I. T. A. No. 1736/Kol/2009 (assessment year 2005-06).

SHAMIM YAHYA (Accountant Member) and GEORGE MATHAN (Judicial Member)

Apurba Kr. Das, Joint Commissioner of Income-tax-Senior Depart­mental representative, for the appellant.
S. L. Kochar, Advocate and Anil Kochar for the respondent.

ORDER

The order of the Bench was delivered by

SHAMIM YAHYA (Accountant Member).-This appeal filed by the Revenue is directed against the order of the learned Commissioner of Income-tax (Appeals)- XII, Kolkata, dated July 23,2009 and pertains to the assessment year 2005-06.

The ground of appeal raised by the Revenue reads as under :

"1. On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in deleting the addition of Rs. 62;20,986 under section 69A which was made on the basis of verification during the course of survey under section 133A of the Income-tax Act."

Briefly stated the facts of the case are that M/s. Subhas Brothers Jewellers Pvt. Ltd., the assessee-company filed its return of Income disclosing a total income of Rs. 8,19,780. In this case a survey was conducted and certain discrepancies like deficit in cash, stocks, etc., noticed. Accordingly the assessee admitted Rs. 14,00,000. While filing the return of income the assessee admitted this additional income under the income from other sources.

During the course of the assessment proceedings the Assessing Officer pointed out the following discrepancies noticed during the survey operation :

With regard to the above discrepancies the assessee furnished the following explanation to the Assessing Officer as under :

"1. That the discrepancy of cash and jewellery at the time of survey on March 11, 2005, were made due to following reasons :

2. That the discrepancy in cash was Rs. 23,89,534 due to purchase of gold in cash but due to lack of proper maintenance of books of account as one of the director late Subhas Chandra Dey was a cancer patient and all the members was not in a position to look after the accountant at that time lacking his duties and he has subsequently discharged from his service. The director late Subhas Ch. Dey already been expired.

3. That the discrepancy in gold ornaments was 556.986 gms was due to non-entry of stock register.
4. That discrepancy in diamond is 1,993 cents and silver is 6351.1/8 gms which was not bear property entered in the stock register. The main point ~s that all the jewellery gold ornaments and diamond and silver were purchased by cash but proper entry in stock register was not made properly due to lack of knowledge of the accountant or the transaction intimation was not intimated to the accountant.

5. We have already explained that an amount of gold ornaments having quantity of 827.6 gms were issued to sister concerns. Subhas Brothers Jewellers, and New Subhas Brothers Jewellers for exhibition and procurement of orders, which were not entered in the books since the same does not represent sales. In my written submission I like to mention that the difference may be taken into account for sale and proportionate ratio of profit may be taken into account for ascertaining the actual profit for finalising the assessment year 2005-06."

Having not satisfied with the explanation given by the assessee, the Assessing Officer made the following additions corresponding to the discrepancies noticed :

1. Cash in hand-deficiency treated as unexplained investment under section 69-Rs. 23,89,534.00
2. Gold ornament 22 ct.-deficiency treated as income­Rs. 17,27,945.00
3. Gold ornament 18 ct.-deficiency treated as income­Rs. 2,78,493.00
4. Diamond-deficiency treated as income-Rs. 1,993.00
5. Silver-deficiency of 6351 gms treated as income-Rs. 95,267.00
6. Value of gold ornament of 875 gms issued to sister concerns but not entered in books-Rs. 5,13,112.00.

Before the learned Commissioner of Income-tax (Appeals) the assessee had made elaborate submissions. The summary of the same is as under :

"1. Section 69A has been wrongly applied by the Assessing Officer.
It has no application in the facts of the case of the appellant is charrated above. Cash found is part of cash balance as recorded In books. Cash not found but which existed as per cash book was utilised to do business and income of Rs. 14 lakhs was autually discussed with search party and admitted as income which does appear in accounts and the Assessing Officer has .accepted the same.

2 Without prejudice to the above, quantity of jewellery and orna­ments found less at the time of survey cannot be converted .in term of money and thus cannot be treated as income. Utmost, It may be taken as sales not recorded in books on which only an mcome can be calculated with reference to the business of the appellant.

3. As the facts elaborate entire matter was discussed with the arty by the appellant and it was noted and accepted that survey party by the appellant and it was noted and accepted that Rs. 14lakhs would be the income earned by the appellant by utilizing its cash and making purchases and sales which are not. recorded I~ Its books. This income of Rs. 14 lakhs duly appears m the audited accounts submitted with the return and there is a note by three audi­tors on this as stated above."

The learned Commissioner of Income-tax (Appeals) considering the above submissions deleted the addition. The learned Commissioner of Income-tax (Appeals) held as under : .

"As seen from the record a survey operation under section 133A was conducted on the business premises of the appellant. During the course of survey operation, certain discrepancies were noticed. In respect of following items the amount/quanity entered m books was more than amount/quantity found on physical inventory :

Apart from the above, the Assessing Officer also noticed that gold ornaments of 877 gms in quantity were issued to sister concerns Since the same were found to be not entered in the books, the value of such gold ornaments amounting to Rs. 5,13,112 was also added as income. When pointed out these discrepancies the appellant admitted Rs. 14,00,000 to cover up all the above discrepancies and accordingly filed return of income. However while completing the scrutiny assess­ment, the Assessing Officer, added the amounts corresponding to these discrepancies. Judging by the discrepancies noticed and corre­sponding additions made, I find that the additions made are irrational and unjustified. If the cash in hand is found to be less when compared to cash as per book, it is not known as to how the Assessing Officer, could. make an 'addition under section 69 as unexplained investment. Has it been a case of excess cash the Assessing Officer justified in adding such excess cash but not in a case where the cash in hand found to be less than the cash recorded in the books. As argued the Said cash could have been utilised for making unaccounted purchases. The Assessing Officer has not proved otherwise that the cash had been used for any unexplained investment. In such a situation the Assessing Officer could have only added the' profit earned out of such transactions. Same is the case with gold, diamond and silver orna­ments. The stocks of these items were found tube less compared to the stock records indicating that these stocks would have been sold outside the books of account. Again the Assessing Officer could add only the profit arising out of such transactions and not the amount equivalent to deficit stock. On the other hand the appellant admitted Rs. 14 lakhs during survey operations to cover up deficit cash and stock vis-a-vis unaccounted purchases/sales. Admittedly the addi­tional income has been recorded in the books and accordingly filed the return by the appellant. The Assessing Officer has neither rejected the books nor the stocks shown in the books. As such the excess entries in the books of account cannot be added again as undisclosed income. Now as regards undisclosed sales of Rs. 12,14,641 and value of gold ornaments issued to sister concerns and not entered in books (Rs. 5,13,112), I agree with the submissions made by the appellant in this regard.

In view of the facts, I feel that the entire addition under various heads falls through because of factual position as discussed above. As such I direct the Assessing Officer to delete the various additions made under the various heads."

Against the above order the Revenue· is in appeal before us.

We have heard both counsel and perused the records. We find that in the case bf the assessee during the course of survey operations, certain shortages were noticed. These shortages pertained to cash in hand, gold ornaments, diamond items and silver items. Since shortages have been noticed as compared to books it cannot be said that any undisclosed investment/money was made by the assessee. Thus we agree with the learned Commissioner of Income-tax (Appeals) that no addition can be made as undisclosed investment made by the assessee. In such circum­stances addition under section 69A of the Income-tax Act is not warranted.

As regards cash shortages, shortage has been found as compared to books. The cash might have been used for making unaccounted purchases or other purposes for which no cogent material is available. In such cir­cumstances merely on conjectures or surmises addition under section 69A of the Act cannot be made. As regards shortage in gold ornaments carat and the gold ornament that is said to have given to sister concerns, addition to the extent of Rs. 17,27,945 and Rs. 5,13,112 respectively had been made. In this regard we note that the shortage in the above gold ornaments cannot be treated as undisclosed investment and the shortage can at best be treated as undisclosed sales. In such circumstances only the profit element arising out of the said sale can be added in the hands of the assessee and not the entire undisclosed sales. In this regard the assessee has offered an addition of Rs. 14 lakhs. The learned Commissioner of Income-tax (Appeals) has accepted the same as sufficient. We find our­selves in agreement with the finding of the learned Commissioner of Income-tax (Appeals) that the offer made by the assessee in this regard suffice the ends of justice. Now we come to the addition for shortage in case .of the following :

(1) Gold ornaments-18 carat-addition made for shortage­Rs. 2,78,493
(2) Diamond items-additions made Rs. 1,993 (3) Silver items-additions made Rs. 95,267

We find that the above shortages can at best be treated as undisclosed sales. In such circumstances the entire amount cannot be added. In our considered opinion, an estimated addition of 10 per cent. profit on the above sales would be sufficient and would serve the ends of justice. Accordingly we confirm the order of the learned Commissioner of Income­tax (Appeals) with only modification that 10 per cent. profit may be added for the items mentioned above.

In the result the appeal of the Revenue stands partly allowed.

The order pronounced in the open court on June 5,. 2014.