KAPOOR ENTERPRISES,MUMBAI vs. ITO 18(2)(1), MUMBAI

The captioned appeal by assessee for Assessment Year [AY] 2012-13 assails order of Ld. Commissioner of Income Tax (Appeals)-29 [CIT(A)], Mumbai dated 27/07/2016 qua confirmation of addition of Rs.28,31,525/- on account of ‘process loss’.

Briefly stated, the assessee was resident firm engaged in the business of Gold Trading and making of Gold Ornaments. It e-filed its return of income for impugned AY on 27/09/2012 declaring total income of Rs.11,23,568/- which was subjected to scrutiny assessment u/s 143(3) vide Assessing Officer [AO] order dated 30/03/2015 wherein the total income was determined at Rs.39,55,090/- after making sole addition of Rs.28,31,525/- on account of ‘process loss’. The assessee claimed ‘process loss’ of 1132.61 Grams. The assessee explained that gold ornaments could not be made out of pure gold but certain metals are added to make it usable. Therefore, the quantity of actual jewellery would always be more than pure gold purchased by the assessee. Similarly, the assessee purchased old gold jewellery which was sent to refineries to extract pure gold which reduce the weight of pure gold held by the assessee. These adjustments were made only in quantitative records as ‘process loss’ without changing any corresponding values in financial accounts. However, the Assessing Officer [AO] was not convinced with the explanation and after valuing the ‘process loss’, he made the impugned additions. Aggrieved, the assessee preferred appeal before First Appellate authority but remained unsuccessful vide order dated 27/07/2016. CIT(A) observed that the assessee claimed process loss only against 22 carat Gold only and not for any other category. The assessee further contended that the charges paid to refineries were debited under the head ‘gold refinery charges’. But CIT(A) noticed various discrepancies in the gold quantity returned by the refinery vis-à-vis quantity recorded by the M/s Kapoor Enterprises Assessment Year 2012-13 assessee which led to confirmation of addition. Aggrieved, the assessee is in appeal before us.

The Ld. Counsel for Assessee [AR] submitted that the assessee was engaged in Gold Trading and making of Gold Ornaments and maintained carat wise record of the same. It drew separate Trading Account for dealing in Gold, Diamond, Silver and Color stones. Whenever, the assessee purchase old ornaments, it send the same to refineries to extract pure gold out of the same which result into reduction in quantitative loss and further when this pure gold is converted into jewellery, certain alloys are mixed into the pure gold to make it usable which results into increase in quantitative gain. However, no adjustments in the amounts / values thereof are required to be made but quantitative adjustment are made to account for these quantitative gains / losses. This adjustment is required only due to nature of business carried out by the assessee. In support, a paper-book containing various documents viz. Tax Audit Report, Financial Statements, Refinery Invoices, issue/receipt vouchers issued by assessee, Statement showing loss of quantity during process of refinery has been placed before us. Per Contra, the Ld. DR placing reliance on lower authorities contended that the assessee failed to provide accurate reconciliation of the process loss and also failed to explain the nature of this process loss and hence the same was not allowable to the assessee.

We have heard the rival contentions and perused material available on record. We find that the assessee had sent three consignments during the years to refinery as per following details:- No. Date Sent to Invoice No. Refining charges Qty. consigned (Grams) 1. 09/08/2011 R.J.Refinery 78 6,390/- 1277.850 2. 20/01/2012 R.J.Refinery 112 7,480/- 1870.400 3. 24/03/2012 R.J.Refinery 398 8,100/- 2030.700 Total 21,970/- 5178.950