TaxTMI 
TaxTMI 
2015 (12) TMI 1122
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....e of survey. (iv) upholding sale price worked out on the basis of 'Weighted average' price based on the sale invoices of very limited period of the year, as against the rate adopted by the A.O. after categorizing and linking the quality and rte of each of the correspondence goods mentioned in both the documents i.e. Approval memos (Annex 22 to 24) and sales invoices (Annexures 1,2, and 16). (v) not appreciating the fact that the principle laid down in AS-2 with reference to FiFO/weighted average method of valuation of inventory is not applicable for ascertaining the sale price of goods already sold. (vi) ignoring the crucial fact that for borrowing the principle of FIFO for the purpose of valuation of the inventory, proper stock register based on the quality and the rate of each item of opening stock, purchases, sales and closing stock should have been prepared, which is missing in this case. (vii) telescoping the profit arising and taxable in A.Y. 2004- 05 in accordance with mercantile system of accounting, with the unexplained investment in the excess stock surrendered in the year of survey i.e. A.Y. 2006-07, especially in the view of the fact ....
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....ssessing Officer, the assessee carried the matter before the learned CIT(A), who had deleted the addition made by the Assessing Officer by observing that the total sale of the assessee during the assessment year is determined at Rs. 1,16.85,007 ( 63,13,050 + 53,71,957) by holding that the consistent stand of the Hon'ble ITAT, Jaipur Bench regarding the past history of the assessee being the best guide for estimating the GP income of the assessee, a GP rate of 20% appears to be reasonable. The assessee had accepted the G.P. rate of 19% estimated by the ld CIT(A) in the subsequent assessment year i.e. A.Y. 2005-06 as reasonable. Though it is higher than what has been reflected in the past year by the appellant and estimated by ld CIT(A) in the subsequent assessment year. He further held that reasonable in order to cover any extra profit that may have been made by the appellant on account of the clarity and colour of the gem stones not mentioned in the approval memos. This gives a G.P. of Rs. 23,37,001/- after giving a set off of the G.P. already shown at Rs. 11,64,162/-. It results in confirmation of a total net addition to the income of the assessee of Rs. 11,72,840/- instead of the....
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....nal basis based on the information available on records for the limited purpose of quantifying the income that may have escaped assessment within the meaning of Section 147. According to this preliminary provisional estimation, the value of the goods reflected on the approval memos was estimated at Rs. 26,23,520/- in respect of the items which could be valued on provisional basis. The assessee was given a reasonable opportunity to furnish the valuation of sale price of goods reflected on approval memos. The assessee had submitted valuation vide letter dated 24/11/2011 who had valued the goods reflected in approval memos at Rs. 11,78,674/-. The ld Assessing Officer had exercised to ascertain the sale price on the basis of impounded documents. As per impounded documents Annex.- 1,2 and 16 which are the invoices issued by the assessee to various parties in respect of the goods actually sold to them. All the items and its rates reflected on Annex-1, 2 and 16 were inventorised. Various types of coloured stones sold by the assessee was identified. It was found that then rates are not uniform, for the apparent reasons that the rates of coloured stones depend on colour, size, transparency,....
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....ons that may be provided by the assessee. Assessee's argument in this regard also do not carry any weight. (3) For arriving at the 'simple average rate', the A.O. has relied on Annexure 1,2, and 16 only, which contain only limited Invoices pertaining to A.Y. 2004-05. In this regard, the assessee was provided with the chart containing the entries of sales reflected in Annexure-1, Annexure-2 and Annexure-16, which were impounded during the survey proceedings. He was required to examine the same and to file objections with documentary evidence. Assessee could have prepared a parallel chart incorporating entries of all invoices pertaining to the period from 01/4/2004 to 31/3/2004 so as to substantiate its claim. In the absence of any documentary support to substantiate its claim, objection in this regard is rejected. (4) Weighted average rate should be considered instead of 'simple average rates applied' by the A.O. for working out the sale price of the goods covered by Approval Memos (Annexures 22 to 24). Assessee's argument in this regard has no legal sanctity/support and support of accounting principles/guidelines. In the case of valuation of stoc....
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....the proper working on the basis of its objection in this regard. These workings are attached to his assessment order as mentioned in the following paragraphs. (7) G.P. alone should be applied for computing the income arising from the Approval Memo and then set off of such gross profit arrived should be allowed against the excess stock found during the course of survey; This objection of assessee has also been considered and effect is given in working out the gross profit arising from the sale of goods covered by Approval memo. After considering the assessee's reply the ld Assessing Officer held that argument with regard to valuation of the Beads/Drops/Lines etc. carried out weight. It was gathered that Beads/Drops/Lines were inferior in quality as compared to the cut and polished colour stones. Therefore, the sale of the goods reflected on the Approval memos was worked out by the Assessing Officer after considering the assessee's argument that Beads/Drops/Lines coloured stones had been segregated/isolated and valued separately as per chart category-1, which was as per Annexure- R/1 to the order of the Assessing Officer, which has been reproduced on page 10 of t....
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....d deleted the addition as the same was considered against the profit estimated on account of sales made through approval memos. The findings of the ld CIT(A) are as under:- "4.3 I have carefully perused the order of the AO and the submissions of the AR. It is seen that the assessee was unable to rebut the onus of proving the genuineness of the transactions of purchases in the cases where sufficient evidence had been gathered and placed on record by the Department. It has been the consistent stand of the Hon'ble ITAT, Jaipur Bench to consider the bogus purchases to be sufficient defect for invoking provisions of Section 145(3) in the case of jewellers. Given the fact of the case of the assessee, evidence gathered by the Department and the decisions of the Hon'ble ITAT, Jaipur Bench on similar facts, the decision of the AO to reject the books of account of the assessee U/s 145(3) is upheld. 4.4 Regarding estimation of G.P. by disallowing 25% of the bogus purchases it is seen that the A.O. has not brought on record any evidence to show that the purchase bills were inflated by 25%. It has consistently been held by the Hon'ble ITAT, Jaipur Bench that the past history o....
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....llows:- "There is no evidence that such 'approval memos' are for the items taken for exhibition. No evidences filed. One has to appreciate the evidence on the basis of human probability. Approval memos front 601 to 614 are for 04/01/2003 to 17/08/2003. Approval memos not co-related to specific exhibition." The finding of fact of the Hon'ble ITAT as reproduced above clearly supports the finding that these 'approval memos' were sales made out of course by the appellant as there is no evidence available on record to prove otherwise. 3) The next contention of the appellant is that the 'approval memos' issued in favour of customers may be taken as sales and the 'approval memos' where the name of the partner of the concern or the name of the staff is mentioned may not be presumed to have been sold because these goods were taken for display in exhibitions or for marketing at other stations. If any sales materialized the same was duly recorded in the books. Once again the appellant has failed to get the requisite verification done vis a vis the stock taken as per these 'approval memos' by the partner of the firm or staff. The sale bills or entries in the books of accounts....
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....ther argued that at the time of reopening, the ld Assessing Officer valued this sale on unapproved memo at Rs. 26 lacs whereas in assessment he has taken value at Rs. 3.38 crores. The ld Assessing Officer had adopted simple average rate on the basis of Annexure-1, 2 and 16, which contained only invoices for A.Y. 2004-05. The assessee had carried out the valuation of sale made through approval memos by applying the weighted average rate and worked out the sale at Rs. 53,71,557/- as against worked out by the Assessing Officer at Rs. 2,78,03,137/-. He differentiated the valuation made by the Assessing Officer and the assessee as under:- Category Value as per A.O. on the basis of simple average Value as per assessee on the basis of weighted average I 10,93,554/- 8,14,997/- II 2,62,54,218/- 41,01,595/- III 4,55,365/- 4,55,365/- Total 2,78,03,137/- 53,71,957/- He has drawn our attention on page No. 93 to 102 of the paper book and argued that the assessee has made valuation itemwise against the valuation made by the Assessing Officer, which is more near to accepted principle in the line of gems and jewellery business wherein entire amount wa....