9911796707
TMI Blog2011 (6) TMI 947X X X X Extracts X X X X X X X X Extracts X X X X ..... several premises belonging to the members of RMC Group whose one of the members is the Assessee-company. 4.1. During the course of said search, inter alia, stock was found at the premises of the Assessee-company. The valuation of stock so found was done by a Registered Valuer as per the following details - S.No. Location where Stock was Found / Premises Amount (Rs.) 1 14, Vishnupuri, Jagat Pura Road, Jaipur 6,67,17,662/- 2 14A, Vishnupuri, Jagat Pura Road, Jaipur 6,54,800/- 3 696, Pano Ka Dariba, Subhash Chowk, Jaipur 9,45,50,000 /- TOTAL 16,19,22,462 /- The value so calculated by the Department's Valuer was compared with the value disclosed by the Assessee-company in its books of account at ₹ 5,14,00,000/which revealed that the Assessee-company had huge amount of stock which was not disclosed in the books of assessee totaling to ₹ 11,05,22,462/- 4.2. The Assessee-company, in its Return of Income for AY 2008-09 had declared an income amounting to ₹ 4,21,00,000/- only on account of excess stock, therefore a letter was issued by the AO dated 19.01.2009 wherein the assessee company was required to explain the following: "In the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bhash Chowk, Jaipur at ₹ 4,00,00,000/- instead of ₹ 9,45,50,000/- as valued on 23.08.07 vide annexure B(page No.1) of even date. However, the assessee company had failed to furnish any documentary evidence in respect of such an acceptance of value at ₹ 4,00,00,000/-. c) Further in support of its claim of value of stock at ₹ 4,00,00,000/- the assessee company has not furnished even a single documentary evidence which can establish the fact the value of the said stock was ₹ 4 crore and not ₹ 9,45,50,000/- in absence of documentary evidence to that effect, the claim of the assessee company is based merely on the wishful thinking and conjecture. d) It is pertinent to mention here that the valuation of stock was done in the presence of Panchas and none of the panchas has reported that there were discrepancies in the valuation process. It only goes on to establish that the assessee is trying to raise an issue on which it could not even at the time of search and later on during the course of assessment proceedings, produce any documentary evidence in its support. e) It is pertinent to mention here that in respect of valuation of stock found at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee that stock was valued at market price at the time of valuation during the course of search on 23.8.07 and therefore the surrender of ₹ 5.59 crore on account of excess stock includes an element of profit of ₹ 1.38 crore and therefore a declaration of ₹ 4.21 crore has been made in its return of income for A.Y. 2008-09 is blatantly wrong since Sh. Champa Lal Choudhary, the Managing Director of the assessee company in his reply to question 7 had categorically accepted cost value of stock found at the various premises of the assessee company. According to his reply, the value of stock was taken on the basis of its cost and not the market price. b) Nowhere in their statement(s) Shri Champa Lal Choudhary or any other employee of the assessee company has claimed or stated that the value of stock was calculated by the registered valuer on the basis of market price and not on the basis of cost. c) Shri Champa Lal Choudhary and others have unambiguously accepted the valuation of the stock done by the registered valuer by appending their signature to their acceptance of the said valuation. Nowhere has it been mentioned that valuation was done by taking market pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e objected to the notice of the Ld. AO and requested for the consideration of stock at S. No. 1, 2 & 3 only in the case of assessee. 5.2. During the course of search proceedings loose papers / documents and books of accounts of assessee company and other group concerns were also seized and the statements of various other persons including directors, their relatives and employees were also recorded. A request for the supply of the copy of the same was made to the ADIT - III, Jaipur on 17.10.2007 in response to which copies of certain documents / loose papers were supplied to the assessee by the ADIT and the assessee was directed to obtain the remaining copies of the seized documents and the statements from the concerned assessing authority with whom the cases of the assessee group were centralized. Thus the assessee vide letter dated 07.02.08 had made a request for the supply of the remaining documents / statements to the assessing authority i.e. the ACIT, Central Circle - 2, Jaipur which request was followed by the reminders: S.No. Date of reminder 1. 11.03.2008 2. 23.05.2008 3. 06.08.2008 4 27.01.2009 After the Vigorous follow up and repeated request in person the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant to note that in the assessments of the taken over concerns namely M/s Akash Gems and M/s Vasundhara Gems as well as in the assessment of assessee company these valuations of the stock alongwith the sale and purchase vouchers no doubtful express by their Assessing Authorities. 5.5. The stock as purchased by the erstwhile firms M/s Akash Gems and M/s Vasundhara Gems which were taken over by the assessee was duly incorporated in the stock registers seized and with regard to their actual cost, we have already submitted the necessary bills, according to which the cost has been worked out at ₹ 11,24,150/-. However, to purchase the peace the total excess stock of ₹ 4.21 crores was offered as additional income in the return of income filed u/s 153A of the Income Tax Act, 1961. 5.6. It is further submitted that the departmental valuer had valued the stock available at 696, Pano Ka Dariba, Jaipur at ₹ 9,45,50,000/- by taking the value of goods (per Kg.) as under: 1. Amethyst ₹ 8000/- per Kg. [8550 Kg. - ₹ 68400000/-] 2. Rose Quartz ₹ 6000/- per Kg. [250 Kg. - ₹ 1500000/-] 3. Citrine ₹ 5000/- per Kg. [600 Kg. - ₹ 3000000/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation of the stock available at 696, Pano Ka Dariba, Jaipur stated by Shri Champa Lal Choudhary at ₹ 4.00 crores carries a final assertion by the director of the company Shri Champa Lal Choudhary and the department proceeded no further in the matter which is a conclusive proof that such a valuation was acceptable to the department. 5.8. Ld. AO has further tried to slip out of the onus casted upon him when assessee has submitted the complete reconciliation of the stock available as per books and quantified by the search party with the help of the stock records and submits the necessary bills. If the reconciliation of stock was examined by the Ld. AO in proper manner, he would not make remarks like made in para 'g' at page 7 of the order that "……. In other words as per the details furnished by the assessee company, the stock of 8550 Kg. of Amethyst found at said address was never part of its declared stock similar is the status of other item of store found at the said address 696, Pano Ka Dariba, Subhash Chowk, Jaipur." The aforesaid observations are patently wrong as during the course of assessment proceedings as per the reconciliation statement submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search wherein in answer to Q. No. 4 he categorically says that "he disputed the valuation done on the date of search". 5. The stock so valued by one single valuer was placed at three different places, addresses of which are as below: a) 14, Vishnupuri, Jagatpura Road, Jaipur b) 14-A, Vishnupuri, Jagatpura Road, Jaipur c) 696, Pano Ka Dariba, Subhash Chowk, Jaipur The departmental valuer cannot be so competent that in such a short span of time he has quantified the entire goods with that much of accuracy as if he was weighing raw iron instead of precious and semi precious stones. Thus it is apparent that the stock was inventoried and weighed in gross manner and cannot be accepted remotely which would further fortified by the following few mistakes made in the quantification of the stock. a) The valuer has measured the gross and net weight of Tourmaline at 28285.040 Kg and 25861.300 Kg respectively, found the difference of more than 2000 Kgs in the weight which could occurred only due to the packing material however, in the case of precious stone like tourmaline total gross quantity if stored in plastic bags of having average capacity of 50Kg each, the total bags ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of search, the reference to the entire record is not possible and therefore, it cannot be hold that whatever stated is to be taken "as it is" since the assessee in every possible manner had been able to substantiate its claim, further the assessee only after receiving the complete stock inventories had been able to make the necessary link and reconciliation and after all the exercise it has came to surface that the stock valued at the time of search was valued at prevailing market rate. The Ld. AO has neither doubted the purchases nor sales and the results declared by the assessee have been accepted, thus the gross profit declared is tacitly accepted by him, thus in the circumstances the addition of ₹ 1.38 crores deserves to be deleted. 7. Thereafter copy of written submissions filed on behalf of the assessee were sent to the AO and the AO has sent his remand report which is discussed by ld. CIT (A) in his order in para 2.3 at page 13. The AO more or less has supported the assessment order. Thereafter, ld. CIT (A) considering the submissions and perusing the material on record along with the submissions of the assessee as well as remand report of the AO gave his findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by the A.O. The total value of the physical stock at these premises were determined at ₹ 16,19,22,462/-. The argument of the appellant is that the valuation of stock done at 696, Pano Ko Dariba, Subash Chowk is quite excessive. The appellant has pointed out that same was objected at the time of search itself. The A.O. has considered the argument. It has been observed by the A.O. that the valuation as done by the registered valuer and registered valuer is an expert. As regards objection of the valuation done by the registered valuer, A.O. has observed that the appellant has earlier also objected to the valuation of certain items of stock found at 14, Vishnupuri, Jagatpura, totaling ₹ 82,25,000/- and considering the strong objection of the appellant, the same was got revalued by the department in the presence of the directors of the appellant. After revaluation, its value came to ₹ 79.27 lakhs, which was duly accepted by the Managing Director Sh. Champa Lal Choudhary of the appellant company in his statement recorded during the course of search. Thus the A.O. has rightly pointed out that the percentage error is merely 3.6% and hence the allegation of the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out that Sh. C.L. Choudhary, M.D. of the appellant company in his reply to question 7 has categorically accepted "cost value" of the stock fond at the various premises of the appellant company except the value of stock at 696, Pano Ka Dariba. On perusal of statement dated 27.08.07 of Sh. C.L. Choudhary, particularly answer to question No. 7, it was noticed by the undersigned that he has stated as follows:- "Whatever stock was fond during the course of search in the different premises of the appellant, the cost value of the same is as below:- i Stock found at 14, Vishnupuri ,Jagatpura Road ₹ 6.67 crore ii Stock found at 696, Pano ka Dariba ₹ 4.00 crore a. Stock found at 14-A Vishnupuri Jagatpura Road ₹ 0.06 crore Total Stock ₹ 10.73 cr. Thus it is clear that the stock found at other two places has already been accepted to be valued at cost price. Regarding valuation of stock found at 696 Pano Ka Dariba, the M.D. Sh. C.L. Choudhary has stated in answer to question No. 6 that the valuation has been done at very higher value considering the present market value of the various rough stocks. Accordingly argument of A.R. of appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the stock found at Pano-kaDariba as well as stock found at other two premises should be revalued. It was further explained that the stock found at other two places were re valued and difference in valuation was found by the valuer deputed by the department. However, where substantial stock was found no revaluation was made for the reason known to the search party. It was not a case that search was completed in one day as the same was going on for five days and revaluation could have been done very easily, neither the contention of the assessee was accepted nor the revaluation was done by the department. It was further submitted that though the stocks found at the premises at Pano-ka-Dariba was purchased for meager amount of ₹ 11,00,000/- or odd, however, due to compelling circumstances and due to ignorance of directors it was stated that the cost (lagat) of stock found at Pano-ka-Dariba was about ₹ 4,00,00,000/- and it was explained that after admission of this fact the departmental authority did not do anything further as they were convinced by the valuation of stock disclosed by the assessee at that point of time. This fact was brought to the notice of the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the departmental valuer has been made of these items. Therefore, it cannot be said that some other material was found or the purchase vouchers produced by the assessee were of some other material. All the materials were purchased through proper banking channel as the payment on account of these purchases were made through account payee cheques. Therefore, this is not a case of manipulation of closing stock as there is no difference in item and quantity. 10.2. To buy peace, the assessee has admitted cost of these stocks at ₹ 4,00,00,000/- and the same has been disclosed in the return filed under section 153A. Therefore, the bonafide intention of the assessee should have been accepted by the AO while completing the assessment. There is no adverse material against assessee for holding that the closing stock found during the course of search was not same which was entered in the stock register which is supported by the valid purchase vouchers, neither any verification was made from the selling parties nor any other material was brought on record to hold otherwise. It was also submitted that the bonafide intention of the assessee is proved from its act that no benefit of the hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the reason that this was the major portion of the stock found during the course of search which was not shown by the assessee in his account as per the contention of the search party, it was submitted by ld. CIT D/R that revaluation of the stock found at other two places were already made and there was a minor difference of ₹ 3 lacs to ₹ 4 lacs. Therefore, no useful purpose would be served in revaluing the stock, rather it would be wastage of time on account of revaluation of the stock. It was further submitted that there was no pressure on the assessee to accept the valuation of ₹ 4,00,00,000/- whereas the assessee has shown the purchases at a meager amount of ₹ 11,00,000/- or odd. Since there was under valuation done by the assessee, therefore, only the assessee has accepted the valuation at ₹ 4,00,00,000/-. However, registered valuer has adopted the valuation at ₹ 9.45 crores or odd and this valuation is made by not ordinary valuer as the valuation was done by the approved valuer of the department. Therefore, if the order of the AO is not sustained fully then at least the order of ld. CIT (A) is liable to be sustained as ld. CIT (A) has gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14, Vishnupuri at ₹ 6.67 crores and stock of 14A, Vishnupuri at ₹ 0.06 crores. Accordingly the assessee reduced the g.p. rate @ 20% which resulted in a reduction of ₹ 1.38 crores. 13.1. After reducing this amount on account of gross profit, the remaining ₹ 4.21 crores was shown by the assessee in its return as additional income on account of cost of stock undervalued by the assessee in its books of account. However, the AO as explained in earlier paras did not accept the contention of the assessee as in his view the valuation of stock found at Pano-ka-Dariba was ₹ 9,45,50,000/-. Therefore, he took the value of this amount instead of amount of ₹ 4,00,00,000/- shown by the assessee. The explanation of the assessee was not accepted inspite of the fact that original purchase vouchers were produced before the AO to substantiate its claim that the stock was old and was recorded in the books of account as well as stock register maintained which was seized by the search party. The AO has observed that valuation was made by the departmental valuer and in respect to other two premises revaluation was also made and only minor difference was found which wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 4,00,00,000/- have been surrendered also. Therefore, in our considered view the AO should have taken into consideration this explanation and this aspect of the case and then should have taken a reasonable view in respect of the valuation of closing stock. However, the same has not been done by the AO nor ld. CIT (A) has taken the cognizance of this aspect. All the purchase vouchers along with detailed written submissions were filed before ld. CIT (A). The copy of stock register seized by the department was also filed before ld. CIT (A). However, ld. CIT (A) was also in agreement with the AO's finding as in his view the assessee could not substantiate its claim to prove that the cost of stock found at Pano-ka-Dariba was of ₹ 4,00,00,000/-. Accordingly he has confirmed the order of AO in this respect. 14. The vital fact, which the ld. CIT (A) could not consider is that even valuation done by the valuer is not correctly done. From the copy of the items found at Pano-kaDariba and same items found at basement and ground floor of 14, Vishnupuri and 14A, Vishnupuri, it is seen that the valuer has taken a different value of the same items found at three places. For example, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. This could have been verified from the stock register where weight is mentioned of each item which is supported by purchase vouchers. Therefore, this creates a doubt that fair valuation has not been done by the valuer. 15.1. It is further noticed that the contention of the assessee that the cost of stock found at Pano-ka-Dariba was not more then ₹ 4,00,00,000/- and this contention of the assessee has not been found incorrect. Only in support of the contention of the department is valuation report whereas as explained above the valuer's report is defective on various counts. Therefore, either department should have accepted the offer of the assessee or should have revalued the stock. There is a strong presumption in favour of the assessee that department itself was not going further for making revaluation or examining the issue as they found that assessee has offered to surrender ₹ 4,00,00,000/- as cost of stock found at Panchnama. Even and otherwise this is a factual aspect that cost of the material has to be taken, as assessee is valuing its stock on the basis of purchase price or market price whichever is lower. The accounts of the assessee are audited. It is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of ₹ 5,45,50,000/-. 18. Next issue involved in the appeal of the assessee as well as in the appeal of the department is against not allowing the benefit of gross profit reduced by the assessee on account of valuation made on account of 14, Vishnupuri and 14A, Vishnupuri. 19. The AO has made addition of ₹ 1.38 crores on this account by not accepting the explanation of the assessee that the valuation done by the valuer is on the basis of market value and the valuation date is between 23.8.2007 to 27.8.2007. Therefore, the valuation embedded with the gross profit and the same has to be reduced. The AO has rejected the contention of the assessee by observing that assessee failed to substantiate that the valuation was made on the basis of market value. The AO has also observed in his order that on valuation report the assessee has made his signature. It means the assessee has accepted the valuation done by valuer. The ld. CIT (A) after considering the submissions has given part relief by reducing 5% on account of gross profit. 20. After considering the submissions and perusing the material on record, we are of the considered view that assessee deserves to succeed here ..... X X X X Extracts X X X X X X X X Extracts X X X X
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