Personal jewellery of family members found during survey in physical stock was to be excluded during assessment – ITAT

Personal jewellery of family members found during survey in physical stock was to be excluded during assessment as the burden was on AO to controvert the statement – ITAT  

ABCAUS Case Law Citation:
ABCAUS 1273 (2017) (06) ITAT

The Grievance:
The appeal of the assessee was directed against the order passed by CIT(A) confirming the order passed by the Assessing Officer (‘AO’) u/s 143(3) making addition on account of unexplained excess stock of jewelry under section 69B of the Income Tax Act, 1961 (‘the Act’).

Assessment Year : 2007-08
Date/Month of Pronouncement: May, 2017

Brief Facts of the Case:
The assessee individual was running jewellery business in his proprietary concern. During the relevant year a survey action under section 133A of the Act was carried out in the assessee’s business premises. In the course of survey proceedings, it was found that there was a difference of Rs. 20,14,647/- between the value of actual stock of jewellery found on physical verification vis-à-vis the stock position as per the account books.

In the course of assessment proceedings, the assessee was asked to reconcile the said difference. The explanation filed by the assessee was not fully accepted by the AO and made an addition of Rs.17,00,667/- as representing investment made in unexplained stock of jewellery found during the course of survey.

On appeal, the CIT(A) noted that the AO had made addition in relation to 1868.865 grams unexplained stock of jewellery. One of the point explained by the assessee was that jewellery 251.000 grams and 588.800 grams was received from his father and mother respectively which should be reduced from the difference. The CIT(A) accepted the said explanation and scaled down the addition to Rs.9,05,450/-. Against such sustenance of addition by the CIT(A), assessee was in appeal before ITAT.

Observations made by the Tribunal:
The ITAT noted that the limited point argued by the assessee was based on the explanation given at the time of survey. On being questioned with regard to the difference between the physical and book stock, the assessee explained at the time of survey that physical stock included personal jewellery belonging to self, wife and two daughters.

The Tribunal found that the assessee was not put to any further questioning on this aspect. The burden was on the AO to controvert the said statement of the assessee at the time of assessment proceedings. On the contrary, the AO and thereafter the CIT(A) had rejected the explanation of the assessee without establishing any infirmity in the same. In fact, part of the explanation had been accepted by CIT(A) in so far as it related to the claim of the personal jewellery received from father and mother of the assessee.

Thus ITAT opined that the claim of the assessee had been merely brushed aside without any justification and the same deserved to be accepted.

Held:
The Tribunal set aside the order of the CIT(A) and directed the AO to recompute the addition on this account after taking into account the assessee’s claim for exclusion of personal jewellery belonging to himself, wife and his daughters.