Radhakrishna Gold Jewellary Pvt.Ltd., ... vs Assessee

Assessee is in appeal before us against the order of Ld. CIT(A)-XI dated 6th November, 2012 passed for assessment year 2009-10. The grounds of appeal taken by assessee are not in consonance to rule 8 of ITAT Rules 1963, they are descriptive and argumentative in nature.

2. In brief, its grievance is that Ld. CIT(A), has erred in confirming the addition of Rs. 26,68,441/- of assessee, which was added by the I.T.A No. 174/Ahd/2013 A.Y. 2009-10 Page No 2 Radhakrishna Gold Jewellary Pvt. Ltd vs. JCIT Assessing Officer, on account of alleged excess stock found at the premises of assessee during the course of survey.

3. The brief facts of the case are that assessee is a Pvt. Ltd Company, engaged in the business of manufacturing and sale of gold ornaments etc. It has filed its return of income on 30th September, 2009 declaring an income of Rs. 47,27,146/-. The case of the assessee was selected for scrutiny assessment and a notice u/s. 143(2) of the Income Tax Act was issued on 20th September, 2010 which was served on 23rd September, 2010. The Ld. AO thereafter, issued a questionnaire u/s. 142(1) on 12th January, 2011. A survey u/s. 133(A) was conducted at the business premises of the assessee at Vastrapur and Ratanpole on 27-08-2008. During the course of survey excess stock having value of Rs. 85,17,439/- was detected. Ld. AO has noticed the working of excess stock in para 3 of the assessment order which reads as under:-

"1) Physical Inventory of stock found at Vastrapur Rs. 1,33,,03,011/-

2) Physical Inventory of stock found at Ratanpole Rs. 77,29,694/-

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Total Rs. 2,10,32,705/- Less: Stock as on 27/08/08 as per books of a/c. Rs. 1,25,15,266/- Excess Stock found Rs. 85,17,439/-"

4. During the course of survey statement of Director, Shri Vinodbhai D. Soni was recorded u/s. 133A(3) of the Act. In response to the question no. 22, he accepted the working of excess stock and submitted that assessee will disclose the excess stock in its return of income. However, while filing the return, assessee has declared investment in stock of Rs. 58,48,997/- only. The working made by the assessee has been reproduced by the AO in para no. 3.1 which reads as under:-

" Total amount of excess stock Disclosed in the survey Rs. 85,17,438/-

Less: Difference in bills received/not received I.T.A No. 174/Ahd/2013 A.Y. 2009-10 Page No 3 Radhakrishna Gold Jewellary Pvt. Ltd vs. JCIT Bill not received & taken in calculation of excess stock from Jain Creation bill No. 56 dtd. 21/08/2008 3000 Rs. 35,68,000/-

Less:

Bill not received but taken At the time of Survey From Oasis Jewells 2500 gm Less: Actual bill recd. for 1662.64 gm Excess taken in survey 837.36 gm 837.36 gm Net Stock 2162.28 gm 22 caret Ornament 2357.28 gm Valued at 1132 per gram (2357.28 gm x 1132/-) Rs. 26,68,441/-

Amount of excess stock taken as disclosed income Rs. 58,48,997/-"

5. According to the assessee, it had received 25,00 grams of gold from M/s. Oasis Jewells before the date of survey whose bill was yet to be received. When assessee had received the bill, then it revealed that his concern has given only 1662.64 gm of gold to the assessee. The excess of 837.36 gram gold was admitted by the assessee as unaccounted and it has been included in the total value of the gold disclosed by assessee at Rs. 58,48,997/-. The assessee further contended that it has received gold bar of 3000 grams from Oasis Jain Creation. These gold bars were purchased on 21st August, 2008 vide bill no. 56 and these were delivered to the assessee on that very day. Assessee has submitted bill no. 56 dated 21-08-2008. It also disclosed that the payment to M/s. Jain Creation was made through account payee cheque. This bill was remained to be entered in the books of accounts before the date of survey and therefore credit of this gold ought to be given to the assessee. It was contented that the source of gold ought to be considered as explained. In this way, assessee has worked out the net excess stock at 2162.64 grams. Ld. AO did not accept the contention of assessee on the ground that during the course of survey, the Director Shri Shri Vinodbhai D. Soni was specifically asked, whether any gold purchased by the company, whose bill yet to be received is available in stock or not? He failed to disclose about this fact I.T.A No. 174/Ahd/2013 A.Y. 2009-10 Page No 4 Radhakrishna Gold Jewellary Pvt. Ltd vs. JCIT during the course of survey. Therefore, whatever explanation prepared by the assessee is an afterthought. Accordingly, Ld. AO has rejected the contentions of the assessee and made an addition of Rs. 27,18,000/- which include disallowance of some conversion charges.

6. Dissatisfied with the addition, assessee carried the matter in appeal before Ld. CIT(A).

7. Ld. First Appellate Authority has re-appreciated the controversy and confirmed the addition to the extent of Rs. 26,68,441/-. The Ld. CIT(A) has allowed the relief to Rs. 49,559/- which was added by the AO on the ground that assessee had made a claim of conversion of gold bars to 22 caret ornaments. He disallowed this claim of the assessee. The finding recorded by the Ld. First appellate Authority in para 2.6 is worth to note which reads as under:-

"2.6 During the assessment proceedings as well as appellate proceedings the appellant contended that 3000 gms of gold was received from M/s. Jain Creation but the bill was received beyond the date of survey. The appellant has also furnished copy of bill No. 56 dated 21.8.2008 vide which M/s. Jain Creations had statedly sold 3000 gms gold to the appellant. The appellant has also furnished a confirmation from M/s. Jain Creation wherein it is affirmed that 3000 gms gold was delivered to the appellant on 21.8.2008. After taking entirety of facts in view, I am not inclined to agree with the contentions of the appellant as the appellant has not stated this fact before the survey party. If the survey party has given credit of 2500 gms of gold received from M/s. Oasis Jewells, the survey party would have given benefit of this purchase also, had this fact brought to their notice. It is strange that the appellant had informed about one purchase but forgot to inform about other purchase. The appellant and his employees was having ample time to recall this transaction and the entire books of account and other material was also available with them to work out the correct discrepancy. As per market practice the owner of jewellery shops know the gold purchases made in the recent by heart past as the purchases are monitorily big. It will also be pertinent to mention here that the I.T.A No. 174/Ahd/2013 A.Y. 2009-10 Page No 5 Radhakrishna Gold Jewellary Pvt. Ltd vs. JCIT delivery of gold is not given without any documentation. If the gold was received before the receipt of bills, the same is formalized by way of challan or some other form of receipt. However, during the survey proceedings neither this challan was found nor the appellant had brought presence of such document to the notice of survey party. Absence of such document only strengthens the suspicion of afterthought. Secondly, the appellant has not informed the department about this discrepancy after it was statedly detected. The so called discrepancy was statedly detected just after the survey and the appellant had made necessary entries in respect of these so called discrepancies in it's books of account on 28.8.2008 i.e. just next day of survey."

8. Learned counsel for the assessee while impugning the orders of Ld. revenues' authorities below contended that M/s Jain Creation has supplied gold bars of 3000 grams which remained to be accounted in accounts. The assessee has purchased this gold on 21st August, 2008. The gold was also supplied on that very day. In order to buttress his contention, he drew our attention towards pages 34 of the paper book where bill no. 56 dated 21st August, 2008 issued by M/s Jain Creation is available. Learned counsel for the assessee further contended that M/s Jain Creation had given a confirmation which is available on pages 33. The payments have been made through account payee cheque and the copy of the bank statement of the assessee's bank is available on page nos. 27 to 28. On the strength of these details, learned counsel for the assessee contended that credit of 3000 grams of the gold ought to have been given to the asessee. He also pointed that though during the course of survey it was contended by the assessee that jewellary of 2500 grams was purchased from M/s Oasis Jewels which remained to be accounted. The credit of this jewellary has been given by the survey party while working out the stock, but ultimately, in the return asessee has recognized the gold jewellary purchased from this concern at 1662.64 grams and the excess of 837.36 grams has been offered for tax. It indicates the bonafide of the assessee I.T.A No. 174/Ahd/2013 A.Y. 2009-10 Page No 6 Radhakrishna Gold Jewellary Pvt. Ltd vs. JCIT while reconciling its accounts with regard to the physical availability of gold at the time of survey. In this way, learned counsel for the assessee contended that Ld. revenues' authorities below have erred in confirming the addition. In support of his contention, he relied upon the decision of ITAT Mumbai in the case of Chawala Pvt. Ltd vs. ACIT reported 43 SOT page 651.

9. On the other hand, Ld. Departmental Representative relied upon the orders of revenue authorities below. He contended that full opportunity was given to the Managing Director at the time of survey but he did not utter a singe word with regard to purchase of jewellary from M/s Jain Creation. It is an afterthought at the end of assessee. Ld. Departmental Representative drew our attention towards para no. 2.6 of the Commissioner of Income Tax (Appeals)'s order and contended that Ld. First Appellate Authority has considered this aspect.

10. We have duly considered the rival contentions and gone through the record carefully. At the time of survey, excess stock of gold/ornaments having value of Rs. 85,17,439/- was found and worked out. There is no dispute between the parties about the availability of excess stock at business premises. The dispute relates source of excess stock. According to the assessee, during the course of survey, it was claimed that jewellary of 2500 grams was received from Oasis Jewellers which remained to be accounted in the stock. When asessee filed the return, it contended that jewellary from Oasis Jewels was actually received at 16,62 grams and not at 2500 grams claimed during the course of survey. Thus, the value representing 837.36 grams was offered for tax. To this extent, there is no dispute between the parties. The dispute is, whether credit of availability of 3000 grams of jewellaries alleged to have been purchased from M/s I.T.A No. 174/Ahd/2013 A.Y. 2009-10 Page No 7 Radhakrishna Gold Jewellary Pvt. Ltd vs. JCIT Jain Creation is to be given to the assesse or not? Shri. S.N. Divetia, learned counsel for the assessee at the time of hearing contended that if an assessee failed to explain a particular discrepancy at the time of survey, does not mean that the assessee would be denuded from his right to re-concile the discrepancy during the course of assessment proceeding.

According to him, at the time of survey, process of collecting information was carried out. The ultimate conclusion from those information has to be drawn at the time of assessment stage. Therefore, if an assessee has submitted a re-conciliation supporting with evidence then that re- conciliation cannot brushed aside lightly. We do not dispute with regard to the proposition raised by Shri S.N. Divetia, assessee can explain the discrepancy in the stock at the assessment proceedings. The dispute relates to the merit of explanation. The question is, whether explanation of the assessee is acceptable, when it is to be evaluated in the light of direct evidence, circumstantial evidence and with the angle of probability. Before we embark upon an inquiry with regard to the material submitted by the assesse along with its explanation, we deem it appropriate to take note of the questions and replies of the statement given by the Director at the time of survey. The relevant questions and replies read as under:-

"Question No. 13. Today in the print of the accounts of the computer of your company total purchase have been shown as Rs. 3,98,55,165/- so far such purchase your company is keeping Inward Register, if you have than show it. And if in your purchase goods have been received and only such purchase have been made for which bill has not been received and if bill received and goods have not received, how many such purchase are there, if are there, give its evidences.

Answer 13. In the purchase of my company the purchase bills of Oasis Jewels Pvt. Ltd yet to come, the payment thereof has been done by cheque, wherein the bill of about 2.5 Kg. Gold yet to come, but goods have been received. And when the bill has been received and goods is yet to I.T.A No. 174/Ahd/2013 A.Y. 2009-10 Page No 8 Radhakrishna Gold Jewellary Pvt. Ltd vs. JCIT come no such transactions have been done. No Inward Register kept in my company. The 2.5 Kg. Gold has been purchased from the Oasis Jewels Pvt. Ltd, no such challan in that regard lying with me, but the aforesaid Gold has been taken from the stock of the business of my company.

Question No. 22 As per print given by you from the computer of your company the today's date closing stock is Rs. 1,25,15,266.99/- wherein it includes the stock of both the place Ratanpole and Vastrapur, wherein on making calculation of physical stock, the total stock received of Rs. 2,10,32,705/- for Ratanpur and Vastrapur, for the reason thereof the company's excess physical stock Rs. 85,17,439/- received, so clarify regarding such difference.

Answer 22 In the aforesaid closing stock, whatever the difference occurred, for which I do not have any clarification and for that I am not able to produce any evidences. Therefore, the said amount of difference of Rs. 85,17,439/- which is the excess stock of my company. That has been acquired from the unaccounted income of my company. For the said reason the above amount, I am declaring it being undischarged Investment in stock as additional income for the financial year 2008-09 and towards the amount of tax to be paid over it, I am willingly giving three cheques."

11. The first and the foremost circumstance which is to be considered is the human conduct of the Director at the time of survey. 3,000 grams of the gold is not a small quantity which might have not struck to the mind of the director when survey was going on. Ld. First Appellate Authority, while appreciating this aspect has observed that conduct of the Director is little unusual when he brought to the notice of jewellary purchased from M/s Oasis Jewels. It is strange that the Director informed to the one purchase but forget to inform about other purchase. It is also pertinent to note that all the stocks as well as other details were brought to the notice of Director.

I.T.A No. 174/Ahd/2013 A.Y. 2009-10 Page No 9 Radhakrishna Gold Jewellary Pvt. Ltd vs. JCIT The employees were present and they were having ample time to recall this transaction. Ld. First Appellate Authority also observed that as per market practice the owner of jewellary shop knew the gold purchase made in the recent past by heart because the purchase in terms of money is quite big. Keeping in mind this background, we have to appreciate the alleged evidence produced by the assessee along with the explanation. The first is the bank statement of Vijaya Bank. This is the statement of the assessee's account. In this bank statement, payments to M/s Jain Creation through account payee cheque are available, starting from 14th August, 18th August, and 19th August, these payments were of 42 lacs then on 21st and 23rd August, again assessee paid 10 lacs of rupees. It is not discernable against which purchases these payments have been given set off. The purchases of the jewelry on 21st August has been alleged to 35,68,000/- but payments of Rs. 42 lacs were made before 19th August. If this amount was to be accounted for purchase of the jewellary than what was the need to make payment of Rs.10 lacs more on 21st and 22nd August.

Though the confirmation is available at pages 33 given by M/s Jain Creation do indicate that the gold was sold to the assesse and it was delivered to the assesse 21st August, 2008 but neither the assessee nor M/s Jain Creation is able to substantiate this stand with any other corroborative evidence. To our mind, this evidence has been brought in picture by the assessee during the course of assessment proceedings in an anticipation that certain payments are reflecting in the bank account to M/s. Jain Creation, therefore, an effort should be made that these payments represent purchases of gold bars from M/s Jain Creation. If it was true story then it would not have slipped from the mind of the Director when his statement was recorded. The Ld. Commissioner of Income Tax(A) has rightly observed that while delivering gold at the premises of assessee, something written on paper must have accompanied, because I.T.A No. 174/Ahd/2013 A.Y. 2009-10 Page No 10 Radhakrishna Gold Jewellary Pvt. Ltd vs. JCIT that would insulate the carrier from any inquiry on the way, if caught by any agency. On an analysis of the evidence available on record, we are of the view that Ld.

First Appellate Authority has appreciated the controversy in right perspective and no interference is called for in the order of the Commissioner of Income Tax (Appeals). We do not find any merit in this appeal. It is dismissed.

Order pronounced in the open court on 26-05-2015

Sd/- Sd/-

(ANIL CHATURVEDI) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 26/05/2015 ak आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file.

By order/आदेश से,

उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद