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Income Tax Appellate Tribunal, “C”, BENCH MUMBAI
आदेश / O R D E R PER R.C.SHARMA (A.M):
This is an appeal filed by the assessee against the order of CIT(A)- 21, Mumbai for A.Y.2012-13 in the matter of order passed u/s.143(3) of Income Tax Act, 1961. 2. Following grounds have been taken by the Revenue:-
1. Whether on the facts and the circumstances "of the case, the Ld.CIT(A) was justified in deleting the addition of Rs. 3,73,38,231/- made on the basis of discrepancy found in stock and admitted by the Directors of the company in their statement recorded on oath u/s 131 of the Act.
2. Whether on the facts and in the circumstances of the case- and in law, the Ld. CIT(A) was right in deleting the addition without appreciating the fact the Directors, in their statement admitted that M/s. Om Jewellers Pvt. Ltd., there existed the excess on account on account of discrepancies and disclosed an amount to the tune of Rs. 10,34,83,816/- on the basis of valuation made by certified and empanelled Govt. registered and approved values.
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition without appreciating the fact that the assessee has not been able to substantiate its contention that the unaccounted sales is actually contained in the excess stock.
4. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.
Rival contentions have been heard and record perused. Facts in brief are that the assessee is a company engaged in the business of manufacturing and trading of gold and diamond jewellery having retail showroom at Borivali (W) and Oberoi Mall, Goregaon (E), Mumbai. The assessee has filed its return of income for A.Y. 2012-13 declaring total income at Rs. 12,49,01,590/- on 30.09.2012. A survey u/s 133A of the Income Tax Act was carried out on 13.01.2012 covering these showrooms of the assessee along-with office situated at Borivali (W), Mumbai. At the time of survey discrepancies were found in stock and statements of Shri. Mukesh Damji Jakhia, a Director and Shri. Chetan Mahendra Dedhiya, Accountant were recorded u/s. 131 of the I. T. Act. Shri Mukesh Jakhia Director of the assessee company accepted the discrepancy pointed out by the survey party during the course of survey u/s.133A of the I. T. Act, 1961 on 13.01.2012 and offered Rs.10,34,83,815/- as additional income of the assessee company over and above regular income of the assessee M/s. Om Jewellers Pvt. Ltd., company for the financial year 2011-12 relevant to A.Y.2012-13. However, the assessee company while filing the return of income for A.Y.2012-13 offered an additional income of Rs.6,61,45,585/- for the discrepancies found in stock during the course of survey, 4. The contention of assessee with regard to offering additional income of Rs.6.61 Crores in place of 10.34 Crores was as under:- a) There is error in considering shortage of 22CT gold ornaments valued at Rs.1,86,69,115/- as income. b) Considering shortage of 22CT gold ornaments as unaccounted sale valued at Rs. 1,86,69,115/- which was in-fact a source for unaccounted investment in excess diamond jewellery. c) There is error in determining value of excess diamond jewellery at Rs.8,28,51,750/-. d) Addition cannot be made solely on the basis of statement recorded and ignoring evidence on record.
However, AO did not agree with the assessee’s contention and made addition of Rs.3,73,38,231/- in respect of the discrepancies founds during course of search.
By the impugned order, CIT(A) deleted the addition after having following observation:- 3.4 1 have examined the facts on record, the assessment order and the submissions carefully. There is no dispute as regards the discrepancies in stock found in the course of survey. The AR contends that the shortage in 22CTS gold of 6924.746 gms is reflected in the excess of 18CTS gold of 8563 gms reflected in the gold diamond jewellery. I note that the conversion of 22cts gold into 18 cts gold in respect of 6924.746 gms at 8494.35 gms is quite close to the actual excess of ISCts gold found at 8563 gms. The conversion has been computed as follows: 6.924.746 Gms. (*) 92 - 8,494.35 Gms. 75 M/s. Om Jewellers Pvt. Ltd., In the alternative, the appellant has argued that if it is presumed that shortage in 22cts gold reflects unaccounted sales, then telescoping principle be considered, and it should be considered as the source for the unaccounted excess stock of I8cts gold found in the course of survey. 3.5 Now the question is what is the evidentiary value of statement recorded in the course of survey. This issue came up for consideration of the hon'ble Madras High Court in case of CITv. S. Khader Khan Son [2008] 300 1TR 157 (Mud). In that case the assessee had filed return declaring income of Rs. 12,640 for the assessment year 2001-02. On July 4, 2001 a survey was conducted in the premises of the assessee and through his sworn statement one of the partner of the firm namely Shri Asif Khan offered additional income of Rs. 20 lakhs for the assessment year 2001-02 and Rs. 30 lakhs for the assessment year 2002-03. On August 3,2001 the statement was retracted stating that Asif Khan was new to the management and he could not answer the enquiries made and as such agreed to addition which could not be possible because of low profit in the business because of severe competition. In that case the books of account were not produced and therefore addition of Rs. 20 lakhs was made on the basis of a statement recorded during the survey. The hon'ble High Court referred to the provisions of sections 1^2 and 133A and observed that the statement recorded during the survey under section 133A does not have evidentiary value. There was difference between the statement recorded under sections 132(4) and 133A. This view and decision of the High Court was upheld by the Apex Court. 3.6 On the other hand the Hon'ble Bombay High Court in the case of Dr. D'mesh Juin v. ITO [201 1] 363 1TK 210/226 Taxman 27/4o taxmann.com 142 considered this issue and has, inter alia, observed as under:- 'The requirement of recording a statement on oath is found in section 132 of the Act, i.e. during . search and seizure proceeding and such a requirement is not found in section 133A of the Act. Nevertheless a statement under section 133A of the Act does not lose its evidentiary value merely because it is made on oath. Besides the statement in this case is one of the evidences being relied upon and not the sole evidence. The Tribunal in the impugned order .has recorded that the addition of income is based not only on the statement of the appellant-assessee but also based on "page 17". 3.7 An admission is an extremely important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of account do not correctly disclose the correct state of facts, vide M/s. Om Jewellers Pvt. Ltd., decision of the apex court in Pullangode Rubber Produce Co. Ltd. (1973J 91 ITK 18 (SC). 3.8 In the present case the appellant has not disputed the discrepancy between the stock as per books and physical stock found in the course of search; nor has it disputed the valuation. It has contended that the conclusion based on the discrepancy is incorrect to the extent that the shortage in 22 Carat gold is explained by the excess in 18 carat gold that was found. 3.9 Now coming to the contention of the appellant, it is noticed that no evidence was found in the course of survey that there was unaccounted sales of 22 carat gold. On the one hand, one of the Directors Mukesh D. Jakia in his statement on 14.01.2012, in response to the Q16 , when informed that Shri Chetan Dedhia has explained the negative balance as unaccounted sales in cash and excess stock as unaccounted purchase, on being asked whether he agreed with the statement of Shri Chetan Dedhia, accountant regarding the discrepancy in stock. Shri Jakia relied that since Shri Dedhia \vas the best person to explain the same, he agrees with it. On the other hand when statement of Shri Bhavin Jakhia, another Director was recorded on 18.01.12, in response to Q 9, agreed to offer the income in respect of excess stock found, but in respect of negative stock did not admit to unaccounted sales, and only agreed with the discrepancy. It is further noted that in the statement recorded of Shri Chetan Dedhiya, accountant of the appellant on 14.01.2012, in response to Q 19, he only accepted the discrepancies found and the valuation, but there is no answer or admission that the negative stock reflects unaccounted sales and excess stock reflects unaccounted purchases. 3.10 It is in this factual back drop that the appellant's contention has to be seen. It is a trade practice of converting gold from a particular carat to another based on the kind of jewellery made. The gold used in making gold diamond jewellery is of 18 carats. In this case, the shortage of 22 carats gold almost very closely corresponds with the excess of 18 carat gold found in respect of gold diamond jewellery. Apart from the statements of the directors recorded, mentioned earlier, there is no positive evidence found to support unaccounted cash sales or unaccounted cash purchases. No such loose papers or bills were found to support such conclusion. As regards the negative stock difference, a possible view could be that if it represents unaccounted sales, only the profit element can be taxed and not the gross value. 3.11 The argument that if the negative stock difference is considered as unaccounted sales, then as per telescoping principle, the same should be considered as an explanation for the investment in excess stock difference considered as unaccounted investment by the M/s. Om Jewellers Pvt. Ltd., assessing officer, is plausible and can also not be dismissed. However, I am inclined to accept that the (shortage in 22 carat gold represents its use in 18 carat gold since the "discrepancy ties in very closely. am also of the view that the appellant is entitled to put forth its explanation of the facts even after making statements in the course of survey, and the same has to be considered on merits, and not dismissed summarily. Ground no 1 to 4 and 6 are allowed and the addition made of Rs 3,73,38,231/- is deleted. Ground 5 which is an alternative argument to give credit in terms of value of Rs 186,69,115/- if shortage is treated as unaccounted sales is dismissed since in my view the explanation that 22 carat gold was used to make 18 carat gold is more reasonable.
Against the above order of CIT(A), Revenue is in further appeal before us.
We have considered rival contentions and carefully gone through the orders of the authorities below and found form record that a survey had been carried out u/s 133A on 13.01.2012 at the showroom of the assessee. During the course of survey, statement of Shri Bhavin N. Jakhia, Director and Shri Chetan Mahendra Dedhia was recorded in respect of the discrepancies in the stock of gold and diamond ornaments as per books and that found in the course of survey. In the statement, an additional income of Rs.10,34,83,816/- was offered for A.Y. 2012-13. From the return of income filed, the AO noted that the assessee had only offered a sum of Rs.6,61,45,585/- as additional income as against the sum of Rs.10,34,83,816/- offered in the statement recorded at the time of survey. In the course of assessment proceedings, the assessee submitted that the correct amount of additional income is Rs.6,61,45,585/- as against Rs.10,34,83,816/-. It was explained that the error in considering M/s. Om Jewellers Pvt. Ltd., the shortage of 22 carat gold ornaments valued at Rs. 1,86,69,115/- which was treated as income was in fact the source for the unaccounted investment in excess diamond jewellery found, valued at Rs.8,28,51,750/- A reconciliation was also filed before the AO. The AO has reproduced the submission of the assessee in para 5.3 of the assessment order. The AO however did not accept the explanation of the assessee and added the difference in assessee’s income. From the record we found that on the date of survey physical inventory of stock was taken and valued by Govt. Approved Valuer Shri. Soni Shivlai Brothers Jewellers and the same was compared with the inventory as per stock register as on 13.01.2012. The following discrepancies in the stock was found and confirmed by Shri. Chetan Dadhiya, Accountant while giving the answer to question No.19 of statement recorded u/s. 131 on 14.01.2012
6924.745 gm. Negative stock in the case of 22 ct gold ornaments. 2. 2076.685 gm. Excess stock in the case of 18 ct Cold Diamond Jewellery. 3. 613.230 gm. Excess stock in the case of Platinum Diamond Jewellery.
Because of the above mentioned discrepancies found in the stock, the statement of Shri. Mukesh Damji Jakhia was also recorded u/s. 131 of the I. T. Act on 14.01.2012 and relevant questions / answers of the same are reproduce herein below :
M/s. Om Jewellers Pvt. Ltd., “Q.16. On putting question No. 16 & 17 of your statement to Shri. Chetan -Dedhia. he has stated negative balance in case of 22 carat gold ornaments is because of sales are made in cash but not accounted. In the case of 18 carat gold diamond jewellery and platinum diamond jewellery there is an excess stock on account of purchase of old ornaments which were not accounted. Ans. Since Shri. Chetan Dedhia looks after all the books of accounts and 1 only have stock status at the end of the day. However, since Shri. Chetan Dedhia is the only authorized person who handle the accounts and knows about the exact purchases, sales and stock as we!! as mode of sale and purchase, I agree with the answer of Shri. Chetan Dedhia as he is the competent person to answer this question. Since the amount is not accounted for, I hereby offer Rs.1,86,69, 115/- as income that assessee company has earned by selling in cash which was not accounted for before This is over and above regular income shown by assessee company during the course of survey U/S.133A. Similarly, the excess of stock in case 18 carat gold diamond jewellery and platinum diamond jewellery, as stated by Shri. Chetan Dedhia is out of the book. 1 hereby offer Rs. 8, 48, 14, 7000 as income of the assessee company during the current Assessment year over and above the regular income of the assessee company. Hence to sumrise I Shri. Mukesh Jakhia Director of the assessee company accept the discrepancy pointed out by the survey party during the course of survey u/s.l33A of the I. T. Act. 1961 on 13.01.2012 and offer Rs. 103483815 as additional income of the assessee company over and above regular income of the assessee company for the financial year 201 1 -12 relevant to A. Y.2012-13.”
From the record we also found that the statement of Shri. Bhavin N. Jakhia, Director of the company was also recorded u/s.131 of the I. T. Act on 18.01.2012 to confirm the discrepancies found during the course of survey and relevant Questions / answers of the same are also reproduce herein below.
Q.9 On the date of survey while recording the statement of Shri. Mukesh Damji Jakhia, physical stock inventory taken by us and M/s. Om Jewellers Pvt. Ltd., the valuation report by the Govt. Approved Valuer was shown to him. There were certain discrepancies between the book stock as on 13.01.2012 and the physical stock taken which is as follows: Table 1: Particulars Diamond wt in cts. Platinum \\'t in Cms. Gold Ornaments (Cms. ) Physical stock 270908.056 12776.460 1242.680 277832.802 10699.775 629.450 Stock as per Stock Register- Difference in stock -6924. 746 2076.685 613.230 Table 2: Valuation of Diff between Physical Stock & Stock Register Diamond WT in CTS Gold Ornaments (Net Wt. in Cms.) Unaccounted Sales Net Wt. in Grams Rate Per Total Amount (Rs.) Gram in Rs. 22 CT Gold Ornaments 6924.746 2576 1 7838 146 Making Charges 6924.746 120 830970 Total Unaccounted Sales 18669115 18 CT Gold Diamond Je wellery 2076.685 62300550 Diamond (CTS) 30000 8563 17982300 • 18 CT Gold (Net Wt. in Cms.) 2100 Making Charges 8563 300 2568900 Platinum Diamond Jewellery 613.422 3200 1962950 Total Amount of Excess 8,48,14,700 Physical Stock Total Unaccounted Sales and 10,34,83,816 Excess Stock Shri. Mukesh D. Jakhia has in his statement under Oath accepted the valuation and offered to consider the same as unaccounted stock and offer it for taxation during the assessment year 2012-13. Do YOU confirm the same ? Ans. Yes, I have gone through the statement and also the valuation showing the discrepancies in the stock. / offer the excess stock found during the course of your survey for taxation in the current year i.e. A. Y.2012-13. As regards, the negative stock which you have treated as sales suppression, I have to submit that even though I cannot admit to having indulged in suppression of sales, still I agree with the discrepancy and work out the necessary tax due on while filing the return of income and consider the same.”
As per our considered view the entire value of shortage of stock cannot be treated as unaccounted income and only profit element embedded therein can be as unaccounted income, in so far as purchase of such jewellery was already recorded in books of accounts. With regards to negative stock of 22CT gold ornaments of 6,924.746 Gms found and reported as per statement recorded during the course of survey, the same should not be treated as suppressed sale because as per Table No. 2 above there is excess stock of 18CT Gold of 8,563 Cms. in Gold Diamond Jewellery. Therefore it is clear that negative stock of 22CT gold ornaments of 6, 924. 746 Cms. is used to make 18CT Gold Diamond Jewellery. The negative stock of 6,924.746 Cms. of 22CT gold ornaments is nothing but excess stock of 8,563 Cms. of 18CT gold which was used for making of gold diamond jewellery.
M/s. Om Jewellers Pvt. Ltd., 12. We also observe that while giving the answer to question no 9 of the statement dtd.18/01/2012, Shri Bhavin Jakhia categorily stated that the assessee company is not indulged in suppression of sales. The extract of the same is reproduced as under:- Ans. Yes, 1 have gone through the statement and also the valuation showing the discrepancies in the stock. I offer the excess stock found during the course of your survey for taxation in the current year i.e. A. Y. 2012-13. As regards, the negative stock which you have treated as sales suppression, I have to submit that even though I cannot admit to having indulged in suppression of sales, still I agree with the discrepancy and work out the necessary tax due on while filing 'the return of income and consider the same.
It is clear from the above statement also that the negative stock of 22CT gold ornaments was not an unaccounted sales hut was utilized for making the I8CT gold diamond jewellery.
After considering the entire facts and circumstances, the CIT(A) has given detailed finding at para 3.10 to the effect that the gold used in making gold diamond jewellery is of 18 carats. In this case, the shortage of 22 carats gold almost very closely corresponds with the excess of 18 carat gold found in respect of gold diamond jewellery. Apart from the statements of the directors recorded, mentioned earlier, there is no positive evidence found to support unaccounted cash sales or unaccounted cash purchases. No such loose papers or bills were found to support such conclusion. As regards the negative stock difference, a possible view could be that if it represents unaccounted sales, only the profit element can be taxed and not the gross value.
M/s. Om Jewellers Pvt. Ltd., 15. The CIT(A) also observed that if the negative stock difference is considered as unaccounted sales, then as per telescoping principle, the same should be considered as an explanation for the investment in excess stock difference considered as unaccounted investment by the assessing officer, is plausible. Accordingly, a finding was recorded to the effect that shortage in 22 carat gold represents its use in 18 carat gold since the "discrepancy ties in very closely. The detailed finding so recorded by CIT(A) are as per material on record which do not require any interference on our part.
In the result, appeal of the Revenue is dismissed.