The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that an addition on the difference in stock as per books and valuation report can’t be made without credible evidence.
The Revenue challenged the impugned order dated 17/08/2021, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the Commissioner of Income Tax (Appeals) (CIT(A)) which was in favour of the assessee, Glitter Jewels.
The assessee is engaged in the business of manufacturing and trading in gold and diamond jewellery for which they filed its return of income on 30/11/2014 declaring a total income of Rs.1,37,35,880. The assessee was subjected to a survey operation conducted on 10/12/2013. During the survey operation, a statement under section 133A of the Act of one of the partners of the assessee was recorded on 10/12/2013 and 11/12/2013.
The difference of value in the stock recorded in the books and the value of the stock as per the valuation report of Rs.2,50,01,328 was offered to tax as undisclosed income for the relevant assessment year in the statement recorded.
The assessee submitted that discrepancy has arisen due to some cash purchases and certain purchases made from its sister concern, which were not recorded in the books of accounts of the assessee firm till the date of the survey. It was submitted that after the survey, the partners of the firm went through the relevant records and made detailed verification of facts, and then they found that there was no difference as per the books of account of the firm as compared to the goods found as per the valuation report. The AO made an addition of Rs.2,50,01,328.
The CIT(A) directed the AO to restrict the addition to 1 gram of 24 karat gold value and 2-carat diamond value, being the difference the CIT(A) calculated between the stock book and the valuation report, to the total income of the assessee.
The assessee submitted the reconciliation of stock found and as recorded in the books in respect of gold jewellery and diamonds. The assessee also pointed out the mistakes committed by the approved valuer while preparing the valuation report.
A Coram comprising of Shri S Rifaur Rahman, Accountant Member and Shri Sandeep Singh Karhail, Judicial Member observed that the assessee has categorised the percentage of actual gold as well as the percentage of the material used for manufacturing of 24 karats, 22 carats, 18 karats, 14 karats and 12 karat gold jewellery. Further, from the valuation report, it was also evident that the gold jewellery noted by the government valuer is of varying purity levels, i.e 18 karat, 14 karats, etc.
While upholding the order passed by the CIT(A), the Tribunal held that “merely based on the statement recorded during the survey, and the difference in stock as per books and valuation report, the addition cannot be sustained unless the same is supported with some credible evidence being brought on record.”
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
