2023 (2) TMI 1076 - HC - Income Tax

Loss on gold - loss of 99.055 kgs of gold valued - AO has recorded in his order that assessee s auditor had mentioned that the said quantity of gold has been charged off from the stock - Assessee submitted that the inventory of 99.055 Kgs of gold was untraceable and the loss of gold was only 0.047% of the total gold transactions during the year 2011-12 which is accepted in the manufacture of ornaments - ITAT has allowed assessee s appeal on this aspect on the premise that the loss of gold accounts for only 0.047% of the total gold transactions without any rationale - HELD THAT - Loss of gold is only 0.047% of the total transaction. Secondly that during the search the Revenue could not find any material. There is no logical explanation by the ITAT as to why loss of 0.047% must be allowed. The total loss claimed is 99.055 Kgs. The assessee s explanation at the first instance before the AO is that the gold was misappropriated. Before the First Appellate Authority the explanation is that assessee did not know about the loss till conducting annual inventory. Both explanations are not supported by any evidence. If 99.055 Kgs gold were to be misappropriated, management of any prudent company would take necessary action such as filing a police complaint etc. The second explanation that the assessee did not know about the loss at all, is on the face of it, unacceptable. In our view, the reasons recorded by the ITAT are perverse and therefore, unsustainable in law - Decided against assessee.

Summary

Issues involved:
1. Allowance of loss claimed by the assessee of 99.055 kgs of gold
2. Burden of proof on the assessee to substantiate the claimed loss

Analysis:
Issue 1: Allowance of loss claimed by the assessee of 99.055 kgs of gold
The case involved an appeal by the Revenue against an order allowing the loss claimed by the assessee of 99.055 kgs of gold valued at Rs. 19,39,23,044. The Tribunal had allowed the assessee's appeal, considering the loss of gold to be only 0.047% of the total transaction. The Revenue argued that the assessee failed to substantiate the loss with credible evidence. The ITAT's decision was based on the premise that the loss was a small percentage of total transactions and that no material evidence was found during the search. However, the Court found the ITAT's reasoning to be unsustainable, stating that the explanations provided by the assessee were unsupported by evidence and the reasons recorded by the ITAT were deemed perverse. Consequently, the appeal was allowed in favor of the Revenue, setting aside the ITAT's order and restoring the Assessing Officer's decision.

Issue 2: Burden of proof on the assessee to substantiate the claimed loss
The Revenue contended that the burden of proof lay with the assessee to substantiate the claimed loss of gold. The assessee's case was that the gold had been misappropriated by employees, but the auditor failed to offer any explanation when called upon to substantiate the claim. The Court noted that the explanations provided by the assessee, including not being aware of the loss until reconciling the recovery, were not supported by evidence. The Court emphasized that if such a significant quantity of gold had been misappropriated, prudent management would have taken necessary actions, such as filing a police complaint. Therefore, the Court held that the burden of proof had not been discharged by the assessee, leading to the allowance of the Revenue's appeal.

In conclusion, the High Court allowed the Revenue's appeal, holding that the loss claimed by the assessee of 99.055 kgs of gold was not adequately substantiated and the reasons provided by the ITAT were deemed unsustainable. The burden of proof was found to lie with the assessee, and since it was not discharged satisfactorily, the ITAT's decision was set aside, and the Assessing Officer's decision was restored.