Deputy Commissioner of Income-tax, V. M/s. Chandukaka Saraf & Sons, Pune

ITA 1017/PUN/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1511 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-09-2018
• Assessment Year: 2008-2009
• Appeal Filed On: 09-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR MAHESH AKHODE
• Keywords: Maximum Marginal Rate; Fair market value
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 961 /P U N/201 5 / ASSESSMENT YEAR : 20 0 8 - 0 9 M/S. CHANDUKAKA SARAF & SONS SR. NO.31/1/B/5, GUNWADI ROAD, BARAMATI, PUNE - 413102 . / APPELLANT PAN: A A AFC8675R VS. THE ADDL. COMMISSIONER OF INCOME TAX, RANGE 5, PUNE . / RESPONDENT . / ITA NO. 1017 /P U N/201 5 / ASSESSMENT YEAR : 2008 - 09 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 14, PUNE . / APPELLANT VS. M/S. CHANDUKAKA SARAF & SONS SR. NO. 31/1/B/5, GUNWADI ROAD, BARAMATI, PUNE - 413102 . / RESPONDENT PAN: AAAFC8675R ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : DR. MAHESH AKHODE / DATE OF HEARING : 1 0 . 09 .201 8 / DATE OF PRON OUNCEMENT: 27 . 11 .201 8 ITA NO. 961 /P U N/20 1 5 ITA NO.101 7/PUN/2015 2 / ORDER PER SUSHMA CHOWLA, J M : THE CROSS APPEAL S FILED BY ASSESSEE AND REVENUE ARE AGAINST ORDER OF CIT (A) - 7 , PUNE , DATED 2 6 .0 3 .201 5 RELATING TO ASSESSMENT YEAR 20 0 8 - 0 9 AGAINST ORDER PASSED UNDER SECTION 14 3(3) OF THE IN COME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. THE CROSS APPEALS FILED BY ASSESSEE AND REVENUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ASSESSEE IN ITA NO.961/PUN/2015 HAS RAISED THE FOLLO WING GROUNDS OF APPEAL: - ON FACTS AND IN LAW, 1] THE LEARNED CIT(A) ERRED IN CONFIRMING AN ADDITION OF RS.1,85,71 0/ - ON ACCOUNT OF SHORTAGE OF DIAMOND STOCK WITHOUT APPRECIATING THAT TH E ADDITION WAS NOT JUSTIFIED ON THE FACTS OF THE CASE. 2] THE LEARNE D CIT(A) ERRED IN CONFIRMING AN ADDITION OF RS.18 , 24 , 984/ - ON ACCOUNT OF TRANSFER OF SEIZED STOCK BY THE APPELLANT FIRM TO M/S. CHANDUKAKA SARAF & SONS PVT. LTD. ON THE GROUND THAT THE APPELLANT SHOULD HAVE TRANSFERRED THE SAID SEIZED STOCK AT MARKET VALUE . 2.1] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE STOCK OF 4473 GMS WAS SEIZED BY THE INCOME TAX DEPARTMENT AND WAS NOT AVAILABLE WITH THE APPELLANT FIRM AND HENCE, THERE WAS NO QUESTION OF TRANSFERRING THE SAID SEIZED STOCK AT MARKET RATE AND ACCOR DINGLY, THE ADDITION CONFIRMED OF RS.18,24,984/ - MAY KINDLY BE DELETED. 3] THE LEARNED CIT(A) ERRED IN CONFIRMING AN ADDITION OF RS.12,43,586/ - ON ACCOUNT OF TRANSFER OF DIAMOND STOCK BY THE APPELLANT FIRM TO M/S.CHANDUKAKA SARAF & SONS PVT. LTD ON THE GR OUND THAT THE APPELLANT SHOULD HAVE TRANSFERRED THE SAID STOCK AT RS.25 , 901/ - PER CARAT AS AGAINST RS.23,110/ - PER CARAT ADOPTED BY THE APPELLANT. 3.1] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE RATE ADOPTED BY THE APPELLANT WAS CORRECT AND HENCE, T HERE WAS NO REASON TO CONFIRM ANY ADDITION ON THIS GROUND. ITA NO. 961 /P U N/20 1 5 ITA NO.101 7/PUN/2015 3 4 . FIRST, WE SHALL TAKE UP THE APPEAL FILED BY THE REVENUE. THE REVENUE IN ITA NO.1017/PUN/2015 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - (1) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE DISALLOWANCE MADE U/S 40(B)(V), WHEN THE PARTNERSHIP DEED ONLY AUTHORIZED PAYMENT OF REMUNERATION TO THE WORKING PARTNERS WITHOUT SPECI FYING THE AMOUNT OF REMUNERATION TO EACH INDIVIDUAL PARTNER AND TO NOT LAY DOWN THE MANNER OF QUANTIFYING REMUNERATION TO EACH PARTNER, WHICH IS AGAINST THE VERY SPIRIT OF CIRCULAR NO 739 DATED 25.03.1996. (2) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN IGNORING THE FACT THE ASSESSEE HAD NO EXPLANATION FOR UNDERVALUATION OF GOLD TO THE EXTENT OF RS . 3,88,720/ - . (3) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF NON - MAINTENANCE OF ITEM - WISE DETAILS OF DIAMOND AND DIFFERENCE IN GP AND SHORTAGE OF DIAMONDS. (4) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF MAJURI COST AND IGNORED THE FACT OF TRANSACTION WITH SHAILESH JEWELER. (5) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN RESTRICTING THE ADDITION TO RS . 18,24,984/ - INSTEAD OF RS . 19,32,336/ - ON ACCOUNT OF VALUATION OF SEIZED GOLD. (6) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION MADE OF RS . 53,746/ - BY IGNORING THE RATE ADOPTED BY THE ASSESSING OFFICER. (7) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN RESTRICTING THE ADDITION TO RS . 12,43,586/ - AND DELETING THE BALANCE OF RS . 48,98,347/ - AND IGNORED THE FACT THAT THE ASSESSEE HAD NOT PRODUCED ANY EVIDENCE OF LOOSE DIAMONDS TRANSFERRED. 5 . THE ISSUE RAISED VIDE GROUND OF APP EAL NO.1 IS AGAINST DELETION OF DISALLOWANCE MADE UNDER SECTION 40(B)(V) OF THE ACT. 6 . BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS PARTNERSHIP FIRM AND HAD REMUNERATED TWO PARTNERS AS PER TERMS OF THE PARTNERSHIP DEED. THE ASSESSING OFFICER NOTE D THAT IN THE PARTNERSHIP DEED, PARTNER NOS.1 AND 2 WERE ITA NO. 961 /P U N/20 1 5 ITA NO.101 7/PUN/2015 4 WORKING PARTNERS AND REMUNERATION WAS NOT SPECIFIED BUT WAS TO BE PAID AT THE VARYING RATES OF BOOK PROFITS. THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE ASSESSEE IN THE PARTNERSHIP DEED HAS NOT SPECIFIED THE AMOUNT PAYABLE TO EACH OF THE WORKING PARTNERS, THEN THE SAID AMOUNTS ARE TO BE DISALLOWED IN THE HANDS OF ASSESSEE UNDER SECTION 40(B)(V) OF THE ACT. 7 . THE CIT(A) IN TURN, RELYING ON THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1270/PN/2011, RELATING TO ASSESSMENT YEAR 2007 - 08, ORDER DATED 31.10.2012 ALLOWED THE CLAIM OF ASSESSEE. THE RELEVANT FINDINGS OF TRIBUNAL ARE REPRODUCED UNDER PARA 4.2 AT PAGES 15 TO 17 OF APPELLATE ORDER. 8 . THE REVENUE IS IN APPEAL AGAINST THE O RDER OF CIT(A). 9 . WE HAVE HEARD BOTH THE LEARNED AUTHORIZED REPRESENTATIVES AND PERUSED THE RECORD. THE ISSUE ARISING VIDE GROUND OF APPEAL NO.1 RAISED BY REVENUE IS AGAINST ALLOWABILITY OF REMUNERATION PAID TO PARTNERS UNDER SECTION 40(B)(V) OF THE ACT . THE SAID CLAIM OF ASSESSEE HAS BEEN ALLOWED BY THE CIT(A) IN TURN FOLLOWING THE RATIO LAID DOWN BY THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2007 - 08. SINCE THE ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF ASSESSEE BY THE TRIBUNAL A ND THE FACTS AND ISSUE IN THE PRESENT CASE ARE SIMILAR, FOLLOWING THE SAME, WE UPHOLD THE ORDER OF CIT(A) IN ALLOWING THE CLAIM OF ASSESSEE UNDER SECTION 40(B)(V) OF THE ACT. THE GROUND OF APPEAL NO.1 RAISED BY REVENUE IS THUS, DISMISSED. 10 . NOW, COMING TO GROUNDS OF APPEAL NO.2 AND 3 RAISED BY REVENUE WHICH IS AGAINST THE ORDER OF CIT(A) IN DELETING ADDITION OF 3,88,720/ - WHICH WAS MADE ON ACCOUNT OF UNDER - VALUATION OF GOLD. ITA NO. 961 /P U N/20 1 5 ITA NO.101 7/PUN/2015 5 1 1 . BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD CLAIMED SHORTAGE OF 5223.90 GMS OF GOLD. THE ASSESSING OFFICER ASKED THE ASSESSEE TO SUBSTANTIATE THE SAID SHORTAGE. THE ASSESSING OFFICER FURTHER NOTED THAT ACTUAL SHORTAGE WAS 4772 GMS ONLY AND THE ASS ESSEE COULD NOT EXPLAIN SHORTAGE OF 452 GMS. THE PLEA OF ASSESSEE WAS THAT LOSS HAD OCCURRED ON ACCOUNT OF MELTING OF OLD ORNAMENTS. THE ASSESSING OFFICER DID NOT ACCEPT THE SAID PLEA AND DISALLOWED THE CLAIM OF ASSESSEE. THE ASSESSING OFFICER FURTHER N OTED THAT RATE OF BULLION ON 30.06.2007 WAS 860/ - PER GRAM. ACCORDINGLY, VALUED 452 GRM AT 3,88,720/ - AND ADDED THE SAME IN THE HANDS OF ASSESSEE. 1 2 . BEFORE THE CIT(A), THE ASSESSEE EXPLAINED THAT SHORTAGE HAD OCCURRED AT VARIOUS STAGES ON MANUFACTUR ING JE WELLERY. FURTHER, IT WAS STATED THAT THE ASSESSEE ALSO PURCHASED JEWELLERY ITEMS FROM THE CUSTOMERS AND ACTUAL PURITY OF THE SAID ITEM WAS KNOWN ONLY AFTER JEWELLERY WAS MELTED AND IN THE PROCESS, THERE WAS SOME SHORTAGE WHICH GOES UNRECORDED IN THE BILLS ISSUED BY THE KARAGIRS. THE ASSESSEE ALSO EXPLAINED THAT AS AGAINST TOTAL JEWELLERY SOLD OF 457400 GMS, DURING THE YEAR, DIFFERENCE OF 452 GMS WAS VERY NOMINAL. THE CIT(A) TOOK NOTE OF THE FACT THAT TOTAL SHORTAGE WORKED OUT IN THE HANDS OF ASSESS EE WAS 5223.90 GMS AND THE ASSESSING OFFICER HAD ALLOWED THE SHORTAGE OF 4772 GMS AND THE EXCESS SHORTAGE CLAIMED OF 452 GMS WAS DISALLOWED. THE CIT(A) NOTED THE CONTENTION OF ASSESSEE OF MELTING LOSS ON ACCOUNT OF MELTING OF OLD ORNAMENTS EITHER PURCHASE D FROM THE CUSTOMERS OR SELF - OWNED. THE SAID LOSS WAS NOT ENTERED IN ANY ACCOUNTS, SINCE THE KARAGIRS ONLY MAINTAIN THE RECORDS OF LOSS OCCURRING ON THE GOLD METAL BARS GIVEN TO THEM FOR MANUFACTURING JEWELLERY. THE CIT(A) TAKING NOTE OF THE EXPLANATION OF ASSESSEE, WAS OF THE VIEW THAT AS AGAINST TOTAL SALE OF JEWELLERY WEIGHING ITA NO. 961 /P U N/20 1 5 ITA NO.101 7/PUN/2015 6 457400 GMS, THE SHORTAGE OF 452 GMS WAS VERY NEGLIGIBLE AND HE DELETED THE ADDITION. 1 3 . THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A). HOWEVER, IN THE ENTIRETY OF THE F ACTS AND CIRCUMSTANCES, WE FIND MERIT IN THE STAND OF CIT(A) IN THIS REGARD. KEEPING IN MIND THE TOTAL BUSINESS CONDUCTED BY ASSESSEE IN GOLD AMOUNTING TO 457400 GMS DURING THE YEAR, SHORTAGE OF 452 GMS WAS VERY NEGLIGIBLE. IN ANY CASE, THE ASSESSEE HAS EXPLAINED THE SAID SHORTAGE OUT OF MELTING LOSS, WHICH WAS PREVALENT IN THE NATURE OF BUSINESS CARRIED ON BY THE ASSESSEE, THE SAME IS ACCEPTED AND THE GROUNDS OF APPEAL NO.2 AND 3 RAISED BY REVENUE ARE DISMISSED. 1 4 . NOW, COMING TO GROUNDS OF APPEAL NO.4 TO 7 RAISED BY REVENUE. 1 5 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE WAS TRADING IN GOLD AND DIAMOND JEWELLERY AND UPTO 30.06.2007 THE STATUS OF ASSESSEE WAS PARTNERSHIP FIRM. WITH EFFECT FROM 01.07.2007, THE SAID BUSINESS WAS TRANSFERRED TO PRIVATE LIMITED COMPANY . IN THE SAID PROCESS, THERE WAS TRANSFER OF STOCK OF GOLD AND DIAMONDS AT COST OR ABOVE COST. HE FURTHER POINTED OUT THAT THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE SHOULD HAVE TRANSFE RRED THE SAID GOLD AND DIAMOND ARTICLES AT THE PREVAILING FAIR MARKET VALUE AND HENCE, VALUE OF STOCK SO TRANSFERRED WAS RE - CALCULATED BY THE ASSESSING OFFICER. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD POINTED OUT THAT THE ENT IRE STOCK WAS TRANSFERRED AT THE ABOVE COST AND THERE WAS NO LAW TO TAX MORE THAN THE VALUE OFFERED. ITA NO. 961 /P U N/20 1 5 ITA NO.101 7/PUN/2015 7 1 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT MAIN DISPUTE WAS WITH REGARD TO LABOUR CHARGES OF ITEMS TRANSFERRED. THE ASS ESSEE HAD TAKEN LABOUR CHARGES @ 21.90 PER GRAM, WHEREAS THE ASSESSING OFFICER HAD APPLIED THE RATE OF 44 PER GRAM ON ESTIMATION AS THE ASSESSEE WAS CHARGING 8 0 - 1 00 PER GRAM. HE ALSO POINTED OUT THAT THE ASSESSEE HAD PAID L ABOUR CHARGES TO ONE CONCERN @ 55 PER GRAM. OUR ATTENTIO N WAS DRAWN TO PAGE 9 OF ASSESSMENT ORDER, WHEREIN ADDITION OF 35,43,179/ - WAS MADE IN THE HANDS OF ASSESSEE. 1 7 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ON THE OTHER HAND, POINTED OUT THAT THE ISSUE STANDS COVERED BY THE DECISIONS OF THE HONBLE HIGH COURT OF ANDHRA PRADESH IN CIT VS. HANSA FOOTWEAR (2012) 25 TAXMANN.COM 114 (AP) AND THE HON'BLE SUPREME COURT IN SAKTHI TRADING CO. VS. CIT (2001) 118 TAXMAN 301 (SC). HE ALSO POINTED OUT THAT THE ASSESSING OFFICER HAD RELIED ON THE RATIO L AID DOWN BY THE HON'BLE SUPREME COURT IN A.L.A. FIRM VS. CIT REPORTED IN 189 ITR 285 (SC), WHICH WAS CASE OF DIS - CONTINUATION OF BUSINESS ON DISSOLUTION. HOWEVER, THE CIT(A) RELYING ON THE DECISION OF SAKTHI TRADING CO. VS. CIT (SUPRA) HAS HELD THAT NO AD DITION IS WARRANTED ON INDIVIDUAL ITEMS. 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE HAD CARRIED ON THE BUSINESS ONLY FOR THREE MONTHS FROM 01.04.2007 TO 30.06.2007. ALL THE ASS ETS AND LIABILITIES, STOCK, ETC. WERE TRANSFERRED BY THE ASSESSEE FIRM TO PRIVATE LIMITED CONCERN. THE NET WORTH OF THE FIRM WAS WORKED OUT AT 3.20 CRORES AND THE SAME WAS EQUALLY DISTRIBUTED BETWEEN TWO PARTNERS. THE ASSESSEE HAD TRANSFERRED THE STOCK OF GOLD, DIAMOND AND SILVER AT MARKET RATE TO CHANDUKAKA SARAF & SONS ITA NO. 961 /P U N/20 1 5 ITA NO.101 7/PUN/2015 8 PVT. LTD. THE DETAILS OF STOCK TRANSFERRED ARE AVAILABLE AT PAGE 9 OF AS SESSMENT ORDER. THE ASSESSING OFFICER OBSERVED THAT THOUGH THE ASSESSEE CLAIMS TO HAVE TRANSFERRED THE STOCK AT MARKET RATE BUT IN ACTUAL FACT, THE CLOSING STOCK WAS NOT ACTUALLY VALUED AT MARKET RATE. HE WAS OF THE VIEW THAT SINCE THE BUSINESS WAS DISCO NTINUED, CLOSING STOCK OF BUSINESS SHOULD HAVE BEEN VALUED AT MARKET PRICE. ACCORDING TO THE ASSESSEE, THE SAID TRANSACTION WAS REVENUE NEUTRAL AS THE PRIVATE LIMITED CONCERN HAD PAID TAXES AT MAXIMUM MARGINAL RATE. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE SAID STAND OF ASSESSEE OBSERVING THAT THE INCOME - TAX ACT, 1961 MANDATES THAT CORRECT PERSON ALONE SHOULD BE TAXED. IN THIS REGARD, RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ITO VS. CH.ATCHAIAH REPORTED IN 218 ITR 239 (SC). HE THUS, RE - WORKED THE VALUE OF CLOSING STOCK AT MARKET RATE. IN RESPECT OF TRANSFER OF GOLD AND GOLD ORNAMENTS, STOCK OF 175570.85 GMS WAS VALUED @ 880/ - PER GRAM. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD VALUED GOLD @ 860/ - PER GRAM, GOLD METAL LABOUR CHARGES @ 21.90 PER GRAM. FROM THE BILLS SUBMITTED BY KARAGIRS, THE RATE CHARGED BY THEM WORKED OUT TO 24.92 PER GRAM. ANOTHER ASPE CT NOTED BY THE ASSESSING OFFICER WAS THE CLAIM OF SHORTAGE OF 4772 GMS, WHICH WAS PART OF COST OF MANUFACTURING FOR THE ASSESSEE AND THE SAME SHOULD BE INCLUDED WHILE VALUING THE STOCK. THE ASSESSING OFFICER OBSERVED THAT APPROXIMATELY 10/ - PER GRAM WO ULD BE ADDITIONAL COST ON ACCOUNT OF SHORTAGE. HOWEVER, THIS ADDITIONAL COST WAS NOT ADDED WHILE VALUING STOCK BY THE ASSESSEE. THE ASSESSING OFFICER NOTED THAT WHILE SELLING THE ITEMS TO CUSTOMERS, ASSESSEE NORMALLY CHARGES 80/ - PER GRAM TO 100/ - PE R GRAM TOWARDS LABOUR CHARGES, SHORTAGE AND ASSESSEES PROFIT. THE ASSESSEE WAS THUS, ASKED TO EXPLAIN AS TO WHY LABOUR CHARGES, SHORTAGE CHARGES WERE CHARGED AT LOW RATE OF 21.90 PER GRAM. THE ASSESSEE EXPLAINED THAT SINCE HUGE STOCK WAS TRANSFERRED, THEN IT WAS VALUED AT ITA NO. 961 /P U N/20 1 5 ITA NO.101 7/PUN/2015 9 DISCOUNTED PRICE. THE ASSESSING OFFICER PERUSED THE BILLS OF ASSESSEE OF SALE AND PURCHASES AND NOTED THAT MARKET RATE OF LABOUR CHARGES, SHORTAGE WAS AROUND 80/ - PER GRAM IN CASE OF RETAILER TO END USER AND AROUND 55/ - PER GRAM IN CASE OF WHOLESALER TO RETAILER. HE WAS OF THE VIEW THAT THE AFORESAID TRANSACTIONS COULD BE EQUATED WITH SALE OR WHOLESALE TO RETAILER BUT SINCE HUGE QUANTITY WAS TRANSFERRED, DISCOUNT OF 20% SHOULD BE GIVEN, HENCE MARKET VALUE OF GOLD WAS ASSESSED BY ADOPTING METAL RATE OF 860/ - PER GRAM AND OTHER CHARGES OF 44/ - PER GRAM. THE UNDER - VALUATION OF STOCK WORKED OUT TO 35,43,179/ - AND ADDITION WAS MADE ON ACCOUNT OF SALE. 19. THE SECOND ITEM WAS TRANSFER OF SEIZED GOLD I.E. THE ASSESSEE HAD TRANSFERRED GOLD SEIZED BY THE INCOME - TAX DEPARTMENT @ 472/ - PER GRAM I.E. THE VALUE AS ON THE DATE OF SEARCH. THE ASSESSEE ON THE OTHER HAND, HAD VALUED THE GOLD OTHER THAN SEIZED GOLD AT 880/ - PER GRAM. THE ASSESSING OFFICER WAS OF THE VIEW THAT SEIZED GOLD ALSO SHOULD BE VA LUED AT MARKET RATE ONLY. HE ADOPTED RATE OF 904/ - AS IN THE OTHER CASES AND MADE ADDITION OF 19,32,336/ - . 20. FURTHER, IN RESPECT OF TRANSFER OF DIAMOND GOLD OF 2239.41 GMS TO PRIVATE LIMITED CONCERN, THE ASSESSEE HAD ADOPTED THE RATE OF 880/ - P ER GRAM WHICH WAS RE - VALUED @ 904/ - PER GRAM AND ADDITION OF 53,746/ - WAS MADE. 21. THE ASSESSEE HAD ALSO TRANSFERRED DIAMONDS AND DIAMOND JEWELLERY, WHICH WAS VALUED AT 23,100/ - . THE ASSESSING OFFICER HAD EXAMINED THE PURCHASE BILLS OF DIAMONDS AND SOME OF THE DIAMONDS COSTS MORE THAN 1 LAKH PER CARAT. SINCE THE ASSESSEE HAD NOT MAINTAINED ITEM - WISE STOCK REGISTER FOR DIAMONDS AND COULD NOT FURNISH THE QUANTITATIVE RECONCILIATION OF STOCK OF ITA NO. 961 /P U N/20 1 5 ITA NO.101 7/PUN/2015 10 DIAMONDS AND IN THE ABSENCE OF LINKING PURCHASE BILL S WITH CLOSING STOCK AVAILABLE, THE ASSESSING OFFICER OBSERVED THAT THE VALUE OF 23,110/ - LACKED BASIS. FURTHER OUT OF 445.57 CARATS OF DIAMONDS TRANSFERRED, THE ASSESSEE HAD NOT FURNISHED BREAKUP OF LOOSE DIAMONDS AND DIAMONDS STUDDED IN GOLD AND THE A SSESSING OFFICER THUS, WORKED OUT SELLING RATE PER CARAT OF DIAMOND AT 41,807/ - PER CARAT AND THE UNDER - VALUATION WORKED OUT TO 18,697/ - PER CARAT, RESULTING IN ADDITION OF 83,30,822/ - IN THE HANDS OF ASSESSEE. FURTHER, ADDITION WAS MADE ON ACCOUNT OF LABOUR CHARGES BUT THE ASSESSING OFFICER WAS OF THE VIEW THAT SOME DISCOUNT SHOULD BE GIVEN ON ACCOUNT OF HUGE QUANTITY TRANSFERRED AND HENCE, DISCOUNT OF 20% WAS GIVEN AND NET ADDITION OF 82,21,064/ - WAS MADE IN THE HANDS OF ASSESSEE. THE ASSESSING OFFICER SUBSEQUENTLY, VIDE ORDER PASSED UNDER SECTION 154 OF THE ACT REDUCED THE ADDITION OF 82,21,064/ - MADE ON ACCOUNT OF DIAMOND AND DIAMOND JEWELLERY TO 61,41,933/ - . 2 2 . THE ASSESSEE FILED APPEAL BEFORE THE CIT(A) AND POINTED OUT THAT THE ASSESS ING OFFICER HAD NO POWER TO ESTIMATE THE VALUE OF STOCK. IT WAS POINTED OUT THAT THE ASSESSING OFFICER HAD MADE AFORESAID ADDITION ON THE BASIS THAT THE BUSINESS HAD BEEN DISCONTINUED, WHEREAS IT WAS CASE OF CONTINUATION OF BUSINESS, WHEREIN THE STOCK OF PARTNERSHIP FIRM WAS TRANSFERRED TO THE COMPANY AND THE BUSINESS HAS BEEN CONTINUED BY THE SUCCESSOR COMPANY. IN THIS REGARD, RELIANCE WAS PLACED ON THE DECISION OF APEX COURT IN SAKTHI TRADING CO. VS. CIT (SUPRA). THE FIRST ISSUE WHICH WAS DECIDED BY TH E CIT(A) WAS THAT IN THE PRESENT CASE BUSINESS HAS BEEN TRANSFERRED BY THE ASSESSEE FIRM TO THE COMPANY AND BUSINESS THEREAFTER HAD BEEN CONTINUED BY THE COMPANY AND EVEN ALL THE EMPLOYEES OF ASSESSEE COMPANY HAVE BEEN TAKEN OVER BY THE COMPANY, HENCE IT W AS NOT THE CASE OF BUSINESS HAVING BEEN TOTALLY ITA NO. 961 /P U N/20 1 5 ITA NO.101 7/PUN/2015 11 DISCONTINUED AND THE ASSETS WERE SOLD, WHEREAS THE BUSINESS WAS CONTINUED BY PRIVATE LIMITED COMPANY. RELIANCE WAS PLACED ON THE DECISION OF THE APEX COURT IN SAKTHI TRADING CO. VS. CIT (SUPRA), WHEREIN FACT S WERE SAME ; IN THAT CASE ONE OF THE PARTNERS OF FIRM HAD DIED AND THERE WAS DISSOLUTION ON THE DEATH OF PARTNER THEREAFTER, THE FIRM WAS RECONSTITUTED WITHOUT ANY DISCONTINUATION OF BUSINESS AND THE APEX COURT HELD THAT SINCE THE BUSINESS CONTINUED, THE S TOCK WAS NOT REQUIRED TO BE VALUED AT MARKET RATE AND HENCE, ADDITION MADE WAS DELETED. THE CIT(A) ALSO POINTED OUT THAT PRIVATE LIMITED CONCERN IS WHOLLY OWNED BY TWO PARTNERS OF ASSESSEE FIRM AND HENCE, NO MERIT IN THE ORDER OF ASSESSING OFFICER IN RELY ING ON THE DECISIONS WHERE IT WAS CASE OF DISSOLUTION AND DISCONTINUATION OF BUSINESS. 2 3 . THE NEXT STEP WAS THE CIT(A) DEALING WITH EACH OF THE ADDITIONS MADE BY ASSESSING OFFICER ON ACCOUNT OF VALUATION OF STOCK ON DISCONTINUATION OF BUSINESS. THE FIRS T ADDITION WAS ON ACCOUNT OF TRANSFER OF GOLD AND ORNAMENTS OF 35,43,179/ - , WHEREIN THE ASSESSEE HAD TAKEN COST OF MAJURI AT 22.65 PER GRAM AND THE ASSESSING OFFICER ADOPTED THE SAME AT 44 PER GRAM. THE CIT(A) OBSERVED THAT ONLY BASIS FOR ARRIVING AT THE SAID COST WAS WITH REFERENCE TO TRANSACTION OF SHAILESH J EWELLERS, WHEREIN THEY HAD CHARGED 55 PER GRAM. HOWEVER, THE CIT(A) TOOK NOTE OF VARIOUS TRANSACTIONS EVEN IN THE MONTH OF JUNE, WHEREIN THE AVERAGE MAJURI RATE WAS 23.12 PER GRAM AND THE TRANSACTION WITH SHAILESH JEWELLERS WAS A SMALL TRANSACTION AND THE ASSESSEE CONTENDED THAT BECAUSE OF UNIQUENESS OF MAKE OF JEWEL LERY, HIGHER RATE WAS CHARGED. THE CIT(A) WAS OF THE VIEW THAT AVERAGE MAJURI COST OF 23.12 WAS TAKEN BY THE ASSESSEE APPEARED TO BE REASONABLE. ITA NO. 961 /P U N/20 1 5 ITA NO.101 7/PUN/2015 12 2 4 . THE REVENUE IS IN APPEAL AGAINST T HE AFORESAID ORDER OF CIT(A) AND HAS RAISED THE ISSUE VIDE GROUND OF APPEAL NO.4. 2 5 . WE FIND MERIT IN THE ORDER OF CIT(A). THE ESTIMATION OF COST OF MAJURI BY THE ASSESSING OFFICER ON THE BASIS OF ONE TRAN SACTION WITH SHAILESH JEWELLERS, WHEREIN ADMITTE DLY, HIGHER RATE OF MAJURI WAS PAID BECAUSE OF UNIQUENESS OF LABOUR, COULD NOT BE THE BASIS FOR RE - WORKING THE COST OF MAJURI IN THE HANDS OF ASSESSEE ON THE ITEMS TRANSFERRED BY THE ASSESSEE. UPHOLDING THE ORDER OF CIT(A), WE FIND NO MERIT IN THE GROUND OF APPEAL NO.4 RAISED BY REVENUE AND THE SAME IS DISMISSED. 2 6 . NOW, COMING TO NEXT ADDITION OF 53,746/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF TRANSFER OF DIAMOND GOLD WHICH WAS ALSO ON ACCOUNT OF ESTIMATION OF COST OF MAJURI , T HE CIT(A) APPLYING SIMILAR REASONING AS FOR GOLD AND JEWELLERY, DELETED THE SAID ADDITION. SINCE, WE UPHELD THE ORDER OF CIT(A) WITH REGARD TO COST OF MAJURI FOR GOLD JEWELLERY AND FOLLOWING THE SAME, WE FIND NO MERIT IN THE NEXT ISSUE AND DELETION OF ADDITION OF 53,746/ - IS UPHELD. THE GROUND OF APPEAL NO.6 RAISED BY REVENUE IN THIS REGARD IS THUS, DISMISSED. 2 7 . NOW, COMING TO NEXT ADDITION OF ASSESSING OFFICER I.E. RE - WORKING OF VALUE OF SEIZED STOCK AND ADDITION OF 19,32,336/ - , THE CIT(A) HELD THAT THE ASSESSING OF FICER HAD RIGHTLY VALUED THE SEIZED GOLD TRANSFERRED AT THE PREVALENT MARKET RATE, BUT HE RESTRICTED THE ADDITION TO 18,24,984/ - , SINCE THE RATE OF MAJURI AS SHOWN BY ASSESSEE HAD BEEN ADOPTED. 2 8 . THE REVENUE VIDE GROUND OF APPEAL NO.5 IS AGGRIEVED B Y THE SAID RESTRICTION OF ADDITION TO 18,24,984/ - INSTEAD OF 19,32,336/ - . IT MAY BE ITA NO. 961 /P U N/20 1 5 ITA NO.101 7/PUN/2015 13 POINTED OUT HEREIN ITSELF THAT THE ASSESSEE VIDE GROUNDS OF APPEAL NO.2 AND 2.1 HAS RAISED THE ISSUE AGAINST ADDITION OF 18,24,984/ - . 2 9 . WE HAVE HEARD BOTH THE LEA RNED COUNSELS ON THIS ISSUE. WE ARE OF THE VIEW THAT THE VALUE OF STOCK WHICH WAS SEIZED BY INCOME - TAX DEPARTMENT BUT WHICH BELONGS TO THE ASSESSEE IS TO BE VALUED AT THE MARKET RATE AND NOT AT THE RATE OF GOLD ON THE DATE OF SEIZURE. ACCORDINGLY, WE FIN D MERIT IN THE ORDERS OF AUTHORITIES BELOW IN THIS REGARD THAT THE VALUE OF SEIZED GOLD HAS TO BE TAKEN AT THE MARKET RATE. HOWEVER, IN VIEW OF OUR UPHOLDING THE ORDER OF CIT(A) IN RESTRICTING THE COST OF MAJURI, WE UPHOLD THE ORDER OF CIT(A) IN RESTRICTI NG THE ADDITION TO 18,24,984/ - . HENCE, THE GROUND OF APPEAL NO.5 RAISED BY REVENUE AND GROUNDS OF APPEAL NO.2 AND 2.1 RAISED BY ASSESSEE ARE DISMISSED. 30 . NOW, COMING TO NEXT ISSUE I.E. PARTIAL DELETION OF ADDITION OF 61,41,933/ - AS PER ORDER PASSED UNDER SECTION 154 OF THE ACT AS AGAINST ORIGINAL ADDITION OF 82,21,064/ - ON ACCOUNT OF TRANSFER OF DIAMOND / DIAMOND JEWELLERY. THE SAID ADDITION WAS MADE BY ASSESSING OFFICER BY FOLLOWING THE AVERAGE COST OF DIAMONDS TRANSFERRED AT 41,807/ - PER CAR AT AS AGAINST THE ASSESSEES STAND OF FOLLOWING THE SAME AT 23,110/ - PER CARAT. FURTHER, THE ASSESSING OFFICER HAD MADE ADDITION ON ACCOUNT OF COST OF MAJURI BUT HAD ALLOWED 20% REBATE ON ACCOUNT OF QUANTITATIVE DISCOUNT. THE CIT(A) HAS TAKEN NOTE OF W ORKING OF COST OF DIAMONDS BY THE ASSESSING OFFICER AND THE DEFICIENCIES POINTED OUT BY THE ASSESSEE IN THE SAID WORKING AND HIS PLEA OF ACCEPTING THE VALUE AT 23,110/ - PER CARAT VIDE PARA 9.12 AND ALSO HAS TAKEN NOTE OF THE PLEA OF ASSESSEE THAT THE ASS ESSING OFFICER HAS TAKEN ACTUAL QUANTITY OF DIAMONDS SOLD WRONGLY AND HAS OBSERVED THAT WORKING GIVEN BY ASSESSEE OF LABOUR RATE OF 479/ - PER CARAT WAS NOT CORRECT AS THE ASSESSEE HAD INCLUDED THE CLOSING ITA NO. 961 /P U N/20 1 5 ITA NO.101 7/PUN/2015 14 STOCK AND SALES OF DIAMONDS BOTH AT PUNE AND BAR AMATI. HE WAS OF THE VIEW THAT TO ARRIVE AT THE AVERAGE LABOUR RATE, ACTUAL AMOUNTS OUGHT TO HAVE BEEN TAKEN INTO ACCOUNT I.E. IN RESPECT OF PURCHASES MADE BY ASSESSEE DURING THE YEAR OF DIAMONDS AT PUNE OF 137 CARATS AND AT BARAMATI OF 23 CARAT, WHEREBY AVERAGE LABOUR RATE WORKS OUT TO 1560/ - PER CARAT AND IF AVERAGE RATE IS ADOPTED AT 30,818/ - PER CARAT AND AVERAGE LABOUR COST OF 1560/ - PER CARAT WAS CONSIDERED THE TOTAL WOULD COME TO 32,376/ - AND IF QUANTITATIVE DISCOUNT OF 20% AS CONSIDERED BY THE ASSESSING OFFICER WAS TAKEN INTO ACCOUNT ON THE TOTAL RATE, THEN THE AVERAGE RATE WOULD COME TO 25,901/ - PER CARAT. HE WAS OF THE VIEW THAT THE SAID RATE IS TO BE CONSIDERED WHILE WORKING OUT THE VALUATION OF TRANSFER OF 445.57 CARATS OF DIAMONDS TO THE COMPANY AS AGAINST 23,110/ - TAKEN BY ASSESSEE. IN THESE CIRCUMSTANCES, THE ADDITION WAS SUSTAINED AT 12,43,586/ - AND FURTHER RELIEF OF 48,98,347/ - WAS ALLOWED TO THE ASSESSEE. 3 1 . THE REVENUE BY WAY OF GROUND OF APPEAL NO.7 RAISED THE AFORESA ID ISSUE OF RESTRICTING ADDITION TO 12,43,586/ - AND THE ASSESSEE IS AGGRIEVED AND HAS RAISED GROUNDS OF APPEAL NO.3 AND 3.1 IN THIS REGARD. 3 2 . WE ARE OF THE VIEW THAT THE CIT(A) HAS ELABORATELY CONSIDERED ALL THE ASPECTS OF THE ISSUE AND HAS DEALT W ITH THE SAME IN PARA 9.1 AT PAGES 31 AND 32 OF HIS ORDER, WHICH ARE BEING REFERRED, BUT ARE NOT BEING REPRODUCED FOR THE SAKE OF CONVENIENCE. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WE AGREE WITH THE RE - WORKING OF AVERAGE RATE OF 25,9 01/ - PER CARAT, ESPECIALLY IN VIEW OF THE DEFICIENCIES POINTED OUT BY THE ASSESSEE IN WORKING OF ASSESSING OFFICER AND ALSO BECAUSE OF ADOPTION OF WRONG VALUE OF DIAMONDS SOLD BY ASSESSING OFFICER. IN OUR VIEW, THE CALCULATION OF AVERAGE RATE OF DIAMONDS AT 25,901/ - PER CARAT, MADE BY CIT(A) MERITS TO BE UPHELD IN THE CASE. HENCE, ITA NO. 961 /P U N/20 1 5 ITA NO.101 7/PUN/2015 15 WE DISMISS THE GROUND OF APPEAL NO.7 RAISED BY REVENUE AND GROUNDS OF APPEAL NO.3 AND 3.1 RAISED BY ASSESSEE . T HAT LEAVES GROUND OF APPEAL NO.1 RAISED BY ASSESSEE, WHICH IS NOT PRESSED BY THE ASSESSEE, HENCE THE SAME IS DISMISSED AS NOT PRESSED. 3 3 . IN THE RESULT, BOTH THE APPEALS OF ASSESSEE AND REVENUE ARE DISMISSED. ORDER PRONOUNCED ON THIS 27 TH DAY OF NOVEMB ER , 201 8 . SD/ - SD/ - (ANIL CHATURVE DI) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 27 TH NOVEM BER , 201 8 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - 7 , PUNE ; 4. THE PR. CIT - 6 , PUNE ; 5. 6. , , / DR A , ITAT, PUNE ; / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE