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

Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition of Rs.2,92,90,122/- made by the AO u/s 69B of the Income Tax Act, 1961, on account of undervaluation of closing stock (Freeze stock), without appreciating the facts brought on record by the assessing officer in the assessment order? Asst.Year–2017-18 - 2 -

The appellant craves leaves to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal.”

The assesee engaged in the business of retail sales of ornaments of gold and silver. The return of income declaring total income at Rs. 7,95,73,300/- was filed by the assessee on 16.10.2017. The same was processed under Section 143(1) of the Act and thereafter selected for scrutiny in respect of “Compulsory Manual Selection” and statutory notice under Section 143(2) of the Act was issued on 11.09.2018. Notice under Section 143(1) r.w.s. 129 of the Act dated 04.09.2019 was issued along with questionnaire. The assessee furnished relevant details. A survey action under Section 133A of the Act was conducted on premises of the assessee on 20.12.2016. The Assessing Officer observed that the assessee may use demonetize cash deposits in different bank during demonetization period. During the survey action the statement of Shri Piyush Choksi, partner of the firm was recorded under Section 131(1A) of the Act. After going through the details and the statements the Assessing Officer held that there is a discrepancy in stock difference during survey action at the premises of the assessee amounting to Rs. 26,77,800/- and the same was added to the income of the assessee as addition for stock difference found during the survey. The Assessing Officer also made addition of Rs. 12,83,75,566/- for unexplained cash credit under Section 68 of the Act. The Assessing Officer made addition on account of wrong method of valuation considering Section 69B amounting to Rs. 2,92,90,122/-.

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 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 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 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.

In the result, the appeal of the Revenue is dismissed.

अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडŊ फाईल / Guard file.