TaxTMI 
TaxTMI 
2016 (11) TMI 1239
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....uring the course of search at the business premises at Laxmi Road, Gold jewellery weighing 14032.700 gms valued at Rs. 70,11,529/-, Diamond jewellery valued at Rs. 18,95,786/-, Silver articles weighing 22.781 kg valued at Rs. 1,76,553/-,Gems valued at Rs. 8,33,683/-, Sunglasses valued at Rs. 1,97,415/-, Uktamal valued at Rs. 8,913/- and Perfumes and Cosmetics etc valued at Rs. 65,699/- were seized from the business premises at Laxmi Road, Pune. Further, Gold and Diamond jewellery valued at Rs. 69,61,684/-, Silver articles weighing 100 Kgs valued at Rs. 7,75,000/- and cash of Rs. 9,51,101/- were seized from the residence of the Director Shri F.N. Ranka. 3. During the course of search large number of books of account and other documents in the form of loose sheets etc were seized from the residential and business premises of the assessee. In response to notice u/s.158BC the assessee filed the return of income on 30-09-2003 declaring undisclosed income at Rs. 1,50,00,000/-. The AO issued notice u/s.143(2) and 142(1) along with a questionnaire asking the assessee to explain as to how the assets found during the course of search has been accounted for and as to how the transactions n....
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....failed to appreciate that - a. In reality, there was no excess stock of Gems found during the search and hence, no addition was required to be made on that account. b. Without prejudice, the registered valuer Shri Parag Gadgil had valued the excess stock at Rs. 2,21,783/- and the same should have been accepted instead of taking the average of the two market values determined by two different valuers. c. When there are two valuation reports, if no apparent error / discrepancy is found, the lower of the valuation ought to have been accepted instead of taking the average of two market values. d. The stock had to be considered at cost for determining the excess and as the same was taken by the valuer at market value, the excess was not correctly determined and therefore, no addition was required on this account. e. The defects in the valuation report of Shri Uttam Jain, who has given his valuation report on arbitrary basis without giving any basis required for valuation of Gems. f. The valuation report of Shri Uttam Jain, relied upon by the Department has not given any details about the weight of stone, gold imbedded therein, gross and net weight of the ornament in wh....
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.... learned CIT(A) was not justified in holding that a. In a block asst. the addition could be made on the basis of estimation - and extrapolation and it need not have been restricted only to the evidences found during the search. b. Even, when there were no incriminating evidences found for some year, (F.Y. 1997-98) the addition could be sustained on the basis of incriminating evidences for other years. c. The estimation of unaccounted sales at such high figures was justified even though, the incriminating evidences indicated very small amounts of unaccounted purchases for example, for F.Y. 2000-01 and F.Y. 1996-97. 5.3] The learned CIT(A) failed to appreciate that a. The addition on account of unaccounted transactions had to be restricted only to the extent of the incriminating evidences found during the search. b. Without prejudice assuming without admitting that the extrapolation of sales was justified, it could not be made to such a high level as made by him for the block period. 6. The learned CIT(A) erred in confirming the addition of initial investment in the unaccounted stock of Rs. 7,44,133/- (page 146 to 152 of the CIT(A) order). 7. The appellant cra....
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....e case, in brief, are that during the course of search Gems and Jewellery valued at Rs. 8,33,651/- was seized as per Annexure C to the Panchanama dated 25-11-2002. During the course of search the valuation was done at Rs. 36,00,256/-. The assessee was also asked during the course of search to explain as to how the Gems have been accounted for. The assessee reconciled such gems as under: Total valuation as per inventory Rs.3600256 Less : Cost of goods taken on approval and anamat Rs.501220 Rs.3099036 Less : GP 20% +5% bargain Rs.774759 Rs.2324777 Less : Value of gold (taken in gold stock) Rs.847308 Physical Stock of Gems Rs.1476969 Less : Valuation as per books Rs.643286 Excess Rs.833683 Thus, the excess stock of Rs. 8,33,683/- was computed. However, the assessee disputed the valuation made by Shri Uttam Jain, the valuer appointed by the department on the ground that the valuation done by him is based on estimate basis and the stock of stones included the goods purchased in earlier years which is at much lesser price. The assessee got a valuation report from another Valuer Shri Parag Gadgil on 06-11-200....
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....c. while the details are given in the report of Shri Parag Gadgil. 13. Referring to the decision of Hon'ble Bombay High Court in the case of CIT Vs. Vinod Dhanchand Ghodawat reported in 247 ITR 448 he submitted that in a block assessment the valuation difference should not constitute undisclosed income. He accordingly submitted that addition, if any, can be made on the basis of the report of Shri Parag Gadgil and excess stock as per his report being Rs. 2,21,783/- the addition should be restricted to Rs. 2,21,783/-. 14. The Ld. Departmental Representative on the other heavily relied on the order of the CIT(A). 15. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the decision cited before us. We find during the course of search valuation of Gems and Jewellery was done at Rs. 36,00,256/-. After considering the book value of such gems, the difference was determined at Rs. 8,33,683/- which was added by the AO to the total undisclosed income of the assessee u/s.69A of the I.T. Act. We find the assessee during the course of search itself has challenge....
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....ses, Uktamal, perfumes, watches etc. 19. Facts of the case, in brief, are that during the course of search sun glasses valued at Rs. 1,97,415/-, Uktamal valued at Rs. 8,913/-, perfumes and cosmetics valued at Rs. 65,699/- were put under deemed seizure. Similarly, stock of watches valued at Rs. 3,93,843/- was also found. After considering the inventory prepared at the time of search, the gross profit margin, bargain etc. thereon the discrepancy on account of sun glasses was determined at Rs. 1,97,415/-, Uktamal at Rs. 8,913/-, perfumes and cosmetics at Rs. 65,699/- and watches at Rs. 8,526/- was determined. The total of these 4 items comes to Rs. 2,80,553/- which was added by the AO as undisclosed income for the block period u/s.69A of the I.T. Act, the details of which are as under : Sr.No. Description Value as per inventory Rs. Value as per books of accounts Rs. Difference Rs. 1 Sunglasses 13,09,211/- 11,11,796/- 1,97,415/- 2 Uktamal 7,41,030/- 7,32,117/- 8,913/- 3 Perfumed and cosmetics 3,12,608/- 2,46,909/- 65,699/- 4 Watches 3,93,843/- 3,85,317/- 8,526/- ....
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.... and with the arrival of latest designs these items become obsolete and the assessee allows higher bargaining. It is also the submission of the Ld. Counsel for the assessee that the assessee gives higher discount to VIP and privileged customers. While we find some force in the above argument of the Ld. Counsel for the assessee, however, the plea to allow 25% reduction for bargaining appears to be very high whereas the 7% allowed by the revenue appears to be slightly low. Considering the totality of the facts of the case, we direct the AO to allow 15% reduction on account of bargain as against 7% considered by him which has been upheld by the CIT(A). The AO is directed to recompute the addition accordingly. Ground raised by the assessee is accordingly partly allowed. 26. Ground of appeal No.4 by the assessee relates to addition of unaccounted stock of Rs. 79,34,244/- made by the AO and upheld by the CIT(A). 27. Facts of the case, in brief, are that during the course of search certain items were found in the basement of the residential premises of Shri F.N. Ranka, Director of the assessee company. The total diamonds found were 97.93 karat out of which 40.78 karat were declared ....
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....h has already been quoted above in, para 10.1 above, has computed the addition of Rs. 79,34,244, whereas the appellant has contended in their submissions quoted at para 10.2 above that the entire addition requires to be deleted. From the perusal of the assessment order, it appears that the Assessing Officer has examined the gold and diamond jewellery found at the residence in general separately then the same which were subsequently found in an underground strong room detected almost after 36 hours of initiation of search at the residential premise. While making the addition of Rs. 27,73,230, the Assessing Officer has stated that jewellery worth Rs. 49,93,634 was found from the basement(not the underground strong room) and bedroom of Smt. Shashikala F. Ranka, as per panchanama dated 25.10.2002. Out of this, jewellery valued at Rs. 21,48,777 was seized on the same date and the remaining was inventorised as found but not seized. The reconciliation and explanation in respect of jewellery found but not seized out of the total jewellery of Rs. 49,93,634, referred to above, were submitted by the appellant before the Assessing Officer during the course of assessment and it was found by the....
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....eries of the value of Rs. 51,61,014 was found. As per the Assessing Officer there were 55 items as per the inventory referred to above. Out of the above, jewellery valued at Rs. 48,12,907 was seized per panchanama dated 28.10.2002. It has been noted by the Assessing Officer in para 37, that Shri F.N. Ranka, in his statement recorded during search on 26.10.2002 has stated that gold bar pieces of 1168 gms belonged to his late' son Shri Shreepal Ranka, which is evidenced by the RBI certificate also seized in search. However, no finding has been given by the Assessing Officer in respect of the above claim. It was further noted in the assessment order that Mr. Ranka had stated in his statement on oath that other items are possessed traditionally and it is not clear whether investment in them are taxed or not. The Assessing Officer has noted in para 38 that the appellant was given an opportunity to explain the aforesaid jewellery and silver articles of Rs. 51,61,014 during assessment and reconciliation vis-a-vis wealth tax returns were filed. As it was found by the Assessing Officer that the benefit of jewellery declared in the wealth tax returns have already been given, further bene....
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....ecord. It is further noted that the Special Auditor in his report prepared u/s 142(2A) in Annexure 8-11, has also accepted these facts and has stated that the jewellery appearing at Sr. No. 14 of Annexure C of panchanama dated 24.10.2002, having the value of Rs. 15,82,977 and the jewellery appearing at Sr. No. 51 and 52 of Panchanama dated 26.10.2002, of the value of Rs. 1,10,000 and Rs. 3,31,000 respectively are appearing in the Jangad, which was verified during the course of audit of Ranka. Jewellers, Karve Road and it was found that this Jangad is accounted for in the regular books of accounts of M/s Ranka Jewellers, Karve Road. In view of the above, the auditor has opined that the explanation of the appellant for these items is acceptable. He has computed the unexplained items on this basis. Though the reasons given by the Assessing Officer for not accepting the Jangad as genuine has some force' of acceptability but the same gets fully reversed on the finding that the impugned Jangad was found to be recorded in the regular books of accounts. Furthermore, the Assessing Officer cannot blow hot and cold in respect of the same transaction, If he has accepted the issue of jewell....
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.... the AO to consider the evidences. Thereafter, the AO has given relief on account of stock received from Ranka Jewellers, Karve Road. So far as the gold bar of 1168 gms is concerned which belonged to late Shreepal Ranka, the AO has not given any finding. He submitted that on page 22 of CIT(A)'s order the gold stock as per the books of accounts was 1,41,945.785 gms while the stock found was 1,36,279.54 gms. Thus, there was a shortage of stock of 5,666.240 gms valued at Rs. 29,18,113/-. The assessee requested that the shortage in the shop noticed during the search is because of some stock kept at the residence and the set off should be given. Similarly, in diamonds also, there was a shortage of stock of 100 cts worth Rs. 19.80 lakhs (page 52 and 53 of asst. order). The set off of this shortage should be considered against the excess of stock found at the residence. 33. He submitted that the AO and the CIT(A) have taxed the excess stock at residence in the hands of the assessee company. Thus, when they accept that the stock at the residence belonged to the company, the set off of the same against the shortage at the shop should have been given. The CIT(A) on page 109 has not allowe....
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....he assessee that after the order of CIT(A) directing the AO to consider the evidences the AO has given relief on account of stock received from Ranka Jewellers, Karve Road. However, he has not given any finding on account of gold bar of 1168 grams belonging to Late Shreepal Ranka for which a certificate issued by RBI as per Gold Bond Scheme 1998 was filed. It is also the submission of the Ld. counsel for the assessee that stock as per books of account was 141945.785 grams while stock found was 1,36,279.54 grams. Thus, there was shortage of stock of 5,666.240 grams. Thus shortage according to the Ld. Counsel for the assessee is because some stock was kept at the residence and therefore set off should be given. Similarly, for the shortage of diamond of 100 karat worth Rs. 19.80 lakhs set off should be given against the excess stock found at the residence. Therefore, when excess stock at residence has been taxed in the assessee company, set off of the same against the shortage of stock should have been given. 39. So far as the relief sought by the assessee on account of gold bar of 1,168 grams is concerned we find the Ld. Counsel for the assessee has filed a certificate issued by R....
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....rious years are as under : F.Y. Unaccounted purchases Rs. Unaccounted turnover Rs. 1996-1997 14,759/- 16,964/- 1997-1998 Nil -- 1998-1999 14,03,149/- 16,12,815/- 1999-2000 76,04,023/- 87,40,256/- 2000-2001 7,095/- 8,155/- 2001-2002 72,12,505/- 82,90,236/- 2002-2003 5,27,44,980/- 12,22,95,618/- 43. For the period from 01-04-2002 to 24-10-2002, i.e. the date of search unaccounted purchases were found. Thereafter, for the period 21-08-2002 to 24-09-2002 (28 days) loose papers in the form of day to day cash book containing the unaccounted transactions for each day were found. The AO estimated the unaccounted sales for the entire period from 01-04-2002 to 24-10-2002 at Rs. 12,22,95,618/- on the basis of the unaccounted turnover for the period of 28 days as per loose papers found in the form of cash book for the period from 21-08-2002 to 24-09-2002/-. He estimated the profit rate @13% and determined the undisclosed income at Rs. 1,58,98,430/-. Adopting the same yard stick of the period mentioned above he went on estimating the unaccounted turnover for the financial years 1996-97 to 2001-02 and calc....
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....at there were unaccounted purchases for that period amounting to a higher figure than what was calculated on the basis of those seized papers. Therefore, the presumption of the AO that there were further unaccounted purchases for this period over and above the figure as per the seized papers is incorrect. Therefore, the AO should have computed the unaccounted income by way of profit on the suppressed sales for the period on the basis of and in relation to the unaccounted purchases which are actually noticed as per the seized papers instead of presuming that the unaccounted turnover for the period was in the same proportion as the unaccounted turnover for the period 21-08-2002 to 24-09-2002. It was accordingly argued that addition on account of unaccounted profit for the period 01-04-2002 to 24-10-2002 at the most can be only on the unaccounted purchases found during that period. 45. The assessee further submitted that the AO is not justified in estimating the income for the balance period solely on the basis of loose papers found for 28 days. There is no reason for the AO to ignore the other evidence found for the balance period in the form of purchases which clearly indicate th....
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....02 to 24-10-2002, such estimation is not based on proper appreciation of facts and therefore deserves to be reduced. It was submitted that for A.Y. 2001-02 the auditor has determined the unaccounted purchases at Rs. 72,12,505/-. The seized papers indicating unaccounted purchases themselves indicate that quite a few of the loose papers indicate that the goods were received only on estimate/for approval. Further, certain papers indicate that the assessee has not purchased the jewellery but the customers have given their old jewellery for repairs or remaking. It was submitted that certain papers also indicate that the assessee has given gold for remaking the ornaments to the goldsmith and has received ornaments back from them and has only given the Mazuri, i.e. labour charges. Therefore, considerable deduction should be given for the unaccounted purchases of Rs. 72,12,505/- determined by the auditor. 47. However, the Ld.CIT(A) was not satisfied with the arguments advanced by the assessee. So far as the argument of the assessee that AO cannot resort to estimation in a block assessment is concerned, the Ld.CIT(A) relying on various decisions rejected the same on the ground that when ....
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....essing Officer, clearly says that the estimation is permitted if the evidences found suggest evasion but the only caution expressed in these judgements are relating to the fact that the estimation must be fair and reasonable, having nexus to the evidences found. The appellant, as can be seen from the careful examination of their submissions, has also more or less interpreted these judgements in the similar manner but has tried to contend that either the estimation is not possible or should be strictly linked to the specific evidences found in that particular year. In other words, the main objection of the appellant can be seen to disregard the evidences found in the form of jama kharcha pana of 28 days to the remaining period of F.Y. 2'002-03 as well as other financial years of the block period. The arguments of the appellant look incorrect. Undoubtedly, the evidence giving complete picture of evasion has been found for 28 days only but the other evidences found for the entire block period clearly shows that the same practice has been followed from the first year of the block to the last year of the block. 12.3.2 In view of the discussions made above, the only objection whic....
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....1,525 in the audit report. After considering the above the special auditor decided to compute the unaccounted income for FY 1996-97 to FY 2001-02, on the basis of seized papers representing unaccounted purchases and unaccounted expenses. The auditor has also taken into account the unaccounted purchase as income in the first year of the block. The auditor, for these years also has applied the GP rate of 13% for calculating the turnover on the basis of figures of unaccounted purchases found in seized papers in respective years. Along with above he has also considered the unaccounted expenses for arriving at the final figure of unaccounted income of different years. The finding of the special auditor. for aforesaid financial years can be seen from Annexure 1 of the special audit report. From the same it can be seen that the auditor has computed following income or loss for the different assessment years. Sl.No. Financial Year Unaccounted purchase (in Rs.) Income/loss (in Rs.) 1 1996-97 14,759 2,48,229 2 1997-98 0 0 3 1998-99 14,03,149 2,31,225 4 1999-2000 76,04,023 5,16,233 5 2000-01 7,095 (-)12,04,814 6 200....
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....ther than the jama panas are not complete, it would be incorrect to say that the computation of undisclosed income should be restricted to those evidences only. This proposition has been upheld by different Courts also as relied by the Assessing Officer. Therefore the claim made by the appellant to peg the computation of undisclosed income to the evidences of undisclosed purchases only cannot be accepted. Furthermore, it is also important to point out that the nature of the documents seized, except the jama kharcha panas are in the nature of rough notings only and therefore they cannot be considered to give the complete picture of evasion. At the most it can represent that the evasion cannot be less than the figures appearing in those papers in respective years. However, any material brought on record which can merit consideration for applying a principle of computation of undisclosed income has to be given due attention. It has already been held that the objection *of the appellant in respect of no computation of undisclosed income for the entire block period is not acceptable but the objections if any, which are valid and can show that the computation made by the Assessing Office....
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....me GP rate of 13%, which has been computed by the Special Auditor for this year on the basis of material available on record, the unaccounted profit for this period comes to Rs. 1,03,53,679. On careful consideration of the materials available on records, which clearly show that the method adopted by the Assessing Officer and the auditor has not taken into consideration the fluctuation of business normally happening in different months, the method discussed above was found to be more appropriate and just. In, view of the above" and also because the unaccounted transaction in this method becomes more proximate to the figure of unaccounted purchases found, the undisclosed income for the FY 2002-03 is directed to be adopted, at Rs. 1,03,53,679 subject to verification of different figures supplied by the appellant during appeal. The Assessing Officer is directed to verify these figures while giving the appeal effect. 12.3.4 As regards the addition made for the balance years, I have already held that the A.O. was justified' in estimating the' undisclosed income for all the years i.e. FY 1996-97 to FY 2001-02, in the manner done by him. It has also been held that the evidences ....
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.... order, the figures taken by the Assessing Officer for computing the undisclosed transaction based on disclosed transaction were decided to be examined. It is apparent that the shop size increased many folds after renovations and therefore the percentage of undisclosed income found in the jama kharch panas has to be reduced substantially to take into account the various considerations discussed above as well as to keep in mind the actual evidence of unaccounted purchases found in respected years, was found reasonable. The Assessing Officer has not discussed anything in the assessment order for justifying the rates adopted by him for different years for computing the undisclosed transactions, however he can be seen to have very correctly applied the rates in a decending order by substantially reducing it from the actual percentage of unaccounted transactions appearing in jama kharch panas. Though he has correctly kept the rate minimum in FY 1996-97 and has gradually increased it upto FY 2001-02 but since he has not considered about the disturbance of business due to renovation in FY 2001-02 and the smaller size in earlier years, and most importantly the amount of purchases available....
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....694 as against the computation of the Assessing Officer made for Rs. 1,01,14,255. The appellant gets part relief for these years. With aforesaid discussions, the issues raised by the appellant can be treated as resolved in the manner noted above. Grounds No. 8 and 9 of the appellant therefore, can be treated as partly allowed." 48. Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 49. The Ld. Counsel for the assessee strongly opposed the order of the CIT(A). He submitted that during the course of search unaccounted purchases were fund for the entire period. Therefore, there is no reason to believe that the assessee has made some more purchases. He submitted that from the estimation of sales made by the AO if the GP adopted by the AO is deducted the balance amount would be purchases which is more than the unaccounted purchases found during the course of search. Therefore, this estimation theory adopted by the AO is violating principle of section 132(4A) and it is also illogical. He submitted that the assessee has submitted that the sales for the 28 days period were higher because of festival seasons like Raksha Bandan, Ganesh Festival, Paryushan, Ram....
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...., certain papers for various years were found indicating the unaccounted purchases and sales. Based on the loose papers found the special auditor appointed by the department estimated the unaccounted sales, the details of which are already given at Para No.39 of this order. On the basis of the unaccounted purchases and sales found for the period from 21-08-2002 to 24-09-2002 the AO estimated the sales for the entire period from 01-04-2002 to 24-10-2002 on the basis of the sales for 28 days at Rs. 12,22,95618/- and estimated the profit at 13% at Rs. 1,58,98,430/-. So far as the other years of the block period are concerned the AO determined the unaccounted turnover at 5% of the disclosed turnover for F.Y. 1996-1997 to F.Y. 1997-1998 at 7.5% for F.Y. 1998-1999 at 10% for F.Y. 1999-2000 at 15% for 2000-01 and at 25% for F.Y. 2001-02. We find based on the arguments advanced by the assessee the Ld.CIT(A) while upholding the action of the AO in proceeding for estimation of the unaccounted turnover for the block period, however, has given some consequential relief on account of undisclosed turnover. He however upheld the GP rate adopted by the AO. The detailed reasoning given by the CIT(A....
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....se papers, chits, scribblings etc. and not in the form of proper accounts. In view of the above, the Assessing Officer submitted that it is not fully feasible to segregate the transactions datewise, however, the Assessing Officer prepared a table showing yearwise unaccounted purchases, Number of days of unaccounted purchase and on that basis computed the annualized unaccounted transactions by treating the working days in a year as 300. He computed different figures of unaccounted turnover which is quite at variance to the figures computed by the Assessing Officer. in the assessment order. For example in F.Y. 2001-02, in his method the unaccounted turnover came to Rs. 21,33,06,310. On that basis and after considering the fact that the appellant was having a working capital investment on the disclosed turnover ranging from 0.06% to 0.61 % the Assessing Officer suggested that the initial investment should be considered as peak of 2001-02 at Rs. 11,30,52,344. The report of the Assessing Officer was given to the appellant and a submission in rebuttal can be seen to have been filed by the appellant vide his letter dated 26.2.2007. In this letter, the appellant has vehemently objected to ....
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....on the basis of 53% of the unaccounted transaction computed in F.Y. 2001-02. Furthermore, the unaccounted transaction computed in F.Y. 2001-02 in the remand report is much higher than even the disclosed transaction of Rs. 14,74,22,910 of this year. The finding of the Assessing Officer in the remand report is therefore, absurd and unreasonable. It is also important to note that the claim of the appellant that no substantial unaccounted stocks were found during search, is also a material fact to be considered for this issue. As already discussed earlier while dealing with other grounds of appeal, I have given the finding which has a relevant bearing on this issue. The search conducted at all the business premises and the residences has clearly shown that though the appellant was engaged in carrying out unaccounted transactions regularly but the same has been carried out regularly from the same business premise. Therefore, the stock found at the business premise on the date of the search has to be accepted as the total stock found during search. Since the same has been found to be more or less matching with the stock recorded in the books, the finding of the Assessing Officer for huge....
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....e CIT(A) Pune, before the ITAT, Pune in ITA No. 820/PN/2006 and ITA No. 801/PN/2006 respectively. However, the aforesaid issue was only agitated by the appellant in their Ground No.3, wherein it was claimed that the Ld. CIT(A) erred in law and on facts in enhancing the undisclosed income to the extent of Rs. 10,00,000 on account of alleged initial investment for making the unaccounted sales. It is noted that the Hon'ble ITAT in their consolidated order dated 6.6.2011, has decided the aforesaid Ground No. 3 against the appellant. The additional ground raised for higher addition for initial capital made by the DR also not accepted in the said judgment. The Hon'ble Tribunal held that the turnover of Rs. 50 lakhs estimated in the initial year on the basis of loose papers found for few days has been correctly appreciated by the Ld. CIT(A) to arrive at the addition of Rs. 10 lakhs by considering the investment requirement being of sales of 10 to 15 days and the GP of 12.5%. Therefore, it can be seen that the above finding of the Assessing Officer has even the backing of the, Hon'ble ITAT in another group case and therefore, the addition is sustained. For similar reason, the r....
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....ized vide panchanama dated 31-10-2002. During the course of assessment proceedings the AO noted that the total gold found in shop was 1,36,279.54 gms whereas the gold ornaments as per books of account was only 1,41,945.78 gms. Thus, there was shortage of gold of 5,666.240 gms. The AO further noted that in the statement recorded by the DDIT (Investigation) on 11-11-2002 the Director of the assessee company Shri F.N. Ranka has worked out the shortage of stock at 3462.280 gms but at that time the comparison was made on the basis of gold ornaments only. The gold used in Gems, Diamonds etc. was not considered. He further noted that the assessee has shown receipt of gold ornaments weighing 13,865.250 gms from M/s. H. Kumar Gems International and receipt of 4990.150 gms of ornaments from his brother Shri Omprakash N. Ranka. He observed that Shri Omprakash N. Ranka has also claimed that jewellery weighing 4990.150 gms was purchased by him from M/s. H. Kumar Gems International and sold to the assessee. He observed that M/s. H.Kumar Gems International is a Ahmedabad based concern and the proprietor of this concern is Shri Hitesh Kumar (HUF). All the 3 concerns of the Ranka group have regular....
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....tion of goods was old gold jewellery, which was changed to 22 carats gold jewellery which is apparent from cutting. In the case of M/s Ranka Jewellers Pvt. Ltd., initially, on the invoice the date written was 12-10-2002, which was changed with black ink to 22-10-2002. Apparently, the date was changed because assessee could not manage the entry for 12-10-2002 because the entries for that date were already written. He further noted that these bills of M/s H. Kumar Gems International were shown by all the three persons after few days of the search, when the valuation of the stock was completed. He further noted that Shri Anil P. Ranka and Shri Omprakash Ranka have purchased jewellery from M/s H. Kumar Gems International for the first time, in their individual capacities. 63. He noted that in respect of claim of the assessee regarding purchase of 13865.250 gms ornaments from M/s H. Kumar Gems International, the statement of director Shri Fatechand N. Ranka was recorded on 28-10-2002. The AO also referred to the statement of Shri Anil P. Ranka recorded on 10-12-2002 and statement of Shri Omprakash N. Ranka recorded on 29-10-2002. He further noted that a survey action u/s.133A of the ....
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....neness of the transaction. As per the AO the assessee along with Shri Omprakash Ranka and Shri Anil Ranka had ordered jewellery of such high amount but did not give details of the designs of the jewellery required. The AO excluded the total stock as per the bills from the stock as per books and worked out the stock as per books at 123090.380 gms. Thus, there was excess stock found during search of 13189.160 gms which the AO valued at Rs. 66,73,715/- and made the addition. He, therefore rejected the concocted theory given by the various persons of the Ranka group that they have purchased gold from M/s. H. Kumar Gems International and have supplied the same to the assessee on different dates and made addition of Rs. 66,73,715/- as undisclosed income of the assessee for the block period by observing as under : "24. As mentioned earlier, that the assessee company was also making purchases from M/s H. Kumar Gems International, which were recorded in the books of accounts. The account of M/s. H. Kumar Gems International in the books of assessee was examined from F.Y. 1997-98 onwards. In F.Y. 1998-99 it was observed that most of the time payment was made in advance and receipt of gold ....
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....er : Gold stock as per Inventory as per para 11 - 136279.540 gms Gold as per books excluding - 123090.380 gms Claim of receipt from H. Kumar (13865.250) and from Shri Omprakash Ranka (4990.150) 13189.160 gms Thus, there was excess stock of gold weighing 13189.160 gms. At the rate of Rs. 506/- per gms, the value of the excess stock comes to Rs. 66,73,715/- which is added to the undisclosed income for the block period u/s.69A of the Income Tax Act. On being confronted with the assessee, it was submitted by the authorized representative of the assessee, that the correct position of the stock was explained to the auditor as well as at the time of assessment proceeding. However, the assessee's contention is not accepted in view of discussion in earlier paras and addition of Rs. 66,73,715/- is made to the undisclosed income of the block period." 65. Before CIT(A) it was submitted that the search took place in the case of the assessee on 24-10-2002. During the search the bill was found in the assessee's premises wherein gold jewellery weighing 13865.20 gms was foun....
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....a had also purchased jewellery which were duly recorded in books before the date of search which they have given to the assessee. Further, M/s. H. Kumar Gems International had accepted in their submission during the course of survey that jewellery was sold to the assessee and the sale was recorded in his books of account. Further, M/s. H. Kumar Gems International is a registered dealer under State and Central Sales Act and the sales tax on this transaction has been paid by them. Further, they are also regularly assessed to income tax and have disclosed the above transaction in their books of account. Further, in the order passed u/s.143(3) for A.Y. 2003-04 the department has accepted the sale of gold by M/s. H. Kumar Gems International to the assessee as a genuine sale. Therefore, when one wing of the department has accepted the sale of jewellery as a genuine sale, there is no reason to doubt the purchases made by the assessee. Further, the special auditor in his report has also accepted the purchases from M/s. H. Kumar Gems International as genuine. It was argued that during the survey at M/s. H. Kumar Gems International, Ahmedabad, Mr. Pragnesh Sukhadia, an employee and Shri Hite....
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.... was further submitted that the department has exactly seized the amount of jewellery weighing 13865 gms on 30-10-2002 before making any reconciliation of jewellery and the total jewellery seized tallies with the weighing as per the bill issued to M/s. Ranka Jewellers Pvt. Ltd. by M/s. H.Kumar Gems International. This itself indicates that the department confirms that these jewellery is received as per this bill. 70. Based on the arguments advanced by the assessee the Ld.CIT(A) deleted the addition by observing as under : "6.3.1. I have carefully considered the facts of the case and the law as are apparent from the records. During the course of appeal, the submission made and the documents submitted from time to time were explained by the AR. The appellant also produced the copies of the panchanama, the seized documents and invoices etc. which have been considered and examined. It can be noted from the discussions available in the assessment order that the Assessing Officer for making the aforesaid addition of Rs. 66,73,715 for excess stock of gold ornaments found during search has not accepted the explanation given by the appellant in respect of certain purchases claimed to ....
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....espite these positive findings, the Assessing Officer continued to rely on irrelevant facts by ignoring very relevant facts. It can be seen from the assessment order that the Assessing Officer, for not accepting the claim of the appellant for the purchases described above, has elaborately relied upon the statements of Shri. Anil Ranka, Shri. Omprakash Ranka, Shri. Fatechand Ranka, Shri. Hitesh Gadecha, proprietor of H. Kumar Gems International, Ahmedabad and Pragnesh Sukhodia, employee of H. Kumar Gems International etc. The Assessing Officer has also referred to the corrections appearing in respect of date in the purchase bill shown in the name of the appellant. It was noted that the date of 12/10/2002 has been corrected to 22/10/2002. The Assessing Officer has also pointed out about the similar correction found in the books of H. Kumar found during survey at Ahmedabad on 29/10/2002. Though the bill was found and seized from business premise of the appellant, but the suspicion raised by the Authorized Officer while recording the statement u/s 132(4) of Shri. F.K.Ranka, has also been considered for holding the bill as bogus and implanted. The relevant extracts of the statements hav....
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....ier i.e. H. Kumar Gems International, Ahmedabad almost within few days of action at the premise of the appellant. It has been also claimed that the documents found at the premise of the supplier clearly supports the claim of the appellant. The appellant has also produced a copy of the appellate order passed in the case of Ahmedabad party (Appeal No. CIT(A) XIII/Jt. CIT(OSD)/Cir7/53/0506 dtd. 27.04.2006), in support of its above claim. It has been shown that the impugned sale has been accepted by the department as genuine in the hands of H.Kumar and therefore the same cannot be held to be not genuine in the hands of the appellant. Similarly, the assessment order of Shri O.N.Ranka has been relied to claim that the capital gains shown on the sale of impugned jewellery to the appellant company has been accepted by the Assessing Officer without any reservations in the scrutiny assessment and therefore the purchase in the hands of the appellant for the same transaction cannot be denied. The appellant has also relied upon various decisions of the Hon'ble ITAT reported on page no. 4907 of Chaturvedi & Pithisaria page no. 4907 and decision of Hon'ble ITAT in the case of Ghanshyambha....
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....zed Officer in the statement recorded on 28/10/2002, has asked questions saying that this bill was earlier not available in the drawer and therefore how the same came there. It has been claimed by the appellant during appeal that the search commenced on 24/10/2002 and thereafter the business premise has remained under the control of the search party till the search was finally concluded and therefore it can neither be assumed nor considered that anybody can plant some paper in the premise without the knowledge of the search party. In view of the above, the appellant has contended that it has to be held in the facts of this case that the impugned bills were existing in the business premise and as the same was existing in the normal course of business, the same has to be considered while evaluating the stock of gold jewellery found during search vis-a-vis the books of account. It has been claimed that the Assessing Officer has ignored the purchases made through these bills directly from H. Kumar and also from Shri.O.N. Ranka, for determining the aforesaid addition as excess stock. On careful consideration of material available on record, it is noted that though the Authorized Officer....
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....representatives in the presence of panchas at the time of commencement/ resumption of search or its temporary suspicion. Therefore it has to be accepted that the bill dated 22/10/2002 was found during search and was not recorded in books, as the books were admittedly written upto 21/10/2002 only. It is also noted that not much of discrepancy was found at the end of seller at Ahmedabad during survey conducted on 29/10/2002 except for some correction in their stock book. These discrepancy noted at the end of the seller were not found sufficient by the department to even reject the books of account, as is apparent from the order of CIT (A) quoted supra. The sales made to Ranka group were found to be acceptable in the hands of H. Kumar Gems International. Though the correction appearing in the bills seized at the appellant's premise as well as in the books of the seller and similar other contradictions including the date of invoice being on the date of arrival in Pune by Hitesh Kumar, raises some suspicion but that alone cannot be held to be strong enough to deny other facts which are much stronger and are in favour of the appellant. Similarly other discrepancies pointed' out b....
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....nding of Assessing Officer looks not logical. Similar facts can be noted in respect of purchases made from Shri. O.N.Ranka. Though Mr. O.N. Ranka has purchased the jewellery sold to the appellant from the same party at Ahmedabad but in this case also nothing adverse which can substantiate the claim of the Assessing Officer were found. Furthermore, the evidences submitted by the appellant during appeal in the form of the assessment order made u/s 143(3) showing that the capital gains shown on the impugned sale in its return was accepted by the Assessing Officer, as well as the copy of the stock register etc seized during the search from the premise of Ranka Jewellers, Raviwar Peth, having details of purchase and sale recorded already before search, tilts the balance in favour of the appellant. As discussed above, even if this bill is not accepted the excess stock remains explained. Furthermore, it is also a fact that the M/s H.Kumar Gems International was acceptedly having regular business transactions with the appellant for the last many years and is name even appears in the documents found on the basis of which income from unaccounted transactions have been computed by the Assessi....
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....d while considering this explanation given by the appellant in respect of stock of gold jewellery found during search at the business premise of the appellant. It is also important to be noted from the table of computation given above, on the asset side approach as well as the income side approach, that the Assessing Officer has taken the excess cash on the asset side approach at Rs. 99,51,101 for computing the total undisclosed income on the asset side approach of Rs. 2,67,11,893. It has been found that this excess cash of Rs. 99,51,101, comprised of cash actually seized of Rs. 9,51,101 and Rs. 90,00,000 declared suo moto in the block return as cash available at the native place. On being asked about this declaration, it was explained by the AR during appeal that this declaration for cash was made to cover up the undisclosed income declared in the return at Rs. 1,50,00,000. There is no other discussion available in the assessment order on this issue. Therefore it is apparent that the declaration of cash of Rs. 90,00,000 is not based on any finding of the search. Though. the act of declaring cash at native place of Rs. 90,00,000 without any such finding in search is intriguing, but....
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....allowed." 71. Aggrieved with such order of the CIT(A) the revenue is in appeal before us. 72. The Ld. Departmental Representative strongly opposed the order of the CIT(A). He submitted that the search took placed on 24-10-2002 and the books were written upto 21-10-2002. The major dispute is regarding the bill obtained from M/s. H. Kumar Gems International, Ahmedabad in a very suspicious manner. He submitted that on the date of search, the bill was not found whereas the same was found in the drawer on the very next day. Further, there was some over writing on the above bill. Therefore, the manner in which the bill was found raises suspicion. He submitted that the AO had given valid reasons for not accepting that bill. He accordingly submitted that the order of the CIT(A) be reversed on this issue and the ground raised by the revenue be allowed. 73. The Ld. Counsel for the assessee on the other hand heavily relied on the order of the CIT(A). He submitted that on the date of search, i.e. 24-10-2002 the shop was sealed and the shop was opened on the evening of 26-10-2002. Referring to the answer of Shri F.N. Ranka to Question No.5 in the statement recorded u/s.132(4) on 28-10-....
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....the above amount was Rs. 66,73,715/-. On being confronted by the AO it was submitted by the assessee that it has purchased gold jewellery weighing 13865.250 gms from M/s. H. Kumar Gems International, Ahmedabad. The AO did not accept the above contention of the assessee on the ground that the bill issued to the assessee, i.e. M/s. Ranka Jewellers Pvt. Ltd. was fabricated and there was overwriting on the date of the bill. The date written on the bill is 22-10-2002 whereas the AO inferred the same as 12-10-2002. We find the AO further noted that there were certain discrepancies in the statements of Shri Pragnesh Sukhadia and the statements given by Shri F.N. Ranka, Shri Anil Ranka and Shri Omprakash Ranka regarding the date of order and date of receipt of the gold ornaments. Further, the assessee informed the department about the bill only on 28-10-2002 whereas the search was carried out on 24- 10-2002, i.e. 4 days after the initial search that the bill of M/s. H. Kumar Gems International was not debited in the book prior to the search. Further according to the AO the payment was made after a few months which do not prove the genuineness of the transaction. We find the CIT(A) accepted....
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.... Accordingly, the order of the CIT(A) on this issue is upheld and the ground raised by the revenue is dismissed. 76. Ground of appeal No.3 by the revenue reads as under : "3. The Commissioner of Income-tax (Appeals) has erred on facts and in law in deleting the addition of Rs. 1,76,553/- on account of excess stock of silver when the valuation of the stock was done by a qualified Government valuer." 77. Facts of the case, in brief, are that during the course of search at the business premises of the assessee at Laxmi Road, silver articles weighing 21,709 gms were put under deemed seizure. As per the inventory prepared at the time of search action total weight of silver articles was taken at 36,14,108 gms during the course of search as well as assessment proceedings, the assessee was asked to explain as to how the above silver has been accounted for in the books. It was explained by Shri F.N. Ranka, Director of the assessee company that as per inventory taken by the department, the gross weight of 36,14,108 gms include the weight of the plastic bags and plastic boxes. It was submitted that the plastic bags and plastic boxes were weighing 1,14,400 gms. Thus the net weight of ....
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....ht of plastic bags was taken at more than 5 gms by the valuer. Therefore, there is no basis given by the valuer for adopting the average weight per plastic bag at 5 gms. It was argued that the addition made by the AO should be deleted. 80. Based on the arguments advanced by the assessee the Ld.CIT(A) deleted the addition by observing as under : "7.3 I have carefully considered the facts of the case and the law as apparent from record. It is apparent from the material available that silver stock of 36,14,109 gms was found during search, out of which silver article weighing 21,709 gms were placed under deemed seizure. As per the fats noted by the Assessing Officer in the assessment order, Shri F.N. Ranka, the Director of the appellant company was found to have stated u/s.132(4) on 25/11/2002, in respect of inventory of silver articles that the registered valuers have weighed the silver articles along with plastic bags and boxes, in which they were kept and the weight of such containers was taken at 114400 gms on estimate basis. As per appellant it should have been more. On this basis it was explained that the net weight is 35,00,108 gms. The Assessing Officer has further noted ....
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.... bag is taken ad61 randum. The weight of plastic bags are not taken in actual. No proper deduction of plastic bags, plastic boxes is done. Hence, the excess of 22.281 has come. I have verified the explanation and list of plastic bags prepared by the valuer Shri Uttam Jain and found that weight of plastic bags and plastic bags of some items are not considered. However, the same cannot be considered now as the search party has not considered this aspect." On careful consideration of the various materials available on record, it is noted that the addition made by the Assessing Officer is without any basis. The Assessing Officer has not given any reasons in the assessment order as to why he has not considered the report of the Special Auditor on this issue and has also not accepted the arguments the appellant. It is noted that the objection about the weight of plastic bags were taken during the pendency of the search on 25/11/2002, before the search was finally concluded and therefore it ought to have been verified as the search premise was still under the control of search party. As the aforesaid objection of the appellant, having been found correct by the Special Auditor and raised p....
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....re that the AO during the course of assessment proceedings noted that the assesses of Ranka Group i.e. M/s Ranka JeweIlers Raviwar Peth, Ranka Jewellers Pvt. Ltd, and Ranka Jewellers, Karve Road are following average system of accounting for valuation of closing stock. The average system means that the assesses are taking the quantity and value of opening stock as well as purchases made during the year. In this quantity and value, the quantity and value of mixing i.e. copper and silver etc. is added and burning loss is reduced. From the value arrived in this manner, the opening stock and purchases is added and similarly the quantity is also added. The value is divided by the quantity to arrive at an average price. The quantity of the closing stock is multiplied by the average price to arrive at the value of the closing stock. This method of valuation holds good if there are no unaccounted purchases and sales. However, during the course of search, evidences were found that the assesses, of Ranka Group were indulged in making unaccounted purchases and sales. If the unaccounted purchases are also taken into consideration for the purpose of determining the average price the average pri....
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....asis of purchases made during the year and the value of the opening stock. The A. O. has applied FIFO method for valuing the closing stock. It is submitted that the assessee's method is a recognized method of valuation of stock and it has been accepted in the past by the dept. in the regular assts. Secondly, this addition at best can be considered to be based on the difference of opinion which is not justified in the block asst. Thirdly, in the case of Ranka Jewellers, Raviwar Peth, similar method has been adopted by the assessee for-valuation of stock and in the block asst. appeal, the learned CIT(A) has deleted this addition. [copy of the order is on page 318-391]. Accordingly, the addition made be deleted." 89. Based on the arguments advanced by the assessee the Ld.CIT(A) deleted the addition by observing as under : "43. The facts of the case were duly considered and in my considered opinion, the addition made by the Assessing Officer cannot be upheld as the above issue has been decided in favour of the assessee by my Learned Predecessor in the case of Ranka Jewellers, Raviwar Peth, Pune as claimed by the appellant in their submission quoted above. Furthermore, it is n....
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.... placed reliance on the view taken by the A.O. as discussed above. The Learned AR on the other hand tried to justify the first Appellate order. He reiterated the submissions made before the first appellate authority. 32. Considering the above submissions we find that the addition made by the A.O. was objected by the assessee before the Learned CIT(A) with this contention, that there was no incriminating evidence found during the course search relating to stock value. Hence, the addition should not have been made in the block assessment. The assessee also clarified that average cost method is accepted method of stock value and it was being accepted by the department in assessee's own case in the past. In support of the same, decisions were cited which have been reproduced by the Learned CIT(A) at page nos. 32 and 33 of the first appellate order, wherein the Hon'ble courts have accepted such average cost method followed by the assessees. Considering these submissions learned CIT(A), in our view has rightly come to the conclusion that there was no reason to reject the method of valuation of stock and the addition made was thus not justified. We also find substance in ....