TMI Blog2016 (7) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... ry despite having made substantial quantity of jewellery and also when he did not try to ascertain the treatment of quantity of gold and broken jewellery as reported by himself in question no. 17 of the statement forming part of the paper book filed before us. Hence the addition cannot be made as an automatic measure. - Decided in favour of assessee Addition made towards concealed profit - Held that:- The method of accounting regularly employed for valuation of stock by adopting Average Cost Price (LIFO method) which is one of the recognized method for valuing stock and which has been consistently followed by the assessee for several years has been discarded without giving any reason by the ld. AO and the valuation of stock of gold was done at market price thereby increasing the profit of the assessee notionally which is without any basis or reasoning. The closing stock as per audited accounts was ₹ 3,25,27,574/- upto the date of survey, whereas the valuation done by the department at market price was worked out at ₹ 4,01,84,320/-. This has resulted in excess valuation of closing stock at ₹ 76,56,746/- thereby notionally increasing the profit of the assessee. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in this appeal is as to whether the Learned CITA is justified in deleting the addition made in the sum of ₹ 1,24,61,915/- towards negative closing stock in the facts and circumstances of the case. 2.1. The brief facts of this issue is that the assessee was sole proprietor of a concern named Senco Jewellery Enterprise . The assessee was a manufacturing Jeweller and order supplier and also trader of readymade jewellery items since last 20 years. The system of accounting was mercantile and the valuation method of closing stock was Average Cost on LIFO basis which was followed consistently by the assessee ever since inception of his business. That on 24.03.2009 survey under section 133A was conducted by the I. T. Department, but no excess gold was detected on physical verification, nor there was any disclosure made on the spot by the assessee Mr. Samar Kumar Sen. No regular Books of Accounts like Cash Book, Ledger, Journal, Stock Book, Karigar A/c. Book etc. were impounded save and except Identification Marks were affixed on Karigar Maal Joma Book-SJE-18, Karigar A/c Book-SJE-19, Purchase Memo (Old Broken Ornaments, Standard Bar Stone Purchase) Book No.1-SJE-20, Book N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 24.03.2009. The assessee filed a reconciliation statement dated 5.12.2011 mentioning the following discrepancies which were not considered while preparing the stock summary on the date of survey :- Sales not entered from 20.3.09 to 23.3.09 Purchases of 18 ct gold wrongly shown as 22 ct gold Excess sale entered by mistake Purchases not entered by mistake Sale of NG 22 ct (Mfg) wrongly entered as sale 22 ct (R ) NG 22 ct (R ) sent for polishing to karigars on poila baisakh The assessee was requested to furnish credible documentary evidences in support of the above claim. The assessee appeared on 30.12.2011 to produce the copies of the bills and other documents in support of the above. However, the documents produced by the assessee needed cross verification to ascertain the correctness and veracity of the claim of the assessee and the assessee deliberately produced the same on the last date of the calendar year so as to ensure that independent verification of purchases and sales, which were claimed to have been wrongly entered in the accounts, is not made. Accordingly, the ld. AO brought the sum of ₹ 1,24,61,915/- to tax and added to the total income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.35 Solid Bar 24 Ct 4810.940 Gr 1214.98 5845218.35 N.G.Or.18Ct (M) (-) 29.490 Gr N.G.Or. 18Ct 2388.180 Gr 978.04 2335724.80 N.G. Or.22 Ct (M) 25268.52 Gr 797.58 20153741.48 N.G. Or.22 Ct (R) (-) 10580.396 Gr 1177.83 (-) 12461914.91 Novelty 24265.00 O.G. Or. 22Ct (A) 8290.77 Gr 1039.29 86,16,504.24 O.G. Or. 22Ct (S) 1358.360 Gr 1168.18 1586807.67 Paridot (-) 15.650 Rt Silver 316.800 3.36 1064.44 Total 31506.884Gr 2,82,92,584 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales of Diamond Loose Cut 5,655/- Sales of Gold Ornaments 18 Ct (R) FWD 5,13,921/- Sales of Gold Ornaments 22 Ct (M) 10,94,878/- Sales of Gold Ornaments 22 Ct (R) 4,10,92,124/- Sales of Gold Ornaments 18 Ct FWD (M) 81,157/ - Sales of Stone 5,00,830/- Total 4,41,79,781/- Accordingly, it was argued that from these figures it becomes clear that bulk of the sales was posted due to mistake in one head i.e. Sales of Gold Ornaments 22 Ct only. The head shows a sales of ₹ 4,10,92,124/- as against purchase of ₹ 2,19,03,798/-. We are enclosing herewith a copy of purchase ledger of gold Ornaments 22 Ct (R ) for the period from 01.04.2008 to 24.03.2009. All the bills appearing in the ledger were numbered and kept in the file marked SJE-27. Other than these bills the survey team did not find any other bill / paper/details showing any unaccounted purchase of Readymade Jewellery. 2.2.2. The assessee also submitted a rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Closing Stock 28125.95 Less: Lying with Karigars Undelivered 953.65 27172.15 Physical stock 27074.66 Difference 97.49 (b) From the above explanation it is very clear that there is only nominal difference of 97.49 gm between the book stock and physical stock taken. 2.2.4. The ld. CITA observed that the reconciliation statement was submitted before the ld. AO on 16.4.2009 immediately after survey and thereafter during assessment proceedings on 5.12.2011 and the supporting bills and evidences for the same as called for by the ld. AO were filed on 30.12.2011. He observed that the ld. AO had completely ignored the reconciliation statement and had only done cherry picking while analyzing the stock statement. He noted that the ld. AO had not found any evidence to establish that there were any undisclosed purchases and stated that the entire addition was merely based on suspicion. Accordingly , he directed the ld. AO to delete the addition of ₹ 1,24,61,915/- towards negative stock and dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the stocks found in respect of other items by the ld. AO which is also prepared by the same team of officials. It is quite likely that the books and stock records could not be updated till the date of survey and the same would contain some posting errors, omission and commission errors etc. That is the precise purpose of undergoing audit of an entity wherein these errors would get rectified. Admittedly, the assessee could not explain the discrepancy of negative stock in respect of New Gold 22 Ct readymade ornaments on the date of survey and accordingly stated that the discrepancies pointed out by the survey team is right with a rider that there might be some posting errors , omission and commission errors . He argued that the reconciliation statement duly brought out the items of errors and the assessee had only positive stock subject to irreconciliable difference of 97.49 grams for which addition has been made by the ld. CITA. Accordingly, he stated that no interference should be made in the order of the ld. CITA in this regard. 2.5. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee comprising of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he survey operation has no evidentiary value. CIT vs S Khader Khan Son reported in (2008) 300 ITR 157 (Mad) 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 it, to show it has incorrectly been made and the person, making the statement should be given proper opportunity to show that it does not show the correct state of facts. This judgment of Hon ble Madras High Court was approved by the Hon ble Supreme Court in Civil Appeal Nos. 13224 of 2008 6747 of 2012 dated 20.9.2012 wherein it was held that :- Heard Counsel on both the sides. Leave granted. The civil appeal filed by the department pertains to Assessment Year 2001-02. In view of the concurrent findings of fact, this civil appeal is dismissed. 2.5.1. We find that the assessee had duly filed the reconciliation statement immediately after the survey and also during the assessment proceedings on 5.12.2011 objecting to the negative stock stated by the ld. AO and also stated that there is positive stock of 819.49 grams on the date of survey and there is no need to make any addition in that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ully following the judicial precedents relied upon hereinabove, we find no infirmity in the order of the ld. CITA in this regard and accordingly the ground no. 1 raised by the revenue is dismissed. 3. The next issue to be decided in this appeal is as to whether the ld. CITA is justified in deleting the addition made towards concealed profit in the facts and circumstances of the case. 3.1. The brief facts of this issue is that pursuant to the survey, the survey team prepared a profit and loss account as on the date of survey. The survey team found that the profit and loss account as on 20.3.2009 was available in the accounts maintained in the computerized system wherein the net profit was shown at ₹ 46,26,796/-. The survey team arrived at the profit as on the date of survey at ₹ 2,48,71,438/- by taking into account the stocks lying with karigars and the stock of gold found in the shop duly valued by the registered valuer. The net profit worked out by the survey team is as below:- Net Profit as at 20/03/2009 46,26,796/- Add: Un posted sales for the period 21.03.2009 to 24.03.2009 11,55,823/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly if in the opinion of the taxing authorities the income of the trade cannot be properly deduced therefrom. Therefore, the valuation of closing stock of the assessee as per the audited accounts as at 31.3.2009 showing total value of ₹ 3,23,77,712/- should not be disturbed. It was further argued that the ld. AO after conducting hearings on various dates and after calling for various details from the books of accounts from time to time as could be evident from the order sheet entries, strangely resorted to rejection of books of accounts and net profit declared by the assessee. The assessee produced the trading results for the period from 1.4.08 to 23.3.09 and for the period from 24.3.09 to 31.3.09 separately and stated that it had actually earned a profit of ₹ 1,10,54,018/- for the period upto 23.3.09 and had incurred loss of ₹ 18,86,200/- for the remaining 8 days as all the adjustment entries for conversion in case of new manufactured gold ornaments of 22 Ct from 24 Ct standard gold bar, refining loss / melting loss, making loss /wastage, karigars payment, depreciation , etc were incorporated in the books of accounts in the year end. Accordingly, the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had earned profit of ₹ 1,10,54,018/- and loss of ₹ 18,86,200/- respectively. The reason for the loss incurred in the latter part of the year has been duly explained by the assessee as admittedly the adjustment entries of conversion in case of new manufactured gold ornaments of 22 Ct from 24 Ct standard gold bar, refining loss / melting loss, making loss /wastage, karigars payment, depreciation , etc were incorporated in the books of accounts in the year end. We also find that the method of accounting regularly employed for valuation of stock by adopting Average Cost Price (LIFO method) which is one of the recognized method for valuing stock and which has been consistently followed by the assessee for several years has been discarded without giving any reason by the ld. AO and the valuation of stock of gold was done at market price thereby increasing the profit of the assessee notionally which is without any basis or reasoning. The closing stock as per audited accounts was ₹ 3,25,27,574/- upto the date of survey, whereas the valuation done by the department at market price was worked out at ₹ 4,01,84,320/-. This has resulted in excess valuation of closing st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31.03.2006 33659776.00 6582739.00 (19.55%) 5064997.00 (15.04) 31.03.2007 45382431.00 9829303.00 (21.66%) 7611545.00 (16.77%) 31.03.2008 44204942.00 9221724.00 (20.86%) 6570535.00 (14.86%) 31.03.2009 45417889.00 11782918.00(25.89%) 9167818.00 (20.18%) We find that ignoring the aforesaid profit and adopting the notional profit arrived by the ld. AO at ₹ 2,48,71,438/- would only result in assessee deriving abnormal profit at 54.76% which is practically not possible in the business of the assessee. 3.3.3. Taking into account the totality of the facts and circumstances of the case, we find that the ld. CITA had made a fair determination of profit after giving due effect to the discrepancies of the ld. AO in his computation. Hence we find no infirmity in the order of the ld. CITA in this regard and accordingly the ground no.2 raised by the revenue is dismissed. 4. The last ground to be decided in this appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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