Income Tax Appellate Tribunal - Chennai
Kamadhenu Jewellers, Tiruvannamalai vs Assessee on 5 August, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
" A " BENCH, CHENNAI
Before Shri U.B.S. Bedi, Judicial Member, and
Shri N.S. Saini, Accountant Member
.....
I.T.A. No. 216/Mds/2010
[Assessment Year : 2006-07]
M/s Kamadhenu Jewellers, The Assistant Commissioner of
92-93, Car Street, Income Tax,
Thiruvannamalai. v. Central Circle IV(2),
Chennai - 600 034.
PAN : AAAFK2280Q
(Appellant) (Respondent)
Appellant by : Ms. M.J. Nichane
Respondent by : Shri Anirudh Rai
Date of Hearing : 05.08.2011
Date of Pronouncement : .08.2011
O R D E R
PER N.S. SAINI, ACCOUNTANT MEMBER :
This appeal is filed by assessee for the assessment year 2006- 2007 against an order dated 03.11.2009 of Commissioner of Income Tax (Appeals)-I, Chennai.
2 I.T.A. No. 216/Mds/10
2. Ground No. 1 is general in nature and therefore, requires no adjudication by us.
3. Grounds Nos. 2 to 6 of the appeal of the assessee are directed against the order of the ld. CIT(A) in not allowing deduction of 10% on account of weight of stones, lac and wax, etc. which cannot be said to represent and included in the weight of gold while valuing the stock of gold jewellery.
4. Grounds Nos. 7 to 10 of the appeal of the assessee are directed against the order of the ld. CIT(A) in not allowing deduction of 25% while valuing the unaccounted stock of gold jewellery and silver articles on account of impurities.
5. As both the issues are inter-connected, they are being disposed of together for the sake of convenience.
6. Brief facts of the case are that search and seizure operation was conducted u/s 132 of the Income-tax Act, 1961 [in short, the 3 I.T.A. No. 216/Mds/10 Act] on 13.9.2005. Assessee filed return of income on 29.10.2006 disclosing a total income of Rs. 23,17,171/-. Order u/s 143(30 was passed by the Assessing Officer on 26.12.2007 determining the total income at Rs. 32,08,722/- by making addition on account of valuation of closing stock of gold jewellery and also on account of excess stock of jewellery and silver articles.
7. Before us, the assessee has challenged only the rate of valuation of undisclosed gold jewellery found during the course of search. During the course of search, excess sock in trade of 4212.68 gms of gold jewellery and 32954 gms of silver articles were found. Assessee contended before the Assessing Officer by filing an affidavit on 30.9.2005 wherein it was stated that rebate should be allowed at 10% for stones, lac and wax etc and jewellery found was of 75% purity only. In the Return of Income filed, he valued the excess stock of gold jewellery at Rs. 17,77,228/- [@ Rs. 625/- per gram] after claiming rebate at 10% for stones etc and adjustment of purity at 75%. The Assessing Officer rejected the claim of the assessee for rebate at 10% for stone lac, wax etc and that the 4 I.T.A. No. 216/Mds/10 jewellery was only of 75% purity. The Assessing Officer observed that the assessee adopted effective rate of Rs. 465.75 per gram [75% of Rs. 625/-]. The analysis of the purchases made by the assessee during the year showed the cost at Rs. 555/- per gram. The assessee followed the LIFO method of accounting and the entire sales during the year were made out of purchases without opening stock being disturbed. The Assessing Officer held that this clearly shows that the value adopted by the assessee by claiming rebate and adjustment for purity was resulting in undervaluation of the stock.
8. Since the assessee was following the LIFO method of accounting, it was held by the Assessing Officer that the excess stock found on the date of search has to be taken as unrecorded purchases of the assessee. He valued the excess stock as unrecorded purchases at the purchase rate of Rs. 602/- per gram, prevalent on the date of search as ascertained from the Madras Jewellers and Diamonds Association.
5 I.T.A. No. 216/Mds/10
9. In respect of silver articles the assessee submitted before the Assessing Officer that purity of silver articles should be taken at 70% for reasons similar to the reasons given for gold jewellery. The Assessing Officer treated the excess stock of silver found as unrecorded purchases and valued the excess tock at the purchase rate prevalent on the date of search as ascertained from Madras Jewellers and Diamond Association at Rs. 11.40 per gram as against Rs. 10.50 per gram returned by the assessee.
10. On appeal, the ld. CIT(A) dismissed the appeal of the assessee by observing that the burden was on the assessee to substantiate the rebate and adjustment for purity claimed for gold jewellery and silver articles. The assessee had produced three certificates of 3 ornaments in support of its claim. He further held that it was too small a sample to make a generalization on purity of gold ornaments and silver articles. He further observed that the Assessing Officer had demonstrated clearly that rebate and adjustment of purity claimed by the assessee would result in the 6 I.T.A. No. 216/Mds/10 value of stock being substantially less than the purchases made during the year.
11. Before us, the ld. A.R. of the assessee reiterated the submissions made before the lower authorities.
12. On the other hand, the ld. D.R. fully supported the orders of the lower authorities.
13. After considering the rival submissions, we find that in the instant case, the undisputed facts of the case are that during the course of search, undisclosed stock of gold jewellery and silver articles was found by the Assessing Officer. The quantity of gold jewellery and silver articles found in not in dispute before us. The only dispute before us is that the gold jewellery was to be valued at the rate after deducting 10% on account of stones, lac and wax, etc. and after adjusting 25% for impurities in the gold jewellery. Similarly, silver articles were to be valued at 70% purity. The Assessing Officer observed that if the valuation adopted by the 7 I.T.A. No. 216/Mds/10 assessee on that basis is considered, then the assessee had valued the gold jewellery at Rs. 465.75 per gram whereas the cost of the gold jewellery shown by the assessee was Rs. 555/- per gram. Therefore, there was under valuation of gold jewellery by the assessee. Similarly, the Assessing Officer found that the assessee has valued the silver articles @ 10.50 per gram as against rate of 11.40 per gram which also amounts to under valuation of the stock. The Assessing Officer as well as the ld. CIT(A), therefore, rejected the claim of the assessee and valued the gold jewellery at the rate ascertained from the Madras Jewellers and Diamonds Association on the date of search. In our considered opinion, the closing stock has to be valued at cost or market price which ever is on lower basis. It is not in dispute that the cost of gold jewellery shown by the assessee in its accounts was Rs. 555/- per gram and of silver articles was Rs. 11.40 per gram. No material was brought on record by the ld. A.R. of the assessee to show that the net realizable value of the gold jewellery and silver articles was less than the value adopted by the Assessing Officer. We find that the assessee, on the basis of three certificates of three gold ornaments, 8 I.T.A. No. 216/Mds/10 claimed that there should be adjustment for purity for gold jewellery of 25% and for silver articles 30%. The assessee has not filed the list of gold jewellery and silver articles seized during the course of search. In the absence of the details of jewellery seized, we are unable to comment on the adequacy of the sample size of gold ornaments and silver articles to decide the purity of gold in gold ornaments and the purity of silver in silver articles. In the absence of any such material having been brought on record, we do not find any good reason to interfere with the order of the ld. CIT(A). It is confirmed. Grounds of appeal of the assessee are dismissed.
14. In the result, the appeal of the assessee is dismissed.
The order was pronounced in the Court on 12th August, 2011.
Sd/- Sd/-
(U.B.S. Bedi) (N.S. Saini)
Judicial Member Accountant Member
Chennai,
Dated the 12th August, 2011.
VL Copy to: (1) Appellant (2) Respondent (3) CIT(A)
(4) CIT (5) D.R. (6) Guard file