TaxTMI 
TaxTMI 
TaxTMI 
2023 (11) TMI 860
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....per para 8.1 of the impugned order 2,11,27,468/- 2. That while upholding the aforementioned additions, Ld. CIT(A) has failed to appreciate that there is no enabling provision in the Act authorizing the authority conducting the survey u/s 133A of the Act to obtained valuation report and obtaining of valuation report is contrary to the provisions of section 133A read with section 142A of the Act. The valuation report can only obtained by making a reference for the purpose of assessment or reassessment, whereas u/s 133A of the Act, the income tax authorities are empowered to make an inventory of the stock checked or verified by him and there is no provision enabling the income tax authority conducting the survey to call for valuation. All the additions sustained by the Ld.CIT (A) are based on the value determined by the valuer. The valuation report as not being in accordance with law is liable to be ignored. 3. That under the facts and circumstances of the case, Ld. CIT (A) has erred in law as much as in fact in not holding that valuation report obtained by the AO during the course of survey was invalid on account of its being not in accordance with provision of the Act, therefo....
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.... between two items of jewelry namely 14 Kt. and 18 Kt. which was difficult to be identified that whether the fact difference pertains either to 14 Kt. or 18 Kt. Ld. CIT(A) has also failed to appreciate that the difference of 453.82 gms being meager and come to 0.58% which was liable to be ignored in view of large quantity of those these items which was of 77962.74 gms. Thus, the addition of Rs. 12,41,652/- is liable to be deleted. 9. That under the facts and circumstances of the case, Ld. CIT (A) has erred in law as much as in fact in upholding the addition of Rs. 2,11,27,468/- without proper application of mind on the submissions made by the assessee by simply relying upon the findings of the AO. Ld. CIT(A) has failed to appreciate that the possibility of intermixing of 14kt and 19kt gold jewellery studded with diamonds could not be ruled out and request of the assessee for seeking clarification from the valuers regarding the basis adopted for calculating the weight of the embedded diamonds was rejected on the ground of such request being belated request. The principles of natural justice were violated and addition has been upheld on the basis of wrong estimate adopted in the va....
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.... of the Assessment Order which is reproduced below: S.No. Particulars of Item As Per Books As Per Valuation Difference in Weights Rate Amount 1. GOLD22(INGMS) 22242.380 14226.71 -8015.670 2959.00 -2,37,18,368 2. POLKI22(INGMS) 12700.880 20830.050 8129.170 5286.00 4,29,69,894 3. 14KGOLD(INGMS) 70894.976 59875.590 -11019.386 2280.00 -2,51,24,200 4. DIAIN14KT(INCIS) 14974.360 13408.830 -1565.53 23242.45 -3,63,86,752 5. 18KG0LDC1NGMS) 7067.757 18540.970 11473.213 2736.00 3,13,90,711 6. DlAIN14KT(INCIS) 2112.180 4501.610 238943 29207.00 6,97,88,082 7. After accepting the reconciliation, the AO recorded in the notice dated 01.04.2021 that the assessee has submitted a reconciliation where gold and Polki 22kt, 14kt gold and 18kt gold and diamond and they are required to be clubbed together for the purpose of valuation as they have been considered as similar items. 8. The AO show caused the assessee to explain as to why excess stock as calculated above at Rs. 14,41,49,586/- and less stock of Rs. 8,52,29,321/- should not be added u/s 69A of the Act. In response to the show cause, the assessee submitted following two charts consisting of figu....
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....stock, therefore being negligible is to be ignored and be taken as there is no difference and otherwise also such difference can be on account of various factors like humidity/moisture content, accuracy/precision/sensitivity of the measuring scale and even existence of wax used for pasting of Polki. DIFFERENCE BETWEEN 14KT & 18KT GOLD JEWELLERY 11. So far as, it relates to difference in the quantity and jewellery wherein there is negative difference in 14kt gold jewellery of 11,019.38 gms and in 18kt gold jewellery there is a positive difference gms was explained that the said difference was due to inter-mixing at the time of valuation and as such there is no difference as has been alleged was submitted that it is almost impossible from physical appearance to differentiate between and 14kt gold jewellery and the same can only be identified from the tags attached to the jewellery. 12. The valuation of jewellery done during the course of survey was in a limited time frame and as such obvious calculation mistake was bound to creep in as a result of which the valuers have mixed up 14kt gold jewellery with 14kt gold jewellery. 13. The mixing of 18kt gold jewellery and 14kt gold jewe....
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....lleged difference only on account of estimation error and correctness of weight of diamonds as mentioned in the valuation report is not free from doubt as it is case of counting and valuing diamonds embedded the jewellery and there is a considerable chance of miscalculating the number and weight of diamonds keeping in mind that valuation was carried out in a haste and in limited time frame. It was submitted that as per standard practice in jewellery business, approximately 4gms to 5gms of gold is required for embedding 1kt of diamond because diamond being a stone requires certain degree of strength the underling metal for sustenance of ornament and this fact further supported by the inconsistency in two valuation reports prepared by two different valuers on two showrooms of the assessee. Following chart was submitted to show such inconsistency in the ratio of 1kt diamond vis-a-vis gold in which such diamond is studded. Such ratio as per valuation done at Karol Bagh was 4.68gms & 4.13 gms of 14kt and 18kt gold jewellery respectively as against valuation done for Greater Kailash showroom which was 4.11 gms & 3.70 gms of 14kt and 18kt gold jewellery respectively. Such inconsistency wa....
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.... valuation of difference in stock should be on the basis of average purchase price in the hands of the assessee on the basis of well-recognized principle of valuing the stock at cost or market rate whichever is lower. 20. To support the above contentions, following evidences were submitted: 1. Polki stock ledger since FY 2010-11 to of both the showrooms showing that no fresh Polki jewellery purchase is entered as the same is clubbed with gold jewellery and actual sale of Polki jewellery out of old stock is excluded from the stock register. (Annexure-1) 2. Sale bills of Polki jewellery sold out of old stock (Annexure-2) 3. Specimen of purchase invoice showing Polki items included in gold jewellery no specific rate for Polki is charged (Annexure-3) 4. Sale bills of Polki items showing no separate rate charged for Polki and included in gold rates (Annexure-4) 5. Purchase bills of diamond jewellery from different suppliers clearly showing that 4 to 5 gms gold required to stud I carat of diamond (Annexure-5) REPLY DATED 15.06.2021 21. In addition to reply dated 18.05.2021, the assessee submitted another reply on 15.06.2021 to place on record further evidences to say and con....
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....propriate adjustments could be made to the figures appearing in the valuation reports. ADDITION WISE CONCLUSION DRAWN BY THE AO AND THE CALCULATION OF ADDITIONS 1st addition of 22 Kt jewellery and 22 Kt Polkit studded Gold jewellery 24. From the explanations and evidences submitted and also taking into consideration the fact that one of the valuers namely M/s Amit Jeweller, in its valuation had also valued Polki under the category of gold jewellery and no separate valuation was done. The AO has also observed that overall combined weight of both the jewellery found during survey almost matches with that recorded in the books of accounts. The AO has also taken into consideration the fact that no separate inventory vis-à-vis Polki jewellery is maintained by the assessee. In these circumstances, AO has accepted Polki jewellery as part and parcel of gold jewellery. However, AO did not accept the physical stock difference and by adopting rate of 2959 per gm an addition of Rs. 3,35,846/- has been made. 2nd Addition of Difference between 14Kt Gold jewellery 25. The AO did not accept the contention of the assessee that there was inter-mixing of both the above-mentioned items of ....
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....embedded in jewellery is fully corroborated from the inventory maintained according to which excess diamonds so calculated by valuers could not have been embedded the available jewellery. The AO has also considered the request of the assessee for seeking clarification from the valuers regarding the basis adopted for calculating the weight of the embedded diamonds which according to AO could not be accepted on account of delay in making such request. 29. The AO has observed that the contentions of the assessee are not acceptable after consideration. The very purpose of survey action is to surprise check the physical stock with the stock recorded the books for detection of unexplained income. In the present case huge difference of 723.37 kt of diamond was found per valuation report and the weightm of diamonds are calculated on basis of descriptive tag attached with the ornaments. Therefore, the allegation of estimation has no legs to stand. The assessee did not furnish any reconciliation statement or any material to justify/ excess diamonds. As such the validity of valuation reports is not affected reasonable degree of estimation employed by the valuer is permissible and cannot be d....
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....les........" SUBMISSIONS TO ASSAIL THE ABOVE FOUR ADDITIONS 33. The present case was taken up for scrutiny for the reason that a survey action u/s 18SA of the Act was carried out at the business premises of the assessee on 03-01-2016 leading to discovery of discrepancy in stock of jewellery in both the showrooms of the assessee Perusal of the assessment order would reveal that the whole bass of the additions made are revolving around the discrepancy of stock in jewellery as computed on the basis of valuation reports prepared by two different valuers at each of the showroom The valuation of stock found at GK showroom of the assessee has been rendered by Sh. Varun Jain government registered valuer and valuation of stock found at Karol Bagh showroom has been prepared by Sh. Amit Vats, both these valuations are signed by these valuers on 04-01-2018. The discrepancies pointed out and considered by the AO for making addition relate to 22kt gold jewellery and polki jewellery studded in 22kt gold; 14 kt gold jewellery studded with diamonds and 18kt gold jewellery studded with diamonds. Cross weight of such jewellery as per valuation done by Sh. Vats of Karol Bagh showroom 68,691.12 gms a....
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....bills also the assessee is adopting consistent method of valuing polki at applicable gold rates and as such there is no difference between the polki studded and plain 22kt. gold jewellery. It is also observed by the AO that even in the books of accounts the assessee did not maintain separate inventory vis-avis polki jewellery. In view of these findings recorded by the Id. AO, id.AO has arrived at a conclusion that total unaccounted stock in respect of 22kt. gold jewellery and 22kt polki studded jewellery is 113.50gms. For the sake of completeness these observations made in the assessment order are reproduced below: "The assessee has explained that in its books of account no distinction is made between 22Kt Gold jewellery and 22Kt Polki studded jewellery both types of jewellery are valued and accounted for together. It was further submitted that Polki valued at par with gold and as such there is parity of valuation between the two types of jewellery. The submission of the assessee hinges on the fact that if both types of jewellery are weight and valued together, there will be no difference except for 113.50 gms. On closer perusal of the survey report and submission of the assess....
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....e ignored for the purpose of valuation. The existence of any of such possibility cannot be ruled out, therefore, taking cognizance of such a small difference in the stock for the purpose of making addition particularly in existence of the fact that on substantial basis all the submissions made the assessee in this regard are found true by the AO on verification made by him, is contrary to the judicial norms for framing a fair assessment of assessable income. The purpose of valuation by the Department of any asset is with a view to find out the correctness of the value of any asset so as to see and find out that whether there an attempt on behalf of the assessee to make unexplained investment. The assessee is carrying out the business of jewellery on a large scale and minor difference of 113.50 gms. out of total quantity of such kind of jewellery being 34,943.26gms. cannot be viewed from the prospective of any unexplained investment having made by the assessee and it should be ignored just as being a mistake occurred due to several factors which have been relied upon by the assessee before the AO. It is thus prayed that the addition of Rs. 3,35,846/- is to be deleted. The assessee i....
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.... stock inventory in the books of accounts of the assessee indicating separate available stock-in-hand in respect of 22kt gold jewellery and 22kt polki studded gold jewellery. When no separate inventory is prepared by the assessee of both these items of jewellery then the same cannot be compared with the separate stock found and recorded in the valuation reports which have been relied upon to say that there was quantified difference of stock-in-hand as has been worked out in the show cause notices issued to the assessee. Therefore, the very basis of making this addition does not exist and addition made is vitiated in law. It has also been recorded by the AO that even of the Departmental valuers did not differentiate both these items for the purpose of making the valuation. Thus, it is the respectful submissions of the assessee that the AO is misguided in law and in facts in firstly, treating the difference of as unexplained investment made by the assessee in stock of 22kt gold jewellery and secondly, in treating so called difference in 22kt. gold jewellery being sales made outside the books of accounts. Both the additions are liable to be deleted and are prayed to be deleted. ADDI....
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.... individual segment complement each other and as such the possibility of intermixing of jewellery cannot be ruled out. Accordingly, would be fair to tax net excess of gold jewellery as per valuation reports i.e. Rs. 62,66,511/- (Rs. 3,13,90,711 - Rs. 2,51,24,200) ....................." 43. That from the above observations of the is clear that as per submission of the assessee these items of jewellery were not having any tags mentioning the purity of the jewellery and purity could only be identified from the hall marking and entire stock of the assessee was not hall marked. The jewellery was inter-mixed at the time of valuation by the valuers. All these of the assessee which are taken into consideration by the AO without any application of mind are very germane to the issue as firstly purity of gold in respect of 14kt and items cannot be ascertained by physical examination by only seeing the secondly, these items did not have any mention on their tags regarding purity the gold; thirdly, while valuing these items of jewellery these were inter-mixed. Therefore, it was physically impossible to determine the purity of gold vis-a-vis each of the item and thus, valuation reports could n....
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....lity of intermixing between these two items of jewellery. 46. That now coming to the GP addition of Rs. 42,25,890/- being part of addition of Rs. 1,47,26,510/-, it is submitted that the AO having accepted the possibility of inter-mixing of gold jewellery items and 18kt at the time of survey is not entitled to say again that there was any negative or positive difference between these items of jewellery particularly accepting the situation that figure of short/excess weight in individual segment compliments each other. In view of acceptance of this possibility and factual situation, the so-called negative stock of jewellery has lost its relevance to say that there was any negative stock in the combined total of these items of the gold jewellery. Therefore, this addition has been made without application of mind by the AO and is in utter disregard of his finding given while making the addition of Rs. 62,66,511/-. The relevant finding of the AO while addition of Rs. 62,66,511/- have already been reproduced above part written submission. 47. That in view of above submissions the addition of Rs. 62,66,511/- and addition of Rs. 42,25,890/- are liable to be deleted and it is prayed so.....
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....ity of intermix cannot be ruled out". In this background he has accepted the situation to take combined weight of diamonds studded in 14kt and 18kt gold jewellery and after combining both these items he has considered and calculated the difference at 723.37 carats which has been valued at Rs. 2,11,27,468/-. 52. That so far as it relates to quantity difference of 723.37 carats of diamonds which were studded in 14kt and 18kt gold jewellery, the assessee had disputed the valuation reports of the Departmental valuers on the issue of counting and measuring the weight of diamonds which was done on estimate basis contending that the net difference of 723.37 carats is attributable to estimation error. It was that there could be no case of excess embedded diamonds as the quantity and weight of diamonds embedded in jewellery is fully corroborated from the inventory maintained. It was also submitted that excess diamonds so calculated by valuers could not have been embedded in the available jewellery. 53. That the AO has rejected all the above submissions/contentions without any application of mind and also rejecting the request of the assessee for seeking clarification from the valuers re....
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.... end of the proceedings. Despite having rejected such contention, Id.AO has observed that view of the fact that the figure of short/excess weight in individual segment complement each other and as such the possibility of intermixing of jewellery cannot be ruled out. Therefore, the AO has accepted that the stock of 14kt and 18ktgold jewellery which also included diamond studded jewellery as part and parcel thereof has to be considered together for the purpose of working out difference which has eliminated the factor of seeing short/excess separately for the purpose of determination of computing short/excess in respect of individual segments of 14kt and 18kt jewellery to enable the AO to make addition either of so-called excess stock found during the course of survey as compared to books or to treat the short stock having been sold outside books of accounts and to workout GP on such so-called sales made outside the books of account. It is due to such elimination of factor the AO has not made any addition segment wise. When segment wise difference has been eliminated between and 18kt diamond studded gold jewellery and the segments have not been treated separately, it is highly arbitra....
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.... on purchase value of diamond by assessee was adopted resulting in arbitrary high valuation. iv. Highly inconsistent approach in weighing and valuation of Polki studded jewellery by both the valuers. In addition to above, the degree/level of estimation involved in valuation also has significant impact while making comparison with recorded stock. Keeping in view the above and object and spirit of the assessment proceedings under the Income Tax Act, it k humbly requested that in the interest of justice and fair assessment, necessary enquiries to ascertain estimation involved, process of valuation etc. may be made from independent sources such as internet, jewellery experts, third party valuers or even the valuers from whom the reports in the present case ore obtained so that the appropriate adjustments could be made to the figures appearing in the valuation report." 40. Referring to the tables submitted before the revenue authorities which are reflected at earlier pages of this order, the ld. AR submitted as under: * As it can be seen that combined weight of 22KT gold jewellery and 22KT polki jewellery is in consonance with the same items of jewellery in the books of account....
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....make an estimate with regard to weight and value, which estimate is bound to differ even if the same person evaluate the same thing at a different time. It is only, in specific circumstances to remove such error in the estimates, the principle regarding acceptance of margin of error tolerance has been recognized as per statutory as well as by the judicial pronouncements. For example, whenever, valuation is made with reference to section 142A of the Act by the valuation officer who is a government functionary, even the courts have held that there is every possibility of variation in the estimating the value and therefore, it has been held that margin of error up to 10% is permissible in the estimate and if the valuation by the assessee falls within 10% margin of error, no addition would be called for. Similar provision is also described in section 50C of the Act wherein as per third proviso permits 10% variation in the consideration received as a result of transfer when it is compared to the value adopted or assessed by stamp valuation authority. Similarly, clause (x) of sub-section (1) of section 56 of the Act also provides margin of 10% of consideration. Looking in to this aspect,....
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....dition of Rs. 2,11,27,468/-, it was argued that his addition is in respect of alleged difference in the weight of diamond studded in the items of 14KT and 18KT gold jewellery which after combining both these items has been calculated in the above table at 723.90KT which have been valued at a sum of Rs. 2,11,27,468/- and the addition has been made. It was submitted that these diamonds are never separated from the gold jewellery in which these were studded. The weight has been extracted from the gross weight of these items of the jewellery. It has been submitted that gross weight of these item of jewellery as per books was 77,962 grams. It is a matter of general prudence that unless, the studded diamonds are separated from the jewellery, its exact weight cannot be ascertained precisely. It is very difficult even for the valuer to state the separate weight of studded diamonds precisely. Thus, the weight stated in the valuation report was only an estimated weight. The assessee had submitted all the details and accounts before the AO and also details regarding all purchases and sales. The accounts of the assessee are audited in which no defect, whatsoever, has been found by the AO, ther....