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Income Tax Officer, Ward-8 (2) , Hyderabad and others Versus M/s. Bhavani Jewellers, Hyderabad and others

2015 (7) TMI 683 - ITAT HYDERABAD

Addition quantifying the excess stock in survey - Held that:- As seen from the statements on record, the excess stock was arrived at on the day of survey based on GP calculations. Be that as it may, the quantity of the gold has tallied but the difference arose only in the context of rate adopted for valuing the excess stock. It was the submission that gold was valued at ₹ 1,150 Per Gram during survey, where as the book value/ market value was at ₹ 870 Per Gram which was adopted by as .....

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gure was arrived at and in the show cause notice issued only this amount was shown as value of excess stock. The stock as per the statements was only ₹ 52,03,881/-. Thus, there is difference of amount, may be the voluntary disclosed amount of ₹ 10 Lakhs was also included as excess stock. This indicates that AO without any application of mind has simply taken the amounts. Difference of the amount was as a result of valuation of closing stock, including excess stock found on the date o .....

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In fact in question No.13 extracted by the Ld.CIT(A), in para 5.8 of the order, assessee admitted net of the amount at ₹ 26,59,315/- from Punjagutta Branch after excluding the amount of ₹ 9,20,000/-. This itself indicate that the survey party was satisfied about the contention that stock to that extent does not belong to assessee and belong to third parties. On what basis the present AO brought it to tax as assessee's stock could not be understood. The Ld.CIT(A) has rightly considere .....

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been claimed in the P&L A/c. The CIT(A) should have verified the P&L A/c wherein, no chit dividend has been offered neither the loss has been debited". This ground is not based on the CIT(A)'s order. Even though CIT(A) did mention that assessee submitted that both chit dividend and chit loss in the P&L A/c, further statement shows that they are not taken in to P&L A/c. As facts indicate, the chit has started as early as 28-08-2005 and ended in 30-09-2007. Assessee did maintain the chit account .....

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embers Gold Scheme - CIT(A) deleted the addition - Held that:- We are unable to understand how the AO can make the addition and arrive at a profit of ₹ 1 Lakh minimum in the year per month, when assessee submits that only at the end of the scheme, he will pay ₹ 1,000/- to them in addition to amount deposited. As and when amount was withdrawn or taken by the party, gold was given to the party / member and the same was shown in the gold sales account. Since it is a business proposition .....

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to presume a rate of 12% of interest on the above amount, AO himself accepts that there will be deposit of ₹ 1 Lakh per month. How 12% interest can be worked out on ₹ 1 Lakh deposited in the last month can only be explained by the AO. The calculation itself is wrong and the basis for such calculation is devoid of any merit. Ld.CIT(A) has done the correct thing in deleting the addition. We are unable to understand how AO can come in appeal on this issue when there is no basis for mak .....

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the same colour of covers and address flags. This cannot be a reason for rejecting the replies received from the parties. Moreover, these are all outstanding balances and without rejecting the purchases or expenditure, the outstanding balances cannot become unaccounted, just because, AO did not accept the confirmations received. It was also explained that these were amounts carried out from earlier year and that the interest payments and TDS on that was also made. These contentions were never c .....

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nd Revenue against the order of the Commissioner of Income Tax (Appeals)-III, Hyderabad dated 29-05-2012. Assessee is aggrieved on part-confirmation of the addition made by the Assessing Officer (AO), whereas Revenue is aggrieved on deletion of various additions. 2. Briefly stated, assessee is in the business of jewellery and filed its return of income declaring total income of ₹ 49,98,490/-. There was a survey of operation u/s. 133A of the Income Tax Act [Act] conducted on 06-02-2008, dur .....

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77; 26,43,435/-; ii. Income on chits ₹ 1 Lakh; iii. Income on Gold Scheme ₹ 1,44,000/-; iv. Income on another Gold Scheme ₹ 1,44,000/- v. Outstanding Sundry Creditors as unexplained ₹ 87,06,851/-. 3. Assessee contested before the Ld.CIT(A), who confirmed part of excess stock at ₹ 7,13,580/- as against ₹ 26,43,435/- and deleted other additions. Assessee is aggrieved on the part-confirmation of the excess stock. Revenue is aggrieved on the deleted amounts. Asses .....

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ed that it belongs to third parties and would furnish the necessary details. Since, AO is not satisfied with the explanation given by assessee, he added the above amount of ₹ 9,20,000/- also, thus, making addition of ₹ 26,43,435/-. 4.1 Before the Ld.CIT(A), assessee contested that AO arrived at the excess stock taking the value of gold at ₹ 1,150 Per Gram, whereas assessee's price of gold as per cost or market price was only ₹ 870/- Per Gram, thereby the difference ar .....

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here is excess of ₹ 35,79,315/- which includes customers stock of ₹ 9,20,000/-. Further, on the balance of ₹ 26,59,315/-, the partner accepted to pay the tax. Therefore, the total stock difference as per the statement of the partner is ₹ 25,44,565/- Charminar Branch and Panjagutta Branch exclusively ₹ 26,59,315/- including ₹ 9,20,000/- of customers stock. Therefore, the appellant has to disclose stock of ₹ 25,44,560/- + ₹ 26,59,315 = ₹ 52,03, .....

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lly, there is a difference of ₹ 7,13,580/- should be added in place of ₹ 26,43,435/-". Assessee is aggrieved on the above confirmed amount. 5. Ld. Counsel referring to various reconciliations filed, submitted that the survey party quantified the excess gold at ₹ 19,03,250/-, whereas assessee valued the same quantity at ₹ 14,39,850/-, thereby giving difference to ₹ 4,63,400/- at Charminar Branch. At Panjagutta Branch, the survey party arrived at excess value of .....

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and amount of ₹ 7,13,580/- was confirmed. It was submitted that there is no quantitative difference but only valuation difference and as per the value on 31-03-08, the closing stock was valued including the excess stock found. It was further submitted that statute, during the 133A does not empower any officer to examine any person on oath and so statement recorded u/s. 133A has no evidentiary value and any admission made during such statement cannot be made as the basis of addition. He re .....

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submitted that AO made the addition on examination of facts found during the survey and CIT(A) was wrong in deleting the amounts on which Revenue is also in appeal. He supported the order of AO. 7. We have considered the issue and examined the record. We are of the opinion that both AO and CIT(A) were not correct in as making the addition or deleting only partly. First of all, as seen from the statements on record, the excess stock was arrived at on the day of survey based on GP calculations. B .....

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ave rise to the difference of ₹ 17,13,586/-. This contention of assessee has to be accepted as AO accepted the closing stock valuation as shown in books. Further as seen from the order of assessment passed by the AO, he determines the concealed amount at ₹ 62,13,730/-. There is no justification how this figure was arrived at and in the show cause notice issued only this amount was shown as value of excess stock. The stock as per the statements was only ₹ 52,03,881/-. Thus, ther .....

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(A) at ₹ 7,13,580/-. Since, assessee's explanation is valid explanation and further the entire excess quantity as arrived on the date of survey was taken to the Books of Accounts and valued, we do not see any reason to make any further addition to the amounts on presumptions. We also notice that the value of silver ornaments and diamonds and pearls accepted in the course of survey itself was offered without any variation. As there is justification in reducing the valuation, we do not s .....

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eal is allowed. Revenue's appeal in ITA No. 1136/Hyd/2012: 9. As briefly stated, Revenue is aggrieved on the deletion of amounts added by the AO. Ld.CIT(A) deleted the amount to an extent of ₹ 19,29,855/- out of excess stock arrived at by AO. Revenue has raised two grounds on the above amount which included the excess stock discussed above in assessee's appeal and further an amount of ₹ 9,20,000/- stated to be belonging to customers. We have adjudicated the excess stock issue .....

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details reconciling with the available record. On the reason that assessee did not furnish the identities of the persons, AO did not accept. Ld.CIT(A) accepting the statement and also noticing that assessee furnished necessary details, vouchers and bills which were before the survey date also, the amount was deleted. 11. After considering the rival contentions, we do not see any merit in Revenue's contentions. First of all, it was admitted that stock valued at ₹ 9,20,000/- belongs to t .....

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understood. The Ld.CIT(A) has rightly considered the issue and in our opinion, deleted the same based on facts. Accordingly, the order of CIT(A) is upheld and Revenue's contentions on this are rejected. Ground Nos. 2, 3 and 4 are accordingly dismissed. 12. Ground No.5 pertains to addition made by AO towards unaccounted dividend of ₹ 1 Lakh. In order to understand this issue, it is better to extract the AO's show cause notice which speaks for itself. "2. As per the annexure-A/2 .....

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ccounted dividend amount and added to your income Addition of ₹ 1,00,000/-". 12.1 Against the above show cause notice given by the AO, assessee submitted as under: "2. We submit that, the Dividend of ₹ 5,000/- estimated for 20 months was incorrect, the dividend will not be the same for all the months, moreover we had lifted the chit amount in the previous year on 20.02.2007 for ₹ 4,75,000/- for the day to day business purpose. Hence, we request that the estimation of .....

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was lifted on 20.02.2007 without furnishing the documentary evidence such as Bank account through account the amount was received and how much received. Under these circumstances the assessee's explanation cannot be accepted. Hence the amount of ₹ 1,00,000 is added to the income of the assessee". 12.3 Ld.CIT(A) deleted the addition stating as under: "6.3 I have carefully gone through the facts of this issue. The appellant firm had chit with M/s. Rushi Chit Funds started on 2 .....

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rpose (which may please be seen from the page No. 42 of the paper book submitted on 19.03.2012). The appellant further submits that both chit dividend and chit loss in the P&L a/c, or the amount invested and amount availed in chit auction as loan without taking into the profit and loss account. The appellant maintained the chit fund account as per the books of accounts. Therefore, estimation of the dividend by the Assessing Officer is not justified. After considering the appellant's subm .....

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chit dividend has been offered and chit loss has been claimed in the P&L A/c. The CIT(A) should have verified the P&L A/c wherein, no chit dividend has been offered neither the loss has been debited". This ground is not based on the CIT(A)'s order. Even though CIT(A) did mention that assessee submitted that both chit dividend and chit loss in the P&L A/c, further statement shows that they are not taken in to P&L A/c. As facts indicate, the chit has started as early as 2 .....

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eted the amount. Since factual verification was done by the CIT(A), we uphold the same and dismiss the ground raised by the Revenue. 13. Ground No.6 pertains to addition on account of Members Gold Scheme at ₹ 1,44,000/- each, on two gold schemes. This is an interesting addition made by the AO for which one has to extract the show cause notice issued by the AO to assessee: "3. And as per the annexure-13/A you have introduced one gold scheme and from 167 members you are collecting ͅ .....

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,000/- and arrived an amount of ₹ 1,44,000/- interested and added under the head of income from other sources. You are also requested to explain the scheme and nature of business Addition of ₹ 1,44,000/-. 4. And as per the annexure - 14/A you have introduced one gold scheme and from 104 members you are collecting ₹ 1,000/- from each. That means ₹ 1,04,000/- per month but you have not admitted any income on that and for one year 12 x ₹ 1,04,000 = ₹ 12,48,000/- .....

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re of business. Addition of ₹ 1,44,000/-". 13.1 Assessee explained that it has introduced gold schemes to the Members by collecting ₹ 1,000/- per month from each member for 16 months. If the members pay 16 months regularly, member would be entitled for gold ornaments worth ₹ 17,000/- as per prevailing rates at the end of the scheme. Many members may not continue and if they drop out, the gold was settled to the extent of amount deposited by them in the scheme. It was furth .....

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he AO. Hence, Revenue is in appeal. 13.3 After considering the contentions of the DR and explanation of the AR, we do not see any reason to interfere with the order of the CIT(A). First of all we are unable to understand how the AO can make the addition and arrive at a profit of ₹ 1 Lakh minimum in the year per month, when assessee submits that only at the end of the scheme, he will pay ₹ 1,000/- to them in addition to amount deposited. As and when amount was withdrawn or taken by th .....

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me or reason for AOs addition. It does not have any justification. First of all, the calculation itself is wrong. Even if one were to presume a rate of 12% of interest on the above amount, AO himself accepts that there will be deposit of ₹ 1 Lakh per month. How 12% interest can be worked out on ₹ 1 Lakh deposited in the last month can only be explained by the AO. The calculation itself is wrong and the basis for such calculation is devoid of any merit. Ld.CIT(A) has done the correct .....

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,06,851/-. The show cause issued to assessee by the AO is as under: "5. As per the balance sheet sundry creditors and others for an amount of ₹ 87,06,851/- when questioned the same to explain the AR has furnished details of persons and in some of the cases addresses. To all the addresses the assessing officer has issued notices to reply some of them have sent letters stating that they have given but on verification it is found all the letters are prepared by the assessee and sent thro .....

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s of sundry creditors and others along with addresses for ₹ 87,06,851/-. The sundry creditors and other consisting of the scheme creditors, creditors for suppliers, Loan creditors, chit rents and sales advances. As per your letter we came to know that, some of the creditors have replied to the letter received from the departments. It is in correct to mention that we have prepared the letter and send through the same over. As per the details submitted it can be verifiable that there are dif .....

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e assessing officer has sent letters requesting them to furnish the information. In reply they have sent some confirmations but verification of the same revealed that all the letters are prepared and printed by one person and at one place and in same colour of covers and addresses flags are also same. Under these circumstances the amount of loan creditors are nothing but the money of the assessee firm and the assessee has not discharged the responsibility of the proving the onus lies on the asse .....

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s. The details furnished for other than sundry creditors were verified and found genuine. With regard to sundry creditors ₹ 69,26,541/-, the appellant submitted that their full address and ledger copies, list of the parties along with full address of account copies which were also filed before the AO. From this ledger a/c, it was found that these were the opening balance and interest were debited and TDS also deducted and shown in the regular accounts. Therefore, they are running account o .....

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fter considering the appellant submissions, I am of the view that these are sundry creditors and running account of the day to day business purpose of the appellant. Hence, addition made on this account is deleted". 14.4 After considering the rival contentions and perusing the Paper Book and also the Balance Sheets of earlier year filed at our instance by Ld. Counsel, We do not see any reason to consider the Revenue's contentions. First of all, AO has verified the creditors and got the .....

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rried out from earlier year and that the interest payments and TDS on that was also made. These contentions were never considered/rejected by the AO. We are of the opinion that Ld.CIT(A) has rightly deleted the same, as the very basis of the addition is not justifiable. Accordingly, order of CIT(A) is upheld. Ground is rejected. 15. Before parting with the appeals, we observe that AO unnecessarily made various additions and raised demands. Instead of summarizing the action of AO, we have extract .....

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