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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI V. DURGA RAO & SHRI G. MANJUNATHA
आदेश /O R D E R
PER G. MANJUNATHA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)- Puducherry, dated 28.12.2017 u/s. 143(3) r.w.s. 147 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) and pertains to assessment year 2013-14.
:-2-: ITA. No: 667/Chny/2018 2. The grounds raised by the assessee read as under: “1. The order of The Commissioner of Income Tax (Appeals), Puducherry dated 28.12.2017 in I.T.A.No.166/CIT(A)-PDY/2016- 17 for the above mentioned Assessment Year is contrary to law, facts, and in the circumstances of the case.
2. The CIT (Appeals) erred in sustaining the addition made on the presumption of difference in stock based on the survey report and on the comparison of the book stock in the computation of taxable total income without assigning proper reasons and justification.
3. The CIT (Appeals) failed to appreciate that having noticed the fact of reconciliation of the stock, the sustenance of the addition based on the assessment order was wrong, erroneous, unjustified, incorrect and not sustainable in law.
4. The CIT (Appeals) went wrong in recording the findings in this regard from para 5.13 of the impugned order without assigning proper reasons and justification.
5. The CIT (Appeals) failed to appreciate that the order of re- assessment was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law and ought to have appreciated that having not furnished the basis of the determination of the quantum of stock at the time of survey and further having not furnished the survey report, the sustenance of the addition on the presumption of the difference in stock was wrong, erroneous, unjustified, incorrect and not sustainable in law.”
The brief facts of the case are that the assessee is engaged in the business of retail trading of jewellery. A survey u/s. 133A of the Act was conducted on 18.02.2013 in the group cases of M/s. Malan Jewellery (Firm). During the course of survey, physical stock on inventory was taken and as per physical inventory, gold, silver and diamond articles were valued, which comes to Rs. 4,26,44,120/-. The assessee was called upon to explain physical stock found in the course of :-3-: ITA. No: 667/Chny/2018 survey with reference to books of accounts maintained for the relevant assessment year. In response, the assessee submitted that it did not maintain regular books of accounts and also there is no bills for purchase and sale of jewellery. Therefore, the value of difference in stock has been arrived by considering value of closing stock as per the return of income filed for the assessment year 2011-12 which was at Rs. 45,00,934/- and then deducted from physical stock found during the course of survey and quantified difference in value of stock as on the date of survey at Rs. 3,81,43,186/-. During the course of survey, the assessee had also offered additional income on account of discrepancy in stock found amounting to Rs. 1,15,00,000/-.
The assessee had filed its return of income for the assessment year 2013-14 declaring total income at Rs. 19,37,080/-. The case has been taken up for scrutiny and during the course of assessment proceedings, the AO called upon the assessee to explain and reconcile difference between physical stock found in the course of survey and stock as per books of accounts. In response, the assessee submitted that in the premises covered under survey, two firms are operating :-4-: ITA. No: 667/Chny/2018 one is assessee firm M/s. Malan Jewellery and other in the name of Mangesh Kumar, proprietary concern. During the course of survey, he was unable to prove and explain stock held in the name of proprietary concern. Therefore, argued if he exclude stock held in the name of proprietary concern and also jewellery belongs to partners, then there is a small difference when compared to physical stock and book stock and thus, discrepancy is covered in additional income offered during the course of survey.
The AO however, was not convinced with explanation furnished by the assessee, and according to AO, the assessee had never informed existence of proprietary business and running of said business in the same premises where the partnership firm was carrying out business during the survey operations. Further, the appellant had filed return of income for assessment year 2013-14 in his individual capacity after the date of survey. Further, VAT returns for partnership firm as well as proprietary concern has been filed with commercial tax authorities on the date of survey. The assessee had filed wealth tax return in the name of proprietor and partners after the date of survey. Therefore, the AO opined that the so :-5-: ITA. No: 667/Chny/2018 called explanation of the assessee with regard to the proprietary concern and stock held therein and also personal jewellery held by partners is afterthought to circumvent additions towards difference in stock of jewellery and thus, rejected arguments of the assessee and made addition of Rs. 1,53,55,897/- as unaccounted investment in jewellery business and the same is added u/s. 69 of the Act.
Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee had filed a detailed written submission on the issue along with reconciliation statement explaining difference between physical stock found during the course of survey and book stock. The sum and substance of arguments of the assessee before the Ld. CIT(A) was that, the AO as well the survey team erred in quantifying difference on the basis of closing stock as on 31.03.2011, even though survey takes place on 18.02.2013, nearly after a period of two years and ignored reconciliation filed by the assessee.
The CIT(A) after considering relevant submissions of the assessee, rejected the arguments and sustained addition made :-6-: ITA. No: 667/Chny/2018 by the AO towards difference in value of stock held by the assessee on the ground that the assessee could not satisfactorily explain difference in stock of jewellery found as on the date of the survey, when compared to books of accounts. Although, the assessee has claimed that if jewellery held in the name of proprietary concern is excluded, then there is a small difference, such claim is not substantiated, because all evidences filed by the assessee are created after the date of survey and further, existence of proprietary concern was not at all informed to the department during the course of survey. Therefore, rejected arguments of the assessee and sustained addition made by the AO towards difference in value of jewellery. The relevant findings of the CIT(A) are as under: 5.11 The assessee was asked to produce the copy of VAT returns in respect of M/s. Malan Jewellery and K. Mangesh Kumar (Indl.). Since the assessee stated that copies of above returns are not readily traceable, the AO issued letter to the Commercial Tax Officer and collected copies of both returns. It was found that both the returns for the period 01.04.2011 to 31.11.2013 were shown to have filed only on 18.02.2013, (the date of survey), which was an attempt to explain the stock found in the premises. 5.12 The AO concluded the following on the basis of above findings, “ The assessee’s contention that he was under tremendous pressure and since the business of the firm as well as proprietary concern were handled by him and that he forgot to say about the gold stock available on the date of survey in the proprietary concem is not acceptable in following:
:-7-: ITA. No: 667/Chny/2018 1. The quantum of gold stated to be available in the proprietary concern of 11050.140 grams is not a negligible one to forget even at survey.
As discussed above, the VAT returns from 1/4/2011 to January, 2013 in respect of Mangeshkumar Proprietary concern and Malan Jewellery Firm were filed on the same date 18/2/2013. i e., the date of survey also proves that the assessee intended to bring in the unaccounted stock into account by way of filing Manual VAT Returns.
3. The assessee had not produced any purchase bills /bought notes or sale bilis in respect of purchase and sale of Jewellery in both 4. In the letter dated 10/11/2016, the assessee had taken a stand that the personal gold/silver available in partners hand as per Wealth tax returns (filed in respect of Smt Subhangi A.Y. 08-09 Silver Gols 3971 grams and silver 6.5 Kgs) were also available in the business premises is not acceptable in view of the fact that the assessee did not have any record to show that the personal Jewels were kept in the business premises. Further, it is also observed that the partner smt. Subhangi had produced only W.T. return copy for the A.Y.08-09 and not for any subsequent years. Further, on perusal of the returns of income filed for the AYs 2012-13 and 2013-14 by the assessee firm, it is seen that the capital of the partners remains Rs. 3,00,000/- each which shows that no personal stock of the partner had been converted into business stock of the firm, Hence, the contention of the assessee regarding introduction of personal jewels as the stock available in the premises on the date of survey is not correct. In view of the foregoing, the contention of the assessee that the gold jewellery of 11050.140 grams stated to be belonging to the proprietary concern kept in the business premises of the firm cannot be accepted. Further the stock of 1738.444 grams of gold and 64282.915 grams of silver stated to be available in the firm's case as per the reconciliation statement filed by the assessee on 10/11/2016 is not considered keeping in view the fact that the assessee firm had filed the VAT returns for the period 1/4/2011 to 31/1/2013 on the date of survey which clearly proves that it is only an after thought. The closing stock as on the date of survey as per the materials made available is worked out as under. While arriving at the value of stock, the gold rate has been taken @ Rs.2.200/- per gram and the silver is taken at Rs. 43 respectively based on the rates for last 5 years (F.Y. 2008-09 to FY 2012-13) on average method. Weight in Rate/ Value gms gram Stock of gold found on 13304.770 2200.00 2,92,70,494/- the date of survey Stock of silver found on 80910.000 43.00 34,79,130/- the date of survey :-8-: ITA. No: 667/Chny/2018 Total value of stock 3,27,49,624/- found on the date of survey Less: Closing stock 45,00,934/- value as on 31.03.2011 Value of difference in 2,82,48,690/- stock Less: Additional Income Rs. offered: 1,15,00,000/- (i) Shri.K. ManeshKumar (Indl.) – Rs. 90,00,000/- (ii) Smt. M. Subhangi - Rs. 25,00,000/- Less: Net profit Rs. admitted in return filed 13,92,793/- by the firm for AY 2012- 13 & 2013-14 Balance to be assessed Rs. 1,53,55,897/- Therefore, an amount of Rs. 1,53,55,897/- is treated as assessee’s unaccounted investment on jewellery business and the same is added u/s. 69 of the Income Tax Act, 1961.” 5.13 On analysis of sworn statement recorded on the date of survey and the details gathered during survey proceedings, it is clear that appellant did not maintain any books of accounts for the business activity carried on by him. Since no details existed to explain the accumulated stock valued at Rs. 4,26,44,120/- (difference in value of stock as on date of survey after reducing closing stock of Rs. 45,00,934/-, disclosed in the return of income for AY 2011-12 was Rs. 3,81,43,186/-), the assessee had voluntarily declared income of Rs. 1.5 cr (On sale of gold jewellery alone). It is found that assessee quickly filed VAT Returns for FY 2011-12 and FY 2012-13 on 18.02.2013, on the date of survey in order to explain the stock found during the survey. However, even this claim was also not substantiated by statement of accounts/item-wise stock of each of the concerns mentioned by it. 5.14 The AO analysed the facts clearly and brought out in the order systematically. Therefore, it cannot be said that the AO has not passed a speaking order. Series of opportunities have been given by the AO to the appellant. Opportunity was also given to the assessee to explain the basis of contradictions in the sworn statements. Therefore, it cannot be said that the AO has denied natural justice to the appellant . The ground that the AO has not taken note of the existence of another proprietary concern in the same premises is also not correct. In fact, the AO analysed this and found to be not :-9-: ITA. No: 667/Chny/2018 supported by any evidences to link the stock found in the premises stated to be stock of any other concern. 5.15 In the absence of any further evidence, the stock as on date of survey computed by the AO on the basis of findings of survey is found to be correct. The AO has given necessary deductions for additional income offered in the hands of Shri. K. Mangesh Kumar Indl.) and Smt. M. Subhangi, Partner. Net profit admitted in the return for AY 2012-13 and 2013-14 have also been considered. I therefore confirm the unexplained investment u/s. 69 of Rs. 1,53,55,897/-.”
The Ld. AR for the assessee submitted that the Ld. CIT(A) erred in confirming addition made by the AO towards difference in value of stock based on survey report, ignoring fact that the assessee has filed reconciliation and explained difference in stock in trade found as on the date of survey. The Ld. AR for the assessee further submitted that the AO has arrived at difference in value of stock by considering closing stock as on 31.03.2011 to physical stock found as on the date of survey on 18.02.2013. But, there is a gap of nearly two years and in between there is transaction of purchases and sales. If you consider said transactions, then there may not be any difference in value of stock. Although, the assessee was not maintained books of accounts and bills and vouchers for purchases and sales, but the assessee has quantified stock in trade by considering transactions of purchases and sales and the AO has ignored the evidences filed by the assessee.
:-10-: ITA. No: 667/Chny/2018 Further, the assessee held stock in trade in the name of proprietary concern and if you excluded stock in trade, there is a difference of very small amount and same has been covered in additional income offered during the course of survey. Therefore, he submitted that addition made by the AO should be deleted.
The Ld. DR, on the other hand supporting the order of the CIT(A) submitted that whatever evidences brought to substantiate explanation is afterthought to circumvent addition towards difference in value in jewellery and thus, the AO as well as CIT(A) have rightly rejected evidences filed by the assessee and made addition towards difference in stock and their order should be upheld.
We have heard both the parties, perused the material available on record and gone through orders of the authorities below. The factual matrixes of the impugned dispute are that a survey u/s. 133A of the Act was conducted on 18.02.2013 in the group case of M/s. Malan Jewellery. During the course of survey, physical stock of inventory was carried out and found that the assessee having stock of gold, silver and diamond :-11-: ITA. No: 667/Chny/2018 jewellery worth Rs. 4,26,44,120/-. The assessee was called upon to reconcile physical stock found during the course of survey with books of accounts maintained for the relevant period. But, the assessee could not reconcile and also produce books of accounts and admitted that it has not maintained regular books of accounts and bills and vouchers for purchases and sales. Therefore, the survey team as well as the AO quantified difference in the value of stock as on the date of survey by taking into account physical stock and value of closing stock, as per the return of income filed for the assessment year 2011-12. During the course of assessment proceedings, the assessee explained and reconciled difference in stock in trade and claimed that two firms were carrying on business in its premises, one is assessee and another is a proprietary concern, and if you consider stock in trade held by proprietary concern and also jewellery of partners held in the indivdual capacity, there is a minor difference and the same is covered out on additional income declared during the course of survey.
We find that the although, assessee claims to have reconciled difference in jewellery found during the course of :-12-: ITA. No: 667/Chny/2018 survey, but such claim was made on the basis of subsequent evidences which are mainly after the date of survey. Further, the assessee claims that a proprietary concern is operating in the same premises and said claim was not made during the course of survey. Further, VAT returns of partnership firm and proprietary concern was filed in manual returns on the date of survey i.e., on 18.02.2013. The return of income for assessment year 2013-14 for individual capacity has been filed on 02.02.2016, which is after the date of survey. Return of wealth for individual capacity has been filed on 17.08.2016, which is once again after the date of survey. Therefore, it is very difficult to accept evidences filed by the assessee to claim that there was a proprietary concern operating in same premises where the partnership firm was carrying out its business and also the proprietary concern was holding stock in trade. It is also difficult to accept the claim of the assessee that physical stock found during the course of survey includes personal jewellery of partners because the wealth tax return was filed after the date of survey. Further, VAT returns for partnership firm as well as proprietary concern was also filed after the date of survey. The assessee was not maintained books of accounts and bills and vouchers for purchases and :-13-: ITA. No: 667/Chny/2018 sales. Therefore, the reconciliation filed by the assessee with the help of above documents cannot be accepted.
Having said so, let us come back to quantification of difference in stock in trade arrived at by the AO. The AO has arrived at difference in value of stock in trade by taking into account physical stock found on the date of survey and then compared with value of closing stock declared for the financial year ending 31.03.2011. Admittedly, there is time gap of nearly two years between stock declared in return of income filed for assessment year 2011-12 and date of survey i.e., 18.02.2013. Therefore, quantification of difference in value of stock arrived at by the AO may not be a correct figure, because in between two financial years, the assessee has made purchases and sales and also filed return of income for this period. Therefore, in our considered view, the AO has also erred in quantifying difference in stock as on the date of survey at Rs. 3,81,43,186/-. We further noted that the assessee had declared a sum of Rs. 1,15,00,000/- in the name of his individual capacity and his wife, both were partners of the firm and offered to tax such additional income in the return of income filed by the assessee for the relevant :-14-: ITA. No: 667/Chny/2018 assessment year to cover up discrepancy in stock found during the course of survey. Therefore, from the above it is clear that neither party i.e., the assessee nor the AO can able to prove their case with necessary evidence. Although, the AO claims to have arrived at difference in stock in trade, but said difference is not based on creditable materials. Similarly, the assessee claims to have reconciled difference in stock in trade, but could not substantiate its claim. In this facts and circumstances, the only possible option to resolve the dispute is estimation of profit on difference in stock in trade worked out by the AO and added u/s. 69 of the Act. The Assessing Officer worked out difference in stock in trade at Rs. 1,53,55,897/-, after reducing additional income offered by the assessee consequent to survey amounting to Rs. 1,15,00,000/- and net profit admitted in return of income filed by the assessee for assessment year 2012-13 & 2013-14 amounting to Rs. 13,92,793/-. Therefore, we are of the considered view that, the reasonable percentage of profit can be estimated on difference in stock worked out by the AO. Admittedly, the assessee is in the business of jewellery, and in this line of business industry average profit ranges from 5% to 20% depending upon the nature of jewellery traded by the :-15-: ITA. No: 667/Chny/2018 persons. Therefore, considering the fact that neither party has proven their case with necessary evidence and also to resolve the dispute, we deem it appropriate to estimate 15% net profit on total addition made by the AO amounting to Rs. 1,53,55,897/- towards difference in stock. Thus, we direct the AO to sustain addition to the extent of 15% profit on sum of Rs. 1,53,55,897/- and delete the balance addition made u/s. 69 of the Act.
In the result, the appeal filed by the assessee is treated as partly allowed. Order pronounced in the court on 19th October, 2022 at Chennai.