TMI Blog2022 (7) TMI 550X X X X Extracts X X X X X X X X Extracts X X X X ..... hand, based on papers cannot be subject to further addition in the hands of the assessee in the absence of tangible materials - addition as made by the CIT is not warranted in the given facts and circumstances until and unless it is supported by the some corroborative evidences. As such the income does not depend on the piece of paper, rather it should be based on the tangible materials in the given facts and circumstances. The assessee in the given facts and circumstances has tried to explain the difference in the quantity of stock as discussed above by producing the agreements in support of his contention that he has borrowed gold loan from the relatives which was recorded in the stock register for the purpose of the quantity and without recording the same in the financial statements. CIT before rejecting the contention of the assessee, he should have called for the parties for the cross verification. But he has not done so. To our understanding, to meet the principles of natural justice, it is necessary upon the authorities before rejecting the claim of the assessee to carry out the necessary verification and due diligence. But in the given facts and circumstances, we fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned CIT to give effect of the amount enhanced by adding labour charges /making expenses in the unaccounted stock found during the course of survey while recording the same in the books of accounts. To our understanding, the claim of the assessee cannot be denied without carrying out the necessary independent verification/ examination of the facts and the records. In the case on hand, the learned CIT has directed to make the addition but we are not inclined to confirm the same in the absence of necessary verification. Thus, in the interest of justice and fair play, we modify the direction of the learned CIT passed under section 263 of the Act. As such we are set aside the issue involved in the appeal before us to the AO for fresh/ de-novo examination of necessary verification without getting influenced by the finding of the learned CIT. Addition on account of wrist watches - At the time of survey, the physical stock of the wristwatches were found which was not accounted in the books of accounts. Even the assessee has not recorded the same in the financial statement prepared as on 31.3.2010. As such, the assessee has neither shown the watches in the inventory nor in the sched ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not possible to workout without maintaining the books of accounts. However, in the interest of justice and fair play we are inclined to set aside the issue to the AO for fresh adjudication as per the provisions of law. Appeal filed by the assessee is partly allowed for statistical purposes. - I.T.A. No.469/Rjt/2014 - - - Dated:- 8-7-2022 - Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member For the Appellant : Shri D.M. Rindani, A.R For the Respondent : Shri Sanjeev Jain, CIT. D.R. ORDER PER BENCH: The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax -III, Rajkot [Ld. CIT) in short] dated 15/07/2014 arising in the matter of assessment order passed under s. 263 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) relevant to the Assessment Year (A.Y.) 2010-11. 2. The only interconnected issue raised by the assessee is that the learned CIT erred in holding the assessment framed under section 143(3) of the Act as erroneous insofar prejudicial to the interest of Revenue and therefore directed to make various additions to the total i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey, he has clearly admitted in reply to question No. 18 that there was no stock lying in his business premises belonging to other persons or firms. Likewise, even in the earlier assessment years there was nothing recorded in the audit reports that the stocks of 22 karat of gold belonging to other parties were recorded in the books of accounts. The agreements between the assessee and the relatives showing the receipt of gold were made in the month of October 2009 whereas the difference in the stock as discussed above relates to 31 March 2009 and 1 April 2009. Accordingly, no credence can be given to such agreements. Furthermore, all the agreements were worded identically. Similarly, the gold was received by the assessee from the relatives who were under the direct influence. In view of the above facts, the learned CIT rejected the contention of the assessee and direct the AO to make the addition of - 1,43,09,724.00 by observing as under: Keeping in view the above facts, it is evident now that the assessee has introduced his own unaccounted stock of 21590.402 gms of 22 Ct gold ornaments on 01/04/2009 in his regular books of accounts under the garb of opening stock. Though reasona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch were verified in the assessment proceedings. Thus, it was contended by the assessee that the valuation of the unaccounted gold/ornaments/jewellery of different purity have been made as on the date of survey after considering the labour charges/making charges. However, the learned CIT disregarded the contention of the assessee by observing as under: On going through the records, it is noticed that the assessee has paid labour charges at the rate of Rs.112/- per gram for making ornaments given on job work in Oct., 2009. Unaccounted jewellery of different purity found was weighing to 21071.323 gms. Accordingly, jewellery making charges are determined at Rs.23,59,988/- for unaccounted stock of jewellery found during survey. The assessment made by the Assessing Officer on this count is, therefore, set aside. The Assessing Officer is directed to add the aforesaid labout charges integral to the valuation of unaccounted stock of gold jewellery found during the survey. C. The learned CIT further found that the assessee has valued closing stock shown in the books of accounts taking the average cost which is not in consonance with the accounting standard 2 i.e. valuation of invento ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer is directed to add the aforesaid amount on account of unaccounted stock os wrist watches and GP thereon and initiate the penal proceedings as per law. E. The learned CIT found that the assessee has received gift from his son in the form of gold which was accounted in the books of accounts as capital receipt. The assessee subsequently has converted the gift as stock in trade. According to the learned CIT conversion of capital asset into stock in trade is a transfer within the meaning of the provisions of section 45(2) of the Act and therefore the same is liable to tax under the head capital gain. The cost of acquisition of such gold received as a gift was - 90,05,389.00 and the same was converted at the market value at -1.72 crores leading to a difference of - 81,94,611.00 which represents the short-term capital gain but the same was not verified by the AO during the assessment proceedings. Therefore, the ld. CIT directed the AO to make the addition to the total income of the assessee by observing as under: As discussed above, the full value of the consideration is Rs.1,72,00,000/- and cost of acquisition of the asset is Rs.90,05,389/- the short term capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o windmill business. As such on perusal of the records it was found that the combined books of accounts were maintained for jewellery and windmill business as evident from the audited financial statements. As such the ld. CIT was of the view that the expenses in the nature of fixed and variable overhead pertaining to windmill business have been attributed against the jewellery business. This fact was not verified by the AO during the assessment proceedings. Thus the learned CIT after considering the indirect expenses and the depreciation allocated in the ratio of turnover of both the business of the assessee and worked out a sum of - 7,52,199 which was to be allocated to the windmill business. As such learned CIT directed the AO to make the addition for a sum of - 7,52,199.00 to the total income of the assessee by observing as under: As the assessee has earned profit of Rs.32,58,143/- only from his windmill business, the same is eligible for deduction u/s 80IA of the Act. Thus the Assessing Officer has allowed excess dedcuction u/s.80IA of the Act. Thus the Assessing Officer has allowed excess deduction u/s.80IA of the Act by Rs.7,52,199/-. He is directed to restrict the deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contended that the unaccounted stock was valued by the Government valuer which was also accepted by the survey officer. Thus question of enhancing the unaccounted stock which has already been offered in the income tax return by adding labour charges /making charges does not arise. 6.5 The learned AR with respect to the direction given by the learned CIT for valuing the closing stock in the manner provided in the accounting standard 2 i.e. valuation of inventories issued by the ICAI, has not advanced any argument. As such, the learned AR for the assessee was agreed with the direction issued by the learned CIT. 6.6 The learned AR with respect to the addition made for the wristwatch for Rs. 2,28,310.00 contended that there was no question raised by the survey team during the survey proceedings for the so called wrist watches and therefore the same cannot be added in the revised proceedings initiated under section 263 of the Act. It was also contended by the learned AR that the assessee does not deal in the business of wristwatches. 6.7 The learned AR with respect to the conversion of gold received by way of gift as stock in trade contended that short-term capital gain compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee as income in the income tax return. To this effect, the relevant finding recorded in the order of the ld. CIT reads as under: A survey u/s.133A of the IT Act was carried out in the business premises of the assessee on 12-14/10/2009 wherein a disclosure of Rs.3,0,35,145/- was made by the assessee on the grounds of difference in stock of items of various categories and difference in cash balance as on the date of survey. 8.2 From the above finding, it is revealed that whatever was the difference in the stock between the books as well as physical quantity has already been suffered to tax. Thus the question arises with respect to the difference found in the quantity of stock between the financial statements viz a viz stock register as discussed above whether the same represents the income of the assessee. Indeed, such difference arises only on the basis of the paper as discussed above. As such nothing was found out by the revenue based on any tangible materials. In other words, if there was excessive stock, as reflected in the stock register, than the quantity shown in the financial statements as on 31 March 2009 viz a viz 1st of April 2009, a question arise where the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim of the assessee. Indeed the learned CIT has pointed out certain infirmities in the contention of the assessee which have been elaborated in the preceding paragraph, but based on this the claim of the assessee cannot be denied without carrying out the necessary independent verification/ examination of the facts and the records. In the case on hand, the learned CIT has directed to make the addition but we are not inclined to confirm the same in the absence of necessary verification. Thus, in the interest of justice and fair play, we modify the direction of the learned CIT passed under section 263 of the Act. As such we are set aside the issue involved in the appeal before us to the AO for fresh/ de-novo examination of necessary verification without getting influenced by the finding of the learned CIT as well as our observation discussed above. 8.4 With respect to the allegation of the learned CIT that the unaccounted stock found during the survey has been valued without incorporating the making charges/ labour expenses which the assessee must have incurred with respect to the unaccounted gold ornaments/jewelries, in this regard, it seems to us that any addition in the una ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the learned CIT, the learned AR did not advance any argument. Rather, the learned AR agreed to the direction issued by the learned CIT with respect to the valuation of the inventories in pursuance to the accounting standard 2 i.e. valuation of the inventory issued by the ICIA. 8.10 With respect to the 4th allegation of the learned CIT for the additions of Rs. 2,28,310.00 on account of wrist watches, in this regard, we note that the primary onus lies upon the assessee to furnish the necessary details. For this purpose, we refer the provisions of section 292C of the Act which reads as under: 56 [ Presumption as to assets, books of account, etc. 292C. 57 [(1)] Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search under section 132 58 [or survey under section 133A], it may, in any proceeding under this Act, be presumed 59 - (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.] 8.13 Upon the perusal of the above provision, there remains no ambiguity that the conversion of capital asset into stock in trade is a transfer within the provisions of section 45 of the Act and therefore the same is subject to tax under the head capital gain. But the liability for the tax rises in the year in which such converted stock in trade is sold out. There is no finding of the learned CIT about the fact whether converted stock in trade was sold. In the absence of such information, the finding of the learned CIT is not sustainable by making the addition in the hands of the assessee. Accordingly, we modify the direction of the learned CIT to the extent that the question of capital gain will arise in the year in which such quantity of converted stock is sold out. Thus, we set aside the finding of the learned CIT and direct the AO to compute the capital gain on the conversion of capital asset into stock in trade in the y ..... X X X X Extracts X X X X X X X X Extracts X X X X
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