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ITA No.287/2019
IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 10TH DAY OF FEBRUARY, 2023 PRESENT THE HON’BLE MR. JUSTICE P.S. DINESH KUMAR AND THE HON’BLE MR. JUSTICE G BASAVARAJA ITA NO.287 OF 2019
BETWEEN:
THE PR. COMMISSIONER OF INCOME TAX CIT (A) CENTRAL CIRCLE C.R.BUILDING QUEEN’S ROAD BENGALURU-560 001
THE ASST. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1(2) C.R.BUILDING QUEEN’S ROAD BENGALURU-560 001 …APPELLANTS
(BY SHRI. M. DILIP, STANDING COUNSEL FOR SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL)
AND:
M/S. RAJESH EXPORTS LTD NO.4, BATAVIA CHAMBERS KUMARA PARK ROAD KUMARA PARK (EAST) BENGALURU-560 001 PAN AAACR 8642N
…RESPONDENT
(BY SHRI. RAGHU HULIKAL, ADVOCATE)
ITA No.287/2019
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 27.11.2018 PASSED IN ITA NO.930/BANG/2017, FOR THE ASSESSMENT YEAR 2011-2012 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO. 930/BANG/2017 DATED 27.11.2018 FOR ASSESSMENT YEAR 2011-2012 ANNEXURE-C AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(2), BENGALURU AND ETC.
THIS ITA, HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 24.01.2023 COMING ON FOR PRONOUNCEMENT OF JUDGMENT, THIS DAY, P.S. DINESH KUMAR J., PRONOUNCED THE FOLLOWING:-
JUDGMENT
This appeal by the Revenue, directed against the order dated November 27, 2018 in ITA No.928-931/Bang/2017 & 174 to 176/Bang/2018 has been admitted to consider following question of law: 1. Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in recording a perverse finding in allowing loss claimed by the assessee of 99.055 Kgs of gold valued at Rs. 19,39,23,044/- holding the same to be only 0.047% of total transaction and by not appreciating the fact that the assessee failed to substantiate the said loss with no credible evidences before assessing officer or any appellate authorities thereby failing to discharge primary onus lies on him to do so in respect of expenditure claimed by him in the return of income?
ITA No.287/2019
Heard Shri. M. Dilip, learned Standing Counsel for the Revenue and Shri. Raghu Hulikal, learned Advocate for the Assessee.
Briefly stated the facts of the case are, assessee is a public limited company engaged in manufacturing and export of gold and diamond jewellery both in the domestic and overseas market. A search was conducted under Section 132 of the Income Tax Act, 19611 in assessee’s premises and an assessment order was passed under Section 153A of the Act on March 31, 2016 determining a total income of Rs. 3517,79,83,217/- by making an addition on interest on ICD2 of Rs. 29,73,46,928/-, value of 99.055 kgs gold of Rs.19,39,23,044/- and Rs. 3344,94,72,518/- towards unexplained cash credit.
1 ‘the Act’ for short 2Inter-corporate Deposit
ITA No.287/2019
On appeal, CIT(A)3 vide order dated February 28, 2017 deleted the addition made towards unexplained cash credit and confirmed the other two additions. The ITAT4 has partly allowed assessee’s appeal holding that the loss of gold should be allowed. Feeling aggrieved, the Revenue has filed this appeal.
Shri. Dilip, for the Revenue, praying to allow the appeal, submitted that:
assessee failed to substantiate the loss of 99.055 kgs of gold valued at Rs.19,39,23,044/- with credible evidences before the AO5 or before CIT(A);
since the assessee is claiming loss of gold, the onus lies upon assessee to prove the same; the Tribunal erred in setting aside addition made by AO even though the assessee had not been able to substantiate the loss of 99.055 Kgs of gold nor produced any proof to show that there was loss;
3Commissioner of Income Tax (Appeal) 4 Income Tax Appellate Tribunal 5 Assessing Officer
ITA No.287/2019
the ITAT has allowed assessee’s appeal on this aspect on the premise that the loss of gold accounts for only 0.047% of the total gold transactions without any rationale.
Opposing the appeal, Shri. Raghu Hulikal, for the assessee submitted that the inventory of 99.055 Kgs of gold was untraceable and the loss of gold was only 0.047% of the total gold transactions during the year 2011-12 which is accepted in the manufacture of ornaments.
We have carefully considered rival contentions and perused the records.
Assessee’s case before the AO is that 99.055 kgs of gold had been misappropriated by the employees. The AO has recorded in his order that assessee’s auditor had mentioned that the said quantity of gold has been charged off from the stock. The AO has further recorded that when called upon to substantiate the claim, the auditor had not offered any explanation. Therefore, the AO has added the value of gold of Rs. 19,39,23,044/- to assessee’s income.
ITA No.287/2019
Before the CIT(A), assessee took a plea that he was not aware of the loss and learnt about it at the time of reconciling the recovery for the year. This explanation was not accepted by the Commissioner and the appeal stood dismissed.
The ITAT has recorded thus in its order and allowed assessee’s appeal. “27. We have considered the rival submissions. We find that on page no.52 of his order, the ld. CIT(A) has stated that as per the AO, the assessee has not been able to substantiate the loss of 99.055 Kgs. of gold. As per ld. CIT(A), he states that the claim of the assessee is not acceptable because 99.055 Kgs. of gold is not a small amount which can just vanish but he has not considered this aspect that this quantity of gold loss of 99.055 Kgs. is only 0.047% of the total gold transaction of the assessee in the present year. Moreover there was a search conducted in the case of the assessee and in spite of that, the revenue could not find out any material to show that the assessee is having any excess gold stock or that there was any evidence found in respect of any unaccounted sale of gold or gold items. Regarding this that the loss of gold could not be substantiated by bringing evidence on record, in our considered opinion, if the assessee is having any evidence in respect of loss of
ITA No.287/2019
gold, the assessee will not allow such loss to happen. In our considered opinion, in the facts of present case, this loss of 0.047% of the loss of gold in only one year should be allowed in the facts and circumstances of the present case. We order accordingly. This issue on merit is decided in favour of the assessee.” (Emphasis supplied)
A careful perusal of the above passage shows that the ITAT has allowed appeal on two counts. Firstly, that the loss of gold is only 0.047% of the total transaction. Secondly that during the search the Revenue could not find any material. There is no logical explanation by the ITAT as to why loss of 0.047% must be allowed. The total loss claimed is 99.055 Kgs. The assessee’s explanation at the first instance before the AO is that the gold was misappropriated. Before the First Appellate Authority the explanation is that assessee did not know about the loss till conducting annual inventory. Both explanations are not supported by any evidence. If 99.055 Kgs gold were to be misappropriated, management of any prudent company would take necessary action such as filing a police complaint etc. The second explanation that the
ITA No.287/2019
assessee did not know about the loss at all, is on the face of it, unacceptable. In our view, the reasons recorded by the ITAT are perverse and therefore, unsustainable in law.
Hence, the following: ORDER (a) Appeal allowed. (b) The substantial question of law is answered in favour of the Revenue and against the Assessee. (c) Order dated November 27, 2018 passed by the ITAT is set aside. (d) Order dated March 31, 2016 passed by AO confirmed by CIT(A) vide order dated February 28, 2017 is restored.
No costs
Sd/- JUDGE
Sd/- JUDGE
SPS