9911796707
TMI Blog2023 (11) TMI 860X X X X Extracts X X X X X X X X Extracts X X X X ..... iamond in studded jewellery items of 18KT and 14 KT gold jewellery, the excess diamond has been determined at 723 carats. From examination of the valuation report prepared by the authorized valuer at the time of the survey, we find that the diamonds have never been separated from the gold jwellery. The weight has been extracted from the gross weight. The total jewellery as per books was 72,962 gms. In the absence of specific findings and tags describing the weight of the jewellery in terms of gold and diamond separately, the weight stated in the valuation report can be considered as near estimations but not absolute weight. Under these factual circumstances, it is clear from the record that the weight of the diamond has not been arrived at fittingly. Hence as been excess diamonds determined at one showroom of 14KT and shortage determined at the another showroom and keeping in view the fact that the diamonds have not been separately weighed, we hold that no addition is called for on this ground. Appeal of the assessee is allowed. - Dr. B. R. R. Kumar, Accountant Member And Ms. Astha Chandra, Judicial member For the Assessee : Sh. I. P. Bansal, Adv. And Sh. Vivek Bansal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the AO and upheld by him are not sustainable in the eyes of the law. 4. That under the facts and circumstances of the case, Ld. CIT (A) has erred in law as much as in fact that even the valuation report is made on the basis of estimates on which there could be more than one opinion, therefore, the contents of valuation report cannot be taken on their face value without proper consideration of the submissions made. Therefore, the above- mentioned additions upheld by Ld. CIT(A) are liable to be deleted. 5. That under the facts and circumstances of the case, Ld. CIT (A) has erred in law as much as in fact in not appreciating the law that statements recorded during the survey action do not have evidentiary value and the material collected and statement obtained under section 133 A of the Act would not automatically be binding upon the assessee. Therefore, also the above-mentioned additions upheld by ld. CIT(A) are to be deleted. 6. That under the facts and circumstances of the case, Ld. CIT (A) has erred in law as much as in fact in not appreciating that the above mentioned additions which have been upheld by him are vitiated in law as the assessee was not granted w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portunity of cross-examination and also on the ground that reference to the valuation officer during the course of survey being not sanctioned as per statutory provisions, the contents of valuation report could not be relied upon to uphold the additions. 10. That under the fact and circumstances of the case the Ld. CIT(A) has erred in law as much as in fact in upholding the applicability of section 115BBE of the Act on the ground that the additions sustained by him are liable to be added u/s 69 of the Act. The additions made by the AO and upheld by the CIT(A) are not liable for levy of special rate of tax described u/s 115BBE of the Act, on the ground that such additions could not have been made under section 69 of the Act. 3. The assessee is a corporate entity engaged the business of gold and diamond jewellery. The return of income for AY 201819 was filed on 04.09.2018 at an income of Rs. 1,68,16,780/-. The assessee is carrying out the said business from two showrooms located at Karol Bagh and GK-1. A survey of the Act was carried out at business premises of the assessee on 03-012018 where stock taking was done. On the basis of stock taking on the date of survey and stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -3,63,86,752 5. 18KG0LDC1NGMS) 7067.757 18540.970 11473.213 2736.00 3,13,90,711 6. DlAIN14KT(INCIS) 2112.180 4501.610 238943 29207.00 6,97,88,082 7. After accepting the reconciliation, the AO recorded in the notice dated 01.04.2021 that the assessee has submitted a reconciliation where gold and Polki 22kt, 14kt gold and 18kt gold and diamond and they are required to be clubbed together for the purpose of valuation as they have been considered as similar items. 8. The AO show caused the assessee to explain as to why excess stock as calculated above at Rs. 14,41,49,586/- and less stock of Rs. 8,52,29,321/- should not be added u/s 69A of the Act. In response to the show cause, the assessee submitted following two charts consisting of figures in respect of gold jewellery of 22kt including Polki studded 22kt gold jewellery of 14kt and 18kt and gold jewellery of 14kt and 18kt studded with diamonds. These charts are reproduced below: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... error on the part of the valuers. DIFFERENCE BETWEEN 22KT GOLD JEWELLERY 20KT POLKI STUDDED GOLD JEWELLERY 10. So far as, it relates to positive difference of 22kt studded gold jewellery and negative difference in 22kt gold jewellery which are 8129.1 and respectively, it was submitted that both these items have been inventoried and accounted for together in the account books of the assesses on the ground that the value of Polki is determined in accordance with prevailing gold rate, therefore, Polki studded jewellery is valued almost at par with 22kt gold jewellery. Even the valuation experts have treated Polki at par with 22kt gold and such there is no ground or justification for making inflated valuation of Polki studded 22kt gold jewellery. There being apparent congruity between these two items and on combine analysis, it can be seen that the net difference is only of 113.50 gms (8129.170 - 8015.67). Such difference in percentage being 0.08 percent of the entire stock, therefore being negligible is to be ignored and be taken as there is no difference and otherwise also such difference can be on account of various factors like humidity/moisture content, accuracy/precisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he data entry operator while punching jewellery details in the stock record which also cannot be ruled out and can result in such difference. DIFFERENCE BETWEEN 18KT AND 14KT DIAMOND STUDDED GOLD JEWELLERY 16. Referring to chart above, it was pointed out that if both diamond studded gold jewellery of 14kt and 18kt are taken together than the difference in the stock would only be of 723.90kt as aggregated quantity of these items of the jewellery as per valuation report would be of 17910.44 gms and as per books it would be of 17186.54 gms and the difference would be of 723.90kt (17910,44 gms 17186.54 gms). The intersedifference is of negative stock of 1665.53 gms in gold jewellery and positive stock of 2389.43 gms of 18kt gold jewellery. The difference calculated between positive and negative stock put together is 723.90 gms being less available stock as per books as compared to value of these items of gold jewellery by valuers during the course of survey. 17. It was explained that the alleged difference only on account of estimation error and correctness of weight of diamonds as mentioned in the valuation report is not free from doubt as it is case of counting and valuing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,910 Per carat diamond contain 4.11 3.70 4.00 4.68 4.13 4.60 4.24 3.75 4.12 18. It was further submitted that elimination in the alleged difference the stock of 14kt and 18kt diamond studded gold jewellery would by itself is sufficient to eliminate the alleged difference of diamonds studded in and diamond jewellery as such jewellery is intricately linked with weight of gold jewellery and there could be no case of excess embedded diamonds without there being excess gold jewellery. Thus, it was pleaded that there is no difference between diamonds recorded in the books of accounts and found in the survey. OBIECTIONS WITH REGARD TO RATE APPLIED FOR 14KT, 18KT 22KT GOLD JEWELLERY RATE APPLIED FOR VALUING THE DIAMOND 19. It was submitted that the valuer did not give any basis for adopting rates 18kt 24kt gold jewellery and no justification has also been given for valuing diamonds. It was submitted that from the valuation reports itself it can be seen that these are full of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lery which has been valued at gold rate without specifying the value of Polki. 3) Sales invoice of M/s Shri Raj Leela Jewellers supply M/s R.K. Jewellers containing details of Polki jewellers which has been valued at gold rate without specifying the value of Polki. 4) Extract of advertisement made by the assessee on Instagram on dated October 20, 2020 clearly showing that Polki jewellers is available at gold rate. REPLY DATED 07.07.2021 22. That in continuation of earlier responses it was submitted that alleged differences in various segments of jewellery as per the valuation reports are unrealistic and cannot be made basis for drawing adverse inference against the assessee. Attention was invited to already highlighted key discrepancies and inconsistencies in the valuation reports which were reiterated again as under: 1) The fact of inter-mixing of 18 kt and 14 kt of jewellery resulting in huge differences in individual segments. No criteria have been given for correctly identifying the gold purity of each jewellery item. 2) Basis for measuring diamond weight in a studded jewellery item not given. It is not known as how the number of diamonds and their weight ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng quality of gold earmarking specific kt gold involved in that item, it could only be determined by way of hall-mark identification in a case of inter-mixing of the same. The AO also rejected the request of the assessee for making further inquiry from the valuers on the ground that such request of the assessee cannot be entertained at the fag end of the proceedings particularly in the absence of such request having been made during the time of survey and also because the jewellery under question is stock trade and thus cannot be valued again at this stage. 26. The AO also observed that shortage and excess of over hundred kg jewellery in individual segment goes against human probabilities. However, the AO has accepted the possibility of inter-mixing of both these items in the presence of fact that figures of shortage and excess weight in both these items are complimenting each other. For this reason, the AO has observed that would be fair to tax net excess of gold jewellery as per valuation reports being a sum of (excess Rs. 3,13,90,711/- ()shortage Rs. 2,51,24,200/-) by considering such amount Rs. 62,66,511/- as investment of undisclosed income in the of such excess physical st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d an addition of Rs. 2,11,27,468/-has been worked out u/s 69 of the Act with application of tax rate as per section 115BBE of the Act. 4th Addition of Deficit stock found during the survey 30. The AO has applied gross profit rate of 16.82% being average gross profit of last two years on the negative stock of following three items by treating the negative stock as sales made outside the books of accounts. Description of these three items is as under: Sr. No. Description of item Value (INR) 1. Unaccounted sale in respect of 22kt gold jewellery 2,37,18,368/- 2. Unaccounted sales in respect of diamonds studded 14kt gold jewellery 3,87,10,998/- 3. Amount of unaccounted sales in respect of 14kt gold jewellery 2,51,24,200/- Total 8,75,53,556/- 31. Applying the gross profit rate of 16.82% an addition of 1.47,26,510/-(1682% of Rs. 875,53,556/-) has been made. 32. It would be relevant to reproduce the observations of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found at both the showrooms comes to 2,16,472.24 gms. 34. During the survey action, thorough verification and stock was carried out and during the course of assessment proceedings also complete verification was made regarding accounts as well as stock of the assessee which includes details of sales; purchases and expenses claimed. No defect or discrepancy has been found either in the maintenance in the books of accounts the method in which the accounts of the assessee are being maintained on consistent basis. The discrepancy in the stock has only been worked out on the basis of stock inventory as valued by the abovementioned both valuers and additions have been made only on those discrepancies. No defect has been found with regard to purchases and sales made by the assessee. 35. In this background, with regard to each of the addition for which the detailed discussion has been made in the earlier part of these submissions, it is the case of the assessee that in the facts and circumstances of the case, none of these additions are called for and all these are liable to be deleted. 36. The submissions of the assessee before the ld. CIT(A) on merits of the issue is as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also valued Polki under the category of 22 kt gold jewellery and no separate valuation has been done for the same. It is also seen that overall combined weight of both the jewellery found during survey almost matches with that recorded in the books. It is further noted from the sale bills that assessee is adopting consistent method of valuing polki at the applicable gold rate and as such there is no difference between the Polki studded and plain 22kt gold jewellery. Even in the books of account, no separate inventory is maintained vis- -vis Polki jewellery. Thus, the total unaccounted stock in respect of 22 kt gold jewellery and 22 kt. Polki studded gold jewellery is computed at 113.50 gms. Which is valued at Rs. 3.35.846/- at the rate of Rs. 2959/- per gm (as mentioned in the valuation report) and the same is added back to the total income of assessee as unexplained investment u/s 69 of the I.T. Act, 1961 to be taxed u/s 115BBE of the Act. (Addition of Rs. 3,35,846/-) 38. That it can be seen from the above observations of the AO that the assessee has never made any difference between 22kt jewellery and 22kt polki studded gold jewellery and in the books of accounts bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial view is that the estimate made by the valuation officer if higher in the vicinity then no cognizance of valuation done by valuation officer may be taken for the purpose of making addition and valuation as per books shown by the assessee should have been accepted. Those submissions are equally applicable to this addition and also to all other additions which are impugned in the present appeal. 39. That so far as it relates to treating negative stock of 22kt. gold jewellery of 8,015.67gms as being sale made by the assessee outside the books of accounts and treating the sale price at a sum of Rs. 2,37,18 being assessable as turnover on which gross profit has been worked out at Rs. 16.82% thereby making an addition of Rs. 39,89,429/- [being part of addition of Rs. 1,47,26,510/-) is totally in contradiction of the findings recorded on the issue of difference between 22kt gold jewellery and 22kt polki studded gold jewellery where following findings have been recorded by the AO: a. On closer perusal of the survey report and submission of the assessee, is found that the contention of the assessee appears to plausible particularly when one of the valuer M/s. Amit Jewelle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T GOLD JEWELLERY ON SO-CALLED NEGATIVE STOCK OF 11019.39 GMS VALUED AT Rs. 2,51,24,200/- ON WHICH GP IS WORKED OUT AT Rs. 42,25,890/- BEING 16.82% BEING PART OF ADDITION OF A SUM OF Rs. 1,47,26,510/- 41. That the AO has relied upon the following table to workout difference alleged to be found in the stock recorded in the books and physical found of 14kt and 18 k t gold jewellery: (In grams) Particulars As per books Physically found Difference 14Kt Gold jewellery 70,894.98 59,875.59 -11,019.39 18Kt Gold jewelleiy 7,067.76 18,540.97 11,473.21 Total 453.82 42. That it was submitted to the AO that weight difference in the individual category of the jewellery is actually incorrect as there was intermixing of the jewellery, therefore combined difference only can be taken Into conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gold; thirdly, while valuing these items of jewellery these were inter-mixed. Therefore, it was physically impossible to determine the purity of gold vis-a-vis each of the item and thus, valuation reports could not be relied upon to say conclusively that how much weight of 14kt gold jewellery and how much weight is of 14kt gold jewellery when overall weight of combined jewellery of 14kt 18kt was almost same with a minor difference of 453.82 gms in the combine stock of these items as per books is and proportionate difference comes to 0.58% of the total combined weight of these items which can only be on account of several factors explained by the assessee its submissions and such minor difference, in the light of facts and circumstances was liable to be ignored. 44. That it can also be seen that the AO himself has accepted that possibility of inter-mixing of jewellery is not ruled out and the figure short/excess weight in individual segment compliments each other. Accepting this factual situation, it is very unfair by the AO to make addition of Rs. 62,66,511/- for a minor difference of 453.82 gins which in itself shows that addition has been made without application of mind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 62,66,511/- have already been reproduced above part written submission. 47. That in view of above submissions the addition of Rs. 62,66,511/- and addition of Rs. 42,25,890/- are liable to be deleted and it is prayed so. ADDITION OF Rs. 2,11,27,468/- MADE IN RESPECT OF SO-CALLED EXCESS DIAMONDS FOUND DURING SURVEY AND ON SO-CALLED NEGATIVE STOCK OF 1665.53 KT DIAMOND STUDDED IN 14 KT JEWELLERY VALUED AT Rs. 3,87,10,998/- ON WHICH GP IS WORKED OUT AT Rs. 65,11,190/- BEING 16.82% BEING PART OF ADDITION OF A SUM OF Rs. 1,47,26,510/- 48. That this issue has been discussed by AO at pages 14 and 15 of the assessment order. For making addition, the AO has referred to the following chart as inscribed in the assessment order at page 14 and for the sake of completeness the said chat is reproduced below: (In grams) Particulars As per books Physically found Difference Diamond studded in 14Kt Gold Jewellery 15,074.36 13,408.83 -1,665.53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding that the net difference of 723.37 carats is attributable to estimation error. It was that there could be no case of excess embedded diamonds as the quantity and weight of diamonds embedded in jewellery is fully corroborated from the inventory maintained. It was also submitted that excess diamonds so calculated by valuers could not have been embedded in the available jewellery. 53. That the AO has rejected all the above submissions/contentions without any application of mind and also rejecting the request of the assessee for seeking clarification from the valuers regarding the basis adopted for calculating the weight of the embedded diamonds on the ground that such belated request is not acceptable. 54. That it has been pointed out in the earlier part of these submissions that the sole base of the impugned additions made by the AO rests upon the valuation reports and also legal submissions have been made that the valuation obtained by the Department during the course of survey does not have legal sanction on account of having been obtained without express authority and without prejudice such legal submissions, the assessee also contends that even valuation done by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of 14kt and 18kt jewellery to enable the AO to make addition either of so-called excess stock found during the course of survey as compared to books or to treat the short stock having been sold outside books of accounts and to workout GP on such so-called sales made outside the books of account. It is due to such elimination of factor the AO has not made any addition segment wise. When segment wise difference has been eliminated between and 18kt diamond studded gold jewellery and the segments have not been treated separately, it is highly arbitrary to make addition of GP in respect of one segment treating it differently being short on account of its sale outside the books of account. 37. After going through the entire facts, The ld. CIT(A) confirmed the addition of Rs. 3,35,846/- being unexplained investments u/s 69 on account of excess stock of 22 Kt. Gold and Polki jewellery of 113.5 gms. The ld. CIT(A) restricted the addition to Rs. 12,41,652/- from the addition made by the AO of Rs. 62,66,511/- being unexplained investments u/s 69 on account of excess stock of 18 Kt./14 Kt. Gold of 453.82 gms. The ld. CIT(A) confirmed the addition of Rs. 2,11,27,468/- bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess of valuation etc. may be made from independent sources such as internet, jewellery experts, third party valuers or even the valuers from whom the reports in the present case ore obtained so that the appropriate adjustments could be made to the figures appearing in the valuation report. 40. Referring to the tables submitted before the revenue authorities which are reflected at earlier pages of this order, the ld. AR submitted as under: As it can be seen that combined weight of 22KT gold jewellery and 22KT polki jewellery is in consonance with the same items of jewellery in the books of account except a difference of 113.50 grams (22KT polki gold jewellery 8,129.170 gram (-) 8015.67 grams 22KT gold jewellery). The ITO has accepted the fact of mixing of both these items of jewelleries at the time of valuation and considered the excess of 113.50 grams of gold for purpose of making addition and taking a rate of Rs. 2,959 per gram has made an addition of Rs. 3,35,846/- to the income of the assessee. Further, it can be seen from above table that there are two other items of gold jewellery which are 14KT gold jewellery and 18KT gold jewellery. It can be seen that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the estimating the value and therefore, it has been held that margin of error up to 10% is permissible in the estimate and if the valuation by the assessee falls within 10% margin of error, no addition would be called for. Similar provision is also described in section 50C of the Act wherein as per third proviso permits 10% variation in the consideration received as a result of transfer when it is compared to the value adopted or assessed by stamp valuation authority. Similarly, clause (x) of sub-section (1) of section 56 of the Act also provides margin of 10% of consideration. Looking in to this aspect, even if the contention of the assessee is accepted that there is no evidentiary value of valuation reports obtained by AO during the course of survey proceedings, the assessee pleads that while making the addition the margin of error may be considered and such error in estimating the value and quantity is very much below the permissible margin of 10%. For substantiating such contention, the assessee is relying upon the following decisions: a) Honest Group of Hotels Ltd. vs. CIT [2002] 123 Taxman 464 (J K) b) CIT vs. Pratapsingh Amrosingh Rajendra Singh Deepak Kumar [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss weight of these item of jewellery as per books was 77,962 grams. It is a matter of general prudence that unless, the studded diamonds are separated from the jewellery, its exact weight cannot be ascertained precisely. It is very difficult even for the valuer to state the separate weight of studded diamonds precisely. Thus, the weight stated in the valuation report was only an estimated weight. The assessee had submitted all the details and accounts before the AO and also details regarding all purchases and sales. The accounts of the assessee are audited in which no defect, whatsoever, has been found by the AO, therefore, simply based on weight of studded diamond estimated by the registered valuers, it cannot be inferred that there was any actual difference in the weight of the diamond studded in the jewellery. The rule of margin of error is equally applicable for this addition also. From the facts mentioned above it has been submitted that gross weight of diamond studded in 14KT and 18KT gold jewellery is 77,962.74 and difference as per estimated weight is only of 723.37 KTs. The percentage of such difference viz-a-viz gross weight of these items is only 0.93 precent and it has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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