No Addition for Unaccounted Sales without Cogent Material

ITO Vs Govinda Jewellers (ITAT Visakhapatnam)

The admitted facts are that the assessee admitted unaccounted sales of Rs. 3,10,69,693/- made during the period 6/11/2016 to 8/11/2016 at the time of survey u/s. 133A of the Act. The Assessing Officer has made an assessment that this amount of sales is out of the separate unaccounted purchases made by the assessee and therefore the assessee had agreed to admit this amount at the time of survey. We note from the records available before us that there is no material evidence for the unaccounted purchases for effecting the sales of Rs. 3 Crores that was found during the time of survey. Further, the survey team has found a deficit stock of 696.787 grams at the time of survey which includes the unaccounted sales admitted by the assessee for 8786.872 grams. The assessee also admitted that this cash sales amount was deposited into the bank account and alongwith the balance available in the bank account, the assessee has utilized for the purchases of 10.3 Kgs of bullion from SVBV Gold and RK Gold. The explanation of the Ld. AR that the payments were made through bank account and the purchases were disclosed and included in the stock, in the books of account, cannot be denied. We also observe that these purchases were made before the date of survey i.e on 25.11.2016.

Therefore, we are of the view that the purchases are already recorded in the books of account and also accounted for in the stock of gold at the time of survey, and we note that only the sale of 8786.872 grams amounting to Rs. 3,10,69,393/- remains unaccounted in the books of account at the time of survey. We disagree with the contention of the Ld. AO that there are unaccounted purchases for making these unaccounted sales based on the fact that if unaccounted purchases are included in the stock at the time of survey the deficit stock would have been far more higher than 696.787 grams at the time of survey. In view of the above findings, we are of the considered view that a separate addition of unaccounted sales is not required. If the assessee did not adhere to the surrender made during the survey, it was for the AO to bring on record cogent material or other evidence to support the additions rather than rely on the statements simpliciter. We do not find any cogent material or other evidence brought in by AO to support the admissions made during survey. In view of the above, we find that there is no infirmity in the order of the Ld. CIT(A) and no interference is required on this ground.

FULL TEXT OF THE ORDER OF ITAT VISAKHAPATNAM

This appeal filed by the assessee against the order of the Ld. CIT(A)-1, Visakhapatnam in appeal no.10488/2019-20/CIT(A)-

2. Brief facts of the case are that the assessee is a partnership firm engaged in the business of running a jewellery shop. A survey operation U/s. 133A took place on 25/11/2016 at the business premises of the assessee and the assessee agreed to admit the following as additional incomes:

The assessee filed its return of income for the AY 2017-18 on 30/10/2017 admitting a total income of Rs.3, 19,46,630/-.

3. However, while filing the return of income the assessee admitted only Rs. 3,47,50,000/- as against the income admitted at the time of survey. The details of income admitted are as under:

4. The case was selected for scrutiny and the statutory notices u/s. 143(2) and 142(1) were issued and served on the assessee.

In response to the notices, the assessee submitted his reply and explanation to the Ld.AO. Considering the submissions made by the asseseee, the Ld. AO made addition of Rs.2,15,94,098 for the AY 2017-18 as per the following details:

Aggrieved by the order of the Ld.AO, the assessee filed an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee raised one additional ground which reads as under:

“The Assessing Officer is not justified in bringing to tax the additional income of Rs. 3,47,50,000/- wrongly included by the appellant in his return of income when the additional income taxable as per the provisions of Income Tax Act, 1961 is only Rs. 2,71,092/- being the gross profit on deficit stock of 697.787 grams of Gold.”

5. The Ld. CIT(A) considering the material facts admitted the additional ground. Based on the submissions made by the assessee’s representative, the Ld. CIT(A) partly allowed the appeal. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us.

6. The Revenue has raised the following grounds of appeal:

“1. The order of the Ld. CIT(A) is erroneous both on facts and in law.

2. The Ld. CIT(A) erred in deleting the addition of Rs. 3,00,00,000 admitted by the assessee in its return of income filed U/s. 139(1) of the Act ignoring and not appreciating the fact that the assessee has offered the above income after taking into consideration al the impugned materials vis-à-vis books of account which is evident from its submission at the time of scrutiny proceedings.

3. The Ld. CIT(A) erred in admitting addtinoal ground of the assessee and adjudicating on the same without remanding the matter to AO.

4. The CIT(A) erred in directing the AO to reduce the amount of Rs. 3.1 Crs from the income returned by the assessee without appreciating the fact that there was sufficient time after the survey ie around one year, to consider all its transactions including materials impounded during the course of survey, to file its true and correct return.

5. The Ld. CIT(A) has failed to appreciate the fact that if assessee found at a later stage that any income offered in its return of income was not correct then they could receive their returns of income within the time frame allowed under section 139(5) of the Act. But in the present case, the assessee neither filed any revised return nor raised any objection at the time of assessment proceedings with regard to its additional income admitted in its return of income filed U/s. 139(1) of the Act nor raised this ground before the Ld. CIT(A) in their original grounds of appeal, but raised additional ground before the Ld. CIT(A).

6. The Ld. CIT(A) has failed to appreciate the fact that after admitting the above income of Rs. 3.10 Crs they have arrived at net profit of Rs. 3.19 Cr and the same was apportioned among the partners of the assessee-firm. The same can be seen from its balance sheet drawn as on 31/3/2017.

7. The Ld. CIT(A) has ignored the fact that assessee has stressed many times at the time of assessment proceedings that they have admitted the additional incomes as per the correct disclosures arrived after working out the figures with reference to the figures borne on record and books of account.

8. The Ld. CIT(A) erred in deleting the addition of Rs. 2.13 Crs made by the AO towards difference in income admitted at the time of survey and income admitted by the assessee in its return of income filed U/s. 139(1) of the IT Act ignoring and not appreciating the fact that the assessee has offered the above income only after detection of unaccounted loose slips and statement recorded from 4 different goldsmiths wherein they have contradicted the claim of the assessee.

9. The Ld. CIT(A) erred in deleting addition of Rs. 2.13 Crs without appreciating the fact that Sri NV Rajagopal, managing partner of the assessee firm srtated in his statement recorded at the time of survey proceedings and also the time of post survey proceedings U/s. 131(1A) that after demonetization of Rs. 500 and 1000 notes by the Govt of India, they wanted to convert unaccounted demonetized high value currency notes as assessee firm into bullion accordingly they have created back dated huge sale bills for the period 6/11/2016 to 8/11/2016 amounting to Rs. 3.17 Crs and utilized for purchase of bullion.

10. Any other ground or grounds that may be raised with the permission of Hon’ble ITAT.”

7. Ground No. 1 and 10 are general in nature and need not be adjudicated.

8. With respect to ground no.2, the Ld. AR argued that the assessee voluntarily agreed to admit Rs. 3,00,00,000 towards unaccounted sales but has omitted Rs.3,10,69,693/- being the sale of 8786.872 grams of gold during the period from 6/11/2016 to 8/11/2016. The Ld. AR further submitted that these sale arising from the sale of 8786.872 grams of unaccounted sales during the period 6/11/2016 to 8/11/2016 amounting to Rs. 3,10,69,693/- was admitted by the assessee in the books of account. The Ld. AR forcibly argued that there is no separate unaccounted sales for Rs.3 Crores and unaccounted sales admitted at the time of survey by the assessee for 8786.872 grams amounting to Rs. 3,10,69,693/- represents the amount of Rs. 3 Crores. The Ld. AR argued that since the amount of Rs. 3 Crores has been admitted by the assessee and accounted in books, the same sales was wrongly added oonce gain in the Assessment Order and it amounts to double taxation and pleaded that it may be deleted. The Ld. AR also relied on the case of the Hon’ble Supreme Court in the case of CIT vs. Khader Khan Son 352 ITR 480 (SC) wherein it was held that section 133A does not empower Income Tax Authority or any person of them and the statement recorded under that section has no evidentiary value and cannot be made as a basis for the addition. On the other hand, Ld. DR argued that Rs. 3 Crores represents the unaccounted sales in addition to the admission made by the assessee for the sales made during the period 6/11/2016 to 8/11/2016. The Ld. DR forcibly contended that the assessee on its own will has admitted this amount at the time of survey u/s. 133A of the Act. The Ld. DR therefore pleaded that the addition to be sustained.

9. We have heard both the parties and perused the material available on record. The admitted facts are that the assessee admitted unaccounted sales of Rs. 3,10,69,693/- made during the period 6/11/2016 to 8/11/2016 at the time of survey u/s. 133A of the Act. The Assessing Officer has made an assessment that this amount of sales is out of the separate unaccounted purchases made by the assessee and therefore the assessee had agreed to admit this amount at the time of survey. We note from the records available before us that there is no material evidence for the unaccounted purchases for effecting the sales of Rs. 3 Crores that was found during the time of survey. Further, the survey team has found a deficit stock of 696.787 grams at the time of survey which includes the unaccounted sales admitted by the assessee for 8786.872 grams. The assessee also admitted that this cash sales amount was deposited into the bank account and alongwith the balance available in the bank account, the assessee has utilized for the purchases of 10.3 Kgs of bullion from SVBV Gold and RK Gold. The explanation of the Ld. AR that the payments were made through bank account and the purchases were disclosed and included in the stock, in the books of account, cannot be denied. We also observe that these purchases were made before the date of survey i.e on 25.11.2016.

Therefore, we are of the view that the purchases are already recorded in the books of account and also accounted for in the stock of gold at the time of survey, and we note that only the sale of 8786.872 grams amounting to Rs. 3,10,69,393/- remains unaccounted in the books of account at the time of survey. We disagree with the contention of the Ld. AO that there are unaccounted purchases for making these unaccounted sales based on the fact that if unaccounted purchases are included in the stock at the time of survey the deficit stock would have been far more higher than 696.787 grams at the time of survey. In view of the above findings, we are of the considered view that a separate addition of unaccounted sales is not required. If the assessee did not adhere to the surrender made during the survey, it was for the AO to bring on record cogent material or other evidence to support the additions rather than rely on the statements simpliciter. We do not find any cogent material or other evidence brought in by AO to support the admissions made during survey. In view of the above, we find that there is no infirmity in the order of the Ld. CIT(A) and no interference is required on this ground.

10. With respect to ground nos. 3 and 5 regarding the admission of additional ground by the Ld. CIT(A), the Ld. AR submitted that since the due date of filing the revised return was time barred, the assessee could not file the revised return and hence raised the additional ground raised before the Ld. CIT(A). The Ld. DR submitted that the additional ground admitted by the Ld. CIT(A) is not in accordance with law. We find from the arguments of Ld.AR, that the assessee on the inability to file the revised returns u/s 139(5) of the Act could not revise the original return where the income was wrongly admitted. We have heard the rival contentions and we find merit in the arguments of the Ld. AR that since the due date of filing the revised return of income U/s. 139(5) was time barred, the assessee has raised the additional ground before the Ld. CIT(A). The Ld.CIT(A) considering the merits has rightly allowed this additional ground of the assessee, and hence the ground raised by the Revenue is dismissed.

11. Grounds No.4 and 6 raised by the Revenue are with respect to addition of Rs. 3,10,00,000/- as per the income returned by the assessee at the time survey u/s. 133A of the Act. The Ld. AR argued that this amounts to double taxation ie., once on the basis of unaccounted sales for Rs. 3.10,69,693/- and again taxing the same amount based on the admission by the assessee during the survey proceedings is not valid in law. Per contra, the Ld. DR argued that the assessee made separate purchase for their unaccounted sales and pleaded to uphold the order of the Ld. AO. We have considered the rival contentions and we disagree with the contention of the Ld. DR that there are unaccounted purchases for making these unaccounted sales. If unaccounted purchases are included in the stock at the time of survey the deficit stock would have been far more higher than 696.787 grams at the time of survey. Therefore we are of the considered view that this these grounds raised by the Revenue is not sustainable and since the issue have already been adjudicated in earlier para, needs no further adjudication.

Ground Nos 7 to 9 arising out of the grounds 2 and 4, has been adjudicated in Para 9, and hence no separate adjudication is required.

CO No.35/Viz/2021
(By Assessee)

12. The Grounds No.1 & 2 raised in the Cross Objection are supportive in nature and need no adjudication.

13. With respect to Ground No.3 raised in the Cross Objection for addition of Rs. 37,50,000/- wrongly admitted by the respondent twice in the return of income deserves consideration. The Ld. AR argued that since the sale amounting to Rs. 3,10,69,693/- admitted by the assessee towards the unaccounted sales made during the period 6/11/2016 to 8/11/2016, at the time of survey U/s. 133A of the Act and hence further addition of Rs. 37,50,000/- as the gross profit for the same unaccounted sales is not valid and it amounts to double taxation of the same profit. The Ld. DR relied on the order of the Ld. AO. We find merit in the argument of the Ld. AR and we are of the considered view that since the unaccounted sales have already been brought on record, again taxing of the gross profit of such unaccounted sales amounts to double taxation of the same income and hence the Ground No.3 raised in the Cross Objection is allowed.

13. In the result, appeal of the Revenue is dismissed and the Cross Objection raised by the assessee is allowed.

Pronounced in the open Court on the 15t^h June, 2022.