TaxTMI 
TaxTMI 
2018 (8) TMI 1963
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....ed 31/03/2013 and later as stood modified and merged with the order u/s.154 of the Act, dated 25/09/2013 in so far as it is against the appellant is opposed to law, equity, weight of evidence, probabilities, and accordingly ought to have allowed the appeal of the appellant. 2. The learned CIT[A] ought to have appreciated that in the absence of the discovery of any undisclosed income or asset based on any incriminating seized materials relevant for the assessment year under appeal found and seized during the course of search, the notice issued u/s.153A was bad in law as the impugned assessment is essentially on account of change of the opinion as to the principle of valuation of the closing stock and not on any falsification of material facts or understatement in the quantity of closing stock for taking recourse to the assessment proceedings u/s. 153A of the Act and accordingly, the learned CIT[A] ought to have annulled the assessment made u/s.153A of the Act or at least deleted the addition of Rs. 3,02,97,477/- made in respect of the valuation of stock at the end of the year, instead of upholding the same erroneously. 2.1 The learned CIT[A] ought to have appreciat....
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....ssioner, before he accorded approval u/s.158D, the same was in gross violation of the principles of natural justice, which had to be read into the provisions of Section 158D of the Act, as the order involved visiting of serious civil consequences and not mere an administrative action at all and thus, the assessment order passed was in violation of the principles of natural justice and illegal and consequently, the initial assessment order before and after merger with the rectification order requires to be cancelled. 4. Without prejudice to the above, the learned CIT[A] failed to appreciate the fact that the appellant has maintained regular stock account of various ornaments on the computer which had been tallied to 100% in terms of weight and the appellant had valued the closing stock on the basis of the inventories prepared and preserved for each year which were seized during the course of search and inventories recorded the existence of various ornaments and their weight and their historical cost or market value, whichever was lower and the inventory books had been seized by the department during the course of search and having regard to the provisions of section 292C of....
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....e stock logs of the general software called Cadmium with which the appellant was recording not only the financial transactions but also the day-to-day stock movement for purposes of controlling the stock in various counters where the stocks are displayed as sales not accounted in the financial logs thereby they were unaccounted sales warranting addition to be made by way of GP including therein. 6.1 The learned CIT [A] failed to appreciate the software used by the appellant was of the general shelf software and not a customized software designed for the appellant to facilitate such procedure and the finding is therefore perverse. 6.2 The learned CIT [A] erred in sustaining the addition made by the A.O. that all the plus key transactions are sales made outside the books even though the appellant has demonstrated that all the entries made therein were not sales and removal of item for polishing, retagging, etc., which have not been disputed by the A.O. in the remand report and consequently, the finding is therefore perverse. 6.3 The inference drawn by the CIT [A] is contrary to evidence and purely on suspicion and surmise, and without even not granting an o....
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....it on unaccounted sales Total 1. 2005-06 3,02,97,477 4,32,239 3,07,29,716 2. 2006-07 2,79,96,558 7,28,837 2,87,25,395 3. 2007-08 4,58,03,457 1,80,058 4,59,83,515 4. 2008-09 2,64,61,562 2,38,630 2,67,00,192 5. 2009-10 4,59,19,693 71,023 4,59,90,716 6. 2010-11 4,33,72,512 83,53,007 5,17,25,519 7. 2011-12 4,32,00,485 33,10,541 4,65,11,026 Total 26,30,51,744 1,33,14,335 27,63,66,079 4. These appeals are in second round. Originally the appellate order was passed by CIT (A) on 28.02.2014 against which the assessee carried the matter in appeal before the Tribunal and the Tribunal in its order dated 21.11.2014 in ITA Nos. 579 to 585/Bang/2014 restored the matter back to the file of CIT (A) for fresh decision with regard to additional grounds of appeal relating to validity of jurisdiction u/s. 153A as well as the existence of conditions for issuance of search warrant u/s. 132A of IT Act. It is also noted by CIT (A) in its impugned order that the issue on merit of the addition was not decided by the Tribunal and therefore, in the second round, the only is....
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....gorically stated by assessee before the AO that the assessee is having own system of accounting for the last 60 years consistently which was not questioned by the department in any earlier year and it is also submitted before the AO that the entire purchase and sale of assessee are verifiable although the transactions are huge and the assessee has also maintained inventory books for the Financial Years showing the method of valuation of closing stock. It is also pointed out that it is the submission before the AO that the assorted ornaments valued at Rs. 4.35 Crores of 1,40,000 grams net weight as on 31.03.2005. The same has existed on 31.03.2004 also. It is also submitted that in fact, these stocks date back to 31.03.1998 and the assessee could not sale these items because they have become out modeled and out of fashion and particularly it is shunned by youngsters. He pointed out that it is also submitted before the AO that only old unsold items is not making the assessee because the assessee has sufficient credit worthiness in the market and the assessee is keeping old stocks on sentimental grounds. Although the same can be sold at the market price which is relatively high. The l....
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....the income was assessed at Rs. 15,35,346/- and although some addition was made but no addition on account of under valuation of closing stock. Thereafter he submitted the copy of assessment order for Assessment Year 1991-92 is available on pages 752 to 755 of paper book and in this year also, there is no addition on account of under valuation of closing stock although addition was made of Rs. 21,92,294/- in respect of this allegation that some stock was found which was claimed to be of a joint venture of the three partners but that stand was not accepted and addition was made but still no addition was made in respect of under valuation of closing stock. Thereafter he submitted that the copy of reassessment order passed for Assessment Year 2012-13 on 30.11.2016 is available on pages 1026 to 1032 of paper book and as per the same, there was an addition of Rs. 30,84,779/- on account of alleged bogus purchases expenditure disallowed but there is no addition on account of any alleged under valuation of closing stock. He submitted that neither in the preceding years nor in the succeeding year, any addition was made on account of under valuation of closing stock although the method of val....
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....f the Act. During the course of search, there was no excess cash found or for that matter any excess jewellery or other valuables found and seized 08/08/2011 Notice u/s.153A of the Act was issued for the assessment year 2005-06 to 2010-11 calling for the returns of income to be filed. See pages 327 to 331 of the Paper Book No.II 31/10/2011 Returns of income filed in response to the above notice u/s.153A of the Act for the assessment years 2005-06 to 201011 reporting the very same income that was shown earlier. No additional income was admitted by the appellant pursuant to the search. See pages 334 to 429 of the Paper Book No.II 31/03/2013 Assessments were framed u/s. 153A rws 143[3] of the Act for the assessment years 2005-06 to 2010-11. Assessment was also framed for the assessment year 2011-12 u/s. 143[3] of the Act. 28/02/2014 Common order passed by the learned CIT [Appeals] in respect of the appeals filed against the assessment orders passed u/s. 153A/143[3] upholding the substantial add....
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....ng the additions sustained by the learned CIT [Appeals] in the appellate order dated 28/02/2014, which have not been disturbed or re-adjudicated in the impugned order dated 11/02/2015 for the assessment years 2005-06 to 201011. In fact the learned CIT [Appeals] has observed in Para 2 of the appellate order dated 11/02/2015 that the other grounds of appeal raised by the appellant with regard to the merits of the additions were not adjudicated by the Hon'ble ITAT in the order dated 21/11/2014 restoring the matter back to the learned CIT [Appeals]. Hence, no fresh findings have been given by the learned CIT in the appellate order dated 11/02/2015 for the assessment years 2005-06 to 2010-11. 3.1 At this stage. it may be mentioned here that the appellant had challenged the order of the learned CIT [Appeals] dated 11/02/2015 by filing writ petitions for each of these years before the Hon'ble High Court of Karnataka contending that the learned CIT [Appeals] was not correct in refusing to adjudicate the ground relating to the validity of search based on the directions of the Hon'ble ITAT in the order dated 21/11/2014. It was contended that the learned CIT [Appeals] was....
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....llowed by the appellant was erroneous. 4.2 The appellant was searched for the first time on 06/11/1990 and the inventory of closing stock drawn at the end of each of the years ended 31/03/1986, 31/03/1987, 31/03/1988, 31/03/1989 and 31/03/1990 were found and seized. These seized inventories for all these years are placed at pages 656 to 689 of Paper Book No.III. The appellant has a system of recording the value of the inventories after physical inspection of the closing stock at the year-end in the following manner: Amount Item description Rate Gross weight Net weight 4.3 It is submitted that the figure recorded under the column "Amount" is arrived at by multiplying the figure in the column "Rate" by the "Net weight" of the ornaments and this is the consistent system followed by the appellant for evaluating the closing stock at the end of the year for several decades. The appellant has detailed records of the year-end stock for each of the aforesaid assessment years and has maintained records to substantiate the physical stock taken and the valuation thereof, which was even found in course of the search conducted on 06/11/1990. 4.4 After the a....
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.... were framed after the search action was conducted on 06/11/1990. The relevant correspondence in course of the assessment proceedings and assessment orders for these 2 assessment years 1990-91 and 1991-92 are placed at pages 725 to 755 of the Paper book No.IV. 4.8 Turning to the present search conducted in the premises of the appellant on 02/09/2010, it is submitted that similar physical inventory of closing stock drawn on 31/03/2007, 31/03/2008, 31/03/2009 and 31/03/2010 being the end of these accounting years were found and seized. These seized inventory of the stock books are placed at pages 589 to 599 [31/03/2007], 600 to 610 [31/03/2008], 611 to 623 [31/03/2008], 624 to 635 [31/03/2009], 636 to 647 [31/03/2010] of the Paper Book No.III. The appellant has also placed the similar inventory of closing stock drawn on 31/03/2005 and 31/03/2006, which were not seized during the course of search in the paper book at pages 576 to 581 [31/03/2005] and 582 to 588 [31/03/2006] of the Paper book No.III. In all these inventories drawn at the end of each year, the appellant has followed the similar method of drawing up the inventory and working out the value of the same after physi....
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....the appellant held 2,33,333.640 grams of 22 ct. gold ornaments, which was valued at Rs. 7,51,69,328.19. Out of the said ornaments that were valued at different rates from Rs. 10 to Rs. 550 per gram, the A.O. took the view that the appellant had not valued the closing stock by applying a proper method since, the appellant appears to have followed the Last In First Out [LIFO] method. In support of the said view, the A.O. mainly relied upon three factors i.e., firstly, the month wise purchases and sales for April, 2004 would show that the sales were more than the purchases for April, 2004 and hence, there were sale out of opening stock to the extent of 8,197.900 grams [please see Para [4.7] at page [9] of the assessment order]. The second factor relied upon by the A.O. is the seized documents A/SNS/1 (r) pages 26 and 28 where one of the partners of the appellant firm had written in his own handwriting that the old jewellery on 01/04/2009 was 3842.388 grams, which seized documents have been scanned at pages 10 and 11 of the assessment order. Thirdly, the A.O. took the view that the appellant has only given general description of the ornaments in the purchase and sale invoices ....
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....pellant's auditor has mentioned in the audit report for the assessment year 2010-11 that the cost of stock was ascertained on LIFO method, which has been extracted in the appellate order at Para 11.13. 4.13 Nothing turns much on the aforesaid view of the appellant's auditor for assessment year 2010-11, which is not the claim of the appellant before the learned A.O. and CIT [Appeals]. It may be mentioned here that the appellant's very same tax auditor has given the method of stock valuation in Form 3CD for all years including AY 2010-11 in the Paper Book.No.1, which can be seen at Page 23 of Paper Book No.I [Assessment year 2005-06], Page 46 of Paper Book No.I [Assessment year 200607], Page 66 of Paper Book No.I [Assessment year 2007-08], Page 86 of Paper Book No.I [Assessment year 2008-09], Page 134 of Paper Book No.I [Assessment year 2009-10], Page No.151 of Paper Book No.I [Assessment year 201011] Page 190 of Paper Book No.I [Assessment year 201 1-12]. wherein the method of stock valuation has been reported as "Cost or net realizable value, whichever is less". Furthermore, there is no such qualification by the very same auditor for the earlier assess....
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....f the assessment after the search on 06/11/1990, which are placed in the paper book at page 656 to 661 and pages 690 to 695 of Paper Book No.III, respectively to establish that the very same stock found at the time of the search on 06/11/1990 continues to remain with the appellant on 31/03/2005. (g) The appellant has been able to match the extent of stock as per the inventory valuation on 31/03/2005 [which is the same in respect of historical stock for all the years under appeal] with the extent of stock available as per the physical inventory drawn on 31/03/1986 and 31/03/1990. There is a minor variation in the description of the ornaments in these inventories which is on account of bunching them in different ways in different years. The relevant tabulation of the closing stock as per the inventories drawn on 31/03/1986, 31/03/1990 and 31/03/2005 are enclosed herewith as Annexure-1A, 1B & 1C. (h) From the above chart [Annexure-1A, IB & IC], the total quantity of the historical stock as per the seized inventory as at 31/03/1986, 31/03/1990 and the total quantity of the same stock in the inventory drawn on 31/03/2005 has been set-out in Annexure-2. This brings out ....
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....t have been purchased from customers during the year and it does not refer to the historical stock held by the appellant. In fact, no reliance has been placed on the seized material A/SNS/1 (r) pages 26 and 28 to make any addition based on the profit shown therein, which is nothing but a working made by adopting the market value of gold and not by valuing the closing stock as per the accepted accounting principles and hence, nothing turns much on the said notings made. (n) It is also relevant to point out that the closing stock of the appellant as on 31/03/2005 was 2,33,334 grams and out of that the extent of jewellery that was valued on historical cost basis at Rs. 240 and less per gram was about 29,982.490 grams and that the historical stock held by the appellant constituted only a fraction of the entire stock held, as follows : 10 Rs. -- 3986.640 gms 15 Rs. -- 4002.350 gms 30 Rs. -- 5965.500 gms 60Rs. -- 5600.000 gms 100Rs. -- 3945.000 gms 180Rs. -- 3146.000 gms 200Rs. -- 2332.000 gms 240Rs. -- 1005.000 gms 29982.490 gms (o) In other words, only 30 kgs. out of 233 kgs. of closing stock represents old ....
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....o-day stock book for purposes of controlling the stocks in various counters where the stocks are displayed for sale. This software was developed by one M/s. Jilaba Software Services Pvt. Ltd., Chennai and the software is an off the shelf general software used by jewellers in general and it is not any special customized software specifically designed for the appellant. The appellant is not aware of the internal working of the software or science behind the generation of the various financial and stock logs and the manner of working of the software as the appellant's staff have merely been trained to use the software for the functions of recording the day to day financial transactions and movement of stock from the counters by way of effective control of their movements for the purpose of business by way of internal control. 5.2 As submitted, the software records financial transactions and movement of stocks from various counters where they are displayed either on account of sale or otherwise like taking the stocks out for hallmarking, repairs, polishing, retagging for updating the prices etc. Thus, the stock records are maintained on day-to-day basis in the computer and....
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.... was supplied and used by the appellant since 2003. There was a major update done about 8 months back [He was examined in October, 2010 and the updating must be in February, 2010]. This update involved replacement of star [*] key and plus [+] key by "End" key to complete sales since the software now allowed 0 rate of tax to be recorded and there was no need to have a different method to record non-taxable sales. The stock log tables generated by the database in the hard disk under the name of "Homerec", "tagged", "non-tagged" and "tagstone" for various years were shown to the witness by the DDIT and he was asked to explain the same, which he explained in answer to Q.No.8 [Page 570-571 of paper book no.III]. Briefly, the explanation in aforesaid 4 logs "Homerec", "tagged", "nontagged" and "tagstone" as explained by the witness can be summarized as under: [a] "Tagged" Log: This log contains the several column containing details of the items that are transacted based on individual tags. The "tagged" table contains only the metal details contained in each of the tagged item and various columns record details like the date of which the item was tagged, the date on which it was ....
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.... found in light of the statement that the "wotax" column in these togs can have 4 possible values and they are "Y", "N", "null" or "blank". If the value is "Y", the particular item has been removed from the counter on account of sale or on account of any other reason without collecting tax thereon. If the value is "null", it means the item has not been removed from the counter. If the value is "N" or "blank", it means the item has been sold after collecting the tax. He was asked why the transactions recorded and preserved in the "tagged" tables where "wotax"=Y were not recorded in the sales log. He stated in answer to Q.No.9 [Page 571 of paper book No.III], Q.No.10 [Page 572 of paper book No.III], Q.No.11 [Page 572 of paper book No.III] and Q.No.12 [Page 572 of paper book No.III], that the records in these 4 different logs could have been deleted. However, he also categorically maintained that the software package did not allow the deletion of the transactions recorded in the column "wotax", where the value was "N" from the sales log. 5.8 While on this point it is to be noted that if the transactions recorded in these 4 stock logs where the goods are taken out fro....
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....e to enter transactions differently depending whether it is to be reflected in its books or not. According to the learned A.O. and CIT [Appeals], the entire quantity of stock shown in the 4 logs "homerec", "tagged", nontaped" and "tagstone", where the column "wotax"=y was the quantity of jewellery that was sold by the appellant outside the books of accounts simply because the corresponding entries were not reflected and recorded in the financial logs of the software. The authorities below rejected the detailed explanation furnished by the appellant while taxing the Gross Profit on such alleged sales, which has been added as suppressed income for several years as depicted in Annexure-1, placed at pages 798 to 799 of Paper Book No.IV. Needless to submit that, during the search no trace of any evidence was detected with documentary proof to prove that the appellant was indulging in unaccounted sales outside the books of accounts. 5.11 Before going into the merits of the aforesaid addition made, it is firstly submitted that all the above 3 statements of the witness were recorded behind the back of the appellant. There was no witness also present at the time of recording the st....
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....e self-evident entries recorded in the 4 stock logs in the computer hard disk, it will be perverse to conclude these are suppressed sales on the basis of the entry in the column "wotax"=Y. 5.13 Properly analyzed and appreciated, what is found recorded in the 4 stock logs under the column "wotax"=y can only lead to the following conclusions: [a] Removal of the items from the counters are recorded in the 4 stock logs in the computer hard disk; [b] When these are removed from the counters for any other reason other than sales, they are recorded under wotax as "Y" in the 4 logs; [c] If they were sates, they would find a place in the financial sales log of the data base and it is impossible to delete them especially selectively by removing the value noted in these 4 logs; [d] Since these entries impugned in these 4 logs are not finding a place in the financial sales log but finding a place in the respective data stock logs under the column "wotax"=y, the removal is otherwise than by sales and not by sales. [e] From the enclosure of non-tagged items placed in pages [36] to [60] of the assessment order for assessment year 2005-06, ther....
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....501 of the Paper Book No.III. It has been proved with reference to each one of the entries numbering 1794 entries in these logs that these entries pertained to the following: [a] 611 entries were for removed and replaced after retagging; [b] 561 entries were removed to safe as damaged; [c] 258 entries were removed to exchange for suppliers; [d] 149 entries of tagged stones were removed from counter and given to the goldsmith for making ornaments, [e] 56 entries were removed for sale and is supported by sale bills. [f] 50 entries were removed for complimentary items like cleaning liquid, [g] 41 entries were removed for the removal of stones, [h] 39 entries represent purchase returns supported by bills; [i] 18 entries were removed for issuing the same to the smiths for modification - entered in our stock registers; and [j] 11 entries were removed for stringing. 5.15 It is submitted that the aforesaid entries were explained by the appellant and substantiated with other contemporaneous records like the hallmarking register, repair register, polish register, plus view and minus view from t....
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....with the revised prices. [e] The above entry reflected in the "receipt view" of the counter is placed at page 800 of Paper Book No.IV and this can be verified from the seized hard disk available with the department. 5.17 Another example relates to Diamond ear rings having a gross weight of 14.990 gms. of gold and 9.89 carat diamond bearing tag No. 118-C-5584. The said item was also removed on 27/07/2010 and figures in the "tagged log" and "tagged stone log" for the financial year 2010-11. The said item was re-tagged and given to the counter with the fresh tag No. i 18-C5809 and the same is found reflected in the "receipt view" of the counter, placed at page 801 of Paper Book No.IV and this can also be verified from the seized hard disk available with the department. 5.18 The third example relates to a Diamond ring with 4.940 gms. of gold having 0.87 carat diamond bearing tag no. 117-A-344 and is shown in the "tagged log" and "tagged stone log" as removed on 03/08/2010. After retagging as No. 117-C-3409 it was once again issued to the counter on the same day i.e., 03/08/2010 and the same is reflected in the "receipt view" of the counter placed at page 802 ....
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....in all these 4 logs and these product codes revealed the nature of the articles whether it is 22 carat gold ornament or 18 carat gold ornament or silver articles, stones, diamonds, platinum, etc. On a close examination of these entries with respect to the product codes, it is submitted that they contained 22 carat, 18 carat gold ornament, silver, etc. These were categorized and made available to the learned A.O., with a request for rectification after the assessment orders were passed, which was refused. When the same was also urged before the learned CIT [Appeals], no observations thereon have been made on this aspect of the matter that was urged by the appellant. The learned CIT[A] has upheld the addition in Para 12.8 to 12.11 of the order dated 28/11/2014 [Page 979 & 980 of paper book No. V]. 5.22 On this aspect of the matter, it is submitted that as far as the assessment year 2005-06 is concerned, it is glaringly from the entries in "non-tagged" log that it contains entries pertaining to the F.Y. 2003-04, which is beyond the period of assessment. This can be seen from the table enclosed to the assessment at page Nos.36 to 41 that SI.No.1 to SI.No.245 at page No.41 tota....
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....inted out that it is also noted by CIT(A) in Para 11.14 of its order that the approved valuer had categorically stated that it is not possible to identify the age of old ornamental jewellery. He also pointed out that in the same Para 11.14, this finding is also given by CIT(A) that the value of entire 22 Ct jewellery including the unaccounted 22 Ct jewellery found in 1990 was valued at Rs. 270/- per gram and the assessee did not furnish the old jewellery details or objected to the valuation of any of the old jewellery at Rs. 270/- per gram. Hence, in the present proceedings, no item of old jewellery can be valued at price less than Rs. 270/- per gram. 7. In the rejoinder, it was submitted by ld. AR of assessee that the assessee can correlate the sale invoices with the purchase invoices. He submitted that as per purchase Invoice No. 7 dated 22.05.2004, purchase of 67.150 grams have been sold as per four sale invoices and the concerned sale invoices are invoice no. 65 dated 28.07.2004 of 20.12 grams, invoice no. 3245 dated 19.08.2004 of 9.87 grams, invoice no. 3898 dated 11.09.2004 of 35.74 grams and invoice no. 4330 dated 02.10.2004 of 1.42 grams. 8. We have considered the riv....
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.....05 7536.05 7536.05 475 816.32 0 485 10000 10000 10000 10000 10000 10000 10000 10000 505 0 28965.51 26137.65 26137.65 26137.65 26137.65 21554.5 21554.5 520 10000 0 0 550 16137.75 11849.59 43970.61 43970.61 29620. 39 11849.600 600 1900.1 1900.1 1900.1 650 5987.839 12093.409 11276.41 7999 8000 8000 700 0 3618.24 760 0 2733.501 8789.76 6056.259 6056.459 6056.459 800 1227.968 1080 3842.388 1200 2000 3083 899.675 1300 6000 1400 &n....
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....k as on 31.03.2005. It means the AO has also accepted the value of opening stock worked out by assessee on 01.04.2004 at Rs. 6,84,87,983/-. The AO is also considering such opening stock quantity value to work out the average price of Rs. 452/- per gram and this goes to show that this is not the case of the AO that the closing stock does not have any quantity of opening stock because had it been the case of AO that the closing stock as on 31.03.2005 does not include any jewellery item out of opening stock as on 31.03.2004, then the AO should have adopted purchase value in the present year of Rs. 562/- per gram for valuing the closing stock on 31.03.2005. It is also worthwhile that as per the valuation adopted by assessee, some quantity is valued by the assessee at Rs. 520/- per gram i.e. 10000 grams and some quantity of 16137.75 grams have been valued at Rs. 550/- per gram whereas the AO is valuing the entire 22 ct jewellery at Rs. 452/- per gram. The various reasons given by the AO for not accepting the valuation done by the assessee are summarized by AO on pages 20 and 21 of the assessment order which is reproduced herein below. "To summarise 1. The assessee had ....
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.... & Gains of business or profession'. 12. Finally, the method continuously followed by the assessee on the entire stock is not disturbed. The FIFO method of valuation of inventories is also not adopted. It is only in respect of 22 ct gold ornaments, the assessee has not declared the real income and therefore the average cost method is applied since the assessee adopted decades old rate under the pretext of LIFO method of valuation of stock. 13. Therefore, in view of the above, the average cost price method for valuation of closing stock of inventory of 22 ct gold ornaments is adopted." 10. We first note the claim of the assessee and the objections raised by the AO along with the main reasons of such objections and then examine the merit of such objections. We find that the case of the assessee is this that the assessee is not valuing the closing stock under LIFO method as stated by the auditors in one tax Audit Report in Form 3CB for A. Y. 2011 - 12 and as alleged by the AO & CIT (A). The stand of the assessee is this that the closing stock is valued at the cost of each item at its specific cost of acquisition and in doing so, the assessee has valued some items ....
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.... followed by assessee for last 60 years. In our considered opinion, even if there are certain shortcomings in the method of valuation of closing stock adopted by assessee but since the same method of valuation of closing stock of assessee was accepted by department in earlier years and also accepted by department in later year, as per the rule of consistency, no addition can be made by adopting a different method by substituting a different method of valuation of closing stock in place of a method of valuation of closing stock adopted by assessee consistently and accepted by department also consistently and which is not shown to be defective apart from some allegations that there are certain shortcomings being practical difficulties in following the method in valuing the closing stock as per the method adopted by assessee as per various objections of the AO reproduced above and noted from the assessment order. In summary, the main reasons given by the AO are three. First such reason is this that in the month of April , 2004, sales quantity is more than purchase quantity and hence, as per the AO, there was sale of 8197.900 grams in April 2004 out of opening stock as per Para 4.7 on ....
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....the AO was having any doubt about it, he could have examined the concerned partner in this regard but he has chosen not to do so. Hence, we hold that this objection of the AO is also not valid to draw adverse inference against the assessee. About the third such objection, it is submitted before us that as per Annexure - 6 to Synopsis & written submissions filed before CIT (A), copy available on pages 804 to 813 of the paper book, the assessee has made efforts to identify certain items of jewellery as per assessee's inventory with inventory taken at the time of search and as per the same, we find that in most of those items, the description and Gross weight is either tallying exactly or is very close. We are concerned with valuation of stock and not about purchase and sale tallying. If the closing stock item is identifiable as shown by the assessee on these pages, it cannot be said that the method of valuation of closing stock followed by the assessee by valuing the stock item at the actual cost of that item is defective and not acceptable. This is at the best one shortcoming in the method adopted by the assessee because the assessee is not able to show any documentary evidence abou....
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....or net realizable value whichever is lower and cost is ascertained on LIFO method. It is also stated there that the same is on the same basis as in the preceding previous year but as per Form 3CB for the preceding year ended as on 31.03.2009 for A. Y. 2009 - 10 available on page 105 of the paper book, there is no such adverse comment of the auditors and in view of this comment of the auditors in Form 3CB for A. Y. 2010 - 11 on page 147 that valuation is on the same basis as in the preceding year, the statement of the auditors become contradictory & conflicting to each other because in one line, the auditors say in AY 2010 - 11 that the valuation is as per LIFO method and in the next line, it is said that the valuation is on the same basis as in the preceding year and in the preceding year's Form 3CB available on page 105, there is no adverse comment. This is also settled law that the comments of the auditors are not final and binding particularly if the same is not supported by evidence. On the basis of such a contradictory & conflicting statement/ observation of the auditors, the method of valuation of closing stock consistently adopted by the assessee and accepted by the departme....
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....13 and 2013-14 available on pages 1026 to 1032 and 1056 to 1059 of paper book respectively, no addition has been made by the AO by making an allegation that there is any under valuation of closing stock, it is seen that the AO is also accepting the valuation method adopted by assessee in earlier years and later years and therefore, in view of our analysis about the AO's main objections, we hold that in view of the principle of consistency, the addition made by the AO in the present years is not justified and therefore, the same is not sustainable and we delete the same. This issue is decided in favour of the assessee in all these years. 15. The next issue to be decided is regarding the addition made by the AO in various years by alleging that there is some unaccounted sales and this addition is made by the AO to the extent of gross profit on such alleged unaccounted sales. In this regard, the written submissions of ld. AR of assessee is already reproduced above and as per the assessment order also, the DDIT examined one Mr. Venkatesh Vaidyanathan, Vice President of the software supplier company initially on 16.09.2010 and later on 06.10.2010 and thereafter again on 07/10/2010. T....
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....s of natural justice have been elevated to the status of Fundamental Rights guaranteed in the Constitution of India. It is also held that a quasi-judicial or administrative decision rendered or an order made in violation of the rule of audi alteram partern is null and void and the order made in such a case can be struck down as invalid on that score alone. As per the order of authorities below, it is not coming out that an opportunity was given by the department to the assessee to cross examine Mr. Venkatesh Vaidyanathan, the Vice President of M/s. Jilaba Software Services Pvt. Ltd., on the basis of whose statement, adverse inference was drawn against the assessee. Hence as per these judicial pronouncements noted above, the addition made by the AO on the basis of these three statements cannot be sustained because of violation of rules of natural justice. 16. Moreover in Para 6.6 of the assessment order for Assessment Year 2005-06, it is noted by the AO that the said witness Mr. Venkatesh Vaidyanathan has stated that the items were removed from counter either for sale or on account of any other reason without collecting tax thereon. In the same Para, it is also noted by the AO th....
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....osition that before drawing any adverse inference against the assessee on the basis of statement of a witness without providing opportunity to the assessee to cross examine the witness, the addition made is not sustainable, we hold that this addition made by the AO is also not justified and therefore, we delete the same. This issue is also decided in favour of the assessee. As per above discussion, we have found that in respect of both the issues on merit, the assessee succeeds and therefore, the remaining grounds in respect of benefit of telescoping etc. do not call for any adjudication. 17. In the result, all these six appeals of assessee in ITA Nos. 2534 to 2539/Bang/2017 are partly allowed. Order pronounced in the open court on the date mentioned on the caption page. ============= Document 1 PUNYNEXURE-1A Details of 22 Ct Ornaments as on 31.03.1986 - Page 656 to 661 of Paper Book No.III VALUE DESCRIPTION RATE GROSS WT. NET WT. 545.50 22Ct Lakshmi Kasulu, Mangalyalu 10/- 54.550 54.550 3,154.00 Kammalu, Jumkeelu, Baleelu 10/- 315.400 315.400 600.00 Ralla Jumkeelu, Baleelu 10/- 160.700 60.000 7,154.00 Plain ....
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....000 59,250.00 M/c Balies & o/c chains 60/- 987.500 987.500 10185.50 @ 60/- Document 2 60,000.00 22Ct Box pendants 100/- 785.200 600.000 10,000.00 Box tops 100/- 164.150 100.000 192,000.00 Coral tops & assorted drops, pendants 100/- 2764.900 1920.000 95,000.00 Plain gold & enamel bangles 100/- 1341.000 950.000 60,000.00 Stone set bangles 100/- 1262.300 600.000 92,000.00 Assorted ornaments 100/- 1591.000 920.000 80,000.00 Assorted ornaments 72,000.00 22 Ct Pendants & tops 100/- 1568.200 800.000 5890.00 @ 100/- 180/- 432.000 400.000 72,000.00 Tops boxes etc., 180/- 611.000 400.000 104,400.00 St Necklaces 180/- 977.000 580.000 81,000.00 St & gold necklaces 180/- 627.000 450.000 45,000.00 Red & gr. Assorted items 180/- 251.000 250.000 90,000.00 St small assorted items 180/- 944.000 500.000 72,000.00 St small items 180/- 787.000 400.000 144,000.00 St assorted ornaments 180/- 1639.000 800.000 45,000.00 Gold ornaments set with di 180/- 268.000 250.0....
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....d chain & rings 10/- 603.500 603.500 4,901.00 Plain gold rings 10/- 490.100 490.100 450.00 Stone set rings 10/- 94.000 45.000 3,900.00 Stone set rings 10/- 880.300 390.000 7,000.00 Tops & drops with stones 10/- 1501.100 700.000 6,000.00 Tops & drops 10/- 1213.200 600.000 800.00 Assorted mottle 10/- 82.970 80.000 3986.64 10/- 1,050.00 22Ct Stone set loose pendants 15/- 149.500 70.000 1,680.00 Assorted ornaments 15/- 230.000 112.000 13,500.00 Plain gold sets 15/- 903.000 900.000 19,020.00 Stone sets 15/- 2790.000 1268.000 4,275.00 Stone bangles 15/- 800.400 285.000 15,915.00 Gold enamel bangles 15/- 1062.100 4,595.25 Stone bangles 15/- 600.350 1061.000 306.350 4002.35 @ 15/- 42,045.00 22Ct Plain gold bangles 30/- 1401.500 1401.500 28,200.00 Fancy gold bangles 30/- 940.000 940.000 15,420.00 Fancy bead gold bangles 30/- 575.000 514.000 57,750.00 Baby bangles & chains 30/- 1931.500 1925.000 36,300.00 Plain gold bangles ....
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....ornaments 200/- 910.000 775.000 3000.00 @ 200/- 34,512.00 22Ct Order chains 240/- 143.800 143.800 90,000.00 Order ornaments 240/- 740.000 375.000 82,800.00 Order stone bangles etc 240/- 1004.100 345.000 138,000.00 Order chains & beads 240/- 1118.000 575.000 13,872.00 Plain gold tops 240/- 57.800 57.800 10,800.00 Stone set tops 240/- 100.200 45.000 29,040.00 Stone set pendants 240/- 274.800 121.000 33,600.00 Pearl & other stone set ornaments 240/- 280.100 140.000 126,000.00 Crystal tops pendants etc 240/- 1390.500 525.000 80,400.00 Tops pendants etc 240/- 701.500 335.000 1,872.00 Tops Jumkas 240/- 7.800 7.800 2,400.00 Balis tops nosepins 240/- 10.600 10.000 132,000.00 Diff tops rings necklesses etc 240/- 1251.200 550.000 49,920.00 Half sets stone settings 240/- 421.500 208.000 22,080.00 Stone & pearl set jumkees 240/- 214.000 92.000 138,000.00 67,324.80 Half sets stone settings Ornaments 240/- 1114.000 240/- 711.460 575.000 ....
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....ckless Tops & Pendants 60/- 710.400 705.000 60/- 183.000 130.000 37,740.00 Dc balis & Dc chains 60/- 629.650 629.000 43,518.00 Assorted plain gold sets 60/- 725.300 725.300 34,428.00 Plain gold fancy bangle 60/- 573.800 573.800 40,404.00 Plain gold assorted balis, tops, pendents 60/- 673.400 673.400 52,506.00 Assorted bangles 60/- 875.100 875.100 45,024.00 Assorted plain necklaces etc 60/- 750.400 750.400 5600.00 @ 60/- 74,550.00 22Ct Assorted tops & pendents 100/- 745.500 745.500 22,750.00 Plain gold drops & coral tops 100/- 227.500 227.500 64,320.00 Plain gold chains with m/c beads 100/- 643.200 643.200 47,550.00 Plain gold laxmi kasu, thalis 100/- 475.500 475.500 123,550.00 Assorted other plain gold orn 100/- 1235.500 1235.500 61,780.00 Plain gold kadas of diff types 100/- 617.800 617.800 3945.00 @ 100/- Document 6 85,590.00 22Ct Jumkas, balis, finger rings 180/- 475.500 475.500 85,500.00 Coral rops & pendents 180/- 975.700 475.000 63,180.00 Coral tops & drops 180/....
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.....75 Plain gold kadas, bangles, idols 505/- 3323.150 3323.150 26137.75 @ 505/- 22Ct Nosepin, murus, baby ring, mottles etc 2718.780 Haras, manteekas, kuchu etc 3127.300 6,517,276.49 kadas, bracelets, water etc 550/- 3571.800 Arrived pendents chain, idols, spectacles vankis, bajubands, chodas 2117.600 net wt 2391.700 11849.594 11849.594 @ 550/- 1,428,018.80 22Ct Old Ornaments 505/- 2827.760 2827.760 2827.76505/- Document 7 ANNEXURE-2 Year Rate Year 31.03.1986 Year 31.03.1990 31.03.2005 @ 10/- 5549.550 gms 3986.640 gms 3986.640 gms @15/- 5445.000 gms 4002.350 gms 4002.350 gms @ 30/- 9765.000 gms 5990.500 gms 5965.500 gms @ 60/- 10185.500 gms 5600.000 gms 5600.000 gms @ 100/- 5890.000 gms 3945.000 gms 3945.000 gms @ 180/- 15467.090 gms 8143.000 gms 3146.000 gms @ 200/- 3000.000 gms 2332.000 gms @ 240/- 4385.920 gms 1005.000 gms Document 8 ANNEXURE--3 RECONCILIATION OF CLOSING STOCK VALUED @ 10/- AS ON 31.03.1986 TO THAT OF CLOSING STOCK AS ON 31.03.2005 AS ON 31.03.1986 (1) Lakshmi Kasulu, Mangalyalu AS O....
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.... 745.000 540.000 2185.000 2185.000 TOTAL 5445.000 1672.250 1672.250) 4002.350 15/-stock of gms 5445.000 in 31.03.1986 gets reduced to gms 4002.350 in 31.03.2005 RECONCILIATION OF CLOSING STOCK VALUED @ 30/- AS ON 31.03.1986 TO THAT OF CLOSING STOCK AS ON 31.03.2005 AS ON 31.03.1986 1) Bangles & Chains :- a) Plain gold bangles b) Plain gold bangles c) Fancy gold bangles d) Fancy gold & BBst bangles AS ON 31.03.2005 Bangles & Chains differently categorised 2150.000 a) Plain gold bangles 1376.500 1348.000 b) Fancy gold bangles 940.000 1492.000 c) Fancy gold bead bangles 514.000 1200.000 d) Baby bangles & chains 1925.000 e) Plain gold bangles 1210.000 1000.000 1500.000 e) Fancy bangles & baby bangles 1075.000 f) Stone set facny bangles g) Plain gold chains TOTAL 9765.000 9765.000 9765.000 5965.500 5965.500 5965.500 30/- stock of gms 9765.000 in 31.03.1986 gets reduced to gms 5965.500 in 31.03.2005 Document 10 RECONCILIATION OF CLOSING STOCK VALUED @ 60/- AS ON 31.03.1986 TO THAT OF CLOSING STOCK AS ON 31.03.2005 AS ON 31.03.1986 AS ON 31.03.2005 ....