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TaxTMI 
TaxTMI 
TaxTMI 
2023 (11) TMI 1141
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....ppreciated that the stocks found in the deficit in the shops of the appellant, which is almost identical to the extent of stock found and seized in the residence of the appellant's Managing Director Sri R. Ramesh, did not warrant an inference that the appellant has made any such sales outside the books under the facts and in the circumstances of the appellant's case. 2.2 The learned CIT[A] ought to have appreciated that the appellant has established the practice for keeping the stocks of the shops in the residence of the Managing Director based on stock reports given to bankers much before the search and therefore, no inference of any deficit stock or sales made outside the books of accounts can be made under the facts of the case. 2.3 The learned CIT[A] ought to have appreciated that the stock found in the residence of the appellant's Managing Director bear the mark "RR" indicating that the same belonged to the appellant company and even the statement recorded from Sri. R. Ramesh at the time of search in his residence revealed that the stock found in his residence formed part of the stock in trade of the appellant company and therefore, no inference of sale outsi....
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....galore dated 25.3.2014. Later, the case was transferred from Central Circle 1(2) to the ACIT Central Circle-1(1), Bangalore. The assessee e-filed the return on 28.2.2014 in response to notice issued u/s 153A of the Act for the assessment year 2013-14 declaring income of Rs. 5,89,84,460/- being income from business and other sources. 2.1 On 8th Feb. 2013 the department had conducted search and seizure operation at the residence of the assessee company. The department also conducted search and seizure at the residence of Sri Ramesh Ramachandra Rao at No.98: Sathyanarayana Layout, 3rd Stage, 4th Block Basaveshwar Nagar. Bangalore As pointed out in the earlier paragraph that the department had also conducted search at the residential premises of Sri R. Ramesh, Managing Director of the company. the search party there had found the same quantity of gold ornaments in a wooden cupboard in the room of Mr. Ramesh. A statement of Sri Ramesh was also recorded u/s. 132(4) of the IT Act, at his residence and asked about the source of acquisition of the said jewellery / ornaments weighing approximately the same as was found to be deficient stock at the business premises. Sri Ramesh in his deposi....
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....nd in the deficit in the shops, which is almost identical to the extent of stock found in the house warranting an inference that the stocks deficit have been sold outside the books when they were found corresponding extent of stock in the residence of Sri R. Ramesh, the Managing Director where they were seized as not belonging to-him as there was no warrant for initiating such proceedings personally u/s. 132(1) of the Act and no proceedings u/s. 153C was also taken on that count for the assessment year 2013-14 and only a regular assessment has been made contrary to the provisions of section 153C of the Act, which ought to have been invoked if the stock found did not belong to the assessee. 3. Without prejudice to the above, the alleged sale of the stock found in deficit is large enough to telescope the other additions made in the order and therefore, the other additions requires to be deleted y telescoping. 4. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the assessee denies itself liable to be charged to interest u/s. 234A, 234B and 234C of the Act, which under the facts and in the circumstances of the assessee's case deserves to be cancelle....
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....sp; 30 kgs.(40.01 x 85%) The rate of gold jewellery as on 8.2.2013 - Rs. 2867/- per gm. Accordingly, the value of deficit stock works - Rs. 9,74,78,000/- 3.3 Accordingly, he computed the gross profit on this at Rs. 9,74,78,000/- at 6.4% of gross profit worked out the income at Rs. 62,77,583/-. Against this assessee is in appeal before us. 4. The ld. A.R. submitted that even assuming for argument's sake that the search was valid, there was no seizure of any material belonging to the assessee by way of any undisclosed asset or assets acquired by way of any undisclosed income even in the so-called search, which was illegal and therefore, there was no justification to invoke the provisions of section 153A and make an assessment merely because of the search. There was a seizure of certain jewellery and silver items belonging to the assessee, which was taken and kept in the residence of Mr. R. Ramesh, the Managing Director, which came to be seized despite his statement that it belonged to the assessee. It was seized ....
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....g facts and circumstances viz., the search in the residential premises of Mr. R. Ramesh preceded the search in the shops of the assessee company. Even in the preliminary statement before the commencement of search, Mr. R. Ramesh had stated that the jewellery found in his house belonged to the assessee company, which he had brought home for several purposes like hallmarking, repairs, etc. At the time of commencement of the search, the search had not started in the shops of the assessee company. Regular stock books are maintained. It was enquired from the employees about the shortage of stock vis-à-vis the stock books of the company and the employees have categorically stated that the jewellery was taken by Mr. R. Ramesh from time to time and that the assessee should be asked about their whereabouts. During the course of search, the following books were found and were inventorised as under :- [1] Studs approval book - 51/RR [2] Rings and pendent approval and order sample book - 49/RR [3] Approval book - [4] MD approval Book - 8/RR 8/2/2013 4.1 He submitted that the above books go to show the date on which the articles were taken, the barcode number, weight etc. &#....
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....elonged to the assessee and therefore the invocation of section 153C for the assessment years 2007-08 to 2012-13 and not invoking section 153C of the Act for the assessment year 2013-14 in the hands of Mr. R. Ramesh, if their satisfaction were to be genuine and which lacks bonafide and requires to be cancelled. 4.5 Furthermore he submitted that upon receipt of the remand report, the assessee has submitted the following in the rejoinder filed 29/12/2017:- "4. While meeting point no. 6 of the written submission, the learned A.O. had unfortunately stated that during the course of statement u/s 132(4) of the Act, taken from Sri R. Ramesh, at his residence, certain note books, which were inventorised in the shops showing the movement of goods from shop to residence the Managing Director, were not shown to the search party. At the time of giving statement u/s.132(4) of the Act by the Managing Director Sri R. Ramesh, was In his residence and these books were in the shops. Sri R. Ramesh was handicapped by the absence of the books in his residence to support his statement. Broadly, he had stated at the jewellery belonged to the appellant and they were also seized as belonging to the appe....
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.... and on the other hand has simply made sweeping counter allegations. Be it what it may, the stock found in deficit was in agreement with the stock found in the residence. On overall consideration of the matter, the presence of stock in the residence and contemporaneous statement made at the time of search by Sri R. Ramesh, Managing Director and the absence of the stock in the shops unmistakably point out what was found in the residence was the stock found in deficit in the shops. 4.7. He submitted that the learned A.O. has stated that the assessee could not correlate the stock found at the residence with the entries found in the stock register maintained by way of bar coding tags. The A.O. has not understood the difference between bar coding and hallmarking. Whenever new items of jewellery are purchased or sought to be purchased, the assessee insists the supplier to bar code them and hallmark them and supply it and the supplier after hallmarking give them with the certificate and bill for such hallmarking of the hall marking center. At that stage, the name of the purchaser viz., "RR" is engraved on all the items. At that stage, each one of the items although they are hallmarked ar....
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....o keep the portion of the stock of jewellery in the Managing Director's house for security purpose and they are not usually making any entries in the stock register as the keeping of jewellery at shop and keeping of jewellery at residence of Managing Director is the same. Further, it was submitted before us that the search was took place on 8.2.2013. At that time also, the Managing Director has taken a plea that the stock found in his house was belonging to the present assessee. It is also brought to our notice that Chartered Accountants of M/s. B.N. Pai & Company vide their audit report dated 6.1.2013 itself submitted the details of stock and receivables to State Bank of India, SME Rajaji Nagar branch, Bangalore 560 044, inter-alia stated as follows: "CONDITION OF STORAGE: (a) ACCESSIBILITY: All its Branch cum Show Rooms are found located at prominent places in the two strategic locations, viz. Jayanagar and Malleswaram of Bangalore City to appease its Clientele which are easily accessible. Condition of all its Show Room Buildings are found to be strong enough to protect the high value Stocks held inside and Storage of Stocks is found to have been well displayed in the attractiv....
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.... items aggregating to 1.804 kg. which was erroneous in that, it was not properly weighed since it involved about 33,000 items of silverware items weighing about 1008 kgs. approximately and Infinitival point 01 gm. of weight in each one of the items of about 33,000 silverware in all aggregating to 1.804 kg. there could be an error contributing to an apparent excess of 1.804 kg. and therefore, there is no justification in presuming that there was excess stock of Rs. 63,82,942/- liable for assessment as unexplained in the hands of the assessee company and the same requires to be deleted. 7.2 Without prejudice to the above, he submitted that there is no justification to infer that there was any deficit of stock if the stock in the residence of Mr. R. Ramesh, Managing Director, is considered and on that count to hold that they were sold and GP to be estimated and further, the addition made towards GP requires to be telescoped with the other additions made for the year under appeal, as the sole proceeds giving raise to GP addition is large enough to telescope with the other additions made, which ore jottings and dumb materials and no addition requires to be made. 8. The ld. D.R. relied....
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....tion of Rs. 2,33,21,157/- is based on loose slips found during the course of search in case of assessee. According to him, it is an excel sheet wherein the employees of the assessee for their own calculation purpose made various entries and it is nowhere related to the cash expenditure incurred by the assessee. As such, it was not entered in the assessee's books of accounts and when the employees prepared this computation contents for their own purpose, it was not within the knowledge of the assessee. As such, the assessee has not explained the contents therein. At the best, the authorities would have questioned the employees and their statement ought to have recorded and thereafter it must have been confronted to the assessee after giving a copy of the same to the assessee, which has not been done in this case. Hence, no importance could be given to such material collected during the course of search action as this was not supported by any specific material for evidence. He submitted that in so far as the addition of Rs. 2,33,21,257/- made as unexplained cash expenditure u/s 69 of the Act is concerned the ld. AO has only stated that the addition was based on seizure of loose sheet....