SHREE RK GOLD ,MUMBAI vs. INCOME TAX OFFICER WARD 26(2)(1), MUMBAI

Ground Nos. 1 and 2 raised by the assessee relates to challenging the order of the Ld. CIT(A) in upholding the addition made by the AO of Rs. 90,87,282/- under Section 69A of the Act. Therefore, we have decided to adjudicate these grounds through the present consolidated order.

We have heard the counsel for both the parties, perused the material placed on record, the judgments cited before us, and also the orders passed by the Revenue Authorities. From the records, we noticed that the assessee filed its return of income for the year under consideration. However, the case of the assessee was selected for scrutiny on account of the fact that during checking by the Control Unit set up by the Investigation Wing, Nagpur, during the by-election of 78-Yavatmal Legislative Assembly on 30.05.2013, the assessee was found with 2.463 Kg of gold ornaments. In this regard, the statement of the assessee under Section 131 of the Act was recorded on the very same day, wherein he stated that he had come to Amravati on 27.05.2013 with 3.420 Kg of gold ornaments and had sold around 953 grams of gold ornaments to various customers before being intercepted by the Control Unit. The assessee could not furnish the party- wise sales details. Therefore, considering the statement recorded under Section 131 of the Act, the AO made additions under Section 69A of the Act on account of unexplained stock and completed the assessment. The said addition was upheld by the Ld. CIT(A).

After evaluating the entire facts of the case, we find that the assessee, being a partnership firm, is engaged in the wholesale trading of gold ornaments. During the checking conducted by the Investigation Wing, it was explained by the assessee that he had travelled with approximately 3.420 Kg of gold ornaments for business purposes and had delivered around 953 grams to various customers. Consequently, 2.463 Kg remained in his possession at the time of interception. The partners of the assessee- firm explained that the ornaments constituted "stock-in-trade" of the partnership firm, duly recorded in the books of account and stock register, and therefore could not have been treated as unexplained, particularly in view of the provisions of Section 132 of the Act regarding stock-in-trade.

In order to substantiate that the said gold ornaments were stock-in- trade and were duly recorded in the books of account and stock register, the assessee submitted stock statements, purchase registers, ledger confirmations of buyer parties, party-wise purchase and sales details, bank statements, and audited financial statements. These documents, enclosed in the paper book, go to prove that the gold ornaments were duly reflected in the stock registers; purchases were supported by bills and ledger confirmations; payments for purchases were made through banking channels; and stock records formed part of the audited books of account. Thus, the essential condition that the jewellery was not recorded in the books was found to be absent.

After evaluating the entire documentary evidence relied upon by the assessee, we found that the gold constituted fully accounted stock-in-trade and that the assessee maintained regular books of account. Quantitative stock details were also audited under Section 44AB of the Act.

We also found that the audited books of account did not contain any adverse remarks by the auditors regarding the maintenance of books or stock registers.

Even otherwise, the AO himself observed that as per the stock statements, the closing stock was around 3.34 Kg, whereas the partner stated that he was carrying approximately 3.43 Kg. Thus, the difference was merely 0.08 Kg (80 grams), which is insignificant considering the nature and volume of the business. The AO, in Para 4 of the assessment order, accepted that the assessee had come to Amravati on 27.05.2013 and that the quantity carried was stated on an approximate basis. Therefore, minor variations are natural and bound to occur and cannot be treated as discrepancies, particularly when the stock was found to be hypothecated with the Bank of Maharashtra against overdraft facilities, thereby establishing that the inventory was disclosed and genuine.

We further noticed that the AO had not disputed the genuineness of purchases, the identity of suppliers, the banking transactions, or the stock records. Thus, the AO had accepted the purchases, and consequently, the corresponding stock could not be treated as unexplained in the absence of any contrary evidence. The addition made by the AO was only on account of a mismatch between the dates of delivery stated in the statement and the dates appearing in the sales invoices.

We also found that the payments for the sales made by the assessee were received through RTGS/banking channels and that the VAT authorities had not pointed out any discrepancy in the stock records or business transactions of the assessee. Thus, the stock involved in the transaction was fully accounted for and formed part of the disclosed business stock.

Thus, considering the totality of the facts and circumstances discussed above, and also keeping in view the decisions of the Hon'ble Gujarat High Court and the Coordinate Benches of the ITAT, and following the principles of judicial consistency and binding precedents, we direct the AO to delete the addition made under Section 69A of the Act and allow the grounds raised by the assessee.

In the result, appeal filed by the Assessee stands allowed.