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Facts
During a survey u/s 133A, the assessee, a jewellery firm, had issues identified concerning excess cash and excess stock. The Assessing Officer (AO) made additions based on these findings.
Held
The Tribunal held that the addition for excess cash was not sustainable as the assessee demonstrated the availability of cash through business transactions and the cash book. For excess stock, the Tribunal noted that part of the stock was explained and part of the addition was reduced.
Key Issues
Whether the addition on account of unexplained cash found during survey and addition on account of excess stock of jewellery were justified, and whether the CIT(A)'s deletion of additions was correct.
Sections Cited
143(3), 142(1), 133A, 69A, 69C, 115BBE
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Income Tax Appellate Tribunal, “B” BENCH, CHENNAI
Before: HON’BLE SHRI ABY T. VARKEY, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
(िनधा'रण वष' / Assessment Year: 2020-21) DCIT Sri Rama Jewellery Mart बनाम/ Vs. Central Circle-2, # 170, Big Bazar Trichy. Trichy-620 008. �थायीलेखासं./जीआइआरसं./PAN/GIR No. AABFS-0686-B (अपीलाथ�/Appellant) : (� थ� / Respondent) अपीलाथ� की ओर से/ Appellant by : Ms. Guathami Manivasagam (JCIT) - Ld. Sr. DR � थ� की ओर से/Respondent by : Shri N. Arjun Raj & Shri S. Girish Kumar (Advocates) - Ld. ARs सुनवाई की तारीख/Date of Hearing : 08-05-2025 घोषणा की तारीख /Date of Pronouncement : 27.06.2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by revenue for Assessment Year (AY) 2020-21 arises out of an order passed by Ld. Commissioner of Income Tax (Appeals), Chennai-19 [CIT(A)] on 29-10-2024 in the matter of an assessment framed by Ld. AO u/s 143(3) on 29-09-2022. The grounds of appeal read as under: -
1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2 The Ld. CIT (A) erred in deleting the addition of Rs.51,80,002/- made towards unexplained money u/s.69A and in accepting that the assessee was able to demonstrate the availability of cash, including cash sales that were properly recorded in the books of accounts and submitted relevant supporting documents, including the cash book, which reflected the cash balance of Rs.51,80,002/-without appreciating the fact that the cash book was not available at the business premises nor was produced by the assessee immediately after to prove the authenticity and contemporaneous maintenance of cash book on day-to-day basis. 2.1 The Ld. CIT (A) erred in not appreciating the fact that during the course of assessment proceedings, the assessee in his reply dated 24-09-2022 stated that at the time of survey the cash books has not been updated, hence, it is seen that the cash book was subsequently created and produced in support of huge cash balance found and unexplained at the time of survey which is only the afterthought.
The Ld. CIT (A) erred in restricting the addition made of Rs.1,54,64,000/-u/s.69C r.w.s. 115BBE, to the extent of Rs.1,03,170/- and directing to treat the same as unaccounted business income of the assessee and to tax at normal rate without giving opportunity to the AO to present his submissions/objections to the contrary thereby violating the Principles of Natural Justice. 3.1 The Ld. CIT (A) erred in observing that out of 4000 grams of excess stock found, the stock of 2019.675 grams stands accounted for without appreciating the fact that the assessee has not furnished item-wise stock register, as such, the claim of the assessee that stock of gold jewellery weighting 2019.675 grams was actually purchased prior to the date of survey but not entered in the stock register is not supported by material evidence. 3.2 The Ld. CIT (A) erred in reducing the stone weight of 531.250 grams from the excess stock of jewellery found without appreciating the fact that the assessee has not furnished any details on which basis stone weight was estimated and not furnished any evidence thereof. 3.3 The Ld. CIT (A) erred in valuing the excess stock of gold at the rate of Rs.3402.08 per gram based on wealth tax rules, as against Rs.3886/- per gram for computing the total income under the Income Tax Act, 1961.
The Ld. CIT (A) erred in directing to treat the addition made of Rs.4,89,266/-u/s.69C r.w.s. 115BBE, as unaccounted business income of the assessee and to tax at normal rate without giving any finding as to the nexus of that impugned amount with business.
For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the Order of Ld CIT(Appeals) may be set aside and that of Assessing Officer may be restored.
The Ld. Sr. DR advanced arguments supporting the assessment as framed by Ld. AO whereas Ld. AR referred to the findings of Ld. CIT(A) in the impugned order. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under. The assessee being resident firm is stated to be engaged in retail sale of gold and silver jewellery. During this AY, the assessee-firm was constituted by four partners. The impugned assessment stems from a survey action by department on the assessee wherein certain documents / discrepancies were found. As is evident from grounds of appeal, two issues arises for our consideration – (i) Addition of Excess cash; (ii) Addition of excess stock of jewellery. Assessment Proceedings 3.1 The assessee was subjected to survey u/s 133A on 07-02-2020 wherein the issue of excess cash and excess stock of gold and silver jewellery was identified. The statement of the Managing partner Shri V. Badhrinarayanan was recorded therein. Subsequently, the assessee filed return of income declaring income of Rs.114.38 Lacs which was subjected to scrutiny proceedings. 3.2 Unexplained Cash Found During survey, cash of Rs.51.80 Lacs was found. The assessee did not furnish the cash book for verification at the time of survey. The managing partner stated that the difference in cash may be around Rs.10 Lacs only. However, during assessment proceedings, the assessee duly furnished its cash book which reflected transfer of cash from branch office to head office and the discrepancy was stated to be resolved. The Ld. AO doubted the same on the ground that the transactions were shown to have taken place one month before the date of survey and the necessity for keeping such huge cash was not explained with any cogent reasons. The assessee stated that the cash transactions were duly supported by sales bills and chit collections. The sales bills were furnished for the month of January and February, 2020 on sample basis. However, rejecting the same, the amount of Rs.51.80 Lacs was added to the income of the assessee u/s 69A r.w.s. 115BBE of the Act. 3.3 Excess Stock of Jewellery The physical stock of gold and silver jewellery was compared with the book-stock. The excess physical stock of gold was quantified at 4000 grams. During assessment proceeding, the assessee furnished reconciliation statement and stated that certain purchases made prior to the date of survey were not entered in the stock register. The reconciliation statement has been extracted at Page No.7 of the assessment order. The assessee quantified the value of un-reconciled excess gold at Rs.48.26 Lacs and established that this amount was already offered in the return of income. The details of missed out purchases has also been tabulated on Page No.7 of the assessment order. The assessee furnished copies of invoices and payment details in support of the same. The Ld. AO doubted these transactions and rejected the claim that the gold jewellery of 2019.675 grams was purchased prior to the date of survey. The assessee only maintained consolidated stock register and it was not possible to verify the inclusion of these five purchases. Finally, Ld. AO rejected the claim of the assessee and held that entire value of excess stock of jewellery was to be assessed u/s 69C and accordingly, an addition of Rs.154.64 Lacs was made u/s 69C r.w.s. 115BBE. Consequently, the additional business income as offered by the assessee was reduced from the business income of the assessee. 3.4 Excess Stock of Silver Ornaments Similarly, the excess physical stock of silver ornaments was found to the extent of 9785.31 grams. The assessee stated that the difference was less than 10% which was negligible and the same may be due to weight differences. However, Ld. AO added the amount of Rs.4.89 Lacs in the hands of the assessee u./s 69C r.w.s. 115BBE and framed the assessment. Aggrieved, the assessee assailed the assessment before first appellate authority.
Appellate Proceedings 4.1 The adjudication of Ld. CIT(A) on the issue of excess cash is contained in para 6.3.6 onwards. It was observed that the impugned addition was made primarily on delay in producing the cash book. The assessee contended that the department did not call for the cash book subsequent to the survey and only upon receipt of notice u/s 142(1), the assessee was able to produce the cash book. Further, Ld. AO chose to issue notice u/s 142(1) of the Act lately on account of the lockdown imposed due to the outbreak of pandemic. In view of this, the argument of Ld. AO that the assessee had produced the cash book after a lapse of two years would not hold good. The assessee explained that the cash was sourced out of regular business transactions and fully supported by sales bills and chit collections. The same would appear to be genuine as the relevant sales were duly been reported to the GST department on monthly basis. The assessee produced sales bills for the months of January and February, 2020 to substantiate this claim. Therefore, the assessee was able to demonstrate the availability of cash including cash sales that were properly recorded in the books of accounts. The assessee had submitted relevant supporting documentation. The cash book was also furnished which had cash balance of Rs.51.80 Lacs on the date of the survey. The AO did not make any adverse finding challenging the authenticity of the cash book entries or the legitimacy of the cash sales. The Ld. AO merely doubted the large amount of cash as kept by the assessee. The reasoning was based on the assumption that it was unusual for the assessee to keep substantial cash balance without depositing it in the bank account implying that such conduct was not in line with normal business practices. However, it was the prerogative of the businessman to decide how to handle the operational needs of the business including the timing of cash deposits into the bank account. The business decision such as maintaining a cash reserve would depend on various factors such as liquidity needs, customer payments, and the nature of the business. The assessee was in the jewellery business where transactions would be often conducted in cash. The assessee would have discretion to manage cash balances as per the requirements of the business. Therefore, the impugned addition was held to be not sustainable. 4.2 So far as the statement of managing partner as recorded u/s 133A was concerned, the same would not hold conclusive evidentiary value unless corroborated by other substantive evidences. In the decision of Hon’ble Madras High Court in the case of CIT vs. S. Khader Khan Son (300 ITR 157) as confirmed by Hon'ble Apex Court (reported as 352 ITR 480), such statements u/s 133A would not carry much evidentiary value. Therefore, the statement made by the managing partner could not be treated as prime evidence for making impugned addition especially when no corroborating material or evidence was brought on record by Ld. AO. Further, there was no adverse finding by Ld. AO regarding unaccounted sales or transactions. The assessee had sufficiently explained the source of the cash found during the survey which Ld. AO could not rebut. On these facts, the impugned addition of excess cash was deleted against which the revenue is in further appeal before us. 4.3 On the issue of excess stock of gold, the assessee duly explained that the stock weighing 2019.675 grams were purchased prior to the date of survey and the same was not entered in the stock register which led to the said discrepancy. In support thereof, the assessee furnished copies of invoices and payment details. The Ld. AO alleged that the assessee made payments for three purchases well after the invoice date which was illogical given the volume, value, and fluctuating rate of gold. There was no evidence of actual delivery or the delivery date. It was unreasonable that no receipt or acknowledgement was obtained for the delivery of valuable gold ornaments. As the actual delivery evidence was missing and the purchases were not recorded in the stock register, the claim for these purchases was not accepted by Ld. AO. 4.4 During appellate proceedings, the assessee made various arguments one of which was that the intrinsic value of jewellery would differ from the raw gold value, primarily due to crafting cost, dealer’s margins etc. The assessee prayed for allowance of these components as provided under the Wealth Tax Act. The AO rejected the claim by holding that these rules would apply only for Wealth tax purposes and not for Income tax purposes. However, the provisions of Section 69A refer to valuation of bullion and jewellery separately. The clause 18 of Part G to Schedule Ill of Wealth Tax Rules requires that value of the jewellery shall be estimated to be the price which it would fetch if sold in the open market. Concurring with these submissions, the excess gold jewellery was directed to be valued at Rs.3402.08 per gram. The impugned addition was worked out to be Rs.1.03 Lacs which was to be considered as unaccounted business income only. The remaining addition of Rs.153.60 Lacs was deleted. The additional income of Rs.48.26 Lacs as offered by the assessee was directed to be assessed as unaccounted business income to be taxed under normal provisions of the act. Similarly, the excess stock of silver was directed to be considered as unaccounted business income of the assessee. Aggrieved as aforesaid, the revenue is in further appeal before us. Our findings and Adjudication 5. So far as the issue of excess cash is concerned, it could be seen that during the course of assessment proceedings, the assessee furnished complete cash book to demonstrate sufficient availability of cash on the date of survey. The cash was sourced out of regular business transactions and fully supported by sales bills and chit collections. The sales turnover was reported in the GST return which was not doubted by Ld. AO. It clearly emerges that the assessee was able to demonstrate the availability of cash including cash sales that were properly recorded in the books of accounts. The assessee submitted relevant supporting documentation in support of its claim. As rightly held by Ld. CIT(A), it was the prerogative of the businessman to decide how to handle the operational needs of the business including the timing of cash deposits into the bank account. The business decision such as maintaining a cash reserve would depend on various factors and the assessee would have discretion to manage cash balances as per the requirements of the business. The statement as recorded u/s 133A would not hold much evidentiary value as per settled judicial pronouncements. On these facts, the adjudication of Ld. CIT(A) could not be faulted with. We order so. The corresponding grounds of appeal stand dismissed.
6. On the issue of addition of excess stock of gold, it could be seen that few of the purchases remained to the recorded by the assessee. The quantitative discrepancies were duly reconciled by the assessee and the assessee offered additional business income of Rs.48.26 Lacs against un-reconciled stock. The Ld. AO rejected the purchase bills without any independent verification / investigation. It is trite law that no addition could be made on mere surmises and presumptions. Upon perusal of assessee’s submissions, Ld. CIT(A) quantified the impugned addition of excess stock of gold jewellery at Rs.1.03 Lacs which was to be assessed as normal business income. It was also held that the value of un- reconciled stock of Rs.48.26 Lacs as already offered by the assessee in the return of income was to be treated as normal business income only. On the given facts, the adjudication of Ld. CIT(A) could not be faulted with. Similarly, the adjudication of excess stock of silver does not require any interference on our part. In other words, the returned business income would be assessed at Rs.114.38 Lacs which would further be increased by addition of excess stock of jewellery for Rs.1.03 Lacs and addition of silver jewellery for Rs.4.89 as unaccounted business income. We order so.
7. The appeal stands dismissed. Order pronounced on 27.06.2025 Sd/- Sd/- (ABY T. VARKEY) (MANOJ KUMAR AGGARWAL) �ाियक सद� /JUDICIAL MEMBER लेखा सद� / ACCOUNTANT MEMBER चे4ई Chennai; िदनांक Dated : 27.06.2025 DS आदेश की Fितिलिप अ$ेिषत / Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. � थ�/Respondent 3. आयकरआयु=/CIT Madurai/Chennai/Coimbatore 4. िवभागीय�ितिनिध/DR 5. गाडBफाईल/GF