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Income Tax Appellate Tribunal, DEHRADUN BENCH, NEW DELHI
O R D E R PER M. BALAGANESH, A. M.: The appeal in AY 2012-13, arises out of the order of 1. the Commissioner of Income Tax (Appeals), Dehradun, [hereinafter referred to as „ld. CIT(A)‟, in short] in Appeal No. 126/CIT(A)/DDN/2014-15 dated 25.11.2016 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 28.03.2014 by the Assessing Officer, Dy. CIT, Central Circle, Dehradun (hereinafter referred to as „ld. AO‟).
The assessee has raised the following grounds of appeal:-
“1. On the facts and circumstances of the case, the order passed by the Ld. CIT(Appeal) is bad in law. 2. On the facts and circumstances of the case and in law Ld. CIT(A) erred in confirming the addition of Rs. 7,78.058/- in the assessment framed u/s 153A, as profit @ 8% on presumed sales of Rs. 97,25,729/- Regallia Jewels Pvt. Ltd, 3. On the facts and circumstances of the case and in law Ld. CIT(A) erred in presuming that shortage of stock of Rs. 97,25,729/- was sales outside the books without appreciating the facts that- (1) The shortage in stock on the date of search was resulted due to transfer of stock to karigars for making ornaments; (ii) No evidence of sale outside the books was found in the search and in absence of such an evidence of sales outside the books, the shortage of stock could not be presumed as sales and; (iii) All the stock and sales/ movement of stock are recorded in the books as on 31 March, 2012 which were audited.
4. On the facts and circumstances of the case and in law Ld. CIT(A) erred in estimating the sales and profit thereon in absence of assessing officer having rejected the audited books of accounts.
5. On the facts and circumstances of the case and in law Ld. CIT(A) erred in confirming the addition on conjectures and surmises in as much as he presumed and held that- (1) Documents showing transfer of stock to karigars could be easily created to give an impression of transfer and; (11) If assessee fails to furnish declaration in Form-F of Central Sales Tax Act then it shall be presumed that Interstate movement is occasioned on account of sale. (iii) Incomplete books during the middle of the year will be a defect within the meaning of section 145 ignoring the sanctity of finalising and auditing the books at the end of the year.
On the facts and circumstances of the case and in law Ld. CIT(A) erred in holding that failure to reject the books of accounts u/s 145 is a curable defect u/s 2928.”
2. Though the Assessee has raised several grounds, the only effective issue to be decided in this appeal is as to whether the ld CIT(A) was justified in estimating the profit of the Assessee on account of shortage of stock found during the survey in the facts and circumstances of the instant case.
None appeared on behalf of the Assessee despite issuance of notice at the registered address on several occasions. Hence, we proceed to dispose of this appeal on hearing of the ld DR and based on the material facts available on record.
We have heard the rival submission and perused the material available on record. The Assessee is a company engaged in the business of trading and manufacturing of gold, diamond and other similar jewellery items. The return of Page | 2
Regallia Jewels Pvt. Ltd, income for AY 2012-13 was filed by the Assessee company on 30.09.2012 declaring total income of Rs. 21,90,510/-. A search and seizure action u/s 132 of the Act was initiated in the business premises of the Assessee on 14.03.2012 and in the cases of M/s. Punjab Jewellers group. During the course of search, the stocks of jewellery was valued by the department‟s valuer at Rs. 3,34,79,179/- as on the date of search. This was compared with the stock register maintained by the Assessee as on the date of search which stood at Rs. 4,48,94,451/-. The ld AO accordingly arrived at the shortage of Rs. 1,14,15,273/-. This shortage of stock was treated by the ld AO as sales made outside the books of the Assessee and accordingly applied gross profit @ 8% thereon and made an addition of Rs. 9,13,222/- and determined the total income of the Assessee at Rs. 30,16,520/-. Consequently, assessment u/s 143(3) of the Act was made on 28.03.2014.
Before the ld CIT(A), the assessee filed certain additional evidences which were duly admitted by the ld CIT(A) and forwarded to the ld AO calling for a remand report. The remand report dated 23.06.2016 was submitted by the ld AO, wherein, the ld AO stated that the additional evidence in the form of confirmation of receipt of material sent to M/s. Diavisz Jewel Corporation, Mumbai should not be accepted as sufficient opportunities were given to the Assessee during the course of assessment proceedings. The Assessee filed a rejoinder to the said remand report before the ld AO. The Assessee also submitted that on the date of search itself, it was duly explained that the accounting records of the Assessee company are maintained at Karol Bagh and transactions were updated with a gap of 2 to 3 days. Further, the stock at the outlet was Rs. 3,51,68,721.91 and not Rs. 3,34,79,178/- as understood by the ld AO and accordingly, there was only a difference of Rs. 97,25,729/- as against Rs. 1,14,15,273/- considered by the ld AO. The entire reconciliation of stock was submitted by the Assessee before the ld AO vide letter dated 15.12.2015 which was not accepted by the ld AO. It was explained that the stock of gold/diamond/stones in raw form was transferred to New Delhi Office for handing over to karigars. The stock lying with karigars/Delhi branch was explained before the ld AO which was valued at Rs. 97,25,729/-. It was also explained that if the weight of physical stock found in the business premises during the search and Regallia Jewels Pvt. Ltd, weight of stock lying with Delhi Branch/ Karigars are added, then they will tally with weight recorded with the stock register maintained by the Assessee. This fact was not appreciated by the ld AO. It was pointed out that all the stocks and sales are duly recorded in the books as on 31.03.2012. No discrepancy in the audited books of account were found by the ld AO. It was submitted that the physical stock lying as on 31.03.2012 in the outlet and also with Karigars were duly considered by the Assessee while valuing the closing stock as on 31.03.2012 after getting due confirmation from the respective parties and the said balance has been duly subjected to audit by the statutory auditors and tax auditors. No discrepancies in any manner whatsoever were found of those parties with regard to stock. Accordingly, it was pleaded that there is nothing which was under recorded sales as alleged by the ld AO and hence, there will be no question of addition of gross profit as alleged undisclosed sales thereon.
6. The ld CIT(A) observed that on the date of survey operation on 14.03.2012, no documents in the form of vouchers/ invoices were found or seized which explained the transfer of stock either form Gurgaon to Delhi and from Delhi to Mumbai. Moreover, he observed that in respect of stock transfer from one state to another, the same would be covered by section 2(g)(ii) of Central Sales Tax Act, 1956 warranting levy of sales tax thereon. He also observed that in respect of stock sent to Karigars through interstate transfer, as per Section 6A of the CST Act, 1956 the Assessee is required to file declaration in Form F before the prescribed trade tax authority and if the dealer fails to furnish such a declaration , the movement of goods will be deemed to have been occasioned as a result of sale. The Assessee in the instant case has presented no evidence of having filed the declaration in Form F before the Trade Tax Authorities either in Haryana or Delhi for dispatch of the goods to Head Office in Delhi and thereafter to Diavisz Jewels in Mumbai for job work. No evidence has been furnished by the Assessee for receipt of finished jewellery back from Diavisz Jewels. Accordingly, the ld CIT(A) rejected the complete story of the stock transfer of the Assessee between 11.03.2012 to 14.03.2012. With these observations, the ld CIT(A) took the value of stock lying in the outlet as on the date of survey at Rs. 3,51,68,721/- as desired by the Assessee instead of Rs.
Regallia Jewels Pvt. Ltd, 3,34,79,178/- adopted by the departmental valuer on the date of survey. Accordingly, he arrived at the conclusion that shortage of stock to the extent of Rs. 97,25,729/- and upheld the action of the ld AO for applying the GP rate @ 8% Per annum.
On perusal and observation of the ld CIT(A) which was narrated hereinabove, we are in agreement with the observation made by the ld CIT(A) thereon with regard to the facts that the assessee had not explained properly with documentary evidence to reconcile shortage of stock to the tune of Rs. 97,25,729/-. However, we are unable to apprehend ourselves to accept the adoption of gross profit @8% per annum on the said shortage of stock, in view of the fact that even the Task Force Report submitted by the Gems and Jewellery association to the Ministry of Corporate Affairs had accepted the profit margin that could be maximum derived by a Jeweller engaged in trading to be in the range of 1 to 3% and all Jewellers engaged in manufacturing to be in the range of 1.5 % to 4.5 %. Considering this, we hold that adoption of gross profit @4% in the facts and circumstances of the case would meet the ends of justice. The ld AO is directed accordingly.
In the result, the appeal of the Assessee is partly allowed.