ITAT upholds CIT(A)’s order citing lack of evidence in Ramesh Zaveri matter

ITAT upholds CIT(A)’s order citing lack of evidence in Ramesh Zaveri matter

Rejects the addition of Rs.10.91 crore on undisclosed sales and unexplained stock of jewelry

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has upheld the order of the Commissioner of Income Tax (Appeals), ruling that the Assessing Officer's estimation (relying on a single-day CCTV footage and contradictory statements) was unsustainable without supporting evidence.

Ramesh Pannalal Ranawat (assessee), represented through Rahul Ramesh Ranawat, manufactures and sells gold jewelry via proprietary concern Ramesh Zaveri & Co. It has offices in Mumbai and a branch in Cuttack.

For Assessment Year (AY) 2014-15, the assessee filed an Income Tax Return (ITR) declaring Rs.1,84,70,510.

On 10 April 2014, the Income Tax Department’s Air Intelligence Unit intercepted an employee, Yashwant Ganpat Rao Gujjar, carrying 11,912.400 grams of gold ornaments, claiming it as a stock transfer to the Cuttack branch.

A survey under Section 133A of the Income Tax Act was conducted at the Cuttack premises, recording statements and seizing CCTV footage from 31 March 2014 to 10 April 2014.

The Assessing Officer (AO) analyzed the CCTV footage, alleging 106 sale transactions, and extrapolated this to 310 working days, estimating undisclosed sales turnover at Rs.72,78,44,283 with a profit of 13.64 percent.

The AO relied on the employee's statement, denying a 31 March 2014 stock return journey from Cuttack to Mumbai, despite the airline records confirming travel without check-in baggage. He treated 27 kg of gold ornaments valued at Rs.7,25,24,488 as unexplained stock and added a profit of Rs.98,92,329 under Section 69A.

Aggrieved by the AO’s order, the assessee appealed before the CIT(A).

He argued that separate audited books for Mumbai and Cuttack branches, supported by bank deposits and stock registers, recorded all transactions, including stock transfers via Form F declarations.

The CIT(A) deleted the additions, noting the absence of corroborative evidence and improper extrapolation from one-day footage, and accepted the Mumbai books, recording the stock receipt.

However, dissatisfied with the CIT(A)’s order, the IT Department approached the ITAT.

The revenue department contended that the CCTV footage and statements justified the additions, stating the lack of defects in books, no customer inquiries, and stock transfers backed by statutory forms and records.

The two-member bench, comprising Saktijit Dey (Vice President) and Girish Agrawal (Accountant Member), observed that the AO's sales estimation lacked rational basis, ignoring seasonal fluctuations, holidays, and customer behavior in jewelry trade.

The judges noted there was no incriminating material from the survey beyond minor cash discrepancies. The employee's denial of travel was contradicted by airline records, rendering his statement untrustworthy.

The bench held that stock transfers were duly recorded in accepted Mumbai books and supported by Form F, preventing selective rejection of Cuttack entries. It ruled that additions under Sections 69A and for undisclosed sales, required ownership of unexplained assets or concrete proof, which was absent.

Thus, the tribunal upheld the CIT(A)’s deletions and dismissed the assessee’s cross-objection as infructuous. The ITAT dismissed the appeal of the IT Department.