ITAT Deletes ₹1.2 Crore Addition, Cites Lack of Evidence in Jewellery Stock Discrepancy Case [Read Order]

The Income Tax Appellate Tribunal (ITAT), Jaipur Bench, has ruled in favor of a Jewellery deleting additions of over ₹1.2 crore made by the tax department due to alleged discrepancies in cash and jewellery stock during a search operation. The tribunal found the department’s claims lacked supporting evidence and ignored the assessee’s explanations backed by documents.

Kiran Fine Jewellers, appellant-assessee, a Jaipur-based jewellery company, which faced additions of ₹11.76 lakh for unexplained cash, ₹6.57 lakh for excess silver jewellery, ₹41.48 lakh for excess 18-carat gold jewellery, and ₹3.67 lakh as profit on alleged unaccounted sales of 22-carat gold jewellery. The additions were made after a search in August 2017, where the department claimed discrepancies in the company’s records.

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The ITAT Bench, comprising Dr. S. Seethalakshmi (Judicial Member) and Rathod Kamlesh Jayantbhai (Accountant Member), observed that the tax authorities relied heavily on statements recorded during the search but failed to substantiate their claims with concrete evidence. The tribunal noted that the company had provided detailed records, including cash books and stock registers, to explain the discrepancies, but these were disregarded without proper verification.

Regarding the cash discrepancy, the tribunal found that the department incorrectly calculated the cash in hand at ₹4.26 lakh, while the company’s records showed ₹9.34 lakh, with an additional ₹6.68 lakh received as advances from customers. The ITAT held that the department did not provide any working details to justify its calculation and ignored the company’s documentary evidence.

For the silver jewellery, the tribunal accepted the company’s explanation that the excess stock represented items received on approval from Sangam Handicrafts. The ITAT noted that the department did not conduct any independent verification or seek corroborative evidence to refute this claim.

The most significant relief came in the gold jewellery dispute. The tribunal found that the department had wrongly classified and weighed the jewellery, leading to incorrect conclusions about excess and short stock. The company argued that the purity tags were misplaced during the search, causing confusion in valuation. The ITAT accepted this explanation, noting that the total weight of gold jewellery, when considered collectively, showed only a negligible discrepancy of 191 grams, which could be attributed to weighing errors.

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The tribunal also referenced the Supreme Court’s ruling in Pullangode Rubber Produce Company Ltd. vs. State of Kerala (1973), which held that admissions in statements, while important, are not conclusive and can be rebutted with evidence. In this case, the company successfully demonstrated that the department’s claims were not supported by facts.

The ITAT’s decision highlights the importance of evidence-based assessments and proper scrutiny of taxpayer submissions. The bench allowed the appeal in full, deleting all additions and providing relief to Kiran Fine Jewellers.

In Conclusion, the appeal was allowed.

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