DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2(1)(1) VADODARA, VADODARA vs. DAMODARDAS MOHANLAL CHOKSHI, VADODARA

This appeal has been filed by the Revenue is filed against the order passed by the Ld. Commissioner of Income Tax (Appeals)-11, (in short “Ld. CIT(A)”), Ahmedabad on 12.05.2023 for Assessment Year 2017-18.

Being aggrieved by the assessment the assessee filed appeal before Ld. CIT(A). The CIT(A) partly allowed the appeal of the assessee.

The Ld. D.R. submitted that the CIT(A) was not justified in deleting the additionof Rs. 12,83,75,566/- made by the Assessing Officer under Section 68 DCIT vs. Damodardas Mohanlal Chokshi Asst.Year–2017-18 - 3 - of the Act after applying of provision of Section 115BBe of the Income Act, 1961. On account of unexplained cash credit without appreciating the fact brought on record by the Assessing Officer. The Ld. D.R. submitted that during the survey proceedings the assessee admitted that huge sale turnover of Rs. 13 Crores has taken place on 08.11.2016 which represents more than 75% of the stock in the showroom. The partner further claimed that the sale was made after the announcement of demonetization i.e. between 8.30 PM of 08.11.2016. The Ld. D.R. submitted that the astronomical increase in sale was not justified by the assessee and all cash sales on the same date for below 2 lakh limit which clearly discrepancies in the cash sales alleged claimed by the assessee. The Ld. D.R. further submitted that on forensic analysis of the digital data from impounded hard disk it established that more than 95% of the sale bills dated 08.11.2016 were prepared and printed from 09.11.2016 till 12.11.2016. Thus, the partner failed to provide details of item wise stock sales made on 08.11.2016. The Assessing Officer has categorically mentioned that there was not sales free stock.

The Ld. D.R. relied upon the assessment order.

The Ld. A.R. submitted that the whole of the receipt in respect of the sale on the date of 08.11.2016 was recorded by the assessee and offered for taxation. The Ld. A.R. relied upon the order of the CIT(A).

We have heard both the parties and perused all the relevant materials available on record. The CIT(A) has categorically mentioned that the Assessing Officer has not disputed corresponding purchases / manufacturing stocks made by the assessee before sale and has not disputed quantum of closing stock. The entire sales have been made out of available stock with the DCIT vs. Damodardas Mohanlal Chokshi Asst.Year–2017-18 - 4 - assessee and sufficient stock was available with the assessee. There was not back dated purchase or purchases shown in bank accounts which was held as bogus by the Assessing Officer. The statement of partner also mentioned modus operandi of sales after the announcement of demonetization including packing of jewellery for less than 2 lakhs, number of employees and other staff who served the client. The Ld. A.R. further submitted that there was a free stock as mentioned by the D.R. is not justifiable and thus, the CIT(A) has rightly deleted the said addition. There was no infirmity in the findings of the CIT(A), hence, Ground No. 1 of the Revenue’s appeal is dismissed.

As regards to Ground No. 2 the Ld. D.R. submitted that the CIT(A) was not justified in deleting the addition of Rs. 2,92,90,122/- under Section 69B on account of undervaluation of closing stock (free stock) as the Assessing Officer has categorically mentioned that the assessee did not have any basis for adopting the same value of free stock of 22 carat gold ornaments and the value for earning stock t Rs. 940 per gram was not justified by the assessee as per Accounting Standard-2 issued by ICAI. The Ld. D.R. relied upon the order of the Ld. Assessing Officer.

The Ld. A.R. submitted that the methodology was adopted in respect of the Accounting Standards only and there is no discrepancies to that extent.

We have heard both the parties and perused all the relevant material available on record. The Assessing Officer while estimating the business income as againt the expenditure as shown Audited Annual Accounts has not taken into account the purchases and other direct expenses corresponding to sales of Rs. 12,83,75,566/-. The undervaluation of closing stock cannot be justifiable when the books of accounts was not rejected but only the DCIT vs. Damodardas Mohanlal Chokshi Asst.Year–2017-18 - 5 - observation of the Assessing Officer that the same are not reliable. The Assessing Officer contracted himself as at one point accepted the books of accounts in respect of addition of Rs. 12,83,75,566/-. Thus, the plea of the Revenue that there was a free stock undervaluation is not justifiable. Hence, Ground No.2 of the Revenue’s appeal is dismissed.