2008 (9) TMI 406 - AT - Income Tax

Issues Involved:

1. Addition on account of unaccounted investment in stock of diamonds.
2. Addition on account of valuation of excess stock of 22 carat gold jewellery.
3. Addition on account of valuation of 24 carat gold bars.
4. Levy of surcharge on the tax worked out on undisclosed income.
5. Addition on account of unaccounted stock of 18 carat gold used in diamond jewellery.
6. Unexplained investment in renovation of business premises.

Issue-wise Detailed Analysis:

1. Addition on account of unaccounted investment in stock of diamonds:

The Revenue challenged the deletion of Rs. 52,07,599 on account of unaccounted investment in stock of diamonds. The AO relied on the valuation reports by registered valuers, which showed a significant difference in the value of diamonds. The assessee argued that the weight of diamonds found during the search tallied with the weight as per the books of account, and the valuation was based on cost or market price, whichever was lower. The CIT(A) and the JM accepted the assessee's contention, noting that the quantity of diamonds as per books was 967.05 carats, while the quantity found during the search was 944.63 carats, showing no significant difference. The AM disagreed, emphasizing the lack of a stock register and proper identification of diamonds in the purchase bills. The Third Member agreed with the JM, stating that the assessee had accounted for all loose diamonds in weight and established their purchase price, thus no addition could be made based on valuation differences.

2. Addition on account of valuation of excess stock of 22 carat gold jewellery:

The AO made an addition of Rs. 22,49,930 for excess stock of 22 carat gold jewellery, while the assessee declared Rs. 17,35,000. The difference arose due to the AO not accepting the entire claim of jewellery received for repair and applying a higher labor rate. The CIT(A) allowed relief of Rs. 3,64,930 but sustained an addition of Rs. 1.50 lakh. The JM deleted the entire addition, noting that the assessee had provided confirmations and details of customers whose jewellery was received for repair, and the AO did not bring any adverse material on record. The AM proposed remanding the issue back to the AO for fresh adjudication. The Third Member agreed with the JM on the deletion of Rs. 3,64,930 but remanded the issue of Rs. 1.50 lakh to the AO.

3. Addition on account of valuation of 24 carat gold bars:

The AO valued 40 gold bars found during the search at Rs. 20,29,535, while the assessee declared Rs. 19,78,800 based on the purchase price from SBI. The CIT(A) accepted the assessee's valuation. The JM agreed with the CIT(A), but the AM restored the AO's valuation, stating that the value should be taken as on the date of the search. The Third Member agreed with the AM, confirming the addition based on the search date value.

4. Levy of surcharge on the tax worked out on undisclosed income:

The AO levied a surcharge on the tax calculated on undisclosed income. The CIT(A) deleted the surcharge, following Tribunal decisions that no surcharge is leviable for searches conducted before 1st June 2002. The AM restored the surcharge based on the jurisdictional High Court's decision in Lalit Hosy & Ors. vs. Union of India & Ors. The Third Member agreed with the AM, confirming the levy of surcharge.

5. Addition on account of unaccounted stock of 18 carat gold used in diamond jewellery:

The AO made an addition of Rs. 12,76,352 for unaccounted stock of 18 carat gold, while the assessee declared Rs. 12,28,024. The difference was due to the AO applying a higher labor rate. The CIT(A) accepted the assessee's valuation. The JM agreed with the CIT(A), but the AM proposed remanding the issue back to the AO. The Third Member agreed with the AM, remanding the issue to the AO for fresh adjudication.

6. Unexplained investment in renovation of business premises:

The AO made an addition of Rs. 1,60,401 for unexplained investment in renovation. The CIT(A) deleted the addition, stating that the document was a dumb document and not relatable to the assessee. The JM agreed with the CIT(A), noting that the AO did not make any effort to verify the nature of the documents. The AM proposed remanding the issue back to the AO. The Third Member agreed with the JM, confirming the deletion of the addition.

Conclusion:

The appeal of the Revenue is partly allowed, and that of the assessee is dismissed. The Third Member's decision resolved the differences, with some issues remanded back to the AO for fresh adjudication and others confirmed based on the facts and circumstances of the case.

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