Ultimate Creations Vs ACIT (ITAT Delhi)
ITAT Delhi held that addition under section 69 of the Income Tax Act towards unexplained investments unsustained as difference in the stock found during the course of survey was duly reconciled by the assessee.
Facts- The assessee is a firm engaged in sale and purchase of gold jewellery. During the year under consideration, a survey operation u/s 133A of the Act was carried out. During the course of survey operation at the premises of the assessee firm, inventory of the stock was physically inventoried and physical stock valuing to Rs. 8,53,07,745/- was found, whereas, the value of stock as per books of account on that day was worked out at Rs. 2,39,32,717/-. Thus, excess stock of Rs.6,13,75,028/- was alleged during the survey.
AO after considering the submissions, explanations, documents and evidences and the independent inquiry made by the AO himself and made an addition of Rs.6,13,75,028/- on account of unexplained investments u/s 69 of the Act. CIT(A) affirmed the order of AO. Being aggrieved, the present appeal is filed.
Conclusion- Held that merely because some differences were found in stock during survey would not indicate any automatic addition be made in the hands of the assessee when assessee has duly reconciled the differences with necessary evidences and neither the AO nor ld. CIT(A) has pointed out any defects or discrepancies in the reconciliation submitted by assessee or the documents and evidences furnished by the assessee.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal has been filed by the assessee against the order of ld. CIT(A)-23, New Delhi dated 31.08.2021.
2. Following grounds have been raised by the assessee:
“1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eye of law and on facts.
2. (i)On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of Rs. 6,13,75,028/- made by the AO on account of excess stock found during the course of survey holding the same as unexplained investments under section 69 read with the section 115BBE of the Income Tax Act.
(ii) That the above said addition has been confirmed ignoring the detailed submissions and explanations along with the evidences brought on record by the assessee reconciling the difference in stock found during the course of survey.
3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition by misinterpreting the statements of the partner of the assessee firm recorded by the survey authorities.
4. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition ignoring the contention of the assessee that books of accounts of the assessee are duly audited and no defect has been pointed out by the learned AO at the time of survey or during the course of assessment proceedings.
5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition ignoring the contention of the assessee that the addition has been made by the AO without bringing any corroborative evidence on record to justify the additions made by him.
6. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition ignoring the contention of the assessee that no adverse finding has been given by the AO as to the submissions and explanations given by the assessee reconciling the difference of closing stock.”
3. Brief facts of the case are that the assessee is a firm engaged in sale and purchase of gold jewellery and the assessee has filed return of income on 17.11.2017 declaring total income of Rs.2,67,72,020 /-.
4. During the year under consideration, a survey operation u/s 133A of the Act was carried out at the assessee’s business premises on 29.11.2016. During the course of survey operation at the premises of the assessee firm, inventory of the stock was physically inventoried and physical stock valuing to Rs. 8,53,07,745/- was found, whereas, the value of stock as per books of account on that day was worked out at Rs. 2,39,32,717/-. Thus, excess stock of Rs.6,13,75,028/- was alleged during the survey. This difference in stock was then confronted to Shri Sanjay Malhotra – partner of the assessee firm who stated that “I am not able to explain it right now”. A copy of such statement of Sh. Sanjay Malhotra dated 29.11.2016 and 30.11.2016 recorded during the course of survey.
5. Subsequently, notice u/s 142(1) dated 03.09.2019 was issued and vide Q.36 (PB Pg. 43), the assessee was show caused as to why addition of Rs.6,13,75,028/- not be made on account of unexplained/ unaccounted stock in the hands of the assessee firm.
6. The assessee submitted that:
i. The stock comprising of 30 Kg gold bar approximately was sold on the day before survey and out of which approximately 20 Kg gold bar was undelivered to some of the parties which was kept aside in the premises of the assessee firm. The assessee had prepared all the sale invoices on 28.11.2016 however the goods could not be delivered on the same day and such undelivered goods were kept aside in the premises of the assessee.
ii. Moreover, the survey was initiated on 29.11.2016 and got concluded on 30.11.2016, therefore the assessee firm was not in position to deliver the goods to respective parties during this tenure of survey proceedings.
iii. However these goods were delivered to the respective parties post survey and copies of acknowledgement of goods by the receiving parties were also duly furnished. A copy of invoices of all the undelivered goods along with the acknowledgement of receiving parties is placed at PB Pg. 53-56.
iv. Further, a copy of ledger A/c of the assessee in the books of respective parties namely Shri Rathi Steel Supplier, Vishal Chain & Jewellery Pvt. Ltd. and Chain Shah Jewellers was also annexed to this reply. Further copy of complete bank statement evidencing receipt of payment against sale of such goods, stock ledger of different items of stock, details of actual closing stock as on 29.11.2016, inventory report prepared by survey team and a complete reconciliation of difference between the physical stock found by the survey team and the stock found in the books of the assessee were duly furnished before the AO as annexure to Reply dated 18.11.2019.
v. That differential of inventory as per valuation report was solely on the basis of statement of Mr. Sanjay Malhotra and no corroborative evidence in support of such statement was brought on record by the AO. Also, Mr. Sanjay Malhotra, had clearly stated that “I am not able to explain it right now”. He never admitted that the difference in stock represented undisclosed income.
vi. Thereafter, the Assessing Officer issued notices u/s 133(6) dated 03.12.2019 to all the three parties namely, Shri Rathi Steel Supplier, Vishal Chain & Jewellery Pvt. Ltd. and Chain Shah Jewellers. All the three parties duly replied and acknowledgement the purchase of goods and their delivery on 01.12.2016 & 02.12.2016. Copy of such replies given by all the three parties to the AO are placed at PB Pg. 138-157 along with the supporting documents.
8. Thereafter, the assessee applied to the JCIT to give direction under Section 144A. In response to such application the JCIT called for a report from the Assessing Officer. The Assessing Officer submitted its report dated 19.12.2019. In this report, the AO admitted that the contention of the assessee has been verified and also stand cross verified with each of the parties. The JCIT thereafter issued direction to the Assessing Officer (PB PG. 161-168) Relevant page 168, Para 7 to examine the facts properly and draw conclusion after considering all the materials available and details gathered.
9. The Assessing Officer after considering the submissions, explanations, documents and evidences and the independent inquiry made by the AO himself and made an addition of Rs.6,13,75,028/- on account of unexplained investments u/s 69 of the Act.
10. Aggrieved, the assessee filed appeal before the CIT(A) who affirm the order of the Assessing Officer.
11. During the course of appellant proceedings, assessee reiterated its replies and explained that the difference was on account of goods pertaining to certain parties remaining undelivered and a copy of reconciliation was duly submitted before the AO. It was also submitted by the assessee that neither any defect or discrepancy was pointed out in such evidences furnished by the assessee nor any adverse material was brought on record by the AO to rebut the explanation of the assessee. It was submitted that the AO himself had conducted an independent inquiry from the respective parties and those parties duly submitted their responses acknowledging the delay in delivery of such goods. The addition was made solely on the basis of statement of Sh. Sanjay Malhotra recorded during the course of survey proceedings without bringing any corroborative material on record. It was argued that the assessee has duly reconciled the difference in value of closing stock found during the course of survey and as recorded in the books of accounts of the assessee. Nothing contrary was pointed out by the AO or CIT(A) to demonstrate that any anomaly or defect existed in the reconciliation furnished by the assessee and the excess stock found during the course of survey was on account of undelivered goods kept at the premises of the assessee.
12. The assessee has duly submitted the following documents before the AO. No defects or discrepancies were pointed out in the documents filed by the assessee.
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