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2016 (11) TMI 1239 - AT - Income TaxAddition on account of excess stock of Gems - Held that - Admittedly, there are two valuation reports, one given by the valuer appointed by the department and the other one given by the valuer appointed by the assessee. The report of the valuer appointed by the assessee was given to the DDIT (Investigation) on 25-11-2002 which is after the search proceedings. We find there is no reason whatsoever has been given for either accepting or rejecting the said valuation report. Since the valuation report given by Shri Parag Gadgil, the valuer appointed by the assessee, gives the details of weights of the stones, purity of gold, gross/net weight etc. whereas such details are not given in the report of the departmental valuer, therefore, we find no reason why the report of the valuer appointed by the assessee should not be accepted. Since the report given by the valuer appointed by the assessee shows the difference of ₹ 2,21,783/-only, therefore, we restrict the addition to ₹ 2,21,783/-. - Decided partly in favour of assessee Addition on account of the stock of sun glasses, Uktamal, perfumes, watches etc. - Held that - The main grievance of the assessee is that 7% deduction given by the AO on account of bargain which has been upheld by the CIT(A) is very low since these are of fancy items and with the arrival of latest designs these items become obsolete and the assessee allows higher bargaining. It is also the submission of the Ld. Counsel for the assessee that the assessee gives higher discount to VIP and privileged customers. While we find some force in the above argument of the Ld. Counsel for the assessee, however, the plea to allow 25% reduction for bargaining appears to be very high whereas the 7% allowed by the revenue appears to be slightly low. Considering the totality of the facts of the case, we direct the AO to allow 15% reduction on account of bargain as against 7% considered by him which has been upheld by the CIT(A). The AO is directed to recompute the addition accordingly. Addition of unaccounted stock - Held that - No reason in the order of the CIT(A) that shortages are there because of the unaccounted sales carried out by the assessee regularly. Since he has not appreciated that for the unaccounted sales separate addition has been made by the AO, therefore, we find merit in the arguments advanced by the Ld. Counsel for the assessee that the reasoning given by the CIT(A) is devoid of merit. In view of the above, we set aside the order of the CIT(A) and direct the AO to give the set off of the shortage in gold and diamond stock found during the course of search to the extent of excess stock found. According to the Ld. Counsel for the assessee out of the addition of ₹ 59,10,467/- set off of shortage of gold comes to ₹ 29,18,113/- and short of diamond comes to ₹ 19,18,000/- and gold bar of Late Shreepal Ranka comes to ₹ 6,01,520/- leaving net addition of ₹ 4,72,834/- The AO is directed to verify the above and give consequential relief. Addition on unaccounted purchase and sales - Held that - On the basis of the unaccounted purchases and sales found for the period from 21-08-2002 to 24-09-2002 the AO estimated the sales for the entire period from 01-04-2002 to 24-10-2002 on the basis of the sales for 28 days at ₹ 12,22,95618/- and estimated the profit at 13% at ₹ 1,58,98,430/-. So far as the other years of the block period are concerned the AO determined the unaccounted turnover at 5% of the disclosed turnover for F.Y. 1996-1997 to F.Y. 1997-1998 at 7.5% for F.Y. 1998-1999 at 10% for F.Y. 1999-2000 at 15% for 2000-01 and at 25% for F.Y. 2001-02. We find based on the arguments advanced by the assessee the Ld.CIT(A) while upholding the action of the AO in proceeding for estimation of the unaccounted turnover for the block period, however, has given some consequential relief on account of undisclosed turnover. He however upheld the GP rate adopted by the AO. The detailed reasoning given by the CIT(A) while deciding this issue has already been reproduced in the preceding paragraphs. The order of the CIT(A) is quite exhaustive and deals with each and every aspect of the arguments advanced by the Ld. Counsel for the assessee. In our opinion, the order of the CIT(A) is a reasoned one under the facts and circumstances of the case. Therefore, we do not find any infirmity in the same - Decided against assessee Addition of initial investment in unaccounted stock - Held that - CIT(A) while deciding the issue has followed the order of the Tribunal in the case of sister concern of the assessee and since he has also given detailed reasoning justifying the addition made by the AO and since the Ld. Counsel for the assessee could not controvert the factual findings given by the CIT(A), therefore, we do not find any infirmity in the order of the CIT(A) on this issue - Decided against assessee Addition on account of excess stock of gold - Held that - We find the CIT(A) accepted the genuineness of the bill on the ground that the bill issued by M/s. H. Kumar Gems International to the assessee was found in the assessee s premises. Shri Anil Ranka and Shri Omprakash Ranka had also purchased jewellery from the said party which were duly recorded in their books before the date of search. Therefore, the AO should not have disbelieved the bill issued to M/s. Ranka Jewellers Pvt. Ltd. i.e., the assessee. Further, M/s. H. Kumar Gems International had accepted that the jewellery was sold to the assessee and the sale was found recorded in his books of account. M/s. H. Kumar Gems International has given their confirmation. M/s. H. Kumar Gems International is a registered dealer in State and Central Sales Tax Act and the sales tax on this transaction has been paid by M/s. H. Kumar Gems International which are regularly assessed to tax and have disclosed the above transaction in their books of account. - Decided in favour of assessee Adition on account of excess stock of silver when the valuation of the stock was done by a qualified Government valuer - Held that - We find the Ld.CIT(A) considering the submission of the assessee that the weight of plastic bags have not been properly considered by the search party as well as the valuer accepted the contention of the assessee and deleted the addition which has already been reproduced in the preceding paragraph. We find the order of the CIT(A) in the instant case is a detailed and well reasoned one which does not call for any interference from our side. We therefore uphold the same and the ground raised by the revenue on this issue is dismissed.- Decided in favour of assessee Addition on account of undervaluation of stock, when, in fact the Assessing Officer has followed the well established method of valuation of stock - Held that - Since identical ground has been decided by the Tribunal in the case of sister concern of the assessee which has been followed by the CIT(A) while deleting the addition made by the AO on this issue, therefore, in absence of any contrary material brought to our notice against the order of the Tribunal in the case of the sister concern of the assessee on identical issues we find no infirmity in the order of the CIT(A) deleting the addition. - Decided in favour of assessee Agreement to working of the undisclosed turnover - Held that - We find the Ld.CIT(A) in his order has given a finding that the method adopted by the AO and the auditor is faulty because they have not taken into consideration the fluctuation of business normally happening in different months. He, therefore, adopted his own formula and came to the conclusion that since the assessee was indulged in unaccounted transaction, therefore, the method becomes more proximate to determine the profit on the basis of the unaccounted purchases which were systematically recorded by the assessee as against the estimation of turnover by the AO and the special auditor. This reasoned finding of the CIT(A) in our opinion does not call for any interference. Accordingly, the same is upheld - Decided in favour of assessee
Issues Involved:
1. Validity of assessment u/s 158BC(c). 2. Addition on account of excess stock of gems. 3. Addition on account of excess stock of sunglasses, Uktamal, perfumes, watches, etc. 4. Addition on account of unaccounted stock. 5. Extrapolation of unaccounted sales for the entire block period. 6. Addition of initial investment in unaccounted stock. 7. Deletion of addition on account of excess stock of gold. 8. Deletion of addition on account of excess stock of silver. 9. Deletion of addition on account of undervaluation of stock. 10. Working of undisclosed turnover for F.Y. 2002-03. Detailed Analysis: 1. Validity of Assessment u/s 158BC(c): The assessee contended that the assessment u/s 158BC(c) was invalid due to unreasonable prolongation of the search without justification and improper seizure of ornaments. The CIT(A) held the assessment valid. The Tribunal dismissed the general grounds raised by the assessee. 2. Addition on Account of Excess Stock of Gems: The AO added ?8,33,683/- for excess stock of gems based on valuation by a departmental valuer. The assessee disputed this, presenting a lower valuation by another valuer. The CIT(A) averaged the two valuations, reducing the addition to ?5,27,733/-. The Tribunal found merit in the assessee’s argument, accepting the lower valuation and restricting the addition to ?2,21,783/-. 3. Addition on Account of Excess Stock of Sunglasses, Uktamal, Perfumes, Watches, etc.: The AO added ?2,80,553/- based on a valuation considering MRP and reduced margins. The assessee argued for higher bargaining discounts and obsolete stock consideration. The CIT(A) upheld the AO's valuation. The Tribunal found the 7% reduction for bargaining low, directing the AO to allow a 15% reduction. 4. Addition on Account of Unaccounted Stock: The AO added ?79,34,244/- for unaccounted stock found at the residence of the director. The CIT(A) directed verification of certain claims, including stock received from Ranka Jewellers and gold bars under the Gold Bond Scheme. The Tribunal directed the AO to allow set-off for shortages in stock found at the shop against excess stock found at the residence, reducing the net addition. 5. Extrapolation of Unaccounted Sales for the Entire Block Period: The AO extrapolated unaccounted sales for the entire block period based on evidence for a short period, estimating high figures. The CIT(A) found the method partially justified but adjusted the figures, reducing the addition. The Tribunal upheld the CIT(A)'s revised estimation method. 6. Addition of Initial Investment in Unaccounted Stock: The AO added ?7,44,133/- for initial investment in unaccounted stock. The CIT(A) upheld this, referencing a similar case in the Ranka group where the Tribunal had upheld such an addition. The Tribunal found no infirmity in this reasoning and upheld the addition. 7. Deletion of Addition on Account of Excess Stock of Gold: The AO added ?66,73,715/- for excess gold stock, doubting the genuineness of a bill from M/s H. Kumar Gems International. The CIT(A) deleted the addition, finding the bill genuine and supported by evidence from the seller and tax records. The Tribunal upheld the CIT(A)'s detailed reasoning. 8. Deletion of Addition on Account of Excess Stock of Silver: The AO added ?1,76,553/- for excess silver stock, rejecting the assessee’s claim of higher weight for plastic bags. The CIT(A) accepted the assessee’s explanation, supported by the special auditor’s report. The Tribunal upheld the CIT(A)'s deletion of the addition. 9. Deletion of Addition on Account of Undervaluation of Stock: The AO added ?19,97,934/- for undervaluation of stock, rejecting the average cost method used by the assessee. The CIT(A) deleted the addition, referencing a similar case in the Ranka group where the Tribunal had upheld the average cost method. The Tribunal upheld the CIT(A)'s decision. 10. Working of Undisclosed Turnover for F.Y. 2002-03: The AO and special auditor estimated undisclosed turnover for F.Y. 2002-03. The CIT(A) found their method faulty, adopting a more appropriate method considering business fluctuations. The Tribunal upheld the CIT(A)'s revised method. Conclusion: - The Tribunal provided partial relief to the assessee on several grounds, particularly concerning the valuation of excess stock and the method of estimating unaccounted turnover. - Additions based on the AO's estimations were often revised or deleted, emphasizing the need for accurate and fair assessment methods. - The Tribunal upheld the CIT(A)'s decisions where they found the AO's methods unjustified or where the CIT(A) provided a more reasonable approach.
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