LALIT MOOLCHAND JAIN,THANE vs. ITO WD 1(4), THANE

The captioned appeal by the assessee is directed against the order of the CIT(A)-II, Thane, dated 21.7.2014, pertaining to the assessment year 2007-08 which in turn has arisen from the order passed by the Assessing Officer dated 24.12.2009 under section 143(3) of the Income Tax Act, 1961(in short ’the Act).

In this appeal, the only issue raised is with respect to the addition of Rs.9,05,450/- made by the AO under section 69B of the Income Tax Act, 1961(in short ‘the Act’) on account of unexplained excess stock of jewelry.

In brief the relevant facts are that the assessee individual is running jewelry business in his proprietary concern M/s Labdhi Ornaments in Jodhpur. During the previous year relevant to the assessment year under consideration a survey action under section 133A of the Act was carried out in the assessee’s business premises at Jodhpur. In the course of survey proceedings, it was found that there was a difference of Rs.20,14,647/- between the value of actual stock of jewellery found on physical verification vis-à-vis the stock position as per the account books. In the course of assessment proceedings, the assessee was asked to reconcile the said difference. The explanation filed by the assessee was not fully accepted by the AO and he concluded that amount of Rs.17,00,667/- represented investment made in unexplained stock of jewellery found during the course of survey. Accordingly, he made an addition of Rs.17,00,667/- to the returned income u/s 69B of the Act.

In appeal before the CIT(A), assessee canvassed that in the course of the statement recorded during the survey action, assessee had explained that the difference was on account of the personal jewellery of the family members kept in the business premises which was not to be considered while comparing with the stock as per account books. The CIT(A) noted that the AO had made addition of Rs.17,00,667/- in relation to 1868.865 gms unexplained stock of jewellery. One of the point explained by the assessee was that jewellery 251.000 grams and 588.800 grams was received from his father and mother respectively which should be reduced from the difference. The CIT(A) accepted the said position and accordingly, scaled down the addition to Rs.9,05,450/-. Against such sustenance of addition by the CIT(A), assessee is in appeal before us.

Before us, only plea of the assessee was that during the survey itself assessee had pointed out that personal jewellery of his wife, 500.00 grams, his daughters-325.00 grams and self 170.00 grams was a part of the physical stock which was not to be considered as part of the stock reflected by the accounts books. The ld. Representative pointed out that assessee’s explanation with regard to the aforesaid three items have been unjustly rejected. It has been asserted before us that since the said explanation was given at the first instance, the same was bonafide. Our attention has been drawn to the statement recorded at the time of survey wherein the aforesaid explanation has been given. It was therefore contended that the addition deserves to be reduced.

On the other hand, the ld.DR appeared for the revenue pointed out that the personal jewellery could not have been kept in the business premises and that if at all there is any personal jewellery, it was to be found in the residential premises and therefore according to the ld.DR the ld.CIT(A) has correctly upheld the addition.

We have carefully considered the rival submissions. Before us, a limited point has been argued which is based on the explanation given at the time of survey. On being questioned with regard to the difference between the physical and book stock, the assessee explained at the time of survey that physical stock included personal jewellery belonging to self, wife and two daughters. We find from a perusal of the statement that the assessee was not put to any further questioning on this aspect. In this background, the burden is on the AO to controvert the said statement of the assessee at the time of assessment proceedings. On the contrary, the AO and thereafter the CIT(A) have rejected the explanation of the assessee without establishing any infirmity in the same. In fact, part of the explanation has been accepted by CIT(A) in so far as it related to the claim of the personal jewellery received from father and mother of the assessee. Be that as it may, in our view, the claim of the assessee has been merely brushed aside without any justification and the same deserves to be accepted. We hold so. As a consequence, we set aside the order of the CIT(A) and direct the AO to recompute the addition on this account after taking into account the assessee’s claim for exclusion of personal jewellery belonging to self- 170 grams, wife-500 grams and his daughters 325.500 grams. Thus, on this aspect the assessee succeeds.