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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI VIJAY PAL RAO & SHRI B.M. BIYANI
आदेश / O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by appeal-order dated 22.05.2023 passed by learned Commissioner of Income-Tax (Appeals)-3, Bhopal [“CIT(A)”], which in turn arises out of assessment-order dated 20.12.2018 passed by learned [“AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2017-18, the assessee has filed this appeal on following grounds:
“(1) That on the facts and in the circumstances of the case and in law the findings and the decision of the Ld. CIT(A) in holding that on the search date of search the assessee had excess stock of Rs. 18,44,749/-, are wholly unlawful and unjustified and therefore, be quashed. Hence, the addition sustain by the Ld. CIT(A) at Rs. 18,44,749/- is unjustified and unlawful and therefore be deleted.
Agrawal Diamonds, Bhopal vs. ACIT (Central)-2, Bhopal, AY 2017-18
That on the facts and in the circumstances of the case and in law it be held that on the search date the assessee had no excess trading stock and therefore the addition Rs. 18,44,749/- as sustained by the Ld. CIT(A) be kindly deleted.
That on the facts and in the circumstances of the case and in the circumstances of the case and in law it be held that the provision of section 69B are not applicable and therefore, addition sustained at Rs. 18,44,749/- be kindly deleted. 4. That on the facts and in the circumstances of the case and in law it be held that the provision of section 115BBE are not applicable in the case of assessee and therefore the findings of the ld. Lower Authority in this regard be kindly quashed.” 2. The registry has informed that the present appeal was required to be filed by 22.05.2023 but the assessee has actually filed on 28.07.2023, therefore there is a delay of 6 days. When asked, Ld. AR for assessee submitted that the assessee is stationed at Bhopal and the assessee sent appeal documents to the office of ITAT through Speed-Post on 19.07.2023 under the anticipation that it will be delivered to ITAT by 22.07.2023, copy of Speed-Post receipt is placed on record. However, there might be delay in delivery of Speed-Post to ITAT. Ld. AR submitted that there is no delay on the part of assessee. However, even if the bench is of the view that there is a delay, it is a very small period of 6 days and therefore the same may be condoned and the appeal be admitted. Ld. DR did not oppose submissions of Ld. AR. We find merit in the submission of Ld. AR and allow admission of this appeal. Accordingly, the appeal is admitted and hearing is proceeded.
3. The background facts leading to present appeal are such that the assessee is a partnership firm engaged in jewellery business. A search u/s 132 of the Act was conducted upon assessee on 17.11.2016 during the previous year 2016-17 relevant to AY 2017-18 under consideration. During search, the authorities found stock of Rs. 7,00,82,179/- as against the stock of Rs. 5,94,57,429/- recorded in books of assessee, thus identified excess- stock of Rs. 1,06,24,750/-. Subsequently, the assessee filed return of income on 27.10.2017 u/s 139(1) declaring a total income of Rs. Nil. In the Agrawal Diamonds, Bhopal vs. ACIT (Central)-2, Bhopal, AY 2017-18 return so filed, the assessee did not offer the excess-stock for taxation. The case of assessee was then selected for scrutiny and statutory notices u/s 143(2)/142(1) were issued. Ultimately the AO completed assessment vide order dated 20.12.2018 after making an addition of Rs. 1,06,24,750/- on account of excess-stock found during search and also taxed the same u/s 115BBE of the Act. The assessee carried matter in first-appeal whereupon the CIT(A) granted a substantial relief of Rs. 87,80,001/- in respect of goods held by assessee belonging to sister concern (M/s Agarwal Jewellers) and restricted addition to Rs. 18,44,749/- only. However, the CIT(A) upheld invocation of section 115BBE and did not accept assessee’s contention. Still aggrieved, the assessee has come in next appeal before us.
Ground No. 1 to 3:
In these grounds, the assessee challenged the addition of Rs. 18,44,749/- sustained by CIT(A) out of the addition of Rs. Rs. 1,06,24,750/- made by AO on account of excess-stock found during search.
Apropos to these grounds, Ld. AR for assessee carried us to Paper- Book Page 37 where the inventory prepared by survey-team showing quantitative details as well as values of individual items of physical stock, resulting in valuation at Rs. 7,00,82,179/- is placed. Ld. AR submitted that the assessee does not have any dispute qua the quantities/weight of items but the assessee’s objection is with respect to the valuation done by survey- team and accepted by AO for making addition. Ld. AR carried us to Page No. 44 of the Paper-Book where the submission made by assessee to CIT(A) during first-hearing is placed, the same reads as under:
“3. In the search, the departmental valuer valued the stock at market value at Rs. 70082179/-. The assessee submits that the method of valuation of stock is cost or market value whichever is lower. Rs. 70082179/- valued by the departmental valuer was the market value of the stock of the shop which he valued according to his own estimation. Therefore, the value of stock obviously includes the profit element therein. The gross profit rate of the assessee @ 20%
Agrawal Diamonds, Bhopal vs. ACIT (Central)-2, Bhopal, AY 2017-18 has been accepted. Therefore, the valuation of cost of stock as per the valuer should be as under :- Particulars Amount Market value of stock as valued by the departmental valuer 70082179 Less: gross profit (70082179 /115x15) 9141154 60941025 Note: On Nakshtra Brand jewellery G.P. rate is 10% on other jewellery G.P. rate is 20%. The average G.P. comes about 15%.
4. From the above, it would be seen that the total value of stock (including the stock receipts on voucher from Agrawal Jewellers, T.T. Nagar) on search date was Rs. 68237430. Thus, the difference between the two is Rs. 7296405 (68237430 – 60941025). The difference is hardly of 10.6 % which is on account of the arbitrary valuation and just on estimate basis. Thus from the above, it may be seen by your honour that there was no excess stock found as alleged. Further, there was no value of stock found short. Thus the AO is not justified in holding that the assessee had found with an excess stock of value of Rs. 10624750/-. The findings of the ld. AO, therefore, be quashed and the addition of Rs. 10624750/- be kindly deleted.” Referring to above, Ld. AR submitted that the assessee made a specific submission to CIT(A) that the survey-team has made valuation at market rate of items whereas the valuation ought to have been done at lower of cost price or market value. Ld. AR submitted that the estimated G.P. Rate of assessee, as mentioned in the above submission, is 15% and because of inclusion of G.P, the valuation of items has increased. Therefore, the assessee should be granted reduction of G.P. in valuation and once it is allowed, the addition of Rs. 18,44,749/- sustained by CIT(A) would turn out to Rs. Nil. With this limited submission, Ld. AR urged us to delete the addition.
Per contra, Ld. DR for revenue read over Para No. 3.1.6 to 3.1.7 of the order of CIT(A) re-produced below:
“3.1.6 As far as difference in stock is concerned, it has been observed that the appellant has challenged the very basis of methodology adopted by the Agrawal Diamonds, Bhopal vs. ACIT (Central)-2, Bhopal, AY 2017-18
Agrawal Diamonds, Bhopal vs. ACIT (Central)-2, Bhopal, AY 2017-18
Agrawal Diamonds, Bhopal vs. ACIT (Central)-2, Bhopal, AY 2017-18 Referring to same, Ld. DR submitted that the CIT(A) has adequately dealt the assessee’s objection qua the valuation done by registered valuer and after a due consideration turned down the same. Ld. AR further added that the CIT(A) has already given a substantial relief of Rs. 87,80,001/- to assessee which the assessee rightfully deserved. Ld. AR submitted that the order of CIT(A) is very much correct and the assessee does not deserve any more relief.
We have considered rival contentions of both sides and perused the orders of lower-authorities as well as the material held on record to which our attention has been drawn. The controversy raised by assessee is very limited i.e. the assessee claims that the valuation done by registered valuer at market rate is wrong. At first, we find that the CIT(A) has vehemently consideration this very objection in the preliminary part of Para No. 3.1.6 of his order re-produced above. The CIT(A) has noted that the assessee could not point out any specific defect in the valuation and only general remark has been made. He has also noted that the defect claimed by assessee in valuation of platinum jewellery is not backed by any authentic evidence. He also noted that for countering the valuation of platinum jewellery, the rate of purchase could be a basis but the assessee has relied upon ‘google’ rates which cannot be accepted. Ultimately, in absence of any cogent explanation from assessee qua the mistake in valuation by valuer, the CIT(A) held the valuation at Rs. 7,00,82,179/- as proper. Before us also, the position remains same. Neither the assessee has pointed out any specific defect nor given any evidence to prove that the valuation is wrong. Ld. AR for assessee is only harping on the working submitted by assessee to CIT(A), re-produced in foregoing paragraph No. 5, showing that because of 15% G.P. inclusion in market rates, the valuation done by valuer was higher. When we analyse this very working given by assessee, we find that the assessee has estimated valuation of stock at Rs. 6,09,41,025/- whereas the assessee’s recorded stock itself, as mentioned in the said working, was Rs. 6,82,37,430/- [Rs.
Agrawal Diamonds, Bhopal vs. ACIT (Central)-2, Bhopal, AY 2017-18 5,94,57,429/- recorded in books of assessee + Rs. 87,80,001/- relating to the goods belonging to M/s Agarwal Jewellers held by assessee for which relief had been given by CIT(A)]. Thus, if the working of assessee is accepted, it would mean that the assessee’s recorded stock would be substantially higher than the physical stock found by authorities. How can this be? When we posed this question to Ld. AR, the only submission advanced by her was that the G.P rate of 15% taken in working is an estimated rate. Therefore, we are not inclined to accept assessee’s claim that the valuation done by valuer is wrong as the assessee is not successful in proving or substantiating the same. We agree with Ld. CIT(A) that the assessee is making a general claim only which remains unproved. Therefore, in the situation, we uphold the order passed by CIT(A) qua this issue. These grounds are thus rejected.
Ground No. 4:
In this ground, the assessee claims that the lower-authorities have wrongly invoked section 115BBE to the addition of Rs. 18,44,749/-.
Ld. AR for assessee submitted that the addition of Rs. 18,44,749/- is a marginal difference in the valuation of excess-stock held by assessee. Moreover, the assessee is a partnership firm solely engaged in jewellery business and the excess-stock is also a part of normal stock held by assessee. Ld. AR submitted that the assessee-firm does not have any source of income except business; that in the statements recorded by authorities the partner of assessee has not stated that it was income from undisclosed sources; and considering the small difference in valuation, the excess-stock represents business income and accordingly section 115BBE is not invocable. Ld. AR relied upon the decision rendered by ITAT Indore in M/s Brijmohan Das Devi Prasad Vs. ACIT, order dated 17.07.2023 where the excess-stock held by assessee carrying on jewellery business was held as not attracting section 115BBE. Ld. AR also relied upon
Agrawal Diamonds, Bhopal vs. ACIT (Central)-2, Bhopal, AY 2017-18 decision of Hon’ble Rajasthan High Court in PCIT Vs. Bajarang Traders (2017) 86 taxmann.com 295 (Rajasthan). Ld. DR for revenue dutifully supported the orders of lower-authorities but, however, left his point to the wisdom of bench. After a careful consideration, we find that there is a merit in claim of assessee in the light of decisions quoted above. Therefore, we accept assessee’s claim that section 115BBE is not applicable. This ground is thus accepted.
Resultantly, this appeal is partly allowed.
Order pronounced in open court on 15.02.2024