The Bangalore Bench of Income Tax Appellate Tribunal(ITAT) has held that the deposit of gold jewellery by family members of a partner in the partnership firm would be treated as the stock in trade of the firm.
In the instant case assessee Rajarathnam’s Jewels, was a partnership firm in the business of selling gold jewellery, silver articles, diamond and platinum since 1980. On a survey conducted under Section 133A of the Income Tax Act 1961 on 16.03.2001, 46,078.73 gms of gold and diamond jewellery physically was found. The Assessee gave an explanation that the gold and diamond jewellery of 16,3063 gms and 1,013 gms belonged to the partner’s family members.
The assessee also explained that the deposit was based on the deed that the jewellery should be returned when demanded and the fee was also charged by the family members. This explanation was accepted but rejected in the second survey conducted in 2012. The assessing officer treated the deposit as stock in trade of the firm and an additional income was added.
H. Anil Kumar, on behalf of the assessee contended that the plea of the assessee that he was not the true owner had been accepted in the first survey and this practice had been followed for several years. He further submitted that the gold was deposited on the agreement of return on demand and a fee was also charged by the family members for the deposit.
K. R. Narayana on behalf of the revenue reiterated that the jewellery in question belonged to the firm and had to be considered as stock in trade of the Assessee as the jewellery was mixed with the other stock which failed to be identified by the depositors. He further contended that the assessee had already shown the jewellery as an asset in the revised Balance sheet and referredSanjeev Woolen Mills Vs Commissioner of Income-Tax which held that the partners’ family gold could be regarded as the firm’s gold only when the same was treated as the asset of the firm.
The Tribunal Bench of N V Vasudevan (Vice President) and Lakshmi PrasadShahu (Accountant Member) dismissed the appeal holding that the agreement between the firm and the family members of the partners was to give their jewellery for use by the firm and the firm had a right to sell it and the depositor would get only equivalent quantity of metal.
The bench observing these facts held that the firm had ownership over the jewellery and held that the deposit of jewellery by the family members of the partners should be treated as the stock in trade of the firm.
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