9911796707
TMI Blog2011 (6) TMI 947X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 96, Pano Ka Dariba, Jaipur was done on 23.8.07 by a registered valuer and the said stock was valued at ₹ 9,45,50,000/-. The report of the registered valuer, being an expert at valuing such stock, is an authentic record and evidence of such a valuation. This being the case, the value of the stock is taken to be ₹ 9,45,50,000/- and not ₹ 4,00,00,000/-. b) It has been claimed by the assessee company that the I.T. Deptt. had considered and accepted the valuation of stock at 696, Pano Ka Dariba, Subhash 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock from its sister concern M/s Ratnawali Gems in respect of which neither the purchase nor the payment could be verified. Hence the contention of the assessee company in respect of the valuation its stock are rejected and the value of stock as per valuation done by the registered valuer is taken at ₹ 9,45,50,000/-. Therefore an addition of ₹ 5,45,50,000/- i.e. (Rs. 9,45,50,000/- - ₹ 4,00,00,000/-) is made to the total income of assessee company. 4.5. In respect of profit element claimed. a) The claim of the assessee 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted were stated to be as below: S.No. Place Amount 1. 14, Vishnupuri, Jagatpura Road, Jaipur 6,67,17,662.00 2. 14-A, Vishnupuri, Jagatpura Road, Jaipur 6,54,800.00 3. 696, Pano Ka Dariba, Subhash Chowk, Jaipur 9,45,50,000.00 4. 942, Mishraji Ki Gali, Subhash Chowk, Jaipur 1,19,73,852.00 5. 104, First Floor, City Pulse, N.S. Circle, Jaipur 2,56,230.00 17,41,52,544.00 Since the stocks at S. No. 1, 2 and 3 only belong to the assessee (M/s Akash Gems Pvt. Ltd.) and at S. No. 4 5 since belonged to M/s Carve Creations Pvt. Ltd., the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been submitted and the statement of other two directors namely Shri Sunil Kumar Agarwal and Vikas Choudhary are enclosed herewith for your ready reference and record. The relevant questions and answers are reproduced here below: Statement of Shri Sunil Kumar Agarwal recorded on 27.08.2007 (u/s 132(4) Statement of Shri Vikas Choudhary recorded on 27.08.2007 (u/s 132(4) Statement of Shri Champa Lal Choudhary recorded on 25.08.2007 (u/s 132(4) It is further submitted that the assessee company was incorporated on 19.02.2004 and had acquired the running business concerns namely M/s Akash Gems and M/s Vasundhara Gems and the stock available with these concerns stood vested to the assessee, which were duly recorded in stock register maintained by the assessee as well in the stock registers of respective taken over entities before acquisition and all these records were available at the business premises of the assessee at the time of search out of which the stock register of the appellant for the period from 01.04.07 to 22.08.07 was seized in terms of Annexure A-1 Sl. No. 1 3, copy of Annexure enclosed. This would also be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edecessor entities never dealt in the items of such a high value excepting in the case of a special transaction of Tourmaline where erstwhile M/s Vasundhara Gems in relations to A.Y. 2003-04 made an import from foreign countries and the same were sold at higher price and no stock was left. (Quantitative statements of purchase and sale of such imported material enclosed). Since the assessee is a manufacturer and had purchased 'rough' which is sold after its sorting, cutting and polishing and the stock found at 696, Pano Ka Dariba being the raw material which the assessee could never purchase at a value arrived at by the departmental valuer. 5.7. Further the Ld. AO has observed in para 'd' at page 6 of the order that the stock was valued in presence of Panchas (ipa x.k) and none of them had observed any such discrepancy. In this regard it is submitted that the Panchas are not jewellery experts to know such valuation differences and making such observations by the Ld. AO is nothing but an attempt to divert the attention of the reader from the basic issue of serious discrepancies in the valuations. Going through the statement of the directors of the assessee compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upon the appellant to obtain surrender of income which has become the fashion of the day in the search wing operations. 5.10. It is submitted with pain that the Ld. AO has miserably failed to appreciate the contentions of the appellant by ignoring the fact that: 1. That the assessee maintained regular books of accounts which were subjected to audit u/s 44AB and the returns of income were companied by stock details, no discrepancy wherein had ever been found. 2. Search was conducted on 23.08.07 in the morning and was concluded on the next day i.e. 24.08.07 in the evening, thereby meaning that approximately 1 working day was used to analyze the whole thing including cash, statements, stock, jewellery and impounding of papers etc. 3. That quantification and valuation of stock being one of the basic function during search and in the case in hand this entire exercise was undertaken by a single valuer who cannot be present at various places where the goods was stated to have been found and quantified as without physically inspecting each and every item it is practically not possible to value the same more particularly when the stock is of the precious and semi preci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the same. The departmental valuer has here again made the wild estimation by taking the value of the goods at prices according to his sweet will without looking to the fact that the said goods were purchased by the assessee and their purchase price are available with the assessee. It is an established principle that stock has to be valued at cost price which aspect has been deliberately ignored by the departmental valuer. 5.12. If the cost price of each item is substituted to the quantity measured the correct value of the total stock would come to ₹ 4,84,41,294/- instead of ₹ 16,17,22,462/- valued by the department (detailed working in regard to aforesaid figures enclosed). As against this the assessee has declared the additional stock of ₹ 4.21 crores in the return of income filed in case of M/s Akash Gems (P) Ltd. in addition to the stock of ₹ 5,27,89,101.77 available with the assessee as per stock register as on the date of search. 5.13. With regard to the addition of ₹ 1,38,00,000/- made by alleging that the directors of assessee company have accepted the excess stock at ₹ 5.59 crore in the statements records but and had included & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copies of the stock inventory and various other documents were supplied on 6.8.08 and only few seized documents were supplied later on. Moreover, it was noticed by the undersigned that the AO has not used any of the seized document against the appellant. Moreover, there was no seized document which could not be produced by the AR before the AO due to delayed supply of the photocopies of the documents, which had adversely affected the interest of the appellant, more particularly with reference to the addition made by the AO which is disputed in the present appeal. However, it is added that these observations are not to be mis-construed as justifying the delay of the AO in supply the photocopies of the seized documents. 2.4 Now coming to the main issue of dispute in the valuation of stock found during the course of search / survey at the various places. It is seen that 5 business premises of the appellant group were covered and valuation of the stock was done by the approved valuer and same was as below:- S.No. Place Amount 1. 14, Vishnupuri, Jagatpura Road, Jaipur 6,67,17, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs for manufacturing or otherwise for direct sales and how was the movement of stock over the years till the date of search, if the stock was contended to be purchased in various earlier years or contended to be taken over from erstwhile two concerns namely M/s Akash Gems and M/s Vasundra Gems. The A.R. has claimed that he has filed copies of purchase bills before A.O., the copies of which was also filed before me. From cursory perusal of the purchase bills by the undersigned, it is seen that some of the purchases have been shown in to be made by erstwhile M/s Akash Gems and M/s Vasundra Gems as back as in the year 1994, in the year 1999 and in the year 2000. It is extremely unbelievable to accept the claim of the appellant the such stock purchased as back as 13 years, 8 years and 7 years ago has still continued to remain firstly with the erstwhile firms and later on continued to remain with the appellant company intact and that was surely not used for manufacturing or trading. Unless, same is specifically proved by the appellant by showing the stock register for all those each of 13 years (which would cover 8 years and 7 years, as the case may be). The appellant has miserabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant that the stock was purchased in different earlier years and is vey old was not found verifiable and correct by the A.O. Accordingly, it will be appropriate to determine the cost value of stock at 696, Pano Ka Dariba by considering the G.P. on the rough stock. It is seen that the appellant is engaged in the manufacturing wherein the rough is sorted and then put to manufacturing activity and finally cut and polished and then finished precious and semi precious stones are sold. Accordingly, the G.P. shown by the appellant cannot at all be applied for determining cost value from the market value of the stock of rough. It is the G.P. rate of rough trading business firm, which has to be applied to find the cost of rough from market value of rough. Normally, the G.P. shown in the trading business of various types of rough of precious and semi precious stones fond the stock of the appellant is around 5%. Considering the same the cost value of the stock at 696 Pano ka Dariba is taken at ₹ 8,98,22,500/- by reducing the G.P. of 5% on market value ₹ 9,45,50,000/- which will call for relief of ₹ 47,57,500/- out of total addition of ₹ 6,83,50,000/-. Balance additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e search party was agreed for a sum of ₹ 4,00,00,000/- admitted by the assessee on account of valuation of stock and, therefore, this maybe the reason that they have not revalued the stock found at Pano-ka-Dariba. The AO as well as ld. CIT (A) has rejected the contention by observing that there is no evidence in support of the above contention of the assessee. What evidence could be there it is not known. Only substantial evidence is there that the search party did not go for revaluation whereas the revaluation was made of the stock found for at other two places. Attention of the Bench was drawn on observations of the AO and ld. CIT (A) made in their respective orders on this account. 10.1. It was further submitted that time and again the assessee has stated that the valuation was not correct and, therefore, it should be revalued. Attention of the Bench was drawn on copy of Panchnama where inventory of this item of stock found at Panoka-Dariba premises were entered and attention of the Bench was also drawn on various items of one quality, namely, Amethyst rough and it was that at different premises different rate of the same quality has been adopted by the valuer and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of search is still lying with the assessee as there is no market of this material as this material was purchased as rough material. However, the assessee is not able to sell. Therefore, the same is lying in its stock. All these items are shown in each and every year and the closing stock shown by assessee has been accepted by the department. Even the closing stock shown in subsequent year has been accepted by the department on the same value shown by the assessee, which is based on the purchase vouchers. Therefore, there was no question of enhancing any value or adopting the value shown by valuer which is shown on the basis of market value and this fact is apparent from the Valuation Report itself wherein this fact is disclosed by the valuer that the material found during the course of search is valued on the market rate. The AO as well as the ld. CIT (A) has discarded the explanation of the assessee by observing that no supporting evidence has been brought on record by the assessee that the value adopted by the valuer is on the basis of market value and not on the basis of cost value. Attention of the Bench was drawn on copy of valuation report placed on record. Attention of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and considered them carefully. We have also perused the material on which our attention has been drawn by the respective party including the order of AO and ld. CIT (A). First issue in the appeal of the assessee is in respect to sustaining the addition of ₹ 5,45,50,000/- on account of excess stock found at Pano-ka-Dariba. 12.1. As stated above, the searches at the residential premises as well as business premises of the assessee were conducted under section 132 on 23.8.2007 which continued upto the date 27.08.2007. Simultaneously survey under section 133A was also conducted. Ultimately the stocks admitted by the assessee in the statement recorded on 27.8.2007 in which he admitted that stock found at 14, Vishnupuri, Jagatpura Road, Jaipur was ₹ 6.67 crores, stocks found at 696, Pano-ka-Dariba was ₹ 4,00,00,000/- and stocks at 14A, Vishnupuri, Jagatpura Road, Jaipur was ₹ 0.06 crores totaling to ₹ 10.73 crores. In respect to stock at 14, Vishnupuri and 14A, Vishnupuri, there is no dispute with the department. The dispute in respect of stock found at Pano-ka-Dariba for which the assessee has stated this stock is bearing cost of ₹ 4,00,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of ₹ 5,45,50,000/- which has been confirmed by the ld. CIT (A). After examining all the records and submissions it is seen that during the search period and on the very 1st day of the search the statement of the assessee was recorded and he has clearly stated that the stock found at Pano-ka-Dariba is part of books of account. However, the cost of the same is about ₹ 4,00,00,000/- which he will surrender as he has not shown the in the books of account. This stand was taken on day one of the search. Thereafter valuation of stock was done which was arrived at ₹ 5,45,50,000/- by the valuer. The date of valuation has been mentioned by the valuer on 23.8.2007. It means the value of the above stock was valued as on the date 23.8.2007, whereas the assessee has categorically stated that there is a vast difference in the valuation which is not acceptable to him. The statement was again recorded on27.8.2007 and on this date also he has categorically stated that the valuation made by the valuer is not acceptable to him as there is a vast difference and at that point of time he admitted that the stock of ₹ 4,00,00,000/- will be offered for taxation as the cost of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e valuer at ₹ 550/- per kg. This item was also found at ground floor of Vishnupuri and rate has been taken at ₹ 3,000/- per kg. Same item was found at Pano-ka-Dariba and here rate has been taken at ₹ 8,000/- per kg. The item is same. However, there is a vast difference in rate for the reason known to the valuer only. It has been categorically stated by the ld. Counsel of the assessee that these items are the same. However, they have been calculated on a different rate. The request of the assessee was not accepted to make the revaluation of the stock found at Pano-ka-Dariba. Similar example of various other items found at three places different value has been taken by the valuer. A copy showing the same items found at three different places has been filed by the ld. Counsel which has been compiled with the stock register as copy of the stock register is also enclosed along with the chart, and after going through this chart and stock register entries, it is clearly established that the valuer has adopted a different yardstick for valuing the same item found at three different places. The stock found at basement of Vishnupuri is valued on a very lower rate than stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and if assessee has shown lower cost then the profit will be more and the same shall be offered for taxation as the profit has to be shown only after sale and not before. Therefore, it is not a case of the department that if the valuation adopted by the departmental valuer which is as per market rate is not accepted then there will be a loss to the revenue. It is also a matter of fact that the valuation done by the department is on the basis of market price and not on the basis of cost price. This is evident from the valuation report as in the report it is mentioned that the date of valuation is 23.8.2007. Therefore, it is clear that the valuer has adopted market rate. It is also a matter of common knowledge that valuation done by the departmental valuer or any other valuer has to be made on the basis of market price and if the price has to be determined on the basis of cost price then the date of valuation has to be made in the valuation report by mentioning that this is the date for the purpose of cost price which is not mentioned in the valuer s report and the date of valuation is mentioned as 23.8.2007 asstated above. We have also gone through the copy of purchase bills which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat whether this is based on the market value or on the cost price. In the valuation report also the valuer has mentioned the date of valuation meaning thereby the valuation has been done on thebasis of market rate and not on the basis of cost price. The assessee has accepted the valuation done by the valuer in respect of the stock found at 14 and14A, Vishnupuri. Assessee is not denying the valuation done by the valuer, however, reducing the gross profit embedded in the valuation. The gross profit as per trading result shown by assessee at 20% therefore, he reduced the gross profit of 20% from the valuation shown by valuer on account of stock found at Vishnupiri. It is settled position in law that the profit embedded in the stock has to be reduced while taking the cost price of the same. The addition can be made on the basis of cost price or market price whichever is lower as the assessee is valuing the closing stock on this method i.e. market price or cost price whichever is lower. Profit cannot be added before making the sale of that stock. After sale it may be 20% or may be more and the same has to be shown only after the sale of stock. The stock found at these two places are st ..... X X X X Extracts X X X X X X X X Extracts X X X X
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