M/S. ETHNIC JEWELS,CHENNAI vs. ITO, CHENNAI

आदेश /O R D E R PER M. BALAGANESH, ACCOUNTANT MEMBER:

ITA No.2702/Mds/2016 :- 2 -:

22,93,566/- and unaccounted stock of gold in the sum of ₹. 43,60,000/-, in the facts and circumstances of the case.

As per the partnership deed the partners are as under:

Susheela Baradia (wife of the Sr. Partner)) with the assessee firm for a period of one year. The assessee explained that this 177 carats of diamonds were recorded in the stock statement furnished based on survey for the period up to 07.02.2011 as transfer vide stock journal dated 15.11.2010 (102 carats) and 03.12.2010 (75 carats). Accordingly, the assessee stated that the entire physical stock of diamond found at the time of survey was properly explained. The assessee also brought to the ITA No.2702/Mds/2016 :- 3 -: notice of the ld. AO that this 177 carats of diamond were duly deposited by the wife and son of the partner of the assessee firm with the assessee firm, for which an independent declaration of gold deposit was duly executed by the respective partners in favour of the assessee firm with a condition that the same had to be returned to them in that form of diamond of same quality or the equivalent amount thereon after one year with appreciation of 10% percent. The said declaration also mentioned that the deposit agreement can be renewed for the further period of one year with an increment in appreciation by 20 percent of the appreciated percentage at 12% with consent of both the parties. It was also explained that Mrs. Susheela Baradia and Harish Baradia had already treated this diamond jewellery as her own asset and had duly declared the same in her wealth tax returns filed regularly for the assessment order 2011-12.

In other words, the difference between the physical stock of diamonds as

per stock register were explained by the assessee that the same belongs to one of the partner and wife of one of partners (Harishchand Baradia and Susheela Baradia respectively) and who had given their diamonds on deposit basis with the assessee firm for which a declaration of diamond were duly executed in non judicial stamp paper. It was also pleaded that this declaration of gold and diamond were also part of the impounded diamonds by the survey team at the time of survey vide reference HNN/VN/LS/IMP, dated 07.02.2011.

ITA No.2702/Mds/2016 :- 4 -:

22,93,566/-.

During the course of survey, stock of gold was physically inventorized at 29196.432 grams, whereas gold as per stock book was 36997.261 grams. The assessee furnished the reconciliation as under:

“Gold :38997.261 Stock inventorised in the shop :29196.426 Stock inventorised in the airport : 8883.600 Taken to Delhi for exhibition there Sales at Delhi Exhibition as per bill : 452.400 Sent to Vimal Gems for approval : 462.000 :38994.426 2.835”

she had owned all this gold jewellery and disclosed the same in her wealth tax returns. The ld. AO treated this explanation as an afterthought and declined the same. Accordingly he brought the value of 2000 grams of gold of ₹. 2,180/- per gram (adopting overall sale price) in January, 2011 and considered unaccounted stock thereon in the sum of ₹. 43,60,000/- and made the addition in the assessment.

Accordingly, the same was to be considered as excess stock available with the assessee and addition of ₹. 51,557/- (23.650 grams in to ₹. 2,180/-

per gram) was made in the assessment. The ld. CIT(A) upheld the action of the ld. AO on all the above three additions. Aggrieved, the assessee is in appeal before us on the following grounds:

‘1.1 Learned A/O has erred In making addition of Rs,22,93,566 towards alleged unaccounted value of stock of diamonds.

1.2. CIT (A), without properly appreciating the stock difference reconciled by appellant by way of deposit of diamonds by Mrs. Susheela Bai (75 cts) and Mr.Harish Chand (102 cts) with appellant- firm and their Declaration of gold & diamond deposit, available in the impounded material, during the course of survey and their IT & ST statements proving their ownership, erred in confirming the above addition.

2.1 Learned AID has erred in making addition of Rs.43,60,000 towards alleged unaccounted stock of gold.

2.2. CIT (A), without properly appreciating the stock difference reconciled by appellant by way of deposit of 2kg of gold by Mrs. Susheela Bai with appellant-firm, her IT & WT statements, and her Declaration of gold & diamond deposit available in the impounded

ITA No.2702/Mds/2016 :- 6 -: material, during the course of survey, erred in confirming the above addition.

3. The learned AID erred in alleging excess stock of gold of 23.650 gms as on 3.2.2011 and making an addition of Rs.51,557 for the same and the CIT (A) erred in confirming the addition.

For the reasons stated above and those that may be adduced at the time of hearing appellant prays that Hon’ble ITAT be pleased to delete the above additions and render justice. The Appellant craves leave to file additional grounds at the time of hearing.’

The primary facts involved in this appeal are that the assessee was originally the proprietary concern of Shri Madanchand Baradiya, later converted into a partnership firm wherein Shri Madanchand Baradiya alongwith his three sons were admitted as partners having equal share in the profits. The firm came into existence vide deed of partnership dated 03.11.2010. There was a survey conducted u/s. 133A of the Act in the business premises of the assessee firm on 07.02.2011, i.e., within three months from the date of firm coming into existence.

With regard to the discrepancy in gold as well as diamonds, the assessee sought to explain the same by stating that 177 carats of diamonds were deposited by the wife of the senior partner and by one of the partner with the assessee firm on certain terms and conditions, for which a separate declaration of deposit was executed in non judicial stamp paper by them. Similarly the assessee sought to explain the difference of gold by stating that 2 KGs of gold were received from Smt. Susheela Baradiya (wife of the senior partner) as deposit for which a separate declaration of deposit duly executed in non judicial stamp paper in favour

ITA No.2702/Mds/2016 :- 7 -: of the assessee firm. Admittedly this declaration of deposit of gold and diamonds executed in non judicial stamp paper were found and part of the impounded survey documents by the survey team. The assessee on perusal of the impounded documents had sought to explain by way of a reconciliation statement and stated that there was no difference in stock as arrived by the survey team and later by the ld. AO. We found from the paper book filed by the ld. AR containing Mahazarnama and list of impounded items (enclosed pgs. 11-23 of PB); declaration of gold and deposit by Smt. Susheela Baradia and Shri Harishchand Baradiya together copy of their wealth tax returns for the AY 2011-12 (enclosed in pgs. 25- 37 of the PB), that the assessee had tried to explain the difference in stock of gold and diamonds based on documents produced before the ld. AO with supporting evidence. We find that these documents were not considered by the ld. AO and had been dismissed as an afterthought despite the fact that the declaration of gold and diamond deposit were part of the impounded documents at the time of survey. Hence, we deem it fit and appropriate in these facts and circumstances in the interest of justice and fairplay, that this issue requires to be considered afresh in the light of entire impounded materials and the explanation given by the assessee. The assessee is also at liberty to adduce fresh evidence in support of its contentions.

Since the issue with regard to unaccounted stock of gold and diamonds have been remanded to the file of the ld. AO as directed herein above, the inter connected issue with regard to unaccounted sales of ITA No.2702/Mds/2016 :- 8 -:

23.65 grams of gold jewellery amounting to ₹. 51,557/- also requires to be remanded back to the file of ld. AO to decide afresh in the light of impounded materials and explanations given by the assessee. Accordingly the grounds raised by the assessee in this regard are allowed for statistical purposes.