Madras H.C : Account of excess stock of silver especially when no objection was raised by the assessee at the time of search when inventorisation of stock took place

High Court Of Madras

CIT, Central Circle, Tiruchirapalli Vs. Mangal & Mangal

Section : 145

Assessment Years : 2001-02 To 2003-04

Mrs. Chitra Venkataraman And T.S. Sivagnanam, JJ.

Tax Case (Appeal) No. 968 Of 2013

April 10, 2014

ORDER

Mrs. Chitra Venkataraman, J. – Following questions of law raised by the Revenue seeking admission of the Tax Case (Appeal):—

“1.Whether on the facts and in the circumstances of the case, the Income-Tax Appellate Tribunal was right in law in restricting the addition to Rs.39,44,959/- on account of excess stock of silver especially when no objection was raised by the assessee at the time of search when inventorisation of stock took place?

2.Whether on the facts and in the circumstances of the case, the Income Tax Tribunal was right in restricting the addition made on account of investment in excess stock of gold jewellery amounting from Rs.1,44,53,361/- to Rs.4,92,364/-.”

2. The assessee is a partnership firm engaged in retail business of gold and diamond jewellery, silver wares, stainless steel articles and furniture and home appliances. A search operation was conducted by the Investigation Wing of the Department on 19.02.2003. According to the Revenue, during this search at 25 NSC Bose Road, Trichy, they seized 24,992.885 grams of gold ornaments on 19.02.2003, but no books of accounts, documents and other assets were effected. However in the search conducted at 19 & 20 Double Mall Road, Trichy, certain books of accounts and documents were seized. Based on the materials thus seized, a notice under Section 158BC was issued to the assessee. As the assessee filed its return on 23.09.2003 showing undisclosed income of Rs.25,00,000/-, pertaining to the assessment years 2001-02 to 2003-04, the block assessment order was framed on total undisclosed income of Rs.2,65,94,099/-. The assessee challenged the block assessment before the Commissioner of Income Tax (Appeals), however, granted a partial relief to the assessee after analyzing the materials placed before it. Aggrieved by the part relief granted, the Revenue went on appeal before the Income Tax Appellate Tribunal as against the relief granted by the Commissioner of Income Tax (Appeals) in favour of the assessee. The main grievance of the Revenue in the appeal before the Income Tax Appellate Tribunal was as regards the deletion of addition made on account of gold jewellery and silver items.

3. In paragraph 3 of the order, the Income Tax Appellate Tribunal dealt with the issue on the addition made on account of gold jewellery. It pointed out that at the time of search, jewellery weighing 126.759kg, was found accounted for the stock of gold, as per books of accounts was 102.120 kg. When the assessee was asked to explain the difference between the stock found and stock as per the books of accounts, it gave the explanation thereon in detail and this was considered by the First Appellate Authority. Going by the detailed explanation given, the First Appellate Authority restricted the addition to a sum of Rs.4,92,395/-, holding that the claim of the assessee was not properly appreciated by the Assessing Officer. The Income Tax Appellate Tribunal referred to the remand report from the Assessing Officer which dealt with the various additions. After going through the remand report as well as the consideration by the Commissioner’s report, the Income Tax Appellate Tribunal pointed out that the assessee had received gold jewellery for repair from the customers as well as for re-making and after receipt of these items, they were finally delivered to the customers, which were found in the various seized documents like control ledgers, receipt, vouchers, bill book issue ledgers marked as S-23, S-24, S-26, S-39, S-40, S-41, and S-42. Further, the Income Tax Appellate Tribunal pointed out that the re-made jewellery were also delivered on a receipt voucher issued to the customer, thus, as on 17.02.2003, the aggregate weight of the re-made jewellery receipt were added from the gold smiths but remained yet to be delivered to the customers was pointed out at Rs.19,583.015 grams. The delivered items as on 18.02.2003 was to the aggregate weight of 11633.670 grams. Thus, on the close of business on 18.02.2003, 17959.345 grams of re-modelled jewellery items were there at the assessee’s premises meant for the delivery to the customers. The Tribunal pointed out that these transactions were found to be properly vouched in different control ledgers, bill books, order receipt books, issue vouchers, etc., which were the subject matter of the seized materials.

4. In the context of the materials thus available, the Tribunal accepted the Commissioner’s order, thus, it held that the deduction on account of the customers re-modelled jewellery items weighing 7959.345 grams was correctly given credit towards stock of gold jewellery. As regards the purchase of gold jewellery from M/s. Prakash Gold Palace, Chennai, the Income Tax Appellate Tribunal pointed out that the said concern had confirmed the sale of gold items under approval voucher No.069, dated 17.02.2003; after approval by the sale bill No.641, dated 21.02.2003 for an amount of Rs.33,92,306/-; the photo copies of the document were filed before the Assessing Officer and there was a search enquiry was made in M/s. Prakash Gold Palace, Chennai and the clarification given and the explanation therein was accepted by the Commissioner. Considering the materials thus made available and the enquiry made by the department, the exclusion of jewellery weighing 5839.250 grams was held proper and justifiable.

5. As regards the gold jewellery item, the Income Tax Appellate Tribunal pointed out that the degree of error found in the weighing scales, warranting a reasonable deduction of 5% was rightly given by the Commissioner of Income Tax (Appeals). Apart from that the weighing of jewellery along with tax was also held to be not bad. Consequently, the tax could not be included in the stock.

6. As regards the stone studded jewellery 20% rebate as against 10% was allowed. The Tribunal pointed out that the Officer had given rebate of 10% on account of stone studded jewellery, the Commissioner of Income Tax (Appeals) had taken a reasonable view on the issue and that the Income Tax Appellate Tribunal confirmed the findings of the Commissioner of Income Tax (Appeals).

7. As against the Silver articles from Salem Parties totaling to 416739 grams, including in the total quantity of silver articles, the assessee contended that they had purchased silver articles from nine dealers and two silver-smiths and they were received prior to the date of search, but were not recorded in the stock register. The Income Tax Appellate Tribunal referred to the Commissioner’s order accepting the submission of the assessee except that in relation to the duplication of items and allowed to the extent of 60% only. The Commissioner of Income Tax (Appeals) arrived at the excess stock of silver article at Rs.651.037kg., as against 464.969 kgs., adopting the rate of Rs.6059.50 per kg., as against Rs.8706 per kg., adopted by the Assessing Officer by taking average rate during the period the assessee had acquired the silver articles in the past. Thus, there was a rejection on that account.

8. The Income Tax Appellate Tribunal pointed out that there was an incorrect weighment of silver articles. The available scales could weigh articles only upto 6kgs at a time, whereas the serial numbers of the inventory list of the silver articles indicated the weight of items far exceeding the said upper limit. Going through the relevant bills as regards the purchase of silver articles weighing 469.739 grams and the evidence of payments through demand draft drawn on Karur Vysya Bank Ltd., the stock issued and received back from silversmith inclusion of wrappers of plastic and paper while weighing, the Income Tax Appellate Tribunal held that the Commissioner of Income Tax (Appeals) had correctly given an estimated weight relief in this regard. Consequently, the Tribunal find that there was no reason to interfere with the order of the Commissioner of Income Tax (Appeals).

9. A reading of the order of the Commissioner of Income Tax (Appeals) as confirmed by the Tribunal shows a detailed discussion on the various aspects on the stock seized and the variations worked out by the Assessing Officer and thus ultimately as a fact finding authority, the appellate authority recorded its findings based on materials and this was considered and confirmed in toto by the Income Tax Appellate Tribunal. As is evident from the reading of the order, the factual finding by the Income Tax Appellate Tribunal is based on material and no exception could be taken to that. Thus the questions raised before this Court being pure questions of fact, we reject the Revenue’s case.

10. In the result, the Tax Case (Appeals) stands dismissed at the admission itself. No costs.

[Citation : 366 ITR 478]