2023 (11) TMI 860 - AT - Income Tax

Addition u/s 69A - difference in the stock found during the survey vis-a-vis recorded in the books of accounts - Excess stock of 22Kr Gold and Polki Jewellery studded 22kt gold jewellery of 14kt and 18kt and gold jewellery of 14kt and 18kt studded with diamonds - HELD THAT - Total weight of items of 22KT Gold jewellery and 22KT Gold Polki jewellery was 36,943 gms and as per the estimated value, the difference was of merely 113.50 gms. which is 0.32%. While weighing more than 34,000 gms of jewellery, the difference of 113 gms. could be considered as an error and no adverse inference cannot be drawn on this issue. With regard to inter-mixing of gold jewellery of 18KT and 14KT, from the table above, we find that the combined weight of the jewellery was 77,962 gms. and the difference was 453 gms. which is 0.58%, hence, the difference of 453 gms. could be considered as an estimation error and no adverse inference cannot be drawn on this issue. With regard to the difference in the weight of diamond in studded jewellery items of 18KT and 14 KT gold jewellery, the excess diamond has been determined at 723 carats. From examination of the valuation report prepared by the authorized valuer at the time of the survey, we find that the diamonds have never been separated from the gold jwellery. The weight has been extracted from the gross weight. The total jewellery as per books was 72,962 gms. In the absence of specific findings and tags describing the weight of the jewellery in terms of gold and diamond separately, the weight stated in the valuation report can be considered as near estimations but not absolute weight. Under these factual circumstances, it is clear from the record that the weight of the diamond has not been arrived at fittingly. Hence as been excess diamonds determined at one showroom of 14KT and shortage determined at the another showroom and keeping in view the fact that the diamonds have not been separately weighed, we hold that no addition is called for on this ground. Appeal of the assessee is allowed.

Issues Involved:

1. Addition on account of alleged excess stock of 22Kt Gold and Polki Jewellery.
2. Addition on account of alleged excess stock of 18Kt Gold Jewellery.
3. Addition on account of alleged excess stock of diamonds.
4. Validity and reliance on valuation reports obtained during survey.
5. Principles of natural justice and opportunity for cross-examination.
6. Applicability of Section 115BBE of the Income Tax Act.

Summary:

1. Addition on account of alleged excess stock of 22Kt Gold and Polki Jewellery:

The assessee contended that the valuation report obtained during the survey was not in accordance with the provisions of the Act and that the valuation of 22Kt Gold and Polki Jewellery was treated together in the books. The AO accepted the mixing of both items but made an addition of Rs. 3,35,846/- for the difference of 113.50 gms. The Tribunal found the difference to be negligible (0.32%) and considered it an estimation error, thus no adverse inference was drawn, and the addition was deleted.

2. Addition on account of alleged excess stock of 18Kt Gold Jewellery:

The AO noted a difference in the stock of 14Kt and 18Kt Gold Jewellery, accepting the possibility of intermixing, and made an addition of Rs. 62,66,511/-. The CIT(A) restricted this to Rs. 12,41,652/-. The Tribunal observed that the combined weight difference was only 0.58% (453.82 gms) and considered it an estimation error, leading to the deletion of the addition.

3. Addition on account of alleged excess stock of diamonds:

The AO made an addition of Rs. 2,11,27,468/- for excess diamonds found during the survey. The Tribunal noted that the diamonds were not separated from the gold jewellery and the weight was extracted from the gross weight. The Tribunal found the difference (0.93%) to be an estimation error and deleted the addition.

4. Validity and reliance on valuation reports obtained during survey:

The assessee argued that the valuation reports were obtained without express authority and were full of estimation errors. The Tribunal agreed that the valuation reports were not conclusive and contained estimation errors, thus could not be solely relied upon for making additions.

5. Principles of natural justice and opportunity for cross-examination:

The assessee was not given the opportunity to cross-examine the valuers, which was a violation of the principles of natural justice. The Tribunal noted this procedural lapse and considered it while deciding on the deletions of the additions.

6. Applicability of Section 115BBE of the Income Tax Act:

The CIT(A) upheld the applicability of Section 115BBE for the additions made under Section 69 of the Act. However, since the Tribunal deleted the additions, the applicability of Section 115BBE became moot.

Conclusion:

The Tribunal allowed the appeal of the assessee, deleting the additions made on account of alleged excess stock of 22Kt Gold and Polki Jewellery, 18Kt Gold Jewellery, and diamonds, citing estimation errors and procedural lapses in the valuation process.

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