,88,000/- (Rs. 1,44,000/- each for two gold schemes) based on an estimation of interest on deposits collected from members. The assessee explained that the gold schemes involved collecting Rs. 1,000/- per month from members, and the sales were accounted for in the books. The CIT(A) deleted the addition, finding the AO's basis for the addition unjustified. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's calculations were arbitrary and lacked any factual basis.

4. Addition of Unexplained Outstanding Sundry Creditors:
The AO added Rs. 87,06,851/- as unexplained sundry creditors, questioning the genuineness of the creditors' confirmations. The assessee provided details and argued that these were running accounts for day-to-day business. The CIT(A) deleted the addition, stating that the AO did not provide any evidence to prove the creditors were fictitious. The Tribunal upheld the CIT(A)'s deletion, noting that the AO's rejection of confirmations was unjustified and the balances were carried forward from the previous year.

Conclusion:
The Tribunal allowed the assessee's appeal and dismissed the Revenue's appeal. Additionally, the Tribunal imposed a cost on the AO for making arbitrary additions and filing an unnecessary appeal, emphasizing the need for due diligence and caution in such matters. The order was pronounced on 15th July, 2015.