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Facts
The assessee, a jewellery manufacturer and trader, claimed melting loss in the conversion of beaten gold to pure gold. The Assessing Officer (AO) added back the claimed amount due to insufficient supporting documentation regarding wastage. The CIT(A) upheld the addition, finding the claim disproportionate.
Held
The Tribunal noted that the lower authorities had not fully considered the documents submitted by the assessee. The Tribunal also found that the DGFT norms relied upon by the CIT(A) were not applicable to the issue of melting loss in beaten gold conversion. Therefore, the matter was remitted back to the AO for fresh adjudication.
Key Issues
Whether the melting loss claimed by the assessee in the conversion of beaten gold to pure gold is allowable, and if lower authorities have properly considered the evidence.
Sections Cited
115JB, 143(3)
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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI ABY T VARKEY & SHRI S.R.RAGHUNATHA
आदेश / O R D E R
PER S. R. RAGHUNATHA, AM: These appeals of the assessee are filed against the separate orders of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, (in short ‘ld.CIT(A)’) for the assessment years 2017-18 and 2018-19, vide orders dated 29.08.2025 and 03.09.2025 respectively against the assessment orders passed by the Asst. Commissioner of Income Tax, Corp. Circle – 2, Madurai, u/s.143(3) of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2017-18 dated 06.12.2019 and Assessing Officer, NFAC, Delhi, u/s.143(3) of the Act for the A.Y. 2018-19 dated 23.04.2021.
The brief facts of the case emanating from the records are that the assessee is a company engaged in the business of manufacturing and trading jewellery and listed in Bombay Stock Exchange and National Stock Exchange. The assessee filed its return of income for the A.Y.2017-18 was filed on 13.10.2017 admitting a total income of Rs.NIL and book profit u/s.115JB of Rs.19,48,48,477/-. Similarly, the return of income for the A.Y.2018-19 was filed on 12.10.2018 admitting a total income of Rs.14,28,12,990/- and book profit u/s.115JB of Rs.34,40,85,658/-.
The case was selected for complete scrutiny assessment under CASS for both the A.Y.2017-18 and 2018-19 and the Assessing Officer issued statutory notices and details called for. In response, the assessee submitted its reply for the along with details called for consideration. On perusal of the documents received from the assessee and the details available on record, the AO made additions of Rs.20,59,02,591/- for the A.Y.2017-18 and Rs.23,69,60,442/- for the A.Y.2018-19 being the difference in wastage / melting loss in respect of beaten gold conversion to pure gold to the income computed under normal provision and book profits u/s.115JB of the Act and concluded the assessment proceedings by passing orders u/s.143(3) dated 06.12.2019 and u/s.143(3) of the Act dated 23.04.2021 respectively.
During the Assessment proceedings, the Assessing Officer sought details of beaten gold purchases of Rs.307.62 Crores and Rs.308.43 crores for the A.Y.2017- 18 and 2018-19 respectively and the assessee could not produce complete data except the customer’s name, gross weight and final purchase cost of the gold. The claim of melting loss on account of these beaten gold purchases was not supported by the net weight, percentage of pure gold against which the value is fixed etc., the Assessing Officer of the view that the said expenditure not allowable and hence added the same to the total income of the assessee after receiving the field enquiry by the inspector.
Aggrieved by the orders of the Assessing Officer for both the A.Ys. the assessee preferred two separate appeals before the ld.CIT(A), NFAC, Delhi on 02.01.2020 and 22.05.2021 respectively.
Before the ld.CIT(A), the assessee filed a detailed submission in support of the grounds of appeal filed in respect of melting loss on purchase of beaten gold. The assessee stated that the claim of expenditure on account of melting loss is around 17% depending upon the purity of gold. However, the ld.CIT(A) dismissed the assessee’s appeal as the melting loss claimed is disproportionate and beyond imagination and is nothing but suppression of profits by showing abnormal expenditure in this respect. In this regard the analytical and conclusive finds published by the Directorate General of Foreign Trade(DGFT) regarding wastage norms and Standard Input Output Norms(SIONs) issued by public Notice No.30/2024-25 dated 01.11.2024 for jewellery, effective from 1st January 2025, the wastage ratio relevant to the line of business model of the appellant is 0.45% in respect of mechanized plain jewellery and Articles, and ornaments like Mangalasutra containing gold and black beads / imitation stones, cubic zirconia diamonds, precious, semiprecious stones. Therefore, the ld.CIT(A) directed the Assessing Officer to allow melting loss in respect of beaten gold to an extent of 0.45% for both the A.Ys.
1. 1. 1. 1. 7. Aggrieved by the orders of the ld.CIT(A) for both the A.Ys. the assessee preferred two separate appeals before us.
The ld.AR for the assessee assailing the order of the ld.CIT(A), submitted that the ld.CIT(A) has completely misunderstood the facts of the case and concluded the issue on different footing, which is related to DGFT’s SIONs for wastage or loss for manufacturing of jewellery from pure gold. The impugned addition is on account of melting loss of beaten gold has not been understood properly both by the Assessing Officer as well as the ld.CIT(A) in their respective orders. The ld.AR took us through the written submissions made during the assessment proceedings were around 4471 pages (details of beaten gold purchases) and 2028 pages respectively for the A.Y.2017-18 and 2018-19 (Page Nos.9-10 (A.Y.2017-18) and No.26 -29 (A.Y.2018- 19) of the PB first page and last page of submission enclosed) along with the sample records of transaction in respect of customers supported by bought out invoice and tax invoice (sales). Further the ld.AR also shown us the details filed before Assessing Officer explaining the ‘beaten gold purchase – Step by step process’ in Page No.16- 17 (A.Y.2017-18) & 58-66 (A.Y.2018-19) of the PB along with sample test reports showing purity in small bits of melted gold Page No.21-23 (A.Y.2017-18) & 30-57 (A.Y.2018-19) of the PB.
Ld.AR stated that before the ld.CIT(A), apart from the above details, the assessee also submitted certificate from the Madras Jewellers & Diamond Merchant’s Association dated 26.11.2019 specifying general wastage involved in conversion of beaten gold to pure gold.
Since none of the lower authorities have verified and analysed the impugned issue by considering all the relevant records furnished by the assessee and other relevant guidelines issued, the ld.AR prayed for remitting the issue back to the Assessing Officer for fresh adjudication in the interest of natural justice.
Per contra, the ld.DR relied on the orders of the lower authorities and prayed for confirming the order of the ld.CIT(A).
We have heard the rival parties and perused the material available on record and gone through the orders of the lower authorities along with the paper book filed for both the assessment years. The undisputed facts are that the assessee is a company engaged in the business of manufacturing and trading jewellery and listed in Bombay Stock Exchange and National Stock Exchange. The assessee filed its return of income for the A.Y.2017-18 was filed on 13.10.2017 admitting a total income of Rs.NIL and book profit u/s.115JB of Rs.19,48,48,477/-. Similarly, the return of income for the A.Y.2018-19 was filed on 12.10.2018 admitting a total income of Rs.14,28,12,990/- and book profit u/s.115JB of Rs.34,40,85,658/-. During the assessment proceedings, on perusal of the documents received from the assessee and the details available on record, the AO made additions of Rs.20,59,02,591/- for the A.Y.2017-18 and Rs.23,69,60,442/- for the A.Y.2018-19 being the difference in wastage / melting loss in respect of beaten gold conversion to pure gold to the income computed under normal provision and book profits u/s.115JB of the Act and concluded the assessment proceedings by passing orders u/s.143(3) dated 06.12.2019 and u/s.143(3) of the Act dated 23.04.2021 respectively. During the Assessment proceedings, the Assessing Officer sought details of beaten gold purchases of Rs.307.62 Crores and Rs.308.43 crores for the A.Y.2017-18 and 2018- 19 respectively and the assessee could not produce complete data except the customer’s name, gross weight and final purchase cost of the gold. The claim of melting loss on account of these beaten gold purchases was not supported by the net weight, percentage of pure gold against which the value is fixed etc., the Assessing Officer of the view that the said expenditure not allowable and hence added the same to the total income of the assessee after receiving the field enquiry by the inspector. On appeal, the ld.CIT(A) dismissed the assessee’s appeal as the melting loss claimed is disproportionate and beyond imagination and is nothing but suppression of profits by showing abnormal expenditure in this respect. In this regard the analytical and conclusive finds published by the Directorate General of Foreign Trade(DGFT) regarding wastage norms and Standard Input Output Norms(SIONs) issued by public Notice No.30/2024-25 dated 01.11.2024 for jewellery, effective from 1st January 2025, the wastage ratio relevant to the line of business model of the appellant is 0.45% in respect of mechanized plain jewellery and Articles, and ornaments like Mangalasutra containing gold and black beads / imitation stones, cubic zirconia diamonds, precious, semiprecious stones. Therefore, the ld.CIT(A) directed the Assessing Officer to allow melting loss in respect of beaten gold to an extent of 0.45% for both the A.Ys. against claim of 17% melting loss by the assessee.
We note that the AO has passed orders without considering the entire set of documents submitted by the assessee and the ld.CIT(A) has passed the orders on different footing considering the analytical and conclusive findings published by the Directorate General of Foreign Trade(DGFT) regarding wastage norms and Standard Input Output Norms(SIONs) issued by public Notice No.30/2024-25 dated 01.11.2024 for jewellery, effective from 1st January 2025, the wastage ratio relevant to the line of business model of the appellant is 0.45% in respect of mechanized plain jewellery and Articles, and ornaments like Mangalasutra containing gold and black beads / imitation stones, cubic zirconia diamonds, precious, semiprecious stones.
Before us, the ld.AR has shown the details of records and documents furnished before the lower authorities, which have not been considered during assessment as well as the appellate stage. We also note that the ld.CIT(A) has considered the analytical and conclusive findings published by the Directorate General of Foreign Trade(DGFT) regarding wastage norms and Standard Input Output Norms(SIONs) issued by public Notice No.30/2024-25 dated 01.11.2024 for jewellery, effective from 1st January 2025, is not relevant to the present case, as it is in relation to wastage ratio for manufacturing of jewels from gold. The impugned issue in the present case is in relation to wastage / loss from conversion of beaten gold into pure gold and hence we are of the view that the aforesaid DGFT published norms is not applicable. Therefore, we are of the view that the issue needs to be verified in detail by the assessing authority in the interest of natural justice.
In view of the above and to meet the ends of justice we set aside the order of ld.CIT(A) and remit the impugned issue back to the file of AO and direct the AO to denovo frame the assessment order for both the assessment years 2017-18 and 2018- 19 in accordance with law, after providing reasonable opportunity to the assessee. Needless to say, the assessee to be diligent and file written submissions and relevant documents if advised so.
In the result, both the appeals filed by the assessee are allowed for statistical purposes.
Order pronounced in the open court on 20th January, 2026 at Chennai.