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Facts
A survey at the assessee's jewelry business (M/s Jainsons Jewellers) on 03.05.2018 revealed a significant difference between physically inventoried stock (Rs. 11.73 crore) and book stock (Rs. 9.29 crore), leading to an excess stock of Rs. 2.44 crore. The Assessing Officer added this difference as unexplained investment and made a further addition for gross profit on sales related to stock shortages, which was partly sustained by the CIT(A).
Held
The Tribunal acknowledged that 213 grams of 22K gold jewellery held for repair work should be excluded from excess stock, granting a benefit of doubt for 50% of the assessee's claimed adjustment (reducing the addition by Rs. 6,54,853/-). It upheld the valuer's rates for stock shortages but directed the Assessing Officer to apply the assessee's actual gross profit rate of 12.72% instead of the 25% adopted by the CIT(A) for undisclosed sales.
Key Issues
Whether the addition for unexplained investment in excess stock found during a survey was justified, considering stock held for repairs and unrecorded purchase bills. Whether the Gross Profit rate applied for undisclosed sales arising from stock shortages was appropriate.
Sections Cited
143(3), 143(2), 142(1), 133A, 131, 69
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Income Tax Appellate Tribunal, DELHI BENCH ‘A’, NEW DELHI
Before: SHRI MAHAVIR SINGH & SHRI S. RIFAUR RAHMAN
1. The captioned appeal preferred by the assessee is directed against the order of learned Commissioner of Income-tax (Appeals)-30, New Delhi (hereinafter referred to ‘Ld. CIT (A)’) dated 18.07.2023 in proceedings u/s 143(3) of the Income-tax Act, 1961 (for short ‘the Act”) for Assessment Year 2019-20. The assessee has raised following grounds of appeal:
07.10.2019 at an income of Rs. 23.06.790/- and revised its return of income on 25.12.2019 declaring taxable income of Rs. 23,24,430/-. A survey was conducted at the premises of M/s Jainsons Jewellers, proprietary concern of the assessee, on 03.05.2018 by the Investigation Wing, Panipat. The case of the assessee was selected for complete scrutiny and the case was centralized to Central Cirle-29,
New Delhi. Notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee through ITBA portal and assessee submitted the relevant information through ITBA portal and AR of the assessee attended the proceedings and submitted the documents from time to time.
3. The assessee, an individual and proprietor of M/s Jainsons Jewellers, is engaged in the business of trading of gold, diamond and silvery jewellery.
Further, the assessee also earned exempt agricultural income of Rs. 50,71,980/-.
During the course of survey at the business premises of the assessee stock was physically inventoried and valued by the Government Registered Valuer at Rs.
11,73,79,299/- whereas as per the books of account assessee had valued the same at Rs. 9,29,21,209/- as on 31.05.2018. Thus, there was a difference of Rs.
2,44,58,090/-, which was confronted to the assessee. Based on the statement recorded during the course of survey u/s 133A of the Act dated 03.05.2018 the Assessing Officer considered the same and observed that assessee has not given and books of account. During the course of survey proceedings the assessee vide questionnaire was asked to explain the difference of excess stock found of Rs.
2,44,58,090/- with documentary evidence. In this regard the assessee has filed written submissions. For the sake of clarity the Assessing Officer also reproduced the same in its order, as under:
"(a) there were purchase bills for Rs 94,46,816/- which were not entered in the purchase account but were part of physical stock.
(b) Valuation by the Valuer has been done on the basis of current gold/jewellery rates. But stock as per trading account is on the basis of purchase price which is lower thn the valuation rates taken by the valuer, copy of some sample purchase bills are enclosed in support of the purchase price. This the accepted accounting principle that stock is valued at cost or market whichever is less. Therefore, the valuation taken by the valuer is not justified.
(c) Physically closing stock also includes stock of old gold, jewellery kept by the karigars for repair work but his stock is not part of books as the same is not entered in the books of accounts as mentioned in reply to annexure A17 to A19 below. The assessee has further furnished the detail of name & address of persons who have given their old jewellery for repair to Karigar.”
After considering the above submissions, the Assessing Officer reviewed the above said reasons and has rejected the same by observing as under:
“The all above replies of the assessee have been considered but not found tenable on account of the following reasons:-
As per reply (a) of the assessee as stated above, there was some purchase bills which were yet to be entered in purchase account but part of Basant Jain physically stock. In this regard the assessee has submitted the copy of bills of four concerns. For verifying the said purchases summons to these four concerns have been issued by investigation wing on dated 19/24.09.2018. In response to that none of them produced the complete books of account in support of its claim alongwith their stock register. Further they did not submit what item they have send which bill did not enter in the book of account. It shows that it is nothing but a fake plea taken by the assessee for justifying their excess stock. The onus is upon the assessee to prove the genuineness of purchases from the said concern which the assessee failed to do so. Further, the assessee has failed to produce its books of accounts/stock register during proceedings. It is pertinent to mention that during the course of survey proceeding while recording the statement u/s 131 of Income Tax Act, 1961 as per preliminary question No 11 the assessee stated that all the purchase/sale bills have been entered in the books of account but later on which the stock valuation has been done and there were excess stock which was confronted to the assessee, then the assessee has taken this unnecessary plea for justifying its unaccounted stock.
The assessee Sh. Basant Jain did not produce any supplementary documents/ evidence in respect of valuation. Further, it is pertinent to mention that there is huge difference in respect of various items like diamond quantity etc. Also during the course of survey and as per books of account. Hence the plea taken by the assessee in respect of valuation is not correct. In this regard, it is pertinent to mention that the valuation of stock has been done in the present of assessee and the inventory of valuation of stock has been duly by the assessee during the course survey and no objection has been raised by the assessee during the course of survey.
As per reply given by the assessee as per point No. (c) as stated above, it is stated that no specific "marks" have been given on the jewellery kept in the custody of assessee's concern for repair work only. Assessee has not made any objection on this poi9nt at the time of survey conducted on the business premises of assessee. Now the assessee has given simply a reply by giving details of two persons who have given their old jewellery for repair to Karigar. But neither the Karigar nor the said persons produced the verification. The onus is lies upon the assessee to prove the genuineness of stock lying at his premises pertain of his concern or otherwise, which the assessee failed to do so. Further, during the course of survey proceedings the assessee himself admitted to his statement recorded u/s 133A of the Basant Jain Income Tax Act. 1961 on dated 03.05.2018 that neither any stock of this concern lying any other place nor any other concern's stock was lying at his business premises. The assessee did not produce any vouchers or persons name and address from whom it is related to. Thus, it is clear that no stock of other concerns/persons on the date of survey i.e. 03.05.2018 was lying at the business premises of the assessee. Thus, the reply of the assessee on this point is hereby rejected.”
Accordingly, he proceeded to make the addition of Rs. 2,44,58,090/-.
Aggrieved with the above order assessee preferred appeal before the learned
CIT(A)-30, New Delhi and filed a detailed submission which is reproduced by the learned CIT(A) at para 6 of the appellate order. After considering the detailed submissions and assessment order learned CIT(A) partly allowed the grounds raised by the assessee with the following observations:
9.3 The observations of the Assessing Officer and the submission of the appellant have been carefully perused. It is noted that the appellant claimed in his statement (question No.13) that the 4 purchase bills pertaining to 22 carat gold ornaments were not entered in the books of account. The total weight of 22 carat gold ornaments' purchased through above referred 4 invoices amounts to 3229.95 grams. The appellant submitted before the survey team that these bills were not entered in the books of accounts whereas the stock was received. The Survey team did not make any adverse remarks on the statement of the appellant. Further, there is no finding of the survey team or the Assessing Officer why the bills available at the premises and produced before the survey team shall not be considered for computing the disclosed stock as per books. The appellant had also submitted confirmations of account of these parties along with proof of payments made to them through banking channels. On perusal of bank statements of these parties, it is also noted that the payments to 3 parties (other than Ridhima Chains & Jewellery) was made before the date of survey, which cannot be held to be an afterthought. It is also noted that the appellant has declared purchase from these vendors in its GST returns placed at page No. 138-139 of the paper book. In view of the facts of the case and evidences, I am of the Basant Jain opinion that the above referred purchase bills shall be considered while computing the stock available in books. Accordingly, I hold that the stock in the books in the category of "22 carat gold ornaments" shall be increased by 3229.95 grams and the excess stock shall be recomputed as under:- Particulars of Quantity as per Quantity as per Difference Jewellery Valuation Report books of accounts Quantity (A-B) (A) +4 purchase bills (B)
Diamonds (in 643.86 carats 980.26 carats -336.40 carats carats) Gold ornaments 30,503.15 grams 29,868.09 grams 635.06 grams (22K)
Gold ornaments 2,600.698 grams 2,233.07 grams 367.61 grams (14K)
Silver 1,81,529.22 2,39,668.56 -58,139.30 grams grams grams Colour stones- 6,508.90 carats 6,508.90 carats Misc. Items
9.4 It is further noted that the appellant had excess stock in the category of "22 carat gold ornaments", "14 carat gold ornaments" and "colour stones - misc items" whereas there was shortage of stock in the categories of diamonds and silver. The contention of the appellant that the excess stock shall be valued at the purchase price is not considered acceptable as the appellant have not been able to identify the item-wise date of purchase of the excess stock. Therefore, the excess stocks shall be considered as the investment of current year and be valued at the market value determined by the registered valuer on the date of survey. The excess quantity of stock found during the survey is thus valued as under: -
Particulars of Excess Quantity Value per gram Value of excess Jewellery of stock found (As per jewellery stock during survey Department Valuer)
Basant Jain Gold ornaments 635.06 grams/ 3.075 19,52.810 (22K) Gold ornaments 367.61 grams 2,377 8,73,809 (14K) Colour stones- 6,508.90 carats NA 11,83,785 Misc. Items Total value of excess jewellery stock 40,10,403
In view of the above facts, I hold that the appellant has made unexplained investment amounting to Rs.40,10,403/- as per the particulars given above. Accordingly, addition amounting to Rs.40,10,403/- is confirmed u/s. 69 of the Income Tax Act.
9.5 It is further observed from the table No.1 above, there is a shortage of stock in the categories of diamonds and silver which means that the appellant has made sales out of books. Accordingly, the gross profit contained in such out of books sale shall be brought to tax. Considering the nature of business of the appellant and nature of items traded out of books, the GP rate for out of books of sale of diamonds and silver is estimated at the rate of 25%. The undisclosed income earned out of undisclosed sales is computed as under: - Particulars of Shortage of Rate adopted by Total value Jewellery stock valuer Diamonds 336.40 cts Rs.15,609 per ct. 52,50,868 Silver 58,139.30 gms Rs.34 per gm. 19,76,736 Total 72,27,604 GP @25% of 72,27,604 = Rs.18,06,901/-.
In view of the above facts and discussions, addition of Rs. 18,06,901/- is sustained as undisclosed income.”
Aggrieved with the above order assessee preferred appeal before us raising
“1(i) That on facts and circumstances of the case, the CIT(A) has erred in upholding the addition of Rs. 40,10,403/- made u/s 69 of the Income Tax Act, 1961 on account of unexplained investment in the jewellery stock without properly appreciating the submissions filed by the Appellant.
(ii) That the part of the excess stock found at the business premises of the Appellant being in the nature of jewellery received from various customers for repairs and restoration, the Assessing Officer in total disregard to the repair receipts seized during survey has erred in treating the 217 grams of 22 carat gold jewellery as unexplained and in making consequential addition.
(iii) That the action of the Department Valuation Officer in applying the hypothetical gold jewellery rates is not inconformity to the rates published by the Income Tax Department and as such the arbitrary addition is liable to be deleted.
(iv) That in the alternative, the impugned addition is highly excessive and self- defeating.
2(i) That on the facts and circumstances of the case, the CIT(A) was not justified in upholding the addition of Rs. 18,06,921/- by estimating 25% Gross Profit in respect of excess stock appearing reflected in the books of accounts.
(ii) That the Appellant is maintaining regular books of accounts and there being no infirmity found in quantitative records of silver and diamond items, the estimation of gross profit on account of alleged excess stock recorded in the books of the Appellant is merely on the basis of surmises and presumptions.
(iii) That in the absence of any finding or material regarding unrecorded sales, there is no case for invoking provisions of section 69 of the Income Tax Act, 1961.
3 That the assessment order is not sustainable on facts and same is bad in law.
4 That the appellant craves leaves to add, alter, amend, forgot any of the grounds of appeal at the time of hearing.
At the time of hearing learned AR brought to our notice relevant facts and submitted that during survey proceedings the Department had found some difference of stock maintained by the assessee. He submitted that at the time of survey the books of account were not complete and based on the Department’s valuation, the difference valued and found during the survey was added by the Assessing Officer. However, in the appellate proceedings assessee had submitted that there were 4 invoices which could not be recorded in the closing stock.
Learned CIT(A) considered the same and after considering the above 4 invoices has determined excess stock as well as shortage in the stock maintained by the assessee. Learned CIT(A) has adopted the value of stock as per Department’s valuation and sustained the addition to the extent of Rs. 40,10,043/- u/s 69 of the Act. In this regard he submitted a chart as under:
Value of Excess Stock found during Survey: As per the CIT(A) order [para 9.4 page 38 of the CIT(A) Order]: Stock Items Excess quantity Rates applied by Total value of found during survey Department Valuer Excess Jewellery Stock Gold (22K) 635.06 grams 3,075 19,52,810 Gold (14K) 367.61 grams 2,377 8,73,809
As per the Appellant:
Stock Items Excess quantity Rates applied by Total found except Department Valuer value of Repair items Excess Jewellery Stock Gold (22K) 422.10 3,075 12,97,958 grams Gold (14K) 367.61 2,377 8,73,809 grams Color Stones – 6,508.90 N.A. 11,83,785 Misc. Items carats Total Value of Excess Jewellery Stock 33,55,551
Note: The Appellant was holding around 213 grams of 22K gold jewellery as a custodian kept for repair work and accordingly, the same may be reduced from the excess jewellery found. [635 grams - 213 grams)
The diary slips found during survey are enclosed at PB Page 47- 49.
Value of Short Stock found during the Survey:
As per the Appellant: Stock Items Short Quantity Average purchase Total found during Cost as per the books value of Survey of accounts Short jewellery Stock Diamond 336 7,075 23,77,33` Carats
With reference to the above charts he submitted that assessee also adopted the rates applied by the Department’s Valuer. However, he submitted that the excess quantity determined by the learned CIT(A) is not correct and he submitted that due to repair work certain jewellery were held by the assessee as custodian and he prayed that the excess stock kept by the assessee for repair work should be eliminated and he prayed that the value as determined by the assessee in the above chart to the extent of Rs. 33,55,551/- may be considered.
With regard to short quantity determined by the learned CIT(A) he submitted that learned CIT(A) has proceeded to adopt the G.P. rate of 25% based on the rate adopted by the Department’s Valuer being excessive and he prayed that if at all the Hon’ble Bench found correct they may adopt actual rate of gross profit earned by the assessee which is at 12.72%.
On the other hand, learned DR relied upon the findings of the lower authorities and he submitted that learned CIT(A) has given substantial relief to the assessee and considering the different items of stock learned CIT(A) has adopted the value determined by the Department’s Valuer which is justified.
Considered the rival submissions and material placed on record. We observe that a survey operation was conducted at the business premises of the assessee and maintained by the assessee are not matching and found the difference in the stock maintained for Diamond 336 carats; gold ornaments 22K, gold 14K, silver and color stones – misc. items. Subsequently, the assessee found that there are 4 invoices which assessee has failed to record on the date of survey and based on the above submissions learned CIT(A) considered the above facts on record and found that assessee has excess stock in gold ornaments 22K of 635.06 gms.; & 14K of 367.61 gms.; and colour stones – misc. items 6,508.90 carats. At the same time he also found that there is a shortage of stock in diamond of 336 carates and silver of 58139 grams.
Before us assessee is in appeal objected to the excess quantity determined by the learned CIT(A) with the plea that the assessee was holding at the time of survey 213 gms. Of 22 K jewellery kept for repair work which was also included in the above said excess stock. He prayed that above said amount must be removed from the excess stock. It is a fact on record that the above said excess stock was kept by the assessee as a custodian from the customers for the purpose of repair work was not brought on record by the assessee at the time of survey itself.
Learned CIT(A) has considered the difference in physical stock. After considering both the parties it is also a fact on record and the nature of business of the assessee that there are certain jewellery which may be kept for the purpose for repair the time of survey itself. Since the nature of business demands that certain jewellery may be kept for repair purpose which could not be denied. For the sake of substantial justice, in our considered view, the difference claimed by the assessee is only Rs. 6,54,853/- , we are inclined to give the benefit of doubt to the assessee to the extent of 50% of the above value. Therefore, we direct the Assessing Officer to reduce the same from the amount sustained by the learned CIT(A) i.e. Rs. 36,82,978/-.
Coming to the next issue of short quantity found during the survey we observe that assessee is not disputing the short quantity found during the search.
However, the assessee is aggrieved with the value adopted by the valuer that of Rs. 15,609/- per carat on the diamond and Rs. 34/- per gram on silver. In this regard assessee submitted that average purchase cost as per the books of account is Rs. 7,075/- per carat on diamond; and Rs. 19/- per gram on silver. Since the value proposed by the assessee is not verified by the Revenue, however, the valuer has adopted the value based on the market price, therefore, we are not inclined to disturb the same. At the same time we observe that the learned CIT(A) has adopted gross profit at 25%, which, in our considered view, is excessive. We may have to determine the gross profit relevant to the assessee for the year under consideration.
On careful consideration we observe from the Balance-Sheet submitted by the Basant Jain assessee at page 4 of the paper book wherein assessee has achieved Rs. 2,34,96,286/- over the sales of Rs. 18,46,56,857/- gross profit @ 12.72%. Since the Assessing Officer has accepted the result furnished by the assessee and we are aware that the gross profit may differ from item to item, however, it is difficult to determine at this stage. Therefore, we are inclined to direct the Assessing Officer to adopt the gross profit rate at 12.72% of the value of short stock determined by the learned CIT(A) i.e. at Rs. 9,19,350/- . With the above observation we are inclined to partly allow the grounds raised by the assessee.
14. In the result, appeal filed by the assessee is partly allowed.
Order pronounced in the open court on this 20th day of December, 2024.