TaxTMI 
TaxTMI 
2008 (9) TMI 406
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....------------ S. Particulars Amount No. (Rs. in lacs) ------------------------------------------------------------ 1. Investment in the purchase of 40 Nos. gold bars. 19.79 ------------------------------------------------------------ 2. Investment in excess stock of 22 carat gold &....
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.... 12,76,352 in diamond jewellery. ------------------------------------------------------------ 5. Cash found at residence and business premises. 1,79,817 ------------------------------------------------------------ 6. Unexplained investment in renovation of SCO 1,60,401 14-15, Sector 22-D, Chandigarh. ------------------------------------------------------------ 7. Unexplained investment in construction of SCO 28,70,000 Nos. 91-92-93, Sector 34, Chandigarh on protective basis. ------------------------------------------------------------ 8. Undisclosed investment in construction of 1,40,82,634 H. No. 598, Sector 8, Chandigarh on protective basis. ------------------------------------------------------------ 4. The assessment was carried in appeal before the learned first appellate authority raising various grounds of appeal disputing the additions made by the AO to the returned income of the assessee. The learned CIT(A) sustained the addition of Rs. 1.50 lac in ....
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....unaccounted incom6 in the stock of diamonds. As per the order of the learned AO during the search operation, inventory of loose diamond and diamond studded in gold jewellery was prepared and got valued from the approved valuers which was valued at Rs. 1,01,22,942. The value of the diamonds as per the books of account was computed and a difference of Rs. 52,07,599 was worked out by the learned AO. The assessee in response to show-cause notice, issued by the Department, submitted that the weight of the diamonds found at the time of search tallied with the weight of the diamonds as per books of account. A copy of the inventory of closing stock was prepared on 31st March, 2001, i.e., at the close of the immediate preceding accounting year and was submitted during the course of search. As per this list, the weight of the diamonds comes to 1,022.03 carats. This does not include the weight of the diamonds included in items mentioned against "A. Old items." The weight of the diamonds studded in this jewellery based on registered valuer report, came to 31.64 carats. As such, the total weight of the diamonds as per closing stock inventory as on 31st March, 2001 came to 1,053.67 carats. From ....
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.... books of account was 967.05 carats. As per the learned Authorised Representative, the details of the same were part of the seized record. Our attention was invited to p. 201 of the paper book which is Annex. A-46 of Panchnama, dt. 14th May, 2001, which was the quantity as per the books of account. It was further pointed out that the assessee had been submitting inventory of its closing stock forming part of the balance sheet before the Revenue whereby the quantity and the value of diamonds have been precisely stated. For this contention, our attention was invited to paper book pp. 318 to 338 and 238 to 240 which are copies of the inventory for each of the years starting from 31st March, 1992 to 31st March, 2001, giving details of the weight and value of diamonds held on the last date of accounting year. The learned counsel for the assessee strongly submitted that all purchases of diamonds are duly accounted for and supported by the purchase invoices indicating quantity and value. There is no difference in the quantity of diamonds found at the time of search and quantity as per books of account. Mr. Jain further contended that the assessee has been valuing its stock at cost or mark....
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....Rings 23,125 81,25 185% --------------------------------------------------------- 359 L Rings 28,160 12,600 123% --------------------------------------------------------- 360 L Rings 24,450 8,965 173% --------------------------------------------------------- 361 L Rings 35,450 11,495 208% --------------------------------------------------------- Mr. Jain further submitted that the second valuer has not carried out the valuation of all items as is evident from the comparative list where the figures of the second valuer match precisely in rupees with the first valuer which clearly suggests that the second valuer has copi....
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....o reason to make an addition by valuing the diamonds which already form part of the disclosed account of the assessee. The block assessment proceedings cannot be used by the Revenue by taxing the income which has not yet been earned by the assessee. The cost for the purpose of computing the income of the assessee has to be the cost actually incurred. No material whatsoever was brought on record by the Department that the assessee has incurred cost more than what has been declared for the purchase of diamonds. In the absence of any such material, no addition can be made merely on the basis of valuation. The Allahabad Bench of the Tribunal in the case of V.V.S. Alloys Ltd., wherein there was no material with the Department found against the assessee. Investigations were carried out, post-search to verify the purchases made from suppliers in Surat and Mumbai. There was no evidence whatsoever to show that the assessee had paid underhand cash for the purchase of diamonds. It was held that no addition can be made on account of difference in the valuation of diamonds, where purchases have been duly recorded. This judicial pronouncement supports the case of the assessee. Accordingly, on th....
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....rned CIT(A) wherein relief of Rs. 3,64,930 was given and addition of Rs. 1.50 lac was sustained for which the assessee is also in appeal before us. The facts leading to the above addition are that as per AO, an excess stock of 22 carat gold jewellery weighing 5,324.230 gms. was found during the course of search. As per the assessee, it was converted into 24 carat by the AO and worked out excess weight of gold of 480.544 gms. and by applying a rate of Rs. 415 per gm. worked out the value at Rs. 21,23,036 by adding a sum of Rs. 1,26,894 on account of labour charges by applying the rate of Rs. 26 per gm., thus, a total addition of Rs. 22,49,930 was worked out. The assessee has disputed the calculation of the AO. As per the assessee, the total weight in excess was only 4,111.85 gms. of 22 carat gold jewellery. The difference of 1,002.380 gms. was on account of jewellery of customers for repair and 315 gms. was personal jewellery of partners and their family members. Submission was also made that the AO has given credit only of 105 gms. on account of customer's jewellery for repairs as against 1,002.38 gms. Further, the assessee applied the labour charges @ Rs. 23.30 per gm. as against ....
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..../jewellers. Therefore, the AO has estimated the labour charges without considering any comparative labour charges of the relevant period from other persons of the related field. Therefore, taking into consideration the above facts, we hold that the AO was not justified in taking the undisclosed income on account of excess stock of 22 carat gold jewellery at Rs. 22,49,930 against Rs. 17,35,000 worked out by the assessee. Therefore, we upheld the stand of the learned CIT(A) by dismissing ground No. 2 of the appeal of the Revenue. 7. The ground No. 3 in the appeal of the Revenue pertains to deletion of addition of Rs. 50,735 on account of valuation of 24 carat gold bars. During the course of search, 44 bars of 24 carat gold weighing 4,664.65 gms. were found as against 'NIL' as per the stock register. The assessee while filing the block return valued the same at Rs. 19,78,800 and accordingly, included it as part of the undisclosed income. The learned AO valued the same at Rs. 20,29,535 by applying the rate of Rs. 435 per gm. on the basis that the same was the prevailing market rate. Thus, there was a dispute in the valuation to the extent of Rs. 50,735. The learned first appellate a....
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....andigarh. Therefore, this ground of the appeal of the Revenue deserves dismissal. 8. The next ground i.e., ground No. 4 in the appeal of the Revenue, which pertains to the deletion of Rs. 48,328 on account of unaccounted stock of 18 carat gold used in diamond jewellery has been challenged. The said dispute is arising on account of the fact that the assessee claimed a credit of 290 gms. on account of weight of diamond and stone studded in the diamond jewellery while working out the excess gold stock, whereas the AO gave a credit of 190 gms. only. Further, the AO applied the labour rate of Rs. 26 per gm. as against Rs. 23.30 per gm. mentioned by the assessee. The contention of the assessee was accepted by the learned CIT(A) by deleting the addition. The learned Departmental Representative strongly defended the order of the AO in support of its contention. On the other hand, the learned Authorised Representative submitted that the assessee has done a precise calculation of Rs. 12,28,024 on account of excess stock of 18 carat gold used in diamond jewellery. The calculation of the same is available on p. 24 of the assessment order. While competing the above amount, the assessee has e....
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....ition was justified. On the other hand, the learned counsel for the assessee strongly defended the orders of the first appellate authority by inviting our attention to the documents placed in the paper book by submitting that the same are dumb documents and do not belong to the assessee. Contention was also raised that no inquiry was made by the AO from the concerned persons despite complete addresses available on the document and explanation given by the assessee has remained uncontroverted. The learned Authorised Representative further submitted that even if it is held that these documents pertain to the assessee, then also the nature of expenditure being repair will be allowable under s. 37(1) of the Act and it will not have any impact on the income of the assessee. In support thereof, the learned Authorised Representative referred to the judgments of the Delhi Bench of the Tribunal in the cases of Raj Sons Jewellers vs. ITO (2004) 86 TTJ (Del) 1106 and Ashish Soni vs. Dy. CIT in ITA No. 273/Del/2001, dt. 7th April, 2006. We have considered the rival submissions and perused the record. We notice that the documents do not mention the name of the assessee. At the same time, the AO....
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..... Accordingly, this ground of the Revenue is dismissed. 11. Now, we shall take up appeal of the assessee where ground Nos. 1 to 3 pertain to upholding the addition of Rs. 1.50 lac as undisclosed income on account of excess stock of 22 carat jewellery found at the business premises of the assessee during the course of search. This issue has been deliberated upon by us in the preceding paras dismissing the appeal of the Revenue. Therefore, ground Nos. 1 to 3 in the appeal of the assessee are allowed. The remaining grounds are merely prayer, require no deliberation from our side. Therefore, appeal of the assessee is allowed. In the result, appeal of the Revenue is dismissed and that of the assessee is allowed. N.K. SAINI, A.M.: 10th April, 2007 I have the liberty to go through the proposed draft order of learned JM, but I am unable to persuade myself to agree with the conclusion arrived at therein at p. 10, para 5, p. 14 of para 6, p. 19 of para 9, p. 20 of para 10 and p. 21 of para 11. So, I proceed to pass a separate dissenting order. 2. First, I will deal with the Departmental appeal in IT(SS)A No. 48/Chd/2004. 3. First ground of this appeal relates to deletion....
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....as worked out as under: Total value of diamond jewellery including 1,01,22,942 value of 18 carat gold, as per the valuation report prepared by the approved valuer Sh. Vijay Kumar Less: Value of 18 carat gold weighing 57,650.7 18,13,250 gms. considered separately Balance: Value of diamonds 88,89,692 Less: Value of diamonds worked out as per 31,02,093 trading account of diamonds as on date of search: Rs. 30,41,293 Value of 190 gms. of 18 carat gold in lieu of 945 carats of diamonds weight: Rs. 60,800 Net balance value of excess, loose and studded 52,07,599 diamonds at cost value The aforesaid difference of Rs. 52,07,599 was confronted to the assessee and it was asked to explain as to why the same may not be treated as undisclosed income for the block period. In response to that the assessee submitted as under: "The weight of the diamonds found at the time of search tallies with the weight of the diamonds as per our b....
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....he weight of the diamonds studded in ready-to-sell jewellery lying in our shop at 860.57 carats and did not include the weight of the loose diamonds and the diamonds studded in the unfinished jewellery. This stock was mixed up with the ready jewellery (tagged items) and the same was got valued accordingly. Prima facie, it appears that the detail/description of such unfinished/old jewellery is contained in pp. 42 and 43 of the report of registered valuer, M/s Banu Mal Inder Lal Jewellers. The total weight of these diamonds studded in jewellery as well as those of loose diamonds come to appox. 122 carats, After deducting the same from the total weight of 944.63 carats, the net difference comes to 37.94 carats only. This difference is very negligible. Since the weight of the diamonds as per our books tallies with the weight of the diamonds found out physically at the time of search, no adverse inference can be drawn. Valuation report of the registered valuer is only an opinion of person and is purely based on estimation, knowledge and experience of that person in this type of business. The valuation of the diamond jewellery was got done by the Department from Shri Vijay Kumar of M/s B....
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....that way the variance in the value of diamonds done by different valuers comes to 20 per cent. Taking into consideration the above facts and figures, it is proved beyond doubt that the above valuation reports are not only unrealistic but are also unreliable and as such cannot be relied upon. (A comparative chart showing the above variances was also enclosed). The main objection raised during the course of search operations as regards the valuation of diamonds was method of accounting. As regards the valuation of closing stock of diamonds (is cost or market price whichever is less), this method of accounting has regularly been followed in the past and has been accepted by the Department from year to year. The registered valuers have adopted the value of diamonds as on the date of search and have ignored the fact that inventory of diamonds consisted of diamonds purchased over number of years and are duly supported by their purchase bills, (copies of the purchase bills of the diamonds included in the inventory of diamonds as on 31st March, 2001 were also attached). It is the real income that is taxable in the hands of the assessee and the income engrossed in the closing stock can be t....
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....d by Shri Surya Kant Jain and Sudhir Kumar. The discrepancy was pointed out to the partners of the assessee firm, namely, Shri Anil Talwar. After considering that discrepancy, the value of diamonds was considered by the AO at Rs. 98.50 lacs. This, discrepancy was shown to the assessee and after verification it was accepted that the discrepancy was there in the valuation report submitted by Shri Surya Kant Jain and Sudhir Kumar. It was further stated by the assessee that the valuation report of Shri Vijay Kumar was acceptable. The AO, therefore, took the value of the studded diamond jewellery and loose diamonds on the date of search including of gold chains at Rs. 1,01,22,942. He accordingly held that once the value had been accepted by the assessee, any other contention of the assessee could not be accepted. 5.1 As regards to the assessee's submissions regarding number of carat of gold in stock and as per valuation report being the same, the AO asked to give the details of quantity of diamonds in carat but the assessee did not furnish such information on the ground that it was not maintaining any stock register in respect of diamonds since it was not feasible. The AO pointed out....
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....7 (Departmental Valuer) and Rs. 98.50 lacs (two registered valuers of assessee's choice) which valuations were in the near vicinity of each other with a variation of only Rs. 2.75 lacs and that Shri Anil Talwar (partner of assessee firm) admitted the valuation of jewellery as correct. 5.2 The AO, therefore held that with the opinion of three valuers, the assessee had also agreed that the valuation made by them is correct. Once it had been accepted, challenging again the same facts does not serve the assessee's purpose. The AO stated that the cost of jewellery had been accepted by the assessee at Rs. 1,01,22,942 after the post-search inquiries. He further stated that the assessee furnished list of diamond jewellery and certain items had been shown as old items but the weight of diamonds of those items had not been mentioned. According to him the assessee had tried to co-relate those to certain solitaires which were found during the course of search, the value of which was approx. Rs. 8 lacs. The AO asked the assessee to produce the bills of purchase of those solitaires (old items) to verify the veracity of the arguments taken by the assessee. However, no evidence in support of th....
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.... the value of those diamonds at Rs. 32,59,243 against book value of Rs. 30,58,078. The AO has given the following details: ------------------------------------------------------ Sl. Year ending Cost of Index Indexed No. diamonds Cost cost as on in year of 31.3.2001 purchase ------------------------------------------------------ 1 31.3.94 2,837 244 4,720 ------------------------------------------------------ 2 31.3.95 &....
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....p; 30,58,078 32,59,423 ------------------------------------------------------ According to the AO stock value of the diamonds valued by three valuers would have been in the near vicinity of Rs. 32,59,423 against which they had valued the diamonds at Rs. 72,79,000 (Rs. 80,79,000 - Rs. 8,00,000 of old items stated by the assessee). The AO pointed out that the difference in the valuation made by the valuer and the value of diamonds as worked out on the basis of indexed cost was more than 123 per cent; according to him the diamond trade had not witnessed that type of price valuation (sic-escalation) in any of the year to which the stock was related to be shown. The AO also pointed out that more than 54.50 per cent (Rs. 16,66,525 out of Rs. 30,58,078) of the stock purchased in 2000001 formed part of the diamonds and miscellaneous items mentioned in Parts C and D of the list of closing stock of diamonds found and seized from the assessee firm, so, there could not be much increase in respect of that stock which implied that stock purchased from 1994 onwards to 31st March, 2000 valued at Rs. 13,91,553 had grown to,....
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....contended that there was difference in valuation done by the two valuers to the extent of 350 per cent in several items and overall difference was of Rs. 2.73 lacs. It was stated that the assessments for about six years were made under s. 143(3) and there were certain items where valuation in closing stock was shown and accepted at about Rs. 2,00,600, but the value of the same stock as on the date of search had been taken at Rs. 8,07,470 which was roughly about four times the value which had been accepted by the Departmental authorities in the course of assessment. It was further stated that the valuation was done by the valuers by adopting the sale rate prevailing in Chandigarh market as on the date of search whereas the assessee was making the purchases of loose diamonds direct from Surat and Mumbai parties and got jewellery made itself. It was also stated that the margin of profit available to the middleman was ranging between 10 per cent to 15 per cent which was not kept in mind while making the valuation. It was contended that the Departmental authorities have got verified the purchases from Surat and Mumbai during investigation and did not find anything adverse in possession ....
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....e such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purpose of this Act or any expense, deduction or allowance claimed under this Act which is found to be false. He further observed that the undisclosed income refers to the income which has not been or would not have been disclosed. Therefore, the estimated addition cannot be made in block assessment. Reference was made to the following case law: (i) CIT us. Shambhulal C. Bachkaniwala (2000) 162 CTR (Guj) 435 : (2000) 245 ITR 488 (Guj) (ii) CIT vs. Vinod Danchand Ghodawat (2000) 163 CTR (Bom) 432 : (2001) 247 ITR 448 (Bom) (iii) Chander Mohan Mehta vs. Asstt. CIT (1999) 65 TTJ (Pune) 327 : (1999) 71 ITD 245 (Pune) (iv) Samrat Beer Bar vs. Asstt. CIT (2000) 69 TTJ (Pune)(TM) 113 : (2002) 18 IT Rep. 220 (Pune)(TM) (v) P.K. Ganeshwar vs. Dy. CIT (2004) 91 TTJ (Chennai) 970 : (2002) 80 ITD 429 (Chennai) Learned CIT(A) further observed that the valuation in the present case was not the valuation of property and that the valuation of the ova was ....
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....ed by the AO on the basis of valuation done by the valuers of assessee's choice, particularly when the partners had accepted the valuation done by the valuers. It was stated that the assessee did not furnish any detail of the diamonds purchased and even no corresponding particulars in the inventory of stock, vis-a-vis the purchase bills were provided, simply it was stated that it was difficult to pinpoint the item-wise details of diamonds. It was submitted that in the purchase bills only the gross weight was mentioned, and there was no description of the diamonds purchased, therefore, the purchases were not verifiable. It was also stated that the detail was prepared on the basis of jewellery found and the addition was made only on actual basis, so, there was no scope of presumptions and conjectures, as such, the learned CIT(A) was not justified in stating that the addition had been made only on the basis of presumption and conjectures. He further stated that the learned CIT(A) simply accepted the version of the assessee and deleted the addition in a slipshod manner, without making any comments with respect to valuation report which was made by the valuers of assessee's choice and w....
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....ooks of account. Learned counsel for the assessee further submitted that there were differences in the value of the same item by the two valuers. Reference was made to page No. 243 of assessee's compilation. It was stated that the assessee was maintaining purchase bills. Reference was made to page Nos. 255 to 311 of assessee's paper book. It was argued that both the weight of diamonds that is found during the course of search and the weight in the books of account tallied, therefore, the AO was not justified in adopting the market value as on the date of search instead of purchase value shown by the assessee. He contended that whatever was disclosed in the books of account, could not have been considered as undisclosed Reliance was placed on the judgment of Hon'ble Supreme Court in the case of K.P. Varghese vs. ITO & Anr. (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC). He further contended that the assessee maintained proper books of account in the regular course of business and no finding had been given by the AO that the items mentioned in the books of account were not found during the course of search or there was any difference in the weight. 9.1 As regards to the valuatio....
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....He further stated that the assessee specifically pointed out the defects in the valuation report vide letter dt. 7th April, 2000 filed with the AO. So, the valuation report could not have been made the basis for making addition. He also submitted that the purchase vouchers of diamonds found during the course of search were duly entered in the books of account and there was no evidence that the assessee had made anything in cash for purchase of diamonds. It was contended that the onus was on the Department to prove that some underhand money had been paid for purchase of diamonds. Reliance was placed on the judgment of Hon'ble Supreme Court in the case of K.P. Varghese vs. ITO. It was argued that no addition could have been made on account of the difference in valuation of diamonds where the purchases were recorded. He accordingly submitted that the learned CIT(A) was justified in deleting the addition made by the AO. 10. We have heard both the parties and carefully gone through the material available on record. As regards to the facts of this case are concerned, there is no dispute that during the course of search, loose diamonds and diamond jewellery were found from the business....
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....the description given was "cut and polished diamonds". No other description was given. So, it was not possible to ascertain which diamond was purchased vide which purchase bill. In other words, the assessee was not in a position to identify the diamonds mentioned in the purchase bills vis-a-vis the diamonds found during the course of search. So, the only way to find out the correct value of the diamonds and jewellery found during the course of search was to get those valued from registered valuers. The valuation was got done from independent registered valuer as well as from the valuers of assessee's choice. The value worked out was almost equal since the value worked out by Shri Vijay Kumar was at Rs. 1,01,22,942 while the value worked out by the another two valuers of assessee's choice, namely, Shri Surya Kant Jain and Sudhir Kumar, was at Rs. 98.50 lacs. The main objection of the assessee was that there was much difference in the valuation of various items in different valuation reports. However, overall difference was very small. So, it cannot be said that the valuation done by the registered valuers was not authentic or was without any basis. The assessee pointed out that in o....
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....essee was also unable to satisfy the AO that how the value of stock as per books was worked out at Rs. 30,41,293, particularly when the items were not correlated with any of the purchase bills. It is true that undisclosed income is to be computed on the basis of evidence found as a result of search. In the instant case, the diamond jewellery was found during the course of search and the assessee was unable to link that jewellery with the purchase bills. So, the AO was justified in adopting the value on the basis of valuation done by the registered valuer. It is well-settled that the assessment for block period is to be framed on the basis of return of income furnished by the assessee in response to notice under s. 158BC of IT Act. The correctness of the said return of income has to be examined by the AO with reference to the material in his possession having nexus of assessment of undisclosed income which is with him. In the instant case, the onus was on the assessee to prove the correctness of the value of diamond jewellery stock in the books of account. However, the assessee was unable to prove such value since no stock register was maintained and no description of diamonds, item....
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....n given by the learned CIT(A) that the assessee had been making purchases of loose diamonds directly from Surat and Mumbai and the Department has verified the purchases and found nothing adverse, this reason given by the learned CIT(A) is without appreciating the facts in right perspective because the main basis for making the addition was that the assessee was unable to link the purchase bills with the value of the stock declared since in the purchase bills no description and quality of the diamonds has been given, it is simply mentioned "packet of cut and polished diamonds". In the present case, although the authenticity of the purchases from Surat and Mumbai was not in doubt but the question of item-wise purchase price on the basis of purchase bills remained unanswered at every stage. Therefore, the only way to ascertain the value was the valuation by an expert and independent valuer which has been got done in this case. The learned CIT(A) also stated that the valuation at market rates by ignoring the cost of purchases made it clear that the valuation had been done on conjectures, estimates and assumptions, especially when there was no difference in the weight. This observation ....
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....valuation of diamonds and the assessee miserably failed to adduce proper evidence to establish that the valuation of stock taken by it was the correct value which was based on the purchase invoices, therefore, the AO in such peculiar circumstances was fully justified in adopting the value worked out by the valuers of assessee's choice, particularly when the partner of the assessee firm who is also working partner, agrees for the same. I, therefore, in the light of the above discussion, propose to set aside the order of learned CIT(A) and to restore the addition made by the AO. 11. Second ground of Departmental appeal relates to deletion of addition of Rs. 3,64,930 made by the AO on account of valuation of excess stock of 22 carat gold jewellery. 12. The facts related to this issue have been discussed by the AO who discussed this issue in detail at para 11 of block assessment order dt. 30th May, 2003. According to him, during the course of search proceedings, inventory of 22 carat gold jewellery was prepared and the total stock was found as under: As per inventory prepared on 14.5.2001 7,437.590 gms. As per inventory prepared on 15.5.2001 &....
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....bsp; Rs. 38,55,487.50 Add: Labour charges paid @ Rs. 26 per gm. as stated by Shri Anil Talwar in his statement dt. 14th May, 2001 (26 x 9,668.934) Rs. 2,51,392.50 Total value of excess stock Rs. 41,06,880 The AO asked the assessee to explain as to why the investment in excess stock of 22 carat gold jewellery at Rs. 41,06,880 may not be treated to have been made from its undisclosed income for the block period. The assessee submitted that the difference of excess stock of 9,668.934 gms. was not correct. It was pointed out that jewellery weighing 7,437 590 gms. had been inventoried on 14th May, 2001, i.e., on the first day of the search. Out of the above jewellery, jewellery weighing 4,340.03 gms. was shown to be mainly comprised of the miscellaneous items. No description of any nature against those miscellaneous items had been given in the stock list. It was also ....
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....ally shown to the customers while booking order from them and used for making designer jewellery on approval basis before the order placed by the customer was finalized. It was stated that this practice was being followed in order to save the wastage of gold while making samples of jewellery on order basis. It was submitted that the stock of this jewellery was lying separately and had been accounted for in stock physically verified by the Department on 14th May, 2001 under the head "Miscellaneous items" and this fact came into light only at the time of preparation of block assessment return and while reconciling the figures of stock as per books with that of the report of the valuation officer. It was further stated that stock of silver jewellery weighing 4,790 gms. was at Rs. 29,183 as on 31st March, 2001 and this jewellery was purchased in the year 1992-93. It was explained that as per repair register the weight of jewellery received by the assessee on repair basis was 1,002.380 gms. and that jewellery could not be got verified at the time of search as the same was mixed with other jewellery. It was further stated that gold jewellery owned by the families of the partners of the a....
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....; 1,196.080 gms. ----------------------------------------------- It was also explained that the balance jewellery of 315 gms. (1,511.020 - 1,196.080 gms.) was lying in the shop for remaking and accordingly, the same was required to be reduced from the jewellery found from the shop during the course of search. On the basis of aforesaid explanations, the assessee worked out the difference at 4,111.850 gms. The calculation done was as under: Stock as per inventory prepared by the 52,551.774 gms. Department during the course of search Less: Stock of silver jewellery included in above as explained above 4,239.704 gms. Gold jewellery as per inventory dt. 48,312.070 gms. 12.5.2001 Less (i) Jewellery received from customers for repair included in above as per separate register maintained in this behalf-1,002.380 gms. (ii) Jewellery of family lying in shop - 1,317.380 gms. 315.000 gms. Balance 22 carat gold j....
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....--------------------------- 172 Miscellaneous items 393.68 ---------------------------------- 173 Miscellaneous items 656.98 ---------------------------------- Total 4008.42 ---------------------------------- The AO discussed the list of tagged items of stock as on 12th May, 2001 as per seized page No. 9 of Annex. A-16. The detail of those items was as under: Gold --------------------------------------------------------- 1 Bangles 489 No. 913 pcs 15,783.390 gms. --------------------------------------------------------- 2 Chains 240 No. 240 pcs 4,866.710 gms. --------------------------------------------------------- 3 Ear rings 663 No. 1,226 pcs 3,906.050 gms. --------------------------------------------------------- 4&nbs....
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....------------------------ 5 Sets 63 No. 63 pcs 345.92 carat --------------------------------------------------------- 6 Tops 176 No. 352 pcs 224.71 carat --------------------------------------------------------- The AO pointed out that in the list of stock of gold items as mentioned in the aforesaid list, miscellaneous items numbering 57, were weighing 239.39 gms. and as per inventory prepared on 14th May, 2001, the weight of such items at Sl. Nos. 142, 144 to 172 had been mentioned at 4,230 gms. He further stated that no stock of silver was inventoried in either of the list as on 14th May, 2001 or on 15th May, 2001. He also pointed out that as per record the assessee was showing stock of sliver items at Rs. 29,183 since 31st March, 1993 weighing 4,790 gms. and the same was appearing in the account statement filed for subsequent years also and was also shown as in closing stock on 31st March, 2001 and 31s....
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....ect of repair of jewellery of customers for the period 1st April, 2000 to 31st March, 2001, the assessee received in all 6,404 gms. of jewellery and average time of repair of jewellery item was from 2 to 10 days. The AO was of the view that on that basis, average period of repair could be taken at 5 to 6 days. He, therefore, held that normal jewellery of customers for repair available should have been 105.27 gms. against which the assessee claimed it at 1,002.380 gms. He also pointed out that as per repair register, 110.71 gms. of jewellery of customers was available with the assessee as on 31st March, 2001 which was in clear vicinity of average jewellery for repair. He, therefore, considered that on an average 105.27 gms. of jewellery was available in the shop for repair and allowed the benefit of 105 gms. in the absence of original record. 12.3 As regards to the assessee's contention that 315 gms. of jewellery of the family was also lying in the shop for modification/remaking, the AO observed that the assessee had not filed any evidence. He also pointed out that as per practice whenever the assessee firm received any jewellery from any person, then it was entered in the repair....
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....nbsp; Rs. 22,49,930.56 The AO also pointed out that the assessee had adopted a rate of Rs. 23.30 per gm. for labour charges on the basis of average labour charges paid in the last year. According to the AO, the record of the assessee for the period 1st April, 2001 to 13th May, 2001 revealed that the assessee was paying Rs. 26 per gm. as labour charges to its Karigars. He also stated that as per the statement recorded on 14th May, 2001 of Sh. Anil Talwar, partner of assessee, labour charges were paid at Rs. 26 per gm. In view of the above the AO made the addition of Rs. 22,49,930 considering the same to be the investment in jewellery found during the course of search at assessee's premises as undisclosed income within the meaning of s. 158B(b) of IT Act. 13. The assessee carried the matter to the learned CIT(A) and submitted that the AO worked out the excess 22 carat gold jewellery at 5,429.230 gm. It was stated that the assessee while making surrender of Rs. 81 lakhs had considered the value of excess stock of 22 carat gold jewellery at Rs. 17,35,000 weighing 4,111.850 gms., thus excess jewellery worked out by the AO came to 1,317.380 gms. for which he adopted the....
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....at with regard to the assessee's contention that 315 gms. of jewellery of the family was also lying in the shop for modification/remaking, however, the assessee has filed no evidence to this effect. As per practice whenever the assessee firm receives any jewellery from any person, then it is entered in the repair account register. However, no such entry is recorded in its regularly maintained books of account viz. repair account register upto 31st March, 2001. In respect of the later period, assessee has not produced the repair register to prove his claim. In view of the same contention raised by the assessee is not accepted. After considering the above 4,880.544 gms. of jewellery as calculated below is treated as unaccounted stock. The learned Authorised Representative for the assessee objected to the application of the labour rates of a later period to an earlier period. He has also stated that credit for the jewellery declared in the WT returns of the family members should have been given too. After examining the rival submissions, I consider it just and fair to restrict the disallowance to Rs. 1.5 lac under this head basically on account of the lack of confirmations from some o....
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....it had been taken for the jewellery belonging to the wives of the partners since that jewellery was not present at the business premises of the assessee. He further stated that the contention of the assessee was unrebuttab1e and the explanation offered was rejected by the AO arbitrarily. 16.1 As regards to the jewellery belonging to the customers he submitted that the confirmations were filed from the customers who categorically stated that they had given the jewellery for repairs. Reference was made to page Nos. 362, 364 and 365 of assessee's compilation. It was submitted that the assessee furnished the details of the customers along with addresses from whom jewellery was received for repair. Reference was made to page No. 210 of assessee's compilation. He also submitted that copy of repair register was furnished to the AO which included the names of the customers from whom jewellery was received. He accordingly submitted that since all the details were furnished to the AO, there was no reason to disbelieve the contention of the assessee. 16.2 As regards to the jewellery belonging to the family members, it was stated that jewellery which was found from lockers was weighing 1....
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....n-speaking order in the eyes of law. 17.2 It is well-settled that the order/judgment unsupported by reason is not a judgment in the eyes of law. It is also true that the reasons are the links between the material on record and conclusion thereafter by the Court/appellate authority. It is, therefore, incumbent upon the learned CIT(A) to consider properly the arguments of the assessee as well as findings given by the AO and thereafter he should have made independent findings either in favour or against the assessee. Considering the entire facts of the instant case in my opinion, the learned CIT(A) had not passed proper order in the eyes of law. At this stage, a reference can be made to the decision of Tribunal Ahmedabad Bench in the case of Gujarat Themis Biosyn Ltd. vs. Jt. CIT (2000) 67 TTJ (Ahd) 386 : (2000) 74 ITD 339 (Ahd). The Tribunal, Ahmedabad Bench, while interpreting the provisions of s. 250(6) of the IT Act, 1961 held as under: "The provisions of s. 250(6) provide that the appellate orders of the CIT(A) are to state the points arising in the appeal, the decision of the authority thereon and the reasons for such decision. The underlying rationale of the provisions is....
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....nion that the AO was justified in considering the labour paid @ Rs. 26 per gm. As mentioned in the former part of this order that the assessee had not reconciled the jewellery claimed to be belonging to the customers and family members with the jewellery found during the course of search and the learned CIT(A) had passed a non-speaking order on this issue, I deem it proper to set aside this issue back to the file of AO for fresh adjudication. 18. The next issue vide ground No. 3 relates to the deletion of addition of Rs. 50,735. 19. The facts related to this issue in brief are that during the course of search 40 number of 24 carat gold bars were found at the shop whereas as per stock register it was nil as on 15th May, 2001. This discrepancy was pointed out to Sh. Anil Talwar, one of the partners of the assessee firm, on 16th May, 2001. He admitted that this bullion was the unaccounted stock earned from unaccounted income in the last number of years and the same would be declared in the return of block period. The AO asked the assessee to explain the source of purchase of those 40 gold bars. He also pointed out that it was not clear whether the undisclosed investment in 40 go....
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....,78,800 and not Rs. 20,29,535 adopted by the AO. 21. Learned CIT(A) deleted the addition by stating that there was no justification in adopting the value of 40 numbers of 24 carat gold bars at Rs. 20,29,535 he directed the AO to slash it down to Rs. 19,78,800. Now, the Department is in appeal. 22. Learned Departmental Representative for the Revenue strongly supported the order of AO and submitted that the assessee was in possession of 40 gold bars on the date of search. The AO applied the market rate on the date of search since the gold bars were found on the date of search. It was further stated that the learned CIT(A) has not given any basis for making the deletion of addition made by the AO. 23. In his rival submissions, learned counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the gold bars were purchased from SBI on 17th April, 2001. Reference was made to page Nos. 192 and 193 of assessee's compilation. It was submitted that the assessee issued old accumulated jewellery to the Karigars for making new jewellery and 40 gold bars out of 65 gold bars purchased on 17th April, 2001 remained at the business premi....
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.... of M/s Talwarsons Jewellers), gold receipt voucher book (A-51 of Panchnama. dt. 15th May, 2001) and the corresponding register of gold issue and receipt from Karigars (D. No. A-51 of Panchnama dt. 15th May, 2001), revealed that the assessee had issued gold of 24 and 22 carats for conversion into 22 carat and 14 carat jewellery only and no issue or receipt of 18 ct gold was shown. According to him the entire 18 carat of gold weighing 5,650.70 gms. valuing Rs. 18,13,252 was not recorded in the books of account. He, therefore, asked the assessee to show cause as to why it should not be treated as unaccounted stock of gold. In response to that the assessee submitted that diamond jewellery made of 18 carat gold weighing 5,650.70 gms. was found from the business premises of the assessee during the course of search but there was no stock of jewellery made of 18 carat gold in the books of account and the stock register, instead the jewellery in which the diamonds were studded was shown to be made of 14 ct gold weighing 2,331.020 gms. It was further submitted that the purity of gold jewellery in which the diamonds were studded was changed from 14 carat to 18 carat. However, the relevant en....
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....count was mainly due to different labour charges which were adopted by the AO at Rs. 26 per gm instead of Rs. 23.30 per gm adopted by the assessee. It was stated that detailed submissions with respect to same had been furnished to the AO. Therefore, the action of the AO was highly unjustified. 28. Learned CIT(A) allowed the claim of the assessee by stating that the labour rates applied by the AO had not been approved while deciding ground No.2 of the assessee. 29. After considering the rival submissions and the material available on record, it is noticed that similar issue, i.e., relating to the application of labour rate, was involved in ground No. 2 of Departmental appeal. Therefore, the findings given therein shall apply mutatis mutandis. In that view of the matter, I am of the opinion that the learned CIT(A) was not justified in deleting the addition made by the AO. Accordingly, the order of learned CIT(A) on this issue is set aside and that of the AO is restored. 30. Next ground vide ground No. 5 relates to deletion of addition of Rs. 1,60,401 made by the AO on account of unexplained investment in renovation of SCF Nos. 14-15, Sector 22-D, Chandigarh. 31. The facts....
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....ing constructed by Shri Anil Talwar and his wife, Smt. Neena Talwar at Sector 34, Chandigarh. It was further submitted that undated document had nothing to do with the building renovation undertaking by the assessee and should not have been included as undisclosed income of the block period. 33. Learned CIT(A) after considering the submissions of the assessee, deleted the addition by stating that the dumb document could not be a ground for addition in search assessment. Reliance was placed on the judgment of Tribunal, Chandigarh Bench, in the case of Jagdamba Rice Mills reported as Jagdamba Rice Mills vs. Asstt. CIT (2000) 67 TTJ (Chd) 838. Now, the Department is in appeal. 34. Learned Departmental Representative for the Revenue strongly supported the order of AO and further stated that the assessee had not disclosed the expenses incurred on renovation in the books of account. Therefore, the income was earned outside the books of account which was rightly added by the AO in the hands of the assessee and the learned CIT(A) was not justified in deleting the same. 35. In his rival submissions, learned counsel for the assessee reiterated the submissions made before the authori....
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....). Copy of the said order was furnished. 42. In his rival submissions, learned counsel for the assessee reiterated the submissions made before the authorities below and further stated that the surcharge was not leviable in the cases where the search had taken place before 1st June, 2002. Reliance was placed on the following case law: (i) Mrs. Aruna M. Katara vs. Dy. CIT (ii) Om Parkash Sharma vs. Dy. CIT (iii) Satyabhushan vs. Dy. CIT (iv) V.S. Fabrics & Investment Co. (P) Ltd. vs. Asstt. CIT (v) DCP Windsor (India) Ltd. vs. Dy. CIT (vi) Merit Enterprises vs. Dy. CIT 43. After considering the rival submissions and the material available on record, it is noticed that the latest decision of Hon'ble jurisdictional High Court was not brought to the notice of the learned CIT(A) since the same was not available to him. For that reason he followed the earlier decision of the Tribunal and decided the issue in favour of the assessee. It is also noticed that the Tribunal, Hyderabad Bench 'A' (SB), in the case of Merit Enterprises vs. Dy. CIT decided the issue in favour of the assessee by holding that, "levy of surcharge on Lax on undisclosed income prior to introdu....
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....rned CIT(A) has erred in upholding the addition of Rs. 1,50,000 as undisclosed income of the assessee on account of excess stock of 22 carat gold jewellery found at the business premises of the assessee during the course of search on ad hoc basis without proper application of mind." "3 The upholding of addition of Rs. 1,50,000 being on ad hoc basis is both against facts and erroneous in law and is therefore, liable to be deleted." "4 The assessee craves leave to add, to alter or amend the above grounds of appeal before the same are heard and disposed off." "5. It is prayed that the impugned addition sustained by the learned CIT(A) may kindly be deleted on the above grounds of appeal." 46. From the above grounds, it would be clear that the grievance of the assessee only relates to sustenance of addition of Rs. 1.50 lakh. On this issue the Department is also in appeal vide ground No. 2. While deciding issue in the aforesaid appeal of the Department, identical issue has been remanded back to the file of AO for fresh adjudication. In that view of the matter, this issue is also restored to the file of AO for fresh adjudication in accordance with law after providing due and r....
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....g questions for disposal of the above appeals under s. 255(4) of the IT Act, 1961 (in short 'the Act'): "(1) Whether on the facts and in the circumstances of the case, the learned CIT(A) erred in law in deleting the addition of Rs. 52,07,599 on account of unaccounted investment in stock of diamonds? (2) Whether on the facts and in the circumstances of the case, the addition of Rs. 1,50,000 out of addition of Rs. 3,64,930 on account of valuation of excess stock of 22 carat gold jewellery is to be sustained or matter is required to be remitted to the AO? (3) Whether on the facts and in the circumstances of the case, the CIT(A) erred in law in deleting the addition of Rs. 50,735 made on account of acquisition of gold bars? (4) Whether on the facts and in the circumstances of the case, surcharge is leviable when the search took place before 1st June, 2002? (5) Whether on the facts and in the circumstances of the case, the addition of Rs. 48,328 made for the alleged unaccounted stock of 18 carat gold used in diamond jewellery is to be deleted or sustained?" 2. During the course of hearing before me both the parties agreed that question No. 2 does not correctly reflect ....
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....ry converted into 24 Rs. 16,39,600 ct gold 3,769.190 gms. @ Rs. 435 per gm. as adopted by registered valuer in his report Add: Average labour charges @ 23.30 per Rs. 95,806 gm. (on the basis of books for the year ending 31.3.2001) on jewellery weighing 4,111.850 gms. Total value of 22 ct excess jewellery Rs. 17,35,406 found On the above facts and figures, the addition on account of excess jewellery found at the time of search under any circumstances cannot exceed Rs. 17,35,406 as calculated above. The figure of Rs. 41,06,880 as worked out by you is based on wrong facts and has to be ignored." 4. In respect of claim of 315 gms. of jewellery belonging to the family members, the assessee relied upon the WT returns of the family members and personal books maintained by them from year to year. The detail furnished was as under: ----------------------------------------------- ....
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....ard claim of 315 gms. belonging to the family members, the AO held that the assessee has filed no evidence in support of above claim. There was no entry in the relevant register or in the books of account relating to above jewellery. The AO accordingly valued unaccounted 22 carat gold jewellery at Rs. 22,49,930 against a sum of Rs. 17,35,406 as per the calculation below: Wt. of unaccounted 22 ct. gold jewellery 9,668.934 gms. Less: claim of assessee regarding silver jewellery accounted for in gold under the head misc. items 4,239.704 gms. Less: weight of jewellery of customers lying in shop for repair as per repair register 105.000 gms. ....
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....Rs. 5,14,930 between the claim and assessment is on account of the following: (a) for not accepting the jewellery claimed to be belonging to the family members. (b) for not accepting entire claim of jewellery received for repair from customers. (c) for not accepting application of labour charges @ of Rs. 23.30 per gm. claimed by the assessee and applying rate of Rs. 26 per gm. The basis of application of the above labour rate is given in the assessment order as under: "As per statement of Shri Anil Talwar in his statement recorded on 14th May, 2001, assessee is paying Rs. 26 as labour charges against which assessee has adopted a rate of Rs. 23.30 in its calculation based on the average labour charges paid last year. Assessee's records for the period 1st April, 2001 to 13th May, 2001 were also gone through and it is noticed that assessee is paying Rs. 26 per gram as labour charges to its Karigars and on that account labour charges are treated as Rs. 26 per gram for the purpose of making charges of unaccounted gold jewellery." CIT(A)'s observation 9. On further appeal, the assessee once again drew learned CIT(A)'s attention to the claim submitted before the AO which....
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....ight were submitted, claiming the same of the partners and their other family members and HUF. The credit of the same has to be allowed. We notice that in this case search was carried out both at business as well as residential premises of the assessee. The search was also carried out in the lockers and the inventory of the jewellery prepared by the Revenue also includes the jewellery found on person. In such circumstances, there is no justification in rejecting the explanation given by the assessee by not taking into consideration the total quantity of the personal jewellery. Accordingly, we hold that AO was not justified in not giving credit of 315 gms. on account of personal jewellery and restricting the credit of customer's jewellery to 105 gm as against 1,022.38 gms. claimed and evidenced by the assessee. Further, we notice that the AO was not justified in applying the labour charges @ Rs. 26 per gram against the average rate of Rs. 23.30 per gram worked out on the basis of total labour got done during the financial year 2000-01 without bringing any comparative figures from other persons/jewellers. Therefore, the AO has estimated the labour charges without considering any comp....
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.... is not a judgment in the eyes of law. It is also true that the reasons are the links between the material on record and conclusion thereafter by the Court/appellate authority. It is, therefore, incumbent upon the learned CIT(A) to consider properly the arguments of the assessee as well as findings given by the AO and thereafter he should have made independent findings either in favour or against the assessee. Considering the entire facts of the instant case, in my opinion, the learned CIT(A) had not passed a proper order in the eyes of law." 13. The learned AM then referred to the decision of Ahmedabad Bench in the case of Gujarat Themis Biosyn Ltd. vs. Jt. CIT (2000) 67 TTJ (Ahd) 386 : (2000) 74 ITD 339 (Ahd) to emphasise that a speaking order is required to be passed by the learned CIT(A). He further observed that in the present case AO did not consider the contention of the assessee that the jewellery was declared in the WT returns. He also referred to the statement of Shri Anil Talwar dt. 14th May, 2001 relating to labour rate of Rs. 26 as an average. As relevant material was not considered, the learned AM thought it fit to set aside the order of CIT(A) on addition of Rs. 5....
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....learned JM in the proposed order is right in accepting the claim. There was no justification for accepting part of the claim, without carrying out any verification and without there being any adverse material on record. 16. As regards jewellery belonging to the members of the family, the assessee had relied upon IT record and WT returns to show that the family members owned jewellery of 1,511.020 gms. with them. On search the Revenue had found in custody of members jewellery weighing 1,196.080 gms. It is well known that when action under s. 132 is taken, every nook and corner of residence, lockers, etc. is searched. After above exercise only 1,196.08 gms. of jewellery was found. The difference of 315 gms. was claimed to be at business premises. It has to be appreciated that all the family members are jewellers and purchase and sale of jewellery is their vocation/trade. Therefore, there is nothing unusual in the family members sending part of their jewellery to the business premises for sale/remodeling, etc. The learned CIT(A) and learned JM in the proposed order have adopted a reasonable approach on the facts and circumstances of the case. I do not agree with the reasoning given....
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.... learned JM agreed with view taken by the CIT(A) and accepted the claim of the assessee that these bars are part of bars purchased on 17th April, 2001 from SBI. The ground of the Revenue was rejected. 19. The learned AM did not agree with the above view. He restored the order of the AO with the following observations: "24. We have heard both the parties and carefully gone through the material available on record. It seems that the assessee tried to co-relate the gold bars found unaccounted during the course of search with the gold bars purchased on 17th April, 2001 by taking the plea that old accumulated jewellery was issued to the Karigars instead of gold bars and 40 gold bars remained with the assessee. This explanation of the assessee does not appear plausible since it was claim of the assessee that gold bars purchased on 17th April, 2001 from SBI were entered in the books of account. At the same time, the assessee accepted that 40 gold bars found during the course of search were not recorded in the books of account. So, the stand of the assessee was contradictory. Moreover, no evidence was brought on record to substantiate that old jewellery accumulated was given to the K....
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....bsp; 5,650.700 gms. Less: Jewellery as per books shown to be made of 14 ct gold in the books as on date of search 2,331.020 gms. -------------- Excess jewellery found 3,319.680 gms. Less: Diamond weight and weight of precious stones included in above (190 + 100 gm.) 290.000 gms. &nb....
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....ewellery is shown as embedded in 14 carat gold against 18 carat gold as found during search. All entries in books of account are made on the basis of 14 carat gold. Assessee as stated above has contended that benefit of 14 carat gold used in diamond jewellery shown in books of account may be allowed to him and addition on that account works out to Rs. 12,28,024 instead of Rs. 18,13,252 as was proposed. After considering the fact that 2,331.020 gms. on the ground 14 carat gold is considered in books of account, benefit of 2,331.020 gms. of 14 carat is allowed to the assessee. Further, value of 190 gms. of 22 carat of gold which is equivalent to weight of 945 carat of diamonds is allowed to the assessee. Value of unaccounted 18 carat gold is thus worked out as under: Value of 5,650.07 gms. of 18 carat gold Rs. 18,43,540 (5,650.7 x 18/24) Less: value of 190 gms. of 18 carat gold equivalent to weight of 945 carat of diamond (190 x 435 x 18/24) Rs. 61,987 Less: value of 2,331.020 gms. of 14 carat gold (2,331.....
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....n other issues, the learned CIT(A) accepted the claim. On further appeal, the learned ,JM agreed with the view taken by the learned CIT(A). However, learned AM restored this issue to the file of the AO in the light of his view on ground No.2 of Revenue's appeal discussed above. 1 have already held that on facts and in the circumstances of the case, there is need to examine question whether labour charges are to be calculated @ Rs. 26 or Rs. 23.30 per gram. Therefore, the issue is set aside and remanded to the file of the AO. I therefore, agree with the order proposed by the learned AM. This question is answered accordingly. 25. 1 now proceed to consider question No. 1 which relates to addition of Rs. 52,07,599 deleted by the learned CIT(A). 26. On further appeal, the learned JM in the proposed order has concurred with learned CIT(A) whereas learned AM has set aside the impugned order and restored the addition to the file of the AO. 27. The facts relating to addition are as under: A search was carried on business premises of assessee firm and at residential premises of its partners under s. 132(5) on 14th May, 2001. From the business premises, some loose diamonds and jew....
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.... 1,053.670 ct calculated above. Add: weight of diamonds purchased during the period from 1.4.2001 to 12.5.2001, purchase value Rs. 6,730 2.230 ct Total weight: 1,055.90 ct ----------- Less: Weight of diamond in sale value of Rs. 3,29,650 (i.e., sale as per our books from 1.4.2001 to 12.5.2001) 88.85 ct Based on purchase ....
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....was to be adopted as basis for considering the issue in question. With regard to main contention of the assessee that all the diamonds and diamond studded jewellery found were shown in stock in the books of account, the AO rejected the contention with the following observations: "2. With regard to the assessee's contention regarding number of carat of diamonds in stock and as per valuation report being the same is concerned, assessee was asked to give details of quantity of diamonds in carat, but assessee has not furnished such information on the ground that assessee is not maintaining any stock register in respect of diamonds and it is not feasible. Therefore, item-wise details of stock were not available. During the course of search, some of the bills with regard to purchase of diamonds were seized (D. No. A 38). Assessee was asked to explain whether the diamonds purchased as per those bills have been sold, and if not, then the corresponding particulars in the inventory of stock found during the course of search may be provided. In response to the same it was stated that it is not possible for him to pinpoint item-wise details of diamonds. It is only at the time of preparing i....
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....re shown in the list for past several years. Copies of list of closing stock were filed with the AO. The AO held that weight of diamonds was not mentioned in the lists and only value as on 31st March, 1991/31st March, 1992/31st March, 1993 was mentioned. The assessee tried to correlate solitaires found at the time of search with lists filed from time to time having approximate value of Rs. 8 lacs. The AO asked the assessee to produce the bill of solitaires (old items) which assessee could not produce and, therefore, the contention of the assessee was not accepted. 31. The claim relating to margin of middleman was also not accepted. The AO observed that if margin of assessee at 24 per cent is added to the value of diamonds at Rs. 80,79,720 it would work out to Rs. 1,00,99,650 against book value shown by the assessee at Rs. 30,41,293 which would show that value of the diamonds had increased three times. This was not reconcilable with approx. 24 per cent GP shown by the assessee in the last many years. He further observed that stock which was lying in the closing stock was actually fresh and not recorded in the books of account. The AO further observed that diamond jewellery is fre....
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....bsp; 52,372 ------------------------------------------------------ 4 31.3.1997 58,836 305 78,319 ------------------------------------------------------ 5 31.3.1998 2,36,826 331 2,90,487 ------------------------------------------------------ 6 31.3.1999 1,88,078 351 2,17,548 ------------------------------------------------------ 7 31.3.2000 6,47,167 389 6,75,449 ------------------------------------------------------ 8 31.3.2001 16,66,525 406 16,66,525 ------------------------------------------------------ Miscellaneous items --------------------....
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....ded in 5,650.70 gms. of 18 carat gold. The variation in the quantum of 14 carat gold and 18 carat gold is almost of 142 per cent, which implies that the number of diamonds as actually received, and diamond as actually accounted for differs by more than 142 per cent. Assessee's is sale bills do not depict the carats but depict only the number of diamonds without mentioning the weight of diamonds. The books of account as well as assessee's contention in this regard that number of carats are similar are thus has no evidentiary value. 7. In view of the above factual position, when the assessee is unable to reconcile the diamond jewellery with reference to purchase bills vis-a-vis items lying in the closing stock and was also unable to correlate the diamond studded jewellery with the purchase bills, which method assessee has contended, time and gain, is being applied every year for valuation of diamond jewellery, all the contentions raised by the assessee are rejected and value of the closing stock of diamonds is taken at Rs. 83,09,692 against the stock as per books at Rs. 30,41,293. Further, a benefit of Rs. 60,800 being the value of 190 gms. of 18 carat of gold in lieu of 945 carat....
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....ut recording the same in the books of account. The difference in the valuation is only because of the fact that different rates had been adopted by different valuers, otherwise, there is no difference in the weight of the diamond jewellery found at the time of search and the weight of the diamonds as per the books. Your Honour will appreciate that the market rate of diamonds could not be applied by ignoring the cost of purchases over the last various years which is fully evidenced by the purchase invoices. The addition made at Rs. 52,07,599 in the valuation of diamonds is merely on surmises and conjectures and deserves to be deleted." 34. The learned CIT(A) observed that block assessment cannot be made on conjectures and presumptions but must be supported on the basis of evidence found as a result of search. He quoted five decisions in support of the above proposition. He further observed that suspicion howsoever strong it may be, cannot take shape of an evidence. The learned CIT(A), therefore, took into consideration definition of "undisclosed income" under s. 158B(b) and also decision of the Supreme Court and other Courts that Department has no power to refer a case to the DVO....
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....ew of these facts, broadly, we are of the view that there is no reason to make an addition by valuing diamonds which already form part of the disclosed account of the assessee. The block assessment proceedings cannot be used by the Revenue by taxing the income which has not yet been earned by the assessee. The cost for the purpose of computing the income of the assessee has to be the cost actually incurred. No material whatsoever was brought on record by the Department that the assessee has incurred cost more than what has been declared for the purchase of diamonds. In the absence of any such material, no addition can be made merely on the basis of valuation. The Allahabad Bench of the Tribunal in the case of V.V.S. Alloys Ltd., wherein there was no material with the Department found against the assessee, investigations were carried out, post-search to verify the purchases made from suppliers in Surat and Mumbai. There was no evidence whatsoever to show that the assessee had paid underhand cash for the purchase of diamonds. It was held that no addition can be made on account of difference in the valuation of diamonds where purchases have been duly recorded. This judicial pronouncem....
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....found, the assessee was required to furnish the evidence in support of the value taken by it in the books of account. The primary evidence in such type of cases is the stock register wherein the date of purchase, description of the item date of sale, closing balance, etc. are mentioned. It was also the duty of the assessee to get reconciled the closing stock reflected in the stock register with the physical inventory prepared during the course of search. However, the partner of the assessee firm, namely, Shri Anil Talwar who was looking after the business, stated in his statement, on oath that it was not possible to maintain the stock register and no such register was maintained. The another evidence could have been the bills of purchase of diamonds; however, in those purchase bills, the description given was 'cut and polished diamonds'. No other description was given. So, it was not possible to ascertain which diamond was purchased vide which purchase bill. In other words, the assessee was not in a position to identify the diamonds mentioned in the purchase bills vis-a-vis the diamonds found during the course of search. So, the only way to find out the correct value of the diamond....
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....egarding the diamonds was one 'packet of cut and polished diamonds'. From that description, nobody can ascertain how much pieces were there in one packet and what was the individual size and value of those diamond items. In other words, it can be said that the assessee miserably failed to link the diamond jewellery inventorised at the time of search with the purchase bills or the stock register. In my opinion, the AO was justified in taking the value of the closing stock of diamonds at Rs. 83,09,692 against the value shown by the assessee at Rs. 30,41,293, since the assessee was unable to reconcile the diamond jewellery with reference to purchase bills vis-a-vis items lying in the closing stock and was also unable to correlate the diamond studded jewellery with the purchase bills. The assessee was also unable to satisfy the AO that how the value of stock as per books was worked out at Rs. 30,41,293 particularly when the items were not correlated with any of the purchase bills. It is true that undisclosed income is to be computed on the basis of evidence found as a result of search. In the instant case, the diamond jewellery was found during the course or search and the assessee was....
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.... the closing stock since no description was given in the purchase bills and no stock register was maintained by the assessee, so, it was not possible to ascertain the cost price on the basis of purchase bills. The learned CIT(A) also stated that value of certain items appearing in the closing stock was accepted by the Department at Rs 2 lacs which had been valued by the valuers at Rs. 8,07,470. In my opinion, that cannot be a basis to delete the whole of the addition, particularly when the total value worked out was more than Rs. 1 crore and the assessee pointed out the difference only with regard to Rs. 8,07,470 that too has been considered by the AO while framing block assessment which is clear from para 6 of the block assessment order dt. 30th May, 2003. 10.2 As regards to the reason given by the learned CIT(A) that the assessee had been making purchase of loose diamonds directly from Surat and Mumbai and the Department has verified the purchases and found nothing adverse, this reason given by the learned CIT(A) is without appreciating the facts in right perspective because the main basis for making the addition was that the assessee was unable to link the purchase bills with....
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....the valuation was got done by the Department from the independent valuer and also from the valuers of assessee's choice. 10.3 In view of the aforesaid discussion, I am unable to persuade myself to agree with learned JM who concurred with the learned CIT(A) in confirming the deletion of addition made by the AO, particularly when nothing is on record that the post-search inquiry established that the purchase price of the diamonds was correct because no description as regards to the size and quality of the diamonds vis-a-vis item-wise price was mentioned in the purchase bills, so, to ascertain the cost price (as claimed by the assessee) on the basis of purchase bills was just like to find a diamond in the coal mine. In the instant case, the dispute was not related to the quantity but to the valuation of diamonds and the assessee miserably failed to adduce proper evidence to establish that the valuation of stock taken by it was the correct value which was based on the purchase invoices, therefore, the AO in such peculiar circumstances was fully justified in adopting the value worked out by the valuers of assessee's choice, particularly when the partner of the assessee firm who is al....
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....hich is not in dispute, she placed reliance on certain decisions. She also referred to s. 132(4A) to contend that presumption under the said section was that diamonds found belonged to the assessee, which the assessee had failed to explain. 38. The learned counsel for the assessee pointed out- that assessee's partnership (firm) was in this business for the past several years and it maintained regular books of accounts. It had been filing returns supported by audited accounts and inventory of closing stock. He referrec1 to pp. 318 and 338 of the paper book. Inventory of closing stock as on 31st March, 2001 is available at pp. 238 to 240 of the paper book. Shri Jain further submitted that under Chapter XIV, only income which is undisclosed could be assessed. Loose diamonds and diamond studded jewellery were very much part of the regular accounts. This fact was admitted even by the learned AM in his proposed order at p. 26, wherein the learned AM has stated as under: "In the instant case, the jewellery was found during the course of search and the same was also entered in the books of account. For ascertaining the true value of the jewellery found, the assessee was required to f....
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....r pointed out that enquiries were made from the sellers of diamonds to the assessee at Surat and Bombay and sale of diamonds was fully confirmed. It was wrong that no reason was given by learned CIT(A) to delete the addition in question. Shri Jain also relied upon the following decisions: 1. K.P. Varghese vs. ITO & Anr. (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC) 2. Pioneer Publicity Corporation Ltd. & Ors. vs. Dy. CIT (2000) 67 TTJ (Del) 471 3. V.V.S. Alloys Ltd. vs. Asstt. CIT (2000) 68 TTJ (All) 516 and 4. CIT vs. Ravikant Jain (2001) 167 CTR (Del) 566 : (2001) 250 ITR 141 (Del) 39. I have given careful thought to the rival submissions of the parties. It is a search case and, therefore, assessment has been made under s. 158BC of the IT Act. Both the learned Members had quoted provisions of s. 158B(b) of the IT Act. Both the learned Members reached opposite conclusions on the same facts of the present case. The question before me is whether loose diamonds and diamond studded jewellery have been disclosed under the IT Act? If it is disclosed, no addition is possible. Further, for showing that it is disclosed, the assessee has to give some prima facie evidence t....
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....f the assessee shows its acquisition in books, it can be at cost only. In other words, in books only cost of acquisition is to be accounted for. However, if a valuable asset is not accounted for in accounts then, of course, Revenue is entitled to take the value of the said asset when it is found with the assessee, that is, on the date of the search. 41. The learned Representatives of the parties criticized certain portion of the proposed orders of the learned Members as noted above. In my humble opinion, the proposed orders are to be read as a whole and not line by line in isolation. When so read, it is quite clear that learned JM is accepting the case of the assessee and agreeing with the impugned order of learned CIT(A). The learned AM, on the other hand, has taken the opposite view. I, therefore, do not find any substance in above criticism of the learned Representatives. 42. The moot question is whether addition of Rs. 52,07,599 representing loose diamonds and diamond studded articles, on facts and circumstances is justified or not? The detail representing this addition has already been noted earlier. The assessee with reference to vouchers has tallied that jewellery of s....
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.... Amount (Rs.) 1. One ring (single diamond) 20,000 2. One ring (single diamond) 18,300 3. One ring (Single diamond) 20,000 4. One pair tops (single diamond) 13,000 5. One pair tops (single diamond) 15,800 6. One pair diamond bangles 19,500 7. One gent's ring and one pair diamond tops. 61,000 8. One diamond set (necklace and knt. and ring) ....
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....ound and having value of Rs. 16,66,525 was purchased only in the year ending 31st March, 2001. The search had taken place on 14th May. 2001. Having regard to proximity of time, there should not be much variation in the valuation of these items whether taken at cost or at market rate. The purchase of the assessee without a dispute is supported by the authentic purchase vouchers which were found at the time of search along with details of closing stock as on 31st March, 2001. Verification of purchases was also carried. In spite of the verification of claim, jewellery had been taken as unexplained because of faulty valuation reports, valuing jewellery at different figures. Dispute raised on acquisition of above items for lack of distinctive features in the purchase bills is totally unjustified. 44. The weights of the other items in the lot found also admittedly tally with the weight reflected in the books and in purchase vouchers. The purchase vouchers duly show that different quality of diamonds were purchased from time to time. Their value was duly reflected in the closing stock filed with the Department for 10 years prior to the search. It may not be possible for a layman to ide....
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....the Revenue to contend after employment of long hurdle like search that diamonds shown by the assessee as purchased were kept elsewhere and are not diamonds which were found at the time of search. There is no justification to treat these diamonds as "undisclosed" when quantity in weight has been fully disclosed and accounted for. 45. I have already referred to the observation of learned JM accepting the case of the assessee. I find that even learned AM, in some portion of his order, has accepted assessee's version. This is what he has observed at the end of para 10 of his order: "In the instant case, the dispute was not related to the quantity but to the valuation of diamonds and the assessee miserably failed to adduce proper evidence to establish that the valuation of stock taken by it was the correct value which was based on the purchase invoices, therefore, the AO in such peculiar circumstances was fully justified in adopting the value worked out by the valuers of assessee's choice, particularly when the partner of the assessee firm who is also working partner, agrees for the same. I, therefore, in the light of the above, discussion, propose to set aside the order of learn....