CHOLAJI KANNIYALAL,VILLUPURAM vs. ACIT, VILLUPURAM CIRCLE, VILLUPURAM
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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: DR. MANISH BORAD, HON’BLE & SHRI MANOMOHAN DAS, HON’BLE
आदेश /O R D E R
PER DR. MANISH BORAD, ACCOUNTANT MEMBER:
This appeal at the instance of assessee is directed
against the order of the ld. Commissioner of Income Tax
(Appeals), Puducherry, dated 11.12.2019 which is arising out
of the order u/s. 143(3) of the Income-tax Act, 1961
(hereinafter referred to as “the Act”) dated 21.12.2017 framed
by ld. ACIT, Villupuram Circle, Villupuram.
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The grounds of appeal raised by the assessee reads as
follows:
“1. The order of the Commissioner of Income Tax (Appeals), Puducherry dated 11.12.2018 in I.T.A.No.73/CIT{A)- PDY/2017-18 for the above mentioned Assessment Year is contrary to law, facts, and in the circumstances of the case. 2. The CIT (Appeals) erred in confirming the addition of Rs.14,582/- on the consideration of the provisions of section 69A of the Act while rejecting the explanation offered on the reconciliation of cash balance/inventories in the computation of taxable total income without assigning proper (reasons and justification. 3. The CIT (Appeals) erred in sustaining the estimated addition of Rs.27, 18,374/- representing the manufacturing loss to the extent of 1060.738 gms in the conversion of old gold into new gold on the presumption of collection of such wastage from the customers/sellers of old gold in the computation of taxable total income without assigning proper reasons and justification. 4. The CIT (Appeals) failed to appreciate that having not properly considered the explanation offered including the process of conversion and the trade practice, the sustenance of the estimated addition was wrong, erroneous, unjustified, incorrect and not sustainable in law. 5. The CIT (Appeals) went wrong in recording the findings in para 5.5.6 of the impugned order in this regard without assigning proper reasons and justification. 6. The CIT (Appeals) erred in sustaining the addition of Rs.33,90,758/being the difference in stock based on the survey report in the computation of taxable total income without assigning proper reasons and justification. 7. The CIT (Appeals) failed to appreciate that the quantification of difference/the excess stock at 451 gms. was completely erroneous and ought to have appreciated that the non consideration of the reconciliation would vitiate the decision rendered in para 5.8.2 of the impugned order.
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The CIT (Appeals) failed to appreciate that in any event the adoption of the value for the assessment of the presumed excess stock was wrong, erroneous, unjustified, incorrect and not sustainable in law and ought to have appreciated that the explanation offered in this regard for proper adoption of the rate would fortify the error in the findings in para 5.9. 7 of the impugned order. 9. The CIT (Appeals) failed to appreciate that the survey statements relied upon for making the additions under consideration had no legal sanctity and ought to have appreciated that in the absence of supporting evidence in substantiating the answers given in the survey statements, the reliance based on such statements should be reckoned as bad in law in the light of the consistent judicial trend. 10. The CIT(Appeals) failed appreciate that there was no proper opportunity given before passing the impugned order and ought to have appreciated that any order passed in violation of the principles of natural justice should be reckoned as nullity in law. 11. The Appellant craves leave to file additional grounds/arguments at the time of hearing.”
The ground no. 1 is general in nature which needs no
adjudication. Ground no.2 is not pressed by the assessee.
Therefore, the same is dismissed as not pressed.
Ground no. 3, 4 & 5 of assessee’s appeal are regarding
the estimated addition of Rs. 27,18,374/- representing the
manufacturing loss to the extent of 1060.738 grams for the
conversion of old gold into new gold. Facts in brief for this
issue are that the assessee is an individual engaged in the
retail trade in jewellery. A survey action u/s. 133A of the Act
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was conducted at the business premises on 26.11.2014.
Thereafter, assessee filed return of income for assessment
year 2015-16 on 15.08.2015, declaring total income of Rs.
44,84,420/-. The case of the assessee was scrutinized by
issuing valid notice u/s. 143(2) and 142(1) of the Act. One of
the issue examined by the AO was regarding conversion of old
gold. The ld. AO observed that the assessee has converted old
gold into new gold, but no wastage or manufacturing loss has
been claimed for such conversion. The ld. AO also observed
that the assessee used to charge 15% for wastage and takka
to its customers. However, for converting old gold into new
gold assessee has not shown any manufacturing loss. The ld.
AO, accordingly calculated that if 15% manufacturing loss rate
is applied on the old gold of weighing 7071.590 grams,
quantity of 1060.738 grams which will account for the excess
stock found during the course of survey, and accordingly made
additions of Rs. 27,18,374/-. The assessee failed to get any
relief from the ld. CIT(A).
Ld. Counsel for the assessee, during the course of
hearing stated that when said conversion is carried out
through job work basis, the goldsmith purifies the old gold
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jewellery and add copper for manufacturing new gold jewellery
and therefore, the weight of old jewellery is equal to the
weight of new jewellery and there is no weight loss in
manufacturing the new gold jewellery. He, however failed to
controvert this fact that while conversion there has to be some
wastage or manufacturing loss which is inevitable.
On the other hand, ld. DR vehemently argued the details
filed by the ld. CIT(A).
We have heard the rival contentions and perused the
records placed before us. The estimation of addition of Rs.
27,18,374/- representing the manufacturing loss to the extent
of Rs. 1060.738 grams in the conversion of old gold jewellery
into new gold jewellery by the Assessing Officer and confirmed
by ld. CIT(A) is in dispute before us. The claim of the
assessee is that there is no wastage in the conversion of old
gold jewellery to new gold jewellery. It is also not in dispute
that assessee charges 15% towards making charges, wastage
and takka from its customers. It is also claimed that such
conversion is carried out through other goldsmith on job work
basis who adds copper during the course of converting old
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jewellery into new jewellery. It is an admitted fact that when
the old jewellery is converted into new jewellery there are
certain inherent impurities in the old jewellery which are
cleaned or washed out during the course of conversion.
Though, the facts are not clear to the extent that whether old
jewellery is first converted into pure gold and then new
jewellery is made or that only the old jewellery is cleaned and
polish into new jewellery. We however, looking to the given
facts and circumstances of the case and the nature of business
are inclined to uphold that atleast that there is a
manufacturing loss of 7.5% on such conversion. We
therefore, direct the Assessing Officer to sustain the addition
applying the rate of 7.5% as against 15% applied for making
the impugned addition. We therefore, set aside the findings of
the ld. CIT(A) and the issue raised by the assessee in ground
no. 3, 4 & 5 is partly allowed.
Ground no. 6, 7, 8, 9 & 10 are regarding the issue of
addition of Rs. 33,90,758/- made by the Assessing Officer for
the difference in stock based on the survey report. Facts in
brief are that during the course of survey u/s. 133A of the Act,
stock verification was carried out. Excess stock of 13262
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grams of gold jewellery was found and the same was accepted
by the assessee. However, in the return of income assessee
disclosed the excess stock of 12810.920 grams of gold
jewellery only. Further, the assessee applied the per gram
rate of gold jewellery @ 2262/- and offered Rs. 2,93,62,629/-
for taxation. So far as old gold jewellery was concerned, there
was a shortage of 74.580 gms.
Ld. AO during the course of assessment proceedings
examined the details filed by the assessee, but did not find
any error in the quantitative details. However, for the purpose
of valuing the excess gold jewellery, he after considering the
rate of 24 carat gold at 2661.50 grams and considering the
gold rate of 22 carat as well as making charges adopted the
per gram rate of Rs. 2469.717 as on 26.11.2014 i.e., the date
of survey and calculated the total value of excess gold
jewellery at Rs. 3,27,53,387/- and the difference between the
amount offered by the assessee and the amount calculated by
the Assessing Officer i.e, Rs. 33,90,758/- was added to the
income of the assessee for the shortfall in the valuation of
excess gold jewellery found during the course of survey.
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When the assessee carried out the matter before the ld.
CIT(A) reiterating the details and submission filed before the
Assessing Officer but failed to get any relief.
Now, the assessee is in appeal before this Tribunal.
Ld. Counsel for the assessee stated that the statement
given during the course of survey u/s. 133A of the Act does
not carry any evidentiary value and addition in the hands of
the assessee can be made only on the basis of incriminating
material found during the course of survey. In the case of
assessee, excess jewellery was found and the same has been
offered to tax by the assessee. However, ld. AO had adopted
different rate without considering the factual aspect that gold
jewellery does not constitute only gold but also has precious
and semi-precious stones and other metals. Therefore, the
valuation adopted by the assessee should have been accepted
and the impugned addition may be deleted.
On the other hand ld. DR vehemently supported the
order of both the lower authorities.
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We have heard the rival contentions and perused records
placed before us. Addition of Rs. 33,90,758/- towards
valuation of excess stock of gold jewellery found during the
course of survey is in dispute before us. We observe that
13262 grams was found in excess at the time of survey and in
the return assessee only offered 12810.920 grams of gold
jewellery for tax and the remaining 451.08 grams was not
offered on the ground that after reconciliation of the statement
no such difference was found. Details of amount offered to tax
by the assessee and the calculation thereon has been placed
before both the lower authorities and the same is reflected
below for the sake of convenience:
"Statement recorded in survey operation is not a conclusive piece of evidence. The written submission dt: 27.11.14 is only a working on which I agreed to pay taxes. The Excess Gold Jewellery was arrived based on the books of accounts on the date of survey and the excess stock was arrived at 13262 gms of gold jewellery. At the end of the accounting year the books of accounts were verified and reconciled. The errors, mistakes and omissions were corrected for the purpose of finalization of accounts. The purchases made on the date of survey i.e. before commencement of survey was included in the books of accounts. The stock statement from 01.04.2014 to•26.11.2014 is submitted for your perusal. The excess stock of gold Jewellery is as below: Gold Jewellery SI.No Details Grams Remarks . Gold Jewellery on the 1 51808.547 date of survey 2 Less: Gold Jewellery as 38991.497 account s
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Excess Gold 3 12817.050 Jewellery 4 Admitted in the 12810.920 return of Income 5 Not admitted in the 6.130 . return of income Agreed for the addition 6 13866 of income @ Rs2622 7 Add: Making charges @ 184 gram Total amount agreed 14050 for addition There is no difference in admitting the excess quantity of gold jewellery based on the books of accounts and the return of income except the difference of 6.130 gms of gold jewellery. The difference in terms of value of Rs.14050 which may be added to my returned income. In view of the above, there is no need for the addition of 451.08 gms value of the gold jewellery to the returned income. b .Old Gold Jewellery . S Details Gram Remar I s ks 1 Old Gold Jewellery found on 399.5 surve 2 Old Gold Jewellery as per 474.0 accounts Shortage of old Gold 3 74.580 jewellery If the value of the shortage of Old Gold Jewellery 74.580 gms is treated as income and the said value shall be given credit/offset against the value of the excess stock admitted as income in the return of income."
Based on the above details, the assessee offered the
amount of Rs. 2,93,62,629/- for taxation. Whereas, ld. AO
computed the value of Rs. 3,23,55,528/- in the following
manner:
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Gold in the 24K is the 100% pure gold. And 24K gold is used to make the 22K gold. Some alloys and impurities are added to the 24K god and thereby, 22K gold is manufactured. The content of gold in 24K Gold is 100% and that in 22K Gold Jewellery is 91.667%. Assessee had not accounted 451.08 grams of gold as mentioned above. Therefore, 451.08 grams of gold is also considered for the purpose of discovering the true value of gold. The quantity of 24K Gold necessary to make 13262grams of 22K Gold jewellery is 12156.877 grams. And the value of 12156.877 grams of 24K Gold for making 13262 grams of 22K Gold jewellery is Rs.3,23,55,528 Based on the above, the value of 22K gold can be arrived as, Value of 24K gold per gram on the date of survey Rs. 2661.50 (Submitted by the assessee) Value of 12156.877 g of 24K gold on 26-11-2014 Rs. 3,23,55,528 necessary to make 13262 grams of 22K gold Making charges for 13262 g of gold Rs. 3,97,860 (Rs. 30 per gram as claimed by the assessee) Value of 22K gold per gram as on 26.11.2014 Rs. 2469.717
Further, during the course of hearing before the first
appellant authority, assessee submitted that the ld. AO erred
in considering the total weight of the excess gold jewellery as
gold, but did not consider the other impurities and precious
and semi-precious stones and other metals of such jewellery.
The reply filed by the assessee before the ld. CIT(A) reads as
follows:
"The Gold Jewellery is valued on the principles on the principles and . method adopted for the purpose of Wealth Tax Act. This is the normal and usual practice adopted for valuing the excess jewellery found at the time of survey/ search. To support the method of working, I provided the detail of V.G.Mehta's Ready Reckoner page no: 284 for valuation of Gold ornaments; The Gold Bullion value as on 26.112014 was taken as a
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base for valuing the Gold Jewellery and copy of the business line dated 26.11.2014 was submitted for the Gold Bullion value. On the date of survey, Gold Jewellery with stones and without stone were found and the excess stock includes both Gold Jewellery of with stones and without stone. Based on the Gold bullion rate, a deduction for impurities, soldering materials at the rate of 14% is made in the Gold bullion rate for the purpose of the valuation of the content of the Gold in excess stock of Gold Jewellery. By adopting this method the value of Gold Jewellery is arrived and for manufacturing the said jewellery, the manufacturing cost of Rs.30/g is added. The total value is admitted for the excess gold jewellery found. While valuing the Gold jewellery no distinction is made i.e. Gold jewellery stones and gold jewellery without stones. Only 15% deduction is made for impurities, soldering materials i.e. takka from the bullion rates, As alleged in the show cause notice, the entire stock of excess gold jewellery is not having purity Of 91.667%. hence the value worked out based on 22K is unreasonable an- and against the normal practice followed in this line of business. Further, in the recent article of "The Hindu" dated 11.12.2017 will clearly show that the content of the Gold in Gold Jewellery 91.667. Copy of the "The Hindu" dt: 11.12.17 enclosed. The excess Gold Jewellery found has not been· valued as old gold jewellery since New: Gold Jewellery was found at the time of survey. Hence, the said Gold Jewellery has been taken/recorded in New Gold Jewellery. The method of valuation adopted by me is highly reasonable and scientific as compared to any other method of valuation for the nature of the excess stock of jewellery found on the date of survey. The method of valuation adopted will not result in artificial reduction of the value of the Gold Jewellery as alleged in the show cause notice. In view of the above, the excess Gold jewellery consists of the Gold Jewellery with stones and Gold Jewellery without stones and the value of gold per gram is Rs.2469. 717 cannot be adopted for addition purpose. The rate adopted by me is fair and reasonable for arriving the value of the excess stock of gold jewellery found on the date of survey. There is no need for any addition.”
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Considering all facts, details filed by the assessee before
the Assessing Officer and given before the ld. CIT(A) and the
calculations made by the ld. AO, we find that undisputedly
excess jewellery was found which the assessee has admitted
and as against 13262 grams, assessee has admitted
12810.920 grams of excess jewellery in the return of income.
However, for the purpose of valuation of said jewellery and the
reconciliation of the stock in the hand complete details have
been filed by the assessee based on the books of accounts and
other bills and documents for the year under consideration and
complete reconciliation statement has been filed about the
stock in hand as on the date of survey as well as on the year
end. Ld. AO has not found any discrepancy in the books of
accounts nor has he rejected the book results. The addition
made by the Assessing Officer is purely based on the
statement given by the assessee during the course of survey
but the same does not have any evidentiary value as
consistently held by Hon’ble courts. The alleged addition is
only on account of the rates applied by the Assessing Officer
which is higher to the rate adopted by the assessee. From
perusal of the calculation of Assessing Officer, we notice that
he has totally ignored the cost of the precious and semi-
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gold jewellery. Under this given facts and circumstances of
the case, the details filed by the assessee based on the
records, books of accounts maintained cannot be ignored and
therefore, alleged addition made by the Assessing Officer
deserves to be deleted. We therefore, set aside the findings of
the ld. CIT(A) and delete the addition made by the Assessing
Officer. Thus, ground no. 6, 7, 8, 9 & 10 of assessee’s appeal
is allowed.
Other grounds being general and consequential in nature
needs no adjudication.
In the result, appeal filed by the assessee is partly
allowed. Order pronounced in the court on 25th April, 2023 at Chennai. Sd/- Sd/- (मनोमोहन दास) (मनीष बोराड) (MANOMOHAN DAS) (MANISH BORAD) �या�यकसद�य/JUDICIAL MEMBER लेखासद�/Accountant Member
चे�ई/Chennai, �दनांक/Dated: 25th April, 2023 JPV आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� (अपील)/CIT(A) 4. आयकर आयु�/CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF
