Rajarathnam’s Jewels Vs ACIT (ITAT Bangalore)
ITAT Bangalore held that the deposit of gold jewellery by family members of a partner in the partnership firm would be treated as the stock in trade of the firm as agreement between the firm and the partners provides that the jewellery given by the partner can be used by the firm and sold by the firm.
Facts-
There was a survey conducted under section 133A of the Act by the Revenue on 16.03.2001 in the business premises of the assessee. Accordingly, stock of 1358.73 gms of gold and diamond jewellery was found. It was explained that the gold and diamond jewellery of 16,3063 gms and 1,013 gms belonged to the partner’s family members.
The assessee also explained that the deposit was based on the deed that the jewellery should be returned when demanded and the fee was also charged by the family members. This explanation was accepted but rejected in the second survey conducted in 2012. The assessing officer treated the deposit as stock in trade of the firm and an additional income was added.
CIT(A) upheld the additions made by AO. Being aggrieved, the assessee is in appeal before the Tribunal.
Conclusion-
If we examine the facts of the present case, the agreement between the firm and the partners provides that the jewellery given by the partner can be used by the firm and sold by the firm and the partner will get only equivalent quantity of metal, if the jewellery is not traceable in specie. It also says that the jewellery will be held in trust by the firm. Therefore there appears to be a contradiction in terms of ownership of the jewellery. It is not possible for the firm on the one hand to exercise its right to sell the jewellery and on the other hand to hold the jewellery in trust. One cannot have the cake and eat it too. The intention therefore appears to be clear that the jewellery was brought into the firm as contribution by the partners and the firm has ownership over the jewellery. This fact is also further corroborated by the firm showing the jewellery as its asset in the revised Balance sheet filed by the Assessee showing the jewellery as asset of the firm. The course of conduct of the partners and the firm has been in vogue for a fairly long period of time. In the given circumstances, the revenue authorities were justified in treating the jewellery as that of the firm and including the same as part of the stock in trade of the firm.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal by the assessee directed against the Order of Assessment dated 16.03.2022 of National Faceless Assessment Centre, Delhi, (hereinafter referred to as the Assessing Officer, “AO” in short) passed under section 143(3) of the Income Tax Act, 1961 (Act) in relation to Assessment Year 2013-14.
2. The Assessee is a partnership firm. It is in retail business of selling gold jewellery, silver articles, diamond and platinum since 1980.
3. There was a survey conducted under section 133A of the Act by the Revenue on 16.03.2001 in the business premises of the assessee. We will refer to this Survey as the “First Survey”. At the time of the said survey, stock of gold and diamond jewellery physically found was 46,078.73 gms. The assessee explained and reconciled the stock so found as follows:
