DCIT Vs Jamna Dass Nikkamal Jain Saraf P. Ltd. (ITAT Chandigarh)
Summary: The Chandigarh Bench of the Income Tax Appellate Tribunal dismissed the Revenue’s appeal for AY 2023-24 and upheld the CIT(A)’s treatment of excess and short jewellery stock on a cumulative basis. The assessee, engaged in the jewellery business from a single premises, was subjected to search under section 132 on 24.11.2022. During stock verification, excess stock was initially valued at Rs.604.88 lacs. After certain discrepancies were accepted, the Assessing Officer treated excess stock weighing 8875 grams and valued at Rs.393.97 lacs as unexplained expenditure under section 69C r.w.s. 115BBE.
Separately, shortage of jewellery weighing 7508.66 grams and valued at Rs.390.07 lacs was treated as representing out-of-book sales and profit of Rs.52.38 lacs was estimated by applying a GP rate of 13.43%. The AO also estimated Rs.7.34 lacs as capital employed for unaccounted sales. The assessee contended that gold jewellery was fungible and that 24-carat gold was routinely converted into 22K/20K/18K/14K jewellery, while unsold or old jewellery was melted and reused. Its Tax Audit Report also disclosed inter-category movements under “From Process” and “To Process”.
The CIT(A) accepted that the excess and shortage arose from the same inventory and business activity, with no evidence of any parallel business or independent source of investment, and treated only the net stock difference of Rs.3.90 lacs as additional business income. The Tribunal affirmed this approach. It held that a strict category-to-category comparison could not mechanically be applied to a jewellery business where gold is routinely converted between forms and purities. Both discrepancies were detected during the same stock-taking exercise at the same premises and related to the same class of inventory.
