9911796707
TMI Blog2018 (8) TMI 1963X X X X Extracts X X X X X X X X Extracts X X X X ..... with the order u/s.154 of the Act, dated 25/09/2013 in so far as it is against the appellant is opposed to law, equity, weight of evidence, probabilities, and accordingly ought to have allowed the appeal of the appellant. 2. The learned CIT[A] ought to have appreciated that in the absence of the discovery of any undisclosed income or asset based on any incriminating seized materials relevant for the assessment year under appeal found and seized during the course of search, the notice issued u/s.153A was bad in law as the impugned assessment is essentially on account of change of the opinion as to the principle of valuation of the closing stock and not on any falsification of material facts or understatement in the quantity of closing stock for taking recourse to the assessment proceedings u/s. 153A of the Act and accordingly, the learned CIT[A] ought to have annulled the assessment made u/s.153A of the Act or at least deleted the addition of Rs. 3,02,97,477/- made in respect of the valuation of stock at the end of the year, instead of upholding the same erroneously. 2.1 The learned CIT[A] ought to have appreciated that there was an earlier assessment u/s.143[3] of the Act, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, as the order involved visiting of serious civil consequences and not mere an administrative action at all and thus, the assessment order passed was in violation of the principles of natural justice and illegal and consequently, the initial assessment order before and after merger with the rectification order requires to be cancelled. 4. Without prejudice to the above, the learned CIT[A] failed to appreciate the fact that the appellant has maintained regular stock account of various ornaments on the computer which had been tallied to 100% in terms of weight and the appellant had valued the closing stock on the basis of the inventories prepared and preserved for each year which were seized during the course of search and inventories recorded the existence of various ornaments and their weight and their historical cost or market value, whichever was lower and the inventory books had been seized by the department during the course of search and having regard to the provisions of section 292C of the Act, especially, sub-clause [1] and [2], the presumption that the recordings entries, etc., in such books of accounts and documents were true and which applied even to the descripti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various counters where the stocks are displayed as sales not accounted in the financial logs thereby they were unaccounted sales warranting addition to be made by way of GP including therein. 6.1 The learned CIT [A] failed to appreciate the software used by the appellant was of the general shelf software and not a customized software designed for the appellant to facilitate such procedure and the finding is therefore perverse. 6.2 The learned CIT [A] erred in sustaining the addition made by the A.O. that all the plus key transactions are sales made outside the books even though the appellant has demonstrated that all the entries made therein were not sales and removal of item for polishing, retagging, etc., which have not been disputed by the A.O. in the remand report and consequently, the finding is therefore perverse. 6.3 The inference drawn by the CIT [A] is contrary to evidence and purely on suspicion and surmise, and without even not granting an opportunity to cross-examine the person who sold the software with reference to some statements, which were not properly appreciated by the A.O. and thus, the inference drawn was in violation of the principles of natural justice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10-11 4,33,72,512 83,53,007 5,17,25,519 7. 2011-12 4,32,00,485 33,10,541 4,65,11,026 Total 26,30,51,744 1,33,14,335 27,63,66,079 4. These appeals are in second round. Originally the appellate order was passed by CIT (A) on 28.02.2014 against which the assessee carried the matter in appeal before the Tribunal and the Tribunal in its order dated 21.11.2014 in ITA Nos. 579 to 585/Bang/2014 restored the matter back to the file of CIT (A) for fresh decision with regard to additional grounds of appeal relating to validity of jurisdiction u/s. 153A as well as the existence of conditions for issuance of search warrant u/s. 132A of IT Act. It is also noted by CIT (A) in its impugned order that the issue on merit of the addition was not decided by the Tribunal and therefore, in the second round, the only issue open to CIT (A) was regarding validity of jurisdiction u/s. 153A of IT Act. This aspect of the matter has been decided by ld. CIT(A) as per the impugned order dated 11.02.2015 and it was held that the proceedings u/s. 153A have been validly initiated in the present case and now these appeals are filed by the assessee before the Tribunal in which the assessee has ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry books for the Financial Years showing the method of valuation of closing stock. It is also pointed out that it is the submission before the AO that the assorted ornaments valued at Rs. 4.35 Crores of 1,40,000 grams net weight as on 31.03.2005. The same has existed on 31.03.2004 also. It is also submitted that in fact, these stocks date back to 31.03.1998 and the assessee could not sale these items because they have become out modeled and out of fashion and particularly it is shunned by youngsters. He pointed out that it is also submitted before the AO that only old unsold items is not making the assessee because the assessee has sufficient credit worthiness in the market and the assessee is keeping old stocks on sentimental grounds. Although the same can be sold at the market price which is relatively high. The ld. AR of assessee submitted that the copy of inventory of closing stock as on 31.03.2005 found during the course of search but not seized is available on page nos. 576 to 581 of paper book and it was pointed out that total value of closing stock has been worked out at Rs. 9,66,18,830/- on page no. 581 of paper book. Thereafter, he submitted that similar inventory for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition was made of Rs. 21,92,294/- in respect of this allegation that some stock was found which was claimed to be of a joint venture of the three partners but that stand was not accepted and addition was made but still no addition was made in respect of under valuation of closing stock. Thereafter he submitted that the copy of reassessment order passed for Assessment Year 2012-13 on 30.11.2016 is available on pages 1026 to 1032 of paper book and as per the same, there was an addition of Rs. 30,84,779/- on account of alleged bogus purchases expenditure disallowed but there is no addition on account of any alleged under valuation of closing stock. He submitted that neither in the preceding years nor in the succeeding year, any addition was made on account of under valuation of closing stock although the method of valuing the closing stock is the same in those years also as in the present years. He submitted that under these facts, the addition made by the AO on account of alleged under valuation of closing stock is not justified and the same should be deleted. He also submitted Synopsis in respect of both additions and the same is reproduced herein below for ready reference.:- "BR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome that was shown earlier. No additional income was admitted by the appellant pursuant to the search. See pages 334 to 429 of the Paper Book No.II 31/03/2013 Assessments were framed u/s. 153A rws 143[3] of the Act for the assessment years 2005-06 to 2010-11. Assessment was also framed for the assessment year 2011-12 u/s. 143[3] of the Act. 28/02/2014 Common order passed by the learned CIT [Appeals] in respect of the appeals filed against the assessment orders passed u/s. 153A/143[3] upholding the substantial additions made in the assessment orders passed for all the years. See pages 994 to 982 of the Paper Book No.V 21/11/2014 Common order of the Hon'ble ITAT in ITA 579 to 585/Bang/2014 restoring the matter to the file of the learned CIT [Appeals] to decide on the validity of the assessment based on the ground raised that the search action was invalid. See pages 983 to 986 of the Paper Book No.V 23/01/2015 Order passed by the Hon'ble ITAT in MP No. 1/Bang/2015 recalling the order in so far as AY 2011-12 is concerned since there was no ground challengin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant had challenged the order of the learned CIT [Appeals] dated 11/02/2015 by filing writ petitions for each of these years before the Hon'ble High Court of Karnataka contending that the learned CIT [Appeals] was not correct in refusing to adjudicate the ground relating to the validity of search based on the directions of the Hon'ble ITAT in the order dated 21/11/2014. It was contended that the learned CIT [Appeals] was not correct in observing that the judgment of the Hon'ble jurisdictional High Court in the case of C.Ramaiah Reddy reported in 339 ITR 210 could not be followed in light of the rejection of the SLP by the Hon'ble Supreme Court in the case of Trilok Singh Dhillon on a similar issue where the Hon'ble Chattisgarh High Court has decided the issue in favor of the Revenue. However, the appellant was not successful in the aforesaid writ petitions filed as the Hon'ble High Court observed that the appellant was not correct in filing the writ petitions in light of the alternate remedy available of filing an appeal before the Hon'ble ITAT in the order passed in the W.P Nos.24646 to 24651 dated 07/11/2017. It has also, inter-alia, been observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year for several decades. The appellant has detailed records of the year-end stock for each of the aforesaid assessment years and has maintained records to substantiate the physical stock taken and the valuation thereof, which was even found in course of the search conducted on 06/11/1990. 4.4 After the aforesaid search conducted on 06/11/1990, assessment proceedings were taken up by the Assessing Officer for assessment years 1989-90 to 1991-92. In course of these assessment proceedings, the learned A.O. raised a query about the method of valuation of closing stock by letter dated 31/07/1991 [placed at page 696 of the Paper Book No.IV]. Question No.14 of the said letter required the appellant to explain the method of valuation of stock. Another enquiry was also made by the A.O. by letter dated 28/08/1991 [placed at page 705 of the Paper Book No.IV]. 4.5 The appellant furnished his explanation vide letter dated 30/09/1991 [placed at page 699 to 702 of the Paper Book No.IV] and relied upon the explanation given vide letter dated 10/09/1991 & 23/09/1991. The appellant had replied vide letter dated 10/09/1991 [placed at page 706 & 707 of the Paper Book No.IV] indicating that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the paper book at pages 576 to 581 [31/03/2005] and 582 to 588 [31/03/2006] of the Paper book No.III. In all these inventories drawn at the end of each year, the appellant has followed the similar method of drawing up the inventory and working out the value of the same after physical inspection that has been followed for the past 60 years. 4.9 It can be seen from the above closing stock for the year ended 31/03/2005, the appellant had valued 22 Ct. Ornaments that includes certain historical jewellery at rates starting from Rs. 10 to Rs. 550 per gram. The A.O. in page [3] of the assessment order for the assessment year 2005-06 has given a break-up of the different quantities of jewellery held by the appellant and the different rates adopted for valuation of the same. Furthermore, in Page [15] of the assessment order for the assessment year2005-06, the A.O. has tabulated the figures and break up of closing stock for all the assessment years 2005-06 to 2011-12. It can be seen there from that the appellant has held the following historical gold ornaments and has valued the rates set-opposite the said items for all the 7 years under appeal and the said quantity has not been sold or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the appellant has only given general description of the ornaments in the purchase and sale invoices and it was not possible to specifically identify the gold jewellery to accept that the same historical ornaments were still available with the appellant. Based on these three factors the A.O. concluded that the appellant's claim of having historical out modeled jewellery cannot be accepted and therefore, he adopted the average RBI rates prevailing during each of the relevant financial years and multiplied the quantity of closing stock by such average rate worked out by him and the addition has been worked out in Para [5.3 and 5.4] on page 22 of the assessment order for the assessment year 2005-06. Similar view and discussion is also mentioned in the orders passed for the other assessment years as well. 4.11 It is submitted that the appellant has furnished detailed arguments before the learned CIT [Appeals] in the written submission filed, which has been placed at 756 of the Paper book No.IV and the relevant submission of the appellant at Para [8] onwards from pages 778 to 792. It is submitted that the learned CIT [Appeals] has upheld the addition in the common appellate orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no such qualification by the very same auditor for the earlier assessment years in the audit report and at any rate, these views of the appellant's auditor are not accepted by the appellant and no such submission that LIFO was followed has been made by the appellant. 4.14 Be that as it may, the appellant is setting out the contentions in support of the stand that was taken. before the authorities below on the issue of valuation of closing stock at the yearend, which are being reiterated before the Hon'ble Bench: (a) The appellant has followed a consistent system of valuing inventory since inception for more than 6 decades and the system of stock valuation followed by the appellant has been accepted in the past and hence, the principle of consistency applies. (b) The seized inventory of closing stock drawn on 31/03/2007 to 31/03/2011 supports the valuation of the closing stocks disclosed by the appellant and such seized documents are presumed to be correct u/s.292C of the Income-tax Act, 1961 and it has not been found that these inventories maintained by the appellant was wrong and could not be relied upon; (c) The appellant has also made efforts to identify ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brings out that the historical jewellery in respect of various items that are valued at Rs. 10 to Rs. 240 onwards were available in the inventory as early as 31/03/1986. Reconciliation with regard to the different categorization between the 2 inventories i.e., 31/03/1986 & 31/03/2005 is enclosed as Annexure-3. (i) It can be seen there from and safely concluded that the appellant has retained these historical ornaments that were found at the time of search on 06/11/1990, which continues to remain with the appellant as on 31/03/2005. (j) Further there was no material found in course of search to conclude that the inventory of physical stock drawn at the end of each year that was so found and seized was unreliable or that the appellant has sold away the historical stock and the same was not available with the appellant during these years under appeal to reject the claim of the appellant. (k) The appellant is not following the LIFO method of valuation as erroneously held by the learned A.O. and learned CIT [Appeals] but the specific items sold is capable of verification having regard to the stock records maintained by the appellant, which are also seized and hence, the A.O. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ades and therefore, the same have been valued at their respective cost of acquisition for several years, which claim has been disbelieved on the mere fact that the description of the items held by the appellant are general in nature and it cannot be concluded that the same was available with the appellant. (p) This view of the learned A.0./CIT [Appeals] is unsustainable since the appellant has established that the items of ornaments unsold from decades continues to remain in stock with documentary evidence in the shape of contemporaneous physical stock inventories drawn at the end of each year, the veracity of which has not been impeached at all. (q) That apart, the A.O. has merely varied the method of valuing closing stock in these assessments framed for the assessment years 2005-06 and 2011-12. The appellant has followed the similar system of valuing closing stock even after 31/03/2011 and no addition has been made in the assessment order passed u/s.143[3] rws 147 dated 30/11/2016 for the assessment year 2012-13, which is placed at pages 1026 to 1032 of the Paper book No.V. Similar assessment order for the assessment year 2013-14 is also placed at pages 1033 to 1055 of the Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to detect and control any pilferage of the same by the personnel managing the sales counters. 5.3 In the course of search, the hard disk containing the data of both financial and stock maintained by the appellant in the aforesaid software came to be seized and the same was analyzed in great depth. The learned DDIT [Inv.], who seized the hard disk of the computer during the course of search viewed the data directly and found several log-tables that were maintained in the software. With reference to 4 stock logs in the systems viz., [1] Homerec Log; [2] Non-tagged log; [3] Tagged log and [4] Tagstone log, he made further enquiries based on the presence of certain entries in the column "WOTAX" in these logs that will be adverted to in the later part of these submissions. 5.4 However, before that, it is relevant here to explain about the two keys provided and used to record transactions in the software. The first key is the * [star] key and the second key is the + [plus] key. The star key is used to record financial transactions entailing removal of the stocks from various counters by way of sale. The + [plus] key provided in the software is used to record the removal of the goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the value was Y, the particular item has been removed from the counter for sale or any other reason without collecting tax thereon. If the value was N or Blank, the item was removed from the counter after collecting tax. The value Null meant that the item was not sold and has not been removed from the counter. [b] "Tagstone" Log: This log contains only the stone details of tagged ornaments that are reflected in the "tagged" log above. This log contains the same tag number that is assigned in the "tagged" log. The relationship between the "tagged" log at [a] above and "tagstone" log is that in respect of any given ornament that contain stones embedded, the data would be reflected in both logs. The "Wotax" column in this log would also have the same meaning as in the earlier log. [c] "Non-tagged" Log: Small items like clusters of hooks, gundus, coins etc., having very low weight are not given specific individual tags but given to the counter in lots or clusters. Thus, each one of them in the clusters or lots does not have individual tag and individual tag numbers. Any removal of any individual item from this cluster by way of sale, the sale value would be found recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise than by way of sales also, the transaction is recorded in the 4 stock logs. It is obvious that transactions found recorded in these log tables that were not sales were not getting recorded in the financial log table of sales which would have been the case if those transactions were really sales. The obvious conclusion therefore is, the transactions recorded in the stock logs where "wotax=Y" are not sales but entries that were passed for removal of the items from the counters for any other reasons other than by way of sales and this was established by the appellant before the learned DDIT as well, which will be adverted to, a little later. 5.9 Be that as it may, the witness was again examined on 07/10/2010 behind the back of the appellant and the statement recorded from him is placed at page No.574 575 of the paper book No.III, wherein he has clarified that, the "D-ref number" is a unique number generated by the system for each transaction whether it is sales, purchase, issue for inspection or other issue and such D-ref number is generated in chronological sequence. The witness stated that he had modified the software to generate log table in respect of deleted records ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed to be cross-examined. Therefore, the statements could not be relied upon for drawing any adverse inference against the appellant and therefore, the findings arrived at is in violation of the principles of natural justice and requires to be set aside. Reliance is placed on the decisions of the Hon'ble Supreme Court in the case of KISHINCHAND CHELLARAM V CIT reported in 125 ITR 713, DAKESHWARI COTTON MILLS reported in 26 ITR 775, SURAJMAL MOHA & CO., reported in 26 ITR 1 and the decision of the Hon'ble ITAT, Special Bench in the case of COLONISERS reported in 41 ITD 57 and the decision of the Hon'ble Supreme Court in the case of ANDAMAN TIMBER INDUSTRIES reported in 127 DTR 241. 5.12 Coming to merits, it is firstly submitted that the merely because the column "wotax" is noted with the alphabet "Y", it does not mean that these are sales made by the appellant outside the books of accounts, which conclusions drawn by the authorities below are erroneous. In the assessment order for the assessment year 2005-06 at pages 36 to 60 annexed thereto, the details of the entries found in the non-tagged log for the assessment year 2005-06 where the column "wotax" =Y, is set-out. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [f] It is very unreasonable to conclude that ornaments removed from the counters are by way of sales only and there will be no removal of ornaments done for purpose other than sales like repairs, hallmarking, polishing, approval which have been proved by the appellant with documentary records. [g] From the "homerec" Log, which is placed at page Nos.61 and 62, it can be seen that in the 3rd column it was clearly shown that the stock was moved to the back office and further, it was also recorded in the bill status as "c" or "null" which means it was not by way of sale. [h] There is absolutely no basis or material to hold that the use of the star key and the plus keys was to record transactions depending on whether the same was required to be accounted or not, especially since, no such statement has been made by the witness Sri Venkatesh Vaidyanathan, at all. 5.14 It is submitted that in course of the post search appraisal proceedings as well as in course of the assessment proceedings, after careful examination of the above logs the appellant has explained and demonstrated that the entries in these stock logs under the column "wotax".y were mere internal movements of stocks and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re duly recorded in other contemporaneous records as well. More than 1000 pages of evidence were filed before the learned A.O. which was also produced before the learned CIT [Appeals]. This was possible because of the fact that each entry in these stock logs had the product code and supplier codes etc., from which the appellant could trace and identify the stock and its actual movement from the counter for various purposes. Finally, the appellant had also demonstrated before the learned A.O. and CIT [Appeals] that the entries made in the 4 stock logs under the column "wotax"=Y did not result in the removal of stocks from the GS-12 register, which is the statutory stock register maintained by the appellant continuously from 1963 itself. No fault is found by the learned A.O. and CIT [Appeals] on these submissions and evidence tendered by the appellant. 5.16 With a view to providing a simple example of the kind of explanation given by 'he appellant, one particular transaction of the item removed from the counter for re-tagging due to change in prices is taken. The said example is given to establish the veracity of the explanation tendered is as follows : [a] Diamond Necklace w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was substantiated by the appellant with evidence unreasonably, they have been treated as unaccounted sales and addition has been made in respect of Gross Profit earned thereon, which is arbitrary and unwarranted on the facts of the appellant's case. 5.20 It is submitted that these additions made for the various years are purely on suspicion and surmise and there is absolutely no material or records to come to the conclusion that the appellant has made sales outside the books of accounts in respect of the entries in the stock logs "Homerec", "tagged", "non-tagged" and "tagstone" under the column "wotax"=Y. On the contrary, the appellant has been able to prove its explanation that these are mere removal of goods otherwise than by way of sales. If these were to be sales, there must have been some asset which should have been found representing either the sale proceeds or the income suspected to have been earned out of such suppressed sales, which did not exist. Furthermore, if these were sales, the stock tally at the end of each year would not tally at all, which is also not the case in the case. of the appellant. Therefore, the addition made on this count is totally without ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted, it is submitted that the computation made has also to be amended by adopting 2066.500 gms. in place of 5814.691 gms., as adopted by the learned A.O. Similar ly, in the case of "Homerec" log, the learned A.O. has taken the entire figure of 882.150 gms and has not noticed that it includes 548.490 gms. of silver and hence, only 330.00 of 22 carat ornaments has to be considered. 5.23 The aforesaid error pointed out by the appellant has occurred in all the years under appeal and the appellant's request for rectification has been rejected by the learned A.O. The appellant has set-out the actual quantities of 22 carat gold as per the 4 logs for the various assessment years under appeal at page 803 of Paper Book No.IV which alone requires to be considered as the alleged sales made outside the books of accounts even in extreme case, which, at the risk of repetition, it is submitted are challenged by the appellant. The appellant is only pointing out the errors committed by the learned A.O. in the computation of the addition and does not mean that the appellant is consenting to the addition of the 2066 + 330 gms. 6. As against this, the ld. DR of revenue supported the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der dated 28.02.2014 copy of which is available on pages 944 to 982 of paper book was not commented upon by the tribunal and liberty was given to the assessee that if the assessee does not succeed on technical issue than the assessee can raise the issue on merit also in the fresh appeal to be filed against the appeal effect order to be passed by CIT (A) as per the direction in the said tribunal order. Therefore, the issue on merit raised by the assessee in these appeals although against the decision of the earlier order of CIT (A) but have to be decided in present appeals. The quantity details of closing stock of 22 Ct ornamental jewellery is reproduced by CIT(A) on page no. 8 of its order i.e. page no. 951 of the paper book which is reproduced herein below for ready reference. Quantitative details of closing stock of 22 ct ornamental jewellery is given below as per the inventory of stock filed by the assessee during the scrutiny proceedings. Rate per grams WEIGHT IN GMS. AY 2004-05 AY 2005-06 AY 2006-07 AY 2007-08 AY 2008-09* AY 2009-10 AY 2010-11 AY 2011-12 10 3986.64 3986.64 3986.64 3986.64 3986.64 3986.64 3986.64 3986.64 15 4002.35 4002.35 4002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own on the later date and for valuation at a higher rate, there was no stock as on 31.03.2004. The jewellery valued at Rs. 475/- per gram is shown at 816.32 grams for Assessment Year 2004-05 and the same is shown as Nil for the later years and similarly the jewellery valued at Rs. 520/- per gram is also shown only in Assessment Year 2004-05 to the extent of 10000 grams and in all the later years, it is shown as Nil. The jewellery valued at Rs. 550/- per gram is shown as 16137.75 grams for Assessment Year 2004-05 and it has regularly gone down from Assessment Year 2005-06 to 2009-10 and in Assessment Year 2010-11, it has been shown as Nil. As against such valuation of jewellery of 22 ct done by the assessee at specific rate, claimed to be purchase cost, the AO has stated in Para 5.2 of assessment order that opening stock of 22 ct ornament as on 01.04.2004 was 2,19,472.610 grams which was valued at Rs. 6,84,87,983.65/- and the AO has worked out the average rate for such valuation of assessee at Rs. 312 per gram. Thereafter in Para 5.3 of assessment order, the AO has considered opening stock quantity and value along with the purchase quantity and value and closing stock quantity and v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess where the assessee purchases and sells the gold ornaments and the items like bangles, chains necklaces etc gets replaced by purchases. 6. The number of items of gold ornaments maintained by the assessee was so numerous that it is not possible to identify item by item to establish that last in was first sold out. 7. The month wise analysis of purchases and sales indicate that older stock was being sold and it was not in the order of last in first out. 8. The seized documents marked as A/SNS/1 at pages 26 & 28 indicate that the assessee does not have ancient jewellery. 9. The assessee has no control on jewellery to say that LIFO method is being followed. The asssessee had to display all the ornaments and the customer chooses as per their desire and not the jewellery that has come last 10. The assessee was adopting the different rates of Rs. 10 per gram to Rs. 550 per gram under the guise of following LIFO method. By adopting the rates prevailing from 1980 onwards to 22 ct ornamental jewellery, the assessee was reducing its net income. 11. For all the reasons mentioned above, the accounts maintained in respect of valuation of inventories in respect of 22 ct. gold ornam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.03.1994 for Assessment Year 1991-92 is available on pages 748 to 755 of paper book. When we examine these two assessment orders, we find that these assessment orders are also after a search conducted by the department on 06.11.1990 and there is no addition made in these two assessment years regarding any allegation of under valuation of closing stock. This is the claim of the assessee that since last 60 years, the assessee has been following the same method of valuation of closing stock consistently. The ld. DR of revenue could not show that this contention of assessee is not correct. Hence it is apparent that the method of valuation of closing stock being consistently followed by assessee has been accepted by department also in the earlier years as per scrutiny assessment orders passed by the department. Similarly the copy of assessment order for a later year i.e. Assessment Year 2012-13 dated 30.11.2016 is available on pages 1026 to 1032 of paper book. Even in this year also, in this assessment order passed by the AO u/s. 143(3), there is no addition made on account of any under valuation of closing stock and this is not the case of the ld. DR of revenue that in this year i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 01.04.2004 valued @ Rs. 520 per gram, the closing stock as on 31.03.2005 is nil which means that as per the assessee, this much jewellery out of opening stock as on 01.04.2004 was sold out in F. Y. 2004 - 05. Hence, we hold that there is no merit in this objection. About the second objection, we find that the explanation of the assessee in this regard is noted by the AO in Para 4.9 on page 12 of the assessment order for A. Y. 2005 - 06 and as per the same, this is the explanation of the assessee that the old jewellery mentioned on page 26 reproduced on page 11 of the assessment order is about broken items purchased as URD purchases and it is not about ancient jewellery. This explanation was brushed aside by the AO by saying that the relevant seized paper does not contain any details of old stock and on this basis, the AO came to the conclusion that the assessee does not have the so called ancient ornaments stated to be lying from 31.03.1998 onwards. In our considered opinion, in the facts of the present case, where the assessee is having more than 2.30 lacs grams of 22 ct. gold jewellery on 31.03.2005 as noted on page 3 of the assessment order, the explanation of the assessee app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable in the closing stock. We find that learned DR of the revenue has submitted on 24.05.2018 copy of Form No. 3CB for Assessment years 2005 - 06 to 2011 - 12 and copy of Form 3CB for the year ended as on 31.03.2005 is available on page 15 of the paper book also.. We find that in A. Y. 2005 - 06, there is no such observation of the auditors that the assessee is following LIFO method for valuing Closing Stock. It is stated by the auditors in this year that inventories are taken as certified by the partners and valuation is on the same basis as in the preceding years but the same is not in conformity with AS - 2. In A. Y. 2006 - 07 also, the observation of auditors is identical to A. Y. 2005 - 06. Hence it is seen that this observation of CIT (A) is not correct that in all years, it is sated by the auditors that the stock is valued on LIFO basis. In A. Y. 2008 - 09, it is stated by the auditors that there is no observation about any discrepancies or inconstancies. As per Form 3CB for the preceding year ended as on 31.03.2009 for A. Y. 2009 - 10 also available on page 105 of the paper book, there is no adverse comment. Form 3CB for A. Y. 2010 - 11 is available on page 147 of the pap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 5409.43 grams gross weight with net weight of 4955.380 grams. Total net weight of gold ingots and gold ornaments was worked out at 7538.380 grams and it was held to be excess stock found in search and although some explanation was given by the assessee that this is belonging to a joint venture but that explanation was not accepted and addition was made of Rs. 21,92/294/- by valuing such excess gold ingots and gold ornaments of 7538.380 grams and this rate works out to Rs. 291/- per gram. Based on this addition in respect of some excess Ingot and Gold Ornaments found in search in 1990, it cannot be said or alleged that the assessee is not having any ancient jewellery particularly when no addition is made in that year by alleging that there is any under valuation of stock in spite of the assessee's claim that in that year also, the ancient jewellery was there and it was valued at old rates ranging between Rs. 10 per gram to Rs. 240/- per gram and it is not established by the revenue that this stand of the assessee is incorrect. Hence, we find that this observation of the AO and CIT (A) is not acceptable. 14. In the light of above analysis and in the light of this fact that as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L MOHA & CO., as reported in 26 ITR 1. Reliance has also been placed on one Tribunal order of Special Bench rendered in the case of COLONISERS Vs. ACIT as reported in 41 ITD 57 and on another judgment of Hon'ble Apex Court rendered in the case of ANDAMAN TIMBER INDUSTRIES reported in 127 DTR 241. We find that in the case of ANDAMAN TIMBER INDUSTRIES (supra), it was held by Hon'ble Apex Court that not allowing the assessee to cross examine the witness by the adjudicating authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice. Similarly in the case of KISHINCHAND CHELLARAM V CIT (supra) also, it was held by Hon'ble Apex Court that if the copy of letter addressed to Bank Manager is not supplied to the assessee, it could not be used against assessee and since Manager was also not examined by department that the amount belonged to assessee. Similarly in the case of COLONISERS Vs. ACIT (supra), it was held by Special Bench of the Tribunal that the rules of natural justice operate as implied mandatory requirement, non-observance of whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tten submissions reproduced above as per which Diamond Necklace with weight 79.490 grams with 53.48 carat diamond bearing tag No. 116-C-779 was considered as unaccounted sales but the same item was given the new tag No. 116-C-1305 and this has come into the counter on the same date i.e. 27.07.2010 with the gross weight of 79.490 grams of gold and 53.48 carats of diamonds with the revised prices. He also explained that the above entry reflected in the "receipt view" of the counter which is placed at page 800 of Paper Book. Two more examples are given regarding tag No. 118-C-5584 replaced by 118-C-5809 and tag No. 117-A-344 replaced by tag No. 117-C3409. Since the AO has also noted in Para 6.6 of the assessment order that as per the statement of the witness Mr. Venkatesh Vaidyanathan, the items were removed from counter either for sale or on account of any other reason, it comes out that the removal is not definitely on account of sale even as per the statement of the witness Mr. Venkatesh Vaidyanathan. Removal from counter can be for other reasons and it is established by the assessee at least in respect of 1794 entries as per written submissions in which no defect could be pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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