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2015 (12) TMI 1417 - ITAT DELHI

2015 (12) TMI 1417 - ITAT DELHI - [2016] 45 ITR (Trib) 119 - Addition on account of suppression of stock and difference in books of accounts and in not allowing the deduction u/s 10A - Held that:- The assessee disclosed the gold recovered from the wastage in its books of accounts after the survey and the same was sold which was also entered in the stock register. The department had accepted the books of accounts maintained by the assessee in its regular course of business. The assessee disclosed .....

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00,000/-. In the present case, the deduction u/s 10A of the Act has not been denied by the AO. Therefore, the addition of ₹ 1,20,00,000/- made by the AO and sustained by the ld. CIT(A) was justified but the assessee is entitled for deduction u/s 10A of the Act on the said addition because the said income was directly related to the export business of the assessee. As regards to the another addition of ₹ 11 lakhs is concerned, the said amount was disclosed by the assessee itself to co .....

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1 lakhs to cover up the irregularities of the business and short coming found during the course of survey. The said surrender was related to the regular business of the assessee and it is not brought on record that the assessee earned the said income from any other source. Therefore, the deduction u/s 10A of the Act was allowable to the assessee being 100% Export Oriented Unit established in SEZ on this income also. We order accordingly. In view of the above we uphold the addition made by the AO .....

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n this appeal: 1. The CIT(A) has, in view of the facts and circumstances of the case, erred in law and on facts in upholding the addition of ₹ 1,31,00,000/- on account of suppression of stock and difference in books of accounts. 2. The CIT(A) has, in view of the facts and circumstances of the case, erred in law and on facts in not allowing the deduction u/s 10A on the amount of ₹ 1,20,00,000/- on account of excess stock found during survey which is admittedly generated out of recover .....

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missioner of Custom, Noida has also held that the excess gold found during the survey was on account of wastage recovery, which was erroneously omitted to be entered in books and there was no outside source of the said gold, (c) the custom s jewellery appraiser report which was commissioned by custom department, immediately after survey also upheld that source of excess gold was from gold recovered out of wastage generated during production activity. 5. The CIT(A) has failed to appreciate that t .....

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d in law. The additions made are based on mere surmises and conjunctures and cannot be justified by any material on record. 8. That the explanations given, evidence produced, material placed and available on record has not been properly considered and judicially interpreted and the same do not justify the additions made. 9. That the AO or the CIT(A) has not pointed out any discrepancy in the books of Account or with reference to the impounded material and in the absence of any such discrepancy n .....

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the Act). 4. Facts of the case in brief are that the assessee is a partnership firm engaged in manufacturing & Export of Gold Jewellery, located in Noida Special Economic Zone (NSEZ) and also having office at Karol Bagh. The unit located in NSEZ is claiming its income exempt u/s 10A of the Act. The assessee filed the return of income declaring Nil income on 29.10.2007 after claiming the exemption u/s 10A of the Act. The said return was processed u/s 143(1) of the Act on 13.03.2009. Later on, .....

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s carried out on 03.08.2006 and physical stock of gold was taken. On verification from the books of accounts, a difference of 12kg of gold was found. Apart from this, some loose papers were also found which did not tally with the entries of books of accounts. The AO while recording the statement of the working partner asked certain questions for clarification relating to jewellery weighting about 12kg. The assessee surrendered a sum of ₹ 1,31,00,000/- on account of various discrepancies. H .....

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the submission was not accepted, reason unknown to us and the assessee was asked to pay tax on stock. Henceforth in the absence of any other alternative and no legal advice available at hours, the assessee was forced to pay the amount hence asked for. Later, to further clarify the matter a semi judicial inquiry was conducted by Custom authorities, NOIDA. The inquiry continued for 3 days and after the inquiry a semi judicial judgment was passed by Dy. Commissioner of Custom. Noida wherein it was .....

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of accounts. 2. The stock has accumulated on account of normal loss of manufacturing process. 3. Submission of assessee before survey team was ignored. 4. Semi judicial inquiries conducted by Custom Authority, Noida have upheld that the stock has generated from normal loss during manufacturing process. 5. The stock in question is exported thereafter and income generated is tax free u/s 10A of I.T. Act, 1961. 6. No tax is attracted on above and hence tax got deposited by the department during su .....

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, Noida assessee himself stated that the sweeping of dust and recovery from polishing Department is done on regular basis under these circumstances, it can be said that this is not a case of omission from books of accounts but actually the assessee is not maintaining any records of recovery of wastage. It is strange that recovery is done on regular basis but not accounted for anywhere. II. The contention that stock has accumulated on account of normal loss of manufacturing process. The contentio .....

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ndered the value of gold along with difference in mfg. expenses. The total surrendered value on this account was ₹ 120 lakhs. Further ₹ 11 lakhs also surrendered on account of difference in books of account. Thus the total surrendered amount was ₹ 131 lakhs. IV. Further the submission that semi judicial inquiries conducted by the Custom Authority Noida have upheld that stock was generated from normal loss during manufacturing process. First of all it is to be seems that stock t .....

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f gold out of wastage, which they confirmed that they are recovering gold of wastage on regular basis. From the above it is clear that the wastage is being recovered on regular basis as stated by the Production Supervisor but these wastage is not accounted for in the books of accounts. For these reason the Appraiser Custom has issued warring vide letter F.No. NSEZ/CUS/07/04/Bridal/2006 dated 24.08.2006. V. The fifth point is that stock in question is exported and therefore the income generated i .....

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not maintainable. 6. The AO, however, made the addition of ₹ 1,31,00,000/- which was earlier surrendered by the assessee during the course of survey on account of suppression of stock manufacturing charges and other discrepancies. The AO while making the above said additions observed as under: Actually the gist of the case is that the assessee is not showing the value of wastage because its value has already been recovered from the customers. The assessee is deriving income from making cha .....

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lready been charged from customers. In other words, the wastage found in the possession is free of cost because its cost has already been recovered the customers. 7. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under: REG: 11 LAKHS This surrender of ₹ 11 lakhs was made because there were some loose documents found during the course of survey. As per the surrender letter dt. 03.08.2006 the surrender was made to cover up certain discrepancies. When at th .....

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submitted that since there are no discrepancies in respect of loose papers found and checked at the time of assessment proceedings, the surrender of ₹ 11 lakhs is meaningless and no addition is called for. As stated earlier that the surrender was not voluntary and the assessee was threatened with dire consequences if the surrender was not made. This submission was made before the A.O. also but was ignored by him. REG: 1.2 CRORES This surrender was made since there was pressure and threat .....

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made from F.Y 2003-04 till 31.07.2006 is 2146kg. This is evident from the annual audit reports filed with the department and the letter dt. 08.08.2006 filed with the Deputy Commissioner of Customs, Noida, SEZ. In the process of manufacture of jewellery, 1.6% to 1.85% wastage is normal and accepted. A detailed investigation was carried out by the officials from the customs department on 12.08.2006 to 14.08.2006 and a report was prepared on 14.08.2006 by the jewellery appraiser of the customs dep .....

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s recover gold from wastage as this is a precious item. Further held that 1.6- 1.7% is the wastage and recovery of 25%-35% is feasible. Total gold exported = 2146Kgs Wastage = 1.8% → 36.4kg Recovery of gold (certified in customs report) = 25% to 35% 25% of 36.48kgs. → 12kgs (approx) This clearly proves the bonbafides of the assessee. Actually the excess gold is 11.098 gms & details of custom jewellery appraiser report is enclosed. This is on A/c of wastage being recovered out of wa .....

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account for in books of account for A.Y 07-08 and the profits are exempt u/s 10A. The AO has himself admitted that the profit shown by the appellant is 100% exempt from tax under provisions of 10A. 8. It was further submitted that the entire jewellery manufactured was exported outside India to various concerns and 12kg gold which was recovered out of wastage was entered in the books of accounts after the survey and that the jewellery made from the same was also exported. It was further stated t .....

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in it was mentioned that that the excess gold of 12kg was a result of the wastage accumulated and recovery made there from. In the said report it was accepted that 1.6% to 1.7% was the wastage in the manufacture of the jewellery and that 25% to 35% was the recovery from the wastage collected. It was also emphasized that nowhere the custom department had stated that this gold of 12kg was purchased outside the books of accounts and no kind of penal action was initiated against the assessee. It was .....

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essee also counter the reasons given by the AO and submitted as under: 1. It is true that the recovery of gold from sweeping of dust and polishing department is a regular process in the unit. However it is true that the same was not recorded in the books of accounts and it was an omission and an inadvertent human error. It was never deliberate. This was stated before the AO as well as before the survey team also. After the custom officials conducted the detailed investigation, we made a request .....

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This observation is totally false and baseless. The assessee was forced to make a surrender of the gold and the survey team did not listen to the explanations tendered by the assessee. They were adamant on voluntary surrender and warned the assessee of dire consequences if it did not make a voluntary surrender. 4. The stock report prepared by the customs officers was signed by Appraiser Customs Noida SEZ and Joint Investigating Authority. Law does not require that the report be signed by all off .....

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uthenticated by the customs department and it was exported. The revenues have been declared in the annual return. It was further submitted as under: 1. That the survey team directed Mr. Rajan Kohli to write the surrender letter by hand as per the wordings supplied by the survey team. The surrender letter was never voluntary and was made under coercion and pressure. Mr. Rajan Kohli is also filing an affidavit stating all these facts. Hence it would be incorrect to assume that Rajan Kohli himself .....

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ere are no local sales made by the unit and we are also enclosing a certificate to this effect from the customs authorities. 4. Customs authorities keep a strict check and vigil on the activities of the units at SEZ. Each time a consignment leaves the unit to be exported, the customs officials verify the consignment and after inspection the official signs the customs export register which is annexed at paper book. 5. Even the incoming of gold is verified and inspected by the customs and after in .....

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to AY 2007-08. Hence in light of the submissions made earlier and today and the evidences filed in the paper book, the appellant firm should be assessed at NIL income as declared in the return of income. 9. The ld. CIT(A) after considering the submissions of the assessee observed as under: In such factual backdrop; in my firm view, such a retraction, thought and planned over a long period of time, loses its any significance. It is very easy to comprehend that appellant took its time to devise i .....

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were detected during on-the-spot inspection/survey. There is no evidence or even any sign of any pressure or coercion (apart from automatic mental pressure, which is normal during any such survey, especially when huge discrepancies are detected). The law does not promote such retraction. All the court case/judgments, on the issue of retraction of agreed surrender during survey or searches, lay down that if there is undue pressure or forced surrender, any assessee would naturally protest immedia .....

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ch took a long time, and that appellant planned its affairs before making formal retraction in form of return of income. Such belated, cooked-up retraction cannot be given any weightage. 10. The ld. CIT(A) observed that there cannot be any valid and bonafide justification of not accounting for any recovery out of the wastage, if the motive was not to earn unaccounted income. He further observed that the certificate issued by the customs department did not accept the assessee s claim of genuine p .....

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ointed out that the assessee itself accepted the discrepancies of ₹ 11 lakhs on account of incomplete/defective books, therefore, merely incorporating these entries later in books of accounts would not negate surrender of the additional income of ₹ 11 lakhs. He also observed that there was no evidence of any connection of such additional income to the export activity and there was no basis for including ₹ 11 lakhs within the aspect of export income. Accordingly, the addition of .....

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xcess gold weighting approximately 12kg was found. The said gold was on account of recovery from the wastage of earlier years. It was explained that the assessee was claiming wastage ranging from 1.6% to 1.85% from the customers and the recovery of gold was to the extent of 0.6% to 0.8% from the said wastage, this fact had also been accepted by the Customs Department. A reference was made to page no. 60 of the assessee s paper book wherein the Customs Department by considering the volume of oper .....

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ption u/s 10A of the Act. Therefore, the addition made by the AO was not justified when the assessee had already shown the sales of the impugned amount in the books of accounts, as such the addition made by the AO and sustained by the ld. CIT(A) for a sum of ₹ 1,20,00,000/- was not justified. As regards to the other addition of ₹ 11 lakhs, it was stated that the assessee himself agreed for the addition of ₹ 11 lakhs on account of various shortcomings to buy peace, the said inco .....

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accounts were accepted wherein the amount of ₹ 1,20,00,000/- was shown on account of sale of the gold recovered from wastage, the separate addition made by the AO was not justified. It was also stated that the income of ₹ 11 lakhs disclosed by the assessee was in the regular course of export business, therefore, the exemption u/s 10A of the Act was allowable on the said income also. The ld. Counsel for the assessee referred to page nos. 56 & 57 of the assessee s paper book which .....

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the income earned during the course of regular business, therefore the assessee was entitled for exemption u/s 10A of the Act being 100% Export Oriented Unit established in Special Economic Zone. The reliance was placed on the following case laws: Commissioner of Income-tax Vs. S. Khader Khan Son (2008) 300 ITR 157 (Mad) 12. In his rival submissions the ld. DR strongly supported the orders of the authorities below and reiterated the observations made in the assessment order as well as the impug .....

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0/- and gave the post dated cheques for the payment of taxes. It was stated that the assessee did not disclose the aforesaid income while filing the return of income, therefore, the addition was righty made by the AO and sustained by the ld. CIT(A). 13. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the assessee was engaged in the manufacturing of jewellery, during the proces .....

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turing and export of gold jewellery and there was no local sale. The AO accepted that the assessee was eligible for deduction u/s 10A of the Act being 100% Export Oriented Unit established in Noida Special Economic Zone. The assessee disclosed the gold recovered from the wastage in its books of accounts after the survey and the same was sold which was also entered in the stock register. The department had accepted the books of accounts maintained by the assessee in its regular course of business .....

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income of ₹ 1,20,00,000/-. In the present case, the deduction u/s 10A of the Act has not been denied by the AO. Therefore, the addition of ₹ 1,20,00,000/- made by the AO and sustained by the ld. CIT(A) was justified but the assessee is entitled for deduction u/s 10A of the Act on the said addition because the said income was directly related to the export business of the assessee. As regards to the another addition of ₹ 11 lakhs is concerned, the said amount was disclosed by t .....

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as been held as under: The principles relating to section 133A of the Income-tax Act, 1961, are as follows: (i) an admission is an extremely important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of account do not correctly disclose the correct state of facts; (ii) in contradistinction to the power under section 133A, .....

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