DCIT, CIRCLE - 33, KOLKATA, KOLKATA vs. SHRI BINOY PODDAR, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH: KOLKATA [Before Shri Mahavir Singh, JM & Shri M. Balaganesh, AM]

I.T.A No.1549/Kol/2011 Assessment Year: 2008-09

Deputy Commissioner of Income-tax, Vs. Shri Binoy Poddar Circle-33, Kolkata. (PAN: AFOPP0372H) (Appellant) (Respondent) & C.O. No. 68/Kol/2011 In I.T.A No.1549/Kol/2011 Assessment Year: 2008-09

Shri Binoy Poddar Vs. Deputy Commissioner of Income-tax, Circle-33, Kolkata. (Cross Objector) (Respondent)

Date of hearing: 07.10.2015 Date of pronouncement: 15.10.2015

For the Revenue: Shri Sanjay Mukherjee, JCIT For the Assessee: Shri Manish Tiwari, FCA

ORDER Per Shri Mahavir Singh, JM:

This appeal by revenue and cross objection by assessee are arising out of order of CIT(A)-XX, Kolkata in appeal no. 188/CIT(A)-XX/Cir-33/10-11/Kol dated 19.08.2011. Assessment was framed by DCIT, circle-33, Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2008-09 vide its order dated 31.12.2010. 2. The first issue in this appeal of revenue is, whether the CIT(A) has erred in deleting the addition made by AO on account of under valuation of stock up to the date of survey by deducting 18.55% for gross profit. For this, revenue has raised following ground no.1: “1) (a) Under the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs.1,52,68,732/- being under valuation of stock up to the date of survey by further deducting 18.55% for gross profit from the value of stock computed by the Assessing Officer and, thus, valuing the stock below the cost price when in fact the Assessing Officer had already deducted 15% from the valuation of the Departmental Valuer for Gross Profit to arrive at the cost price of the assessee. (b) Under the fact and in the circumstances of the case, the Ld. CIT(A) was not justified in deleting the addition of Rs.1,52,68,732/- being under valuation of stock up to the date

2 ITA No.1549/Kol/2011 & CO No.68/K/2011 Binay Poddar AY 2008-09 of survey by taking the value of closing stock at Rs.4,30,93,290/- instead of Rs.3,63,05,575/- as taken by the Assessing Officer because the assessee had considered the wt. of diamond at 2880 carat and gold at 13552.367 gms. Whereas the diamonds including loose diamonds found during the course of survey as per valuation report of Departmental Valuer dated 1/2/2008 was 2269.85 carat and Total Net wt. of gold at 13122.47 gms. and the assessee admitted during the course of survey that no stock of his was lying any where with any other party, or the Karigars.”

3 ITA No.1549/Kol/2011 & CO No.68/K/2011 Binay Poddar AY 2008-09 the stock as per the books of account at Rs.3,63,05,575/- which is factually incorrect. I find that the relevant details of stock as on 31.01.2008 were filed in course of the assessment proceedings (available at page 485 of the assessment record) showing the value of stock at Rs.4,30,93,290/- (comprising gold jewellery of Rs.3,63,05,575/- and diamonds of Rs.67,87,715/- in addition to the stock of Rs.17,62,820/- lying with the karigars. In this factual background, there was actually no under valuation of stock as on 31.01.2008; and consequently, no addition on this account was Justified. The addition of Rs.1,52,68,732/- is deleted. Ground no.1 is allowed.”

Aggrieved, revenue is in second appeal before Tribunal. 4. We have heard rival submissions and gone through facts and circumstances of the case. We find that the only dispute relates to valuation of stock as on the date of survey and no excess stock physically was found by the Income-tax department from the business premises of the assessee. As argued by Ld. Counsel for the assessee before us that the valuation in the course of survey was made at current market rate prevailing as on 31.08.2008 at the rate of purity of 24 carats. According to him, even the diamonds and other precious stones embedded in jewellery were valued on estimate and no actual value was determined by the valuer. The ld. Counsel for the assessee stated that assessee has consistently valued stock at cost price or market price whichever is lower. According to him, the rate of gold as on the date of survey i.e. 31.01.2008 was taken at Rs.11,965/- per 10 grams whereas it was only at Rs.9,395/- thereby difference being Rs.2,570/- per 10 grams. This difference is more than 28%. Ld. Counsel for the assessee also stated that the AO during the assessment proceedings has allowed the rebate of 15% on account of higher valuation but has not allowed deduction on account of rate of stock prevailing as on the date of survey i.e. 31.01.2008. Even the AO has not reduced the gross profit from the value of the stock for determining the correct valuation of stock. Ld. Counsel for the assessee brought to our notice that even the survey party has allowed deduction of 12% for the valuation of closing stock in regard to pre-survey period. He also stated that the assessee’s gross profit from last many years is almost at 18% and according to him, this gross profit rate, the stock should have been valued after reducing this from the total value. We find that the assessee has recorded in the books of account the value of stock as on the date of survey at Rs.4,30,93,290/- and AO has wrongly stated that the value of stock has been recorded by the assessee at Rs.3,63,05,575/-. Ld. Counsel for the assessee brought to our notice the details of the value of stock that comprises of gold jewelleries at Rs.3,63,05,575/- and diamonds of Rs.57,87,715/- which comes to

4 ITA No.1549/Kol/2011 & CO No.68/K/2011 Binay Poddar AY 2008-09 Rs.4,30,93,290/-. We find from the above facts in totality that the assessee has prepared separate trading account for pre-survey period and post survey period. The assessee has also given gross profit rate and net profit rate in post survey period qua survey period as compared to pre-survey period. Ld. Counsel for the assessee drew our attention to the gross profit rate calculation made by the survey party and valued the stock after reducing approximately 10%. In view of the above explanation given by assessee’s counsel, which was never negated by Ld. Sr. DR, we find that the reduction made by CIT(A) at 18.5% of G.P. rate from the date of survey in consonance with the facts of the case. Actually, the value of stock on the date of survey as per books of account Rs.4,30,93,290/- and in addition to the stock of Rs. 17,62,820/- was lying with the Karigars. This stock as per books of account of the assessee at Rs.4,30,93,290/- comprises of gold jewellery of Rs.3,63,05,575/- and separate diamond stock of Rs.67,87,715/-. Even otherwise, if we go by rate of gold on the date of survey taken by valuation officer at Rs.11,965/- as against the rate of Rs.9395/- the increase is almost 28%. In term of the above facts, we find that the CIT(A) has rightly applied the gross profit rate of 18.55% for reduction of the value of stock and we confirm the same. This ground of revenue’s appeal is dismissed. 5. The next issue in this appeal of revenue is against the order of CIT(A) deleting the addition being difference between the undisclosed income recorded in the impounded documents MJ-4 and undisclosed income declared by assessee during the course of survey at Rs.13.50 lacs treating the receipts noted in MJ-4 as sales and purchases. For this, revenue has raised following ground no.2: “2. Under the fact and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of rs.25,07,105/-, being difference between the undisclosed income recorded in the impounded document MJ/4 and undisclosed income of Rs.13,50,000/- shown by the assessee, treating the receipts noted in MJ/4, as sales & purchases, when in fact, the receipts also include earnings from commission & brokerage as per the details filed by the assessee.”

5 ITA No.1549/Kol/2011 & CO No.68/K/2011 Binay Poddar AY 2008-09 “Pages 1-54 of MJ/4 contains certain purchase & sale transaction not recorded in the books of accounts. The bunch also includes few papers for estimate/approval/alteration of jewelleries. Complete details & other evidences in respect of the same are not available with the assessee. However, it is reiterated that income from unaccounted transaction of Rs.13,50,000/- as per return includes Income derived from such unaccounted purchase & sale transaction.” The AO was not convinced by the reply of the assessee and he tabulated pages 1 to 54 of MJ/4 and noted that the total transactions recorded in those documents are at Rs.34,12,449/- excluding transactions recorded at pages 6, 7, 11 and 13 which are at Rs.4,44,656/-. Accordingly, AO treated the total transaction of Rs.38,57,105/- as income of the assessee excluding the income declared by assessee at Rs.13.50 lacs treated the balance income of Rs.25,07,105/- as income from other sources being undisclosed transaction. Aggrieved, assessee preferred appeal before CIT(A), who deleted the addition by observing at page 7 para 10 and the relevant portion of the para reads as under: “…. I have considered the submission. I find from the assessment order that the appellant had explained at the assessment stage that undisclosed sales were recorded in MJ/4 which has not been disputed or disproved by the AO. I find merit in the argument that the entire sales cannot be treated as undisclosed income of the appellant. Even if the transactions recorded on pages 6, 7, 11 and 13 are included, then all the transactions recorded in MJ/4 total to Rs.38,57,105/- as also mentioned by the AO. If gross profit rate of 18.55% is applied on total sales of Rs.38,57,105/-, then the gross profit should work out at Rs.7,15,493/- whereas the appellant has already declared undisclosed income of Rs.13,50,000/- in the return. In view of the above, no addition on account of transactions recorded in MJ/4 is called for. The addition of Rs.25,07,105/- is deleted. Ground no. 3 is allowed.” Aggrieved, revenue came in second appeal before Tribunal.

6 ITA No.1549/Kol/2011 & CO No.68/K/2011 Binay Poddar AY 2008-09 purchases. When a query was put to Ld. Sr. DR from the bench, he could not answer whether there is only sales or purchase element is also there, if we take the transactions of sale as well as purchase then net profit is to be estimated and also some investments. If we apply net profit rate of 19.55% as declared by assessee to the sale of undisclosed transaction at Rs.38,57,105/- the profit will come to Rs.7,15,493/- and further we estimate some investments of Rs.2 to 3 lacs the total will come at Rs.10,15,943/-. In any case, the assessee has made disclosure of Rs.13.50 lacs on this account, which is higher than the income is to be estimated out of the undisclosed transactions of sales and purchases. Accordingly, we have no hesitation in confirming the action of CIT(A) in deleting the addition. Hence, this ground of revenue’s appeal is dismissed. 8. The next issue in this appeal of revenue is against the order of CIT(A) deleting the disallowance of expenses made by AO being interest payment without deduction of TDS by invoking the provisions of section 194 of the Act. For this, revenue has raised following ground no.3: “3. Under the fact and in the circumstances of the case, the Ld. CIT(A) was not justified in deleting the addition of Rs.1,62,612/- u/s. 40(a)(ia) of the Income-tax Act, 1961 being interest of Rs.1,62,612/- paid to Mrs. Narayani Devi Agarwal without deducting tax u/s 194A on the ground that the payee had submitted Form No. 15G when no such evidence of submission of Form No. 15G was produced by the assessee to the Assessing Officer during the course of scrutiny proceeding. The matter may, therefore, be restored to the AO for verification.” 9. We have heard rival submissions and gone through facts and circumstances of the case. We find from the argument of Ld. Counsel for the assessee who has taken us to reply filed by him before the AO wherein he has replied that the TDS was not deducted as requisite form No. 15G was submitted by the said party before him. This reply is in response to notice dated 03.12.2010. The letter is enclosed at pages 41 and 42 of assessee’s paper book. Ld. Counsel for the assessee now before us stated that form No. 15G from one Mrs. Narayani Devi Agarwal is received that no TDS is to be deducted u/s. 194A of the Act being interest payment of Rs.1,62,612/-. As the assessee has received form No. 15G he was prevented from deducting the TDS. The CIT(A) also deleted the disallowance only on the premise and the relevant finding of CIT(A) has given in para 14, which reads as under: “….. I find merit in the submissions. As the person to whom interest was paid had submitted a declaration in Form No. 15G in accordance with the provisions of section 197A, the appellant was not liable to deduct tax u/s. 194A; and consequently, the

7 ITA No.1549/Kol/2011 & CO No.68/K/2011 Binay Poddar AY 2008-09 provisions of section 40(a)(ia) have no application. The addition of Rs.1,62,612/- is deleted. Ground no. 7 is allowed.” 10. We find that the assessee has received declaration in form No. 15G from the payee of the interest i.e. Smt. Narayani Devi Agarwal and once the assessee received form no. 15G he is not liable to deduct TDS and hence, no disallowance can be made u/s. 40(a)(ia) of the Act. This ground of appeal of revenue is dismissed. 11. Since the Cross Objection of the assessee is supportive of the order of CIT(A) the same is dismissed as infructuous. 12. In the result, both the appeal of revenue as well as cross objection of assessee are dismissed. 13. Order is pronounced in the open court on 15.10.2015 Sd/- Sd/- (M. Balaganesh) (Mahavir Singh) Accountant Member Judicial Member

Dated : 15th October, 2015 Jd. Sr. P.S Copy of the order forwarded to:

APPELLANT –DCIT, Circle-33, Kolkata. 1. Respondent – Shri Binoy Poddar, 4, Shakespeare Sarani, Kolkata-700 2 071. The CIT(A), Kolkata 3. 4. CIT Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order,

Asstt. Registrar.