ITAT Hyderabad Dismisses Appeal: Rs. 3.75 Crore Addition for Unexplained Excess Gold Stock Sustained

Case Overview

Smapath Raj Sunil Kumar Jain Vs DCIT (ITAT Hyderabad)

The Income Tax Appellate Tribunal, Hyderabad, delivered a significant ruling by dismissing the appeal preferred by the assessee and upholding an addition of Rs. 3.75 crore on account of unexplained excess gold stock unearthed during a survey conducted under Section 133A of the Income Tax Act, 1961. The Tribunal held that gold deposit agreements produced nearly two years after the survey date, coupled with subsequent interest payments to purported depositors, were wholly inadequate to establish the genuineness of the claimed explanation for the excess physical stock.

Background and Survey Findings

The assessee, Shri Sampath Raj Sunil Kumar, Proprietor of M/s. Sunil Jewellers, was engaged in the business of trading in jewellery and gold. A survey under Section 133A of the Income Tax Act, 1961 was carried out at the business premises on 11.03.2020.

During the course of this survey, a physical inventory of gold stock was prepared and compared against the book inventory. The results revealed a striking discrepancy:

When confronted with this discrepancy during the sworn statement recorded on 11.03.2020, the assessee acknowledged the difference but stated that reconciliation was required. He pointed to the presence of embedded stones and other metals in gold ornaments and argued that the purity of the gold was not 24 carat but rather 18 carat or 916 KDM category, which would account for a portion of the excess weight. Despite these stated reservations, the assessee, considering the visible discrepancies in stock, voluntarily offered additional income of Rs. 5 crore over and above his regular income for Assessment Year 2020-21.

Post-Survey Developments and Return of Income

After the survey, during the post-survey inquiry phase, the assessee furnished a reconciliation statement along with books of accounts. For the first time, he introduced the concept of "gold deposit agreements", claiming that 15 customers and interested parties had deposited gold ornaments totalling 13,613 grams with him under such agreements. On the basis of this claim, the assessee sought to explain the bulk of the excess stock and, in the return of income filed for AY 2020-21 on 31.03.2021, disclosed total income of Rs. 2,57,58,180/- and offered only Rs. 1.25 crore as additional income towards unexplained stock — a substantial reduction from the Rs. 5 crore offered during the survey.

Assessing Officer's Findings and Addition Made

Rejection of Gold Deposit Agreements

The Assessing Officer, upon examining the submissions, found serious infirmities in the explanation offered by the assessee. Key observations made by the AO included the following: