Income Tax Appellate Tribunal - Chennai
M/S. Grt Jewellers India Private ... vs Dcit,. Central Circle-3(3), Chennai on 27 March, 2024
आयकरअपीलीयअिधकरण,'सी' यायपीठ,चे ई
IN THE INCOME TAX APPELLATE TRIBUNAL
'C' BENCH, CHENNAI
ीवीदुगा राव, याियकसद यएवं ी मंजुनाथा.जी, लेखा सद यके सम
BEFORE SHRI V. DURGA RAO, HON'BLE JUDICIAL MEMBER AND
SHRI MANJUNATHA. G, HON'BLE ACCOUNTANT MEMBER
आयकरअपीलसं./ITA No.: 113/Chny/2024
िनधा रणवष / Assessment Year: 2014-15
M/s. GRT Jewellers India The Deputy Commissioner of
Private Limited, v. Income Tax,
138, Usman Road, Central Circle -3(3),
T Nagar, Chennai -600 017. Chennai.
[PAN: AAACR-3582-R]
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ क ओरसे/Appellant by : Shri. B. Ramakrishnan, FCA &
Shri.ShrenikChordia, CA
यथ क ओरसे/Respondent by : Shri. R. Clement Ramesh Kumar, CIT
सुनवाई क तार ख/Date of Hearing : 05.03.2024
घोषणा क तार ख/Date of Pronouncement : 27.03.2024
आदे श /O R D E R
PER MANJUNATHA. G, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against final assessment order passed by the Assessing Officer u/s. 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), dated 09.01.2024, in pursuant to directions issued by the Dispute Resolution Panel-2, :-2-: ITA. No: 113/Chny/2024 Bangalore, dated 29.12.2023 u/s. 144C(5) of the Act, for the assessment year 2014-15.
2. The assessee has raised the following grounds of appeal:
"1. For that the order of the Learned Assessing Officer ('Learned AO') u/s. 143(3) r.w.s.144C(1) of the Income Tax Act, 1961 is opposed to law/facts and circumstances of the case.
2. Issue No.1: Reopening of an assessment u/s 147 of the Act is bad in law 2.1. For that the Order of the Learned Assessing Officer u/s 147 of the Act is bad in law and invalid.
2.2. For that the Dispute Resolution Panel ('Learned DRP') erred in upholding the action of Learned AO in reopening the assessment merely based on change of opinion which is not permissible in law as laid down by the Apex Court in case of CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561.
2.3. For that the Learned DRP/AO erred in reopening the assessment merely on the basis of an audit objection and concluded the assessment without independent application of mind.
2.4. For that the Learned AO, in the reasons recorded, failed to establish that there is any failure on the part of the appellant to disclose fully and truly all material facts and therefore, it is urged that the entire proceedings are non-est in the eyes of law.
2.5. For that the Learned DRP/AO erred in holding the reopening of an assessment beyond a period of four years as valid, without considering the fact that Original Assessment Completed u/s 143(3) of the Act on 31.03.2016 was consequent to a search, despite the fact that there is no failure on the part of the appellant to disclose fully and truly all material facts.
3. Issue No.2: Fresh issues raised through Remand reports
3.1. For that the Learned DRP erred in entertaining the fresh issues raised by the Learned AO through the remand report :-3-: ITA. No: 113/Chny/2024 without appreciating the fact that the same were never suggested for enhancement by the Assessing Officer. 3.2. For that the Learned DRP erred in considering the issues raised by Learned AO as a passing reference without proper application of mind and without issuing a specific enhancement notice to the appellant company.
4. Issue No.3: Disallowance of belated payment of employee's contribution towards PF & ESI u/s 36(1)(va) of the Act amounting to 38,61,965/-.
4.1. For that the Learned DRP/AO erred in disallowing the belated payments of employee's contribution towards PF & ESI u/s 36(1)(\va) of the Act amounting to 38,61 ,965/-. (Tax effect - Rs.13,12,682/-) 4.2. For that the Learned DRP/AO, relying upon the subsequent judgment of Apex Court in the case of M/s.Checkmate Services Private Limited, erred in disallowing u/s 36(1)(va) of the Act, which was considered and allowed while passing the Assessment Order u/s 143(3) of the Act.
5. Issue No.4: Addition towards GP on unaccounted sales of Gold Bullion 5.1. For that the Learned DRPIAO erred in making an addition of 13,38,65,660/- towards the gross profit on the alleged unaccounted sales of gold bullion of 8,50,944 grams. (Tax effect- Rs.4,55,00,938/-) 5.2. For that the Learned DRP/AO erred in making an addition without appreciating the fact that the Assessing Officer had, in the remand proceedings, shirked his responsibility in verifying the copies of sales invoices furnished by the appellant.
5.3. For that the Learned DRP/IAO, having accepted the entire sales of gold jewellery& gold articles of Rs. 4,323.91 crores is duly accounted in the books of accounts, erred in making an addition of alleged unaccounted sales of gold bullion without application of mind and without considering the fact that the sale of gold jewellery& gold articles included sales of gold bullion of 247.95 crores (8,50,944 grams).
:-4-: ITA. No: 113/Chny/2024
6. Issue No.5: Addition towards GP on unaccounted purchases of Gold Jewellery 6.1. For that the Learned DRP/AO erred in making an addition of 152,84,95,345/- towards the gross profit on the alleged unaccounted purchases of 6,09,205 grams' gold jewellery @2,509/gram without appreciating the fact that 6,09,205 grams pertains to silver articles which were duly substantiated by the appellant. (Tax effect - Rs. 51,95,35,568/-) 6.2. For that the Learned DRP erred in not considering the contents of the Remand Report dt 21.12.2023, wherein the Learned AO had stated that the appellant had not provided invoices for 24kgs of silver articles, which clearly proves that the appellant had duly furnished the purchase invoices for 585.205 kgs of silver articles which were duly verified by the Learned Assessing Officer.
6.3. For that the Learned DRP/AO, having accepted the total sales of gold jewellery and gold articles, erred in concluding an understatement of purchases without appreciating the fact that the same would have invariably resulted in higher gross margins offered by the appellant.
6.4. For that the Learned DRP/IAO erred in concluding the alleged unaccounted purchases of gold jewellery on surmises without being in possession of any material evidence to support their allegation of existence of unaccounted purchases of gold jewellery.
7. Issue No.6: Disallowance of employer's contribution towards PF and ESI 7.1. For that the Learned DRP / AO erred is disallowing a sum of 27,78,239/- towards the PF Admin Charges without appreciating the fact that these charges were forming part of the challans verified for the purposes of disallowance of 36(1) (va) of the Act by the Assessing Officer. (Tax effect Rs. 9,44,323/-) 7.2. For that the Learned DRPIAO erred in disallowing the payment of PF Admin charges without quoting any specific section of Income Tax Act.
7.3. For that the Learned DRPIAO erred in disallowing the contribution to labour welfare funds amounting to 1,92,628/-
:-5-: ITA. No: 113/Chny/2024 without appreciating the facts and circumstances of the case. (Tax effect - Rs. 65,474/-)
8. Issue No.7: Alleged difference in opening stock and closing stock for gold jewellery 8.1. For that the Learned DRP/AO ought to have appreciated the fact that no variation found in the closing stock and opening stock of gold jewellery during the course of Original assessment proceedings.
8.2. For that the Learned DRP/AO erred in making an addition of T8,69,62,990/- on account of alleged differences between closing stock and opening stock of gold jewellery of 31,519.75 grams without appreciating the facts and circumstances of the case. (Tax effect - Rs. 2,95,58,720/-)
9. Issue No.8: Addition towards GP on unaccounted sale of gold jewellery lying with third party 9.1. For that the Learned DRPIAO erred in making an addition of 1,86,03,414/- toward GP on presumed stock of gold jewellery lying with third party throughout the year. (Tax effect- Rs. 63,23,300/-) 9.2. For that the Dispute Resolution Panel failed to understand the modus operandi of the appellant in which the gold jewellery is in possession of the gold smiths round the year and after each delivery a fresh issue of gold is made for the manufacture of the go ornaments/jewellery. 9.3. For that the Learned DRP/AO ought to have considered the fact that the summary sheet provided by the appellant contained only the net movement of stock (ie., issues for manufacture and returns after manufacture) between the appellant company a goldsmiths.
10. Issue No.9: Additions based on the differences in transaction reported in Original Tax Audit Report vis-à-vis Revised Tax Audit Report 10.1. For that the Learned DRP / AO erred in disallowing a sum of 13,73,09,683/- arising on account of reduction in total value of transactions reported u/s 40A(2)(b) of the Act in Revised Tax Audit Report as against the Original Tax Audit Report. (Tax effect Rs.4,66,71,561/-) :-6-: ITA. No: 113/Chny/2024 10.2. For that the Dispute Resolution Panel failed to appreciate the fact that the appellant had rectified the inadvertent errors by properly disclosing the transactions which were in the nature of 'expenditure' fit. 10.3. For that the Dispute Resolution Panel ought to have considered the fact that the values reported in Clause 23 of Original Tax Audit Report had included the transactions like loan repayments and statutory payments which were reimbursed to persons referred in section 40A(2)(b) of the Act and even sales to related parties which form a part of related party transactions for Companies Act purposes but which are not in the nature of expenditure as required u/s 40A(2) of the Act.
10.4. For that the Learned DRP / AO erred in disallowing a sum of 13,73,09,683/-, which never claimed as expenditure in the books of the appellant company.
11. For that the Learned Assessing Officer erred in levying the interest levied u/s 234B of the Act, in consequent to the above additions/disallowances.
For these grounds and such other grounds that may be adduced before or during the hearing of the appeal, it is prayed that the Hon'ble Tribunal may be pleased to delete the additions/disallowances made and/or grant such other relief as this Hon'ble Tribunal may deem fit."
3. The brief facts of the case are that, the appellant M/s. GRT Jewellers India Pvt. Ltd., is engaged in retail business of gold bullion, diamond, silver etc., and also engaged in the business of generating electricity using solar and wind energy. A search and seizure operation u/s. 132 of the Act, was carried out in the GRT Group of cases on 16.05.2013. The assessee was also covered u/s. 132 of the Act. Consequent to search, notice u/s. 153A of the Act, was issued and served on the :-7-: ITA. No: 113/Chny/2024 assessee. The assessee had filed its return of income on 29.09.2014, declaring a total income of Rs. 35,13,15,150/-. The assessee had also reported Specified Domestic Transactions in Form no. 3CEB. The assessment has been completed u/s. 143(3) of the Act, on 31.03.2016 by making disallowance of deduction claimed u/s. 80IA of the Act amounting to Rs. 93,45,554/-. The assessee preferred an appeal before the ld. CIT(A) and the ld. First Appellate Authority, vide their order dated 04.10.2018, had directed the Assessing Officer to allow the claim of deduction u/s. 80IA of the Act. The case was, subsequently reopened u/s. 147 of the Act, for the reasons recorded as per which income chargeable to tax had been escaped assessment and thus, notice u/s. 148 of the Act dated 30.03.2021, was issued and served on the assessee. In response, the assessee had filed its return of income on 30.04.2021. The case was selected for scrutiny and during the course of assessment proceedings, a reference was made to the Transfer Pricing Officer (TPO) to determine Arm's Length Price (ALP) of Specified Domestic Transactions of the assessee u/s. 92CA of the Act. The TPO, vide their order dated 29.01.2023, has proposed downward adjustment of Rs.1,07,28,724/-, in respect of transactions of inter-unit :-8-: ITA. No: 113/Chny/2024 transfer of power generated by Wind Energy Generators. Thereafter, the Assessing Officer passed draft assessment order u/s. 144C(1) of the Act on 31.03.2023, and determined total income of the assessee at Rs. 1309,42,20,824/-, by making various additions, including downward adjustment proposed by the TPO towards Specified Domestic Transactions, additions towards disallowance of belated payment of employees contribution to PF & ESI u/s. 36(1)(va) of the Act, addition of gross profit on alleged unaccounted sales of gold jewellery, addition of gross profit on alleged unaccounted purchases, disallowance of PF admin charges and contribution to labour welfare fund, addition towards difference observed as between opening stock details furnished and that of closing stock furnished during assessment proceedings for assessment year 2013-14, addition towards unaccounted sales of unfinished gold jewellery lying with third party and addition towards difference in original and revised tax audit report towards transactions reported u/s. 40A(2)(b) of the Act.
4. The assessee had filed objections against draft assessment order passed by the Assessing Officer before the DRP and raised various grounds, including the validity of :-9-: ITA. No: 113/Chny/2024 reopening of assessment. The assessee had also challenged various additions made by the Assessing Officer, including downward adjustment as suggested by the TPO u/s. 92CA of the Act and other corporate tax issues like disallowance of PF & ESI u/s. 36(1)(va) of the Act, additions towards gross profit on alleged unaccounted sales, disallowance of PF admin charges and contribution to labour welfare fund etc. The appellant had also furnished certain additional evidences including reconciliation between differences in stock in trade reported in Form no. 3CD and argued that, the tax auditor has reported quantitative details of stock in trade of all traded goods without any individual details. The ld. DRP, has forwarded additional evidences filed by the assessee to the Assessing Officer for his comments and report. The ld. Assessing Officer, submitted his remand report and commented upon admissibility of additional evidences filed by the assessee and also reconciliation furnished by the assessee in respect of difference in stock in trade reported in Form no. 3CD, in respect of sale of gold jewellery. The ld. DRP, after considering relevant submissions of the assessee and also taken note of remand report submitted by the Assessing Officer, disposed off objections filed by the assessee, where :-10-: ITA. No: 113/Chny/2024 the ld. DRP allowed partial relief in respect of addition of gross profit on alleged unaccounted purchases, disallowance of belated payment of PF & ESI u/s. 36(1)(va) of the Act, but sustained additions made by the Assessing Officer towards addition of gross profit on alleged unaccounted sales of gold bullion, addition towards difference in stock in trade, addition towards unaccounted sale of unfinished gold jewellery lying with third party and difference in original and revised tax audit report in respect of transactions reported u/s. 40A(2)(b) of the Act. Thereafter, the Assessing Officer passed final assessment order u/s. 143(3) r.w.s. 147 r.w.s. 144C(13) of the Act, on 09.01.2024 and determined total income of Rs. 226,33,92,871/-. Aggrieved by the assessment order, the assessee is in appeal before us.
5. Ground no. 1 of assessee appeal is general in nature and does not require specific adjudication and thus, rejected.
6. Ground no. 2 of assessee appeal is challenging reopening of assessment u/s. 147 of the Act. The Ld. Counsel for the assessee, Shri. B. Ramakrishna, FCA, at the time of hearing, submitted that the assessee does not want to press ground no.
:-11-: ITA. No: 113/Chny/2024 2, challenging reopening of assessment. Thus, ground no. 2 of assessee appeal is dismissed as not pressed.
7. Ground no. 3 of assessee appeal is with regard to challenging additions towards fresh issues raised through remand report. The Ld. Counsel for the assessee submitted that the assessee does not want to press ground no. 3. Thus, ground no. 3 of assessee appeal is dismissed as not pressed.
8. The next issue that came up for our consideration from ground no. 4.1 to 4.2 of assessee appeal is disallowance of belated payment of employee's contribution to PF & ESI u/s. 36(1)(va) of the Act, amounting to Rs. 38,61,965/-. The fact with regard to the impugned dispute are that, during the course of assessment proceedings, the Assessing Officer noticed that as per Form no. 3CD, the assessee has claimed deduction u/s. 36(1)(va) of the Act, towards employee's contribution to PF & ESI at Rs. 2,32,61,334/-. The Assessing Officer, further noticed that contribution to the extent of Rs. 2,29,14,828/- was paid to the fund beyond due date prescribed under respective Acts. Accordingly, belated payment of Rs. 2,29,14,828/- was proposed to be added to the total income of the assessee u/s. 36(1)(va) r.w.s. 2(24)(x) :-12-: ITA. No: 113/Chny/2024 of the Act. Aggrieved by the draft assessment order, the assessee company filed objections before the DRP. During the proceedings before the DRP, the assessee submitted additional evidences and in this regard, a remand report was called for from the Assessing Officer. During remand proceedings, the assessee has submitted challans in respect of payment of employee's contribution to PF & ESI and submitted that, there was certain errors in reconciliation of branch data in respect of contribution to various funds and in fact, the actual amount of contribution was paid beyond the due date was only at Rs. 38,61,995/-. The ld DRP, after considering relevant reconciliation statement submitted by the assessee and also considering the findings of the Assessing Officer in his remand report, allowed relief of Rs. 1,93,99,369/- and balance amount of Rs. 36,65,965/- has been confirmed.
8.1 The Ld. Counsel for the assessee, Shri. B. Ramakrishna, FCA, submitted that the ld. DRP/Assessing Officer erred in sustaining belated payments of employee's contribution to PF & ESI u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act, by relying on subsequent judgments of Apex Court in the case of Checkmate Services Pvt. Ltd. vs. CIT, 448 ITR 518(SC) , even though said :-13-: ITA. No: 113/Chny/2024 claim was considered and allowed while passing the assessment order u/s. 143(3) of the Act.
8.2 The ld. DR, Shri. R. Clement Ramesh Kumar, CIT, on the other hand supporting the order of the ld. DRP submitted that, the controversy around deduction towards belated payment of employees contribution to PF & ESI has been finally resolved by the Hon'ble Supreme Court in the case of Checkmate Services Pvt Ltd vs CIT, 448 ITR 518 (SC), and thus, the DRP and Assessing Officer has rightly disallowed belated payment of employee's contribution to PF & ESI and their order should be upheld.
8.3 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The Hon'ble Supreme Court has considered the issue of belated payment of employee's contribution to PF in the case of Checkmate Services Pvt. Ltd. vs. CIT in (2022) 448 ITR 518 (SC), and after considering relevant facts held that the assessee is a custodian of funds received from employee's towards welfare fund. Thus, any remittances towards said funds after the due date prescribed under respective Acts :-14-: ITA. No: 113/Chny/2024 cannot be allowed as deduction under provisions of section 36(1)(va) r.w.s. 2(24)(x) of the Act. The Hon'ble Supreme Court has considered the issue in light of their earlier decisions in various cases and held in Para 54 of the order as under:
54. In the opinion of this Court, the reasoning in the impugned judgment thatthe non-obstante clause would not in any manner dilute or override theemployer's obligation to deposit the amounts retained by it or deducted by it fromthe employee's income, unless the condition that it is deposited on or before thedue date, is correct and justified. The non-
obstante clause has to be understoodin the context of the entire provision of Section 43B which is to ensure timelypayment before the returns are filed, of certain liabilities which are to be borneby the assessee in the form of tax, interest payment and other statutory liability.In the case of these liabilities, what constitutes the due date is defined by thestatute. Nevertheless, the assessees are given some leeway in that as long asdeposits are made beyond the due date, but before the date of filing the return, thededuction is allowed. That, however, cannot apply in the case of amounts whichare held in trust, as it is in the case of employees' contributions- which arededucted from their income. They are not part of the assessee employer'sincome, nor are they heads of deduction per se in the form of statutory pay out.They are others' income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law.They have to be deposited in terms of such welfare enactments. It is upon deposit,in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed anincome, is treated as a deduction. Thus, it is an essential condition for thededuction that such amounts are deposited on or before the due date. If suchinterpretation were to be adopted, the non-obstante clause under Section 43B oranything contained in that provision would not absolve the assessee from itsliability to deposit the employee's contribution on or before the due date as acondition for deduction."
:-15-: ITA. No: 113/Chny/2024 8.4 The coordinate bench of ITAT, Chennai in the case of
Gokulam Chit and Finance Co Pvt. Ltd. vs. DCIT in ITA No. 765/2022, order dated 21.12.2022 has considered an identical issue by following the decision of Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. vs. CIT (Supra), held that, belated payment of employee's contribution to PF & ESI made beyond the due dates specified in the respective Acts attracted the provisions of section 36(1)(va) r.w.s. 2(24)(x) of the Act. Therefore, we are of the considered view, that there is no error in the reasons given by the ld. DRP/Assessing Officer to sustain addition towards belated payment of employee's contribution to PF & ESI and thus, we are inclined to uphold the findings of the ld. DRP and reject ground taken by the assessee.
9. The next issue that came up for our consideration from ground no. 5 of assessee appeal is addition towards gross profit on alleged unaccounted sales of gold jewellery amounting to Rs. 13,38,65,660/-. The facts with regard to the impugned dispute are that, during the course of assessment proceedings, the AO noticed that the quantitative details of raw materials and finished goods submitted by the assessee :-16-: ITA. No: 113/Chny/2024 shows excess stock of gold jewellery to the tune of 8,50,994 gms. The AO has recorded details of opening stock, purchases, consumption, sales and closing stock in Para 4.1 of their order. The assessee has reported consumption and sales separately. The Assessing Officer, on the basis of closing stock reported by the assessee in Form no. 3CD in relevant column observed that the assessee has reported incorrect figure. Therefore, the AO, called upon the assessee to explain discrepancy in quantitative details reported in Form no. 3CD in respect of gold jewellery. The assessee submitted that, the consumption quantity of 9095156 Gms includes sales of 850944 Gms, but by inadvertent error, the tax auditor has reported sales and consumption separately. To justify their arguments, the appellant has filed a revised Form no. 3CD, certifying from Accountant and rectified the mistake and claimed that there is no shortage as claimed by the AO. The AO however, was not convinced with explanation furnished by the assessee. According to the AO, the assessee has not accounted sales of gold jewellery to the tune of 850944 gms and thus, computed total unaccounted sales by adopting prevailing market rate of gold (22 Karat), which was at Rs. 2509 per gram and determined total value of sales at Rs. 213,50,18,496/-. The :-17-: ITA. No: 113/Chny/2024 AO, further noticed that the assessee has reported gross profit of 6.27% and taking into account assesses own gross profit rate, has computed gross profit on unaccounted sales of gold jewellery at Rs. 13,38,65,660/- and made addition. The assessee challenged the additions made by the AO before the DRP, but could not succeed. The ld. DRP, after considering relevant facts and also taking note of remand report of the Assessing Officer, rejected arguments of the assessee and sustained addition made towards gross profit on unaccounted sales of gold jewellery, on the ground that the assessee could not furnish sufficient evidence to prove that sale of gold jewellery is included in consumption of raw materials and subsequent evidences filed during the course of DRP proceedings cannot be accepted, that to when the evidences are in the form of sale invoices for 850944 gms of gold jewellery, which runs into hundreds of invoices. 9.1 The ld. Counsel for the assessee, Shri. B. Ramakrishna, FCA, submitted that the ld. DRP/AO erred in making addition of Rs. 13,38,65,660/- towards gross profit on alleged unaccounted sales of gold bullion of 850944 gms, without appreciating the fact that the AO had, in the remand :-18-: ITA. No: 113/Chny/2024 proceedings, shirked his responsibility in verifying the copies of sales invoices furnished by the appellant. The ld. Counsel for the assessee further submitted that, total sale of gold jewellery and gold bullion and other articles was at Rs. 4323.91 crores, which includes sale of gold jewellery 850944 gms. The assessee has furnished evidences including sale invoices and relevant sales register before the AO. The AO neither verified the details furnished by the assessee, nor accepted the claim of the assessee. Therefore, he submitted that the matter may be remitted back to the file of the AO to reconsider the issue in light of evidences filed by the assessee. 9.2 The ld. DR, Shri. R. Clement Ramesh Kumar, CIT, on the other hand supporting the order of the ld. DRP/AO submitted that, books of accounts and tax audit report submitted by the assessee are not reliable. In fact, the assessee itself has admitted that tax audit report submitted by the tax auditor is incorrect. The assessee has submitted revised tax audit report and claimed that, there is no difference as computed by the AO towards sale of gold jewellery. Since, the appellant could not furnish necessary evidences in support of the claim, the :-19-: ITA. No: 113/Chny/2024 DRP/AO has rightly rejected the claim of the assessee and their order should be upheld.
9.3 We have heard both the parties, perused materials available on record and gone through the orders of authorities below. The assessee claims that there was an error in reporting quantitative details of raw materials of gold bullion by the tax auditor, which leads to the impugned dispute of unaccounted sales of gold jewellery. According to the assessee, sale of gold jewellery of 850944 gms is included in consumption details and by inadvertent error, tax auditor has reported sale of gold jewellery separately, even though the same was included in consumption. The assessee has justified its arguments by filing various details including sales bill of gold jewellery, necessary registers and also total amount of sales declared by the assessee and quantity of gold articles sold. As per details submitted by the assessee, the assessee has sold 13724652 Gms of gold bullion and reported total sales amount of Rs. 4323.91 crores and if you work out sales value per gram, it will come at Rs. 3150 per gram, which can never be the cost given the market rate prevailing then was already at Rs. 2509 per gram, as considered by the AO. From :-20-: ITA. No: 113/Chny/2024 the details furnished by the assessee, it appears that the unaccounted sales computed by the Assessing Officer, on the basis of tax audit report, ignoring reconciliation filed by the assessee appear to be incorrect. Further, the assessee has filed sample copies of sale invoices along with registers to prove their claim that sale of gold jewellery is already included in consumption details. The fact needs further verification from the AO. Therefore, we set aside the order of the ld. DRP/AO on this issue and restore the issue back to the file of the AO with a direction to re examine the claim of the assessee in light of any evidences that may be filed by the assessee and decide the issue in accordance with law.
10. The next issue that came up for our consideration from ground no. 7 of assessee appeal is disallowance of PF admin charges and contribution to labour welfare fund at Rs. 29,70,867/-. The AO has made additions of Rs. 1,31,39,000/- towards employer contribution of PF & ESI, on the ground that normally employees and employer contribution towards PF & ESI would be at equal rate. The AO further observed that in some instances, employee contribution may be at increased rate but not employer contribution. Accordingly, he has :-21-: ITA. No: 113/Chny/2024 worked out excess contribution of Rs. 131,39,000/-, by taking into account employees contribution of Rs. 2,32,61,000/- and employers contribution of Rs. 3,64,00,000/- and difference has been added back to the total income of the assessee. The assessee challenged addition made by the AO towards disallowance of employer contribution of PF on the ground that, the disallowance worked out by the AO is erroneous for the reason that different rates of contribution was provided for employees and employer in respect of ESI and in so far as PF is concerned, in addition to employer contribution, the assessee needs to pay admin charges. The assessee has filed reconciliation explaining employee contribution, employer contribution and admin charges as per respective Act and claims that there is no difference as computed by the AO. The assessee had also filed details with regard to contribution of labour welfare funds. The assessee has filed a detailed reconciliation, which has been extracted in Para 9.1 of ld. DRP order. The ld. DRP, after considering relevant reconciliation filed by the assessee and also taken note of rate of contribution to ESI & PF has held that, the assessee could not file any evidence to prove the genuineness of Rs. 27.78 lakhs towards PF admin charges. The ld. DRP, further held that the :-22-: ITA. No: 113/Chny/2024 rate of monthly contribution to labour welfare fund is Rs. 20 per employee and Rs. 40 per employer and if you consider said rate, the amount claimed by the assessee is excess and thus, out of total disallowance of Rs. 1,31,39,000/-, allowed relief to the extent of Rs. 1,08,57,970/- and balance amount of Rs. 29,70,867/-has been confirmed.
10.1 The ld. Counsel for the assessee, Shri. B. Ramakrishna, FCA, submitted that the ld. DRP has erred in sustaining additions made towards disallowance of PF admin charges and contribution to labour welfare fund, even though the assessee has filed necessary details including challans for payment of admin charges before the AO, during remand report. Therefore, he submitted that the matter may be remitted back to the file of AO to verify the claim of the assessee and allow as per law.
10.2 The ld. DR, Shri. R. Clement Ramesh Kumar, CIT, on the other hand submitted that the DRP has recorded categorical finding that, the assessee could not file any evidence to prove payment of PF admin charges. The assessee had also not furnished any evidences to prove contribution to labour :-23-: ITA. No: 113/Chny/2024 welfare fund. The ld. DRP, after considering relevant facts has rightly sustained PF admin charges and contribution to labour welfare fund and their order should be upheld. 10.3. We have heard both the parties, perused materials available on record and gone through the orders of authorities below. There is no dispute with regard to claim of the assessee that, the employer needs to pay admin charges at prescribed rate as per PF Act, in addition to employer contribution. The assessee further claims that it has filed reconciliation explaining difference and also furnished necessary challans for payment of PF admin charges. But the AO has summarily rejected evidences filed by the assessee and made additions. In fact, the DRP never disputed the fact that PF admin charges is required to be paid as per law, but sustained additions only on the ground that, assessee could not furnish any evidence. Now, the appellant has claimed to have furnished necessary evidences including challans for payment of PF admin charges and labour welfare fund. In our considered view, matter needs further verification from the AO. Thus, we set aside the order of the ld. DRP/AO, on this issue and restore the issue back to the file of the AO and direct the AO to verify the claim of the :-24-: ITA. No: 113/Chny/2024 assessee, in light of any evidence that may be filed by the assessee to prove their claim with regard to payment of PF admin charges and contribution to labour welfare fund.
11. The next issue that came up for our consideration from ground no. 8 of assessee appeal is addition towards alleged difference in opening stock and closing stock of gold jewellery. During the course of assessment proceedings, the assessee stated that the quantitative particulars of opening stock of gold jewellery was 1,05,07,390 grams. But, in the tax audit report it was stated that the opening stock was at 1,02,74,279 grams. The quantitative details of gold jewellery furnished by the assessee when compared to opening stock reported in tax audit report had a difference of 2,33,111 grams of gold jewellery. The assessee was asked to furnish breakup and also reconcile the difference. The assessee submitted that, the difference in opening stock of gold jewellery as reported in tax audit report was on account of bullion separately reported at 62,305 grams, old gold lying with third party not reported 59,431 grams and unfinished gold not reported in Form 3CD 1,11,376 grams. The claim made by the assessee was verified with reference to closing stock figures reported as on :-25-: ITA. No: 113/Chny/2024 31.03.2013 and noticed that, the assessee had given a breakup for its closing stock as on 31.03.2013 which was at 19,01,691.510 grams. However, in the reconciliation statement submitted during the course of remand proceedings, the opening stock of gold jewellery as on 01.04.2013 was shown at 19,33,211.264 grams. Therefore, the AO opined that, the assessee was not able to explain difference in opening stock in trade of gold jewellery of 31,519.750 grams and thus, by taking prevailing market rate which was at Rs. 2759 per gram, worked out unaccounted sales of Rs. 8,69,62,990/- and added to total income. It was the explanation of the assessee before the AO that, there is no difference in value of closing stock as reported in the year ending 31.03.2013 and opening stock value as on 01.04.2013. Although, there was a difference in quantity of gold jewellery reported in tax audit report and reconciliation filed by the assessee, but said difference was on account of incorrect details submitted by tax auditor in his report without verifying the stock details furnished by the assessee. The assessee has furnished correct quantitative details after reconciling the items of traded goods including gold jewellery, silver articles, diamonds etc and also explained the reason for difference.
:-26-: ITA. No: 113/Chny/2024 The tax auditor after considering relevant details has furnished revised audit report and as per revised report, the quantitative details of stock in trade reported by the tax auditor matches with opening stock considered by the assessee in his audit report.
11.1 We have heard both the parties, perused materials available on record and gone through the orders of authorities below. Admittedly, there is no difference in value of opening stock reported by the assessee in tax audit report and as well as in financial statement (profit and loss account) as on 01.04.2013, when compared to value of closing stock as reported to the AO during the assessment proceedings for the assessment year 2013-14. It is also admitted fact that, there is a difference in quantitative details of opening stock reported by the assessee in tax audit report, when compared to closing stock details of quantity furnished to the AO in the previous assessment year. The assessee has filed reconciliation statement explaining the difference and argued that, while reporting quantitative details of stock in trade of opening stock, certain quantity of gold jewellery was lying with third party was not reported. If you exclude said jewellery, the :-27-: ITA. No: 113/Chny/2024 difference worked out by the AO on the basis of tax audit report submitted by the auditor and reconciliation submitted during the assessment proceedings, we find that there is no difference as quantified by the AO in respect of opening stock of gold jewellery. Further, when there is no difference in stock in trade value as reported by the assessee as on 01.04.2013 in financial statement when compared to closing stock as reported on 31.03.2013, in our considered view discrepancy in quantitative details reported by the assessee with explanation and reconciliation submitted should be accepted. Since, the assessee filed reconciliation explaining difference in quantitative of stock in trade of gold jewellery, in our considered view, the AO ought not to have made addition towards value of gold jewellery, on the basis of quantitative difference without there being any evidence to prove that, said difference is on account of purchase of gold jewellery or sale of gold jewellery. Therefore, we are of the considered view that the AO and ld. DRP completely erred in making addition towards value of gold jewellery amounting to Rs. 8,69,62,990/-, being difference between opening stock of quantitative details as shown as on 01.04.2013 and closing stock of quantitative details of gold jewellery shown as on :-28-: ITA. No: 113/Chny/2024 31.03.2013. Thus, we set aside the findings of ld. DRP/AO on this issue and direct the AO to delete addition made towards difference in value of stock in trade of gold jewellery.
12. The next issue that came up for our consideration from ground no. 9 of assessee appeal is addition towards gross profit on unaccounted sales of gold jewellery lying with third party. During the course of assessment proceedings, the assessee explained the difference in closing stock of gold jewellery as reported in tax audit report for the assessment year 2013-14 and the opening stock of gold jewellery as reported in tax audit report for the assessment year 2014-15 was due to 1,11,375.814 grams of unfinished gold jewellery lying with third party. The assessee submitted that, the same was missed to be included in the opening stock of gold jewellery as on 01.04.2013. In the remand proceedings, the assessee explained that in the closing stock as on 31.03.2013 unfinished gold jewellery of 190754.558 grams was shown which comprises opening stock of 111375.814 grams of unfinished jewellery lying with third party and accretion of 79378.744 grams during the year. Since, the assessee statement itself showed that said jewellery lying with third :-29-: ITA. No: 113/Chny/2024 party was not included in stock statement, a show cause notice dated 21.12.2023 was issued to the assessee and called upon to explain as to why enhancement of income should not be made with respect to the value of unfinished jewellery lying with third parties. In response, the assessee submitted that, while reporting quantitative details of stock in trade by inadvertent error the auditor missed to report jewellery lying with third party. Further, in this line of business, the old jewellery received from customers and certain jewellery or ornaments were given to goldsmith for repair or modification. The unfinished jewellery with goldsmith was verified at the end of the year. The assessee has reconciled the difference and explained to the AO and said unfinished jewellery value was included in value of opening stock and closing stock. The DRP, rejected arguments of the assessee and directed the AO to make addition towards value of unfinished jewellery lying with third party by taking into account gross profit @ 6.27% and made addition of Rs. 1,86,03,414/-.
12.1 The ld. Counsel for the assessee, submitted that the ld. DRP/AO erred in making addition towards gross profit on unfinished stock of gold jewellery lying with third party without :-30-: ITA. No: 113/Chny/2024 appreciating the modus operandi of the appellant in which the gold jewellery is in possession of goldsmith around the year and after each delivery a fresh issue of gold is made for manufacture of gold ornaments/jewellery. The ld. Counsel for the assessee submitted that, lower authorities ought to have considered the fact that the summary sheet provided by the appellant contained only the net movement of stock (i.e, issues for manufacture and return after manufacture) between the appellant companies and goldsmith. These facts have been explained to the DRP, but they have rejected arguments of the assessee and made addition towards gross profit. 12.2 The ld. DR, Shri. R. Clement Ramesh Kumar, CIT, on the other hand supporting the order of the DRP/AO submitted that the assessee itself has admitted fact that 1,11,375.814 grams of unfinished gold jewellery was lying with third party and the same was not part and partial of stock in trade of the assessee. The assessee could not furnish any evidence to prove unfinished jewellery lying with third parties. Therefore, the DRP/AO rightly presumed that said quantity of unfinished jewellery is unaccounted sale and accordingly, estimated gross profit and made addition.
:-31-: ITA. No: 113/Chny/2024 12.3 We have heard both the parties, perused materials available on record and gone through the orders of authorities below. The assessee is in the business of manufacturing of gold ornaments and jewellery, purchase gold bullion and converting into gold jewellery/ornaments, by giving gold bullion to goldsmith and makes ornaments. The unfinished gold jewellery lying with goldsmith was valued at the end of the year and included in the value of closing stock. This is the modus operandi of the appellant employed in its business of trading in gold jewellery and ornaments. If you go by the nature of business of the assessee, the arguments taken by the appellant that unfinished gold jewellery lying with goldsmith was not considered in the opening stock of jewellery by inadvertent error appears to be bonafide and genuine. Therefore, in our considered view, when the appellant has reconciled said difference by filing necessary evidences including the quantity of unfinished jewellery lying with goldsmith, in our considered view, the ld. DRP/AO ought not to have made addition towards gross profit on unaccounted sale of unfinished gold jewellery. But, fact remains that even before us, the assessee could not explain as to how unfinished gold :-32-: ITA. No: 113/Chny/2024 jewellery of 1,11,375.814 grams was included in the value of opening stock as on 01.04.2013. If the assessee is able to provide necessary evidences including delivery channels to be used for handling the jewellery between the appellant and the goldsmith and further, any other document that may be used by that parties. If the assessee is able to prove 1,11,375.814 grams was in fact lying with the third party and further, the value of same has been already included in the value of closing stock, then the AO is directed to verify the claim of the assessee with reference to necessary evidences and delete addition made towards gross profit on unaccounted sales of unfinished gold jewellery lying with third party, because even the AO/DRP has presumed said quantity of unfinished gold jewellery claimed to have been lying with third party was sold by the assessee without any evidence. Thus, we set aside the issue to the file of the AO and direct the AO to verify the claim of the assessee and decide the issue in light of our discussions given hereinabove.
13. The next issue that came up for our consideration from ground no. 10 of assessee appeal is addition based on the difference in transactions reported in original tax audit report :-33-: ITA. No: 113/Chny/2024 vis-a-vis revised tax audit report u/s. 40A(2)(b) of the Act, amounting to Rs. 13,73,09,683/-. During the course of remand proceedings, the assessee filed revised audit report in Form 3CA and 3CD for the assessment year 2014-15, on 20.10.2023. On comparison of the original tax audit report with the revised tax audit report, it was found that, there was some difference between the figures mentioned in the original audit report and the revised audit report, in respect of various transactions covered u/s. 40A(2)(b) of the Act. There was a net difference of Rs. 13,73,09,683/- as per transactions reported in original tax audit report and revised tax audit report. The AO, called upon the assessee to explain reasons. During the course of DRP proceedings, the observations of the AO with regard to mismatch in transactions reported u/s. 40A(2)(b) of the Act, as per tax audit report was communicated to the assessee vide letter dated 27.12.2023 and the assessee was asked to show cause as to why the difference should not be disallowed and added back to the income of the assessee. In response, the assessee vide letter dated 28.12.2023, submitted that the provisions of section 40A(2)(b) of the Act, pertains to disallowance of expenditure which is made by the appellant, but it does not applicable to :-34-: ITA. No: 113/Chny/2024 various other reportable transactions like repayment of loan, etc. The assessee had also filed a reconciliation explaining difference between amount reported u/s. 40A(2)(b) of the Act, in tax audit report submitted by the assessee along with return of income and revised tax audit report submitted during the course of remand proceedings and claimed that, there was a mismatch in reporting certain transactions in respect of interest payments, director remuneration, purchase from related parties, rent payment, making charges, other expenses etc. The DRP, however was not convinced with explanation furnished by the assessee and accordingly held that, in absence of any supporting evidence in respect of mismatch of various transactions, the explanation of the assessee could not be accepted and thus, directed the AO to disallow difference to the tune of Rs. 13,73,09,683/- while computing the total income.
13.1 The ld. Counsel for the assessee, submitted that the ld. DRP/AO erred in disallowing difference in original and revised tax audit report arising on account of reduction in total value of transactions reported u/s. 40A(2)(b) of the Act, in revised tax audit report as against original tax audit report, without :-35-: ITA. No: 113/Chny/2024 appreciating fact that the appellant had rectified an inadvertent error by properly disclosing the transactions which were in the nature of expenditure. The ld. Counsel for the assessee, further submitted that value reported in Clause 23 of original tax audit report was included with transactions like loan repayment and statutory payments which were reimbursed to persons referred to in section 40A(2)(b) of the Act and even sales to related parties which form a part of related party transactions are in the nature of expenditure as required u/s. 40A(2) of the Act. Therefore, he submitted that the matter may be set aside to the file of the AO to verify the reconciliation filed by the assessee and decide the issue in accordance with law.
13.2 The ld. DR, on the other hand supporting the order of the DRP/AO submitted that, it is the assessee who has reported incorrect amount of various transactions reportable u/s. 40A(2)(b) of the Act, in Clause 23 of tax audit report. Although, the assessee claimed to have reconciled the difference with necessary explanation, but could not file any details before the DRP and thus, the DRP has rightly directed the AO to make addition towards difference in value of :-36-: ITA. No: 113/Chny/2024 transactions reported u/s. 40A(2)(b) of the Act, as income of the assessee and their order should be upheld. 13.3. We have heard both the parties, perused materials available on record and gone through the orders of authorities below. As per provisions of section 40A(2)(b) of the Act, any transactions with related parties should be reported in clause 23 of tax audit report issued by auditor in Form 3CD. As per Clause 23 of Form 3CD, in original tax audit report issued by the auditor, the transactions reportable u/s. 40A(2) of the Act was shown at Rs. 1,16,37,49,420/-, which comprises of interest payment, director remuneration, purchases, rent windmill expenses, making charges, refinery charges, other expenses etc. In the revised tax audit report issued by the auditor, the total value of reportable transactions under Clause 23 of Form 3CD was shown at Rs. 1,02,64,39,738/-. The assessee has explained difference in each head of expenditure, their transactions with corresponding remarks and claimed that certain transactions of loan received and repaid has been shown as interest payments. Likewise, certain transactions of purchases from related parties have been classified as director remuneration. Likewise, the assessee has reconciled each :-37-: ITA. No: 113/Chny/2024 head of expenditure and explained the difference. The reconciliation statement filed by the assessee is available in Page no. 20 of paper book filed by the assessee, dated 29.02.2024. We have gone through the reconciliation filed by the assessee and find that certain transactions of loan received and repaid has been classified as interest payments. Similarly, certain transactions of purchases from related parties have been shown as director remuneration. Likewise, each and every transaction has been explained with corresponding narration. Further, transactions reported in Clause 23 of Form 3CD is not necessarily related to an expenditure claimed in the profit and loss account or income credited in the profit and loss account of the assessee for the relevant assessment year. Sometimes, capital account transactions like loan received and repaid and other transactions between related parties are also needs to be reported. Therefore, based on the difference in value of transactions reported as per original tax audit report and revised tax audit report, it cannot be ascertained that said difference is either income of the assessee, which has been understated or expenditure of the assessee which can be overstated. Each and every transaction needs to be verified by the AO with regard to the explanation of the assessee and :-38-: ITA. No: 113/Chny/2024 corresponding books of accounts maintained for relevant assessment year. Since, the AO has summarily computed difference between value reported in two tax audit reports and treated as income of the assessee, in our considered view, the AO is completely erred in treating the difference in value of transactions reported in Clause 23 of revised tax audit report as income of the assessee. Further, the assessee has already filed reconciliation explaining said difference which needs verification from the AO. Thus, we set aside the issue to the file of the AO and direct the AO to reexamine the claim of the assessee, in light of reconciliation filed by the assessee and also verify each and every item of transactions reported in Clause 23 of Form no. 3CD as per original tax audit report and revised tax audit report filed by the assessee and ascertain the nature of transactions and in case really there is a difference, then said difference should be computed and decided in accordance with law.
14. The next issue that came up for our consideration from ground no. 6 of assessee appeal is addition towards gross profit on unaccounted purchases of gold jewellery. The facts with regard to the impugned dispute are that during the :-39-: ITA. No: 113/Chny/2024 assessment proceedings, the AO seen from the profit and loss account of the assessee that the purchase value of gold jewellery was at Rs. 154053.71 lakh for assessment year 2014-15. However, the corresponding unit as shown in Form 3CD was 46912367 grams. The Assessing Officer after considering these figures has worked out Rs. 328 per gram, which is abnormally low when compared to the least market rate that was prevalent during the financial year 2013-14 at Rs. 2509 per gram. The AO, on the basis of said discrepancies as noticed has worked out total purchase value of gold of Rs. 10,229,77,57,803/- by taking in to account per gram gold rate at Rs. 2509/-.(46912367*Rs. 2509- Rs.15405371000). The AO, after considering gross profit declared by the assessee for the relevant financial year which was at 6.27%, has worked out gross profit on unaccounted purchases of Rs. 6,41,40,69,414/- and proposed to be added to the total income of the assessee. The assessee company filed objections before the DRP. During the course of proceedings before the DRP, the assessee has submitted additional evidences including revised tax audit report and quantitative details of all traded goods and claimed that, the tax auditor has reported total quantity of all traded goods including gold jewellery, gold :-40-: ITA. No: 113/Chny/2024 bullion, silver bullion, and silver articles in one column without any bifurcation. The additional evidences filed by the assessee have been furnished to the AO for his remand report. During the remand proceedings, the assessee submitted that total quantity of all items of traded goods was 475,21,572 grams, whereas, in the tax audit report it was reported at 469,12,367 grams. The AO, noticed that for the difference of 609205 grams of gold jewellery, the assessee neither produced any evidences like purchase bills/payment details/bank statement to prove its claim, that the increase in quantity relates to purchase of silver articles to the extent of 609205 grams, nor submitted any valid reasons for omission of such huge quantity of bullion. Therefore, taking in to account difference in quantity of 609205 grams and adopting prevailing market rate of Rs. 2509 per gram, worked out unaccounted sales of Rs. 152,84,95,345/- and submitted his remand report to the DRP and claimed that, the value of excess stock of 609205 grams of gold jewellery may be considered for addition in place of Rs. 641,40,69,414/- proposed in the draft assessment order.
:-41-: ITA. No: 113/Chny/2024 14.1 The ld. Counsel for the assessee, Shri. B. Ramakrishna, FCA, submitted that the ld. DRP/AO erred in making addition of Rs. 152,84,95,345/-, towards gross profit on alleged unaccounted purchases of 609205 grams of gold jewellery @ 2509 per gram, without appreciating fact that 609205 grams pertains to silver articles, which was duly substantiated with necessary evidences including purchase bills, payment details etc. The ld. Counsel for the assessee further submitted that, the ld. DRP erred in not considering the content of the remand report dated 21.12.2023, wherein the ld. AO has stated that the appellant had not provided invoices for 24 kgs of silver articles which clearly proves that the appellant has duly furnished the purchase invoices for 585.02 grams silver articles which were duly verified by the AO. The ld. Counsel for the assessee submitted that, the ld. DRP/AO having accepted the total sales of gold jewellery and gold articles, erred in concluding understatement of purchases without appreciating the fact that, the same would have invariably resulted in higher gross margin offered by the appellant. The ld. Counsel for the assessee, further referring to reconciliation filed by the assessee submitted that, the AO has not pointed out any difference in value of purchases reported by the :-42-: ITA. No: 113/Chny/2024 assessee in financial statement for the relevant assessment year. Further, the AO himself has recorded a categorical finding that, if you take total purchases reported by the assessee for the relevant assessment year with corresponding quantitative details shown in Form 3CD, the average rate per gram was Rs. 328 which cannot be the rate at that time. The AO having accepted the fact, simply concluded that the difference in quantity of 609205 grams pertains to gold jewellery, even though the assessee has submitted necessary details to prove that the difference in quantity relates to silver purchases and the same has been confirmed by the tax auditor in their revised tax audit report, furnished during the course of assessment proceedings. The ld. Counsel for the assessee, took us to sample copies of purchase invoices of jewellery and ledger account of Silver Emporium Southex LLP submitted that, the assessee has purchased silver articles from above party and also made payment through proper banking channel. In fact, the assessee has furnished bills for 585.205 kgs of silver articles before the AO, during remand proceedings and this fact has been confirmed by the AO in the remand report, dated 21.12.2023. The balance quantity of 24 kgs was also purchase of silver articles and relevant bills for purchase :-43-: ITA. No: 113/Chny/2024 of 24 kgs of silver articles from Sunrise Jewellers and Silver Emporium Southex LLP and Silver Emporium Pvt Ltd., is now available and the AO may verify the facts. Therefore, he submitted that the ld. DRP/AO is completely erred in treating difference in quantity of 609205 grams as gold jewellery and estimated sale value by taking into account prevailing market value of gold jewelry at that time, at the rate of Rs. 2509 per gram and made addition of Rs. 152,84,95,345/-. 14.2 The ld. DR, Shri. R. Clement Ramesh Kumar, CIT, on the other hand supporting the order of the ld. CIT(A) submitted that, the ld. DRP has given its categorical findings in light of details filed by the assessee and remand report of the Assessing Officer before arriving at a conclusion that the assessee could not able to prove difference quantity of 609205 grams is purchase of silver and silver articles and further, quantitative details reported in original tax audit report is incorrect. He further submitted that, the DRP has considered relevant details filed by the assessee and held that although, the assessee has filed revised tax audit report along with reconciliation statement explaining difference in quantity, but still there is a difference of 609205 grams and in absence of :-44-: ITA. No: 113/Chny/2024 necessary details, the Assessing Officer has rightly held that said difference is on account of purchase of gold jewellery, but not silver articles. Therefore, he submitted that there is no error in the reasons given by the ld. DRP/AP to sustain addition towards gross profit on alleged unaccounted purchases and their order should be upheld.
14.3 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The assessee has reported total purchase value of gold jewellery at Rs. 154053.71 lakhs. The assessee had also reported corresponding quantity of purchases in Form no. 3CD at 46912367 grams. Based on the details submitted by the assessee, the Assessing Officer has worked out average rate per gold jewellery at Rs. 328 per gram, which was abnormally low when compared to the least market price that was prevalent during the financial year 2013-14, which was at Rs. 2509 per gram. Therefore, the Assessing Officer taking into total purchase value reported by the appellant in their financial statement and corresponding quantity of jewellery purchased, has worked out unaccounted purchases and estimated gross profit on said unaccounted purchases. During remand :-45-: ITA. No: 113/Chny/2024 proceedings, the assessee has furnished revised tax audit report from the auditor and claimed that in original tax audit report, the tax auditor has reported purchase of all traded goods including gold jewellery, gold bullion, silver jewellery, silver articles, diamond, platinum and other precious stones in one column, without there being any bifurcation with regard to quantitative details of each items of traded goods. The assessee further claims that, the auditor has issued revised tax audit report and as per said report, the total quantity of purchases of all traded goods including gold jewellery, gold bullion, silver articles, diamond, platinum etc is 47521572.136 grams but not 46912367 gms as reported in original tax audit report. The assessee has furnished necessary details including bills for purchase of all materials with corresponding stock registers. In fact, the Assessing Officer has accepted the revised purchase quantity as reported by the assessee during the remand proceedings. Further, even after reconciliation of total stock in trade as per books of accounts, still there is a difference of 609205 grams (46912367 (-) 47521572 grams) and assessee claimed that, there was an omission to include silver articles purchased during the year totaling to 609205 grams. The assessee has filed corresponding purchase invoice :-46-: ITA. No: 113/Chny/2024 and payment details to parties and argued before the Assessing Officer that, by inadvertent error the tax auditor has missed to report silver articles purchased and if you consider said silver articles there is no difference as computed by the Assessing Officer. The Assessing Officer, in their remand report dated 23.12.2023, has observed that the assessee has produced certain purchase bills and claimed that said purchases is silver articles. However, the purchase invoices submitted by the assessee is not tallying with the quantity of 609205 grams and there is no invoice for 24 kgs. From the details filed by the assessee and remand report submitted by the Assessing Officer, it is undoubtedly clear that the assessee has furnished purchase bills for 585.205 kgs, out of total difference computed by the Assessing Officer of 609205 grams during remand proceedings. The assessee had also filed remaining purchase bills for 24.894 kg of silver articles from Sunrise Jewellers and Silver Emporium Southex LLP and Silver Emporium Pvt Ltd., which was available at Page no. 15, 16 to 18 of paper book filed by the assessee, dated 29.02.2024. From the details filed by the assessee, we find that the assessee is able to furnish purchase invoices for 609205 grams and if you consider additional purchase bills submitted by the :-47-: ITA. No: 113/Chny/2024 assessee, there is no difference as quantified by the Assessing Officer in his remand report.
14.4 Having said so, let us come back whether the difference computed by the Assessing Officer of 609205 grams is gold jewellery or silver articles as claimed by the assessee. The Assessing Officer, was of the opinion that difference in stock in trade of 609205 grams is pertains to gold jewellery, but not silver articles as claimed by the assessee. The assessee claims that difference in stock in trade quantified by the Assessing Officer of 609205 grams is silver articles, which was omitted to be reported in the original tax audit report and said mistake has occurred due to reporting of consolidated purchases of all traded goods including gold bullion, gold jewellery, silver jewellery, silver articles, diamonds, platinum etc. The assessee has filed a reconciliation statement explaining difference computed by the Assessing Officer of 609205 grams. We have gone through reconciliation filed by the assessee and find that the Assessing Officer has not disputed total value of purchases reported by the assessee for the assessment year 2014-15. In fact, the Assessing Officer :-48-: ITA. No: 113/Chny/2024 accepted total value of purchases reported by the assessee in their financial statement without there being any deviation. The Assessing Officer has only computed difference in quantitative details of all traded goods and observed that, there is a difference of 609205 grams in total purchase quantity and said difference is on account of purchase of gold jewellery. We do not subscribe to the reasons given by the DRP/AO to treat difference in purchase quantity of 609205 grams is only relates to gold jewellery, because except the observation by the Assessing Officer, there is no evidence with the Assessing Officer to allege that said difference is pertains to gold jewellery alone. This fact has further strengthened by the findings of the Assessing Officer in his assessment order during assessment proceedings, where the Assessing Officer has arrived at Rs. 328 per gram for gold jewellery based on total purchases reported by the assessee and total quantitative details reported in Form 3CD by the tax auditor and from the above, it is undisputedly clear that the total quantity of purchases reported by the assessee in their tax audit report is incorrect. Once it is accepted that the total quantity of purchases of all traded goods reported by the assessee in original tax audit report is not correct, then the revised tax :-49-: ITA. No: 113/Chny/2024 audit report submitted by the assessee from the same tax auditor with item wise quantitative details of purchases of all traded goods should be accepted. This is because, said reconciliation is supported by a report of tax auditor and further with corresponding purchase bills and payment details. The assessee has reconciled difference in purchase quantity arrived at by the Assessing Officer and proved that said difference is on account of omission to include purchase of silver articles of 609205 grams (609.205 kgs) and said reconciliation is further supported by necessary purchase invoices for purchase of silver articles and payment made against said purchases. In fact, the Assessing Officer himself has admitted in his remand report dated 25.12.2023, that the assessee has furnished the purchase invoices for 583.205 grams of silver articles, but rejected claim of the assessee stating that said difference is on account of omission of silver articles only on the basis of surmises and suspicion. It is not the case of the Assessing Officer that, the additional evidences filed by the assessee in the form of purchase invoices of silver articles for 585.28 kgs is not backed by any evidence. In fact, the Assessing Officer himself has accepted the fact that said quantity is supported by necessary purchase invoices and also :-50-: ITA. No: 113/Chny/2024 the parties have confirmed the transactions. The tax auditor has now certified the true and correct quantity of purchases by issuing revised tax audit report and claimed that, there is an error in reporting quantitative details of purchases in his earlier tax audit report. In so far as, remaining 24 kgs of silver articles, the assessee has now furnished bills for purchase of silver articles from Sunrise Jewellers and Silver Emporium Southex LLP and said details are available in Page no. 16 to 18 of paper book filed by the assessee. From the details furnished by the assessee, we find that the assessee has purchased 24 kgs of silver articles from above parties and also made payment through proper banking channels. Therefore, we are of the considered view, that the assessee is able to reconcile difference in purchase quantity of all traded goods of 609205 grams as computed by the Assessing Officer and said difference is on account of omission to include purchase of silver articles by the tax auditor in tax audit report and the same has been subsequently corrected by issuing revised tax audit report. We further are of the opinion that, when the Assessing Officer is not having any evidence to prove his findings that difference in quantity of purchase of all traded goods of 609205 grams is gold jewellery alone, in our :-51-: ITA. No: 113/Chny/2024 considered view, the claim of the assessee that said difference is on account of purchase of silver articles should be accepted and that to, when the assessee is able to substantiate its claim with necessary purchase invoices and other evidences. Therefore, we are of the considered view that the ld. DRP/Assessing Officer is erred in making addition towards unaccounted purchases of gold jewellery. Thus, set aside the findings of the ld. DRP on this issue and direct the Assessing Officer to accept the difference in quantity of 609205 grams as reconciled by the assessee is on account of purchase of silver articles.
14.5 Having said so, let us come back to the reconciliation furnished by the assessee. Admittedly, the assessee has furnished different quantity of purchases in their original tax audit report issued by the tax auditor. Although, the appellant has furnished revised tax audit report along with reconciliation of purchase of all traded goods, but still there was a difference of 609205 grams. The assessee has furnished bills to the extent of 585.205 kg of silver articles, which were duly verified by the Assessing Officer during remand proceedings. In so far as, balance 24 kgs of silver articles, the assessee has now :-52-: ITA. No: 113/Chny/2024 furnished certain additional evidences like purchase bills, payment details and confirmation from the parties and these details were not before the ld. DRP/AO. Since, additional evidences filed by the assessee to prove purchase of silver articles to the tune of 24 kgs is a new evidence, which needs to be verified by the Assessing Officer, we are of the considered view that the matter needs verification from AO. Thus, we direct the Assessing Officer to verify the reconciliation filed by the assessee with regard to difference in quantity of purchases computed during remand proceedings of 609205 grams with supporting evidence that may be filed by the assessee. If the assessee is able to file details like purchase invoices and payment details of 609205 grams towards difference computed by the Assessing Officer, then the Assessing Officer is directed to accept the details filed by the assessee. To sum up, we direct the Assessing Officer to accept the difference in purchase quantity computed at 609205 grams is on account of purchase of silver articles and also verify the reconciliation filed by the assessee and if finds correct, then delete addition made on unaccounted purchases of gold jewellery at Rs. 1,52,84,95,345/-.
:-53-: ITA. No: 113/Chny/2024
15. In the result, appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the court on 27th March, 2024 at Chennai.
Sd/- Sd/-
वीदुगा राव)
(वीदु ाव (मंजुनाथा
था. जी)
जी
(V. DURGA RAO) (MANJUNATHA. G)
या यकसद य/Judicial Member लेखासद य/Accountant Member
चे /Chennai,
ई
th
दनांक/Dated: 27 March, 2024
JPV
आदेशक ितिलिपअ ेिषत /Copy to:
1.अपीलाथ /Appellant
2. थ /Respondent
3.आयकरआयु /CIT
4..िवभागीय ितिनिध/DR
5. गाडफाईल/GF