ASSISTANT COMMISSIONER OF INCOME TAX, NASHIK vs. GOVIND JAIKRISHNA DANDE & SONS, NASHIK

This is an appeal filed by the Revenue directed against the order of ld. Commissioner of Income Tax- 1, Nashik [‘the CIT(A)] dated 03.02.2017 for the assessment year 2013-14.

Briefly, the facts of the case are that the respondent-assessee is a partnership firm. It is engaged in the business of trading in gold and silver ornaments. The return of income for the assessment year 2013-14 was filed on 30.08.2013 declaring total income of Rs.1,37,06,928/-. The same was revised on 26.02.2014 at total income of Rs.1,73,50,820/-. Subsequently, the survey operations were conducted in the business premises of the respondent-assessee firm on 07.10.2013. During the course of survey operations, the Assessing Officer found some discrepancies in stock as per the books of accounts and stock as per register maintained through a software application i.e. “ACME Software”. During the course of survey proceedings, the Assessing Officer had estimated the such difference of stock as on 31.03.2013 at Rs.4,11,88,184/-. The details of which are as under :- Sr. Item Stock as per Stock as per Difference Value No. audit report system 1 Gold 40554.07 gm 51395 gm (+) 10841 gm 3,24,14,590/- 2 Diamond 2017.949 2788.977 (+) 771 50,90,448/- 3 Silver 226344.91 299544.578 gm (+) 73199.66 36,67,303/- 4 Platinum 157.64 gm 162.44 gm (+) 4.801 gm 15,843/- 3. Thereafter, the assessment was completed by the Assistant Commissioner of Income Tax, Circle-1, Nashik (‘the Assessing Officer’) vide order dated 09.02.2016 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at total income of Rs.5,48,95,112/- after making addition of Rs.3,75,44,292/- on account of alleged discrepancies in the stock between the value of stock shown in the Profit & Loss Account and the value of stock ACEM Software. The factual matrix leading to the above addition is as under : An amount of Rs.36,43,892/- was offered to tax as additional income by filing the revised return of income u/s 139(5) of the Act. When the respondent-assessee was asked to explain said discrepancies in the value of stock as per Profit & Loss Account and the value of stock shown in the ACEM Software, it was explained by the respondent-assessee that the respondent-assessee firm had accepted the deposits of gold from the customers under the gold deposits scheme and for making the ornaments. Such gold, diamond, silver jewelleries were not forming a part of the stock of the respondent-assessee firm, hence not reflected in the Profit & Loss Account, whereas in the software maintained in the computer i.e. ACEM Software, the stock of the customers lying with the respondent-assessee firm i.e. being gold received from customers under the gold deposits scheme or for making ornaments is shown as part of the stock of the assessee firm. It is also mentioned that the stock received from customers is kept under separate box. The respondent-assessee also furnished the statement of reconciliation of stock as on 31.03.2013 vide 08.11.2013. Accordingly, on reconciliation of difference, the excess stock was found to the extent Rs.36,43,892/- and the same was offered as additional income by revising the return of income. The respondent-assessee firm also field the details of gold, diamond, silver jewelleries received from the customers under the gold deposits scheme, names and addresses of the customers/persons, who had deposited the gold, diamond, silver jewelleries with the respondent-assessee firm under gold deposits scheme and for the purpose of making the ornaments etc. However, disbelieving the reconciliation statements furnished by the respondent-assessee firm, the Assessing Officer brought to tax a sum of Rs.3,75,44,292/-.

Being aggrieved by the order of assessment, an appeal was preferred before the ld. CIT(A), who vide impugned order, after considering the submissions furnished by the respondent-assessee firm, reasoning of the Assessing Officer for making the additions, as well as considering the fact that the respondent-assessee firm had deducted TDS on interest paid on gold, diamond, silver jewelleries received from the customers under the gold deposits scheme and also the fact that the stock of these items like gold, diamond, silver jewelleries had not been included as a part of the closing stock shown in the Profit & Loss Account even in the earlier years, deleted the addition made by the Assessing Officer.

Being aggrieved by the decision of the ld. CIT(A), the Revenue is in appeal before us in the present appeal.

The ld. Sr. DR submits that the ld. CIT(A) ought not to have accepted the explanation given by the respondent-assessee firm that the difference between the stock as per the computer software i.e. ACME Software and the stock shown in the Profit & Loss Account, inasmuch as, the respondent-assessee firm was found in possession of excess stock which were not recorded in the books of accounts of the respondent-assessee firm. It is further submitted that during the course of assessment proceedings, the respondent-assessee firm could not explain the discrepancies with evidence and the fact that the respondent-assessee firm itself had offered additional income of Rs.36,43,892/- by filing the revised return of income would establish the fact that the explanation offered by the respondent- assessee firm is not believable. The explanation offered by the respondent-assessee firm is an afterthought and self-contradictory as the fact that the discrepancies between the stock as per the Profit & Loss Account and the stock as per computer software i.e. ACME Software is established by the fact that the respondent-assessee firm itself had offered additional income of Rs.36,43,892/- on notifying such discrepancies. He further submitted that the ld. CIT(A) ought not to have granted relief taking into consideration the fact that in the earlier assessment year, as no addition on account of such discrepancies of the stock was made. This issue was not subject matter of addition in the earlier years, and the principle of res- judicata has not application to the facts of the present case. 7. On the other hand, ld. AR submits that during the course of assessment proceedings, the respondent-assessee firm offered an explanation as to how the discrepancies between the stock as per the Profit & Loss Account and the stock as per the ACME Software maintained in the computer had arisen. The respondent-assessee firm also filed details of the customers from whom gold, diamond, silver jewelleries were received under the gold deposits scheme and for the purpose of making the ornaments, which are placed at page no.89 to 90 of the Paper Book. He also filed before us the copies of the applications received from the customers under gold deposits scheme and also the copies of details in respect of gold received from customers for making the gold ornaments. He further submits that the Assessing Officer had failed to consider the melting loss of gold at 2026 gms. Finally, he submits that the order of the ld. CIT(A) is based on the proper appreciation of material on record and thus pleaded that no interference with the order of the ld. CIT(A) is called for.

We heard the rival submissions and perused the material on record. The issue in the present appeal relates to the addition on account of alleged discrepancies between the stock as per the Profit & Loss Account as on 31.03.2013 and the stock as per register maintained under computer software, namely, ACME Software. It is an admitted fact that there is a difference of the stock as per Profit & Loss Account and stock as per statement generated under ACME Software. Such difference was quantified Rs.4,11,88,184/- out of which a sum of Rs.36,43,892/- was offered as additional income by filing revised return of income. The difference was explained by the respondent-assessee firm by stating that the stock of the customers deposited under gold deposits scheme and the gold, silver and diamond of the customers lying with the respondent-assessee firm for the purpose of making the ornaments, was not included as a part of the stock belonging to the respondent-assessee firm and hence not reflected in the Profit & Loss Account. The respondent- assessee firm also filed the full details of the customers who had deposited the gold under gold deposits scheme as well as the list of the customers who had deposited the gold, silver and diamond lying with the respondent-assessee firm for the purpose of making the ornaments. It is further asserted that the respondent-assessee firm had been continuously following this particular method of accounting the closing stock by excluding the gold, silver and diamond belonging to the customers either received under gold deposits scheme or received for the purpose of making the ornaments. The photocopies of such applications for gold deposits scheme received from the customers were also part of the record with such details like photograph of the customers, their communication address, identify proof, PAN card and mobile numbers etc.. The respondent-assessee firm had been paying interest @ 4% on gold received under gold deposits scheme on which tax was deducted. Thus, it appears that the respondent- assessee firm had discharged primary onus lying upon it by explaining the difference between the stock as per Profit & Loss Account and stock as per stock register maintained through computer software ‘ACME Software’. On receipt of the explanation, the Assessing Officer had not done anything to verify the veracity of the explanation of the respondent-assessee firm. He simply proceeded with by making addition by observing that the explanation of the respondent-assessee firm cannot be believed for