2021 (11) TMI 405 - AT - Income Tax

Excess stock found during the course of search - difference the valuation of the jewellery to the total income of the appellant - HELD THAT - Valuation of closing stock as taken by the DVO was at the prevailing market rate as on the date of search whereas the valuation of stock should have been calculated at cost as per books of accounts maintained by the assessee. In fact, the difference in the quantity was duly offered by the assessee and incorporated with the books of accounts. The case made out by the assessee that the difference as added to the total income of the appellant was on account of valuation of stock and not on the basis of difference in quantity of stock which is not the proper method and which rightly considered by the Ld. CIT(A) is also having substance. This is an undisputed fact of the case that the difference as proposed is on account of valuation only and there is no difference in quantity. The difference in quantity has duly been addressed by declaring additional income at the time of search. No justification for addition in the difference the valuation of the jewellery to the total income of the appellant. The addition made by the Ld. AO on account of excess stock found during the course of search those cannot be set to be justified in view of the observation made hereinabove and, thus, the deletion of addition made by the Ld. CIT(A) is according to us is just and proper so as to warrant interference. Hence, the grounds of appeal preferred by Revenue is found to be devoid of any merit and, thus, dismissed. Chargeability of tax as per normal rates instead of amended provisions of section 115BBE of the act applicable w.e.f. 01/04/2017 relevant to AY 2017-18 - appellant has challenged the chargeability of tax @ 77.25% by invoking the amended provision of Section 115BBE of the Act on account of additional income declared at the time of search, survey and also the addition made by the AO - HELD THAT - Since the search in the case of the appellant was carried out before the amendment the addition ought to have been made in terms of the prevailing provision and therefore, the addition made by the AO invoking Section 115BBE provision of which came into force only on 01.04.2017 is not sustainable. Therefore, the order passed by the Ld. CIT(A) deleting the addition made on that premise is according to us just and proper so as to warrant interference. Hence, the appeal preferred by the Revenue found to be devoid of any merit and is dismissed. - Decided against revenue.

Issues Involved:
1. Addition of ?14,07,74,148 on account of excess stock found during the search.
2. Chargeability of tax as per normal rates instead of amended provisions of Section 115BBE of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of ?14,07,74,148 on account of excess stock found during the search:

The Revenue appealed against the deletion of an addition of ?14,07,74,148 made by the Assessing Officer (AO) due to excess stock found during a search. The assessee, engaged in trading and manufacturing gold and diamond jewelry, underwent a search under Section 132 of the Income Tax Act on 28.09.2016. Discrepancies in the stock quantity were found, leading the assessee to offer additional income of ?10,10,00,000. Another survey under Section 133A on 15.11.2016 resulted in an additional income declaration of ?1,20,02,793.

The AO calculated a stock valuation difference of ?24,17,74,248 but allowed credit for the previously declared ?10,10,00,000, resulting in an addition of ?14,07,74,248. The CIT(A) deleted this addition, prompting the Revenue's appeal.

The Tribunal examined the facts and submissions. It was noted that the DVO calculated the market price of the stock at ?106,03,64,733, while the book value was ?81,85,90,485. The AO's addition was based on this difference, ignoring the actual profit and focusing on notional profit. The Tribunal agreed with the CIT(A) that the addition was unjustified, emphasizing that the difference was due to valuation, not quantity. The assessee's voluntary disclosure of ?10,14,95,122 covered the discrepancy.

The Tribunal cited the Delhi ITAT decision in Neha Jewellers Pvt. Ltd., which supported the methodology of determining undisclosed stock by weight, not value. The Tribunal concluded that the AO's approach of converting stock from cost to market price was incorrect. The deletion of the addition by the CIT(A) was upheld.

2. Chargeability of tax as per normal rates instead of amended provisions of Section 115BBE:

The second issue involved the chargeability of tax at normal rates versus the amended provisions of Section 115BBE. The assessee argued that the amendment to Section 115BBE, effective from 15.12.2016, was not applicable to their case, as the search occurred on 21.09.2016. The assessee paid tax at 30%, as per the pre-amendment provision.

The Tribunal noted that the amendment increased the tax rate to 60% for unexplained income under Sections 68 to 69D. However, the search and additional income declaration occurred before the amendment. The Tribunal agreed with the CIT(A) that the amendment was not applicable retrospectively.

The CIT(A) observed that the AO failed to establish any other source of income for the assessee apart from their jewelry business. The excess stock was part of the business stock, not an unexplained investment. The Tribunal upheld the CIT(A)'s decision that the additional income was business income, taxable at normal rates, and not under Section 115BBE.

The Tribunal cited the Supreme Court's decision in CIT vs. Vatika Township Pvt. Ltd., emphasizing that amendments imposing retrospective levies cause undue hardship. The Tribunal concluded that the AO's application of Section 115BBE was unjustified, as the search occurred before the amendment.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the addition of ?14,07,74,148 and the application of normal tax rates instead of the amended provisions of Section 115BBE. The Tribunal emphasized the importance of determining undisclosed stock by weight and the non-retrospective application of tax amendments.

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