Facts of the Case

The assessee, proprietor of M/s Raj Shree Jewellers, engaged in trading and manufacturing of silver jewellery and trading in gold jewellery, was subjected to survey proceedings under Section 133A on 24.02.2012 at both Mirzapur (Head Office) and Varanasi (Branch). The assessee also operated a cinema hall business.

During survey, physical stock and cash were inventoried and compared with available records. Significant discrepancies were noticed between physical stock and stock as per books, including silver jewellery, gold jewellery, silver bullion, and cash balances. The books of account were found incomplete on the date of survey, and stock registers were either not maintained or not updated for several items.

The Assessing Officer completed assessment under Section 143(3), making additions on account of unexplained stock, unexplained cash, cash deposits, sundry creditors, and unsecured loans, and rejected the books under Section 145(3).

Issues Involved

  1. Whether rejection of books of account under Section 145(3) was justified.
  2. Whether excess stock found during survey constituted unexplained investment under Section 69B.
  3. Whether unexplained cash differences and deposits were taxable under Section 68.
  4. Whether sundry creditors and unsecured loans lacking proper evidence could be treated as unexplained credits.
  5. Whether interest under Sections 234B and 234C was leviable.

 Petitioner’s (Assessee’s) Arguments

  • Additions were based on conjectures without considering impounded books and reconciliations.
  • Stock differences were explainable through purchases, transfers, and valuation issues.
  • Valuation by the departmental valuer was arbitrary and purity estimates lacked scientific basis.
  • Certain jewellery belonged to family members and affidavits were submitted in support.
  • Cash differences arose from business transactions and advances.
  • Loans and creditors were genuine and supported by records.
  • Books should not have been rejected as audited accounts were maintained.

Respondent’s (Revenue’s) Arguments

  • Books were incomplete and unreliable on the date of survey.
  • Physical discrepancies in stock and cash were substantial and remained unexplained.
  • No proper stock registers were maintained for gold jewellery and silver bullion.
  • Evidence regarding loans, creditors, and cash sources was insufficient or unverifiable.
  • Documents produced later appeared to be afterthoughts and lacked credibility.

 Court Order / Findings (ITAT)

  • Survey revealed substantial discrepancies in stock and cash.
  • Books of account were not complete and could not be relied upon; rejection under Section 145(3) was justified.
  • Excess stock constituted unexplained investment taxable under Section 69B where not satisfactorily explained.
  • Cash differences and deposits without credible evidence were liable to addition under Section 68.
  • Unverified sundry creditors and unsecured loans could be treated as unexplained credits.
  • Interest under Sections 234B and 234C was consequential and mandatory.

Important Clarification

  • Incomplete or unreliable books can be rejected even if audited.
  • Stock discrepancies found during survey require strong documentary explanation.
  • Affidavits alone are insufficient without corroborative evidence.
  • Creditworthiness, identity, and genuineness must be proved for loans and creditors.
  • Subsequent production of documents may be treated as afterthought if not supported by contemporaneous records.

Link to download the order   https://itat.gov.in/public/files/upload/1678778164-pdf%20neeraj.pdf

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