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Income Tax Appellate Tribunal, DELHI BENCH “E” NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
O R D E R PER AMIT SHUKLA, JM The aforesaid appeal has been filed by the assessee against the impugned order dated 31.05.2017, passed by ld. CIT (Appeals), Faridabad for the quantum of assessment passed u/s.143(3) for the Assessment Year 2012-13. In the grounds of appeal
, the assessee has raised following grounds:
1. Because the action is being challenged on the facts & law, for making addition on account of difference in stock of Rs. 45,97,325/- u/s 69B of the Income Tax Act, 1961overlooking & ignoring the pleadings, facts, evidences, provisions of act, principles of law advanced hence unsustainable order.
2. Because the action is being challenged on the facts & law, for making an addition in difference in stock amounting Rs. 45,97,325/- on the basis of valuation report by Govt. approved valuer without taking into consideration 'material facts' containing 'material particulars' already on record.
3. Because the action is being challenge on the facts & law, for disallowance of interest amounting to Rs. 1,08,000/- on loan borrowed u/s 36(l)(iii) on an account of non-business purpose. 4. Because the action is being challenge on the facts & law, for making disallowance of interest paid on delay in deposit of TDS amounting Rs 704/- on account of penal nature”.
The facts in brief are that the assessee is engaged in the business of retail trading of jewellery in his proprietorship concern, M/s. Akash Jewellers. A survey operation u/s.133A was carried out on 13.09.2011 at the business premises of the assessee, and accordingly, the assessee’s case was selected for scrutiny and notice u/s. 143(2) was issued on 13.09.2013. The ld. Assessing Officer observed that during the course of survey operation, books of account maintained by the assessee, sale purchase details and vouchers were examined and inventories of physical cash and stocks found at the business premises were prepared and the same were verified from the regular books of accounts as on 13.09.2011. The valuation and jewellery/stock was also made by the approved valuer wherein following discrepancy was noticed:-
Variation in Stock Heads Amount in Rs. Actual stock fond on physical verification 1,68,97,325 Stock entry recorded in the books/documents 1,23,00,000 Excess/unaccounted stock 45,97,325
In reply to the query raised by the Assessing Officer to explain the discrepancy, it was submitted that the variation in the stock is purely due to gold rate fluctuation in the market. The ld. Assessing Officer after giving his reasoning has made the addition on account of difference at Rs.45,97,325/-.
Further, on perusal of the balance-sheet, the Assessing Officer noted that assessee has given advance of Rs.9 lacs to M/s. Akash Hi Tech on which no interest has been received, whereas the assessee has availed loan of Rs.1,51,70,715/- from the Standard Chartered Bank on which the interest incurred has been debited to the P&L Account. The ld. Assessing Officer imputed 12% of interest on such loan and calculated the disallowance of Rs.1,08,000/-.
Ld. CIT (A) after incorporating the assessee’s detailed submissions has confirmed the addition. His relevant observation reads as under:
From the data provided by the appellant, some basic calculations have been made to arrive upon some figures which are important to analyze the contentions of the appellant. These calculations have been tabulated as below:
Average Cost Price Average Sale Price Price in Qty. in Price/ gm Price in Rs. Qty. in Price/gm Rs. gm gm Opening 8473065 3753.5 2257.377115 April, 2014421.8 1099.96 1831.35914 Stock as on 2011 01.04.2011 April, 2011 3786019 1981.77 1910.423006 May, 3133323.55 1570.27 1995.404325 2011 May, 2011 6714221 3855.71 1741.37085 June, 6626297.04 3174.42 2087.404011 2011 June, 2011 4826180 2705.325 1783.988717 July, 3154677.68 1482.84 2127.456556 2011 July, 2011 8624947 4559.46 1891.659758 Aug, 2582940.8 1124.59 2296.784428 2011 Aug, 2011 1374160 555.115 2475.451033 Sep, 469420.16 197.72 2374.166296 2011 Sep, 2011 490210 200.85 2440.677122 Oct, 4891483.52 1959.71 2496.024167 2011 Oct, 2011 2654556 1135.59 2346.405714 Nov, 3866755.02 1489.58 2595.869319 2011 Nov, 2011 5618429 2002.83 2805.245078 Dec, 3005072.4 1148.814 2615.804125 2011 Dec, 2011 1317440 489.97 2688.817683 Jan, 7616220.18 2979.857 2555.901233 2012 Jan, 2012 11006948 4289.85 2565.811858 Feb, 6176331.04 2367 2609.349827 2012 Feb, 2012 14168315 5107.575 2773.980803 March, 8731903.28 3445.933 2533.973609 2012 March, 6468180 2763 2340.998914 2012 Perusal of the above table (Average Cost Price} reveals that the price/gm of the gold shown by the appellant for opening stock as on 01.04.2011 is Rs. 2257.37/-. However, it significantly dipped during the next four months and hovered around is. 1828/-, It again increased just before the month of survey and went up to Rs, 2475/- in the month of August 2011, After the date of survey i.e. from 13.09.2011 till the end of financial year, the price/gm of the gold purchased by the appellant steadily remained around Rs. 2610/-, Whereas on the other hand, the price/gm of the gold sold by the appellant witnessed a steady growth from Rs. 1831/- in the month of April, 2011 to Rs, 2533/- In the month of March, 2012. The price of gold purchased and sold by the appellant during the period is dependent on the market price of the gold, a price which is in the public domain and known to every customer. However, it can't be seen in the instant case where fluctuation in cost price of gold doesn't have any bearing on the sale price of the gold. In this case as evident from the data reproduced above, it is clear that there is no correlation between the sale price and the cost price, on a monthly average basis.
Further, the appellant has valued its opening stock at Rs. 2257.377 per/gm and as per the prevalent accounting method in business parlance opening stock is valued either at CP or M.P whichever is lower. Hence, if it is assumed that the appellant has valued its opening stock at cost price being lower of the two, that means the prevalent market price was higher than Rs. 2257377/- during the month of April, 2011. However, the appellant has shown purchased price of the gold per gm at Rs. 1910/- in the month of April, 2011. Whereas on the other hand, if it is assumed that the appellant has valued its opening stock at market price even then the price per gm shown by the appellant are less than the prevalent market price by Rs, 347/- per gm. It is very hard to believe that the rate of gold per gm would have dipped by Rs. 347/- in a span of just 30 days i.e. from valuation of the opening stock as on 01.04.2011 till the end of the month of April, 2011.
One more analysis, which has been done on the basis of the data provided by the appellant, is important and the same is tabulated as under: Weighted Description Price Quantity price/gm 3,37,98,592/- 17471.88 gm Rs. 1941,23/- Cost price Including opening stock as on 01.04.2011 till the date of survey i,e« 13.09.2011 2,53,25,527/- 13657,38 gm Rs. 1854.34/- Cost price excluding opening stock as on 01.04.2011 till the date of survey i.e. 13.09.2011 4,17,34,078/- 15989.665 gm Rs. 2610.06/- Cost price of the gold purchased after the date of survey i.e. 13.09.2011 From the perusal of the above table, the rates of gold per gm shown by the appellant can be bifurcated into two periods, one pre-survey and another post- survey. From the table it can be seer* that there is huge differs rite m the price per gm of the polo purchased by the appellant before the date of survey end after the date of survey. Before the date of survey, the weighted price per gm of the gold shown by the appellant comes to Rs. 1941/- which further dipped to Rs. 1854/- if the opening stock is excluded from the total stock as on 13.09.2011 which has been valued at Rs, 2257/- per gm by the appellant. Whereas the rates of gold per gm purchased by the appellant after the date of survey i.e. 13.09.2011 comes to Rs. 2610/- and the difference between these two rates comes to Rs. 756/- per gm.
Further, the appellant in its written submissions has stressed upon two more points that (t) the value of stock as on the date of survey made by it at Rs.1,23,00,000/- was just an estimation and can't be taken as sacrosanct, and (llj the rates of the gold fluctuated tremendously during the A.Y. However, perusal of page 3 of the AO's order reveals that the figure of Rs. 1,23,00,000/- has been taken from the regular books of accounts maintained/trading account prepared by the appellant as on date of survey. Perusal of the assessment order further reveals that during the course of assessment proceedings the appellant had submitted two more reasons for the variation in the stock beside the fluctuation of gold rate. It had submitted that 400 to SCO gms of gold of various customers was lying with him as on the date of survey and it had received gold jewellery worth Rs. 5.50 lacs from Vaibhav jewellers. However, the appellant failed to furnish any corroborative evidence in support of its contentions before the AO. Interestingly, the appellant didn't mention these two reasons for the difference in stock during the course of appellate proceedings. The different versions put forth by the appellant, one during the course of assessment proceedings and another during the course of appellate proceedings, as reasons for the difference in stock in itself is a good indicator that the appellant didn't know the exact reasons for the variation in the stock and was not sure what to say about the difference in stock and merely making organic/general observations to cover up the issue.
As regards to the fluctuation in the price of gold during the relevant period is concerned, I find that the rates which has been shown by the appellant in its purchase register are not in sync with the prevalent market rates in the country. To get the prevalent market rates of that period, I have made a basic search over the internet and found that there is a variation of 6,7 to 8% in the rates shown by the appellant as compared to the prevalent market rates. The below mentioned table depicts the variation in rates shown by the appellant to that of the market rates:-
Sr. Month Average rate/ gram Average rate/ gram of the Average rate/ gram of the gold No. (including direct gold in the Indian Market in the Indian Market (source: expenses) shown by (source: www.bullion- www.goldpriceindia.com/gold- the appellant in its rates.com/gold/INR/2011- price-january-2011.php) purchase register from 12-history.htm) 01.04.2011 to 31.03.2012 24 Karat 22 Karat 24 Karat 22 Karat 24 Karat 22 Karat 1 April, 2115/- 1904/- 2146/- 1932/- 2011 2 May, 1939/- 2180/- 1962/- 2223/- 2000/- 2011 3 June, 1841/- 2201/- 1981/- 2239/- 2015/- 2011 4 July, 2031/- 2244/- 2251/- 3020/- 2026/- 2011 5 Aug.,2011 2610/- 2569/- 2312/- 2563/- 2307/- 6 Sep, 2011 2590/- 2711/- 2440/- 2691/- 2422/- 7 Oct, 2011 2488/- 2644/- 2380/- 2681/- 2413/- 8 Nov., 2941/- 2832/- 2549/- 2815/- 2S33/- 2011 9 Dec., 2846/- 2756/- 2481/- 2800/- 2520/- 2011 10 Jan., 2872/- 2719/- 2447/- 2768/- 2491/* 2011 11 Feb., 2935/- 2750/- 2475/- 2823/- 2541/- 2011 12 March, 2484/- 2714/- 2442/- 2788/- 2509/- 2011 There is » variation of 1.1% between the prices of two different sources which Is acceptable en the size of the gold market in India.
This analysis makes one thing dear that figures shown by the appellant can't be relied upon. Hence the appellant's calculation of stock at Rs. 1,28,20,859/- as on the date of survey I.e. 13/09/2011 by taking the average oust of sale per gram at Rs. 1992/- is not acceptable. Moreover, as per the quantitative detail of the gold provided by the appellant, it had 8814.180 gm of gold available with it as on the date of survey I.e. 13.09.2011. Whereas perusal of the valuation report of the valuer reveals that the valuation of 4892 gm of gold had been done only. It means 3922.18 gm of gold was not physically in the possession of the appellant for valuation as on the date of survey. This plea has never been taken by the appellant either on the date of survey, or during the course of assessment proceedings and in fact not even before me during appellate proceedings. The written submissions of the appellant as reproduced above clearly show that the appellant has not said that there was more gold available with him then what has been valued by the valuer/survey team. In fact during the course of survey, the appellant pleaded that somebody else's gold is lying with him. Thus, all these facts make it abundantly clear that the quantitative stock details furnished by the appellant are not reliable for arriving at any conclusion and hence deserve to be ignored. For the sake of argument, if the quantitative detail of the appellant are relied upon then it would show that the appellant had sold approximately 4 kg gold outside the books of accounts, Thus, in view of the above explanation, I see no reason to interfere with the order of the Assessing Officer and the addition of Rs.45,97,325/- is sustained. This ground of the appellant is, thus, dismissed.”
Regarding disallowance of interest of Rs.1,08,000/-, ld. CIT(A) upheld the addition on the ground that appellant has failed to justify the utilization of loan of Rs.9 lac in terms of business nexus. He further held that possibility of advancing amount of Rs.9 lac out of interest free unsecured loan amounting to Rs.42,15,000/- cannot be ruled out as assessee has availed loan of Rs.1,51,70,715/- from Standard Chartered Bank on which interest has been paid, therefore, the utilization of such funds for establishing the business nexus in advancing any part out of these funds is imperative.
We have heard both the parties and also perused the relevant finding given in the impugned orders. Only reason for the addition made by the Assessing Officer is that, there was difference between the statement given by the assessee wherein he has given estimation of the stock and the stock as valued by the valuer at the time of survey. But for the difference in value, there is no difference in the quantitative details, i.e., whether any excess quantity was found at the time of survey which was not recorded in the books of account. The base for valuation of stock has been taken at Rs.1,23,00,000/- which was stated to be estimate value of the stock with the assessee in his statement during the course of survey. This was an approximate estimate given by the assessee at that time. Now the addition is on account of difference between estimated values declared in statement at the time of survey at Rs. 1,23,00,000/- and the valuation done by the valuer.
Admittedly, there is no difference in the quantitative tally or any discrepancy in purchase and sales or any excess quantity of jewellery was found so as to draw any adverse inference. Albeit the addition is based on the statement given by the assessee in respect of stock value at the time of survey and even in the statement there is no reference of excess quantitiy. Before the Ld. CIT (A), the assessee has relied upon the judgment of Hon’ble Delhi High Court in the case of CIT vs. Dhingra Metal Works in that Assessing Officer could not make the addition solely on the basis of statement during the course of survey. Here, we find from the statement as recorded by the Ld. CIT (A) in his order that; Firstly, there is neither any dispute regarding sale and purchase by the Assessing Officer nor he has raised any objection of given any adverse finding on the opening value of stock and the direct expenses incurred during the relevant assessment year. Secondly, there is no difference in the quantitative tally of the closing stock also. Once the sale purchase opening stock is not in dispute either quantitative-wise or of closing stock, then solely on the difference of the value of the stock of gold jewellery as done by the Valuation Officer cannot be the basis for making the addition. Lastly, Ld. CIT (A) has gone by the average cost price of every month of sale and purchase and on which price assessee has sold. He has observed that there is no correlation between the sale and cost price on a monthly average basis and thus the difference as worked out by the valuer and addition made by the Assessing Officer is justified.
However, Ld. CIT (A) analysis is de hors the basic fact that there was no difference in the quantitative tally nor the books of account have been rejected or the sale and purchase has been disputed. Once the opening stock, purchase and direct cost on the debit side is not in dispute; and on credit side sales have been accepted and there is no difference in the quantitative tally in the closing stock, then no addition can be made in the trading account. Here the addition is not based on undervaluation of closing stock but undisclosed investment in closing stock. Simply because there is a difference in the valuation made by the valuer and the value stated by the assessee during the survey in his statement as an approximate estimate of the stock available with him, addition cannot be made as undisclosed investment. Had it been case where there is excess quantity of stock found not recorded in the books or not explained, then perhaps addition on account of undisclosed investment could have been made. Under these facts and circumstances, we do not find any reason to sustain the addition; therefore, the same is directed to be deleted.
On the issue of disallowance of interest on the advance of Rs.9 lacs to M/s. Akash Hi Tech, one important fact is that, assessee had interest free unsecured loan amounting to Rs.42,15,000/- from friends and relatives and this fact has also been noted by the Ld. CIT(A). Simply because the assessee has secured loan from Standard Chartered Bank of Rs.1,51,70,715/-, that does not mean that same interest bearing fund have been given for interest free loan to other party. If assessee has interest free funds which far exceed the advance given, then there cannot be any presumption that such advance has been given only out of such interest bearing funds. Once the assessee has substantial interest free fund, then no addition/disallowance can be made on this score. Accordingly, this ground is allowed.
Since, no argument has been placed regarding ground no. 4, the same is dismissed as not pressed. 12. In the result, the appeal of the assessee is partly allowed. Order pronounced in the Open Court on 5th July, 2021