2020 (3) TMI 172 - AT - Income Tax

Excess stock found as per valuation made by the Departmental Valuer at the time of survey - HELD THAT - It is pertinent to note that survey was conducted on 25-11-2014 and Departmental Approved Valuer has valued the stock as per his valuation report dated 25-11-2014 27-11-2014 whereas the assessee filed the valuation report dated 29-11-2014 which is after two days of the valuation report of the Departmental Approved Valuer, though the same was submitted before the ADIT on 16-12-2014. It is not a document prepared by the assessee but it is a report of the registered valuer and therefore, if there is any delay in filing the same with the ADIT then it would not change the material fact as pointed out in such report. Accordingly, we do not concur with the view of the ld. CIT(A) to reject the valuation report of the Registered Valuer filed by the assessee. The assessee has clearly pointed out that the Departmental Approved Valuer has applied very high rate instead of cost of purchase of stock and further the purity of the gold in the articles/ jewellery was also not considered correctly but a standard 22 Carat purity was taken by the Departmental Approved Valuer. These facts as pointed out by the assessee have substance and merits when there was no discrepancy found in the quantity of the stock at the time of survey. Accordingly, in the facts and circumstances of the case the addition is based only on the higher valuation done by the Departmental Approved Valuer as against the valuation recorded by the assessee in the books of account and purchase bills. Further, some of the stock is also from the opening stock of the assessee and to that extent no addition can be made on account of higher valuation as the undervaluation, if any would not affect the income of the assessee being part of both sides of profit and loss account. Hence, the addition made by the AO and sustained by the ld. CIT(A) is deleted. Unverifiable purchases - HELD THAT - Non-production of parties cannot be a reason for holding the transaction as unverifiable. Even otherwise the AO has not given the conclusive findings that these purchases are not genuine. It is only a suspicion and doubt about the genuineness of purchases that too for want of non-production of parties. Further, once the Department has examined the stock of the assessee and no discrepancy was found as far as quantity on account of opening stock, closing stock and sales then the purchases of the assessee cannot be doubted. Accordingly, in the facts and circumstances of the case, the addition made by the AO is highly arbitrary and unjustified which is deleted. - Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Valuation report of the departmental valuer.
2. Objections raised by the assessee regarding valuation.
3. Addition on account of excess stock found during the survey.
4. Addition on account of unverifiable purchases.

Issue-wise Detailed Analysis:

1. Valuation Report of the Departmental Valuer:
The assessee contested the valuation report prepared by the Departmental approved valuer, arguing that it was based on incorrect facts and incorrect rates for various items of jewellery. The Departmental valuer assumed a 22-carat gold purity for all items, whereas the actual purity varied between 4, 9, and 17 carats, with only a few items being 22 carats. Additionally, the valuer mistakenly valued yellow sapphire olka (pukhraj) as diamond polka, leading to inflated valuations. The assessee pointed out these discrepancies immediately after the survey and submitted a valuation report from a Registered Valuer, which was not considered by the AO or CIT(A).

2. Objections Raised by the Assessee Regarding Valuation:
The assessee's objections included the incorrect assumption of gold purity and the misclassification of gemstones. Despite these objections being raised promptly, neither the Investigation Wing nor the AO verified the correctness of the facts highlighted by the assessee. The CIT(A) dismissed the valuation report of the Registered Valuer citing a delay in submission, which the tribunal found unjustified since the report was prepared shortly after the Departmental valuer's report and the delay in submission did not alter the material facts.

3. Addition on Account of Excess Stock Found During the Survey:
The AO made an addition of ?1,17,80,068 based on the valuation of excess stock found during the survey. The assessee argued that after considering unrecorded purchase bills amounting to ?1,11,26,742, there was no significant variation in stock quantity. The tribunal noted that the Departmental valuer used current market rates or rates from sale bills instead of cost price, which is contrary to standard accounting practices. The tribunal found merit in the assessee's argument that the valuation difference was due to higher rates applied by the Departmental valuer and not due to actual excess stock. Consequently, the addition was deemed unjustified and was deleted.

4. Addition on Account of Unverifiable Purchases:
The AO treated purchases amounting to ?12,66,540 as unverifiable because the assessee could not produce the suppliers for verification. The assessee provided confirmations, PAN details, addresses, and proof of payments through banking channels for these purchases. The tribunal held that the AO should have used his authority to summon the suppliers or verify their existence through other means rather than penalizing the assessee for non-production of the suppliers. The tribunal emphasized that non-production of parties alone cannot render purchases unverifiable, especially when documentary evidence supports the transactions. Therefore, the addition for unverifiable purchases was also deleted.

Conclusion:
The tribunal allowed the appeal of the assessee, deleting the additions made on account of excess stock and unverifiable purchases. The judgment emphasized the importance of proper valuation methods and the necessity for the AO to verify facts before making additions. The tribunal criticized the lower authorities for not considering the Registered Valuer's report and for relying on the Departmental valuer's inflated valuation. The order was pronounced in the open court on 18/02/2020.