ANUPAM NANDI,KOLKATA vs. ITO, WARD-46(1), KOLKATA, KOLKATA

For the Appellant : Shri David Z. Chowngthu, Addl. CIT DR For the Respondent : Shri Miraj D. Shah, AR Date of Hearing : 03.11.2017 Date of Pronouncement : 10.11.2017 ORDER Per M.Balaganesh, AM

Q 7. Do you maintain any stock book ? A 7. No Q 8. On the day of survey i.e on 26.9.2008 , on physical verification of your stock total value of stock comes to Rs 1,09,19,490/- including the value of silver of rs 1,05,000/-. In absence of stock book, a stock statement has been drawn wherefrom it appears that there is a stock difference of Rs 18,50,000/- (approx.) . Do you agree ?

A 8. Since I am quite ignorant about accounting system there may be discrepancy in the stock which can be explained by my C.A. . However, in view of availability of records, I am satisfied with the stock statement drawn by you.

3 & 1985/Kol/2014 Anupam Nandi A.Yr.2009-10 3.1. The ld AO observed that based on the above and upon acceptance by the assessee, the stock difference was quantified by the survey team at Rs 18,50,000/- as on 26.9.2008. Later in the course of assessment proceedings, the ld AO issued notice u/s 142(1) of the Act dated 28.7.2011 wherein the assessee was asked to produce the quantitative details and valuation thereof in respect of opening stock as on 1.4.2008 , stock as on 26.9.2008 and closing stock as on 31.3.2009. In response to the above query, the A/R. of the assessee in para 4 of the covering letter dated 20.9.2011 submitted as under:- “(i) The quantitative details of the gold and ornaments pledged and loans advanced against the same and refunded during the year are available in the Pledged register maintained by the assessee which shows also the details of stock on required dates and the same can be examined from the Xerox Copy of the Pledged Register annexed hereto comprising page No. 58 to 90 duly marked with Annexure- J. (ii) The Purchase and sales register shows the details of purchases and sales as well as the stock of gold during the year 2008-09 along with particulars of the parties i.e. their name & address, bill no., quantity and amount. The quantitative details of the same can be examined from the Xerox Copy of the purchase and sales Register annexed hereto comprising page No. 91 to 140 duly marked with Annexure- K.”

3.2. The ld AO observed that again on 17.10.2011 , the A/R of the assessee appeared and submitted as under:- “That again in continuation to my first submission dated 20.09.2011 and in reply to Query No. 4 of your requisition dated 28.07.2011; I am furnishing a chart which shows details of stock of Gold in hand during the financial year 2008-09. The said chart shows the complete movement and the quantitative details of the gold purchase/ new pledge as well as sell/release including stock in Safe vault beginning from opening stock as on 01.04.2008 to the closing stock as on 31.03.2009. This chart can be verified to the best of your satisfaction from the details of Pledged Stock of gold vide Annexure _J comprising page No. 58 to 90 as well as Trading stock of gold vide Annexure-K comprising page no. 91 to 140 of my previous submission dated 20.09.2011. The said chart is annexed hereto comprising page no. 43 duly marked with Annexure-I” The Annexure-I is reproduced hereunder:-

2.2) From the above chart, it becomes clear that:- (i) the assessee is bifurcating his stock of gold into two category namely, Pledge stock of gold and Trading stock of Gold. (ii) According to the assessee, out of total stock at the end of the month of September, 2008, Pledge stock of gold was 6120.618 gms and trading stock of gold was 2304.102 gms. Which more or less corroborates the finding of the survey team regarding quantitative details of stock of 8448.820 gms (there is difference of 24.1 gms.).

(iii) The assessee arrived at the figure of stock of Pledge Gold (as on the end of the month of September, 2008) by deducting 23,359.072 gms as gold in safe vault from his opening stock of pledged gold. (iv) The stock that have been claimed to have been placed in safe vault has been added back, by the identical figure, at the end of the F.Y. to derive at the stock of pledge gold as at 31.03.2009. (v) That no transaction has taken place, during the year, with gold which is claimed to have been kept at safe vault of 23359.072 gms as the total pledged stock as on 01.04.2008 was reduced by that figure and that identical figure was added back at the end of F.Y. It also means that items pledged during the year had movements (in and out) but there was no movement of items at safe vault.”

3.3. The ld AO observed that the stock of gold as shown in the books of accounts as business stock on the date of survey was only 2304.102 grams and the existence of the pledged stock of gold was completely disbelieved by the ld AO as the assessee did not mention about the same at the time of recording the preliminary statement or in the final statement recorded at the time of survey. Accordingly the ld AO treated the entire stock found on the date of survey of 8448.820 grams as the trading stock of the assessee. Out of this, 2304.102 grams of gold had already been disclosed in the books by the assessee. The ld AO brought the remaining stock of 6144.718 grams as undisclosed stock in business which was valued at Rs 1280 per gram and addition to the tune of Rs 78,65,239/- was made towards unexplained stock of gold in the assessment. 6

Chq dated 10.10.08 3,00,000 Chq dated 10.11.08 1,50,000 Chq dated 10.12.08 1,00,000 -------------- 5,50,000 4.2. The ld CITA observed that the Survey officials had not pursued this matter of the difference in physical stock and book stock any further. In the preliminary survey 7

8 & 1985/Kol/2014 Anupam Nandi A.Yr.2009-10 report, the ld AO has noted at item 7, that the assessee handed over cheques of Rs 5.50 lacs to the survey officials . In a final report, a copy of which is seen on page 116 of survey folder and appearing as enclosure to letter to JCIT dated 18.11.2008, it was seen that the ld AO had recorded in para 3 that the difference of stock of Rs 18.50 lacs was accepted by the assessee in his statement though the assessee claimed that the discrepancy in stock may be explained by his C.A. but the ld AO reported that the assessee failed to explain the said discrepancy. The ld CITA further observed that the survey team had not given any finding on the jewellery / gold claimed as pledged and claimed to have been passed on from Grandfather of the assessee. In fact the ld CITA referred to the assessment order framed for Asst Year 2007-08 wherein para 2.5 thereon, there is a mention about the pledged stock of 27909 grams of gold valued at Rs 1,52,00,082/-. The ld AO had made no attempts to correlate the stock found on date of survey of 8448.820 grams with the pledged stock claimed as received from Grandfather of assessee and how the book stock of 2304.102 grams was arrived at.

4.3. The ld CITA also observed that from the balance sheet of the assessee as on 31.3.2009, the assessee had reflected the stock under pledged items as stock in trade. He observed in his order as under:- “The AO has simply rejected all the pledged stock as trading stock. In assessment year 2007-08 if some stock was treated as trading stock (weight about 27 kgs. And valued about Rs. 1.52 crores), it is intriguing as to why the Survey Report is silent on the pledged stock so treated as trading stock and the impact of the same treatment on the book stock quantity and value. The AO has failed to show linkage from the alleged pledged stock of 27 kgs. Treated as business stock and therefore his finding that the stock has to be treated as business stock without allowing credit or consideration for the huge stock of earlier year, is without any basis. It is seen that the sales and purchases during the year is only of Rs. 43,00,651/- / Rs. 29,13,517/- respectively. Therefore, even if all the stocks of jewellery/gold is treated business stock, AO’s finding on differences goes against the observation of the Survey Team which starts with the figure of opening stock of Rs. 1,21,28,921/- [page-42 of Survey folder]. The purchase and sales figure of only few lacs having been shown in the Audit Report and the Survey working also indicates that the AO’s decision to treat all the stocks over the figure of Rs. 23 lacs. as undisclosed is arbitrary and without any basis. Even if, for the time being, the AO’s argument that the pledged stock has to be treated as trading stock is 8

9 & 1985/Kol/2014 Anupam Nandi A.Yr.2009-10 accepted, the treatment of the difference of stock as undisclosed stock cannot be sustained. Even if, the AO’s observation that the pledged stock are trading stock are for the time being accepted, the AO has no basis to treat the excess stock as undisclosed. The excess stock has been clearly shown as opening stock except for Rs. 18.5 lacs worth of stock in respect of which Appellant’s deposition has been recorded by the Survey Team. Thus, the AO is wrong in treating Rs. 78,65,239/- worth of jewellery/gold as undisclosed stock. B(ii) The Appellant in the course of Survey has broadly accepted the finding of the Survey Team on the difference stock of Rs. 18.50 lacs, as described above. The Appellant has also committed to pay Advance Tax of Rs. 5.5 lacs on the said amount of stock found in excess of the book figures as worked out by the Survey Team. The Appellant never retracted from the statement or admission of payment of advance tax till the filing of return, in which a refund of Rs. 2,87,150/- on returned income of Rs. 2,63,939/- has been claimed and no explanation for additional stock corresponding to the difference of Rs. 18.5 lacs of stock , as pointed out by the Survey Team was offered by the Appellant. In the assessment proceeding the Appellant has failed to show how the omission of the difference stock of Rs. 18.5 lacs from the trading / P&L A/c. should be accepted by the Assessing Officer. In my view, the excess stock of Rs. 18.5 lacs over book value as determined by the Survey Team remained to be explained by the Appellant, who has not been able to offer satisfactory explanation even after the Survey date or in the course of Assessment proceeding. Even in the Appeal proceeding, it has not been able to explain how the difference pointed out on Survey date by Survey officers can be shown as wrong. Therefore, I hold the view that the said amount of Rs. 18.5 lacs can be rightly taken as undisclosed income corresponding to the excess stock described above. Therefore, I confirm this addition to the total income by the AO up to the amount of Rs. 18.5 lacs and the balance amount of Rs. 78,65,239/- (-) Rs. 18,50,000/- = Rs. 60,15,239/- is deleted.”

4.4. Aggrieved, both the assessee as well as the revenue are in appeal before us on the following grounds:- for the Assessment year 2009-10

1. That the Ld. CIT(A)-XXX, Kolkata has erred in facts and circumstances of the case by giving relief to the tune of Rs. 60,15,239/- from total addition of Rs. 78,65,231/- made by the AO on account of undisclosed stock.

2. That Ld. CIT(A) has failed to consider the facts and circumstances of the case that the assessee has resorted two ways to mislead the AO and also the Appellate Authority by camouflaging the trading stock as pledged stock of the business. 3. The appellant craves leave to add, supplement, amend or alter before or at the time of hearing of this appeal petition.

10 & 1985/Kol/2014 Anupam Nandi A.Yr.2009-10 I.T.A No. 1985/Kol/2014 for the Assessment year 2009-10 1. For that the Ld. Commissioner of Income Tax (Appeals)-XXX, Kolkata wrongly placed much weightage and reliance upon the statement recorded at the time of survey by the survey team and wrongly upheld addition to the tune of Rs. 18,50,000/- merely on the basis of alleged surrender of stock discrepancy without bringing any corroborative material on record.

2. For that as the Assessing Authority himself brushed aside the survey findings while framing the Assessment order it was not open to the Appellate Authority to sustain addition merely on alleged confession on stock discrepancy or disclosure made on survey spot without at all verifying and relying upon any corroborative materials available on record.

3. For that the Ld. Commissioner of Income Tax (Appeals) simply harped upon the reply of the assessee vide which the alleged disclosure was made and the moment the statement of assessee is excluded from record then noting is left the Appellate Authority to support his conclusion.

4. For that the law has been settled by Apex Court that Section 133A does not empower any ITO to examine any person on oath; so statement recorded under section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition.

5. For that the valuation of alleged inventories of Jewellery made by the Survey Team on the date of survey is not backed by any credential as no jewellery valuer was present at survey spot and accordingly such valuation could not be relied upon for framing appellate order.

We find that the above table includes pledged stock available with the assessee. We find that the ld AO had already considered in Asst Year 2007-08 that assessee was in receipt of gold from his Grandfather to the extent of 27909 grams valued at Rs 1.52 crores and added the same to the total income of the assessee in that year. When the matter reached the tribunal, this tribunal had appreciated the pledged stock register maintained by the assessee from the earlier years which was also placed on record and this tribunal had appreciated the fact that the assessee was indeed carrying on money lending business thereon. We also find that pledged stock register maintained by the assessee is part of the records which were found and inspected by the survey team at the time of survey which has been noticed by the ld CITA also in his order. This has not been controverted by the revenue before us. We find that the ld CITA had duly appreciated the existence of money lending business based on pledged stock of gold

12 & 1985/Kol/2014 Anupam Nandi A.Yr.2009-10 belonging to outsiders and the assessee had duly explained that 6120.618 grams of gold pertain to the pledged stock which were kept in showroom and 23359.072 grams of pledged stock of gold were kept in safe vault as could be seen from the above table. Hence we are convinced that the assessee had duly explained the difference in the stock of gold found at the time of survey and there is no reason to disbelieve the version of the assessee. Even in Asst Year 2007-08, this tribunal in ITA No. 774/Kol/2012 dated 23.12.2016 had accepted the pledged stock of gold received as gift by the assessee from his grand father as genuine transaction. The relevant operative portion of the said order is not reproduced herein for the sake of brevity. We also find that the ld CITA having accepted the stand of the assessee for having pledged stock of gold in the showroom, ought not to have sustained the addition to the tune of Rs 18,50,000/- merely based on the statement recorded at the time of survey. In fact from the perusal of reply to Question No. 8 given by the assessee at the time of survey, we find that the assessee no where accepted to offer the difference in stock as unexplained . He only said that he is not conversant with the accounting practices and his C.A. would be able to explain the same better. He only admitted that the basis of workings done by the survey team was in order which alone was accepted by him in the statement. In any case, it is now well settled by the decision of the Hon’ble Supreme Court in the case of CIT vs S Khader Khan Son reported in (2012) 25 taxmann.com 413 (SC) / 210 Taxman 248 (SC) that no addition could be made based on statement recorded during survey as the survey powers u/s 133A of the Act does not empower the ITO to examine any person on oath and hence the statement recorded thereon has got no evidentiary value. We find that the assessee had duly reconciled the entire stock of gold found in the showroom at the time of survey with proper facts and records. Hence we have no hesitation in deleting the addition sustained by Ld CITA to the tune of Rs 18,50,000/- and the remaining portion deleted by the ld CITA also does not require any interference. Accordingly the grounds raised by the assessee are allowed and that of the revenue are dismissed.

Order pronounced in the Court on 10.11.2017