DCIT Vs Punjab Retail Pvt. Ltd (ITAT Indore)
Held that search was carried out before the amendment, the addition ought to have been made in terms of the prevailing provision. Therefore, the addition made by the AO invoking Section 115BBE provision of which came into force only on 01.04.2017 is not sustainable.
Facts- The assessee company on 07.11.2017 declared the total income at Rs. 28,56,20,940/- including additional income surrendered of Rs. 10,14,95,122/- and Rs. 1,20,02,793/- during the course of search and survey proceeding respectively.
The AO calculated the difference in the valuation of stock to the tune of Rs. 24,17,74,248/- at the time of search and upon allowing the credit of additional income so offered at the time of search of Rs. 10,10,00,000/-, difference of the same was calculated of Rs. 14,07,74,248/- and added the same to the total income of the assessee. Before the First Appellate Authority the said addition stood deleted. Hence, the instant appeal before us.
Further, the appellant has challenged the chargeability of tax @ 77.25% by invoking the amended provision of Section 115BBE of the Act on account of additional income declared at the time of search, survey and also the addition made by the AO.
Conclusion- The valuation of closing stock as taken by the DVO was at the prevailing market rate as on the date of search whereas the valuation of stock should have been calculated at cost as per books of accounts maintained by the assessee.
Held that the difference in the quantity was duly offered by the assessee and incorporated with the books of accounts. The case made out by the assessee that the difference as added to the total income of the appellant was on account of valuation of stock and not on the basis of difference in quantity of stock which is not the proper method and which rightly considered by the Ld. CIT(A) is also having substance.
Held that since the search in the case of the appellant was carried out before the amendment the addition ought to have been made in terms of the prevailing provision and therefore, the addition made by the AO invoking Section 115BBE provision of which came into force only on 01.04.2017 is not sustainable.
FULL TEXT OF THE ORDER OF ITAT INDORE
The instant filed by the Revenue is directed against the order dated 26.03.2019 passed by the Ld. CIT(A)-3, Bhopal (M.P.) arising out of the order dated 31.12.2018 passed by the DCIT, Central-2, Indore under Section under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for A.Y. 2017-18 with the following grounds:-
“1. On the facts and in the circumstances of the case the Ld. CIT (Appeals) erred in deleting the addition of Rs. 14,07,74,148/- made by the Assessing Officer on account of excess stock found during the course of search and ignoring the factual findings recorded by the AO with regard to the addition made on this account.
2. On the facts and in the circumstances of the case the Ld. CIT (Appeals) was not justified in allowing the assessee’s appeal on the chargeability of tax as per normal rates instead of amended provisions of section 115BBE of the act applicable w.e.f. 01/04/2017 relevant to AY 2017-18 which are clearly attracted in the case of the assessee.”
2. The first ground relates to addition of Rs. 14,07,74,148/- on account of excess stock found during the course of search.
3. The brief facts leading to the case is this that the assessee is engaged in trading and manufacturing business of gold and diamond jewellery. A search operation under Section 132 of the Act was carried out on 28.09.2016 at the business as well as residential premises of Anand & Punjab Group of Indore including the assessee along with other concerns/business associates wherein certain discrepancies in the quantity of closing stock were found. The assessee offered additional income of Rs. 10,10,00,000/- on account of the aforesaid difference in the quantity of stock found in the said search proceeding. Subsequently, another survey proceeding under Section 133A was carried out on the business premises of the assessee on 15.11.2016 which was concluded on 19.11.2016. During the course of survey additional income to the tune of Rs. 1,20,02,793/- was declared by the assessee on account of excess stock. While filing the income tax return on 07.11.2017 the valuation of difference in quantity of stock was calculated at 10,14,95,122/- which was duly incorporated in the books of accounts and shown separately in the Profit and Loss for the year ended on 31.03.2017. In the said return income of Rs. 1,20,02,793/- was also offered by the assessee company. In fact, the assessee company on 07.11.2017 declared the total income at Rs. 28,56,20,940/- including additional income surrendered of Rs. 10,14,95,122/- and Rs. 1,20,02,793/- during the course of search and survey proceeding respectively. The AO calculated the difference in the valuation of stock to the tune of Rs. 24,17,74,248/- at the time of search and upon allowing the credit of additional income so offered at the time of search of Rs. 10,10,00,000/-, difference of the same was calculated of Rs. 14,07,74,248/- and added the same to the total income of the assessee. Before the First Appellate Authority the said addition stood deleted. Hence, the instant appeal before us.
4. We have heard the respective parties and perused the relevant materials available on record.
5. The case of the assessee is this that as on the date of search on 28.09.2016 the Departmental Valuation Officer (DVO) calculated the market price of stock as lying in all the showrooms of the respondent assessee company to the tune of Rs. 106,03,64,733/-, whereas the valuation of stock as found at the time of search on the basis of books of accounts of the assessee was only of Rs. 81,85,90,485/-. The AO wrongly compared the valuation of stock as per books of accounts and as calculated by the DVO and the difference in the amount of stock was calculated at Rs. 24,17,74,248/-.
The Ld. AO while making the addition observed as follows:-
“6.5 The assessee has reconciled the figures from details filed in earlier submissions. The examination of submission filed by the assessee revealed the following facts:-
> The Govt. approved valuer has given the technical report based on purity and rate of Gold/Gold Jewellery working out the quantitative difference of around 35389.524 gms. Which is not disputed by the assessee.
> The assessee has admitted the difference in quantity valued by the Authorised Govt. approved valuer during the search and there is no dispute again on this issue on part of assessee.
> After considering the quantitative difference in totality, the assessee itself has offered Rs. 10,10,00,000/- on account of excess stock found in jewellery business during the, course of search and valued by the Govt. approved Valuer on the basis of stock available at the premises on the date of search, which is not disputed,
> The fact remained undisputed till the date of issuance of show cause Notice dated 31.10.2018 & 05.12.2018 whereas no reply was filed till 11.12.2018
> The assessee has now come forward with a plea that the valuation made by Govt. approved Valuer; is not correct on adopting the value of gold/ornaments in the valuation report, although there is no dispute over the quantity of the said report and is partly acceptable to assessee.
> Now, the assessee pleaded that if the working is made on hypothetical figure taken in the valuation report on the quantity appearing in the books of account and there remains no difference and the surrender made by the assessee is excessive on the facts and is therefore not acceptable.
> Surprisingly, the assessee has claimed to have declared Rs. 10.14 Crore on account of excess investment in stock without authentic basis and disputing the quantitative difference whereas, the nature of business is dealing in the rates of gold, which fluctuate everyday and putting question mark on the valuation report of the valuer, who deals in technical matters with respect to valuation of gold and is accepted in all the cases referred by the department.
> Another interesting facts noticed is that the assessee has accepted the valuation report on the date of survey and accordingly made surrender of Rs. 1.20 Crore on the basis of difference in value as well as in quantity worked out in the valuation report.
6.6. In view of the above, the contention raised by the assessee is not acceptable and the difference of Rs. 25,37,77,041/- (difference of Rs. 24,17,74,248/- during the search and Rs. 1,20,02,793/- during the survey) is treated as investment in excess stock on the date of search & survey and added to the total income of the assessee. Since, the assessee has already declared excessive investment in stock amounting to Rs. 10.10 Crore during the search and Rs. 1.20 Crore during the survey, in the return income filed for the A.Y. 2017-18, therefore, amount of difference in stock found during the course of search of Rs. 14,07,74,248/- (Rs. 24,17,74,248 – Rs. 10,10,00,000) is further added to the total income of the assessee for A.Y. 2017-18 on account of excess stock found and treated as unexplained investment u/s 69B of I.T. Act, 1961. The total excess stock found of Rs. 25,37,77,041/- is taxed as per the amended provisions contained u/s 115BBE applicable w.e.f. 01.04.2017 of I.T. Act.
(Addition : Rs. 14,07,74,248/-)”
6. The addition of Rs. 14,07,74,248/- was made by the Ld. AO on account of difference in the valuation of stock as physically found and as shown in the books of accounts. The difference in the quantity was duly accepted and offered by the assessee during search. The Ld. AO notionally made addition on the basis of market price, totally ignoring the case of the assessee. The addition represents the notional profit of stock in hand of the appellant and not the actual profit. We have further considered inter alia the following submission made by the assessee made in the written notes of submission submitted before us:
“1.9] That if the valuation of book stock converted at the market price by taking the rate as applied by the DVO in that case the overall difference was of Rs 2,78,25,512/- only whereas the respondent assessee had declared additional income of Rs 10,14,95,122/-. The same is calculated as under:-
