ACIT, CHENNAI vs. SRS THANGA NAGAI MALIGAI PVT. LTD., CHENNAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

The Revenue has raised the following grounds:- 2.

‘’2.1. The learned CIT(A) erred in directing the AO directed the AO to restrict the addition on account of unexplained investment in the stock to ₹32,34,343/- as against the figure of ₹.6,14,15,338/-.

2.2 The CIT(A) has failed to note that the Assessing Officer had clearly established with detailed reasoning in the assessment order that the purchase of bullions from M/s Shiva Traders was not at all reflected in the books of accounts of the assessee.

2.3 The CIT(A) ought to have considered the sworn statement recorded during the course of survey proceeding u/s 133A on 26.08.2009 from the director of the company had stated that there was no bullion purchased.

2.4. The CIT(A) ought to have considered tile remand report dated 22.09.2014 wherein the facts were clearly analyzed which leads to the conclusion that the assessee's contentions were not acceptable’’.

The Brief facts of the case is that the assessee company is 3. engaged in the business of Trading in gold, silver, platinum jewellery, precious stones and readymade garments. There was a survey operation u/s.133A of the Act at the premises of the assessee company on 26.08.2009 and subsequently the assessee company filed return of income on 07.10.2010 declaring total income of �64,76,425/- and the case was selected for scrutiny and notice u/s.143(2) of the Act :- 3 -: & C.O.No.11/Mds/2015. was issued. In compliance to the notice, the ld. Authorised Representative of assessee appeared from time to time and furnished details. In the survey operations, the ld. Assessing Officer collected incriminating evidence and statement was recorded from the Director of the company were excess stock of �10,99,90,293/- representing purchase of stocks being unaccounted. Subsequent to survey the Director of the company appeared before ld. Assessing Officer and filed reconciliation statement as per Books of accounts being the difference of �15,67,647/- only and supported the claim and explained that major purchases were not updated or entered in the tally as on the date of survey. In order to verify the statements and the claim of the assessee, the Revenue conducted consequential survey on 15.09.2009 were ld. Assessing Officer found on the said date of the survey also entries were not updated in the tally and statement was recorded from Director again Shri. Ravirathinam as the difference in stock could be reconciled and agreed for payment of taxes. The ld. Assessing Officer relied on the excerpts of sworn statement from the Director of the assessee company on 26.08.2009 and referred the question and answer from Sl.Nos. 8 to 24 at page 2 to 4 of his order were the Director has explained the reasons for difference and reconciliation. The ld. Assessing Officer has provided adequate opportunity to the Director of the company to give :- 4 -: & C.O.No.11/Mds/2015. clarifications and produce evidence. Further, statement was recorded on 01.09.2009 of Accountant Ms. Jeru Sha were she has explained the system of recording of entries for purchase and sale in quantity wise and value in three product softwares namely Cadmium (Jilabha), Tally and Shoppers software were shoppers software is used exclusively for billing of textiles, Cadmium was used for all the transaction relating to gold, silver, diamond and gift articles and Tally was used for the preparation of accounts. The ld. Assessing Officer referred to the relevant portion of statement of Accountant recorded on 01.09.2009 with question and answer from Sl. No.5 to 23. The Accountant has explained the methodology of issue of gold articles and gave the explanations and sale entries were updated upto 31.03.2009. Further entries in respect of sales are in regular Books of Accounts from 01.04.2009 to the date of survey on 26.08.2009. The Accountant provided the names of the suppliers and procedure of entry of purchase of goods in the Cadmium software. The ld. Assessing Officer observed that the Accountant is depended on the Director of the Company who has vital information on purchase and sales and wereas the Accountant discloses sales and purchases based on tally software and with the reconciliation statement filed on 04.09.2009 were the purchases recorded includes wornout purchases and party wise purchases aggregating to �13,27,36,460/-. Considering :- 5 -: & C.O.No.11/Mds/2015. the monthwise purchase in August, the ld. Assessing Officer found that there is excess purchase of �1,90,25,958/- in the month of August and has not entered in tally software. The ld. Assessing Officer conducted consequential survey on 15.09.2009 and again statement was recorded from the Director of the Company Shri. Ravi Rathinam regarding purchase of bullion from M/s. Siva Traders weighing 6000 grams for �88,74,000/- and VAT Rs.88,740/- as on 10.08.2009. The ld. Assessing Officer based on the sworn statement and stock Registrar verified the details of goldsmith to whom goldbars were issued and queries were raised on purchase of bullion from M/s. Siva Traders and same is referred with the dates of issue of bullion to the goldsmith and received back. Further, the ld. Assessing Officer after deep scrutiny of materials, issued notice u/s.133(6) of the Act to M/s. Siva Traders and in compliance they confirmed that there is no Business transaction with the assessee company during the financial years 2004-05 to 2008-09 except the transaction reflected in assessment year 2011-2012. The ld. Assessing Officer considering the submissions of the Director of the company and the market conditions of the bullion and the Books of accounts and Accountant statement on usage of software further summoned the Vice President of the company which has supplied the software and based on the statement extracted from the Cadmuim software the assessee company physical :- 6 -: & C.O.No.11/Mds/2015. stock as on the date of survey 74703.342 grams as against Cadmium software information 60316.73 grams. The ld. Assessing Officer test checked the discrepancies with management and no convincing explaination were submitted. Further, the ld. Assessing Officer considering the Books of account, stock book and the bills subsequent to survey not entered in the software and Director statements is of the opinion that assessee company has fabricated the purchase bills with parties and relied on the statements recorded and others calculated excess stock at para 3.22 of his order as under:-

Physical stock on the date of survey �11,98,00,116/- (A) Stock as per Book Closing stock as on 31.08.2008 �7,27,56,927/-

ADD Purchase from 1.4.08 to 26.08.09 (-)�9,42,38,454/- As extracted from Tally ---------------------- �16,69,95,381/

LESS Sales from 1.4.08 to 26.8.09 (-) �13,19,85,178/- As extracted from Tally

LESS Gross profit at 17.71% (-) �2,33,74,575/- -------------------- �10,86,10,603/- ------------------- �5,83,84,778/-(B) Excess stock (A) - (B) �6,14,15,338/- made addition alongwith other additions and assessed total income and raised demand. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals). :- 7 -: & C.O.No.11/Mds/2015.

In the appellate proceedings, the ld. Authorised 4.

Representative argued the grounds and gave explanations in respect of software statement and the calculations of the ld. Assessing Officer relied on the stock on the date of survey includes family jewellery in the stock and family members has disclosed jewellery in VDIS and the same cannot be taxed. Further, the ld. Authorised Representative filed written submissions on 14.03.2014 and 29.09.2014 referred by the ld. Commissioner of Income Tax (Appeals) at page 5 to 8 of his order discussed at para 6.2(i) the written submissions and the reasoning of stock calculations and also called for the remand report from the ld. Assessing Officer. In compliance the ld. Assessing Officer gave his comments on stock purchase from M/s. Siva Traders, old gold purchases and also duplication entries in physical stock. The ld. Commissioner of Income Tax (Appeals) considered the findings of remand report and reply of the Director in survey operations on 26.08.2009 were excess stock was declared. The ld. Assessing Officer has ignored the facts in making addition of �6,14,15,338/- whereas the ld. Commissioner of Income Tax (Appeals) dealt on the method of valuation and Hypothetical calculations worked out the difference of 14386.613 grams. The ld. Assessing Officer has wrongly adopted valuation based on gross profit method ignoring the consistent :- 8 -: & C.O.No.11/Mds/2015. method followed by the assessee as in earlier assessment years. In respect of purchase from M/s. Siva Traders, the ld. Commissioner of Income Tax (Appeals) dealt on the additional material and the statement recorded by ld. Assessing Officer and issue of bullion to the goldsmith and return inward with ledger accounts copies and also found from the records that M/s Siva Trader is not a regular supplier of goods to the assessee company and except the disputed sole transaction. On the objections of the ld. Assessing Officer in remand report and the reliance on the Accounting software, the ld. Commissioner of Income Tax (Appeals) is of the opinion that purchases prior to date of survey are genuine and the same are to be considered for the purpose of computation of book stocks. Further on the claim of the assessee of old gold purchase of 3219 grams and the VDIS deduction of Jewellery 1600 grams, the ld. Commissioner of Income Tax (Appeals) considered the remand report and due to non availability of authentic proper evidence has not allowed the claim of the assessee but on the duplication of stock inventory by the survey officials being 1027.583 grams, ld. Commissioner of Income Tax (Appeals) found on verification of stock sheet prepared by the Department there exist discrepancies and convinced that there are missing links of stocks and accepts the differential stock should be reduced for the purpose of calculation of book stocks. With this :- 9 -: & C.O.No.11/Mds/2015. observations calculated undisclosed stock at page 16 para 6.2(v) or order as under:-

‘’With the above observations and findings, the unexplained discrepancy in the stock in grams and its value would out as under:- Gms From 1.4.09 to 26.08.09 Opening stock 61,863 Add:- Purchases from Siva Traders 11,000 Add:- Purchases 33,409 ----------- 106,272 Less: Sales 35,212 ----------- Book Stock 71,060 Less: Stock taken by Dept on 74703 26.08.09 Less: Mistake in stock taking as per sub Para (iv) above 1027.253 -------------- 73,675 ---------------- Difference in stock (2,615) ---------------- Valuation of the above stock should be as follows: Difference in stock (A) 2,615 Rate of gold per gram as on 31.03.2009 (91.6%) B 1,237 A X B 3,234,343 ₹32,34,343/- The value of undisclosed stock

Under the above facts and circumstances of the case, the ld. Assessing Officer is directed to restrict the addition on account of unexplained investment in the stock to ₹ 32,34,343/- as against the figure of ₹6,14,15,338/- computed by the ld. Assessing Officer in the order of assessment. Further, the unexplained investment :- 10 -: & C.O.No.11/Mds/2015. of ₹32,34,343/- should be considered as income of the appellant u/s.69B of the I.T.Act instead of 69C of the I.T. Act adopted by the ld. Assessing Officer’’. and partly allowed the appeal. Aggrieved by the Commissioner of Income Tax (Appeals)order, the Revenue assailed an appeal before Tribunal.

Further, statement was recorded on 26.08.2009, from the Director that no bullion was purchased which are the contradictory submissions. The ld. Commissioner of Income Tax (Appeals) should have emphasized on the mathematical calculations and also deep analytical findings of the ld. Assessing Officer that the statements are not easy acceptable though made on different occasions and prayed for set aside the order of Commissioner of Income Tax (Appeals) and allow the appeal. :- 11 -: & C.O.No.11/Mds/2015.

Contra, the ld. Authorised Representative relied on the order 6. of the Commissioner of Income Tax (Appeals) and filed paper book explaining the purchases and supported the claim.

procedure adopted for purchase and issue of gold bars. The ld. Departmental Representative contention being there are unaccounted stocks which are not updated in tally software the ld. Commissioner of Income Tax (Appeals) has relied on documents of the assessee which are doubtful and the transactions of purchase of bullion from Siva Traders is also suspicious as the Siva Traders submitted to have not done any business earlier with the assessee company. The ld. Authorised Representative produced paper book with copies of inventory of gold and silver recorded in the survey operations to prove that assessee has substantial creditability in the market and also referred to the list of own jewellery found in the store room alongwith old jewellery stored and explained that the jewellery was included in the stock and the same should be adjusted alongwith VDIS declaration on gold and drew our attention to the duplication of entries statement and emphasized that the Commissioner of Income Tax (Appeals) has rightly considered the duplication entries in his order. We considering the apparent facts and methodology adopted in the gold business and the findings of the ld. Commissioner of Income Tax (Appeals) who has exhaustively observed and dealt on disputed issued. The ld. Authorised Representative now submitted gold accounts to substantiate the claim of M/s. Siva Traders which the ld. Departmental Representative vehemently argued the purchase :- 13 -: & C.O.No.11/Mds/2015. from M/s. Siva Traders are not reflected and also contradictory statements are recorded and raised doubts on entries in the books of account. The ld. Commissioner of Income Tax (Appeals) has relied on transaction of purchase entered with Siva Traders being material evidence not available in the assessment and granted relief. So, we are of the opinion that the matter has to be considered afresh as the Commissioner of Income Tax (Appeals) made calculation in his appellate order restricting the claim to �32,34,343/- as against the addition of �6,14,15,338/-. The Assessing Officer shall rework and test check the genuineness of the transactions on the quantification of stock dealt by Commissioner of Income Tax (Appeals) in calculating the difference in stock. The assessee should be provided with adequate opportunity of hearing and shall co-operate in submitting valuable information before passing the order on merits. The appeal of the Revenue assessee is allowed for statistical purpose.

Since the entire issue is remitted back to the file of Assessing Officer for fresh consideration. The Cross-objections filed by the assessee is dismissed as infructuous. :- 14 -: & C.O.No.11/Mds/2015.

In the result, the appeal of the Revenue is allowed for 9. statistical purpose and C.O. of the assessee is dismissed.

Order pronounced on Thursday, the 23rd day of June, 2016, at Chennai.