9911796707
TMI Blog2008 (9) TMI 406X X X X Extracts X X X X X X X X Extracts X X X X ..... ulars Amount No. (Rs. in lacs) ------------------------------------------------------------ 1. Investment in the purchase of 40 Nos. gold bars. 19.79 ------------------------------------------------------------ 2. Investment in excess stock of 22 carat gold 17.35 jewellery. ------------------------------------------------------------ 3. Investment in excess stock of 10 carat gold 12.28 jewellery. ------------------------------------------------------------ 4. Unaccounted cash found from business premises. 0.64 ------------------------------------------------------------ 5. Investment in the construction of SCO 91-92-93, 28.70 Sector 34, Chandigarh ------------------------------------------------------------ 6. Amount spent on the repair/renovation of H. No. 1.08 598, Sector 8, Chandigarh ------------------------------------------------------------ 7. Excess cash found from the residential premises 1.15 of partners and belonging to the firm. ------------------------------------------------------------ Total undisclosed income in the hands of firm 80.99 including its partners and their family members. ------------------------------------------------------------ 3. The learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the course of search on ad hoc basis without proper application of mind. 3. The upholding of addition of Rs. 1.50 lac being on ad hoc basis is both against facts and erroneous in law and is therefore liable to be deleted. 4. The assessee craves leave to add, to alter or amend the grounds of appeal before the same are heard and disposed of. On the other hand, the Revenue has raised the following grounds: 1. The learned CIT(A) has erred both in law and on the facts of the case on deleting the addition of Rs. 52,07,599 on account of unaccounted investment in stocks of diamond. 2. The learned CIT(A) has erred both in law and on the facts of the case on deleting the addition of Rs. 3,64,930 on account of excess stock of 22 carat gold jewellery. 3. The learned CIT(A) has erred both in law and on the facts of the case on deleting the addition of Rs. 50,735 on account of valuation of 24 carat gold bars. 4. The learned CIT(A) has erred both in law and on the facts of the case on deleting the addition of Rs. 48,328 on account of unaccounted stock of 18 carat gold used in diamond jewellery. 5. The learned CIT(A) has erred both in law and on the facts of the case on delet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action of the learned CIT(A) in deleting the addition is incorrect and the valuation done at the time of search and the value of diamonds was definitely in excess of the value shown as per books of account. Therefore, the AO was justified in making the impugned addition. As regards the inconsistency in the valuation done by the two valuers, the valuation of Sh. Vijay Kumar was acceptable to the assessee. He further stated that the variation in two valuation reports is in respect of one item only and the contention of the assessee that the weight of diamonds found at the time of search tallies with the weight of the diamonds as per the books of account cannot be accepted in the absence of any evidence at the time of search. On the other hand, the learned counsel for the assessee in nutshell supported the orders of the learned CIT(A) by contending that the assessee had been maintaining complete records of the diamonds and the quantity, and as per the books of account, at the time of search, it was 944.63 carats. The quantity as per books of account was 967.05 carats. As per the learned Authorised Representative, the details of the same were part of the seized record. Our attention w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,980 108% --------------------------------------------------------- 354 Rings 23,125 81,25 185% --------------------------------------------------------- 359 L Rings 28,160 12,600 123% --------------------------------------------------------- 360 L Rings 24,450 8,965 173% --------------------------------------------------------- 361 L Rings 35,450 11,495 208% --------------------------------------------------------- Mr. Jain further submitted that the second valuer has not carried out the valuation of all items as is evident from the comparative list where the figures of the second valuer match precisely in rupees with the first valuer which clearly suggests that the second valuer has copied the valuation in respect of the remaining items without actually valuing the same. A strong plea was raised by the assessee that besides these defects in the valuation, it is an accepted principle that the valuation of the stock has to be taken at cost or market price whichever is lower and in this case the assessee produced the evidence in respect of the diamonds found weighing 944.63 carats and has also established the valuation of the same with the supporting purchase vouchers and the inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of diamonds. In the absence of any such material, no addition can be made merely on the basis of valuation. The Allahabad Bench of the Tribunal in the case of V.V.S. Alloys Ltd., wherein there was no material with the Department found against the assessee. Investigations were carried out, post-search to verify the purchases made from suppliers in Surat and Mumbai. There was no evidence whatsoever to show that the assessee had paid underhand cash for the purchase of diamonds. It was held that no addition can be made on account of difference in the valuation of diamonds, where purchases have been duly recorded. This judicial pronouncement supports the case of the assessee. Accordingly, on the basis of above facts, we hold that the learned CIT(A) was justified in deleting the addition made by the AO. Therefore, this ground of the appeal of the Revenue is having no merit. 6. The second ground raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 3,64,930 on account of excess stock of 22 carat gold jewellery. The learned Departmental Representative submitted that the first appellate authority was not justified in giving a relief of Rs. 3,64,930 speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,23,036 by adding a sum of Rs. 1,26,894 on account of labour charges by applying the rate of Rs. 26 per gm., thus, a total addition of Rs. 22,49,930 was worked out. The assessee has disputed the calculation of the AO. As per the assessee, the total weight in excess was only 4,111.85 gms. of 22 carat gold jewellery. The difference of 1,002.380 gms. was on account of jewellery of customers for repair and 315 gms. was personal jewellery of partners and their family members. Submission was also made that the AO has given credit only of 105 gms. on account of customer's jewellery for repairs as against 1,002.38 gms. Further, the assessee applied the labour charges @ Rs. 23.30 per gm. as against Rs. 26 per gm. applied by the AO. Thus, according to the assessee, the total undisclosed income on this count works out to Rs. 17,35,000 as against Rs. 22,49,530 worked out by the AO. It is further seen that the AO worked out the weight of the jewellery available for repair by applying an average formula at 105 gms... However, the fact remains that the assessee has submitted in the form of confirmation and the details of customers whose jewellery was available on the date of search for repair. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of the appeal of the Revenue. 7. The ground No. 3 in the appeal of the Revenue pertains to deletion of addition of Rs. 50,735 on account of valuation of 24 carat gold bars. During the course of search, 44 bars of 24 carat gold weighing 4,664.65 gms. were found as against 'NIL' as per the stock register. The assessee while filing the block return valued the same at Rs. 19,78,800 and accordingly, included it as part of the undisclosed income. The learned AO valued the same at Rs. 20,29,535 by applying the rate of Rs. 435 per gm. on the basis that the same was the prevailing market rate. Thus, there was a dispute in the valuation to the extent of Rs. 50,735. The learned first appellate authority accepted the contention of the assessee and the valuation of these gold bars at Rs. 19,78,800 by giving a relief of Rs. 50,735. The learned CIT(A) accepted the contention of the assessee that these gold bars were part of 65 gold bars weighing 7,584.600 gms. purchased on 17th April, 2001 from the SBI, Chandigarh, for a sum of Rs. 32,15,550. These purchases were duly reflected in the books of account. The assessee issued all the gold bars to the Karigars for making the jewellery in the book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck, whereas the AO gave a credit of 190 gms. only. Further, the AO applied the labour rate of Rs. 26 per gm. as against Rs. 23.30 per gm. mentioned by the assessee. The contention of the assessee was accepted by the learned CIT(A) by deleting the addition. The learned Departmental Representative strongly defended the order of the AO in support of its contention. On the other hand, the learned Authorised Representative submitted that the assessee has done a precise calculation of Rs. 12,28,024 on account of excess stock of 18 carat gold used in diamond jewellery. The calculation of the same is available on p. 24 of the assessment order. While competing the above amount, the assessee has excluded the weight of diamonds and precious stones of 290 gms. (190 gms. + 100 gms.). The AO while doing the computation himself has deducted 190 gms. as is evident from p. 25 of the assessment order. No reasons have been given for taking only 190 gms. by the AO which apparently seems to be a clerical mistake. Further, the rate of labour charges has to be actual rate paid during the financial year 2000-01 against the rate of Rs. 26 per gm. adopted by the AO for the month of April, 2001. We have cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Authorised Representative further submitted that even if it is held that these documents pertain to the assessee, then also the nature of expenditure being repair will be allowable under s. 37(1) of the Act and it will not have any impact on the income of the assessee. In support thereof, the learned Authorised Representative referred to the judgments of the Delhi Bench of the Tribunal in the cases of Raj Sons Jewellers vs. ITO (2004) 86 TTJ (Del) 1106 and Ashish Soni vs. Dy. CIT in ITA No. 273/Del/2001, dt. 7th April, 2006. We have considered the rival submissions and perused the record. We notice that the documents do not mention the name of the assessee. At the same time, the AO has not made any effort and no inquiry was conducted to ascertain the true nature of these documents, specially when addresses of the concerned persons were available. At the same time, we agree with the contention of the learned Departmental Representative, to the extent only that it is the assessee who is to explain about the documents since these were recovered from his possession but at the same time it is the duty of the learned AO to consider the explanation of the assessee and further to exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning grounds are merely prayer, require no deliberation from our side. Therefore, appeal of the assessee is allowed. In the result, appeal of the Revenue is dismissed and that of the assessee is allowed. N.K. SAINI, A.M.: 10th April, 2007 I have the liberty to go through the proposed draft order of learned JM, but I am unable to persuade myself to agree with the conclusion arrived at therein at p. 10, para 5, p. 14 of para 6, p. 19 of para 9, p. 20 of para 10 and p. 21 of para 11. So, I proceed to pass a separate dissenting order. 2. First, I will deal with the Departmental appeal in IT(SS)A No. 48/Chd/2004. 3. First ground of this appeal relates to deletion of addition of Rs. 52,07,599 on account of unaccounted investment in stock of diamonds. 4. Although my learned Brother has discussed the facts in the proposed order but I want to discuss the same separately. 5. The facts in brief are that search under s. 132 was conducted at the business premises of the assessee i.e., SCO Nos. 14-15, Sector 22-D, Chandigarh, and at residential premises of the partners of the assessee firm. Subsequently, notices under s. 158BC were issued to the assessee and the partners of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the close of the immediately preceding accounting year was submitted during the course or search. As per this list the weight of the diamonds came to 1,022.03 carats. This does not include the weight of the diamonds included in item mentioned against 'A old items'. The weight of the diamonds studded in this jewellery based on registered valuer report came to 31.64 carats. As such, the total weight of the diamonds as per the closing stock inventory as on 31st March, 2001 came to 1,053.67 carats. From the above weight of the diamonds as per our books as on the date of search can be arrived at as follows: Weight of diamonds as on 31.3.2001 as 1,053.670 ct calculated above Add: Weight of diamonds purchased during the period from 1.4.2001 to 12.5.2001, purchase value-Rs. 6,730. 2.230 ct Total weight 1,055.90 ct Less: Weight of diamonds in sale value of 88.85 ct Rs. 3,29,650 (i.e., sale as per our books from 1.4.2001 to 12.5.2001). Based on above purchase rate and adding 24% Gross profit as shown in our books for the year ending 31.3.2001 i.e., sale rate of Rs. 3,710 per ct. Weight of diamonds as per our books as on 967.05 ct 12.5.2001. The weight of diamonds found during the search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation done by Shri Vijay Kumar was prima facie accepted by the assessee for limited purpose of ascertaining the value of bank guarantee to be furnished for getting the seized jewellery released. Neither the valuation, done by Shri Vijay Kumar and nor the valuations done collectively by Shri Sudhir Kumar and Shri Surya Kant Jain are acceptable to the assessee because of the following reasons which are apparent from their valuation reports: (a) The difference between the value adopted by different valuers for the same item goes upto 350 per cent. Reference is invited to item No. 246 of the valuation report of Shri Vijay Kumar. The value of diamond studded in a ring has been taken at Rs. 1,500 by him whereas as per valuation report of Shri Sudhir Kumar the value for the same diamonds has been estimated at Rs. 7,200. (b) There are about 253 items out of the total of 546 items valued by both the valuers separately where the difference in the valuation of diamonds studded in individual items is more than 25 per cent, i.e., one-fourth of the value adopted for same diamonds in a particular item. The overall variance in the number of items where the difference in value in individual-it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclude the margin of the middleman as well as that of the manufacturer of jewellery while taking into account the value of the diamond jewellery. Keeping in view the fact that the weight of the diamonds found at the time of search tallies with those as per our books and are duly supported by their purchase bills, it is prayed that no adverse, inference on the basis of the registered valuer's report may kindly be taken." The AO after considering the submissions of the assessee observed that the objections raised were same and similar which were raised before the Dy. Director of IT (Inv.), Chandigarh. He further observed that at the time of search, inventory of stock was prepared and Shri Vijay Kumar, registered valuer, valued the diamond jewellery including loose diamonds at Rs. 1,01,22,942, this value included the value of diamonds and 18 carat gold in which the diamonds were embedded, and after reducing the labour charges along with cost of 18 carat gold, value of diamonds was worked out at Rs. 80,79,720. The AO pointed out that during the course or valuation of jewellery, the assessee objected to the valuation report prepared by Shri Vijay Kumar. Subsequently, two other value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oose diamonds. The AO prepared detailed inventory by making reference to each purchase bill and loose diamonds. The assessee had shown inability to compare purchase or loose diamonds as per purchase bills with the items or diamond jewellery found at the time or search. It was pointed out by the AO that the only description given on the bills was "cut and polished diamonds" and no other information with regard to quality and grade was mentioned on those bills. The AO stated that during the course of search proceedings, a total of 944 carats of diamonds were found. The assessee could not identify the items forming part of the stock on the date of search which according to him would have been available as part of the closing stock as on 31st March, 2001. The AO categorically stated that the assessee had not maintained any quantitative details of closing stock of diamonds and those were not furnished along with return of income filed although it was the requirement of Form 3 CD filed along with return of income. According to him the assessee had failed to correlate the purchases, sales and closing stock of diamonds with reference to stock purchased and in closing stock. The AO pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ease every year. He also pointed out that the gross profit rate in assessee's case was approx. 24 per cent in the last so many years and the fact that the gross profit had remained same or similar in the last 10 years clearly implied that most of the stock which was purchased by the assessee was sold by the end of the year, therefore, the stock which was lying in the closing stock was actually fresh and was not recorded in the books of account. The AO also observed that the jewellery is a fashion drive industry and more so in the case of diamonds where the designs of diamond jewellery frequently change and jewellery more than six months old becomes obsolete. He also pointed out that there was no evidence to the fact that the diamond studded jewellery was remade number of times. According to the AO, the basis of valuation of items of jewellery which were stated as old had not been furnished in spite of the fact that it was specifically asked. 5.4 As regards to the contention of the assessee that some of the items of jewellery were very old and the value of that jewellery increased over a period of time, the AO observed that no details had been furnished with regard to the purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed that type of price valuation (sic-escalation) in any of the year to which the stock was related to be shown. The AO also pointed out that more than 54.50 per cent (Rs. 16,66,525 out of Rs. 30,58,078) of the stock purchased in 2000001 formed part of the diamonds and miscellaneous items mentioned in Parts C and D of the list of closing stock of diamonds found and seized from the assessee firm, so, there could not be much increase in respect of that stock which implied that stock purchased from 1994 onwards to 31st March, 2000 valued at Rs. 13,91,553 had grown to, Rs. 56,13,195 (Rs. 72,79,720 - Rs. 16,66,525), i.e., the value of those diamonds had appreciated by 403 per cent which was an unheard price increase. The AO further observed that as per assessee's books of account, the diamonds were embedded in 2,331.020 gms. of 14 carat gold. However, in fact the entire diamond jewellery was embedded in 5,650.70 gms. of 18 carat gold. Therefore, the variation in the quantum of 14 carat gold and 18 carat gold was almost of 142 per cent which implied that the number of diamonds as actually received and diamonds as actually accounted for differed by more than 142 per cent. The AO pointed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluers by adopting the sale rate prevailing in Chandigarh market as on the date of search whereas the assessee was making the purchases of loose diamonds direct from Surat and Mumbai parties and got jewellery made itself. It was also stated that the margin of profit available to the middleman was ranging between 10 per cent to 15 per cent which was not kept in mind while making the valuation. It was contended that the Departmental authorities have got verified the purchases from Surat and Mumbai during investigation and did not find anything adverse in possession to draw any adverse inference. It was also contended that even the weight of diamonds as per record by and large tallied with the stock taken by the search party. It was pointed out that no evidence was found that the assessee purchased diamond jewellery without recording the same in the books of account and the difference in the valuation was only because of the fact that the different rates had been adopted by different valuers, otherwise there was no difference in the weight of the diamond jewellery found at the time of search and the weight of the diamonds as per books. It was stated that the market rate of diamonds co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2000) 245 ITR 488 (Guj) (ii) CIT vs. Vinod Danchand Ghodawat (2000) 163 CTR (Bom) 432 : (2001) 247 ITR 448 (Bom) (iii) Chander Mohan Mehta vs. Asstt. CIT (1999) 65 TTJ (Pune) 327 : (1999) 71 ITD 245 (Pune) (iv) Samrat Beer Bar vs. Asstt. CIT (2000) 69 TTJ (Pune)(TM) 113 : (2002) 18 IT Rep. 220 (Pune)(TM) (v) P.K. Ganeshwar vs. Dy. CIT (2004) 91 TTJ (Chennai) 970 : (2002) 80 ITD 429 (Chennai) Learned CIT(A) further observed that the valuation in the present case was not the valuation of property and that the valuation of the ova was not valid for block assessment proceedings. Reliance was placed on the following case law: (i) Essem Intra-Port Services (P) Ltd. vs. Asstt. CIT (2000) 68 TTJ (Hyd) 103 : (2000) 72 ITD 226 (Hyd) (ii) Agrawal Motors vs. Asstt. CIT (2000) 66 TTJ (Jab) 130 : (1999) 68 ITD 407 (Jab) (iii) CIT vs. Vinod Danchand Ghodawat (iv) S. Prasad Gupta vs. ITO (2003) 128 Taxman 88 (Del)(Mag) Reference was also made to the judgment of Hon'ble Supreme Court in the case of Smt. Amiya Bala Paul vs. CIT (2003) 182 CTR (SC) 489 : (2003) 262 ITR 407 (SC), wherein it has been held that the Department has got no power to refer a case to the DVO for valuation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tail was prepared on the basis of jewellery found and the addition was made only on actual basis, so, there was no scope of presumptions and conjectures, as such, the learned CIT(A) was not justified in stating that the addition had been made only on the basis of presumption and conjectures. He further stated that the learned CIT(A) simply accepted the version of the assessee and deleted the addition in a slipshod manner, without making any comments with respect to valuation report which was made by the valuers of assessee's choice and was accepted by the partners of the assessee firm which clearly established that the learned CIT(A) had not applied his mind and deleted the addition which was made by the AO on the basis of documents, after making proper verification, considering the inventory prepared at the time of search and stock mentioned in the books of account. So, the value adopted by the AO was the actual value of the jewellery and the addition was rightly made. Learned Departmental Representative for the Revenue reiterated the observations of the AO for making the addition and strongly supported the assessment order passed by the AO. Learned Departmental Representative for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the books of account, could not have been considered as undisclosed Reliance was placed on the judgment of Hon'ble Supreme Court in the case of K.P. Varghese vs. ITO & Anr. (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC). He further contended that the assessee maintained proper books of account in the regular course of business and no finding had been given by the AO that the items mentioned in the books of account were not found during the course of search or there was any difference in the weight. 9.1 As regards to the valuation report by the registered valuer he stated that the valuation report was only an opinion and not the exact value of the diamond jewellery. On the other hand, the valuation made by the assessee was on the basis of purchase bills. It was submitted that while releasing the jewellery the Department was satisfied and the valuation was accepted. So, the addition was rightly deleted by the learned CIT(A). Reliance was placed on the following case law: (i) Gautam Laljibhai Gajjar vs. ITO (1991) 41 TTJ (Ahd) 542 (ii) CIT vs. Ravikant Jain Learned counsel for the assessee submitted that the valuation report by the valuer was not authentic and it was a mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arghese vs. ITO. It was argued that no addition could have been made on account of the difference in valuation of diamonds where the purchases were recorded. He accordingly submitted that the learned CIT(A) was justified in deleting the addition made by the AO. 10. We have heard both the parties and carefully gone through the material available on record. As regards to the facts of this case are concerned, there is no dispute that during the course of search, loose diamonds and diamond jewellery were found from the business premises of the assessee. The inventory was prepared and got valued from registered valuer, Shri Vijay Kumar. That value was found by the assessee as unrealistic and unscientific. Thereafter, another two valuers, namely, Shri Surya Kant Jain and Sudhir kumar were appointed. The valuation done by Shri Vijay Kumar was at Rs. 1,01,22,942 and by other two valuers collectively at Rs. 98.50 lacs. However, the valuation done by Shri Vijay Kumar was accepted by the assessee for limited purposes of ascertaining the value of bank guarantee to be furnished for getting the seized jewellery released. In the instant case, the AO made the addition by invoking the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orked out by Shri Vijay Kumar was at Rs. 1,01,22,942 while the value worked out by the another two valuers of assessee's choice, namely, Shri Surya Kant Jain and Sudhir Kumar, was at Rs. 98.50 lacs. The main objection of the assessee was that there was much difference in the valuation of various items in different valuation reports. However, overall difference was very small. So, it cannot be said that the valuation done by the registered valuers was not authentic or was without any basis. The assessee pointed out that in one item placed at Sl. No. 246, the difference was about 350 per cent. It is noticed that the value adopted by the valuer for the said item was only Rs. 7,200 which was negligible in comparison to the overall value of the diamonds worked out at about Rs. 1 crore. It was incumbent upon the assessee to reconcile the stock found with the stock register as well as books of account. It was also the duty of the assessee to link the diamonds and jewellery found during the course of search item-wise with the purchase bills but it has not been done by the assessee, rather inability was shown by stating that it was not possible to pinpoint item-wise details of the diamonds. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed by the assessee in response to notice under s. 158BC of IT Act. The correctness of the said return of income has to be examined by the AO with reference to the material in his possession having nexus of assessment of undisclosed income which is with him. In the instant case, the onus was on the assessee to prove the correctness of the value of diamond jewellery stock in the books of account. However, the assessee was unable to prove such value since no stock register was maintained and no description of diamonds, item-wise and quality wise, was given in the purchase bills. In such circumstances, the only way to work out the correct value of the jewellery found, was the valuation by the independent expert persons. In the present case the valuation was done by three persons who are expert in this field and the AO has allowed the benefit of assessee's margin and has taken the value after considering the value of old jewellery amounting to Rs. 2,00,600 which the assessee claimed that it was disclosed to the Department. In my opinion, the AO was fully justified in making the addition of Rs. 52,07,599, since learned CIT(A) while deleting the addition has not given any cogent reason. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in doubt but the question of item-wise purchase price on the basis of purchase bills remained unanswered at every stage. Therefore, the only way to ascertain the value was the valuation by an expert and independent valuer which has been got done in this case. The learned CIT(A) also stated that the valuation at market rates by ignoring the cost of purchases made it clear that the valuation had been done on conjectures, estimates and assumptions, especially when there was no difference in the weight. This observation of the learned CIT(A) is also not correct since the valuation was not a mere estimate on assumptions because the valuation which was done by three independent persons, who are experts in this field was almost the same and the assessee was not in a position to produce any evidence that the value worked out by it was based on cost of purchase because in the purchase bills, it was not mentioned that what was the size and quality of the diamonds and how many pieces were there in one packet which is evident from page Nos. 253 to 311 of assessee's compilation which are the copies of invoices and bills. The learned CIT(A) also stated in the impugned order at para 7 that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the AO on account of valuation of excess stock of 22 carat gold jewellery. 12. The facts related to this issue have been discussed by the AO who discussed this issue in detail at para 11 of block assessment order dt. 30th May, 2003. According to him, during the course of search proceedings, inventory of 22 carat gold jewellery was prepared and the total stock was found as under: As per inventory prepared on 14.5.2001 7,437.590 gms. As per inventory prepared on 15.5.2001 45,114.184 gms. and 16.5.2001 --------------- 52,551.774 gms. --------------- The AO further observed that as per books of account and stock register maintained by the assessee inventory was 42,882.84 gms. He therefore worked out the excess stock of 22 carat gold jewellery at 9,668.934 gms. (52,551.774 - 42,882.840 gms.). When questioned about this excess stock, Shri Anil Talwar, one of the partner stated that he did not have any objection regarding the physical stock taking. He further stated that out of this stock approx. 400 to 500 gms. of jewellery belonging to his family was lying at his business premises which had been brought for remaking and no remaking had been done. It was further stated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch operations stated that although item-wise details of stock had not been maintained by the assessee but in order to control the inventory a list of stock inventory, category-wise was prepared by them to ascertain the physical stock in shop as on a given date and the stock had been categorized into 8 categories comprising of bangles, chains, earrings, pendants, rings, sets, ordered items and miscellaneous items. If the stock of gold jewellery found at the time of search was categorized as above, it was found that all the items tallied with the list maintained by the assessee in one category or the other except the stock of miscellaneous items. It was submitted that overall difference in the stock of gold jewellery category-wise came to 4,239.704 gms. whereas the difference in miscellaneous items alone was 4,267.77 gms. It was stated that difference in each category was explainable inasmuch as the items lying separately made on order basis placed by the customers had been mixed under different categories like bangles, rings, chains, etc. while taking the physical inventory of the stock as on the date of search whereas as per list of the assessee, those items were taken separately u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------------------ It was explained that following jewellery was found from the residential premises of the partners and the lockers of the family members during the course of search: ----------------------------------------------- (i) Rajinder Rani Talwar 81.500 gms. ----------------------------------------------- (ii) Neena Talwar 343.600 gms. ----------------------------------------------- (iii) Locker of Neena Talwar 770.980 gms. (PNB Sector-22, Chandigarh) ----------------------------------------------- Total 1,196.080 gms. ----------------------------------------------- It was also explained that the balance jewellery of 315 gms. (1,511.020 - 1,196.080 gms.) was lying in the shop for remaking and accordingly, the same was required to be reduced from the jewellery found from the shop during the course of search. On the basis of aforesaid explanations, the assessee worked out the difference at 4,111.850 gms. The calculation done was as under: Stock as per inventory prepared by the 52,551.774 gms. Department during the course of search Less: Stock of silver jewellery included in above as explained above 4,239.704 gms. Gold jewellery as per inventory dt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per seized page No. 9 of Annex. A-16. The detail of those items was as under: Gold --------------------------------------------------------- 1 Bangles 489 No. 913 pcs 15,783.390 gms. --------------------------------------------------------- 2 Chains 240 No. 240 pcs 4,866.710 gms. --------------------------------------------------------- 3 Ear rings 663 No. 1,226 pcs 3,906.050 gms. --------------------------------------------------------- 4 Miscellaneous 57 No. 57 pcs 239.390 gms. --------------------------------------------------------- 5 Order 20 No. 20 pcs 618.410 gms. --------------------------------------------------------- 6 Pendent 219 No. 219 pcs 1,180.810 gms. --------------------------------------------------------- 7 Rings 534 No. 534 pcs 2,558.770 gms. --------------------------------------------------------- 8 Sets 400 No. 1,200 pcs 15,707.810 gms. --------------------------------------------------------- 9 Sets Kundan 56 No. 168 pcs 3,450.730 gms. --------------------------------------------------------- Total 48,312.070 gms. --------------------------------------------------------- Diamond --------------------------------------------------------- 1 Gents ring 120 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asked the assessee to furnish original register maintained in respect of gold jewellery of customers in the shop to the extent of 1,002.380 gms. However, the assessee had shown its inability to produce the register on the ground that the same was not available. The assessee also stated that such registers were maintained but the same were destroyed in view of the fact that it had no financial implications. The AO pointed out that at the time of search, the assessee was not able to identify the jewellery of customers lying in the shop. As regards to the contention of the assessee that jewellery for repair was also included in the list of stock found in the shop, i.e., list of tagged items and was part of 48,312.070 gms. of jewellery, the AO observed that list of tagged items was the list of stock of assessee for sale in the shop and jewellery received for repair or any personal jewellery could not have been included in the list of tagged items of stock of the assessee unless the same was part of the stock in the trade of the assessee. Therefore, he did not accept this contention of the assessee that the jewellery of customers for repair also formed part of the tagged items. The AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock Rs. 22,49,930.56 The AO also pointed out that the assessee had adopted a rate of Rs. 23.30 per gm. for labour charges on the basis of average labour charges paid in the last year. According to the AO, the record of the assessee for the period 1st April, 2001 to 13th May, 2001 revealed that the assessee was paying Rs. 26 per gm. as labour charges to its Karigars. He also stated that as per the statement recorded on 14th May, 2001 of Sh. Anil Talwar, partner of assessee, labour charges were paid at Rs. 26 per gm. In view of the above the AO made the addition of Rs. 22,49,930 considering the same to be the investment in jewellery found during the course of search at assessee's premises as undisclosed income within the meaning of s. 158B(b) of IT Act. 13. The assessee carried the matter to the learned CIT(A) and submitted that the AO worked out the excess 22 carat gold jewellery at 5,429.230 gm. It was stated that the assessee while making surrender of Rs. 81 lakhs had considered the value of excess stock of 22 carat gold jewellery at Rs. 17,35,000 weighing 4,111.850 gms., thus excess jewellery worked out by the AO came to 1,317.380 gms. for which he adopted the value at Rs. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee's contention that 315 gms. of jewellery of the family was also lying in the shop for modification/remaking, however, the assessee has filed no evidence to this effect. As per practice whenever the assessee firm receives any jewellery from any person, then it is entered in the repair account register. However, no such entry is recorded in its regularly maintained books of account viz. repair account register upto 31st March, 2001. In respect of the later period, assessee has not produced the repair register to prove his claim. In view of the same contention raised by the assessee is not accepted. After considering the above 4,880.544 gms. of jewellery as calculated below is treated as unaccounted stock. The learned Authorised Representative for the assessee objected to the application of the labour rates of a later period to an earlier period. He has also stated that credit for the jewellery declared in the WT returns of the family members should have been given too. After examining the rival submissions, I consider it just and fair to restrict the disallowance to Rs. 1.5 lac under this head basically on account of the lack of confirmations from some of the customers ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the jewellery belonging to the wives of the partners since that jewellery was not present at the business premises of the assessee. He further stated that the contention of the assessee was unrebuttab1e and the explanation offered was rejected by the AO arbitrarily. 16.1 As regards to the jewellery belonging to the customers he submitted that the confirmations were filed from the customers who categorically stated that they had given the jewellery for repairs. Reference was made to page Nos. 362, 364 and 365 of assessee's compilation. It was submitted that the assessee furnished the details of the customers along with addresses from whom jewellery was received for repair. Reference was made to page No. 210 of assessee's compilation. He also submitted that copy of repair register was furnished to the AO which included the names of the customers from whom jewellery was received. He accordingly submitted that since all the details were furnished to the AO, there was no reason to disbelieve the contention of the assessee. 16.2 As regards to the jewellery belonging to the family members, it was stated that jewellery which was found from lockers was weighing 1,196.080 gms. whereas t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yes of law. 17.2 It is well-settled that the order/judgment unsupported by reason is not a judgment in the eyes of law. It is also true that the reasons are the links between the material on record and conclusion thereafter by the Court/appellate authority. It is, therefore, incumbent upon the learned CIT(A) to consider properly the arguments of the assessee as well as findings given by the AO and thereafter he should have made independent findings either in favour or against the assessee. Considering the entire facts of the instant case in my opinion, the learned CIT(A) had not passed proper order in the eyes of law. At this stage, a reference can be made to the decision of Tribunal Ahmedabad Bench in the case of Gujarat Themis Biosyn Ltd. vs. Jt. CIT (2000) 67 TTJ (Ahd) 386 : (2000) 74 ITD 339 (Ahd). The Tribunal, Ahmedabad Bench, while interpreting the provisions of s. 250(6) of the IT Act, 1961 held as under: "The provisions of s. 250(6) provide that the appellate orders of the CIT(A) are to state the points arising in the appeal, the decision of the authority thereon and the reasons for such decision. The underlying rationale of the provisions is that such orders are subje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in considering the labour paid @ Rs. 26 per gm. As mentioned in the former part of this order that the assessee had not reconciled the jewellery claimed to be belonging to the customers and family members with the jewellery found during the course of search and the learned CIT(A) had passed a non-speaking order on this issue, I deem it proper to set aside this issue back to the file of AO for fresh adjudication. 18. The next issue vide ground No. 3 relates to the deletion of addition of Rs. 50,735. 19. The facts related to this issue in brief are that during the course of search 40 number of 24 carat gold bars were found at the shop whereas as per stock register it was nil as on 15th May, 2001. This discrepancy was pointed out to Sh. Anil Talwar, one of the partners of the assessee firm, on 16th May, 2001. He admitted that this bullion was the unaccounted stock earned from unaccounted income in the last number of years and the same would be declared in the return of block period. The AO asked the assessee to explain the source of purchase of those 40 gold bars. He also pointed out that it was not clear whether the undisclosed investment in 40 gold bars of 10 totals each was dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the AO. 21. Learned CIT(A) deleted the addition by stating that there was no justification in adopting the value of 40 numbers of 24 carat gold bars at Rs. 20,29,535 he directed the AO to slash it down to Rs. 19,78,800. Now, the Department is in appeal. 22. Learned Departmental Representative for the Revenue strongly supported the order of AO and submitted that the assessee was in possession of 40 gold bars on the date of search. The AO applied the market rate on the date of search since the gold bars were found on the date of search. It was further stated that the learned CIT(A) has not given any basis for making the deletion of addition made by the AO. 23. In his rival submissions, learned counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the gold bars were purchased from SBI on 17th April, 2001. Reference was made to page Nos. 192 and 193 of assessee's compilation. It was submitted that the assessee issued old accumulated jewellery to the Karigars for making new jewellery and 40 gold bars out of 65 gold bars purchased on 17th April, 2001 remained at the business premises which were found unaccounted duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt voucher book (A-51 of Panchnama. dt. 15th May, 2001) and the corresponding register of gold issue and receipt from Karigars (D. No. A-51 of Panchnama dt. 15th May, 2001), revealed that the assessee had issued gold of 24 and 22 carats for conversion into 22 carat and 14 carat jewellery only and no issue or receipt of 18 ct gold was shown. According to him the entire 18 carat of gold weighing 5,650.70 gms. valuing Rs. 18,13,252 was not recorded in the books of account. He, therefore, asked the assessee to show cause as to why it should not be treated as unaccounted stock of gold. In response to that the assessee submitted that diamond jewellery made of 18 carat gold weighing 5,650.70 gms. was found from the business premises of the assessee during the course of search but there was no stock of jewellery made of 18 carat gold in the books of account and the stock register, instead the jewellery in which the diamonds were studded was shown to be made of 14 ct gold weighing 2,331.020 gms. It was further submitted that the purity of gold jewellery in which the diamonds were studded was changed from 14 carat to 18 carat. However, the relevant entries were not made in the books or acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges which were adopted by the AO at Rs. 26 per gm instead of Rs. 23.30 per gm adopted by the assessee. It was stated that detailed submissions with respect to same had been furnished to the AO. Therefore, the action of the AO was highly unjustified. 28. Learned CIT(A) allowed the claim of the assessee by stating that the labour rates applied by the AO had not been approved while deciding ground No.2 of the assessee. 29. After considering the rival submissions and the material available on record, it is noticed that similar issue, i.e., relating to the application of labour rate, was involved in ground No. 2 of Departmental appeal. Therefore, the findings given therein shall apply mutatis mutandis. In that view of the matter, I am of the opinion that the learned CIT(A) was not justified in deleting the addition made by the AO. Accordingly, the order of learned CIT(A) on this issue is set aside and that of the AO is restored. 30. Next ground vide ground No. 5 relates to deletion of addition of Rs. 1,60,401 made by the AO on account of unexplained investment in renovation of SCF Nos. 14-15, Sector 22-D, Chandigarh. 31. The facts related to this issue in brief are that duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fe, Smt. Neena Talwar at Sector 34, Chandigarh. It was further submitted that undated document had nothing to do with the building renovation undertaking by the assessee and should not have been included as undisclosed income of the block period. 33. Learned CIT(A) after considering the submissions of the assessee, deleted the addition by stating that the dumb document could not be a ground for addition in search assessment. Reliance was placed on the judgment of Tribunal, Chandigarh Bench, in the case of Jagdamba Rice Mills reported as Jagdamba Rice Mills vs. Asstt. CIT (2000) 67 TTJ (Chd) 838. Now, the Department is in appeal. 34. Learned Departmental Representative for the Revenue strongly supported the order of AO and further stated that the assessee had not disclosed the expenses incurred on renovation in the books of account. Therefore, the income was earned outside the books of account which was rightly added by the AO in the hands of the assessee and the learned CIT(A) was not justified in deleting the same. 35. In his rival submissions, learned counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions, learned counsel for the assessee reiterated the submissions made before the authorities below and further stated that the surcharge was not leviable in the cases where the search had taken place before 1st June, 2002. Reliance was placed on the following case law: (i) Mrs. Aruna M. Katara vs. Dy. CIT (ii) Om Parkash Sharma vs. Dy. CIT (iii) Satyabhushan vs. Dy. CIT (iv) V.S. Fabrics & Investment Co. (P) Ltd. vs. Asstt. CIT (v) DCP Windsor (India) Ltd. vs. Dy. CIT (vi) Merit Enterprises vs. Dy. CIT 43. After considering the rival submissions and the material available on record, it is noticed that the latest decision of Hon'ble jurisdictional High Court was not brought to the notice of the learned CIT(A) since the same was not available to him. For that reason he followed the earlier decision of the Tribunal and decided the issue in favour of the assessee. It is also noticed that the Tribunal, Hyderabad Bench 'A' (SB), in the case of Merit Enterprises vs. Dy. CIT decided the issue in favour of the assessee by holding that, "levy of surcharge on Lax on undisclosed income prior to introduction of proviso to s. 113 w.e.f. 1st June, 2002 is riddled with complexity to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee on account of excess stock of 22 carat gold jewellery found at the business premises of the assessee during the course of search on ad hoc basis without proper application of mind." "3 The upholding of addition of Rs. 1,50,000 being on ad hoc basis is both against facts and erroneous in law and is therefore, liable to be deleted." "4 The assessee craves leave to add, to alter or amend the above grounds of appeal before the same are heard and disposed off." "5. It is prayed that the impugned addition sustained by the learned CIT(A) may kindly be deleted on the above grounds of appeal." 46. From the above grounds, it would be clear that the grievance of the assessee only relates to sustenance of addition of Rs. 1.50 lakh. On this issue the Department is also in appeal vide ground No. 2. While deciding issue in the aforesaid appeal of the Department, identical issue has been remanded back to the file of AO for fresh adjudication. In that view of the matter, this issue is also restored to the file of AO for fresh adjudication in accordance with law after providing due and reasonable opportunity of being heard to the assessee. 47. In the result, appeal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Whether on the facts and in the circumstances of the case, the learned CIT(A) erred in law in deleting the addition of Rs. 52,07,599 on account of unaccounted investment in stock of diamonds? (2) Whether on the facts and in the circumstances of the case, the addition of Rs. 1,50,000 out of addition of Rs. 3,64,930 on account of valuation of excess stock of 22 carat gold jewellery is to be sustained or matter is required to be remitted to the AO? (3) Whether on the facts and in the circumstances of the case, the CIT(A) erred in law in deleting the addition of Rs. 50,735 made on account of acquisition of gold bars? (4) Whether on the facts and in the circumstances of the case, surcharge is leviable when the search took place before 1st June, 2002? (5) Whether on the facts and in the circumstances of the case, the addition of Rs. 48,328 made for the alleged unaccounted stock of 18 carat gold used in diamond jewellery is to be deleted or sustained?" 2. During the course of hearing before me both the parties agreed that question No. 2 does not correctly reflect the difference between the Members as the learned Judicial Member (JM) deleted the entire addition and did not sust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to be ignored." 4. In respect of claim of 315 gms. of jewellery belonging to the family members, the assessee relied upon the WT returns of the family members and personal books maintained by them from year to year. The detail furnished was as under: ----------------------------------------------- (Weight in grams) ----------------------------------------------- (i) Shri S.P. Talwar 110.600 ----------------------------------------------- (ii) S.P. Talwar (HUF) 324.390 ----------------------------------------------- (iii) Shri Rajinder Rani Talwar 585.000 ----------------------------------------------- (iv) Shri Anil Talwar 375.200 ----------------------------------------------- (v) Anil Talwar (HUF) 115.830 ----------------------------------------------- Total weight 1,511.020 ----------------------------------------------- 5. It was claimed that in the course of search at residence as well as of locker of family members only 1,196.080 gms. of jewellery was found. The balance 315 gms. (1,511.020-1,196.080 gms.), it was explained, was at business premises. As regard jewellery which was received from customer for repair, it was explained that the same stood included and show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) for not accepting entire claim of jewellery received for repair from customers. (c) for not accepting application of labour charges @ of Rs. 23.30 per gm. claimed by the assessee and applying rate of Rs. 26 per gm. The basis of application of the above labour rate is given in the assessment order as under: "As per statement of Shri Anil Talwar in his statement recorded on 14th May, 2001, assessee is paying Rs. 26 as labour charges against which assessee has adopted a rate of Rs. 23.30 in its calculation based on the average labour charges paid last year. Assessee's records for the period 1st April, 2001 to 13th May, 2001 were also gone through and it is noticed that assessee is paying Rs. 26 per gram as labour charges to its Karigars and on that account labour charges are treated as Rs. 26 per gram for the purpose of making charges of unaccounted gold jewellery." CIT(A)'s observation 9. On further appeal, the assessee once again drew learned CIT(A)'s attention to the claim submitted before the AO which is noted at p. 6 of the order. t was reiterated that the claim of jewellery received for repairs weighing 1,002.380 gms. was duly noted in the repair register for which co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried out both at business as well as residential premises of the assessee. The search was also carried out in the lockers and the inventory of the jewellery prepared by the Revenue also includes the jewellery found on person. In such circumstances, there is no justification in rejecting the explanation given by the assessee by not taking into consideration the total quantity of the personal jewellery. Accordingly, we hold that AO was not justified in not giving credit of 315 gms. on account of personal jewellery and restricting the credit of customer's jewellery to 105 gm as against 1,022.38 gms. claimed and evidenced by the assessee. Further, we notice that the AO was not justified in applying the labour charges @ Rs. 26 per gram against the average rate of Rs. 23.30 per gram worked out on the basis of total labour got done during the financial year 2000-01 without bringing any comparative figures from other persons/jewellers. Therefore, the AO has estimated the labour charges without considering any comparative labour charges of the relevant period from other persons of the related field. Therefore, taking into consideration the above facts, we hold that the AO was not justifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, therefore, incumbent upon the learned CIT(A) to consider properly the arguments of the assessee as well as findings given by the AO and thereafter he should have made independent findings either in favour or against the assessee. Considering the entire facts of the instant case, in my opinion, the learned CIT(A) had not passed a proper order in the eyes of law." 13. The learned AM then referred to the decision of Ahmedabad Bench in the case of Gujarat Themis Biosyn Ltd. vs. Jt. CIT (2000) 67 TTJ (Ahd) 386 : (2000) 74 ITD 339 (Ahd) to emphasise that a speaking order is required to be passed by the learned CIT(A). He further observed that in the present case AO did not consider the contention of the assessee that the jewellery was declared in the WT returns. He also referred to the statement of Shri Anil Talwar dt. 14th May, 2001 relating to labour rate of Rs. 26 as an average. As relevant material was not considered, the learned AM thought it fit to set aside the order of CIT(A) on addition of Rs. 5,14,930 and restore the issue to the file of the AO. 14. I have heard both the parties and also considered the material available on the record. The learned Departmental Represent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing any adverse material on record. 16. As regards jewellery belonging to the members of the family, the assessee had relied upon IT record and WT returns to show that the family members owned jewellery of 1,511.020 gms. with them. On search the Revenue had found in custody of members jewellery weighing 1,196.080 gms. It is well known that when action under s. 132 is taken, every nook and corner of residence, lockers, etc. is searched. After above exercise only 1,196.08 gms. of jewellery was found. The difference of 315 gms. was claimed to be at business premises. It has to be appreciated that all the family members are jewellers and purchase and sale of jewellery is their vocation/trade. Therefore, there is nothing unusual in the family members sending part of their jewellery to the business premises for sale/remodeling, etc. The learned CIT(A) and learned JM in the proposed order have adopted a reasonable approach on the facts and circumstances of the case. I do not agree with the reasoning given by the learned AM to set aside and remand the case back to the file of the AO except on addition of Rs 1,50,000 sustained by the learned CIT(A). The jewellery held by various members o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was rejected. 19. The learned AM did not agree with the above view. He restored the order of the AO with the following observations: "24. We have heard both the parties and carefully gone through the material available on record. It seems that the assessee tried to co-relate the gold bars found unaccounted during the course of search with the gold bars purchased on 17th April, 2001 by taking the plea that old accumulated jewellery was issued to the Karigars instead of gold bars and 40 gold bars remained with the assessee. This explanation of the assessee does not appear plausible since it was claim of the assessee that gold bars purchased on 17th April, 2001 from SBI were entered in the books of account. At the same time, the assessee accepted that 40 gold bars found during the course of search were not recorded in the books of account. So, the stand of the assessee was contradictory. Moreover, no evidence was brought on record to substantiate that old jewellery accumulated was given to the Karigars for making new jewellery. If that was so, then why the assessee adopted the rate which was prevailing on 17th April, 2001, stated to be the date of purchase of 65 gold bars and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et excess weight of 18 ct jewellery 3,029.680 gms. Value of 3,029.680 gms. converted in 24 ct. purity i.e., 2,272.260 gms. @ Rs. 435 per gm. Rs. 9,88,433 Add: Difference in 14 ct and 18 ct rate for jewellery weighing 2,331.020 gms. @ Rs. 435 per gm. for 24 ct purity i.e., @ Rs. 72.50 per gm. Rs. 1,68,999 Value of excess jewellery Rs. 11,57,432 Add: Labour charges @ Rs. 23.30 per gm. on excess jewellery of 3,029.680 gms. Rs. 70,592 ------------- Total value of excess stock of 18 ct gold jewellery found during the course of search Rs. 12,28,024 ------------- 4. The addition on this account, therefore, in any case cannot exceed Rs. 12,28.024. The figure of Rs. 18,13,252 as worked out by the AO is based on surmises and wrong facts and has to be ignored." 23. The AO did not agree with the above calculation and worked out the addition at Rs. 12,76,352 as per the following observations: "(b) Contention raised by the assessee has been considered. As per books of account entire diamond jewellery is shown as embedded in 14 carat gold against 18 carat gold as found during search. All entries in books of account are made on the basis of 14 carat gold. Assessee as stated above has conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leted by the learned CIT(A). 26. On further appeal, the learned JM in the proposed order has concurred with learned CIT(A) whereas learned AM has set aside the impugned order and restored the addition to the file of the AO. 27. The facts relating to addition are as under: A search was carried on business premises of assessee firm and at residential premises of its partners under s. 132(5) on 14th May, 2001. From the business premises, some loose diamonds and jewellery studded with diamonds were found. The value of above stock was taken at Rs. 1,01,22,942 by Shri Vijay Kumar, the approved valuer, as per the following details: "(i) Value of loose diamonds/diamonds studded Rs. 80,79,720 in diamond jewellery. (ii) 18 carat gold used for making diamond Rs. 18,13,252 studded jewellery. (iii) Labour charges: Rs. 2,29,970 --------------- Total: Rs. 1,01,22,942 --------------- The assessee was called upon to explain possession and acquisition of above jewellery. Vide its letter dt. 7th April, 2003, the assessee furnished the following explanation: "The weight of the diamonds found at the time of search tallies with the weight of the diamonds as per our books. A copy of the inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich are noted by the AO at pp. 15 and 16 of the assessment order. The assessee further pointed out that some of the jewellery/diamonds were very old and their cost to the assessee was much less than the value taken on the date of the search. The assessee further stated that loose diamonds were purchased from Bombay and Surat and jewellery got manufactured from local Karigars. This way profit of middleman and manufacturer was saved. The registered valuer had, however, valued diamonds and diamond jewellery at the wholesale price available at Chandigarh. They failed to exclude margin of the middleman as well as that of the manufacturer of the jewellery in the valuation reports. 29. On facts and circumstances of the case, the AO thought that valuation made by Shri Vijay Kumar at Rs. 1,01,22,942 was to be adopted as basis for considering the issue in question. With regard to main contention of the assessee that all the diamonds and diamond studded jewellery found were shown in stock in the books of account, the AO rejected the contention with the following observations: "2. With regard to the assessee's contention regarding number of carat of diamonds in stock and as per valuation r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 3CD filed along with the return. Assessee has failed to correlate the purchases, sales and dosing stock of diamonds with reference to the stocks purchased and in dosing stock. Assessee is not maintaining any stock registers with respect to quantitative details of goods purchased and sold during any year. Even during the course of assessment proceedings assessee was once again asked to furnish such details but the same have not been furnished on the same grounds as stated above." The contention of the assessee that report of registered valuer is mere opinion based on estimation and, therefore, cannot be relied upon for making addition, was rejected. 30. The AO also did not accept the claim of the assessee that in the items found at the time of search, there were many old items which were shown in the list for past several years. Copies of list of closing stock were filed with the AO. The AO held that weight of diamonds was not mentioned in the lists and only value as on 31st March, 1991/31st March, 1992/31st March, 1993 was mentioned. The assessee tried to correlate solitaires found at the time of search with lists filed from time to time having approximate value of Rs. 8 lacs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... --------------------- 6 31.3.1999 1,88,078 351 2,17,548 ------------------------------------------------------ 7 31.3.2000 6,47,167 389 6,75,449 ------------------------------------------------------ 8 31.3.2001 16,66,525 406 16,66,525 ------------------------------------------------------ Miscellaneous items ------------------------------------------------------ 9 31.3.1997 84,061 305 1,11,897 ------------------------------------------------------ 10 31.3.2000 65,836 389 68,713 ------------------------------------------------------ 11 31.3.2001 33,696 406 33,696 ------------------------------------------------------ Total 30,58,078 32,59,243 ------------------------------------------------------ On that basis, if the assessee's contention is considered as correct, then the market value of the diamonds valued by the three valuers would have been in the near vicinity of Rs. 32,59,423 against which they have valued the diamonds at Rs. 72,79,000 (Rs. 80,79,000 - Rs. 8,00,000 of old items slated by assessee). The difference in the valuation made by the valuer "and value of diamonds as worked out based on indexed cost is more than 123 per cent. The diamond trade has not witnessed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 30,41,293 - Rs. 60,800) is made to the income as undisclosed income of the assessee being investment in stocks of diamond from undisclosed sources within the meaning of s. 158B(b) of the Act." This way addition of Rs. 52,07,599 was made for undisclosed investment in stock of diamonds. 33. This addition was impugned by the assessee in appeal before the CIT(A). The assessee in the first place objected to the various valuation reports. It was contended that there was wide variation in the value of different items and, therefore, these reports were not reliable. It was stated that closing stock was valued as per settled principle at cost or at market price, whichever is less and this principle of valuation has been accepted by the Department year after year. The learned CIT(A) noted further the pertinent contentions of the assessee as under: "Also, the appellant firm having been assessed in central circle and for about six years assessments were made under s. 143(3), there are certain items where valuation in closing stock was shown and accepted at about Rs. 2,00,600 in the closing stock whereas value of such items (same items) which were in the stock as on the date of searc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, (b) that the method of valuation of closing stock on the cardinal principle of cost or market price (whichever is less) had been accepted in the appellant's case throughout, (c) that certain items, the value of which in the closing stock as accepted by the Department was about Rs. 20,00,000 have been valued by the valuers at Rs. 8,07,470. (about 4 times higher), (d) that the appellant has been making purchases of loose diamonds directly from Surat and Mumbai (and the Department has verified the purchases and found nothing adverse), (e) that the valuation at market rates by ignoring the cost of purchases (which is fully evidenced by the purchase invoices), makes it clear that the valuations have been done on conjectures, estimates and assumptions, especially as there is no difference in weight; only in the rates applied. 7. In view of the inexorable logic of the above discussion, and respectfully following the spate of judicial pronouncements on this issue, this ground of appeal is decided in favour of the appellant, and the AO is directed to delete the addition made in this regard. This ground of appeal, therefore, succeeds." 35. The Revenue and the assessee both app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not agree with the above view of the learned JM. He re-examined the orders of the AO and CIT(A). He was of the view that impugned order of CIT(A) is cryptic and non-speaking. He restored the addition made by the AO, with the following observations: "10. We have heard both the parties and carefully gone through the material available on record. As regards to the facts of this case are concerned, there is no dispute that during the course of search, loose diamonds and diamond jewellery were found from the business premises of the assessee. The inventory was prepared and got valued from registered valuer, Shri Vijay Kumar. That value was found by the assessee as unrealistic and unscientific. Thereafter, another two valuers namely, S/Shri Surya Kant Jain and Sudhir Kumar were appointed. The valuation done by Shri Vijay Kumar was at Rs. 1,01,22,942 and by other two valuers collectively at Rs. 98.50 lacs. However, the valuation done by Shri Vijay Kumar was accepted by the assessee for limited purposes of ascertaining the value of bank guarantee to be furnished for getting the seized jewellery released. In the instant case, the AO made the addition by invoking the provisions of s. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rked out by Shri Vijay Kumar was at Rs. 1,01,22,942 while the value worked out by the another two valuers of assessee's choice, namely, S/Shri Surya Kant Jain and Sudhir Kumar, was at Rs. 98.50 lacs. The main objection of the assessee was that there was much difference in the valuation of various items in different valuation reports. However, overall difference was very small. So, it cannot be said that the valuation done by the registered valuers was not authentic or was without any basis. The assessee pointed out that in one item placed at serial No. 246, the difference was about 350 per cent. It is noticed that the value adopted by the valuer for the said item was only Rs. 7,200 which was negligible in comparison to the overall value of the diamonds worked out at about Rs 1 crore. It was incumbent upon the assessee to reconcile the stock found with the stock register as well as books of account. It was also the duty of the assessee to link the diamonds and jewellery found during the course of search item-wise with the purchase bills, but it has not been done by the assessee, rather inability was shown by stating that it was not possible to pinpoint item-wise details of the diamo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nished by the assessee in response to notice under s. 158BC of IT Act. The correctness of the said return of income has to be examined by the AO with reference to the material in his possession having nexus of assessment of undisclosed income which is with him. In the instant case, the onus was on the assessee to prove the correctness of the value of diamond jewellery stock in the books of account. However, the assessee was unable to prove such value since no stock register was maintained and no description of diamonds, item-wise and quality-wise, was given in the purchase bills. In such circumstances, the only way to work out the correct value of the jewellery found, was the valuation by the independent experts persons. In the present case, the valuation was done by three persons who are experts in this field and the AO has allowed the benefit of assessee's margin and has taken the value after considering the value of old jewellery amounting to Rs. 2,00,600 which the assessee claimed that it was disclosed to the Department. In my opinion, the AO was fully justified in making the addition of Rs. 52,07,599, since learned CIT(A) while deleting the addition has not given any cogent re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not in doubt but the question of item-wise purchase price on the basis of purchase bills remained unanswered at every stage. Therefore, the only way to ascertain the value was the valuation by an expert and independent valuer which has been got done in this case. The learned CIT(A) also stated that the valuation at market rates by ignoring the cost of purchases, made it clear that the valuation had been done on conjectures, estimates and assumptions, especially when there was no difference in the weight. This observation of the learned CIT(A) is also not correct since the valuation was not a mere estimate on assumptions because the valuation which was done by three independent persons, who are experts in this field, was almost the same and the assessee was not in a position to produce any evidence that the value worked out by it, was based on cost of purchase because in the purchase bills, it was not mentioned that what was the size and quality of the diamonds and how many pieces were there in one packet which is evident from page Nos. 253 to 311 of assessee's compilation which are the copies of invoices and bills. The learned CIT(A) also stated in the impugned order at para 7 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and I have heard both the parties and examined the material available on record. The learned Departmental Representative submitted that assessee was not able to show that loose diamonds and diamonds found studded in jewellery were recorded in the books of account regularly maintained by the assessee. No quality or size was mentioned in the purchase vouchers and, therefore, identification of diamonds found at the time of search was not possible. Size or quality or other description was necessary for proper identification. Even assessee could not relate that a particular diamond was purchased with reference to a particular bill. She also emphasized that assessee did not maintain any stock register to account for diamonds purchased and sold or available at any given point of time with reference to quality or other characteristics of diamonds. She read out the relevant portion of the assessment order. She also read out the following finding in the proposed order of JM: "Further, the assessee had established its valuation which he is doing on cost basis with the purchase invoices, no such discrepancies have been pointed out or found in those documents." 37.1 It was vehemently conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Revenue was that purchase bills filed by the assessee do not disclose quality or other distinctive features of the diamonds purchased. He referred to the reports of the registered valuers produced by the Revenue to show that quality or size was not mentioned even in those reports and only weight was given. This clearly shows that information sought by the Revenue cannot be maintained in respect of large quantity of diamonds. The assessee has tallied weight of loose diamonds and diamond studded articles with reference to purchases in books of account. As per the practice, diamonds are purchased in packets and in the purchase bills, total weight of diamonds in carats, and rate per carat is only given. The rate charged varies from item to item depending upon the quality of the diamonds. The assessee had purchased diamonds, at different rates which clearly showed that different quality of diamonds were purchased. Revenue's evidence in the shape of valuation reports shows that quality, etc. or other distinguishing features are not mentioned in purchase bills of diamonds. Shri Jain further pointed out that certain old items of jewellery having value of Rs. 2,00,600 were being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gistered valuers in this case relating to loose diamonds and diamond jewellery found at the time of search are correct and reliable. As noted above, first registered valuer fixed value of jewellery at Rs. 1,01,22,942. The valuers who valued it subsequently had fixed the value at Rs. 98.50 lacs. There is large variation if two reports are compared item to item. But, above variation, in my humble opinion, is not material as it is admitted by both the registered valuers that they have valued the loose diamonds and diamond studded jewellery at the rate at which they would have got these diamonds on the date of the valuation. This is specifically stated by these valuers at pp. 31 and 32 of the paper book. So, these valuers had valued diamond jewellery at the rate at which its purchase was possible on the date of search/date of valuation. The case of the assessee, on the other hand, is that as per system of account regularly followed by the assessee, these items have been valued in the closing stock from year to year at cost or market rate, whichever is less. In support of its claim, the assessee relied upon copies of closing stock inventory filed along with the IT returns from 1992-93 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awn that different quality of diamonds were purchased. However, in the purchase bill, quality, grade or other distinctive features of diamonds purchased are not given nor these features are available in the sale bills and, therefore, it is not possible for the assessee to demonstratively show and satisfy the Revenue that each diamond found was purchased through a particular purchase bill. The case of the assessee had been rejected on the ground that features insisted upon by the Revenue are not available in the purchase bills. In other words, case had been rejected for not producing evidence, which is not available with the assessee. Shri Jain is also correct in pointing out that such individualistic characteristics like colour, luster, quality, grade, etc. are not shown even in the two valuation reports obtained by the Revenue from their three registered valuers. 42.1 In my considered opinion, no inference of "undisclosed income" is possible in this case when assessee has accounted for all loose diamonds in weight in the regular books of account. With reference to weight of diamonds in carat, which, in my humble opinion, is the normal practice, the assessee has been able to show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of Rs. 16,66,525 was purchased only in the year ending 31st March, 2001. The search had taken place on 14th May. 2001. Having regard to proximity of time, there should not be much variation in the valuation of these items whether taken at cost or at market rate. The purchase of the assessee without a dispute is supported by the authentic purchase vouchers which were found at the time of search along with details of closing stock as on 31st March, 2001. Verification of purchases was also carried. In spite of the verification of claim, jewellery had been taken as unexplained because of faulty valuation reports, valuing jewellery at different figures. Dispute raised on acquisition of above items for lack of distinctive features in the purchase bills is totally unjustified. 44. The weights of the other items in the lot found also admittedly tally with the weight reflected in the books and in purchase vouchers. The purchase vouchers duly show that different quality of diamonds were purchased from time to time. Their value was duly reflected in the closing stock filed with the Department for 10 years prior to the search. It may not be possible for a layman to identify that a par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntend after employment of long hurdle like search that diamonds shown by the assessee as purchased were kept elsewhere and are not diamonds which were found at the time of search. There is no justification to treat these diamonds as "undisclosed" when quantity in weight has been fully disclosed and accounted for. 45. I have already referred to the observation of learned JM accepting the case of the assessee. I find that even learned AM, in some portion of his order, has accepted assessee's version. This is what he has observed at the end of para 10 of his order: "In the instant case, the dispute was not related to the quantity but to the valuation of diamonds and the assessee miserably failed to adduce proper evidence to establish that the valuation of stock taken by it was the correct value which was based on the purchase invoices, therefore, the AO in such peculiar circumstances was fully justified in adopting the value worked out by the valuers of assessee's choice, particularly when the partner of the assessee firm who is also working partner, agrees for the same. I, therefore, in the light of the above, discussion, propose to set aside the order of learned CIT(A) and to re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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