Facts of the Case

The assessee, proprietor of a jewellery business dealing in silver and gold ornaments, was subjected to a survey under Section 133A at both head office and branch premises. During the survey, discrepancies were found between physical stock and book stock, including excess silver jewellery, gold jewellery, silver bullion, and cash. The books of account were not updated as on the date of survey, and certain records such as stock registers were incomplete or not maintained for some items.

The Assessing Officer conducted scrutiny assessment and made additions on account of unexplained stock, unexplained cash, unsecured loans, and sundry creditors. The books of account were rejected under Section 145(3) due to unreliability.

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 cash differences and deposits were taxable as unexplained cash credit under Section 68.
  4. Whether unsecured loans lacking proper evidence were liable to addition.
  5. Whether interest under Sections 234B and 234C was leviable.

Petitioner’s (Assessee’s) Arguments

  • Differences in stock and cash were explainable through books and subsequent reconciliation.
  • Certain jewellery belonged to family members or was held on behalf of others.
  • Cash deposits were advances or transfers between proprietary concerns.
  • Books should not have been rejected as audited accounts were maintained.
  • Additions were based on presumptions rather than concrete evidence.

Respondent’s (Revenue’s) Arguments

  • Books were incomplete and not updated on the survey date.
  • Physical discrepancies were substantial and unexplained.
  • Supporting documents for loans, creditors, and cash sources were insufficient or unreliable.
  • Transactions claimed by the assessee lacked credibility and verifiability.
  • Therefore, rejection of books and additions were justified.

Court Order / Findings (ITAT)

  • Rejection of books under Section 145(3) was valid because accounts were not properly maintained and discrepancies existed.
  • Excess stock discovered during survey represented unexplained investment taxable under Section 69B.
  • Cash deposits and differences were liable to addition under Section 68 where genuineness was not proved.
  • Certain claimed transactions lacked documentary support and could not be accepted.
  • Interest under Sections 234B and 234C was mandatory.

Important Clarification

  • Mere explanations without corroborative evidence cannot neutralize discrepancies found during survey.
  • Rejection of books is justified when accounts are incomplete or unreliable.
  • Cash credits and stock differences must be supported by credible documentary proof.
  • Interest for default in payment of advance tax is mandatory once income is assessed higher.

Link to download the order   https://itat.gov.in/public/files/upload/1678778113-pdf%20neeraj.pdf 

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