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2016 (7) TMI 189 - ITAT KOLKATA

2016 (7) TMI 189 - ITAT KOLKATA - TMI - Addition towards negative closing stock - Held that:- 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 regard by filing a detailed reconciliation statement which was ig .....

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s for negative stock of Readymade Ornaments, particularly when there was practically no sales in manufactured jewellery 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 con .....

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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. It is well settled that though the principle of res judicata does not apply to income tax proceedings, the principle of consistency cannot be given a go by when there is no change i .....

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89,465/- thereby adding a sum of ₹ 58,04,120 (2,82,93,585-2,24,89,465) as excessive profit without giving any reason. The ld. CITA also found that the depreciation and other deductions should have been given to the assessee to the extent of ₹ 3,57,362/- which was not given by the ld. AO. We find that ignoring the 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 .....

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only ₹ 28,42,938/-. Hence, there is no case for making any addition towards the same - Decided against revenue - I.T.A No.952/Kol/2013 - Dated:- 1-7-2016 - Shri M. Balaganesh, AM & Shri S. S. Viswanethra Ravi, JM For The Appellant: Shri Sallong Yaden, Addl. CIT, Sr. DR For The Respondent: Shri Subash Agarwal, AR ORDER Per Shri M. Balaganesh, AM: This appeal by revenue is arising out of order of CIT(A)-XIV, Kolkata vide appeal No. 963/CIT(A)-XIV/Kol/11-12 dated 07.02.2013. Assessment wa .....

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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 verif .....

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Flat File containing Gold Issue to Karigars-SJE-23, and Loose Sheets containing Purchase Memos from various Parties with serially marked (Page from 1 to 101)-SJE-27 by the I.T. Department. Only SJE-24, 25 and 26 were impounded which consisted two small hard bound daily cash books and one Item wise stock Register. The Learned AO tabulated the summary of stock found as on the date of survey i.e 23.3.2009 as below:- Description Opening Balance As on 01.04.08 Purchases from 01.04.08 to 23.03.09 Sale .....

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essee was taken under oath on the date of survey and he was specifically asked to explain whether the aforementioned figures of stock, purchases and sales, taken from his books of account maintained in his business premises, were true and correct. The assessee, vide his reply to the specific question no. 14 of the sworn statement, stated that the above figures were true and correct and were in conformity with the accounts maintained in his system. He, however, failed to furnish any explanation r .....

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tion 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 evidence .....

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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 of the assessee. 2.2. Before the ld. CITA , the assessee stated that the reconciliation statement assailing the negative stock was duly filed before the department immediately after the survey stating that there is a positive stock of 819 .49 grams and also before the ld. AO on 5.12.2011. Only the supporting evidences in respect of the same were filed before the ld. A .....

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O about the veracity of the evidences filed by the assessee. It was argued that from the reconciliation statement, there was no negative stock as stated by the ld. AO in respect of New Gold (NG) Ornaments 22 ct (Readymade) as on the date of survey i.e 23.3.09 and as per the audited accounts, the said stock stood positive at 802.96 grams. The assessee also filed audited statement of accounts upto the date of survey and thereafter for the remaining 8 days separately to prove his contentions. The a .....

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cation entries passed in the books and stock records and return filed accordingly. It was explained before the ld. CITA that the total stock position found in the course of survey in the computerized books of accounts were as given below:- Particulars Quantity Rate Value Stone 436329.49 Diamond 150.970 Ct 11623.80 1754844.35 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 20153741.4 .....

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.52 Gr 797.58 20153741.48 N.G. Or.22 Ct (R) (-) 10580.396 Gr 1177.83 (-) 12461914.91 Whereas stock statement consisted of following other three major items also 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 Solid Bar 24 Ct 4810.940 Gr 1214.98 5845218.35 The Ld. A. O. was well aware about the nature of these items. In question no. 17 in the statement he has asked following question: "Summary of stock as on 20.03.2009 reflect closing balanc .....

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en posted/ adjusted in the accounting system." These items were obviously manufactured as New 22 Ct. jewellery and against this massive quantity and value sales of ₹ 10,94,878 has been shown against manufactured Jewellery. 2.2.1. The assessee also gave the break-up of sales as appearing in the computerized profit and loss account for the period 1.4.2008 to 23.3.2009 which was taken by the ld.AO and based on which he took the profit of the firm as ₹ 46,26,796/- and this amount wa .....

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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 unac .....

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sted into sales of readymade goods. All the bill copy was produced before the A.O. for his verification. However he never tried to verify those despite 8 number of hearings conducted during the month of December, 2011 on various dates. These two major mistake accounts for wrong credit of almost 2327.67 gm + 8689.400 gms = 11017.07 gms which is more than the negative quantity of 10580.96 as appearing in the stock statement. 2.2.3. The ld. CITA considered the following reconciliation statement as .....

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owing karigars for polishing and petty repairs Jayanta Das 809.88 Tarak Roy 1836.46 Tanuj Basak 1681.10 Lacchiram Pincha 39.60 4367.04 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 .....

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based on suspicion. Accordingly , he directed the ld. AO to delete the addition of ₹ 1,24,61,915/- towards negative stock and directed to add a sum of ₹ 93,103/- (97.49 grams * ₹ 955 per gram) on account of unreconciled stock. Aggrieved , the revenue is in appeal before us on the following ground :- 1. Whether on the facts and circumstances of the case, the Ld. CIT(A) was right in law as well as on facts in not giving cognizance to statement on oath taken during survey operati .....

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r a remand report from the ld. AO and thereby violating the provisions of Rule 46A of the IT Rules. He accordingly vehemently supported the order of the ld. AO. 2.4. In response to this, the ld. AR argued that it is incorrect on the part of the ld. AO to state that the reconciliation statement was filed before him only on the last day of completion of assessment. Factually the same was filed on 5.12.2011 which is also recorded by the ld. AO in his order and he wanted supporting evidences in resp .....

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lly aware of the explanation offered by the assessee with regard to the negative stock. He argued that the assessee had been maintaining its stand that there is no negative stock as alleged by the revenue and had the reconciliation statement been properly considered, it only results in positive stock and hence there is no case for making any addition. He also argued that the stock summary found on the date of survey admittedly comprises of 22 Ct new gold ornaments, gold bars, etc. No discrepancy .....

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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 i .....

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ck summary for the period 1.4.08 to 23.3.09 found at the time of survey proceedings ; copy of deposition of the assessee taken during the course of survey proceedings (pgs 44- 52 of PB) ; copy of final accounts along with stock summary for the period 1.4.08 to 23.3.09 (reconciled and filed during the course of post survey proceedings) vide (pgs 53-56 of PB); copy of reconciliation statement of 22 CT readymade new gold ornaments (filed during the course of post survey proceedings ) along with sup .....

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Year 2009-10 right from 18.7.2011 to 6.3.2013, wherein it could be seen that the assessee had fully cooperated with the entire assessment proceedings without taking even a single adjournment and filed all the details called for by the ld. AO from time to time. We find that the addition has been made by the ld. AO only based on the statement recorded during survey u/s 133A of the Act. We also find that the reconciliation statement had been filed by the assessee immediately after the survey and al .....

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c 133A of the Act does not empower any ITO to examine any person on oath . Thus the statement elicited during the 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 .....

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iately 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 regard by filing a detailed reconciliation statement which was ignored by the ld AO. The Ld. CITA had duly considered the reconciliation statement and had granted relief to the assessee. We hold that the assessee is at liberty to file .....

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lery 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. In this regard, we draw support from the decision of the Co-ordinate Bench of Mumbai Tribunal in the case of Chawla Brothers (P) Ltd vs ACIT reported in (2011) 43 SOT 651 (Mumbai Tribunal) dated 4.5.2010 , wherein it was held that : .....

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n on account of differences - Held, yes - Assessee was engaged in business of trading and manufacturing of edible oil - A survey was conducted at business premises of assessee - Pursuant to survey proceedings, revenue authorities made certain addition to assessee's taxable income on account of variation in closing stock - Whether in view of fact that assessee had reconciled differences with reasons and revenue authorities did not point out anything contrary that how reconciliation done by as .....

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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 l .....

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stock as disclosed 224,89,465/- Net Profit 248,71,438/- The assessee stated that there might be some posting errors in the said computation arrived by the survey team but the ld. AO observed that the so called posting errors were never explained or elaborated by the assessee. He further observed that in the assessment proceedings, the assessee has failed to furnish any credible documentary evidence to establish that the net profit worked out at the time of survey was not true and correct. The as .....

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ng the accounts and net profit of the assessee. 3.2. Before the ld. CITA , the assessee objected to the valuation of stock of gold as on 24.3.2009 at ₹ 4,01,84,320/- which was admittedly valued by the departmental valuer at market price which was on the higher side than the Average cost price (Last in First Out - LIFO) method followed consistently by the assessee since inception of his business. The assessee also stated that during the asst year under appeal, he had shown a healthy gross p .....

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12/- 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 actua .....

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e whole year. The assessee had produced the entire books of accounts as called for by the ld. AO from time to time and nothing prevented the ld. AO to check the details of debits and credits of second part of statement of accounts i.e for the period 24.3.09 to 31.3.09 which were already lying with him to verify the veracity of the same. Without doing so, the ld. AO simply stated in his assessment order that complete details of debit and credit entries passed for the period of six days from 25.3. .....

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th the contentions of the assessee and reworked the profit by taking into the discrepancies pointed out by the assessee in the profits worked out by the ld. AO and after giving deduction towards depreciation, directed the ld. AO to adopt the net profit at ₹ 1,10,53,210/- as against ₹ 2,48,71,938/- adopted by the ld. AO. Aggrieved, the revenue is in appeal before us on the following ground:- 2. Whether on the facts and circumstances of the case, the Ld. CIT(A) was right in law as well .....

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e survey team upto the date of survey i.e on 23.3.09. We find that this profit was worked out only upto 23.3.09 by ignoring the profit or loss for the remaining period from 24.3.09 to 31.3.09. Admittedly, the assessee had filed separate trading results duly audited for the period 1.4.08 to 23.3.09 and from 24.3.09 to 31.3.09 wherein he 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 .....

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nd 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 resul .....

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also find that the ld. CITA had observed that valuation of stock as per books was taken by the ld. AO at ₹ 2,24,89,465/- , whereas in the stock summary it was ₹ 2,82,93,585/- . The ld. CITA had observed that since this valuation of ₹ 2,82,93,585/- was part of the profit of ₹ 46,26,796/- as reported by the ld. AO , but while working out the profit, he had taken the valuation of stock at ₹ 2,24,89,465/- thereby adding a sum of ₹ 58,04,120 (2,82,93,585-2,24,89,46 .....

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0 1,14,10,572 Less: Depreciation and other allowances 3,57,362 1,10,53,210 Less: Profit declared by the assessee 91,67,818 Net profit for the year to be adopted 18,85,392 The assessee has not preferred further appeal before against this revised computation of net profit made by the ld. CITA. 3.3.2. We find that the following chart would clearly prove that the assessee had in fact declared more profit in the asst year under appeal :- Year Turnover Gross Profit Net Profit 31.03.2006 33659776.00 65 .....

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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 appeal is as to whether an addition in the sum of ₹ 3,51,916/- towards unexplained investment in purchas .....

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