Rajarathnam’s Jewels Vs ACIT (ITAT Bangalore)
The Ld A.R also invited our attention to the assessment order passed for AY 2005-06 u/s 143(3) of the Act. The Ld A.R submitted that the assessee had entered into an agreement with family members titled as “Bilateral understanding for deposit of gold and diamond jewellery” before taking the gold as metal loan. He submitted that these agreements were entered into way back in 1998 itself and the assessee is holding the gold belonging to family members since that date. He submitted that the assessee has been paying “user fees” to two of the family members for taking their gold as metal loan. He submitted that the user fees so paid have been allowed as deduction by the AO in AY 2005-06.
The above said facts would show that the assessing officer is well aware of the fact of receipt of gold by the assessee as metal loan from its family members. This fact has been accepted in AY 2005-06 and in the earlier years. Hence, we are of the view that the AO does not have any reason to doubt the genuineness of explanations given by the assessee with regard to the un-reconciled gold of 17.319 kgs of gold. In our view, the expression “unreconciled” itself is a misnomer, since the revenue is aware of the receipt of gold from family members since 2001 itself, i.e., from the date of earlier survey operations.
Under these set of facts, we are of the view that the AO has re-opened the assessment on mere change of opinion, because it is the assessing officer who took a different view at the time of reopening of assessment, i.e., he has entertained an opinion that the family members should have transferred the gold to the assessee firm and then the assessee firm should have held the gold on its own account. There should not be any dispute that there is no material brought on record to support the above said view of the AO. Under these circumstances, we have no other option but to hold that the assessing officer does not have any reason to believe that there was escapement of income in any of the years under consideration.
In view of the foregoing discussions, we hold that the reopening of assessment of all the years under consideration is on account of “change of opinion” and hence the reopening is not valid. Accordingly we quash the orders passed by the tax authorities for all the years under consideration.
FULL TEXT OF THE ITAT JUDGEMENT
All these appeals filed by the assessee are directed against the common order dated 30.3.2017 passed by Ld. CIT(A)-7, Bengaluru and they relate to the assessment years 2006-07 to 2012-13. All these appeals were heard together and hence they are being disposed of by this common order, for the sake of convenience.
2. In the grounds of appeal, the assessee inter-alia has challenged the validity of re-opening of the assessment in all the years under consideration. Both the parties were heard on this legal issue only.
3. The facts that are necessary to adjudicate the above said legal issue are stated in brief. The assessee is carrying on jewellery business in Bengaluru. It deals in gold, silver and diamond jewelleries and also undertakes job work from its customers. The assessee also runs a savings scheme titled as Akshaya Gold scheme. The assessee was subjected to survey operation u/s 133A of the Income-tax Act,1961 [‘the Act’ for short] on 25.9.2012. During the course of survey, excess stock of gold titled by the AO as “un-reconciled gold” was noticed. It was claimed by the assessee that the gold and jewellery belonging to customers as well as family members weighing 17.319 kgs. were kept with it and the same was not included in its book stock. The assessee submitted that the above said gold weighing 17.319 kgs were taken from family members and customers as metal loan for physical stock purposes only, i.e., the value of gold was not considered as liability of the assessee firm. Since it does not belong to the assessee firm, the same was not included in its stock. The A.O. was of the view that the excess gold stock of 17.319 kgs. referred above has to be brought to tax in the hands of the assessee. Accordingly, he reopened the assessment of assessment years 2006-07 to 2012-13 by issuing notices u/s 148 of the Act for the above said years. The assessee is challenging the validity of re-opening the assessment.
4. For adjudicating this issue, it is necessary to refer to the reasons for re-opening recorded by the A.O. We notice that the A.O. has recorded identical reasons for all the 7 years under consideration. For the sake of convenience, we extract below the reasons recorded by the A.O. for re-opening of the assessment of assessment year 2006-07:-
“The above case was selected for survey u/ s. 133A based on information that the assessee is holding huge quantities of stock of gold and silver ornaments in his business premises. A survey action u/s. 133A was conducted on 25/09/2012 in, this case with approval of Addl. CIT, Range-1.
During the course of survey, inventory of physical stock of the jewellery was taken in the presence of the partners of the firm with assistance of the firm’s employees. The assessee also admitted that the entire stock of the firm has been kept in the same business premises and no stock belonging to any other customer is lying the same business premises. The Position of the. stock of gold jewellery on the day of survey was found as follows:
