“Minuscule” Stock Gap No Defence: ITAT Sustains Section 69A Addition for Gold, Silver, Diamond Stock Discrepancy [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ) has held that a “minuscule” difference in stock of gold, silver, diamond..etc cannot be used as defence to avoid addition under Section 69A.

On merits, the assessee, Parekh Ornaments LLP is engaged in the business of trading and manufacturing diamond-studded jewellery, gold, silver and platinum articles. The company filed its return declaring nil income after setting off brought forward losses.

During a survey under Section 133A at its premises, discrepancies were found between physical stock and stock recorded in the books.

The Assessing Officer noted differences in multiple categories 18 carat gold, 22 carat gold, 24 carat gold, silver and diamonds and after netting positive and negative differences, determined an unexplained stock discrepancy valued at ₹5,55,960.

This amount was added as unexplained investment under Section 69A and the same was confirmed by the Commissioner (Appeals) also.

Before the tax department, the assessee contended that the total stock at the time of survey was approximately ₹25 crore and the discrepancy of about ₹5.5 lakh was negligible in comparison.

It argued that minor differences could arise due to weighing variations and measurement errors and that, in any case, the year-end stock valuation would neutralize such differences.

The Tribunal, after hearing the case, observed that the stock comparison clearly showed instances where physical stock exceeded book stock, as well as instances of shortage.

The assessee had not produced any independent valuation report, reconciliation statement, or technical evidence to demonstrate that the discrepancies arose from measurement differences, said the bench of Vikram Singh Yadav (Accountant member) and Sandeep Singh Karhail (Judicial member).

The bench said that the Section 69A allows the empowers the AO to treat the value of bullion, jewellery or other valuable articles found in possession of the assessee but not recorded in the books, where no satisfactory explanation is offered regarding their nature and source as income.

In the present case, the assessee was found to be the owner of excess bullion and jewellery not reflected in the books, and it failed to provide a satisfactory explanation. Therefore, the conditions of Section 69A stood fulfilled, held by the appellate tribunal.

Therefore, on this basis, the tribunal upheld the addition and rejected the minor difference plea of the appellant.

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