2017 (12) TMI 41 - AT - Income Tax

Addition u/s 69 - unexplained jewellery found from the employees of the assessee - Held that - We find that since the excess gold was found from the employees of the assessee and the assessee could not furnish the satisfactory explanations the addition under section 69 is called for and we therefore find no infirmity in the order of the Commissioner of Income-tax (Appeals) restricting the addition for the excess gold ornaments of 4.148 kgs. valuing at 87, 10, 800. But while confirming this addition the Commissioner of Income-tax (Appeals) has approved the action of the Assessing Officer for making the addition of 1, 96, 42, 564 which is not called for. The observation of the Commissioner of Income-tax (Appeals) appear to us to be correct to the extent of addition for the excess gold jewellery of 4148.689 gms. Thus we modify the order of the Commissioner of Income-tax (Appeals) and confirm the addition of 87, 10, 800 for the gold jewellery weighing at 4148.689 gms. which were not duly explained by the assessee-firm. Since the addition in the hands of the firm is confirmed the order of the Commissioner of Income-tax (Appeals) deleting the additions in the hands of the individuals is also approved as there cannot be double additions. Accordingly appeals of the Revenue stand dismissed and that of the assessee is partly allowed

Issues Involved:
1. Seizure of gold jewelry from employees.
2. Reconciliation of gold stock with firm’s records.
3. Addition of unexplained gold under Section 69 of the Income-tax Act.
4. Admission of additional income by partners.
5. Deletion of additions in the hands of individuals by Commissioner of Income-tax (Appeals).
6. Protective addition in the hands of the firm.

Detailed Analysis:

1. Seizure of Gold Jewelry from Employees:
The case originated when three employees of the firm were apprehended by the police with 8691.400 grams of gold jewelry in Hyderabad. The Additional Director of Income-tax, Investigation, recorded their statements under Section 131 of the Income-tax Act. The employees claimed they were sent by the firm to sell the jewelry but lacked proper documentation. Consequently, the gold was seized.

2. Reconciliation of Gold Stock with Firm’s Records:
The firm’s office in Bangalore revealed a total stock of 10,428.785 grams, including bullion, gold ornaments, and labor gold. The firm claimed that the jewelry sent to Hyderabad was part of this stock. However, the Assessing Officer concluded that labor gold, which belonged to other jewelers, could not be sent for sale and thus, the stock did not match.

3. Addition of Unexplained Gold Under Section 69:
The Assessing Officer made substantive additions under Section 69 for unexplained jewelry found with the employees, totaling ?1,96,42,564. This included ?72,78,290 for 3216.500 grams with Shri Kota Sandeep, ?66,71,604 for 2945.400 grams with Shri Pavidi Aswathnarayana, and ?57,23,170 for 2945 grams with Shri Hanumantharaju. A protective addition of ?1,96,42,564 was also made in the firm’s hands.

4. Admission of Additional Income by Partners:
Partners of the firm admitted to possessing extra gold ornaments weighing 4.184 kgs and offered ?87,10,800 as additional income for the assessment year 2011-12. However, this was not reflected in the return filed. The partners’ statements were recorded, admitting inability to produce evidence for 4.148 kgs of gold.

5. Deletion of Additions in the Hands of Individuals by Commissioner of Income-tax (Appeals):
The Commissioner of Income-tax (Appeals) held that the Assessing Officer failed to prove the individuals’ capacity to invest in gold. Recognizing the partners’ ownership of the jewelry, the additions in the hands of the individuals were deleted, but the addition of ?1,96,42,564 was upheld in the firm’s hands.

6. Protective Addition in the Hands of the Firm:
The Tribunal reviewed the stock summary and partners’ admissions. It concluded that the firm could not satisfactorily explain the excess gold. Thus, it upheld the addition of ?87,10,800 for 4.148 kgs of unexplained gold but rejected the higher addition of ?1,96,42,564.

Conclusion:
The Tribunal confirmed the addition of ?87,10,800 in the firm’s hands for unexplained gold jewelry and deleted the additions in the individuals’ hands, avoiding double taxation. The Revenue’s appeals were dismissed, and the firm’s appeal was partly allowed. The cross-objections of the assessee were dismissed as infructuous. The order was pronounced on September 20, 2017.

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