SULTHAN GOLD INTERNATIONAL ,KERALA vs. DCIT, CENTRAL CIRCLE-1, MANGALORE

Briefly stated facts of the case are the assessee is a firm and is in the business of

On being aggrieved by the Order of the learned AO, assessee carried the matter before the learned CIT(A). Before the learned CIT(A), the assessee made similar submissions. However, the learned CIT(A) being not satisfied upheld the Order of the learned AO, by dismissing the appeal of the assessee.

On being aggrieved by the Order of the learned CIT(A), the assessee is in appeal before us by raising the following grounds:

The issue arising out of the above grounds is with respect to additions made by learned AO arising out of excess and deficit stock of the jewellery and diamonds. The assessee also raised the grounds challenging the sanction under section 153D of the Act. The other issue agitated by the assessee is with respect to adding the entire turnover as income instead of the profit element embedded in the unaccounted sales. The learned AR also argued that the learned AO erred in considering the entire deficit stock as income of the assessee. She prayed that only the profit element in the unaccounted sales shall be considered as income of the assessee which was confirmed by various judicial precedents. She also prayed that the gross profit @ 6% be treated as income during the impugned Assessment Year arising out of the deficit stock. Further, she also submitted that the gross profit ratio declared by the assessee in various Assessment Years is submitted before the Tribunal. It was also argued that the incriminating materials seized during the search operations were not provided to the assessee. The Revenue also failed to accept the fact that differences in the stock arise out of weighing differences which is normal in this line of business.

Per contra, the learned DR submitted that the purchase cost pertaining to excess stock is already accounted in the books of accounts whereas the corresponding sales remain unaccounted and hence the entire difference in stock amount shall be considered as sales and income of the assessee. He also further stated that with respect to the excess stock, the assessee has not submitted documentary evidences and hence the learned AO has rightly treated it as unexplained investment under section 69B r.w.s. 115BBE of the Act.

We have heard the rival contentions of the parties and perused the material available on record including the written submissions by the Revenue, Assessee and the decisions relied on by the parties. During the course of hearing, the learned AR submitted that ground No.9 is not pressed by the assessee and hence we dismiss the ground as not pressed. It is the case of the learned AO that during the search operations, differences in stock of diamonds and gold were found and could not reconciled with the books of accounts maintained by the assessee. The learned AO also rejected the explanation of the assessee that the difference arises due to weighment of gold and diamonds. However, the learned AO did not consider it as a plausible explanation and proceeded to estimate the undisclosed sales and investment on the differences detected during the search proceedings. The learned AO computed the excess stock and undisclosed sales of various branches of the assessee at Rs.11,65,387/- and Rs.1,55,74,858/- respectively aggregating to Rs.1,67,40,245/-. The only contention of the learned AR is the entire difference in stock cannot be treated as income but only the profit element on the unaccounted sales shall be construed as income of the assessee. We find merit in the argument of the learned AR and the entire sale value cannot be added but only the gross profit can be taxed. The Hon’ble Supreme Court in the case of CIT Vs. Williamson financial Services [2007] 165 taxman 638 held as follows:

Respectfully following the decision of the Hon’ble Supreme Court, we direct the learned AO to adopt net profit @ 6% on unaccounted sales. Thus, ground No.12 raised by the assessee is partly allowed.

With respect to the addition made by the AO on account of excess stock, we don’t find any infirmity in the Order of the learned CIT(A) and hence no interference is required. The other grounds raised by the assessee are consequential in nature and are left open. Thus, appeal of the assessee is partly allowed for statistical purposes.

In the result, appeals filed by the assessee are allowed for statistical purposes.