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TMI Blog2018 (10) TMI 1024X X X X Extracts X X X X X X X X Extracts X X X X ..... her than the statement.- Decided in favour of assessee. Disallowance on account of unaccounted stock in gold ornaments - Held that:- In the instant case, the issue relates whether the unaccounted stock as observed by the AO during the survey operation represents the unaccounted income of the assessee. As such, there was a survey operation on the premises of the assessee where difference in the quantity of stock was observed by the survey team, which was added to the total income of the assessee as unaccounted income. However, we note that none of the lower authorities has pointed out any defect in the purchase or sales shown in the books of accounts. Thus, we note that the purchase and sales has been duly accepted by the lower authorities which were disclosed in the audited financial statement. We find forces in the alternate contention of the assessee that at the most the net profit can be added to the total income of the assessee on account of mismatch in the stock of gold ornament. There was no discrepancy pointed out by the lower authority in the purchase/sales of the gold ornaments reported in the audited financial statement. Therefore, in such circumstances the amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order passed under s.143(3) of the Income Tax Act, 1961(here-in-after referred to as the Act ) dated 27.03.2015 relevant to Assessment Year (AY) 2012-13. First we take up the appeal of the assessee in ITA No. 511/Ahd/2017 pertaining to the A.Y. 2012-13: 2. The grounds of appeal raised by the assessee are as under:- 1. The learned CIT(A) has erred in law and on facts in upholding the stock of Gold Bar of 736 gms. alleged to have not been found physically though recorded in the books, as un-accounted sale in as much as that the sale there of was duly accounted for in the books. 2. He has erred in law and on facts in upholding G.P. addition of ₹ 2,48,927/- in respect of Gold bar of 736 gms. not found at the time of survey resulting into double addition. 3. He has erred in law and on facts in upholding the Gold bar of 736 gms. as shortage without appreciating the fact that as per assessee it was duly available at the time of survey and the sales thereof were duly recorded in books. 4. He has erred in law and on facts in upholding addition of ₹ 1,66,47,490/- as un-accounted stock in gold ornaments without considering the facts, the evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, 2011. At the time of survey, it was noticed that there was gold bar weighing 736 gms in the books of accounts. However, the same was not found physically during the course of survey operation. At the time of survey, statement u/s 133A of the Act was recorded. The relevant questions and answers recorded during the survey are reproduced as under: Question-22 To-day during survey, stock has been counted physically which is 12878.950 gms. of N.S.Jewels and 21107.580 gms. Gold ornaments of Navinchandra Shantilal Soni Jewellers. Whereas books stock of both the concerns is 34666.562 gms. Gold ornaments, 736 24 carat gold bar, and 8641.070 grms. Gold ornaments .Please explain the difference of book stock and physical stock. Answer: In my absence, the goods have been sold and bills are pending to be made which at present I am not aware which will be reported shortly. Question-23 For this , you can call for your staff or sons and furnish the details Answer : At this time my sale staff is not present and I have come from outstation then also I will give the details of difference shortly and of there is any mistake, I will correct the same and if any tax liability is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Addition of G.P. on Col.No. A 1972480*12.62% 248927 5. Aggrieved, assessee preferred an appeal to Ld CIT(A). The assessee before the Ld CIT(A) submitted that the difference in the quantity of gold bars weighing 736 gms was duly explained before the AO during the assessment proceedings vide letter dated 16-03-2015 25-03-2015. 5.1 As per the letter dated 16-03-2015, the assessee submitted that the gold bars weighing 700 gms were purchased from Shyam Bullion on 11- 10-2011 12-10-2011 and filed the copies of the invoices in support of his claim. Similarly, the assessee submitted that the gold bars weighing 36 gms were carried forward from the earlier period. The assessee also submitted that these gold bars were sent to the laborers for converting them into gold ornaments. 5.2 In the letter dated 25-03-2015, the assessee submitted that the purchase of gold bars was duly accounted in the books of accounts. Subsequently, it was converted from raw form to ornaments, which was also recorded in the books of the assessee. The ornaments converted from such gold bars were also sold to the parties and the same was recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A). 7. On the other hand, Ld DR relied on the order of authorities below. 8. We have heard the rival contentions and perused the materials available on record. From the preceding discussion, we note that addition has been made by the AO on the statement given by the assessee during the course of survey operation. As such during the survey operation the closing stock of gold bars was shown as per books 736 gms whereas, there was not found any physical stock of gold bar. Therefore, the difference was treated as undisclosed closing stock and accordingly, the gross profit rate was applied to determine the income on such undisclosed stock. 8.1 However, we note that the assessee has claimed that the gold bars were purchased from Shyam Bullion dated 11-10-2011 12-10-2011. Copies of the invoices are placed on pages 49 50 of the PB. 8.2 We also note that the assessee was maintaining stock ledger of gold bars which is placed on pages 46-48 of the PB in part pertaining to the month of October to December, 2011. On perusal of the same, it was noticed that the purchase of the gold bars was duly recorded in the stock register. Similarly when it was issued to the laborers for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under section 133A of the Income-tax Act is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews and Sons v. CIT [2003] 263 ITR 101 (Ker.); (iii) The expression such other materials or Information as are available with the Assessing Officer contained in section 158BB of the Income-tax Act, 1961, would include the materials gathered during the survey operation under section 133A, vide CIT v. G. K. Senniappan [2006] 284 ITR 220 (Mad.) ; (iv) The material or information found in the course of survey proceeding could not be a basis for making any addition in the block assessment, vide decision of this court in T. C (A) No. 2620 of 2006 (between CIT v. S. Ajit Kumar [2008] 300 ITR 152 (Mad.); (v) Finally, the word may used in section 133A(3)(iii) of the Act, viz., record the statement of any person which may be useful for, or relevant to, any proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961 and/or recording a disclosure of undisclosed income under undue pressure/coercion shall be viewed by the Board adversely. From the above circular it is amply clear that the CBDT has emphasized to its officers to focus on gathering evidences during search/survey operations and strictly directed to avoid obtaining admission of undisclosed income under coercion/ undue influence. Keeping in view the guidelines issued by the CBDT from time to time regarding the statements obtained during search and survey operation, it is undisputedly clear that the lower authorities have not collected any other evidence to prove the impugned under valuation of stock other than the statement. In view of above, we disagree with the findings of lower authorities. Accordingly we reverse the order of authorities below. 8.10 Hence, the ground of appeal of the assessee is allowed . 9. The next issue raised by the assessee in ground no. 4 to 9 11 is that Ld CIT(A) erred in confirming the disallowance of ₹ 1,66,47,490/- on account of unaccounted stock in gold ornaments. 10. During the survey operation, various documents were seized containing travelling/approval vouchers, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the physical stock. Therefore, the same was not taken into consideration in the reconciliation statement of the closing stock. 10.3 However, the AO disregarded the contention of the assessee on the ground that the approval vouchers are representing the items of ornaments sent for display/ on approval basis. Therefore the same should have been added in the reconciliation statement of the closing stock. Accordingly, the AO added the difference in the closing stock of quantity for 6211.750 gms as undisclosed stock and added a sum of ₹ 1,66,47,490/- to the total income of the assessee. 11. Aggrieved, assessee preferred an appeal to Ld CIT(A). The assessee before the ld CIT(A) submitted that the books of accounts were audited and no defect was pointed out by the AO in respect of purchase and sales of the ornaments. 11.1 There was no document incriminating in nature representing unaccounted purchase and sales found during the course of survey. 11.2 During the survey operation, the above vouchers were found but the assessee knows the fact that no goods for approval/display was sent against such vouchers. Therefore, the argument/plea of the assessee should have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... survey, 5 approval vouchers were found which did not have any received stamp on it. This shows that this stock sent on approval and still lying with parties as transaction was not completed. During the course of survey it is clearly stated by the assessee that marking received on approval voucher denote receipts of these goods back. In the reconciliation of stock furnished by the assessee out of these 5 approval vouchers 2 approval vouchers No. 132 and 133 have not been added in the calculation of stock. The only - explanation furnished by the appellant is that stock of these two approval vouchers taken to Chennai. It is also important to mention that in the statement recorded during the course of survey the appellant has stated that gold ornaments on I approval vouchers taken at exhibition at Chennai were of vouchers No.135, 138 and 134 only. The appellant has nowhere stated that gold ornaments as per approval voucher No. 132 and 133 were not taken to other parties for approval. In the absence of any other evidence other than the explanation that this stock was not taken out for exhibition it cannot be accepted that this stock was included in the stock found at the premises. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded in the consideration of sales. Therefore, unless there is a finding to the effect that investment by way of incurring cost in acquiring goods which have been sold has been made by the assessee and that has also not been disclosed, the question, whether entire sum of undisclosed sale proceeds can be treated as income of the relevant assessment year answers by itself in the negative. The record goes to show that there is no finding nor any material has been referred to about the suppression of investment in acquiring the goods which have been found subject of undisclosed sales. 14.3 In view of above, we hold that there was no discrepancy pointed out by the lower authority in the purchase/sales of the gold ornaments reported in the audited financial statement. Therefore, in such circumstances the amount of net profit can be added to the total income of the assessee on account of difference in the stock of gold ornaments. In this regard, we note that the assessee has shown its net profit in its books of accounts @9.95%. Thus, we direct the AO to make the addition of the net profit amounting to ₹ 16,67,895/- to the total income of the assessee. Thus, the ground of ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, out of suspicion, presumption and assumption. 8. The learned CIT has erred in law and on facts in not appreciating and accepting the alternative contention of the assessee that without prejudice to the ground of no unexplained investment in the stock only net profit on the value of alleged excess stock ought to have been treated as income as held by the Gujarat High Court in the case of President Industries and not the entire amount as income of the appellant as done by the AO. 9. On the facts no interest u/s.234B ought to have been levied. 10. On the facts no such additions ought to have been made and the return income ought to have been accepted. 11. The appellant craves leave, to add / to alter and /or modify any ground of appeal. 17. At the outset, the Ld. Counsel for the assessee before us submitted that he has been instructed not to press ground no.1 due to smallness of amount. Therefore, same is dismissed as not pressed. 18. The second issue raised by the assessee in ground no.2 to 4 is that Ld CIT(A) erred in confirming the order of AO by sustaining the disallowance of ₹ 84,79,547/- on account of un-explained investment in gold ornaments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the purchases and sales have not been doubted by the AO, therefore at the most the amount of net profit on such undisclosed investment in the stock can be applied. The assessee in support of his claim relied on the order of Hon ble Gujarat High Court in the case of CIT vs. President Industries reported in 258 ITR 654. However, the Ld CIT(A) disregarded the contention of the assessee and confirmed the order of AO by observing as under: 4.5. The facts of the case and the submissions are considered. The AO has made addition of excess stock found during the course of survey. The main contention of the appellant is that there is no excess stock found during the course of survey and the stock as per approval voucher No. 13 is part and partial of book stock and wrongly treated by the AO as unaccounted stock. To substantiate his claim the appellant has furnishing affidavit of Shri Bhadresh S. Satwara in whose name the approval voucher was issued. Thus the main dispute regarding the excess stock arises due to approval voucher No.13 the appellant has furnished affidavit and other than this no other details or evidences were furnished during the course of assessment proceeding as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ahd/2017 vide para no 13 in this order, wherein, we direct the AO to apply the net profit ratio on account of undisclosed investment in the stock. Accordingly, the AO is directed to apply the net profit rate on account of undisclosed investment in the stock. Thus the ground of appeal of the assessee partly allowed . 23. The next issue raised by the assessee in ground no.5 to 8 is that Ld CIT(A) erred in upholding the rejection of books of accounts u/s 145(3) of the Act and estimating the GP@ 5% and making the addition of ₹ 19,11,270/- 24. The AO during the assessment proceedings observed as under: i. As per tax audit report u/s 44AB in column 28(A) the assessee is not engaged in trading activity and column 28(B) shows that the assessee is engaged in the manufacturing activity. ii. The clause 9B of the tax audit report shows that the assessee has not maintained any stock register. iii. The gross profit of the assessee has reduced to 3.21% from the last 2 years. In the last 2 years gross profit declared by the assessee was 4.74% and 5.04%. 24.1 In view of above observation, the AO proposed to reject the books of accounts u/s 145(3) of the Act by issuing a sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and rightly estimated the G.P. at 5%. Accordingly the addition made by the AO is confirmed. 25.4 Being aggrieved by the order of Ld CIT(A) assessee is in appeal before us. 26. The Ld AR before us reiterated the submission as made before the Ld CIT(A), whereas, the Ld. DR vehemently supported the order of lower authorities. 27. We have heard the rival contentions and perused the materials available on record. In the present case, books of accounts of the assessee were rejected due to the following reasons: i. There was mismatch in the information recorded in the tax audit report. ii. The assessee was not maintaining any stock register. iii. The gross profit of the assessee has reduced in comparison to the earlier years. From the preceding discussion, we note that the stock register was duly maintained by the assessee as the AO has worked out the difference between the physical stock and book stock at the time of survey. Therefore, the allegation of the AO that the assessee is not maintaining any stock register is contrary to the facts available on record. We also note that the sales and purchases have been duly accepted by the lower authorities and there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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