ACIT, Central Circle-1, Pune V. M/s. Ranka Jewellers Pvt. Ltd., Pune

ITA 2189/PUN/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0945 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-01-2016
• Assessment Year: misc
• Appeal Filed On: 02-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Assessee Lawyers: S U PATHAK
• Keywords: Unexplained investment; Unexplained expenditure; Business income; Income from undisclosed sources; Loose papers; Document seized; Difference of opinion; Valuation report; Block assessment; Reason to believe; Documents seized
• Section: 143(3); 142(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , ! , # $ BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.2188/PN/2012 BLOCK PERIOD 1996 TO 2002 M/S. RANKA JEWELLERS PVT. LTD., LAXMI ROAD, PUNE PAN NO. AABCR1795D . / APPELLANT V/S ACIT, RANGE - 1, PUNE . / RESPONDENT . / ITA NO.2189/PN/2012 BLOCK PERIOD 1996 TO 2002 ACIT, RANGE - 1, PUNE . / APPELLANT V/S M/S. RANKA JEWELLERS PVT. LTD., LAXMI ROAD, PUNE PAN NO. AABCR1795D . / RESPONDENT / ASSESSEE BY : SHRI S.U. PATHAK / REVENUE BY : SHRI A.K. MODI / ORDER PER R.K.PANDA, AM : THESE ARE CROSS APPEALS. THE FIRST ONE IS FILED BY THE ASS ESSEE AND THE SECOND ONE FILED BY THE REVENUE AND ARE DIRECT ED AGAINST THE ORDER DATED 09-04-2012 OF THE CIT(A)-I, PUNE RELATING T O BLOCK PERIOD 01-04-1996TO 24-10-2002. FOR THE SAKE OF CONVENIENCE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. / DATE OF HEARING :04.07.2016 / DATE OF PRONOUNCEMENT: 23.09.2016 2 ITA NOS.2188 AND 2189/PN/2012 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF GOLD AND DIAMOND JEWE LLERY AND ALSO DEALS IN SILVER ARTICLES. A SEARCH ACTION U/S.132(1) OF TH E I.T. ACT WAS CONDUCTED ON 24-10-2002 AT THE BUSINESS PREMISES AND THE RESIDENTIAL PREMISES OF THE DIRECTORS, I.E. ENTIRE RANKA JEWELLE RS GROUP ALONG WITH SOME OF THEIR TRUSTED EMPLOYEES AND PERSONS FR OM WHOM THE GROUP MAKES PURCHASE ETC. DURING THE COURSE OF SEARCH AT THE BUSINESS PREMISES AT LAXMI ROAD, GOLD JEWELLERY WEIGHING 14032.700 GM S VALUED AT RS.70,11,529/-, DIAMOND JEWELLERY VALUED AT RS.18,95,786/-, SILVER ARTICLES WEIGHING 22.781 KG VALUED AT RS.1,76,553/-,GEMS VALU ED AT RS.8,33,683/-, SUNGLASSES VALUED AT RS.1,97,415/-, UKTAMAL VA LUED AT RS.8,913/- AND PERFUMES AND COSMETICS ETC VALUED AT RS.65 ,699/- WERE SEIZED FROM THE BUSINESS PREMISES AT LAXMI ROAD, PUNE. F URTHER, GOLD AND DIAMOND JEWELLERY VALUED AT RS.69,61,684/-, SILVER ARTICLE S WEIGHING 100 KGS VALUED AT RS.7,75,000/- AND CASH OF RS.9,5 1,101/- WERE SEIZED FROM THE RESIDENCE OF THE DIRECTOR SHRI F.N. RANKA. 3. DURING THE COURSE OF SEARCH LARGE NUMBER OF BOOKS OF ACCOUNT AND OTHER DOCUMENTS IN THE FORM OF LOOSE SHEETS ETC WERE SE IZED FROM THE RESIDENTIAL AND BUSINESS PREMISES OF THE ASSESSEE. IN R ESPONSE TO NOTICE U/S.158BC THE ASSESSEE FILED THE RETURN OF INCOME ON 30-0 9-2003 DECLARING UNDISCLOSED INCOME AT RS.1,50,00,000/-. THE AO ISS UED NOTICE U/S.143(2) AND 142(1) ALONG WITH A QUESTIONNAIRE ASK ING THE ASSESSEE TO EXPLAIN AS TO HOW THE ASSETS FOUND DURING T HE COURSE OF SEARCH HAS BEEN ACCOUNTED FOR AND AS TO HOW THE TRAN SACTIONS NOTED IN THE SEIZED BOOKS AND DOCUMENTS HAVE BEEN ACCOUNTED FO R IN REGULAR BOOKS OF ACCOUNT. THE AO ALSO GOT THE ACCOUNTS AUDITED U/S.142(2A) OF THE I.T. ACT. AFTER RECEIVING THE AFOREMENTIONED AUDIT REP ORT THE AO 3 ITA NOS.2188 AND 2189/PN/2012 ASKED THE ASSESSEE TO SUBMIT ITS COMMENTS ON THE FINDING IN THE AUDIT REPORT TO WHICH THE ASSESSEE COMPLIED. 4. ON THE BASIS OF THE VARIOUS SUBMISSIONS MADE BY THE A SSESSEE FROM TIME TO TIME AND ON THE BASIS OF ASSETS FOUND AND SU PPRESSED BUSINESS TURNOVER AS WELL AS PERSONAL EXPENSES FOR WHICH NO SAT ISFACTORY EXPLANATION WAS GIVEN BY THE ASSESSEE THE AO DETERMINED THE TOTAL UNDISCLOSED INCOME FOR THE BLOCK PERIOD AT RS.2,67,11,893/-. HE ALSO DETERMINED THE UNDISCLOSED INCOME FOR THE BLOCK PERIOD ON THE BASIS OF UNDISCLOSED TURNOVER AT RS.2,56,64,393/-. SINCE THE UNDISCLO SED INCOME AS PER THE ASSETS FOUND IS MORE THAN THE INCOME AS PER THE UNDISCLOSED TURNOVER HE DETERMINED THE UNDISCLOSED TURNO VER FOR THE BLOCK PERIOD AT RS.2,67,11,893/-. 5. IN APPEAL THE LD.CIT(A) GAVE PART RELIEF TO THE ASSESS EE. THE BIFURCATION OF INDIVIDUAL ITEMS OF ADDITIONS AS PER THE ORDER OF THE AO AS WELL AS THE CIT(A) CAN BE SUMMARIZED AS UNDER : PARTICULARS INCOME AS PER AO AS PER CIT(A) RELIEF 1. ESTIMATION OF UNDISCLOSED PROFIT FOR F.Y.1996 - 97 TO 2001-02 10114255 7690964 2423561 2. ESTIMATION OF INCOME FOR 1 - 04 - 2002 TO 24 - 10 - 2002 15898430 10353679 5544751 LESS : EXPENSES 2346226 2346226 0 25664393 15698147 3. ADDITION ON ACCOUNT OF INITIAL INVESTMENT 744133 744133 4. ADDITION ON ACCOUNT OF VALUATION OF CLOSING STOC K 1997934 0 1997934 5. ADDITION ON ACCOUNT OF EXCESS STOCK OF GOLD 6673715 0 6673715 6. ADDITION OF ACCOUNT OF EXCESS STOCK OF SILVER 176553 0 176553 7. ADDITION OF ACCOUNT OF EXCESS STOCK OF GEMS 833683 527733 305950 8. ADDITION OF ACCOUNT OF EXCESS STOCK OF SUNGLASSE S ETC. 280553 280553 0 9. ADDITION OF ACCOUNT OF EXCESS DIAMOND DIRECTOR RESIDENCE 2773230 749453 2023777 10. ADDITION OF ACCOUNT OF EXCESS STOCK OF GOLD DIRECTOR RESIDENCE 5161014 5161014 0 11. ADDITION ON ACCOUNT OF EXCESS SILVER DIRECTOR RESIDENCE 613815 613815 0 EXCESS CASH 9951101 9951101 0 UNEXPLAINED EXPENSES 248229 248229 0 TOTAL 26711893 17531898 9179995 4 ITA NOS.2188 AND 2189/PN/2012 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) GIVING PART RE LIEF THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : GROUNDS BY ASSESSEE : THE FOLLOWING GROUNDS ARE TAKEN WITHOUT PREJUDICE T O EACH OTHER - ON FACT AND IN LAW, 1. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE ASST. U/S 158BC(C) WAS VALID IN LAW (PAGE 156 TO 158 OF CIT(A)). 1.1 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT: A. THE ASST. IS BARRED BY LIMITATION AS THE SEARCH WAS P ROLONGED UNREASONABLY WITHOUT JUSTIFICATION. B. THE SEIZURE OF GOLD ORNAMENT AND DIAMOND ORNAMENT HAS BEEN MADE OUT OF STOCK WHICH IS NOT KEPT IN THE PROHIBITORY ORD ER. C. THE SEIZURE OF ORNAMENTS WAS MADE PRIOR TO RECONCIL IATION OF STOCK AND WITHOUT GIVING PROPER OPPORTUNITY TO EXPLAIN. D. THE SEIZURE OF ORNAMENTS WAS MADE EVEN THOUGH THERE WAS NO EXCESS IN THE STOCK. E. THE PROHIBITORY ORDER WAS ONLY FOR ONE ROOM IN WH ICH NO ORNAMENTS WERE KEPT. 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT THERE WAS AN EXCESS STOCK OF GEMS OF RS.5,27,733/- ON THE BASIS OF THE AVERAGE OF TH E TWO VALUATIONS DONE BY THE VALUERS AND ACCORDINGLY, HE ERRED IN SUSTAININ G THE ABOVE ADDITION. (PAGE NO. 92 OF CIT(A)) 2.1 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT A. IN REALITY, THERE WAS NO EXCESS STOCK OF GEMS FOUN D DURING THE SEARCH AND HENCE, NO ADDITION WAS REQUIRED TO BE MADE ON TH AT ACCOUNT. B. WITHOUT PREJUDICE, THE REGISTERED VALUER SHRI PAR AG GADGIL HAD VALUED THE EXCESS STOCK AT RS.2,21,783/- AND THE SAME SHOULD HAV E BEEN ACCEPTED INSTEAD OF TAKING THE AVERAGE OF THE TWO MARKET VALU ES DETERMINED BY TWO DIFFERENT VALUERS. C. WHEN THERE ARE TWO VALUATION REPORTS, IF NO APPAR ENT ERROR / DISCREPANCY IS FOUND, THE LOWER OF THE VALUATION OUGH T TO HAVE BEEN ACCEPTED INSTEAD OF TAKING THE AVERAGE OF TWO MARKET VALUES. D. THE STOCK HAD TO BE CONSIDERED AT COST FOR DETERMIN ING THE EXCESS AND AS THE SAME WAS TAKEN BY THE VALUER AT MARKET VALUE, T HE EXCESS WAS NOT CORRECTLY DETERMINED AND THEREFORE, NO ADDITION WAS REQUIRED ON THIS ACCOUNT. E. THE DEFECTS IN THE VALUATION REPORT OF SHRI UTTAM JAIN, WHO HAS GIVEN HIS VALUATION REPORT ON ARBITRARY BASIS WITHOUT GIVING ANY BASIS REQUIRED FOR VALUATION OF GEMS. 5 ITA NOS.2188 AND 2189/PN/2012 F. THE VALUATION REPORT OF SHRI UTTAM JAIN, RELIED UPON BY THE DEPARTMENT HAS NOT GIVEN ANY DETAILS ABOUT THE WEIGHT OF STONE, GOLD IMBEDDED THEREIN, GROSS AND NET WEIGHT OF THE ORNAME NT IN WHICH GEMS ARE STUDDED. 3. THE LEARNED CIT(A) ERRED IN SUSTAINING THE ADDITIO N OF RS.2,80,553/- ON ACCOUNT OF THE ALLEGED EXCESS STOCK OF SUN GLASSES, UK TAMAL, PERFUMES, WATCHES, ETC. (PAGE NO. 95 CIT(A)). 3.1 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT- A. THE ABOVE ADDITIONS WERE BASED ON THE VALUATION BA SED ON MRP RATES AS REDUCED BY G.P. MARGIN OF 20% AND BARGAIN MARGIN OF 7% AND HENCE, THE VALUATION WAS APPROXIMATE AND VAGUE. B. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE RE IS A LOT OF BARGAINING ON SALE OF SUCH PRODUCTS AND HENCE, THE BEN EFIT OF 25% ON ACCOUNT OF BARGAINING SHOULD HAVE BEEN GIVEN FROM THE VALUAT ION. C. THE APPELLANT HAD SUBMITTED THE EVIDENCES FOR THE DISCOUNTS GIVEN AND THUS, IT WAS INCORRECT TO REJECT THE CLAIM OF THE APPELLANT. D. THE ADDITION WAS NOT JUSTIFIED AS THE VALUATION OF THE STOCK WAS NOT DONE CORRECTLY AND IT WAS BASED ON PRESUMPTIONS AND IN REALITY, THERE WAS NO SUCH EXCESS STOCK. E. THE VALUATION WAS NOT DONE CORRECTLY AS NO DISCOUNT WAS GIVEN FOR THE OBSOLETE / SLOW MOVING STOCK. 4. THE LEARNED CIT(A) ERRED IN DIRECTING THE A.O. T O VERIFY THE FACTS REGARDING THE ADDITION OF ALLEGED UNACCOUNTED STOCK OF RS.79,34,244/-. (PAGE NO. 103 TO 109 CIT(A)). 4.1 THE LEARNED CIT(A) WAS NOT JUSTIFIED IN RESTORING THE MATTER TO THE A.O. WHEN HE HAD NO POWER UNDER THE LAW TO SET ASIDE THE MATTER TO THE A.O. 4.2 THE LEARNED CIT(A) WAS NOT JUSTIFIED IN RESTORING THE MATTER TO THE A.O. WHEN HE HIMSELF HAS ACCEPTED ON PAGE 108 OF HIS O RDER THAT THE CLAIM OF THE APPELLANT WAS REASONABLE AND CORRECT AND ALSO THA T THE SPECIAL AUDITOR HAS ALSO OPINED THAT THE CLAIM OF THE APPELLANT WAS AC CEPTABLE. 4.3 THE LEARNED CIT(A) WAS NOT JUSTIFIED IN NOT GIVIN G A FINDING ON THE CONTENTIONS OF THE APPELLANT IN THIS CONTEXT. HE FURT HER ERRED IN NOT GIVING THE TELESCOPIC BENEFIT OF THE ADDITION AGAINST THE UNACCO UNTED INCOME. 5. THE LEARNED CIT(A) ERRED IN EXTRAPOLATING THE UN ACCOUNTED SALES FOR THE ENTIRE BLOCK PERIOD INSTEAD OF RESTRICTING THE AD DITION ONLY TO THE PERIOD FOR WHICH THE EVIDENCES WERE FOUND DURING THE SEARCH. (PAGE 142 TO 146 OF CIT(A) ORDER). 5.1 THE LEARNED CIT(A) ACCORDINGLY, ERRED IN SUSTAINI NG THE ADDITION OF RS.L,03,53,679/- FOR THE PERIOD 01.04.2002 TO 24.10. 2002 (PAGE 142 OF CIT(A)) AND ADDITION OF RS.76,90,694/- FOR THE PERIO D F.Y. 1996 - 97 TO 2001 - 02 (PAGE 146 CIT(A)). 5.2] THE LEARNED CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT- A. IN A BLOCK ASST. THE ADDITION COULD BE MADE ON THE BASIS OF ESTIMATION - AND EXTRAPOLATION AND IT NEED NOT HAVE BEEN RESTRI CTED ONLY TO THE EVIDENCES FOUND DURING THE SEARCH. 6 ITA NOS.2188 AND 2189/PN/2012 B. EVEN, WHEN THERE WERE NO INCRIMINATING EVIDENCES FOUND FOR SOME YEAR, (F.Y. 1997-98) THE ADDITION COULD BE SUSTAINED ON THE BASIS OF INCRIMINATING EVIDENCES FOR OTHER YEARS. C. THE ESTIMATION OF UNACCOUNTED SALES AT SUCH HIGH FIG URES WAS JUSTIFIED EVEN THOUGH, THE INCRIMINATING EVIDENCES IN DICATED VERY SMALL AMOUNTS OF UNACCOUNTED PURCHASES FOR EXAMPLE, FOR F.Y. 2000-01 AND F.Y. 1996-97. 5.3] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT- A. THE ADDITION ON ACCOUNT OF UNACCOUNTED TRANSACTIO NS HAD TO BE RESTRICTED ONLY TO THE EXTENT OF THE INCRIMINATING E VIDENCES FOUND DURING THE SEARCH. B. WITHOUT PREJUDICE ASSUMING WITHOUT ADMITTING THAT THE EXTRAPOLATION OF SALES WAS JUSTIFIED, IT COULD NOT BE MADE TO SUCH A H IGH LEVEL AS MADE BY HIM FOR THE BLOCK PERIOD. 6. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDI TION OF INITIAL INVESTMENT IN THE UNACCOUNTED STOCK OF RS.7,44,133/- ( PAGE 146 TO 152 OF THE CIT(A) ORDER). 7. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND O R DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. GROUNDS BY REVENUE : 1. THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCE OF THE CASE . 2. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED O N FACTS AND IN LAW IN DELETING THE ADDITION OF RS . 66,73,7 15/- ON ACCOUNT OF EXCESS STOCK OF GOLD WHEN THE ASSESSING OF FI CER HA S B R OUGHT IN SUFFIC I ENT CIRCUMSTANTIAL EVIDENCES ON RECORD TO CONCLUDE THAT THE ALLEGED PUR CHASES OF GOLD WAS ACTUALLY NEVER RECEIVED BY THE ASSESSEE. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED O N FACTS AND IN LAW IN DELETING THE ADDITION OF RS.1,76,553/- ON ACC OUNT OF EXCESS STOCK OF SILVER WHEN THE VALUATION OF THE STOCK WAS DONE BY A Q UALIFIED GOVERNMENT VALUER . 4. T HE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED ON FA CTS AND IN LAW I N ARRIVING AT HIS OWN FIGURE OF EXCESS STOCK BY APPLYI NG THE AVERAGE METHOD AND GRANTING A REL I EF OF RS . 3 , 05 , 950/- OUT OF ADDITION OF RS.8 , 33,683/- ON ACCOUNT OF EXCESS STOCK OF GEMS IGNORING TH E VALUATION DONE BY A QUALIFIED GOVERNMENT VALUER . 5. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED O N FACTS AND IN LAW IN DELETING THE ADDITION OF RS.19,97,934/- ON AC COUNT OF UNDERVALUATION OF STOCK, WHEN, IN FACT THE ASSESSING OFFICER HAS FOLLOW ED THE WELL ESTABLISHED METHOD OF VALUATION OF STOCK. 6. THE COMMISSIONER OF INCOME-TAX (APPEALS HAS ERRED ON FACTS AND IN LAW IN NOT AGREEING TO THE WORKING OF THE UNDISCLOSED TURNOVER FOR THE F.Y. 2002-03 GIVEN BY THE ASSESSING OFFICER AND THE SPECIAL AUDITOR ON THE BASIS OF THE SEIZED DOCUMENTS AND SUBSTITUTING IT WITH HIS OW N WORKING. 7 ITA NOS.2188 AND 2189/PN/2012 7. FOR THIS AND OTHER SUCH GROUNDS AS MAY BE URGED AT T HE TIME OF THE HEARING , THE ORDER OF THE COMMISSIONER OF I NCOME-TAX (APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED . 8. THE APPELLANT CRAVES LEAVE TO ADD , AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL DURING THE COURSE OF THE APPE LLATE PROCEEDINGS BEFORE THE HON'BLE ITAT . 7. GROUNDS OF APPEAL NO. 1 AND 7 BY THE ASSESSEE BEING GENERAL IN THE NATURE ARE DISMISSED. 8. GROUNDS OF APPEAL NO.2 BY THE ASSESSEE AND GROUNDS OF APPEAL NO.4 BY THE REVENUE RELATE TO THE ORDER OF THE CIT(A) IN SUSTAINING THE ADDITION OF RS.5,27,733/- ON ACCOUNT OF EXCESS STOCK OF GEM S AS AGAINST RS.8,33,683/-MADE BY THE AO. 9. FACTS OF THE CASE, IN BRIEF, ARE THAT DURING THE COURS E OF SEARCH GEMS AND JEWELLERY VALUED AT RS.8,33,651/- WAS SEIZED AS PE R ANNEXURE C TO THE PANCHANAMA DATED 25-11-2002. DURIN G THE COURSE OF SEARCH THE VALUATION WAS DONE AT RS.36,00,256/-. THE ASSESSEE WAS ALSO ASKED DURING THE COURSE OF SEARCH TO EXPLAIN AS TO HOW THE GEMS HAVE BEEN ACCOUNTED FOR. THE ASSESSEE RECONCILED SUCH GEMS AS U NDER: TOTAL VALUATION AS PER INVENTORY RS.3600256 LESS : COST OF GOODS TAKEN ON APPROVAL AND ANAMAT RS.501220 RS.3099036 LESS : G P 20% +5% BARGAIN RS.774759 RS.2324777 LESS : VALUE OF GOLD (TAKEN IN GOLD STOCK) RS.847308 PHYSICAL STOCK OF GEMS RS.1476969 LESS : VALUATION AS PER BOOKS RS.643286 EXCESS RS.833683 THUS, THE EXCESS STOCK OF RS.8,33,683/- WAS COMPUTED. H OWEVER, THE ASSESSEE DISPUTED THE VALUATION MADE BY SHRI UTTAM JAIN, T HE VALUER APPOINTED BY THE DEPARTMENT ON THE GROUND THAT THE V ALUATION DONE BY HIM IS BASED ON ESTIMATE BASIS AND THE STOCK OF STONES IN CLUDED THE GOODS PURCHASED IN EARLIER YEARS WHICH IS AT MUCH LESSE R PRICE. THE 8 ITA NOS.2188 AND 2189/PN/2012 ASSESSEE GOT A VALUATION REPORT FROM ANOTHER VALUER SHR I PARAG GADGIL ON 06-11-2002 AND A COPY OF THE SAME WAS SUBMITTED TO THE DDIT (INVESTIGATION) ON 25-11-2002. AS PER THE VALUATION DONE B Y SHRI PARAG GADGIL THE RECONCILIATION WAS AS UNDER : VALUATION OF PRECIOUS GEMS RS.11,83,425 (EXCLUDING ITEMS ON APPROVAL AND ANAMAT AND EXCLUDING THE VALUE OF GOLD) LESS : GP 20% +5% BARGAIN RS.2,88,356 RS.8,65,069 LESS : VALUATION AS PER BOOKS RS,6,43,286 EXCESS RS.2,21,783 10. IT WAS SUBMITTED BY THE ASSESSEE THAT IF AT ALL THER E WAS ANY EXCESS IT WAS ONLY RS.2,21,783/- AND NOT RS.8,33,683/-. HO WEVER, THE AO REJECTED THE ABOVE EXPLANATION GIVEN BY THE ASSESSE E AND MADE ADDITION OF RS.8,33,683/- TO THE TOTAL INCOME AS UNDISCLOSED INCOME FOR THE BLOCK PERIOD U/S.69A OF THE I.T. ACT. 11. IN APPEAL THE LD.CIT(A) RESTRICTED SUCH ADDITION TO RS .5,27,733/-. WHILE DOING SO, HE OBSERVED THAT THE SPECIAL AUDITOR APPOI NTED BY THE DEPARTMENT HAS CONSIDERED BOTH THE VALUATION REPORT AN D HAS OPINED THAT THE VALUATION DONE BY THE DEPARTMENTAL VALUER IS MO RE ACCEPTABLE. HOWEVER, THE AUDITOR HAS NOT GIVEN ANY FINDING ABOUT THE ACCEPTANCE OR REJECTION OF THE SECOND REPORT WHICH WAS ALSO GIVEN BY A REGISTERED VALUER PREPARED DURING THE PERIOD OF SEARCH ITSELF AND WAS GIVEN TO THE INVESTIGATION UNIT. THERE IS NO MATERIAL AVAILABLE ON RECORD WHICH CAN SUGGEST WHY THE DIFFERENCE WAS EXISTING EXCEPT BY THE AR GUMENT MADE BY THE ASSESSEE IN ITS SUBMISSION THAT SHRI UTTAM JAIN HAS NO T DONE VALUATION IN DETAIL AND HAS DONE THIS ON ESTIMATION. HE OB SERVED THAT IT IS NOT POSSIBLE TO VERIFY THE OBJECTIONS OF THE ASSESSEE AT THIS STAGE. SINCE THE DIFFERENCE AS PER THE REVENUE AS WELL AS THE AS SESSEE IS ONLY RS.6,11,900/-, I.E. RS.8,33,683 RS.2,21,783/- HE ARRIVED AT A FIGU RE 9 ITA NOS.2188 AND 2189/PN/2012 WHICH IS SOMEWHERE IN BETWEEN THE TWO. SINCE THE AVERAG E OF DIFFERENCE COMES TO RS.5,27,733/- HE HELD THAT THE EXCESS GEMS SHO ULD BE ASSESSED AT RS.5,27,733/- AS AGAINST RS.8,33,683/- MADE BY THE AO. 12. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY OPPOSED THE ORDER OF THE CIT(A). HE SUBMITTED THAT WHY THE REPORT OF SHRI PARAG G ADGIL SHOULD BE ACCEPTED AND THAT OF SHRI UTTAM JAIN SHOULD BE REJECTED ARE ALREADY GIVEN BEFORE THE CIT(A). THE MAIN REASON FOR REJECTION OF TH E VALUATION REPORT SUBMITTED BY THE DEPARTMENTAL VALUER IS THAT SHRI UTTAM JAIN HAS NOT GIVEN THE DETAILS OF WEIGHT OF THE STONES, PURITY OF G OLD, GROSS/NET WEIGHT ETC. WHILE THE DETAILS ARE GIVEN IN THE REPORT OF SHRI PARAG GADGIL. 13. REFERRING TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. VINOD DHANCHAND GHODAWAT REPORTED IN 24 7 ITR 448 HE SUBMITTED THAT IN A BLOCK ASSESSMENT THE VALUATION DIFFEREN CE SHOULD NOT CONSTITUTE UNDISCLOSED INCOME. HE ACCORDINGLY SUBMITTE D THAT ADDITION, IF ANY, CAN BE MADE ON THE BASIS OF THE REPORT OF SHRI PARAG GADGIL AND EXCESS STOCK AS PER HIS REPORT BEING RS.2,21,78 3/- THE ADDITION SHOULD BE RESTRICTED TO RS.2,21,783/-. 14. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H EAVILY RELIED ON THE ORDER OF THE CIT(A). 15. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE DECIS ION CITED BEFORE US. WE FIND DURING THE COURSE OF SEARCH VALUATION O F GEMS AND JEWELLERY WAS DONE AT RS.36,00,256/-. AFTER CONSIDERING THE BOOK VALUE OF SUCH GEMS, THE DIFFERENCE WAS DETERMINED AT RS.8,33,683/- WHICH WAS ADDED BY THE AO TO THE TOTAL UNDISCLOSED INCOME OF T HE ASSESSEE U/S.69A OF THE I.T. ACT. WE FIND THE ASSESSEE DURING THE COURSE OF 10 ITA NOS.2188 AND 2189/PN/2012 SEARCH ITSELF HAS CHALLENGED THE DETERMINATION OF SUCH EXCE SS STOCK FOUND ON THE BASIS OF THE REPORT OF THE DEPARTMENTAL VALU ER NAMELY SHRI UTTAM JAIN AND FILED THE VALUATION REPORT FROM A REGISTERED VALUER SHRI PARAG GADGIL ACCORDING TO WHICH THE DIFFERENCE FOR SUCH VA LUATION WAS NARROWED DOWN TO RS.2,21,783/-. WE FIND THE AO ON THE B ASIS OF THE REPORT OF THE SPECIAL AUDITOR WHO HAD OPINED THAT THE R EPORT OF THE DEPARTMENTAL VALUER IS ACCEPTABLE, HAD MADE ADDITION OF RS. 8,33,683/-. HOWEVER, THE CIT(A) RESTRICTED THE DISALLOWANCE TO RS.5,27,73 3/-BEING THE AVERAGE OF THE TWO REPORTS. 16. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESS EE THAT THERE IS NO JUSTIFICATION FOR REJECTING THE VALUATION REPORT GIVEN BY SHRI UTTAM JAIN, REGISTERED VALUER APPOINTED BY THE ASSESSEE WHOSE R EPORT GIVES THE DETAILS OF WEIGHT OF THE STONES, PURITY OF GOLD, GROSS/NET W EIGHT ETC. WHEREAS SUCH DETAILS ARE NOT AVAILABLE IN THE REPORT GIVEN BY THE DEPARTMENTAL VALUER, SHRI UTTAM JAIN. IT IS ALSO THE SUBMISS ION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE VALUATION DIFFERENCE SHOULD NOT CONSTITUTE UNDISCLOSED INCOME IN THE BLOCK ASSESSMENT YEAR. 17. WE FIND MERIT IN THE ABOVE SUBMISSION OF THE LD. COUNSE L FOR THE ASSESSEE. ADMITTEDLY, THERE ARE TWO VALUATION REPORTS, O NE GIVEN BY THE VALUER APPOINTED BY THE DEPARTMENT AND THE OTHER ONE GIVEN BY THE VALUER APPOINTED BY THE ASSESSEE. THE REPORT OF THE VA LUER APPOINTED BY THE ASSESSEE WAS GIVEN TO THE DDIT (INVESTIGATION) ON 2 5-11-2002 WHICH IS AFTER THE SEARCH PROCEEDINGS. WE FIND THERE IS NO REAS ON WHATSOEVER HAS BEEN GIVEN FOR EITHER ACCEPTING OR REJECTING THE SAID VALUATION REPORT. SINCE THE VALUATION REPORT GIVEN BY SHRI PARAG G ADGIL, THE VALUER APPOINTED BY THE ASSESSEE, GIVES THE DETAILS OF WEIG HTS OF THE STONES, PURITY OF GOLD, GROSS/NET WEIGHT ETC. WHEREAS SUCH DETAILS ARE 11 ITA NOS.2188 AND 2189/PN/2012 NOT GIVEN IN THE REPORT OF THE DEPARTMENTAL VALUER, THERE FORE, WE FIND NO REASON WHY THE REPORT OF THE VALUER APPOINTED BY THE A SSESSEE SHOULD NOT BE ACCEPTED. SINCE THE REPORT GIVEN BY THE VALUER APPOINTED BY THE ASSESSEE SHOWS THE DIFFERENCE OF RS.2,21,783/-ONLY, THEREFO RE, WE RESTRICT THE ADDITION TO RS.2,21,783/-. ACCORDINGLY, GROUND OF APPEAL NO.2 BY THE ASSESSEE IS PARTLY ALLOWED AND GROUND OF APP EAL NO.4 BY THE REVENUE IS DISMISSED. 18. GROUNDS OF APPEAL NO.3 AND 3.1 BY THE ASSESSEE RELAT ES TO ADDITION OF RS.2,80,553/- ON ACCOUNT OF THE STOCK OF SUN G LASSES, UKTAMAL, PERFUMES, WATCHES ETC. 19. FACTS OF THE CASE, IN BRIEF, ARE THAT DURING THE COURS E OF SEARCH SUN GLASSES VALUED AT RS.1,97,415/-, UKTAMAL VALUED AT RS.8 ,913/-, PERFUMES AND COSMETICS VALUED AT RS.65,699/- WERE PUT UN DER DEEMED SEIZURE. SIMILARLY, STOCK OF WATCHES VALUED AT RS.3,93,843/- WAS ALSO FOUND. AFTER CONSIDERING THE INVENTORY PREPARED AT THE T IME OF SEARCH, THE GROSS PROFIT MARGIN, BARGAIN ETC. THEREON THE DISCREPA NCY ON ACCOUNT OF SUN GLASSES WAS DETERMINED AT RS.1,97,415/-, UK TAMAL AT RS.8,913/-, PERFUMES AND COSMETICS AT RS.65,699/- AND WATC HES AT RS.8,526/- WAS DETERMINED. THE TOTAL OF THESE 4 ITEMS COM ES TO RS.2,80,553/- WHICH WAS ADDED BY THE AO AS UNDISCLOSED INC OME FOR THE BLOCK PERIOD U/S.69A OF THE I.T. ACT, THE DETAILS OF WHI CH ARE AS UNDER : SR.NO. DESCRIPTION VALUE AS PER INVENTORY RS. VALUE AS PER BOOKS OF ACCOUNTS RS. DIFFERENCE RS. 1 SUNGLASSES 13,09,211/ - 11,11,796/ - 1,97,415/ - 2 UKTAMAL 7,41,030/ - 7,32 ,117/ - 8,913/ - 3 PERFUMED AND COSMETICS 3,12,608/ - 2,46,909/ - 65,699/ - 4 WATCHES 3,93,843/ - 3,85,317/ - 8,526/ - 2,80,553/ - 12 ITA NOS.2188 AND 2189/PN/2012 20. BEFORE CIT(A) THE ASSESSEE CHALLENGED THE ABOVE ADDIT ION ON THE GROUND THAT THE AO HAS ERRED IN DISREGARDING THE NECES SARY EVIDENCES AND EXPLANATIONS GIVEN AT THE TIME OF ASSESSMENT. IT WA S SUBMITTED THAT THE DEPARTMENT WHILE VALUING THE ABOVE ITEMS HAS RE DUCED 20% ON ACCOUNT OF GROSS PROFIT AND 7% ON ACCOUNT OF BARGAIN FROM THE MRP. IT WAS SUBMITTED THAT THERE IS LOT OF BARGAINING AND BENEFIT O F 25% SHOULD BE GIVEN FOR BARGAINING ETC. IT WAS FURTHER SUBMITTED THA T THESE ITEMS ARE SUCH WHEREIN THERE ARE LOTS OF LATEST DESIGN AND FAS HION WHICH KEEP ON CHANGING BECAUSE OF WHICH PART OF THE STOCK IS OBSOLET E. NO SUCH BENEFIT HAS BEEN GIVEN BY THE DEPARTMENT, FURTHER, IN RE SPECT OF THE ITEMS SUCH AS WATCHES AND UKTAMAL THE DIFFERENCE IS VERY SMALL AND THEREFORE THERE IS NO REASON TO MAKE ANY ADDITION. IT W AS ALSO SUBMITTED BY THE ASSESSEE THAT ASSESSEE GIVES SUBSTAN TIAL DISCOUNT TO VIP AND PRIVILEGED CUSTOMERS. NO REDUCTION ON THIS ACCOU NT HAS BEEN GIVEN BY THE AO. 21. HOWEVER, THE CIT(A) WAS NOT SATISFIED WITH THE EXPLANAT ION GIVEN BY THE ASSESSEE AND UPHELD THE ADDITION MADE BY THE AO ON THE GROUND THAT SUCH ADDITION IS FAIR AND REASONABLE. THE VARIOUS AR GUMENTS MADE BY THE ASSESSEE ACCORDING TO HIM ARE BASED ON ASSUMPT IONS AND PRESUMPTIONS AND THEREFORE CANNOT BE ACCEPTED. 22. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 23. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE MAIN BUSINESS OF THE ASSESSEE IS THAT OF JEWELLERY AND THESE IT EMS ARE JUST A FANCY ITEMS KEPT IN THE STOCK. THERE IS LOT OF BARGAINING ON THESE ITEMS. HOWEVER, THE DEPARTMENT HAS VALUED THESE STOCKS AS PER THE MARKET VALUE GIVEN IN THE CHITS ATTACHED TO THE STOCK. SINCE THE 13 ITA NOS.2188 AND 2189/PN/2012 DEPARTMENT ITSELF HAS ALLOWED 20% AS GROSS PROFIT AND 7% O N ACCOUNT OF BARGAIN WHEREAS THE ASSESSEE REQUEST THAT BENEFIT OF 25 % SHOULD BE GIVEN FOR BARGAINING AS AGAINST 7% ALLOWED BY THE DEPARTMENT. 24. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 25. AFTER HEARING BOTH THE SIDES, WE FIND THE ADDITION OF RS.2,80,553/- WAS MADE BY THE AO ON ACCOUNT OF EXCESS S TOCK OF SUN GLASSES, UKTAMAL, PERFUMES AND WATCHES. THE MAIN GRIEVANC E OF THE ASSESSEE IS THAT 7% DEDUCTION GIVEN BY THE AO ON ACCOU NT OF BARGAIN WHICH HAS BEEN UPHELD BY THE CIT(A) IS VERY LOW SINCE THES E ARE OF FANCY ITEMS AND WITH THE ARRIVAL OF LATEST DESIGNS THESE ITEMS BE COME OBSOLETE AND THE ASSESSEE ALLOWS HIGHER BARGAINING. IT IS ALSO TH E SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE GIVE S HIGHER DISCOUNT TO VIP AND PRIVILEGED CUSTOMERS. WHILE WE FIND SOME FORCE IN THE ABOVE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE, HOWEVER, THE PLEA TO ALLOW 25% REDUCTION FOR BARGAINING APPEARS TO BE VERY HIGH WHE REAS THE 7% ALLOWED BY THE REVENUE APPEARS TO BE SLIGHTLY LOW. CONSI DERING THE TOTALITY OF THE FACTS OF THE CASE, WE DIRECT THE AO TO ALLOW 15% REDUCTION ON ACCOUNT OF BARGAIN AS AGAINST 7% CONSIDERED BY HIM W HICH HAS BEEN UPHELD BY THE CIT(A). THE AO IS DIRECTED TO RECOMPUTE TH E ADDITION ACCORDINGLY. GROUND RAISED BY THE ASSESSEE IS ACCORDIN GLY PARTLY ALLOWED. 26. GROUND OF APPEAL NO.4 BY THE ASSESSEE RELATES TO AD DITION OF UNACCOUNTED STOCK OF RS.79,34,244/- MADE BY THE AO AND UPHELD BY THE CIT(A). 14 ITA NOS.2188 AND 2189/PN/2012 27. FACTS OF THE CASE, IN BRIEF, ARE THAT DURING THE COURS E OF SEARCH CERTAIN ITEMS WERE FOUND IN THE BASEMENT OF THE RESIDENT IAL PREMISES OF SHRI F.N. RANKA, DIRECTOR OF THE ASSESSEE COMPANY. THE T OTAL DIAMONDS FOUND WERE 97.93 KARAT OUT OF WHICH 40.78 KARAT WERE DE CLARED BY THE ASSESSEE IN WEALTH TAX RETURN WHICH WAS ACCEPTED BY THE AO. HOW EVER, FOR THE BALANCE DIAMOND OF 57.15 KARAT THE AO HELD THAT T HEY WERE UNEXPLAINED AND VALUED THE SAME AT RS.27,73,230/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON BEING QUESTIONED B Y THE AO, IT WAS EXPLAINED BY THE ASSESSEE THAT DIAMOND BANGLES VALUE D AT RS.15,82,777/- AND DIAMOND NECKLACE AND RINGS VALUED AT RS.4,41,000/- BOTH TOTALING TO RS.20,23,777/- WERE RECEIVED FROM SHRI RANKA JEWELLERS, KARVE ROAD. 28. HOWEVER, THE AO DID NOT ACCEPT THE ABOVE CONTENTIO N OF THE ASSESSEE ON THE GROUND THAT IN THE COURSE OF SEARCH T HE ASSESSEE DID NOT GIVE ANY EXPLANATION ABOUT THE RECEIPT OF THE JEWELLE RY FOUND THOUGH SPECIFICALLY ASKED. FURTHER, IN THE COURSE OF SEARCH THERE WAS A SHORTAGE IN STOCK OF DIAMONDS TO THE TUNE OF 100 KARAT WORTH RS.19.18 LAKHS. IT WAS REQUESTED BY THE ASSESSEE TO SET OFF THE SHORTAGE, VIS--VIS THE DIAMONDS FOUND WITH THE DIRECTORS. IT WAS ACCORDING LY ARGUED THAT NO ADDITION IS WARRANTED ON THIS ACCOUNT. HOWEVER, THE AO DID NOT ACCEPT THE ABOVE PLEA OF THE ASSESSEE AND MADE ADDITION OF RS.27,73,230/- TO THE TOTAL UNDISCLOSED INCOME OF THE ASSESSEE. 29. FURTHER, CERTAIN GOLD/DIAMOND JEWELLERY WAS FOUND IN TH E STRONG ROOM AT THE PREMISES OF THE DIRECTOR WHICH WAS VALUED AT RS.51,61,014/-. IN ABSENCE OF ANY SATISFACTORY EXPLANATION G IVEN BY THE ASSESSEE THE AO ADDED THE ABOVE AMOUNT AS UNEXPLAINED INVESTMENT IN THE HANDS OF THE ASSESSEE COMPANY. THUS THE AO MADE ADDITION OF 15 ITA NOS.2188 AND 2189/PN/2012 RS.79,34,244/- (I.E. RS.27,73,230 + RS.51,61,014). 30. IN APPEAL THE LD.CIT(A) DIRECTED THE AO TO VERIFY THE CONTENTION OF THE ASSESSEE WITH CERTAIN REMARKS, THE DETAILS OF WHICH ARE AS UNDE R: 10.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE ISSU E AND THE LAW AS ARE APPARENT FROM RECORDS. GROUND NO. 6 RELATES TO ADDITI ON OF RS.27,73,230 AND RS.51,61,014, TOTALING TO RS.79,34,244 RELATING TO UN ACCOUNTED INVESTMENT IN GOLD AND DIAMOND JEWELLERY ETC FOUND AT THE RESID ENCE OF THE DIRECTOR SHRI F.N. RANKA. ON THE REQUEST OF THE APPELLANT, THE AFO RESAID UNACCOUNTED ASSETS WERE CONSIDERED IN THE HANDS OF THE APPELLANT COM PANY AND THEREFORE, THERE IS NO OBJECTION ON THE ABOVE ISSUE. T HE ISSUES RAISED BY THE APPELLANT IN GROUND NO. 6 UNDER CONSIDERATION RELATE S TO QUANTIFICATION OF ADDITION. THE ASSESSING OFFICER, AS DISCUSSED IN THE ASSESSMENT ORDER, RELEVANT PORTION OF WHICH HAS ALREADY BEEN QUOTED AB OVE IN, PARA 10.1 ABOVE, HAS COMPUTED THE ADDITION OF RS.79,34,244, WHE REAS THE APPELLANT HAS CONTENDED IN THEIR SUBMISSIONS QUOTED AT PARA 10.2 A BOVE THAT THE ENTIRE ADDITION REQUIRES TO BE DELETED. FROM THE PER USAL OF THE ASSESSMENT ORDER, IT APPEARS THAT THE ASSESSING OFFICER HAS EXAMINED THE GOLD AND DIAMOND JEWELLERY FOUND AT THE RESIDENCE IN GENERAL SEPARATELY THEN THE SAME WHICH WERE SUBSEQUENTLY FOUND IN AN UNDERGROUND ST RONG ROOM DETECTED ALMOST AFTER 36 HOURS OF INITIATION OF SEARCH AT THE RESIDENTIAL PREMISE. WHILE MAKING THE ADDITION OF RS.27,73,230, T HE ASSESSING OFFICER HAS STATED THAT JEWELLERY WORTH RS.49,93,634 WAS FOUND FROM THE BASEMENT(NOT THE UNDERGROUND STRONG ROOM) AND BEDROOM OF SMT. SHASHIKALA F. RANKA, AS PER PANCHANAMA DATED 25.10.20 02. OUT OF THIS, JEWELLERY VALUED AT RS.21,48,777 WAS SEIZED ON THE SAM E DATE AND THE REMAINING WAS INVENTORISED AS FOUND BUT NOT SEIZED. TH E RECONCILIATION AND EXPLANATION IN RESPECT OF JEWELLERY FOUND BUT NOT SEI ZED OUT OF THE TOTAL JEWELLERY OF RS.49,93,634, REFERRED TO ABOVE, WERE SU BMITTED BY THE APPELLANT BEFORE THE ASSESSING OFFICER DURING THE COUR SE OF ASSESSMENT AND IT WAS FOUND BY THE ASSESSING OFFICER THAT THE TOTAL DI AMOND INCLUDED IN THE ENTIRE JEWELLERY WAS 97.93 CT. (TOTAL FOUND, SEIZED A ND NOT SEIZED BOTH). OUT OF THIS THE ASSESSING OFFICER FOUND THAT DIAMOND WORTH 4 0.78 CT WERE ALREADY DECLARED IN THE WEALTH TAX RETURNS AND THERE FORE, THE EXCESS WAS DETERMINED AT 57.15 CT. THIS EXCESS COMPRISED OF 40.47 CT. WHICH WERE ALREADY SEIZED AND 16.68 CT. WHICH WERE FOUND BUT NO T SEIZED. THE CLAIM OF THE APPELLANT THAT SOME JEWELLERY PERTAINING TO SMT. GEETA RANKA AND WAS LYING AT THE PREMISE TO EXPLAIN THE EXCESS DIAMOND WAS FOUND BY THE ASSESSING OFFICER NOT ACCEPTABLE, AS IT WAS FOUND THAT WH ATEVER EXPLAINED DIAMOND WAS AVAILABLE IN THE HANDS OF MRS. GEETA RANKA IN HER WEALTH TAX RETURN, WERE ALREADY CONSIDERED IN THEIR HAND AND TH EREFORE, THE CLAIM WAS HELD TO BE NOT CORRECT. IN VIEW OF THE ABOVE, THE V ALUE OF JEWELLERY REPRESENTED BY THE EXCESS DIAMOND FOUND BUT NOT SEIZED AT SR. NO. 18, 19, 21, 24, 27, 28 AND 30, HAVING THE TOTAL VALUATION O F RS.6,24,453 WERE TREATED AS UNEXPLAINED IN ADDITION TO THE SEIZURE OF RS.21,48, 777, MADE BY ANNEXURE C-1 OF PANCHANARNA DATED 25.10.2002 AT THE RESIDENCE. THEREFORE, IN THIS FASHION THE ASSESSING OFFICER COMPUTED THE ADDIT ION IN RESPECT OFJEWELLERY FOUND AT THE RESIDENCE EXCEPT THE JEWELL ERY FOUND AT CONCEALED STRONG ROOM AT RS.27,73,230. IT IS ALSO APPARENT THAT THE CLAIM MADE BY THE APPELLANT THAT OUT OF THE JEWELLER) OF RS.21,48,777, FOUND AND SEIZED AT THE RESIDENCE VIDE ANNEXUREC-1, THE JEWELLERY OF THE VAL UE OF RS.15,82,977 HAVING THE DESCRIPTION OF DIAMOND BANGLES (FOUR) WITH 38.25 CT DIAMOND, GROSS WEIGHT 135 GMS, NET WEIGHT 127.35 GMS, WERE RECEI VED FROM RANKA 16 ITA NOS.2188 AND 2189/PN/2012 JEWELLERS, KARVE ROAD ON JANGAD WAS NOT ACCEPTED BY T HE ASSESSING OFFICER ON THE GROUND THAT NO SUCH INFORMATION OR EXPLANATIO N WAS EVER GIVEN DURING THE COURSE OF SEARCH AT ANY STAGE AND THEREFORE , THIS EXPLANATION AND EVIDENCE BEING PRODUCED AT THE STAGE OF ASSESSMENT CANN OT BE ENTERTAINED. THE ASSESSING OFFICER HAS GIVEN DETAILED REASONING FOR TH E SAME IN PARA 36 OF THE ASSESSMENT ORDER AND CAN BE REFERRED TO FOR DETA ILS. IN ADDITION TO THE ABOVE, THE ASSESSING OFFICER FURTHER CONSIDERED THE JEWE LLERY, SILVER ARTICLES AND CASH FOUND AT THE UNDERGROUND STRONG ROOM IN PARA 37 AND 38 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS STATED THAT AS PER ANNEXURE C-1 TO C-5 OF PANCHANAMA DATED 26.10.2002 GOLD AND DIAM OND JEWELLERIES OF THE VALUE OF RS.51,61,014 WAS FOUND. AS PER THE ASSESSING OFFI CER THERE WERE 55 ITEMS AS PER THE INVENTORY REFERRED TO ABOVE. OUT OF THE ABOVE, JEWELLERY VALUED AT RS.48,12,907 WAS SEIZED PER PANCHANAMA DATED 28.10.2002. IT HAS BEEN NOTED BY THE ASSESSING OFFICER IN PARA 37, THAT SH RI F.N. RANKA, IN HIS STATEMENT RECORDED DURING SEARCH ON 26.10.2002 HAS STAT ED THAT GOLD BAR PIECES OF 1168 GMS BELONGED TO HIS LATE' SON SHRI SHREE PAL RANKA, WHICH IS EVIDENCED BY THE RBI CERTIFICATE ALSO SEIZED IN SEARCH . HOWEVER, NO FINDING HAS BEEN GIVEN BY THE ASSESSING OFFICER IN RESPECT OF THE ABOVE CLAIM. IT WAS FURTHER NOTED IN THE ASSESSMENT ORDER THAT MR. RANKA HA D STATED IN HIS STATEMENT ON OATH THAT OTHER ITEMS ARE POSSESSED TRADITI ONALLY AND IT IS NOT CLEAR WHETHER INVESTMENT IN THEM ARE TAXED OR NOT. T HE ASSESSING OFFICER HAS NOTED IN PARA 38 THAT THE APPELLANT WAS GIVEN AN OPPORTUNITY TO EXPLAIN THE AFORESAID JEWELLERY AND SILVER ARTICLES OF RS.51,61 ,014 DURING ASSESSMENT AND RECONCILIATION VIS-A-VIS WEALTH TAX RETUR NS WERE FILED. AS IT WAS FOUND BY THE ASSESSING OFFICER THAT THE BENEFIT OF JEWELLERY DECLARED IN THE WEALTH TAX RETURNS HAVE ALREADY BEEN GIVEN, FUR THER BENEFIT WAS NOT AVAILABLE. ANOTHER CLAIM MADE BY THE APPELLANT THAT ITEM NO. 51 (DIAMOND NECKLESS SET WITH EARINGS OF THE VALUE OF RS.1,10,000) A ND ITEM NO. 52 (DIAMOND NECKLACE SET WITH EARRINGS OF THE VALUE OF R S.3,31,000) WERE ALSO RECEIVED ON JANGAD FROM RANKA JEWELLERS, KARVE ROAD, WAS ALSO FOUND TO BE NOT ACCEPTABLE BY THE ASSESSING OFFICER FOR THE SAME REA SONS AS DISCUSSED IN PARA 36 OF THE ASSESSMENT ORDER WHILE DEALING WITH ANOT HER SIMILAR CLAIM FOR EXPLANATION OF DIAMOND BANGLES OF RS.15,82,977. IN VIEW OF THESE FACTS AND CONSIDERING THAT THE APPELLANT HAS NO ACCEPTABLE EXPLANATION FOR THE JEWELLERY AND SILVER ARTICLES FOUND AT THE CONCEALED STRONG ROOM, ADDITION OF RS.51,61,014, REPRESENTING THE ENTIRE ASSETS FOUND IN THE UNDERGROUND STRONG ROOM WAS HELD AS TAXABLE U/S. 69A. IN THIS MANNER, THE ASSESSING OFFICER COMPUTED THE ADDITION OF RS.79,34,244, WHICH IS THE SUBJECT MATTER OF THIS GROUND OF APPEAL. DURING APPEAL THE APPELLAN T HAS MADE EXPLANATIONS WHICH HAVE BEEN QUOTED IN PARA 10.2 OF THIS ORDER AN D CAN BE REFERRED TO FOR DETAILS. THE MAJOR ISSUES RAISED BY THE APPELLANT RELATE S TO DENIAL OF BENEFIT FOR THE JEWELLERY CLAIMED TO HAVE BEEN RECEIVED ON JANGAD FROM RANKA JEWELLERS, KARVE ROAD OF THE VALUE OF RS.15,82,777 A ND RS.4,41,000, AS DESCRIBED ABOVE. IT IS NOTED THAT THE APPELLANT HAS CO NTENDED IN THIS RESPECT THAT THE AFORESAID CLAIMS WERE GENUINE. IN SUPPORT OF THE SAME THE APPELLANT PRODUCED THE COPY OF JANGAD APPEARING AT PAGE 249 O F THE PAPER BOOK. IT IS NOTED THAT THE ASSESSING OFFICER IS 'RIGHT IN SAYING THAT THE SAID JAGAND NO.1097 IS PRINTED FOR SILVER, HOWEVER THE DATE NOTED IS 24.9.2002 AND NOT 24.10.2002 WHICH HAS BEEN STATED IN THE ASSESSMENT ORDER. THE ONLY ISSUE WHICH ARISES IS WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE JANGAD BEING REFERRED TO IS GENUINE OR IT HAS BEEN C REATED TO ESCAPE FROM THE ASSESSMENT OF THE ITEMS MENTIONED THEREIN. THE APPELLANT HAS FURTHER CONTENDED IN THEIR SUBMISSION THAT THE SAME ASSESSING OFFIC ER, WHILE COMPLETING THE ASSESSMENT OF SHRI VASTUPAL RANKA, PROP. RANKA JEWELLERS, KARVE ROAD, HAS ACCEPTED THE ISSUANCE OF AFORESAID ITEM S OF JEWELLERY IN THE RECONCILIATION OF STOCK FOUND AT THEIR PREMISE AND TH EREFORE, AS PER THE AR, THE ASSESSING OFFICER CANNOT CHANGE HIS STAND IN THIS ASSESSME NT RELATING TO 17 ITA NOS.2188 AND 2189/PN/2012 THE SAME TRANSACTION. THE COPY OF THE ASSESSMENT ORDER HA S BEEN PLACED ON RECORD. IT IS FURTHER NOTED THAT THE SPECIAL AUDITO R IN HIS REPORT PREPARED U/S 142(2A) IN ANNEXURE 8-11, HAS ALSO ACCEPTED THESE FACT S AND HAS STATED THAT THE JEWELLERY APPEARING AT SR. NO. 14 OF ANNEXURE C OF PANCHANAMA DATED 24.10.2002, HAVING THE VALUE OF RS.15,82,977 AND THE JEWELLERY APPEARING AT SR. NO. 51 AND 52 OF PANCHANAMA DATED 26.10.2002, O F THE VALUE OF RS.1,10,000 AND RS.3,31,000 RESPECTIVELY ARE APPEARING IN THE JANGAD, WHICH WAS VERIFIED DURING THE COURSE OF AUDIT OF RANKA. JEW ELLERS, KARVE ROAD AND IT WAS FOUND THAT THIS JANGAD IS ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS OF M/S RANKA JEWELLERS, KARVE ROAD. IN VIEW O F THE ABOVE, THE AUDITOR HAS OPINED THAT THE EXPLANATION OF THE APPEL LANT FOR THESE ITEMS IS ACCEPTABLE. HE HAS COMPUTED THE UNEXPLAINED ITEMS ON THIS BASIS. THOUGH THE REASONS GIVEN BY THE ASSESSING OFFICER FOR NOT ACCEP TING THE JANGAD AS GENUINE HAS SOME FORCE' OF ACCEPTABILITY BUT THE SAME GETS FULLY REVERSED ON THE FINDING THAT THE IMPUGNED JANGAD WAS FOUND TO BE RECORDED IN THE REGULAR BOOKS OF ACCOUNTS. FURTHERMORE, THE ASSESSING OFF ICER CANNOT BLOW HOT AND COLD IN RESPECT OF THE SAME TRANSACTION, IF HE HAS ACCEPTED THE ISSUE OF JEWELLERY IN THE HANDS OF RANKA JEWELLERS, KARVE R OAD ON THE SAME JANGAD, HE CANNOT DENY THE BENEFIT OF RECEIPT OF TH E JEWELLERY IN THE HANDS OF APPELLANT WHEN THE IMPUGNED JANGAD CLEARLY SHOWS THAT IT HAS BEEN ISSUED IN THE NAME OF SMT. SHASHIKALA F. RANKA AND THE DESCR IPTIONS ARE THE SAME. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO VERIFY T HESE FACTS ONCE AGAIN AND ALLOW THE BENEFIT TO THE APPELLANT IN RESPECT OF JEWELLERY APPEARING IN THE JANGAD. ANOTHER OBJECTION OF THE APPELLANT RELA TES TO GOLD BAR OF 1168 GMS. THE ASSESSING OFFICER HAS HIMSELF ADMITTED IN THE ASSESSM ENT ORDER THAT SHRI F.N. RANKA, IN HIS STATEMENT ON OATH DURING SEARCH HAS EXPLAINED THE SAME TO HAVE BEEN PURCHASED BY HIS LATE SON SHRI SH REEPAL RANKA UNDER GOLD BOND SCHEME OF 1998 AND THE DOCUMENTS WERE FOUND AND SEIZED DURING SEARCH. THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDING O N THIS CLAIM FOR NOT ALLOWING THE SAME. THE CLAIM OF THE APPELLANT APPEAR S REASONABLE AND CORRECT. HOWEVER, THE ASSESSING OFFICER IS DIRECTED TO V ERIFY THESE FACTS AGAIN AND IF SUCH GOLD BARS WERE SEIZED OR FOUND ALONG WITH THE DOCUMENTS OF ITS DECLARATION UNDER THE RBI SCHEME WITH ROPER LEGAL EN TRY IN THE BOOKS AND RETURNS OF LATE SHRI SHREEPAL RANKA,, THEN THERE IS N O REASON FOR NOT ALLOWING THIS CLAIM. THE ASSESSING OFFICER IS THEREFORE, DIRECTED TO VERIFY THE SAME AND ALLOW IT IF THE FACTS DESCRIBED ABOVE ARE FOUND TO B E CORRECT. AS REGARDS THE OTHER CLAIMS MADE BY THE APPELLANT, RELATING TO TELE SCOPIC BENEFIT OF SHORTAGE OF GOLD AND DIAMOND ETC., THE SAME CANNOT B E ALLOWED IN VIEW OF THE DISCUSSIONS ALREADY MADE THAT THE SHORTAGES ARE BECAU SE OF UNACCOUNTED SALES CARRIED OUT REGULARLY AND NO BENEFIT FOR THE SAM E CAR BE GRANTED. REMAINING ADDITIONS OF THE ASSESSING OFFICER ARE THEREFO RE, SUSTAINED SUBJECT TO THE ABOVE REMARKS. GROUND NO. 6 IS THEREFO RE, TREATED AS PARTLY ALLOWED. 31. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 18 ITA NOS.2188 AND 2189/PN/2012 32. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SOM E ITEMS OF VALUE MENTIONED ON PAGE 106 AND 107 OF CIT(A) WERE RECEIVED FROM M/ S. RANKA JEWELLERS, KARVE ROAD AND THEY WERE REFLECTED IN THE IR JANGAD AND THEIR BOOKS OF ACCOUNTS. THEY WERE SENT TO THE AS SESSEE FOR APPROVAL. SECONDLY, THE GOLD BAR OF 1168 GMS BELONGED TO LATE SHREEPAL RANKA WHO HAD DECLARED THE SAME UNDER THE GOLD BOND S CHEME OF 1998. HE SUBMITTED THAT THE LD.CIT(A) DIRECTED THE AO TO CONSIDER THE EVIDENCES. THEREAFTER, THE AO HAS GIVEN RELIEF ON ACCOUNT O F STOCK RECEIVED FROM RANKA JEWELLERS, KARVE ROAD. SO FAR AS THE GO LD BAR OF 1168 GMS IS CONCERNED WHICH BELONGED TO LATE SHREEPAL RA NKA, THE AO HAS NOT GIVEN ANY FINDING. HE SUBMITTED THAT ON PAGE 22 OF CIT(A)S ORDER THE GOLD STOCK AS PER THE BOOKS OF ACCOUNTS WAS 1,41,945.785 GMS WHILE THE STOCK FOUND WAS 1,36,279.54 GMS. THUS, THERE WAS A SHORTAGE OF STOCK OF 5,666.240 GMS VALUED AT RS. 29,18,113/ -. THE ASSESSEE REQUESTED THAT THE SHORTAGE IN THE SHOP NO TICED DURING THE SEARCH IS BECAUSE OF SOME STOCK KEPT AT THE RESIDENCE AND THE SET OFF SHOULD BE GIVEN. SIMILARLY, IN DIAMONDS ALSO, THERE WAS A SHO RTAGE OF STOCK OF 100 CTS WORTH RS.19.80 LAKHS (PAGE 52 AND 53 OF ASST. ORDER). THE SET OFF OF THIS SHORTAGE SHOULD BE CONSIDERED AGAINST THE EXCESS OF STOCK FOUND AT THE RESIDENCE. 33. HE SUBMITTED THAT THE AO AND THE CIT(A) HAVE TAXED THE EXCESS STOCK AT RESIDENCE IN THE HANDS OF THE ASSESSEE COMPAN Y. THUS, WHEN THEY ACCEPT THAT THE STOCK AT THE RESIDENCE BELONGED TO THE COMP ANY, THE SET OFF OF THE SAME AGAINST THE SHORTAGE AT THE SHOP SH OULD HAVE BEEN GIVEN. THE CIT(A) ON PAGE 109 HAS NOT ALLOWED THE SAME. HIS REASONING IS THAT SHORTAGES ARE THERE BECAUSE OF THE UNACCOUNTE D SALES CARRIED OUT BY THE ASSESSEE REGULARLY. HOWEVER, HE HAS NOT APPRECIA TED THAT FOR THE UNACCOUNTED SALES, SEPARATE ADDITION IS MADE BY THE AO A ND THEREFORE, 19 ITA NOS.2188 AND 2189/PN/2012 THIS REASONING HAS NO BEARING ON THE ISSUE. HE SUBMITTED THAT THE SET OFF OF THE SHORTAGES IN GOLD AND DIAMOND STOCK FOUND DURING THE SEARCH SHOULD BE GIVEN AGAINST THE STOCK AT THE RESIDENCE. 34. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADDITION SUSTAINED BY THE CIT(A) ON THIS COUNT IS RS.59,10,467/-. I F SET OFF OF SHORTAGE OF GOLD OF RS.29,18,113/-, SHORTAGE OF DIAMOND OF RS.19,18,000/- AND GOLD BAR OF LATE SHREEPAL OF RS.6,01,520/- IS GIVEN THEN THE NET ADDITION COMES TO RS.4,72,834/-. HE ACCOR DINGLY SUBMITTED THAT THE ADDITION SHOULD BE RESTRICTED TO RS.4,72,834/-. 35. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 36. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE AO MADE ADDITION OF RS. 27,73,230/- ON ACCOUNT OF DIAMONDS FOUND IN THE BASEMENT OF THE RESID ENTIAL PREMISES OF SHRI F.N. RANKA ON THE GROUND THAT OUT OF TH E TOTAL DIAMONDS FOUND AT RS.92.93 KARAT THE ASSESSEE COULD EXPL AIN ONLY 40.7 KARAT AND COULD NOT EXPLAIN THE BALANCE ITEMS AT 57.15 K ARAT. SIMILARLY, THE AO MADE ANOTHER ADDITION OF RS.51,61,014/- BEING CERT AIN GOLD/DIAMOND JEWELLERY FOUND FROM THE STRONG ROOM AT THE PREMISES OF THE DIRECTOR ON THE GROUND THAT ASSESSEE WAS UNABLE T O EXPLAIN THE SOURCE OF INVESTMENT. 37. WE FIND BEFORE THE CIT(A) THE ASSESSEE MADE CERTAIN SU BMISSIONS BASED ON WHICH THE LD.CIT(A) DIRECTED THE AO TO VERIFY THE BENEFIT FOR THE JEWELLERY CLAIMED TO HAVE BEEN RECEIVED AT JANGAD FROM M/S . RANKA JEWELLERS, KARVE ROAD VALUED AT RS.15,82,777/- AND RS.4,41,000 /- 20 ITA NOS.2188 AND 2189/PN/2012 RESPECTIVELY. SIMILARLY, HE HAS ALSO DIRECTED THE AO TO VE RIFY THE PURCHASE OF GOLD BARS OF 1168 GRAMS UNDER THE GOLD BOND SCHEME 1998 BY HIS LATE SON SHRI SHREEPAL RANKA. SO FAR AS THE CLAIM BY THE ASSESSEE RELATING TO TELESCOPING BENEFIT OF SHORTAGE OF GOLD AND DIAMOND ETC. HE REJECTED THE SAME ON THE GROUND THAT SHORTAG ES ARE BECAUSE OF UNACCOUNTED SALES CARRIED OUT REGULARLY AND NO BENEFIT FO R THE SAME CAN BE GRANTED. 38. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSES SEE THAT AFTER THE ORDER OF CIT(A) DIRECTING THE AO TO CONSIDER THE EVIDENCES THE AO H AS GIVEN RELIEF ON ACCOUNT OF STOCK RECEIVED FROM RANKA JEWELLER S, KARVE ROAD. HOWEVER, HE HAS NOT GIVEN ANY FINDING ON ACCOUNT OF GOLD BAR OF 1168 GRAMS BELONGING TO LATE SHREEPAL RANKA FOR WHICH A CERTIFICATE ISSUED BY RBI AS PER GOLD BOND SCHEME 1998 WAS FILED. I T IS ALSO THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT STOC K AS PER BOOKS OF ACCOUNT WAS 141945.785 GRAMS WHILE STOCK FOUND WAS 1,3 6,279.54 GRAMS. THUS, THERE WAS SHORTAGE OF STOCK OF 5,666.240 GR AMS. THUS SHORTAGE ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE IS BECAUSE SOME STOCK WAS KEPT AT THE RESIDENCE AND THEREFORE SET OFF S HOULD BE GIVEN. SIMILARLY, FOR THE SHORTAGE OF DIAMOND OF 100 KARAT WORTH R S.19.80 LAKHS SET OFF SHOULD BE GIVEN AGAINST THE EXCESS STOCK FOU ND AT THE RESIDENCE. THEREFORE, WHEN EXCESS STOCK AT RESIDENCE HA S BEEN TAXED IN THE ASSESSEE COMPANY, SET OFF OF THE SAME AGAINST THE SH ORTAGE OF STOCK SHOULD HAVE BEEN GIVEN. 39. SO FAR AS THE RELIEF SOUGHT BY THE ASSESSEE ON ACCOU NT OF GOLD BAR OF 1,168 GRAMS IS CONCERNED WE FIND THE LD. COUNSEL FOR TH E ASSESSEE HAS FILED A CERTIFICATE ISSUED BY RBI UNDER GOLD BOND SCHEM E 1998 FOR 1,168 GRAMS VIDE THE GOLD BOND 1998 CERTIFICATE NOS. BYPSP N000682 AND BYPSPN000683 FOR 584 GRAMS EACH. SINCE THE LD. COU NSEL FOR THE 21 ITA NOS.2188 AND 2189/PN/2012 ASSESSEE HAS SUBSTANTIATED THE PURCHASED UNDER THE G OLD BOND SCHEME 1998 FOR 1,168 GRAMS, THEREFORE, WE DIRECT THE AO TO ALLOW THE BENEFIT OF 1,168 GRAMS FROM THE UNACCOUNTED STOCK. 40. SO FAR AS THE CONTENTION OF THE LD. COUNSEL FOR THE AS SESSEE THAT SET OFF SHOULD BE GIVEN FROM THE SHORTAGE OF STOCK OF 5,66 6.24 GRAMS OUT OF THE EXCESS STOCK FOUND WE FIND SOME MERIT IN THE ABOV E CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. IT IS AN UNDISPUTED FACT THAT THE AO A S WELL AS THE CIT(A) HAVE TAXED THE EXCESS STOCK AT RESIDE NCE IN THE HANDS OF THE ASSESSEE COMPANY. THEREFORE, WHEN THEY HAVE ACC EPTED THAT THE STOCK AT THE RESIDENCE BELONGS TO THE ASSESSEE COMPAN Y, THEREFORE, THE SET OFF OF THE SAME AGAINST THE SHORTAGE AT THE SHOP S HOULD HAVE BEEN GIVEN. WE DO NOT FIND ANY REASON IN THE ORDER OF THE C IT(A) THAT SHORTAGES ARE THERE BECAUSE OF THE UNACCOUNTED SALES CARRIED OUT BY THE ASSESSEE REGULARLY. SINCE HE HAS NOT APPRECIATED THAT FOR THE UNACCOUNTED SALES SEPARATE ADDITION HAS BEEN MADE BY T HE AO, THEREFORE, WE FIND MERIT IN THE ARGUMENTS ADVANCED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE REASONING GIVEN BY THE CIT(A) IS DEVOID OF ME RIT. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF THE CIT(A ) AND DIRECT THE AO TO GIVE THE SET OFF OF THE SHORTAGE IN GOLD AND DIAMOND STOCK FOUND DURING THE COURSE OF SEARCH TO THE EXTENT OF EXCESS ST OCK FOUND. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE OUT OF THE ADDITION OF RS.59,10,467/- SET OFF OF SHORTAGE OF GOLD COMES TO RS.29,18 ,113/- AND SHORT OF DIAMOND COMES TO RS.19,18,000/- AND GOLD BAR OF L ATE SHREEPAL RANKA COMES TO RS.6,01,520/- LEAVING NET ADDITION OF RS.4,72,8 34/- THE AO IS DIRECTED TO VERIFY THE ABOVE AND GIVE CONSEQU ENTIAL RELIEF. GROUND OF APPEAL NO.4 BY THE ASSESSEE IS ACCORDINGLY PARTLY ALLOWED. 22 ITA NOS.2188 AND 2189/PN/2012 41. IN GROUND OF APPEAL NO.5 THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS.1,03,53,679/- FOR THE PERIOD FROM 01-04-2002 TO 24-10 -2002 AND ADDITION OF RS.7,69,06,944/- FOR THE PERIOD FROM 1996-97 TO 2001-02. 42. FACTS OF THE CASE, IN BRIEF, ARE THAT DURING THE COURS E OF SEARCH CERTAIN LOOSE PAPERS SHOWING UNACCOUNTED PURCHASE AND SALES WERE FOUND, THE DETAILS OF SUCH UNACCOUNTED PURCHASES AND UNA CCOUNTED TURNOVER FOUND FOR VARIOUS YEARS ARE AS UNDER : F.Y. UNACCOUNTED PURCHASES RS. UNACCOUNTED TURNOVER RS. 1996 - 1997 14,759/ - 16,964/ - 1997 - 1998 NIL -- 1998 - 1999 14,03,149/ - 16,12,815/ - 1999 - 2000 76,04,023/ - 87,40,256/ - 2000 - 2001 7,095/ - 8,155/ - 2001 - 2002 72,12,505/ - 82,90,236/ - 2002 - 2003 5,27,44,980/ - 12,22,95,618/ - 43. FOR THE PERIOD FROM 01-04-2002 TO 24-10-2002, I.E. THE DATE OF SEARCH UNACCOUNTED PURCHASES WERE FOUND. THEREAFTER, FO R THE PERIOD 21-08-2002 TO 24-09-2002 (28 DAYS) LOOSE PAPERS IN THE FORM OF DAY TO DAY CASH BOOK CONTAINING THE UNACCOUNTED TRANSACTIONS FOR EACH DAY WERE FOUND. THE AO ESTIMATED THE UNACCOUNTED SALES FOR THE ENTIRE PERIOD FROM 01-04-2002 TO 24-10-2002 AT RS.12,22,95,618/- ON THE BASIS OF THE UNACCOUNTED TURNOVER FOR THE PERIOD OF 28 D AYS AS PER LOOSE PAPERS FOUND IN THE FORM OF CASH BOOK FOR THE PERIOD FROM 21-08-2002 TO 24-09-2002/-. HE ESTIMATED THE PROFIT RATE @13% AND DE TERMINED THE UNDISCLOSED INCOME AT RS.1,58,98,430/-. ADOPTING THE SAME YA RD STICK OF THE PERIOD MENTIONED ABOVE HE WENT ON ESTIMATING THE UNACCOUNTED TURNOVER FOR THE FINANCIAL YEARS 1996-97 TO 2001-02 AND CALCULATED THE UNDISCLOSED INCOME FOR EACH OF THESE YEARS AT THE RATE O F GP DISCLOSED IN THE RETURNS FOR THOSE RESPECTIVE YEARS. THE DETAILS OF SU CH COMPUTATION DETERMINING THE UNDISCLOSED PROFIT OF RS.1,01,14,255/- FOR THE FINANCIAL YEARS 1996-97 TO 2001-02 ARE AS UNDER : 23 ITA NOS.2188 AND 2189/PN/2012 SR. NO. F.Y. DISCLOSED TURNOVER RATE AT WHICH UNDISCLOSED TURNOVER COMPUTED UNDISCLOSED TURNOVER GROSS PROFIT RATE PROFIT 1 1996 - 1997 148826683 5% 74,41,334 5.30% 3,94,930 2 1997 - 1998 185990256 5% 92,99,513 4.85% 4,51,026 3 1998 - 1999 165127629 7.5% 1,23,84,572 8.90% 11,02,227 4 1999 - 2000 115394725 10% 1,15,39,473 10.85% 12,52,032 5 2000 - 2001 192705612 15% 2,89,05,842 9.73% 28,12,538 6 2001 - 2002 147422910 25% 3,68,55,727 11.13% 41,02,042 TOTAL 1,01,14,255 44. BEFORE CIT(A) IT WAS SUBMITTED THAT DURING THE SEARCH CERTAIN LOOSE PAPERS WERE FOUND ON THE BASIS OF WHICH THE AO PRE SUMED THAT THERE ARE UNACCOUNTED PURCHASES/SALES MADE BY THE AS SESSEE. HOWEVER, THERE IS NO EVIDENCE FOUND TO INDICATE THAT THE NOTINGS AS PER THESE PAPERS WERE TRUE, CORRECT AND GENUINE. THE ASSE SSEE SUBMITTED THAT IN A BLOCK ASSESSMENT ESTIMATION OF SALES/INCOME SHOU LD NOT BE MADE FOR THE ENTIRE PERIOD ON THE BASIS OF THE DOCUMENTS FOUND FOR A FEW DAYS. WITHOUT PREJUDICE TO THE ABOVE CONTENTION, THE AS SESSEE FURTHER SUBMITTED THAT FOR THE PERIOD FROM 01-04-2002 TO 24-10- 2002 THE EVIDENCE FOUND DURING THE SEARCH WAS IN THE FORM OF PAP ER SHOWING UNACCOUNTED PURCHASES FOR THE PERIOD FROM 01-04-2002 T O 24-10-2002. FURTHER, LOOSE PAPERS IN THE FORM OF A REGULAR CASH BOOK INCLUDING THE UNACCOUNTED AND ACCOUNTED TRANSACTIONS FOR THE PERIOD 21-08-2002 TO 24-09-2002 WAS ALSO FOUND. HOWEVER, THE AO ESTIMATED T HE UNACCOUNTED SALES FOR THE PERIOD OF 28 DAYS AND ON A PRO-RATA BASIS ADOPTED THE SAME YARDSTICK FOR ESTIMATING THE UNACCOUNT ED SALES FOR THE ENTIRE PERIOD FROM 01-04-2002 TO 24-10-2002. IT WAS SU BMITTED THAT EVIDENCES WERE FOUND FOR THE PERIOD 01-04-2002 TO 24-10 -2002 ACCORDING TO WHICH THE UNACCOUNTED PURCHASES AS PER T HESE PAPERS AMOUNTED TO RS.5,27,44,980/- ONLY AS PER THE REPORT OF THE SPECIAL AUDITOR. THESE PAPERS WERE FOR THE PERIOD FROM 01-04-20 02 TO 24-10- 2002 AND THERE WAS NO EVIDENCE FOUND TO SHOW THAT THE RE WERE 24 ITA NOS.2188 AND 2189/PN/2012 UNACCOUNTED PURCHASES FOR THAT PERIOD AMOUNTING TO A H IGHER FIGURE THAN WHAT WAS CALCULATED ON THE BASIS OF THOSE SEIZED P APERS. THEREFORE, THE PRESUMPTION OF THE AO THAT THERE WERE FUR THER UNACCOUNTED PURCHASES FOR THIS PERIOD OVER AND ABOVE T HE FIGURE AS PER THE SEIZED PAPERS IS INCORRECT. THEREFORE, THE AO SHOULD HAVE COMPUTED THE UNACCOUNTED INCOME BY WAY OF PROFIT ON THE SUPPRESSE D SALES FOR THE PERIOD ON THE BASIS OF AND IN RELATION TO THE UNACCOUNTED PURCHASES WHICH ARE ACTUALLY NOTICED AS PER THE SEIZED PAPERS INSTEAD OF PRES UMING THAT THE UNACCOUNTED TURNOVER FOR THE PERIOD WAS IN TH E SAME PROPORTION AS THE UNACCOUNTED TURNOVER FOR THE PERIOD 21-08-2002 TO 24-09-2002. IT WAS ACCORDINGLY ARGUED THAT ADDITION ON ACCOUNT OF UNACCOUNTED PROFIT FOR THE PERIOD 01-04-2002 TO 24-10-2 002 AT THE MOST CAN BE ONLY ON THE UNACCOUNTED PURCHASES FOUND DURING THAT PERIO D. 45. THE ASSESSEE FURTHER SUBMITTED THAT THE AO IS NOT J USTIFIED IN ESTIMATING THE INCOME FOR THE BALANCE PERIOD SOLELY ON THE BASIS OF LOOSE PAPERS FOUND FOR 28 DAYS. THERE IS NO REASON FOR THE AO TO IGNORE THE OTHER EVIDENCE FOUND FOR THE BALANCE PERIOD IN THE FORM OF PURCHASES WHICH CLEARLY INDICATE THAT THE UNACCOUNTED TRANSACTIONS FOR THE BALANCE PERIOD WERE NOT IN THE SAME YARDSTICK. THERE ARE NO CLIN CHING EVIDENCES IN THE FORM OF SEIZED PAPERS INDICATING ACTUAL PURCHASES FOR THE BALANCE PERIOD AND THEREFORE TO APPLY THE SAME YARDSTICK BY TH E AO IS TOTALLY UNJUSTIFIED. RELYING ON VARIOUS DECISIONS IT WAS ARGUED TH AT THE SEIZED DOCUMENTS SHOULD BE TAKEN AS A WHOLE AND THE DEPARTME NT CANNOT IGNORE CERTAIN DOCUMENTS WHICH ARE IN FAVOUR OF THE ASSES SEE. IT WAS ARGUED THAT IN THE INSTANT CASE THERE WAS ENOUGH EVIDE NCE FOR THE BALANCE PERIOD TO PROVE THAT THE UNACCOUNTED TRANSACT IONS WERE NOT IN THE SAME MAGNITUDE, THEREFORE, TO APPLY THE SAME RATIO T O THE BALANCE PERIOD IS NOT CORRECT. THE AO SHOULD HAVE DETERMINED THE INCOME O N THE 25 ITA NOS.2188 AND 2189/PN/2012 BASIS OF THE UNACCOUNTED PURCHASES FOUND FOR THIS PERIOD. THE ASSESSEE ALSO SUBMITTED THAT DURING THE PERIOD 21-08-2002 TO 24- 09-2002 THE SALES WERE MORE THAN THE NORMAL SALES BECAUSE OF THE FES TIVAL SEASON SUCH AS GANESH FESTIVAL, PARYUSION FOR WHICH THE SALE WAS H IGHER. THEREFORE, THE APPLICATION OF YARDSTICK OF ESTIMATING SALES FOR THE BALA NCE PERIOD ON THIS BASIS IS NOT JUSTIFIED. THE ASSESSEE FURTHER SUBMITTE D THAT THE AO HAS ESTIMATED THE UNACCOUNTED TURNOVER FOR THE F.Y. 1996-97 TO 2001-02 AT THE RATE VARYING FROM 5% TO 25% OF THE DISCLOSED TURNO VER FOR ALL THESE YEARS. THE ACTUAL EVIDENCE INDICATING UNACCOUNTE D TURNOVER FOR ALL THESE YEARS HAS BEEN FOUND FOR SUCH SMALLER AMOUNT S. THEREFORE, THE AO IS NOT JUSTIFIED IN ESTIMATING THE UNACCOUNTED TURN OVER FOR ALL THESE YEARS ON THE BASIS OF THE EVIDENCE FOUND FOR THE P ERIOD 01-04-2002 TO 24-10-2002 IGNORING THE FACT THAT IN THE EARLIER YEARS THE EVIDENCES REGARDING THE UNACCOUNTED PURCHASES WERE FOUND FOR MUC H SMALLER AMOUNTS. RELYING ON VARIOUS DECISIONS THE ASSESSEE SUBM ITTED THAT IT IS A TRITE LAW THAT THE EVIDENCE FOUND FOR ONE YEAR CANNOT BE USED FOR ESTIMATING THE INCOME FOR OTHER YEARS. 46. THE ASSESSEE WITHOUT PREJUDICE FURTHER SUBMITTED THA T THE ESTIMATION OF UNACCOUNTED TURNOVER MADE BY THE AO FOR A .YRS. 1996-97 TO 2001-02 NEEDS TO BE DRASTICALLY REDUCED IN VIEW OF TH E FACT THAT THERE WAS NO EVIDENCE FOUND INDICATING THE SUPPRESSED TURNOVE R OF THE MAGNITUDE ESTIMATE BY THE AO. THERE IS NO BASIS/YARDSTIC K FOR ESTIMATION RESORTED TO BY THE AO AND THEREFORE SINCE TH E ESTIMATION ARRIVED AT BY HIM IS ONLY ON THE BASIS OF THE DIARY FOR 28 DAYS FOR THE PERIOD 01-04-2002 TO 24-10-2002, SUCH ESTIMATION IS NOT BASED ON PROPER APPRECIATION OF FACTS AND THEREFORE DESERVES TO B E REDUCED. IT WAS SUBMITTED THAT FOR A.Y. 2001-02 THE AUDITOR HAS DETE RMINED THE UNACCOUNTED PURCHASES AT RS.72,12,505/-. THE SEIZED PA PERS 26 ITA NOS.2188 AND 2189/PN/2012 INDICATING UNACCOUNTED PURCHASES THEMSELVES INDICATE THAT QUITE A FEW OF THE LOOSE PAPERS INDICATE THAT THE GOODS WERE RECEIVE D ONLY ON ESTIMATE/FOR APPROVAL. FURTHER, CERTAIN PAPERS INDICATE TH AT THE ASSESSEE HAS NOT PURCHASED THE JEWELLERY BUT THE CUST OMERS HAVE GIVEN THEIR OLD JEWELLERY FOR REPAIRS OR REMAKING. IT WAS SUBMITT ED THAT CERTAIN PAPERS ALSO INDICATE THAT THE ASSESSEE HAS GIVEN GOLD FOR REMAKING THE ORNAMENTS TO THE GOLDSMITH AND HAS RECEIVED ORNAMENTS BACK FROM THEM AND HAS ONLY GIVEN THE MAZURI, I.E. LABOUR CHARGES. THEREFORE, CONSIDERABLE DEDUCTION SHOULD BE GIVEN FOR THE UNACCOUNT ED PURCHASES OF RS.72,12,505/- DETERMINED BY THE AUDITOR. 47. HOWEVER, THE LD.CIT(A) WAS NOT SATISFIED WITH THE ARGU MENTS ADVANCED BY THE ASSESSEE. SO FAR AS THE ARGUMENT OF T HE ASSESSEE THAT AO CANNOT RESORT TO ESTIMATION IN A BLOCK ASSESSMENT IS CONCERNED, THE LD.CIT(A) RELYING ON VARIOUS DECISIONS REJECTED THE SAME O N THE GROUND THAT WHEN THERE IS EVIDENCE OF EVASION WHETHER SMALL OR LARGE THE AO CAN VERY WELL ESTIMATE THE INCOME OF THE ASSESSEE FOR THE BLOC K PERIOD. SO FAR AS THE ISSUE OF EXTRAPOLATION IS CONCERNED HE ALSO UPH ELD THE ACTION OF THE AO IN VIEW OF THE EVIDENCE SHOWING UNACCOUNTED P URCHASES AND SALES FOR A PART OF THE PERIOD. HE, HOWEVER FOUND CERTAIN INACCURACIES IN THE METHOD ADOPTED BY THE AO FOR COMPUTING THE UNDISCLOSED INCOM E FOR THE BLOCK PERIOD. HE, THEREFORE, ACCORDINGLY DIRECTED THE AO TO COMPUTE THE UNDISCLOSED INCOME AT RS.76,90,694/- AS AGAINST RS.1,01 ,14,255/- MADE BY THE AO BY OBSERVING AS UNDER : 12.3.1 I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE A.O. AND THE SUBMISSIONS OF THE APPELLANT. FIRST OF ALL, THE APPELLAN T HAS ARGUED THAT THE A.O. HAS RESORTED TO ESTIMATION WHICH IS NOT PERMITTED IN BLOCK ASST. IN MY OPINION, THE A.O. IS JUSTIFIED IN ESTIMATING THE INCOM E OF THE APPELLANT FOR THE BLOCK PERIOD AS THE EVIDENCES OF EVASION, WHETHER SMALL OR LARGE HAVE BEEN FOUND FROM THE FIRST YEAR OF THE BLOCK PERIOD TO THE LAST YEAR OF THE BLOCK PERIOD. FROM THE MATERIALS AVAILABLE ON RECORD AND T HE CONTENTIONS RAISED BY THE APPELLANT AS WELL AS THE ASSESSING OFFICER, INCLU DING THE REPORT OF THE 27 ITA NOS.2188 AND 2189/PN/2012 SPECIAL AUDITOR SUBMITTED U/S 142(2A) IT IS CLEAR THAT THE EVIDENCES FOR UNACCOUNTED PURCHASES AND UNACCOUNTED EXPENSES WERE FO UND FOR FY 1996- 97 TO FY 2002-03. THOUGH NO UNACCOUNTED SALES WERE CO MPUTED BY THE SPECIAL AUDITOR FOR FY 1997-98, AS NO DETAILS OF UNACC OUNTED SALES OR PURCHASE FOR THIS YEAR WAS FOUND DURING SEARCH, BUT THE AUDIT REPORT CLEARLY SHOWS THAT DETAILS OF UNEXPLAINED EXPENSES OF RS.73,950 WAS FOUND IN THIS YEAR. THEREFORE FOR THE REASONS THAT EVIDENCE FOR UNACCOUNT ED PURCHASES RELATING TO EARLIER AS WELL AS LATER YEARS WERE FOUND ALONGWITH EVIDENCE OF UNACCOUNTED EXPENDITURE FY . 1997-98, THE APPELLANT AS WELL AS SPECIAL AUDITOR WAS INCORRECT IN SAYING THAT NO UNACCOUNTED SA LES SHOULD BE COMPUTED FOR THIS YEAR. THE ASSESSING OFFICER FOR MAKING THE ESTIMATE OF UNACCOUNTED TURNOVER HAS RELIED ON VARIOUS JUDGEMENTS VIZ. H.M.EUSUFALI, M.K.E.MENON, RAJNIK AND CO., HOTEL KIRAN ETC., WHIC H HAS BEEN OBJECTED TO BY THE APPELLANT . I AM OF THE CONSIDERED OPINION THAT THE ASSESSING OFFIC ER HAS CORRECTLY APPLIED LAW FOR MAKING THE ESTIMATION OF U NACCOUNTED TURNOVER IN THE FACTS AND CIRCUMSTANCES OF THE CASE. ALL THE AFORESA ID JUDGEMENTS RELIED UPON BY THE ASSESSING OFFICER, CLEARLY SAYS THAT THE ESTIM ATION IS PERMITTED IF THE EVIDENCES FOUND SUGGEST EVASION BUT THE ONLY CAUTIO N EXPRESSED IN THESE JUDGEMENTS ARE RELATING TO THE FACT THAT THE ESTIMATI ON MUST BE FAIR AND REASONABLE, HAVING NEXUS TO THE EVIDENCES FOUND. THE A PPELLANT, AS CAN BE SEEN FROM THE CAREFUL EXAMINATION OF THEIR SUBMISSIONS, HAS ALSO MORE OR LESS INTERPRETED THESE JUDGEMENTS IN THE SIMILAR MANNER BUT HAS TRIED TO CONTEND THAT EITHER THE ESTIMATION IS NOT POSSIBLE OR SH OULD BE STRICTLY LINKED TO THE SPECIFIC EVIDENCES FOUND IN THAT PARTICULAR YE AR . IN OTHER WORDS, THE MAIN OBJECTION OF THE APPELLANT CAN BE SEEN TO DISREG ARD THE EVIDENCES FOUND IN THE FORM OF JAMA KHARCHA PANA OF 28 DAYS TO THE R EMAINING PERIOD OF F.Y. 2 ' 002-03 AS WELL AS OTHER FINANCIAL YEARS OF THE BLOCK P ERIOD. THE ARGUMENTS OF THE APPELLANT LOOK INCORRECT . UNDOUBTEDLY, THE EVIDENCE GIVING COMPLETE PICTURE OF EVASION HAS BEEN FOUND FOR 28 DAYS ONLY BUT THE OTHER EVIDENCES FOUND FOR THE ENTIRE BLOCK PERIOD CLEARLY SHOWS THAT THE SAME PRACTICE HAS BEEN FOLLOWED FROM THE FIRST YEAR OF THE BLOCK TO TH E LAST YEAR OF THE BLOCK. 12.3.2 IN VIEW OF THE DISCUSSIONS MADE ABOVE, THE ONL Y OBJECTION WHICH CAN BE EXAMINED RELATES TO QUANTIFICATION OF U NDISCLOSED INCOME OF THE BLOCK PERIOD. IT CAN BE SEEN FROM THE MATERIALS A VAILABLE ON RECORD I.E. VARIOUS DOCUMENTS, SLIPS, PAPERS SEIZED FROM THE PREMISE O F THE APPELLANT AS WELL AS THE EVIDENCES OF THE TRUSTED EMPLOYEES (ALSO CO VERED IN THE SEARCH), THAT THE APPELLANT WAS ENGAGED IN THE EVASION OF INCO ME AS DESCRIBED ABOVE FOR THE ENTIRE PERIOD OF THE BLOCK. THE SEIZED DOCUM ENTS WERE GIVEN TO THE AUDITOR FOR SPECIAL AUDIT U/S 142(2A). THE SPECIAL AUD ITOR IN HIS REPORT ALONG WITH ANNEXURES CLEARLY FOUND THAT THE PAPERS FOUND A ND SEIZED EXCEPT FOR THE JAMA KHARCH PANA OF 28 DAYS, ARE NOT REGULAR BOO KS OF ACCOUNTS BUT MOSTLY CONTAINS NOTINGS ETC. HE HAS COMPILED THE DETAIL S AVAILABLE IN THESE PAPERS INCLUDING JAMA KHARCHA PANA IN THE AUDIT REPO RT. IT WAS FOUND THAT EXCEPT FOR THE JAMA KHARCH PANAS FOR 28 DAYS COVERING THE PERIOD 21/8/2002 TO 24/9/2002, ALL OTHER PAPERS WERE RELATI NG TO UNACCOUNTED PURCHASES, AND UNACCOUNTED EXPENSES ETC. THE JAMA KHARC H PANA OF 28 DAYS WERE FOUND TO CONTAIN ENTIRE TRANSACTIONS OF THESE DA TES. THEREFORE THE AUDITORS HAVE FOUND THAT THESE JAMA KHARCH PANAS CONTA INED ACCOUNTED AS WELL AS UNACCOUNTED TRANSACTIONS AND AFTER COMPARING I T WITH THE REGULAR BOOKS OF ACCOUNTS, THE AUDITOR HAVE COMPUTED THE TOTA L OF GOLD SALES APPEARING IN THESE PANAS, ALONG WITH UNACCOUNTED TRAN SACTIONS TO COMPUTE THE TOTAL UNACCOUNTED GOLD SALES AT RS.1 ,47,26,793/- IN ANNEXURE 1.3 OF THE AUDIT REPORT. SIMILARLY THE UNACCOUNTED SALES OF SILVE R AND OTHER ITEMS OF 28 DAYS JAMA KHARCH PANAS) HAS BEEN COMPUTED AT RS.51,81,7 96 IN ANNEXURE 1.4 OF THE AUDIT REPORT. THE TOTAL OF THESE TWO FIGU RES COMES TO RS.1 ,99,08,589, WHICH CAN BE TAKEN AS TOTAL UNACCOUNTED SALES OF 28 DAYS FROM 28 ITA NOS.2188 AND 2189/PN/2012 21/8/2002 TO 24/9/2002. THE AUDITOR HAS DIVIDED THE TOTAL UNACCOUNTED SALES SO COMPUTED BY 28 TO ARRIVE AT THE FIGURE OF UNA CCOUNTED TRANSACTIONS PER DAY OF RS.7,11,021 AND THIS FIGURE HAS BEEN MULTIP LIED WITH 172 WORKING DAYS OF THE PERIOD 2002-03 TO ARRIVE AT THE TOTAL TU RNOVER OF UNACCOUNTED SALES AT RS.12,22,95,618. PROFIT FROM THIS UNACCOUNTED TRANSACTION HAS BEEN COMPUTED BY THE AUDITOR BY APPLYING THE GP RATE OF 13% TO ARRIVE AT THE FIGURE OF RS.1,58,98,430. AGAINST THIS THE UNACCOUNTE D EXPENSES OF RS.1,86,905 FOUND IN THE SEIZED DOCUMENT HAS BEEN ALLO WED TO COMPUTE THE NET UNACCOUNTED INCOME OF THIS YEAR AT RS.1 ,57,11,5 25 IN THE AUDIT REPORT. AFTER CONSIDERING THE ABOVE THE SPECIAL AUDITOR DECID ED TO COMPUTE THE UNACCOUNTED INCOME FOR FY 1996-97 TO FY 2001-02, ON THE BASIS OF SEIZED PAPERS REPRESENTING UNACCOUNTED PURCHASES AND UNACCOUNT ED EXPENSES. THE AUDITOR HAS ALSO TAKEN INTO ACCOUNT THE UNACCOUNT ED PURCHASE AS INCOME IN THE FIRST YEAR OF THE BLOCK. THE AUDITOR, FOR THESE YEARS ALSO HAS APPLIED THE GP RATE OF 13% FOR CALCULATING THE TURN OVER ON THE BASIS OF FIGURES OF UNACCOUNTED PURCHASES FOUND IN SEIZED PAPERS IN RESPECTIVE YEARS. ALONG WITH ABOVE HE HAS ALSO CONSIDERED THE UNACCOUNTE D EXPENSES FOR ARRIVING AT THE FINAL FIGURE OF UNACCOUNTED INCOME OF DIFFERENT YEARS. THE FINDING OF THE SPECIAL AUDITOR. FOR AFORESAID FINANCI AL YEARS CAN BE SEEN FROM ANNEXURE 1 OF THE SPECIAL AUDIT REPORT. FROM THE SAME IT CAN BE SEEN THAT THE AUDITOR HAS COMPUTED FOLLOWING INCOME OR LOSS FOR THE DIFFERENT ASSESSMENT YEARS. SL.NO . FINANCIAL YEAR UNACCOUNTED PURCHASE (IN RS.) INCOME/ LOSS (IN RS.) 1 1996-97 14 , 759 2,48 , 229 2 1997-98 0 0 3 1998-99 14,03,149 2,31,225 4 1999-2000 76 , 04,023 5,16,233 5 2000-01 7,095 (-)12 , 04,814 6 2001-02 72,12,505 5 , 36 , 554 THE ASSESSING OFFICER HAS FOLLOWED THE COMPUTATION MADE BY THE AUDITOR IN FY 2002-03 IN THE ASSESSMENT ORDER BUT HAS NOT ACCEPTE D THE APPROACH ADOPTED BY THE AUDITOR FOR THE REMAINING YEARS WHILE COMPLETING THE ASSESSMENT. HE, APPARENTLY WAS OF THE OPINION THAT THE E VIDENCES AVAILABLE ON RECORD ESPECIALLY JAMA KHARCH PANAS, CLEARLY SHOWS T HAT THE APPELLANT HAS BEEN CONCEALING TRANSACTIONS, WHICH, IS MOST COMPREHENSI VELY AVAILABLE FOR 28 DAYS AND FOR THE OTHER PERIOD OF THE ENTIRE BLOCK THE EVIDENCES ONLY CONFIRM ABOUT THE CARRYING ON OF THIS ACTIVITY. THER EFORE, THE ASSESSING OFFICER DECIDED TO TAKE CUE FROM THE JAMA KHARCHA P ANAS FOR OTHER YEARS ALSO AND FOR THIS REASON HE TOOK THE ACTUAL TURNOVERS' DECL ARED' IN DIFFERENT YEARS AS THE BASIS AND ESTIMATED THE PERCENTAGE OF UNDISCLOSED TURNOVER FOR COMPUTING THE UNDISCLOSED TURNOVER OF RESPECTIVE YEARS. FROM PARA 45 OF THE ASSESSMENT ORDER, QUOTED AT PARA 12.2 OF THIS ORDER, IT CAN BE SEEN THAT HE HAS TAKEN 5% OF THE DISCLOSED TURNOVER AS UNDISCLOSED TURNOVER IN FY 1996-97 AND 1997-98 AND THEREAFTER HAS GRADUALLY INC REASED IT TO 25% IN FY 2001-02. FROM THE UNDISCLOSED TURNOVER SO COMPUTED, TH E ASSESSING OFFICER HAS APPLIED THE GP RATE OF THE RESPECTIVE YEARS TO COM PUTE THE UNDISCLOSED PROFIT OF THE DIFFERENT YEARS. AS THE ASSESSING OFFICER HAS ADOPTED A DIFFERENT APPROACH FOR FY 1996-97 TO 2001-02, HE HAS SEPARATELY ALLOWED THE EXPENSES APPEARING IN TH1 SEIZED DOCUMENTS, WHICH WERE CONSIDERED AND ALLOWED BY THE SPECIAL AUDITOR IN COMPUTING THE INCO ME OF DIFFERENT YEARS, IN PARA 47 OF THE ASSESSMENT ORDER AT RS.23,46,226. SIMILAR LY, THE ASSESSING OFFICER HAS MADE SEPARATE ADDITION OF RS. 7,44,133 A S INITIAL INVESTMENT IN 29 ITA NOS.2188 AND 2189/PN/2012 THE UNACCOUNTED BUSINESS IN PARA 48 OF THE ASSESSMENT ORD ER. THE APPELLANT HAS OBJECTED TO THIS APPROACH OF THE ASSESSING OFFICER, B UT IN MY CONSIDERED OPINION THE OBJECTION IS NOT VALID. IT IS A FACT THAT THE JAMA KHARCH PANAS OF 28 DAYS GIVES THE CLEAR PICTURE OF CONCEALMENT AND OT HER DOCUMENTS AVAILABLE FOR UNACCOUNTED PURCHASES AND EXPENSES CAN AT BEST BE CONSIDERED TO PROVE THAT THIS ACTIVITY OF CONCEALMENT HAS BEEN C ONTINUED FOR THE ENTIRE BLOCK PERIOD. THEREFORE, THE ASSESSING OFFICER HAS EVERY RIGHT TO ESTIMATE THE UNDISCLOSED INCOME IN A MANNER WHICH CAN BE CONSIDERED AS CORRECT AS WELL AS JUST. ONLY BECAUSE THE EVIDENCES FOUND FOR OTHER THA N THE JAMA PANAS ARE NOT COMPLETE, IT WOULD BE INCORRECT TO SAY THAT THE COMPUTATION OF UNDISCLOSED INCOME SHOULD BE RESTRICTED TO THOSE EVIDENC ES ONLY. THIS PROPOSITION HAS BEEN UPHELD BY DIFFERENT COURTS ALSO AS RELIED BY THE ASSESSING OFFICER. THEREFORE THE CLAIM MADE BY THE APPE LLANT TO PEG THE COMPUTATION OF UNDISCLOSED INCOME TO THE EVIDENCES OF UNDISCLOSED PURCHASES ONLY CANNOT BE ACCEPTED. FURTHERMORE, IT IS ALSO IMPORTANT TO POINT OUT THAT THE NATURE OF THE DOCUMENTS SEIZED, EX CEPT THE JAMA KHARCHA PANAS ARE IN THE NATURE OF ROUGH NOTINGS ONLY AND THE REFORE THEY CANNOT BE CONSIDERED TO GIVE THE COMPLETE PICTURE OF EVASION. A T THE MOST IT CAN REPRESENT THAT THE EVASION CANNOT BE LESS THAN THE FIGU RES APPEARING IN THOSE PAPERS IN RESPECTIVE YEARS. HOWEVER, ANY MATERIAL BROU GHT ON RECORD WHICH CAN MERIT CONSIDERATION FOR APPLYING A PRINCIPLE OF COMPUTATION OF UNDISCLOSED INCOME HAS TO BE GIVEN DUE ATTENTION. IT H AS ALREADY BEEN HELD THAT THE OBJECTION OF THE APPELLANT IN RESPECT OF NO COMPUTATION OF UNDISCLOSED INCOME FOR THE ENTIRE BLOCK PERIOD IS NOT ACCEPTABLE BUT THE OBJECTIONS IF ANY, WHICH ARE VALID AND CAN SHOW THAT THE COMPUTATION MADE BY THE ASSESSING OFFICER REQUIRES TO BE REEXAMINED, CAN BE CONSIDERED. IN VIEW OF THE ABOVE, THE OBJECTIONS MADE BY THE APPELL ANT ON ACCOUNT OF COMPUTATION OF UNDISCLOSED INCOME ARE BEING CONSIDERED IN FOLLOWING PARAGRAPHS. 12.3.3. IN RESPECT OF COMPUTATION OF UNACCOUNTED TR ANSACTIONS MADE BY THE AUDITOR AS WELL AS THE ASSESSING OFFICER, FOR THE FY 2002-03 AT RS.12,22,95,618, THE APPELLANT HAS CLAIMED THAT THE J AMA KHARCH PANAS ARE FOR THE PERIOD OF 21/8/2002 TO 24/09/2002, WHICH IS THE PERIOD WHEN CERTAIN AUSPICIOUS OCCASIONS LIKE GANAPATI FESTIVAL, RAK SHA BHANDAN, RAMZAN AND PADUSHAN ETC FALL AND THEREFORE THE SALES I N THESE PERIODS ARE GENERALLY HIGH. IT HAS FURTHER BEEN STATED THAT THE O THER PERIODS FALLING IN THE SPAN OF 1/4/2002 TO 24/10/2002 HAVE LONG PATCHES OF L EAN SALES WHEN GENERALLY THE SALES ARE LESS THAN THE AVERAGE AND THERE FORE BY APPLYING THE FIGURE OF AVERAGE UNACCOUNTED SALES ON THE BASIS OF PEA K PERIOD, THE ASSESSING OFFICER AS WELL AS THE AUDITOR HAS COMPUTED THE UNDISCLOSED TRANSACTION OF THE PERIOD 1/4/2002 TO 24/10/2002 EXC ESSIVELY. IN SUPPORT OF THEIR CLAIM THE APPELLANT HAS SUBMITTED A CHART FO R THESE 28 DAYS IN DIFFERENT FINANCIAL YEARS OF THE BLOCK PERIOD TO SHO W THAT THE SALES ARE VARING FROM 10% TO 17% OF THE TOTAL SALES OF THE RESPECTIVE Y EARS, WHEREAS THE AVERAGE SALES SHOULD BE IN THE VICINITY OF 8.33% OF TO TAL SALES IN A MONTH. THE APPELLANT AFTER MAKING DETAILED ARGUMENTS ON THIS ISSUE HAS GIVEN A MORE APPROPRIATE METHOD OF COMPUTATION FOR FY 2002-03 VI DE THEIR LETTER DATED NIL FILED ON 21/2/2012. THIS COMPUTATION HAS ALREADY BEEN QUOTED ABOVE. IN THIS COMPUTATION THE APPELLANT HAS TAKEN THE EXACT A MOUNT OF UNACCOUNTED TRANSACTIONS COMPUTED FOR THE 28 DAYS IN ANNEXURE 1.3 AND 1.4 OF THE AUDIT REPORT, WHICH IS AT RS.1,99,08,589. IT HAS FURTHER BEE N SHOWN THAT THE AFORESAID UNACCOUNTED TRANSACTION IS 46.06% OF THE TOT AL TRANSACTIONS APPEARING IN THE JAMA KHARCH PANAS. SINCE THE TOTAL WORKING DAYS HAS BEEN TAKEN 172 DAYS AND THE FIGURE OF 28 DAYS ARE ACTUAL LY AVAILABLE, THE UNACCOUNTED TRANSACTIONS FOR THE REMAINING 144 DAYS HA VE BEEN COMPUTED FROM THE DISCLOSED TRANSACTIONS FOR THOSE 144 DAYS @46.06 %. ON THIS 30 ITA NOS.2188 AND 2189/PN/2012 CALCULATION THE UNACCOUNTED TRANSACTIONS FOR 144 DAYS COMES TO RS.5,97,35,095. BY ADDING BOTH THE FIGURES THE TOTAL UNACCOUNTED TRANSACTION FOR THE PERIOD 1/4/2002 TO 24/10/2002 HAS BEEN COMPU TED AT RS.7,96,43,684 AND BY APPLYING THE SAME GP RATE OF 13 %, WHICH HAS BEEN COMPUTED BY THE SPECIAL AUDITOR FOR THIS YEAR ON THE BASIS OF MATERIAL AVAILABLE ON RECORD, THE UNACCOUNTED PROFIT FOR THI S PERIOD COMES TO RS.1,03,53,679. ON CAREFUL CONSIDERATION OF THE MATER IALS AVAILABLE ON RECORDS, WHICH CLEARLY SHOW THAT THE METHOD ADOPTED B Y THE ASSESSING OFFICER AND THE AUDITOR HAS NOT TAKEN INTO CONSIDERAT ION THE FLUCTUATION OF BUSINESS NORMALLY HAPPENING IN DIFFERENT MONTHS, THE ME THOD DISCUSSED ABOVE WAS FOUND TO BE MORE APPROPRIATE AND JUST. IN, VIEW OF THE ABOVE' AND ALSO BECAUSE THE UNACCOUNTED TRANSACTION IN THIS METHOD BECOMES MORE PROXIMATE TO THE FIGURE OF UNACCOUNTED PURCHASES FOUN D, THE UNDISCLOSED INCOME FOR THE FY 2002-03 IS DIRECTED TO BE ADOPTED, AT RS.1,03,53,679 SUBJECT TO VERIFICATION OF DIFFERENT FIGURES SUPPLIED BY THE APPELLANT DURING APPEAL. THE ASSESSING OFFICER IS DIRECTED TO VERIFY TH ESE FIGURES WHILE GIVING THE APPEAL EFFECT. 12.3.4 AS REGARDS THE ADDITION MADE FOR THE BALANCE YEARS, I HAVE ALREADY HELD THAT THE A.O. WAS JUSTIFIED' IN ESTIMATIN G THE' UNDISCLOSED INCOME FOR ALL THE YEARS I.E. FY 1996-97 TO FY 2001- 02, IN THE MANNER DONE BY HIM. IT HAS ALSO BEEN HELD THAT THE EVIDENCES FOUND IN RESPECT UNACCOUNTED PURCHASES AND UNACCOUNTED EXPENSES ARE NOT COMPLETE. THEREFORE THE ASSESSING OFFICER HAS A RIGHT TO TAKEN INT O ACCOUNT OTHER EVIDENCES FOUND DURING SEARCH WHICH GIVES A MORE COMPR EHENSIVE VIEW OF THE CONCEALMENT. IN VIEW OF THE ABOVE, THE APPROACH ADOPTED BY THE ASSESSING OFFICER TO COMPUTE THE UNDISCLOSED TRANSACTIONS A S A PERCENTAGE OF TOTAL DISCLOSED TURNOVER IS UPHELD. FOR THE SAME REASON THE FINDING OF THE AUDITOR GIVEN FOR ESTIMATING THE UNDISCLOSED SALES ON T HE BASIS OF UNDISCLOSED PURCHASES ONLY WITHOUT ANY EXTRAPOLATION H AS TO BE HELD AS MYOPIC. HOWEVER, THE MATERIALS BROUGHT ON RECORD BY APPELLANT THAT THE BUSINESS OF FY 2001-02 REMAINED AFFECTED DUE TO MASSIVE RENOVATION AND CONSTRUCTIONS UNDERTAKEN IN THIS YEAR, HAS BEEN FOUND TO BE CORRECT. FURTHERMORE, OTHER MATERIALS BROUGHT ON RECORD, THAT THE SHOP EXISTING IN FY 1996-97 TO 2001-02 WAS MUCH SMALLER THAN THE SAME BEF ORE RENOVATION AND CIVIL CONSTRUCTION, WERE ALSO CORRECT. SIMILARLY, THE CONTENTION MADE THAT THE APPELLANT COMPANY CAME INTO EXISTENCE ON 22/2/1990 A FTER IT'S INCORPORATION UNDER 'THE COMPANIES ACT AND THEREFORE THE INITIAL YEARS OF THE BLOCK WERE REPRESENTED BY THE EARLY PHASE OF THE BUSIN ESS, WAS ALSO SEEN. DURING APPEAL, THESE ARGUMENTS OF THE APPELLANT WERE CONSIDERED AND DISCUSSED WITH THE AR. IT WAS ASKED, WHEN THE ASSESSING OFFI CER HAS COMPUTED THE UNDISCLOSED TURNOVER ON THE BASIS OF DISCLO SED TURNOVER, THEN HOW THESE FACTORS CAN BE CONSIDERED TO BE RELEVANT FOR ADOPTING A LOWER FIGURE. IT WAS ARGUED IN THIS RESPECT THAT THE APPELLA NT HAD LESSER CAPACITY AND DRIVE TO KEEP TRANSACTIONS OUTSIDE BOOKS OF ACCOUN TS IN THE PRE- RENOVATION PHASE. IT WAS THE CASE OF THE APPELLANT THA T THE TURNOVER INCREASED GRADUALLY AFTER RENOVATION AND THEREFORE, THEY WERE MORE INCLINED TO KEEP THE TRANSACTIONS OUTSIDE THE BOOKS AFTER RENOVA TION TO MAKE THE INCREASE GRADUAL IN SUBSEQUENT YEARS. THOUGH THE PROPO SITION OF THE APPELLANT MAY LOOK LOGICAL BUT IS NOT BASED ON ANY EV IDENCE. HOWEVER, THE CLAIM OF THE APPELLANT THAT THE FIGURES ADOPTED BY T HE ASSESSING OFFICER FOR DIFFERENT YEARS IS WITHOUT ANY BASIS AND SHOULD BE LINKE D MORE - TO THE QUANTUM OF PURCHASES FOUND IN DIFFERENT YEARS OF BLOCK , WAS FOUND TO HAVE SOME MERIT. IN VIEW OF THESE FACTS WHICH WERE CLEARLY NOT TAKEN INTO ACCOUNT BY THE ASSESSING OFFICER AS PER THE DISCUSSIONS AVAILABLE IN ASSESSMENT ORDER, THE FIGURES TAKEN BY THE ASSESSING OFFICER FOR CO MPUTING THE UNDISCLOSED TRANSACTION BASED ON DISCLOSED TRANSACTION WER E DECIDED TO BE 31 ITA NOS.2188 AND 2189/PN/2012 EXAMINED. IT IS APPARENT THAT THE SHOP SIZE INCREASED MANY FOLDS AFTER RENOVATIONS AND THEREFORE THE PERCENTAGE OF UNDISCLOSE D INCOME FOUND IN THE JAMA KHARCH PANAS HAS TO BE REDUCED SUBSTANTIALLY T O TAKE INTO ACCOUNT THE VARIOUS CONSIDERATIONS DISCUSSED ABOVE AS WELL AS TO KEEP IN MIND THE ACTUAL EVIDENCE OF UNACCOUNTED PURCHASES FOUND IN RESP ECTED YEARS, WAS FOUND REASONABLE. THE ASSESSING OFFICER HAS NOT DISCUSSED AN YTHING IN THE ASSESSMENT ORDER FOR JUSTIFYING THE RATES ADOPTED BY HIM FOR DIFFERENT YEARS FOR COMPUTING THE UNDISCLOSED TRANSACTIONS, HOWEVER HE CAN BE SEEN TO HAVE VERY CORRECTLY APPLIED THE RATES IN A DECENDING ORD ER BY SUBSTANTIALLY REDUCING IT FROM THE ACTUAL PERCENTAGE OF UNACCOUNT ED TRANSACTIONS APPEARING IN JAMA KHARCH PANAS. THOUGH HE HAS CORRECT LY KEPT THE RATE MINIMUM IN FY 1996-97 AND HAS GRADUALLY INCREASED IT UPTO FY 2001-02 BUT SINCE HE HAS NOT CONSIDERED ABOUT THE DISTURBANCE OF B USINESS DUE TO RENOVATION IN FY 2001-02 AND THE SMALLER SIZE IN EAR LIER YEARS, AND MOST IMPORTANTLY THE AMOUNT OF PURCHASES AVAILABLE IN DIFF ERENT YEARS, THE RATES ADOPTED CAN BE SEEN TO BE GIVING SLIGHTLY HIGHER FIGU RES OF UNACCOUNTED TRANSACTIONS AND UNACCOUNTED INCOME VIS-A-VIS FIGURES OF UNACCOUNTED PURCHASES FOUND IN DIFFERENT YEARS. IN MY CONSIDERED OP INION A RATIONAL BALANCE HAS TO BE DRAWN BETWEEN DIFFERENT PARAMETERS AVAILABLE ON THE ISSUE FOR ARRIVING AT THE MOST APPROPRIATE AMOUNT OF U NDISCLOSED TRANSACTION AND PROFIT. SO -FAR AS THE GROSS PROFIT RATE APPLIED B Y THE ASSESSING OFFICER IN DIFFERENT YEARS ARE CONCERNED, IT IS HELD THAT THE SA ME IS REASONABLE AND CORRECT AS IT HAS BEEN TAKEN FROM APPELLANT'S OWN .DEC LARED FINANCIAL RESULTS. THEREFORE THE UNDISCLOSED INCOME FOR THE DIFFERENT YE ARS ARE BEING COMPUTED IN THE SAME MANNER AS WAS DONE BY THE ASSESSING O FFICER EXCEPT FOR TAKING THE, PERCENTAGE RATES OF UNDISCLOSED TURNOV ER DIFFERENT FROM THE FIGURES TAKEN BY THE ASSESSING OFFICER. IN MY OPINION TH E PERCENTAGE TO BE TAKEN ARE 3% FOR 1996-97 AND 1997-98 AS AGAINST 5% TA KEN BY THE ASSESSING OFFICER. IN 1998-99 4% IS TAKEN AGAINST 7.5% OF THE ASSESSING OFFICER AND FOR 1999-2000 AND 2000-01 7% AND 13% AR E TAKEN AGAINST 10% AND 15% OF THE ASSESSING OFFICER. FOR SIMILAR REASONS AND ALSO FOR DISTURBANCE IN THE BUSINESS IN 2001-02, THE FIGURE IS TA KEN AT 20% AGAINST 25%' OF THE ASSESSING OFFICER. BY THESE FIGURES THE UNDISC LOSED TURNOVER COMES NEARER TO QUANTUM OF UNACCOUNTED PURCHASES FOUND . THE TABULAR COMPUTATION CAN BE SEEN AS UNDER : SR. NO. F.Y. DISCLOSED TURNOVER % FOR COMPUTING UNDISCLOSED TURNOVER UNDISCLOSED TURNOVER GP RATE UNDISCLOSED INCOME (RS.) UNACCOUNTED PURCHASE AS PER AUDIT REPORT 1 1996 - 97 14,58,26,683 3% 44,64,800 5.3% 236634 14,759 2 1997 - 98 18,59,90,256 3% 55,79,707 4.85% 270615 NIL 3 1998 - 99 16,51,27,629 4% 66,05,105 8.9% 587854 14,03,149 4 1999 - 00 11,53,94,725 7% 80,77,630 10.85% 876422 76,04,023 5 2000 - 01 19,27,05,612 13% 2,50,51,729 9.73% 2437533 7,095 6 2001 - 02 14,74,22,910 20% 2,94,84,582 11.13% 3281633 72,12,505 7690694 12.3.5. THEREFORE, FROM THE DISCUSSIONS MADE ABOVE, I T IS HELD THAT THE UNDISCLOSED INCOME OF THE APPELLANT FOR F.Y.1996-97 T O 2001-02 SHOULD BE ASSESSED AT RS.76,90,694 AS AGAINST THE COMPUTATION OF THE ASSESSING OFFICER MADE FOR RS.1,01,14,255. THE APPELLANT GETS PART RELI EF FOR THESE YEARS. WITH AFORESAID DISCUSSIONS, THE ISSUES RAISED BY THE APPELLANT CA N BE TREATED AS RESOLVED IN THE MANNER NOTED ABOVE. GROUNDS NO. 8 AND 9 OF THE APPELLANT THEREFORE, CAN BE TREATED AS PARTLY ALLOWED. 32 ITA NOS.2188 AND 2189/PN/2012 48. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 49. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY OPPOSED THE ORDER OF THE CIT(A). HE SUBMITTED THAT DURING THE COURSE OF SEARCH UN ACCOUNTED PURCHASES WERE FUND FOR THE ENTIRE PERIOD. THEREFORE, THE RE IS NO REASON TO BELIEVE THAT THE ASSESSEE HAS MADE SOME MORE PURCH ASES. HE SUBMITTED THAT FROM THE ESTIMATION OF SALES MADE BY THE AO IF THE GP ADOPTED BY THE AO IS DEDUCTED THE BALANCE AMOUNT WOU LD BE PURCHASES WHICH IS MORE THAN THE UNACCOUNTED PURCHASES FOUND DUR ING THE COURSE OF SEARCH. THEREFORE, THIS ESTIMATION THEORY ADOPTED BY THE AO IS VIOLATING PRINCIPLE OF SECTION 132(4A) AND IT IS ALSO ILLOGICAL. HE SUBMITTED THAT THE ASSESSEE HAS SUBMITTED THAT THE SA LES FOR THE 28 DAYS PERIOD WERE HIGHER BECAUSE OF FESTIVAL SEASONS LIKE RAKSHA BANDAN, GANESH FESTIVAL, PARYUSHAN, RAMZAN ETC. THEREFORE , THE SAME BASIS CANNOT BE ADOPTED FOR THE ENTIRE PERIOD. ON THIS G ROUND ALSO THE ESTIMATION MADE BY THE AO IS NOT JUSTIFIED. HE SUBMITTED T HAT THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS A S WELL AS BEFORE CIT(A) HAS CLARIFIED THAT IN ALL THESE UNACCOUNTED PURCHASES OF RS.5,27,44,980/- ENTRIES OF RS.88,90,715/- PERTAINS TO GOODS RECEIVED FOR APPROVAL, GOLD GIVEN TO GOLDSMITH AND ORNAMENTS TAKEN FROM THEM ETC. THEREFORE, THE UNACCOUNTED PURCHASES WERE ACTUALLY RS.4,38,54,265/- AND GP OF 13% ON SALES IS EQUAL TO GP OF 14.94% OF PURCHASES. THEREFORE, PROFIT SHOULD BE ESTIMATED AT 14.94 % ON RS.4,38,84,265/- WHICH COMES TO RS.65,61,620/- AS AGAINST TH E PROFIT OF RS.1,58,98,430/- DETERMINED BY THE AO WHICH WAS REDUCED T O RS.1,03,53,679/- BY THE CIT(A) AS PER PARA 12.3.3 OF HIS ORD ER. HE SUBMITTED THAT FOR THE EARLIER PERIOD, I.E. F.Y. 1996-97 TO F.Y . 2001-02 33 ITA NOS.2188 AND 2189/PN/2012 THE CIT(A) HAS ESTIMATED THE UNACCOUNTED TURNOVER AT A VARYING PERCENTAGE WHICH IS VERY EXCESSIVE AND THE PROFIT SHOULD BE REDUCE D. 50. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE PAPERS FOUND DURING THE COURSE OF SEARCH ARE NOT REGULAR UNACCOUNT ED BOOKS BUT ARE LOOSE SHEETS. FURTHER, NO PAPERS WERE FOUND FOR THE ENT IRE PERIOD. THEREFORE, ESTIMATION HAS TO BE MADE. HE SUBMITTED THAT D URING THE YEAR OF SEARCH FULL RECORDS WERE FOUND FOR 28 DAYS. THEREFORE, IT WAS FULLY JUSTIFIED ON THE PART OF THE AO FOR EXTRAPOLATION FOR THE E NTIRE YEAR. THE LD.CIT(A) HAS PASSED THE ORDER AFTER CONSIDERING THE SUBM ISSION OF THE ASSESSEE THAT PAPER FOUND FOR THE PERIOD OF 28 DAYS WAS THE PEAK PERIOD AND THEREFORE EXTRAPOLATION OF THE SAME FOR THE ENTIRE YE AR IS NOT CORRECT. HE SUBMITTED THAT BASED ON THE VARIOUS SUBMISSIONS MAD E BY THE ASSESSEE THE LD.CIT(A) HAS DIRECTED THE AO TO ADOPT 3% OF THE UNDISCLOSED TURNOVER AS THE DISCLOSED TURNOVER AS AGAINS T 5% ADOPTED BY THE AO. THEREFORE, THE GRIEVANCE OF THE ASSESSEE IS W ELL TAKEN CARE AND THEREFORE, THE SAME SHOULD BE UPHELD. 51. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIO US DECISIONS CITED BEFORE US. WE FIND DURING THE COURSE OF SEARCH COND UCTED IN THE BUSINESS AND RESIDENTIAL PREMISES OF THE ASSESSEE AND ITS DIRECTORS, CERTAIN PAPERS FOR VARIOUS YEARS WERE FOUND INDICATING THE UNACCOUNTED PURCHASES AND SALES. BASED ON THE LOOSE PAPERS FOUND THE SPECIAL AUDITOR APPOINTED BY THE DEPARTMENT ESTIMATED THE UNAC COUNTED SALES, THE DETAILS OF WHICH ARE ALREADY GIVEN AT PARA NO.39 OF THIS ORDER. ON THE BASIS OF THE UNACCOUNTED PURCHASES AND SALES FOUND FOR THE PERIOD FROM 21-08-2002 TO 24-09-2002 THE AO ESTIMATED THE SA LES FOR THE 34 ITA NOS.2188 AND 2189/PN/2012 ENTIRE PERIOD FROM 01-04-2002 TO 24-10-2002 ON THE BAS IS OF THE SALES FOR 28 DAYS AT RS.12,22,95618/- AND ESTIMATED THE PROFIT A T 13% AT RS.1,58,98,430/-. SO FAR AS THE OTHER YEARS OF THE BLOCK P ERIOD ARE CONCERNED THE AO DETERMINED THE UNACCOUNTED TURNOVER AT 5% OF THE DISCLOSED TURNOVER FOR F.Y. 1996-1997 TO F.Y. 1997-1998 A T 7.5% FOR F.Y. 1998-1999 AT 10% FOR F.Y. 1999-2000 AT 15% FOR 2000- 01 AND AT 25% FOR F.Y. 2001-02. WE FIND BASED ON THE ARGUMENTS ADV ANCED BY THE ASSESSEE THE LD.CIT(A) WHILE UPHOLDING THE ACTION OF TH E AO IN PROCEEDING FOR ESTIMATION OF THE UNACCOUNTED TURNOVER FO R THE BLOCK PERIOD, HOWEVER, HAS GIVEN SOME CONSEQUENTIAL RELIEF ON ACCO UNT OF UNDISCLOSED TURNOVER. HE HOWEVER UPHELD THE GP RATE AD OPTED BY THE AO. THE DETAILED REASONING GIVEN BY THE CIT(A) WHILE DECIDING THIS ISSUE HAS ALREADY BEEN REPRODUCED IN THE PRECEDING PARAGRAPH S. THE ORDER OF THE CIT(A) IS QUITE EXHAUSTIVE AND DEALS WITH EACH AND EVE RY ASPECT OF THE ARGUMENTS ADVANCED BY THE LD. COUNSEL FOR THE ASS ESSEE. IN OUR OPINION, THE ORDER OF THE CIT(A) IS A REASONED ONE UNDER T HE FACTS AND CIRCUMSTANCES OF THE CASE. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE SAME. GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS ACCORDINGLY DISMISSED. 52. IN GROUND OF APPEAL NO.6 THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) IN CONFIRMING THE ADDITION OF INITIAL INVESTMENT IN UNACCOUNTED STOCK AT RS.2,44,133/-. 53. FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO IN THE ASSE SSMENT ORDER HELD THAT SINCE THE ASSESSEE HAD CARRIED OUT SUBSTANTIA L TURNOVER WHICH WAS NOT RECORDED IN THE BOOKS OF ACCOUNT, THEREFORE, THE SAME REQUIRES INITIAL UNACCOUNTED MONEY TO CARRY OUT THE UNACCOUNTED TURNOVER. CONSIDERING THE TURNOVER OF RS.74,41,334/- FOR F.Y. 1996-97 HE 35 ITA NOS.2188 AND 2189/PN/2012 ESTIMATED THE INITIAL INVESTMENT AT RS.7,44,133/- BEING 10% OF SUCH TURNOVER IN THE FIRST YEAR, I.E., F.Y. 1996-1997. 54. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE ADDITION IS BASED ON THE UNACCOUNTED SALE OF RS.74,41,334/- ESTIMATED BY THE A O FOR F.Y. 1996-97. HOWEVER, SUCH ESTIMATION OF UNACCOUNTED SALES IS NOT JUSTIFIED FOR THE PAST YEARS SINCE FOR F.Y. 1996-97, THE DEP ARTMENT HAS FOUND UNACCOUNTED PURCHASES OF ONLY RS.14,759/-. THERE FORE, THE ADDITION OF RS.7,47,133/- IS NOT JUSTIFIED. 55. HOWEVER, THE CIT(A) WAS NOT SATISFIED WITH THE EXPLANATIO N GIVNE BY THE ASSESSEE AND UPHELD THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER : 13.3 IT IS ALSO NOTED FROM THE MATERIALS AVAILABLE O N RECORD THAT ON 16.01.2007, AND ORDER U/SEC. 250(4) WAS PASSED AND THE ASSESSING OFFICER WAS DIRECTED TO EXAMINE THE PURCHASES COMPUTED BY THE AUDITOR IN DIFFERENT YEARS VIS-A-VIS THE SEIZED DOCUMENTS AND TO RE-EXAMINE THE COMPUTATION OF UNDISCLOSED INVESTMENTS IN UNACCOUNTED PURCHASES. THE ASSESSI NG OFFICER HAS SUBMITTED THE REPORT VIDE HIS LETTER DATED 13.2.20 07 AND IN THIS LETTER IT WAS SUBMITTED THAT THE SEIZED MATERIAL FOUND RELATES TO UNACCOUNTED SALES AND PURCHASES MADE BY THE ASSESSEE DURING THE BLOCK PERIO D AND ITS STUDY SUGGESTS THAT THE APPELLANT HAS CARRIED OUT UNACCOUNTED SALES AND PURCHASES DURING THE ENTIRE BLOCK PERIOD. HOWEVER, THE SEIZED MATERIAL WAS STATED TO BE IN THE FORM OF LOOSE PAPERS, CHITS, SCRIBBLINGS ETC. AND NOT IN THE FORM OF PROPER ACCOUNTS. IN VIEW OF THE ABOVE, THE ASSESSING OFF ICER SUBMITTED THAT IT IS NOT FULLY FEASIBLE TO SEGREGATE THE TRANSACTIONS DAT EWISE, HOWEVER, THE ASSESSING OFFICER PREPARED A TABLE SHOWING YEARWISE UNACC OUNTED PURCHASES, NUMBER OF DAYS OF UNACCOUNTED PURCHASE AND O N THAT BASIS COMPUTED THE ANNUALIZED UNACCOUNTED TRANSACTIONS BY T REATING THE WORKING DAYS IN A YEAR AS 300. HE COMPUTED DIFFERENT FIGURES O F UNACCOUNTED TURNOVER WHICH IS QUITE AT VARIANCE TO THE FIGURES CO MPUTED BY THE ASSESSING OFFICER. IN THE ASSESSMENT ORDER. FOR EXAMPLE IN F.Y. 2 001-02, IN HIS METHOD THE UNACCOUNTED TURNOVER CAME TO RS.21,33,06,310. ON THAT BASIS AND AFTER CONSIDERING THE FACT THAT THE APPELLANT WAS HAVING A WORKING CAPITAL INVESTMENT ON THE DISCLOSED TURNOVER RANGING FROM 0.06 % TO 0.61 % THE ASSESSING OFFICER SUGGESTED THAT THE INITIAL INVESTMENT SHO ULD BE CONSIDERED AS PEAK OF 2001-02 AT RS.11,30,52,344. THE REPORT OF THE ASSESSING OFFICER WAS GIVEN TO THE APPELLANT AND A SUBMISSION IN REBUTTAL CAN BE SEEN TO HAVE BEEN FILED BY THE APPELLANT VIDE HIS LETTER DATED 26 .2.2007. IN THIS LETTER, THE APPELLANT HAS VEHEMENTLY OBJECTED TO THE FINDING OF INITIAL INVESTMENT MADE IN THE REPORT U/S 250(4) AT RS.11,30,52,344 IN F. Y. 2001-02 AGAINST T HE COMPUTATION OF RS. 7,44,133 MADE IN THE ORIGINAL ASSESSM ENT. THE APPELLANT POINTED OUT THAT THE REPORT OF THE ASSESSING OFFICER IS MISDIRECTED. AS PER APPELLANT, THE ASSESSING OFFICER WAS ASKED TO COMPUTE TH E INITIAL INVESTMENT IN THE UNACCOUNTED BUSINESS, HOWEVER HE HAS COMPUTED TH E PEAK 36 ITA NOS.2188 AND 2189/PN/2012 INVESTMENT IN AN ARBITRARY MANNER FOR F.Y. 2001-02. THE BASIS ADOPTED BY THE ASSESSING OFFICER TO TREAT 53% OF THE UNACCOUNTED T URNOVER AS INITIAL INVESTMENT IN F.Y. 2001-02 ON THE BASIS OF THE OBSERVAT ION THAT THE APPELLANT IS HAVING A VERY HIGH , WORKING CAPITAL VIS-A-VIS DISC LOSED TURNOVER, WAS CLAIMED TO BE INCORRECT. IT WAS ALSO SUBMITTED THAT TH E ASSESSING OFFICER HAS NOT CONSIDERED THE TELESCOPIC BENEFIT OF INCOME COMPU TED IN EARLIER YEARS. THE APPELLANT ALSO GAVE REASONS FOR HAVING HIGHER INVE NTORY VIS-A-VIS DISCLOSED TURNOVER. THE APPELLANT OBJECTED TO ADOPTIO N OF A DIFFERENT FIGURE OF TURNOVER FOR COMPUTATION OF INITIAL INVESTMENT TH AN THE ONCE TAKEN IN THE BLOCK ASSESSMENT. THE APPELLANT HAS ALSO CONTENDED THAT THE SEIZED DOCUMENTS ITSELF SUGGESTS THAT MOST OF THE PURCHASES ARE ON CREDIT FOR WHICH EVEN INTEREST HAS BEEN PAID. IT HAS ALSO BEEN STATED THA T 50% OF TRANSACTION CANNOT BE TREATED AS INVESTMENT. IT HAS FURTHER BEEN STATED THAT NO UNACCOUNTED STOCK WAS FOUND DURING SEARCH. I HAVE CAR EFULLY CONSIDERED THE DISCUSSIONS AVAILABLE ON RECORD ALONG WITH THE REPORT O F THE ASSESSING OFFICER AND THE SUBMISSIONS MADE THEREUPON. NOW FIRST OF ALL COMING TO THE GROUND RAISED BY THE APPELLANT FOR THE ADDITION OF R S.7,44,133 AS INITIAL INVESTMENT IN THE UNDISCLOSED TURNOVER IN F.Y.1996-97, IT IS NOTED THAT THE ASSESSING OFFICER WHILE COMPLETING THE BLOCK ASSESSMENT HAS CONSIDERED ALL THE EVIDENCES IN A HOLISTIC MANNER AND THEREFORE, IN F.Y. 1996-97, WHICH WAS THE FIRST YEAR OF THE BLOCK PERIOD AND FOR WHICH THE EVIDENCE .OF UNACCOUNTED PURCHASE OF ONLY RS.14,759 WAS FOUND, THE UNDISCLOSED TU RNOVER WAS COMPUTED AS 5% OF DISCLOSED TURNOVER AT RS. 74,41,334. THEREFORE, IN THE ABSENCE OF ANY OTHER MATERIALS AVAILABLE ON RECORD, W HICH CAN NEGATE THE EARLIER FINDING GIVEN IN THE ASSESSMENT ORDER THAT THE UNACCOUNTED BUSINESS CONTINUED FROM F.Y. 1996-97 IN A REGULAR MANNER AND HAS GRADUALLY INCREASED OVER THE PERIOD, IT CANNOT BE HELD THAT AN ADDITION CAN BE MADE ON THE BASIS OF 53% OF THE UNACCOUNTED TRANSACTION COMPUT ED IN F.Y. 2001-02. FURTHERMORE, THE UNACCOUNTED TRANSACTION COMPUTED IN F.Y. 2001-02 IN THE REMAND REPORT IS MUCH HIGHER THAN EVEN THE DISCLOSED T RANSACTION OF RS.14,74,22,910 OF THIS YEAR. THE FINDING OF THE ASSESSIN G OFFICER IN THE REMAND REPORT IS THEREFORE, ABSURD AND UNREASONABLE. I T IS ALSO IMPORTANT TO NOTE THAT THE CLAIM OF THE APPELLANT THAT NO SUBSTANT IAL UNACCOUNTED STOCKS WERE FOUND DURING SEARCH, IS ALSO A MATERIAL FACT TO B E CONSIDERED FOR THIS ISSUE. AS ALREADY DISCUSSED EARLIER WHILE DEALING WITH OT HER GROUNDS OF APPEAL, I HAVE GIVEN THE FINDING WHICH HAS A RELEVAN T BEARING ON THIS ISSUE. THE SEARCH CONDUCTED AT ALL THE BUSINESS PREMISES AND THE RESIDENCES HAS CLEARLY SHOWN THAT THOUGH THE APPELLANT WAS ENGAGED I N CARRYING OUT UNACCOUNTED TRANSACTIONS REGULARLY BUT THE SAME HAS BEE N CARRIED OUT REGULARLY FROM THE SAME BUSINESS PREMISE. THEREFORE, TH E STOCK FOUND AT THE BUSINESS PREMISE ON THE DATE OF THE SEARCH HAS TO BE ACCE PTED AS THE TOTAL STOCK FOUND DURING SEARCH. SINCE THE SAME HAS BEEN FOUN D TO BE MORE OR LESS MATCHING WITH THE STOCK RECORDED IN THE BOOKS, THE FI NDING OF THE ASSESSING OFFICER FOR HUGE UNACCOUNTED INITIAL INVESTMENT IS AR BITRARY. GROUND NO. 2 OF THE APPELLANT RELATES TO UNACCOUNTED STOCK OF GOLD JE WELLERY ADDED BY THE ASSESSING OFFICER AT RS.66,73,715 BY REJECTING THE PURCH ASES CLAIMED TO HAVE BEEN MADE FROM H KUMAR GEMS INTERNATIONAL, AHMEDABAD AND MR. O.N. RANKA. ON THIS BASIS THE ASSESSING OFFICER HAS GIVEN THE FI NDING THAT THE STOCK OF JEWELLERY FOUND DURING SEARCH IS EXCESS BY 13,1 89.160 GMS VALUED AT RS.66,73,715. THIS ADDITION OF THE ASSESSING OFFICER C OULD NOT BE UPHELD IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IT HAS BEEN HELD THAT THE AFORESAID EVIDENCES OF PURCHASES WERE CORRECT AND AFTER CONSIDERING IT THE COMPUTATION OF SHORTAGE OF JEWELLERY OF 5,666.240GMS WAS UPHELD. WHILE DOING SO, THIS ISSUE WAS CONSIDERED AND AFTER CONSIDERING THE FACT THAT THE APPELLANT WAS MAINTAINING ITS STOCK FOR UNACCOUNTED TR ANSACTIONS TOGETHER THE SHORTAGE OF STOCK WAS TAKEN AS EVIDENCE THAT THE AP PELLANT CONCEALS ITS TRANSACTIONS IN A REGULAR MANNER. IN THE LIGHT OF THE ABOVE FINDING AND ALSO 37 ITA NOS.2188 AND 2189/PN/2012 THE FACT POINTED OUT BY THE ASSESSING OFFICER IN THE RE MAND REPORT THAT THE APPELLANT MAINTAINS HIGH PERCENTAGE OF STOCK VIS-A-VI S TURNOVER, IT HAS TO BE HELD THAT THE ABOVE FINDING GIVEN BY ME GETS FURTHER STRENGTHENED. IN OTHER WORDS, SINCE THE APPELLANT IS MAINTAINING ITS STOCK FOR ACCOUNTED AND UNACCOUNTED TRANSACTIONS TOGETHER, IT IS LOGICAL TO MA INTAIN A HIGHER PERCENTAGE OF STOCK VIS-A-VIS RECORDED TRANSACTIONS. IN FACT SUCH A PHENOMENON IS AN INDICATOR OF CONCEALMENT OF TRANSACT ION GENERALLY. FOR THE DISCUSSIONS MADE ABOVE, I DO NOT FIND ANY MERIT IN EITH ER THE REPORT OF THE ASSESSING OFFICER FOR HIGHER ESTIMATION OF INITIAL INVEST MENT NOR IN THE ARGUMENT OF THE APPELLANT FOR REDUCING THE INITIAL INVESTMENT MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. IT IS ALSO IMPORTA NT TO REITERATE THAT IN THE CASE OF ANOTHER GROUP' BUSINESS CONCERN I.E . M/S RANKA JEWELLERS, RAVIWAR PETH, IT HAS BEEN SEEN THAT THE ASSESSING OFFICE R INITIALLY MISSED TO MAKE ANY ADDITION FOR THE INITIAL INVESTMENT IN THE UNACCOUNTED BUSINESS TRANSACTIONS FOUND DURING SEARCH AND THEREFORE, MADE A N APPLICATION BEFORE THE THEN CIT(A)-I, PUNE AND THE LD. CIT(A) IN HIS OR DER MADE AN ADDITION OF RS.10 LAKHS AS INITIAL INVESTMENT IN THE FACTS AND CIRCU MSTANCES OF THAT CASE. BOTH THE DEPARTMENT AS WELL AS THE APPELLANT HAS FILED APPEALS AGAINST THE IMPUGNED ORDER OF THE CIT(A) PUNE, BEFORE THE ITAT, PUNE IN ITA NO. 8 20/PN/2006 AND ITA NO. 801 /PN/2006 RESPECTIVELY. HOWEVER, THE AFORESAID ISSUE WAS ONLY AGITATED BY THE APPELLANT IN T HEIR GROUND NO.3, WHEREIN IT WAS CLAIMED THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN ENHANCING THE UNDISCLOSED INCOME TO THE EXTENT OF RS.1 0,00,000 ON ACCOUNT OF ALLEGED INITIAL INVESTMENT FOR MAKING THE UNACCOU NTED SALES. IT IS NOTED THAT THE HON'BLE ITAT IN THEIR CONSOLIDATED ORDER DA TED 6.6.2011, HAS DECIDED THE AFORESAID GROUND NO. 3 AGAINST THE APPELL ANT. THE ADDITIONAL GROUND RAISED FOR HIGHER ADDITION FOR INITIAL CAPITA L MADE BY THE DR ALSO NOT ACCEPTED IN THE SAID JUDGMENT . THE HON'BLE TRIBUNAL HELD THAT THE TURNOVER OF RS.50 LAKHS ESTIMATED IN THE INITIAL YEAR ON THE BA SIS OF LOOSE PAPERS FOUND FOR FEW DAYS HAS BEEN CORRECTLY APPRECIATED BY THE LD . CIT(A) TO ARRIVE AT THE ADDITION OF RS.10 LAKHS BY CONSIDERING THE INVESTMENT R EQUIREMENT BEING OF SALES OF 10 TO 15 DAYS AND THE GP OF 12.5%. THEREFORE, IT CAN BE SEEN THAT THE ABOVE FINDING OF THE ASSESSING OFFICER HAS EVEN THE BAC KING OF THE , HON'BLE ITAT IN ANOTHER GROUP CASE AND THEREFORE, THE ADDITI ON IS SUSTAINED. FOR SIMILAR REASON, THE REPORT SUBMITTED BY THE ASSESSING OFFI CER FOR HIGHER ESTIMATION HAS ALSO NOT BEEN ACCEPTED . THEREFORE, GROUND NO. 10 IS DISMISSED. 55.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 56. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE CIT(A). 57. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND REFERRING TO THE ORDER OF THE CIT(A) SUBMITTED THAT THE LD.CIT(A) HA S GIVEN A DETAILED REASONING. FURTHER, HE HAS ALSO RELIED ON THE ORD ER OF THE TRIBUNAL IN SISTER CONCERN OF THE ASSESSEE WHERE SIMILAR AD DITION ON 38 ITA NOS.2188 AND 2189/PN/2012 ACCOUNT OF INITIAL INVESTMENT HAS BEEN UPHELD. THEREFORE, TH IS GROUND RAISED BY THE ASSESSEE SHOULD BE DISMISSED. 58. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE AO MADE ADDITION OF RS.7 ,44,133/- ON ACCOUNT OF INITIAL INVESTMENT IN THE UNDISCLOSED BUSINESS OF THE ASSESSEE. THE LD.CIT(A) IN AN ELABORATE ORDER ON THIS ISSU E HAS UPHELD THIS ACTION OF THE AO. WHILE DOING SO, HE HAS ALSO RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. RANKA JEWELLERS, RAVIWAR PETH, SISTER CONCERN OF THE ASSESSEE WHERE SIMILAR ADDITION WAS MADE O N ACCOUNT OF INITIAL INVESTMENT BY THE CIT(A). IN APPEAL BY THE ASSESSEE THE TRIBUNAL VIDE ITA NO.820/PN/2006 AND ITA NO.801/PN/2006 ORDER D ATED 06-06- 2011 DECIDED THE ISSUE AGAINST THE ASSESSEE. SINCE THE L D.CIT(A) WHILE DECIDING THE ISSUE HAS FOLLOWED THE ORDER OF THE TRIBUNAL IN THE CASE OF SISTER CONCERN OF THE ASSESSEE AND SINCE HE HAS ALSO G IVEN DETAILED REASONING JUSTIFYING THE ADDITION MADE BY THE AO AND SINC E THE LD. COUNSEL FOR THE ASSESSEE COULD NOT CONTROVERT THE FACTU AL FINDINGS GIVEN BY THE CIT(A), THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE O RDER OF THE CIT(A) ON THIS ISSUE. ACCORDINGLY, THE GROUND RAISED BY T HE ASSESSEE ON THIS ISSUE IS DISMISSED. 59. GROUNDS OF APPEAL NO.1,7 AND 8 BY THE REVENUE BEING G ENERAL IN NATURE ARE DISMISSED. 60. IN GROUND OF APPEAL NO.2 THE REVENUE HAS CHALLENGED T HE ORDER OF THE CIT(A) IN DELETING ADDITION OF RS.66,73,715/- ON ACCOUNT O F EXCESS STOCK OF GOLD. 39 ITA NOS.2188 AND 2189/PN/2012 61. FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO NOTED THA T DURING THE COURSE OF SEARCH GOLD JEWELLERY WEIGHING 1,33,313.351 GMS WE RE FOUND FROM THE SHOP OUT OF WHICH JEWELLERY WEIGHING 13865 GMS (NE T WEIGHT) WAS SEIZED VIDE PANCHANAMA DATED 31-10-2002. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE TOTAL GO LD FOUND IN SHOP WAS 1,36,279.54 GMS WHEREAS THE GOLD ORNAMENTS AS PER BOOKS OF ACCOUNT WAS ONLY 1,41,945.78 GMS. THUS, THERE WAS SHOR TAGE OF GOLD OF 5,666.240 GMS. THE AO FURTHER NOTED THAT IN THE STATEME NT RECORDED BY THE DDIT (INVESTIGATION) ON 11-11-2002 THE DIRECTOR OF TH E ASSESSEE COMPANY SHRI F.N. RANKA HAS WORKED OUT THE SHORTAGE O F STOCK AT 3462.280 GMS BUT AT THAT TIME THE COMPARISON WAS MADE ON THE BAS IS OF GOLD ORNAMENTS ONLY. THE GOLD USED IN GEMS, DIAMONDS ET C. WAS NOT CONSIDERED. HE FURTHER NOTED THAT THE ASSESSEE HAS SH OWN RECEIPT OF GOLD ORNAMENTS WEIGHING 13,865.250 GMS FROM M/S. H. KUMAR G EMS INTERNATIONAL AND RECEIPT OF 4990.150 GMS OF ORNAMENTS FRO M HIS BROTHER SHRI OMPRAKASH N. RANKA. HE OBSERVED THAT SHR I OMPRAKASH N. RANKA HAS ALSO CLAIMED THAT JEWELLERY WEIGHING 4990.150 G MS WAS PURCHASED BY HIM FROM M/S. H. KUMAR GEMS INTERNATIONAL A ND SOLD TO THE ASSESSEE. HE OBSERVED THAT M/S. H.KUMAR GEMS INTE RNATIONAL IS A AHMEDABAD BASED CONCERN AND THE PROPRIETOR OF THIS CON CERN IS SHRI HITESH KUMAR (HUF). ALL THE 3 CONCERNS OF THE RANKA GROUP HAVE REGULAR TRANSACTIONS OF PURCHASE FROM THIS PARTY. THE RE GULAR TRANSACTIONS MADE WITH THIS PARTY ARE RECORDED IN THE R EGULAR BOOKS OF ACCOUNT OF THE GROUP. DURING THE COURSE OF SEARCH DOCU MENTS WERE SEIZED FROM THE RANKA GROUP WHICH SHOWS THAT BESIDES TH E REGULAR TRANSACTIONS THE GROUP WAS INDULGED IN MAKING UNACCOUNTE D TRANSACTIONS WITH M/S. H. KUMAR GEMS INTERNATIONAL AT LARG E SCALE AND SUCH TRANSACTIONS WERE NOT RECORDED IN THE BOOKS OF AC COUNT. EVIDENCES WERE ALSO FOUND THAT INTEREST WAS PAID BY THE ASSESSEE TO M/S. H. 40 ITA NOS.2188 AND 2189/PN/2012 KUMAR GEMS INTERNATIONAL WHEN THERE WAS DELAY IN MAKING THE PAYMENTS. SUCH TRANSACTIONS OF PURCHASE AND PAYMENT O F INTEREST WERE NOT RECORDED IN THE BOOKS OF ACCOUNT. HE, THEREFORE, WAS OF THE OPINION THAT THE CLAIM OF THE RANKA GROUP THAT THEY HAD PURCHA SES GOLD ORNAMENTS FROM M/S. H. KUMAR GEMS INTERNATIONAL ON 22-0 4-2002 IS TO BE SEEN IN THE LIGHT OF THE ABOVE BACKGROUND AND IT IS TO BE DECIDED AS TO WHETHER THE TRANSACTIONS AS CLAIMED BY THE ASSESSEE WE RE GENUINE OR NOT. 62. THE AO NOTED THAT RANKA GROUP HAS CLAIMED PURCHASE OF GOLD ORNAMENTS FROM M/S H. KUMAR GEMS INTERNATIONAL IN THE NA ME OF SHRI ANIL P. RANKA, SHRI OMPRAKASH N. RANKA AND M/S RANKA JEWELLE RS PVT. LTD. SHRI ANIL P. RANK HAS CLAIMED THAT HE HAS SOLD HIS JEWE LLERY TO M/S RANKA JEWELLERS, RAVIWAR PETH AND SHRI OM PRAKASH N. RANK A HAS CLAIMED THAT HE HAS SOLD THE JEWEL1ERY TO M/S RANKA JEWE LLERS PVT. LTD. THUS, THE ASSESSEE, I.E. M/S RANKA JEWELLERS PVT. LTD. HAS TRIED TO EXPLAIN ITS GOLD STOCK FOUND DURING THE COURSE OF SEARCH B Y INCLUDING THE JEWELLERY CLAIMED TO HAVE BEEN PURCHASED FROM M/S. H. KUM AR GEMS INTERNATIONAL IN ITS OWN NAME AS WELL AS IN THE NAME OF SH RI OMPRAKASH N. RANKA. HE OBSERVED THAT SHRI ANIL P. RANKA HAS CLAIMED PURCHASE OF 16050.350 GMS JEWELLERY VIDE INVOICE NO 9 DATED 22-10-200 2, SHRI OMPRAKASH RANKA HAS CLAIMED PURCHASE OF 4979.150 GMS OR NAMENTS VIDE INVOICE NO. 10 DATED 22-10-2002 AND M/S RANKA JEWELL ERS PVT. LTD. HAS CLAIMED PURCHASE OF 13865.250 GMS JEWELLERY VIDE INVOICE NO 8 DATED 22-10-2002. THUS ALL THE THREE PERSONS HAVE CLAIME D THE PURCHASES VIDE INVOICES DATED 22-10-2002, WHILE THE SEARC H ACTION U/S.132(1) WAS CONDUCTED ON 24-10-2002. THE AO FURTHER THOUGHT WORTHWHILE TO MENTION THAT IN THE CASE OF SHRI ANIL P.RANK A, M/S H. KUMAR GEMS INTERNATIONAL HAS PREPARED AN ISSUE VOUCHE R NO 715 DATED 41 ITA NOS.2188 AND 2189/PN/2012 19-10-2002, ON THIS VOUCHER, INITIALLY THE DESCRIPTION OF GOO DS WAS OLD GOLD JEWELLERY, WHICH WAS CHANGED TO 22 CARATS GOLD JEWELL ERY WHICH IS APPARENT FROM CUTTING. IN THE CASE OF M/S RANKA JEWELLERS PVT. LTD., INITIALLY, ON THE INVOICE THE DATE WRITTEN WAS 12-10-2002, W HICH WAS CHANGED WITH BLACK INK TO 22-10-2002. APPARENTLY, THE DA TE WAS CHANGED BECAUSE ASSESSEE COULD NOT MANAGE THE ENTRY FOR 12-10-2002 BECAUSE THE ENTRIES FOR THAT DATE WERE ALREADY WRITTEN . HE FURTHER NOTED THAT THESE BILLS OF M/S H. KUMAR GEMS INTERNATIONAL WERE S HOWN BY ALL THE THREE PERSONS AFTER FEW DAYS OF THE SEARCH, WHEN TH E VALUATION OF THE STOCK WAS COMPLETED. HE FURTHER NOTED THAT SHRI ANIL P. RA NKA AND SHRI OMPRAKASH RANKA HAVE PURCHASED JEWELLERY FROM M/S H. KU MAR GEMS INTERNATIONAL FOR THE FIRST TIME, IN THEIR INDIVIDUAL CAPACITIES. 63. HE NOTED THAT IN RESPECT OF CLAIM OF THE ASSESSEE R EGARDING PURCHASE OF 13865.250 GMS ORNAMENTS FROM M/S H. KUMAR G EMS INTERNATIONAL, THE STATEMENT OF DIRECTOR SHRI FATECHAND N . RANKA WAS RECORDED ON 28-10-2002. THE AO ALSO REFERRED TO THE S TATEMENT OF SHRI ANIL P. RANKA RECORDED ON 10-12-2002 AND STATEMENT OF S HRI OMPRAKASH N. RANKA RECORDED ON 29-10-2002. HE FURTHER NOTED THAT A SURVEY ACTION U/S.133A OF THE ACT WAS CONDUCTED IN THE CASE OF M/S. H. KUMAR GEMS INTERNATIONAL AT AHMEDABAD DURING WHICH THE STATEMENT OF SHRI HITENDRA GUNDECHA, PROPRIETOR OF M/S. H. KUMAR GEMS INTERNATIONAL IN HIS CAPACITY AS KARTA OF HUF WAS RECORDE D. HE IS ALSO THE MANAGING DIRECTOR OF M/S. H. KUMAR GEMS INTERNATIONAL. HE HAD STATED THAT ON 22-10-2002 HE HAS SOLD JEWELLERY WORTH RS.72,05,093/- TO M/S. RANKA JEWELLERS PVT. LTD. AND JEWELLERY OF RS.25,97,703 /- WAS SOLD ON 22-10-2002 TO SHRI OMPRAKASH RANKA AND JEWELLER Y AMOUNTING TO RS.82,76,370/- WAS SOLD TO SHRI ANIL PUKHRAJ RANKA ON 19-10-2002. AFTER CONSIDERING THE STATEMENT OF THE ABOVE PARTIES THE AO CAME TO THE 42 ITA NOS.2188 AND 2189/PN/2012 CONCLUSION THAT THE STATEMENTS GIVEN BY THEM WERE NOT TRUE AND WERE TOTALLY CONCOCTED. THE CLAIM OF THE ASSESSEE, I.E. RANKA GR OUP AND STATEMENTS BY SHRI HITESHBHAI, SHRI PRAGNESH P. SUKHADIA A CCORDING TO THE AO ARE ONLY A MAKE BELIEF STORY AS THERE WERE CONT RADICTIONS IN THE STATEMENTS GIVEN BY THE ABOVE PARTIES. HE FURTHER NOTE D THAT THE BILL OBTAINED FROM M/S. H. KUMAR GEMS INTERNATIONAL, WHICH WAS NOT ENTERED IN THE COMPUTER, WAS NOT AVAILABLE ON THE DATE O F SEARCH WHEREAS THE SAME WAS MADE AVAILABLE TO THE SEARCH PART Y ON THE SUBSEQUENT DAY. 64. IT WAS NOTED BY THE AO THAT THE BILLS ISSUED BY H. KUMAR INTERNATIONAL WERE ACCOMMODATION BILLS ISSUED TO THE ASSE SSEE AND OTHER MEMBERS OF RANKA FAMILY. THE BILL ISSUED TO THE ASSESSEE, I.E . RANKA JEWELLERS PVT. LTD. AND WAS FABRICATED AS THERE WAS OVER W RITING OF THE DATE ON THE BILL. THE DATE WRITTEN ON THE BILL IS 22-10-2002 WHILE ACCORDING TO THE DEPARTMENT IT MAY BE 12-10-2002. ACCORDING TO THE AO THERE WERE CERTAIN DISCREPANCIES IN THE STATEMENTS OF SHRI PRAGNESH P. SUKHADI, VIS--VIS THE STATEMENTS GIVEN BY SHRI F.N. RANKA, SHRI ANIL RANKA AND SHRI OMPRAKASH RANKA REGARDING THE DATE OF ORDER AND THE DATE OF RECEIPT OF THE GOLD ORNAMENTS. THUS, HE WAS OF THE OPINION THAT THE BILLS WERE ACCOMMODATION BILLS. ACCORDIN G TO THE AO THE ASSESSEE INFORMED THE DEPARTMENT ABOUT THE BILL O NLY ON 28-10-2002 WHILE THE SEARCH WAS CARRIED ON 24-10-2002 . THE AO DOUBTED AS TO WHY THE ASSESSEE WAITED FOR FOUR DAYS TO SUBMIT TO THE DEPARTMENT THAT ONE BILL OF H. KUMAR INTERNATIONAL WAS NOT DEBITED IN THE BOOKS PRIOR TO SEARCH. THE ASSESSEE MADE THE PAY MENTS TO M/S. H. KUMAR INTERNATIONAL AFTER A FEW MONTHS AND THEREFORE AC CORDING TO THE AO THIS FACT DOES NOT PROVE THE GENUINENESS OF THE TRAN SACTION. AS PER THE AO THE ASSESSEE ALONG WITH SHRI OMPRAKASH RANKA AN D SHRI ANIL 43 ITA NOS.2188 AND 2189/PN/2012 RANKA HAD ORDERED JEWELLERY OF SUCH HIGH AMOUNT BUT DID NOT GIVE DETAILS OF THE DESIGNS OF THE JEWELLERY REQUIRED. THE AO EX CLUDED THE TOTAL STOCK AS PER THE BILLS FROM THE STOCK AS PER BOOKS AND WORKED OUT THE STOCK AS PER BOOKS AT 123090.380 GMS. THUS, THERE WAS EXCESS STOCK FOUND DURING SEARCH OF 13189.160 GMS WHICH THE AO VALUED AT RS.66,73,715/- AND MADE THE ADDITION. HE, THEREFORE REJECT ED THE CONCOCTED THEORY GIVEN BY THE VARIOUS PERSONS OF THE R ANKA GROUP THAT THEY HAVE PURCHASED GOLD FROM M/S. H. KUMAR GEMS INTER NATIONAL AND HAVE SUPPLIED THE SAME TO THE ASSESSEE ON DIFFERENT DATE S AND MADE ADDITION OF RS.66,73,715/- AS UNDISCLOSED INCOME OF THE ASSESSEE FOR TH E BLOCK PERIOD BY OBSERVING AS UNDER : 24. AS MENTIONED EARLIER, THAT THE ASSESSEE COMPANY WAS ALSO MAKING PURCHASES FROM M/S H. KUMAR GEMS INTERNATIONAL, WHICH W ERE RECORDED IN THE BOOKS OF ACCOUNTS. THE ACCOUNT OF M/S. H. KUMAR GE MS INTERNATIONAL IN THE BOOKS OF ASSESSEE WAS EXAMINED FROM F.Y. 1997-98 ONWA RDS. IN F.Y. 1998-99 IT WAS OBSERVED THAT MOST OF THE TIME PAYMENT WAS MADE IN ADVANCE AND RECEIPT OF GOLD WAS ON SUBSEQUENT DATES. SI MILAR WAS THE SITUATION IN F.Y. 1999-2000. THERE WERE FEW TRANSACTI ONS IN THIS YEAR WHERE THE GOLD WAS RECEIVED EARLIER AND PAYMENT WAS MADE AF TER 2-3 DAYS. THE TRANSACTIONS FOR F.Y. 2000-01 WERE SAME AS IN F.Y. 1999 -2000. THE MAXIMUM CREDIT WAS FOR 15 DAYS IN FEW TRANSACTIONS. IT IS TO BE MENTIONED THAT TILL 31/3/2002 THERE WAS NO OUTSTANDING PAYMENT. AS ON 31/3/2002, THERE WAS OUTSTANDING BALANCE OF RS.72,05,693/- WHICH WAS ON ACCOUNT OF ALLEGED PURCHASES VIDE INVOICE DT. 22/10/2002. THE PA YMENT OF THIS AMOUNT WAS STARTED FROM 12/4/02 I.E. AFTER A GAP OF A LMOST 6 MONTHS AND THE TOTAL PAYMENT WAS MADE BY 3/12/03 I.E. AFTER A GAP OF OVER A YEAR. 'THE SCHEDULE OF PAYMENT MADE BY SHRI OMPRAKASH RANKA AND M/S RANKA JEWELLERS PVT. LTD. ITSELF SPEAKS ABOUT THE FACT THAT ALL WAS NOT WELL IN THESE TRANSACTIONS. A PARTY WHICH USED TO GET ADVANCE PAYMEN T IN EARLIER YEARS OR ALLOWED MAXIMUM CREDIT OF ABOUT 15 DAYS, WOULD ALLOW CREDIT OF ALMOST A YEAR FOR THESE ALLEGED PURCHASES DT 22/10/2002 IS ITSELF QUESTIONABLE. THE REPLY OF THE ASSESSEE AND SHRI OMPRAKSH RANKA THAT TERM S OF PAYMENTS VARY FROM TRANSACTION APPEARS TO CORRECT BECAUSE WHEN THERE WAS ACTUAL TRANSACTION OF PURCHASE THE PAYMENT WAS MADE IN ADVAN CE OR AFTER FEW DAYS OUT THERE WAS NO PURCHASES AS PER INVOICE DATE 22/ 10/2002 AND IT WAS ONLY BILL ENTRY, HENCE PAYMENT WAS MADE AFTER A G AP OF ONE YEAR. THAT IS ANOTHER QUESTION THAT IN THE CASE OF UNRECORDED PU RCHASES FROM THIS PARTY, SOMETIMES, THERE WAS DELAY IN THE PAYMENTS BY TH E ASSESSEE, BUT FOR THAT M/S. H. KUMAR GEMS INTERNATIONAL HAS CHARGED INT EREST FROM THE ASSESSEE AND THIS FACT WAS EVIDENCED BY THE SEIZED DOCUME NTS NOS.31, 32 OF A-13 AND DOCUMENT NO.1 OF A-15 SEIZED FROM THE RESIDE NCE OF THE TRUSTED EMPLOYEE, SHRI RAKESH SONI. 44 ITA NOS.2188 AND 2189/PN/2012 25. FROM THE ABOVE DISCUSSION, IT CAN BE OBSERVED THAT THERE WAS NO ACTUAL DELIVERY OF THE GOLD ORNAMENTS TO SHRI ANIL R ANKA ON 20/10/2002 AND TO SHRI OMPRAKASH, RANKA AND SHRI FATECHAND RANKA ON 22/10/2002. THE STORY OF RECEIPT OF ORNAMENTS FROM M/S H. KUMAR GEMS INTERNATIONAL BY RANKA GROUP IS A CONCOCTED STORY WHICH HAS NO LEGS TO ST AND. THUS THE EXPLANATION GIVEN BY THE ASSESSEE TO EXPLAIN THE STOCK O F GOLD ORNAMENTS AND CALCULATION OF SHORTAGE OF GOLD STOCK AT 5666.24 0 GMS IS NOT ACCEPTED. IN FACT, THERE WAS EXCESS STOCK OF GOLD ORNAMENTS AS ON THE DATE OF SEARCH WHICH IS COMPUTED A UNDER : GOLD STOCK AS PER INVENTORY AS PER PARA 11 - 136279. 540 GMS GOLD AS PER BOOKS EXCLUDING - 123090.380 GMS CLAIM OF RECEIPT FROM H. KUMAR (13865.250) AND FROM SHRI OMPRAKASH RANKA (4990.150) ---------------------------- 13189.160 GMS ---------------------------- THUS, THERE WAS EXCESS STOCK OF GOLD WEIGHING 13189.160 GMS. AT THE RATE OF RS.506/- PER GMS, THE VALUE OF THE EXCESS STOCK COMES TO RS.66,73,715/- WHICH IS ADDED TO THE UNDISCLOSED INCOME FOR THE BLOCK PERIOD U/S.69A OF THE INCOME TAX ACT. ON BEING CONFRONTED WITH THE A SSESSEE, IT WAS SUBMITTED BY THE AUTHORIZED REPRESENTATIVE OF THE ASSESSE E, THAT THE CORRECT POSITION OF THE STOCK WAS EXPLAINED TO THE AUDITOR AS WELL AS AT THE TIME OF ASSESSMENT PROCEEDING. HOWEVER, THE ASSESSEES CONTENTION I S NOT ACCEPTED IN VIEW OF DISCUSSION IN EARLIER PARAS AND ADDITION OF RS.66,73,715/- IS MADE TO THE UNDISCLOSED INCOME OF THE BLOCK PERIOD. 65. BEFORE CIT(A) IT WAS SUBMITTED THAT THE SEARCH TOOK P LACE IN THE CASE OF THE ASSESSEE ON 24-10-2002. DURING THE SEARCH THE BILL WAS FOUND IN THE ASSESSEES PREMISES WHEREIN GOLD JEWELLERY WE IGHING 13865.20 GMS WAS FOUND TO HAVE BEEN PURCHASED FROM M/ S. H. KUMAR GEMS INTERNATIONAL, AHMEDABAD. IT WAS SUBMITTED THAT T HE ABOVE PURCHASES WERE NOT RECORDED IN THE BOOKS AS ON THE D ATE OF SEARCH SINCE THE BOOKS WERE WRITTEN UPTO 21-10-2002 WHEREAS THE G OODS AS PER THIS BILL WERE RECEIVED AFTER THAT DATE BUT BEFORE THE SEARCH. ON BEING ASKED TO IDENTIFY THE STOCK RECEIVED AS PER THIS BILL THE ASSESS EE HAD DONE THE SAME. IT WAS SUBMITTED THAT SHRI OMPRAKASH RANKA, AND SHRI ANIL RANKA IN THEIR INDIVIDUAL CAPACITY HAD ALSO PURCHASED GOLD JEWELLERY WEIGHING 4990.150 GMS AND 16050.00 GMS RESPECTIVELY FROM M/S. H. KUMAR GEMS INTERNATIONAL. THE FACT OF PURCHASE OF JEWELLER Y FROM M/S. 45 ITA NOS.2188 AND 2189/PN/2012 H. KUMAR GEMS INTERNATIONAL WAS RECORDED BY SHRI OMPRAK ASH RANKA IN HIS BOOKS OF ACCOUNT WHICH WAS SEIZED DURING THE SEA RCH AND IN RESPECT OF JEWELLERY PURCHASED BY SHRI ANIL RANKA THE JE WELLERY WAS GIVEN ON LOAN TO M/S. RANKA JEWELLERS PVT. LTD. WHICH WAS ALS O RECORDED IN THE BOOKS OF M/S. RANKA JEWELLERS PVT. LTD. PRIOR TO THE SEARCH. THE JEWELLERY PURCHASED BY SHRI OMPRAKASH RANKA OF 4990.150 GMS AND GIVEN TO M/S. RANKA JEWELLERS PVT. LTD. WAS NOT ACCEPTED B Y THE AO WHILE WORKING OUT THE STOCK. IT WAS ARGUED THAT THE TO TAL STOCK FOUND IN THE SHOP OF THE ASSESSEE WAS TO THE TUNE OF 136279.54 GMS. THE STOCK AS PER BOOK AFTER CONSIDERING THE JEWELLERY PURCHASED FRO M M/S. H. KUMAR GEMS INTERNATIONAL AND THE JEWELLERY RECEIVED FROM SHRI OMPRAKASH RANKA WAS 141945.78 GMS. THUS THERE WAS SH ORTAGE OF 5,666.240 GMS. FURTHER SURVEY WAS CONDUCTED ON THE PR EMISES OF M/S. H. KUMAR GEMS INTERNATIONAL ON 29-10-2002 WHEREIN SHRI H ITENDRA GUNDECHA, PROPRIETOR OF M/S. H. KUMAR GEMS INTERNATIONAL H AD ACCEPTED THE SALE OF GOLD ORNAMENTS TO THE ASSESSEE, SH RI ANIL RANKA AND SHRI OMPRAKASH RANKA. IT WAS ARGUED THAT THE AO DID NOT ACCEPT THE BILLS ISSUED BY M/S. H. KUMAR GEMS INTERNATIONAL TREATIN G THE SAME AS ACCOMMODATION BILL AND WAS FABRICATED AS THERE WAS OV ERWRITING OF THE DATE ON THE BILL. ACCORDING TO THE AO DATE WRITTEN O N THE BILL IS 22- 10-2002 IS NOT CORRECT AND IT SHOULD BE 12-10-2002. 66. IT WAS ARGUED THAT THE BILL ISSUED BY M/S. H. KUMAR GEMS INTERNATIONAL TO THE ASSESSEE WAS FOUND IN THE ASSESSEE S PREMISES. MERELY BECAUSE THE BILL WAS NOT DEBITED IN THE BOOKS TH E AO WAS NOT JUSTIFIED IN HOLDING THAT THE BILL ISSUED WAS AN ACCOMMODATION BILL. IT WAS FURTHER ARGUED THAT SHRI ANIL RANKA AND SHRI OMPRAKA SH RANKA HAD ALSO PURCHASED JEWELLERY WHICH WERE DULY RECORDED IN BOOKS BEFORE THE DATE OF SEARCH WHICH THEY HAVE GIVEN TO THE ASSESS EE. FURTHER, M/S. 46 ITA NOS.2188 AND 2189/PN/2012 H. KUMAR GEMS INTERNATIONAL HAD ACCEPTED IN THEIR SUBMISS ION DURING THE COURSE OF SURVEY THAT JEWELLERY WAS SOLD TO THE ASS ESSEE AND THE SALE WAS RECORDED IN HIS BOOKS OF ACCOUNT. FURTHER, M/S. H. KU MAR GEMS INTERNATIONAL IS A REGISTERED DEALER UNDER STATE AND CEN TRAL SALES ACT AND THE SALES TAX ON THIS TRANSACTION HAS BEEN PAID BY THEM. FURTHER, THEY ARE ALSO REGULARLY ASSESSED TO INCOME TAX AND HAV E DISCLOSED THE ABOVE TRANSACTION IN THEIR BOOKS OF ACCOUNT. FURTHER, IN THE ORDER PASSED U/S.143(3) FOR A.Y. 2003-04 THE DEPARTMENT HAS AC CEPTED THE SALE OF GOLD BY M/S. H. KUMAR GEMS INTERNATIONAL TO THE A SSESSEE AS A GENUINE SALE. THEREFORE, WHEN ONE WING OF THE DEPARTMENT HAS ACCEPTED THE SALE OF JEWELLERY AS A GENUINE SALE, THERE IS NO REASON TO DOUBT THE PURCHASES MADE BY THE ASSESSEE. FURTHER, THE SPECIAL A UDITOR IN HIS REPORT HAS ALSO ACCEPTED THE PURCHASES FROM M/S. H. KUM AR GEMS INTERNATIONAL AS GENUINE. IT WAS ARGUED THAT DURING THE SURVEY AT M/S. H. KUMAR GEMS INTERNATIONAL, AHMEDABAD, MR. PRAGNESH SUKH ADIA, AN EMPLOYEE AND SHRI HITENDRA GUNDECHA, THE OWNER WERE E XAMINED AND THEIR STATEMENTS WERE ALSO RECORDED DURING WHICH THEY H AVE ACCEPTED THAT SALES HAVE BEEN EFFECTED TO M/S. RANKA JEWELLERS PVT . LTD., SHRI ANIL RANKA AND SHRI OMPRAKASH RANKA. 67. AS REGARDS THE ALLEGATION OF THE AO THAT THERE WERE SOME OVERWRITING ON THE BILL ISSUED TO M/S. RANKA JEWELLERS PVT. L TD. IT WAS SUBMITTED THAT THE ASSESSEE FAILS TO UNDERSTAND AS TO H OW THE BILL BECOMES BOGUS ONE. THE ASSESSEE HAD RECEIVED THE BILL I N THE SAME CONDITION AND THEREFORE THERE IS NO REASON TO HOLD THAT THE ASSESSEE HAD FABRICATED THE DOCUMENT. FURTHER, THE AO HIMSELF HAS ACCE PTED THAT THE DATE OF THE BILL IS CHANGED FROM 12-10-2002 TO 22-10-2002 WHICH CLEARLY INDICATES THAT THE GOODS WERE RECEIVED BY THE ASSESSEE. IT WAS ARGUED THAT EVEN IF THE CONTENTION OF THE AO IS 47 ITA NOS.2188 AND 2189/PN/2012 ACCEPTED, STILL NO ADDITION IS POSSIBLE IN THE HANDS OF THE A SSESSEE BECAUSE THE PAYMENT TO M/S. H. KUMAR GEMS INTERNATIONA L WAS MADE AFTER THE SEARCH. THEREFORE, THE GOODS WERE RECEIVED BEFO RE THE SEARCH AND IF UNDISPUTEDLY THE PAYMENT WAS MADE AFTER THE SEAR CH NO ADDITION IS POSSIBLE IN THE HANDS OF THE ASSESSEE. 68. AS REGARDS THE CONTENTION OF THE AO THAT THE ASSES SEE DID NOT SPECIFY THE DESIGNS TO JUSTIFY THAT THE BILLS WERE MEREL Y ACCOMMODATION BILL, IT WAS SUBMITTED THAT THE SAME IS NOT CORRECT AT A LL. IT WAS SUBMITTED THAT IT IS A REGULAR PRACTICE TO ASK FOR THE GO ODS AND THE ASSESSEE NOWHERE SPECIFIES ANY DESIGN ETC. IT WAS ARGUE D THAT DURING A.Y. 2003-04 SHRI OMPRAKASH RANKA HAS SHOWN CAPITAL GA IN ON TRANSFER OF THE JEWELLERY PURCHASED FROM M/S. H. KUMAR GE MS INTERNATIONAL TO M/S. RANKA JEWELLERS PVT. LTD. AND THE CAP ITAL GAINS WAS OFFERED TO TAX. THE ASSESSMENT U/S.143(3) WAS COMPLET ED AND THE DEPARTMENT HAS ACCEPTED THE SALE OF JEWELLERY AS GENUINE BY TAXING CAPITAL GAINS THEREON. 69. SO FAR AS THE VARIATIONS IN THE STATEMENTS OF FAMILY ME MBERS OF RANKA GROUP, VIS--VIS THE STATEMENT OF SHRI PRAGNESH SU KHADIA, WHO WAS AN EMPLOYEE OF M/S. H. KUMAR GEMS INTERNATIONAL IS CON CERNED IT WAS ARGUED THAT WHEN ALL THE PERSONS HAD ACCEPTED THE TRANSACTION OF SALE OF GOLD ORNAMENTS TO THE ASSESSEE AND WHEN THE DIS CREPANCY IN THE STATEMENT OF SHRI PRAGNESH SUKHADIA WAS CORRECTED BY HIM IN THE SAME STATEMENT, THE AO SHOULD HAVE TAKEN THE STATEMENT AS A WHOLE AND HE IS NOT JUSTIFIED IN IGNORING CERTAIN ANSWERS WHICH WAS IN FAVOUR OF THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT THE DEPARTME NT HAS EXACTLY SEIZED THE AMOUNT OF JEWELLERY WEIGHING 13865 GMS ON 30- 10-2002 BEFORE MAKING ANY RECONCILIATION OF JEWELLERY AND THE TOTAL J EWELLERY SEIZED TALLIES WITH THE WEIGHING AS PER THE BILL ISSUED TO M/S . RANKA 48 ITA NOS.2188 AND 2189/PN/2012 JEWELLERS PVT. LTD. BY M/S. H.KUMAR GEMS INTERNATIONAL. THIS ITSELF INDICATES THAT THE DEPARTMENT CONFIRMS THAT THESE JEWELLE RY IS RECEIVED AS PER THIS BILL. 70. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER : 6.3.1. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE LAW AS ARE APPARENT FROM THE RECORDS. DURING THE COURSE OF APPE AL, THE SUBMISSION MADE AND THE DOCUMENTS SUBMITTED FROM TIME TO TIME WE RE EXPLAINED BY THE AR. THE APPELLANT ALSO PRODUCED THE COPIES OF THE PANCHANAMA, THE SEIZED DOCUMENTS AND INVOICES ETC. WHICH HAVE BEEN CON SIDERED AND EXAMINED. IT CAN BE NOTED FROM THE DISCUSSIONS AVAILAB LE IN THE ASSESSMENT ORDER THAT THE ASSESSING OFFICER FOR MAKING THE AFORESAI D ADDITION OF RS.66,73,715 FOR EXCESS STOCK OF GOLD ORNAMENTS FOUND D URING SEARCH HAS NOT ACCEPTED THE EXPLANATION GIVEN BY THE APPELLANT IN RESPECT OF CERTAIN PURCHASES CLAIMED TO HAVE BEEN MADE FROM H. KUMAR GEM S INTERNATIONAL, AHMEDABAD AND ALSO FROM SHRI OMPRAKASH RANKA, WHO INT URN WAS ALSO FOUND TO HAVE PURCHASED THE GOLD ORNAMENTS FROM THE SAME H. KUMAR GEMS INTERNATIONAL, AHMEDABAD. THE CLAIM OF THE APPE LLANT WAS THAT THE BILLS OF THESE PURCHASES DATED 22.10.2002 AND 23.10.200 2 RESPECTIVELY, HAD REMAINED TO BE ENTERED INTO THE BOOKS/ COMPUTER, WHE REAS THE STOCK WAS ALREADY AVAILABLE IN THE BUSINESS PREMISE. IT WAS SUBMITT ED IN THIS RESPECT THAT MR. F.K.RANKA IN HIS PRELIMINARY STATEMENT RECOR DED FOR THE FIRST TIME AT THE BUSINESS PREMISE ON 26/10/2002 HAS POINTED OUT C LEARLY THAT THE BOOKS WERE RECORDED UPTO 21/10/2002 AND THE SAME IS RE QUIRED TO BE FURTHER UPDATED. IT HAS BEEN ALSO STATED THAT THIS FACT OF THE MATTER THAT THE BOOKS WERE WRITTEN UPTO 21/10/2002 HAS REMAINED UNDISPUTED. IT HAS FURTHER BEEN STATED THAT NO SPECIFIC QUESTION IN RESPEC T OF DETAILS OF BILLS WHICH WERE YET TO BE RECORDED, WERE ASKED DURING THE RECORDING OF THE PRELIMINARY STATEMENT ON 26/10/2002 AND THEREFORE THE APPELLANT CLAIMS TO HAVE NO OCCASION TO GIVE DETAILS IN RESPECT OF IMPU GNED BILLS. IT HAS FURTHER BEEN SUBMITTED THAT THE APPELLANT ON THE FIR ST AVAILABLE OCCASION ON 28/10/2002, WHEN MR. F. K. RANKA WAS ASKED ABOUT THE DETAILS OF BI LLS WHICH ARE NOT ENTERED IN SYSTEM, HAD NOT ONLY GIVEN T HE DETAILS OF THE PURCHASES MADE BY THE APPELLANT COMPANY FROM M/S H. KU MAR BUT ALSO SHOWED WHERE THE SAID BILL WAS LAYING IN THE BUSINESS PRE MISES. IT HAS BEEN FURTHER STATED THAT THE CONTROVERSY RAISED BY THE AUTH ORIZED OFFICER, SUGGESTING IMPLANTING OF THE IMPUGNED BILL WAS WITHOUT ANY BASIS AND WAS ONLY DUE TO HIS SUSPICION. IT HAS BEEN CLAIMED THAT THE APPELLANT KEPT ON EXPLAINING THE FACTS PROPERLY AND NEVER ACCEPTED, A S THE SAME WAS NOT TRUE, THAT ANY SUCH IMPLANTING HAS TAKEN PLACE. THE ARGUMEN T HAS FURTHER BEEN MADE DURING APPEAL THAT THE AUTHORIZED OFFICER, ALM OST IMMEDIATELY CARRIED OUT SURVEY AT THE SELLING PARTY AND IT IS A MA TTER OF RECORD THAT NOT ONLY THE TRANSACTIONS WERE FOUND RECORDED IN THE BOOK S OF MR. H.KUMAR, BUT EVEN DURING STATEMENT, THE PROPRIETOR AS WELL AS T HE CONCERNED EMPLOYEE ACCEPTED THE IMPUGNED TRANSACTION. EXCEPT F OR THE DIFFERENCES COMMITTED IN RESPECT OF DATES, EVEN WHICH WERE IMMEDI ATELY CORRECTED ON BEING POINTED OUT ABOUT THE DIFFERENCE, NOTHING ADV ERSE WAS CLAIMED TO HAVE BEEN FOUND. THE APPELLANT IS OF THE VIEW THAT D ESPITE THESE POSITIVE FINDINGS, THE ASSESSING OFFICER CONTINUED TO RELY ON IRR ELEVANT FACTS BY 49 ITA NOS.2188 AND 2189/PN/2012 IGNORING VERY RELEVANT FACTS. IT CAN BE SEEN FROM TH E ASSESSMENT ORDER THAT THE ASSESSING OFFICER, FOR NOT ACCEPTING THE CLAIM OF T HE APPELLANT FOR THE PURCHASES DESCRIBED ABOVE, HAS ELABORATELY RELIED UPON THE STATEMENTS OF SHRI. ANIL RANKA, SHRI. OMPRAKASH RANKA, SHRI. FATEC HAND RANKA, SHRI. HITESH GADECHA, PROPRIETOR OF H. KUMAR GEMS INTERNATI ONAL, AHMEDABAD AND PRAGNESH SUKHODIA, EMPLOYEE OF H. KUMAR GEMS INTE RNATIONAL ETC. THE ASSESSING OFFICER HAS ALSO REFERRED TO THE CORRECTIONS APP EARING IN RESPECT OF DATE IN THE PURCHASE BILL SHOWN IN THE NAME OF THE APPELLANT. IT WAS NOTED THAT THE DATE OF 12/10/2002 HAS BEEN CORRECTED TO 22/10/2002 . THE ASSESSING OFFICER HAS ALSO POINTED OUT ABOUT THE SIMILAR C ORRECTION FOUND IN THE BOOKS OF H. KUMAR FOUND DURING SURVEY AT AHMEDABA D ON 29/10/2002. THOUGH THE BILL WAS FOUND AND SEIZED FROM BUSINESS PREMI SE OF THE APPELLANT, BUT THE SUSPICION RAISED BY THE AUTHORIZED OFFICER WHILE RECORDING THE STATEMENT U/S 132(4) OF SHRI. F.K.RANKA, HAS ALSO BEEN CONSIDERED FOR HOLDING THE BILL AS BOGUS AND IMPLANTED . THE RELEVANT EXTRACTS OF THE STATEMENTS HAVE BEEN INCORPORATED IN T HE BODY OF THE BLOCK ASSESSMENT ORDER, WHICH HAS ALREADY BEEN QUOTED ABOVE. T HE ASSESSING OFFICER HAS ALSO POINTED OUT THE CONTRADICTORY FACTS E MANATING FROM VARIOUS STATEMENTS, MORE PARTICULARLY OF APPELLANT GROUP PER SONS AND THAT OF MR.HITESH KUMAR AND HIS EMPLOYEES, WHO HAVE AFFIRMED T HE SALE THROUGH IMPUGNED VOUCHERS TO THE APPELLANT, SHRI. ANIL RANKA AND SHRI. O.N. RANKA AND THESE CONTRADICTIONS HAVE BEEN USED TO ARRIVE AT T HE INFERENCE THAT THE CLAIM OF THE PURCHASE THROUGH THESE IMPUGNED BILLS ARE NOT GENUINE AND THEREFORE, NO CREDIT CAN BE GIVEN FOR THE AVAILABIL ITY OF THE GOLD STOCK AS PER BOOKS BY ADDING THE AMOUNTS APPEARING IN THESE BILLS. T O STRENGTHEN THE ABOVE, THE ASSESSING OFFICER HAS ALSO RED TO VARIOUS OTHE R CIRCUMSTANTIAL FACTS VIZ. FAILURE OF DIRECTOR TO EXPLAIN TAGGING, I DENTIFICATION, NO EVIDENCE OF PLACING ORDER AND DESIGN FIRST SUCH PURCHASE BY SHRI O. N. RANKA, SHRI ANIL RANKA ETC., DELAY IN PAYMENTS, NON AVAILABILITY OF T ICKETS FOR JOURNEY BY SUPPLIER, DATE OF INVOICE ON THE DATE OF ARRIVAL IN PUNE, ETC., WHICH ARE CLEAR FROM THE ASSESSMENT ORDER ALREADY QUOTED ABOVE FOR THIS ADDITION. ON THE BASIS OF THESE REASONS THE ASSESSING OFFICER HAS TREATED THE TWO PURCHASES AS BOGUS AND COMPUTED THE EXCESS GOLD STOCK TO ARRIVE AT THE ADDITION OF RS.66,73,715. THE APPELLANT HAS CLAIMED THIS FINDING AS PREJUDICED AND ERRONEOUS. FOR THE CONTRADICTIONS APPEARING IN VARIO US STATEMENTS AS NOTED BY THE ASSESSING OFFICER IN PARA 20 OF THE BLOCK ASSESSMENT ORDER (WHICH CAN BE REFERRED TO FOR DETAILS IN PARA 6.2 AB OVE), IT IS THE CLAIM OF THE APPELLANT THAT THE GOLD JEWELLERY APPEARING IN THESE BILLS WERE RECEIVED PRIOR TO THE DATE OF SEARCH AND IN SUPPORT OF THAT AP PELLANT IS RELYING UPON THE SALE INVOICES, THE ISSUE VOUCHERS WHICH HAVE BEEN F OUND AND SEIZED DURING THE COURSE OF SEARCH AND IS PART OF THE PANCHAN AMA PREPARED DURING SEARCH. THE ARGUMENT OF THE APPELLANT ABOUT THE DISCR EPANCY NOTED IN THE STATEMENTS OF DIFFERENT PERSONS RELIED UPON BY THE ASSESSIN G OFFICER IS THAT THE MINOR SLIPPAGES OCCURRING IN THE STATEMENT HERE AN D THERE ARE DUE TO MENTAL STRESS WHICH IS SO COMMON WHILE FACING ANY INTERR OGATION FROM A GOVERNMENT AUTHORITY. IT HAS BEEN REITERATED THAT TH E PURCHASES FROM AHMEDABAD PARTY IS GENUINE AND THE SAME IS ALSO SUPPORTE D FROM THE FINDING MADE BY THE SURVEY ACTION CARRIED OUT AGAINST THE AFORESAID SUPPLIER I.E. H. KUMAR GEMS INTERNATIONAL, AHMEDABAD ALMOST WITHIN FEW DAYS OF ACTION AT THE PREMISE OF THE APPELLANT. IT HA S BEEN ALSO CLAIMED THAT THE DOCUMENTS FOUND AT THE PREMISE OF THE SUPPLIER CLE ARLY SUPPORTS THE CLAIM OF THE APPELLANT. THE APPELLANT HAS ALSO PRODU CED A COPY OF THE APPELLATE ORDER PASSED IN THE CASE OF AHMEDABAD PARTY (APPEAL NO. CIT(A) XIII/JT. CIT(OSD)/CIR7/53/0506 DTD. 27.04.2006), IN SUPPORT OF ITS ABOVE CLAIM. IT HAS BEEN SHOWN THAT THE IMPUGNED SALE HAS BEE N ACCEPTED BY THE DEPARTMENT AS GENUINE IN THE HANDS OF H.KUMAR AND THE REFORE THE SAME CANNOT BE HELD TO BE NOT GENUINE IN THE HANDS OF THE APPELLANT. SIMILARLY, 50 ITA NOS.2188 AND 2189/PN/2012 THE ASSESSMENT ORDER OF SHRI O.N.RANKA HAS BEEN RELIED T O CLAIM THAT THE CAPITAL GAINS SHOWN ON THE SALE OF IMPUGNED JEWELLERY TO THE APPELLANT COMPANY HAS BEEN ACCEPTED BY THE ASSESSING OFFICER WITHO UT ANY RESERVATIONS IN THE SCRUTINY ASSESSMENT AND THEREFORE THE PURCHASE IN THE HANDS OF THE APPELLANT FOR THE SAME TRANSACTION CANNOT BE DENIED. THE APPELLANT HAS ALSO RELIED UPON VARIOUS DECISIONS OF THE HON'BLE ITAT REPORTED ON PAGE NO. 4907 OF CHATURVEDI & PITHISARIA PAGE NO. 4907 AND DECISION OF HON'BLE ITAT IN THE CASE OF GHANSHYAMBHAI THAKKAR 56 TTJ 460 IN SUPPORT OF ITS CONTENTION THAT THE STATEMENT HAS TO BE TAKEN AS A WHOLE AND A.O. IS NOT JUSTIFIED IN IGNORING CERTAIN ANSWERS WHICH WERE IN FAVOUR OF THE ASSESSEE. IN THIS RESPECT, IT HAS BEEN POINTED OUT BY THE AR THAT THE ASSESSING OFFICER HAS QUOTED ONLY SPECIFIC QUESTION AND AN SWERS FROM THE STATEMENT RECORDED, WHICH WERE SUITING HIS PREJUDICED FINDING. IT HAS ALSO BEEN STATED THAT THE SPECIAL AUDITOR, IN HIS AUDIT RE PORT HAS ALSO TREATED THESE PURCHASES AS GENUINE TO ARRIVE AT THE FINDING AFT ER RECONCILIATION THAT THERE IS NO EXCESS STOCK OF GOLD JEWELLERY AT THE BUSINE SS PREMISE. I HAVE CONSIDERED THE INVENTORY RECONCILIATION OF GOLD STOCK MADE BY THE AUDITOR, WHICH IS APPEARING IN ANNEXURE B-1 OF HIS REPORT AND IN THIS REPORT HE HAS ARRIVED AT THE SHORTAGE OF 5,666.240 GMS AND HAS CONCL UDED THAT 'THE ASSESSEE HAS NOT BEEN ABLE TO EXPLAIN THE SHORTAGE IN GOLD STOCK. THE SHORTAGE IN GOLD STOCK IS NOTHING BUT UNACCOUNTED GOLD SALES . THE UNACCOUNTED GOLD SALES FOR THE F. Y. 2002-03 HAS BEEN ESTIMATED ON THE BASIS OF JAMA KHARCHA PAPER FOUND AND SEIZED DURING THE COURSE OF SEARCH . THIS ESTIMATED UNACCOUNTED GOLD SALES COVERS THE SHORTAGE IN GOLD STOCK'. THE ASSESSING OFFICER, APPARENTLY HAS NOT GIVEN ANY REASON IN HIS ASSE SSMENT ORDER AS TO WHY HE WAS NOT CONVINCED WITH THE FINDING OF THE SP ECIAL AUDITOR ON THIS ISSUE. HOWEVER, HE HAS GIVEN DETAILED REASONS FOR MAKIN G THE ADDITIONS AS IS APPARENT FROM RELEVANT PORTION QUOTED EARLIER IN PARA 6.2. 6.3.2. ON CAREFUL CONSIDERATION OF THE MATERIALS AVA ILABLE ON RECORD, IT IS NOTED THAT THE APPELLANT HAS CLAIMED THAT THE BILLS F OR THE PURCHASES FROM H. KUMAR GEMS INTERNATIONAL IN THE NAME OF APPELLANT CO MPANY, WHICH WERE NOT ENTERED IN THE BOOKS WERE FOUND AND SEIZED DURING THE COURSE OF THE SEARCH. IT IS NOTED FROM THE MATERIALS AVAILABLE ON TH E RECORD THAT THOUGH THE ASSESSING OFFICER HAS RELIED ON SOME CONFUSION ABOUT THE D ISCOVERY OF THE AFORESAID BILLS FROM THE DRAWER OF THE DIRECTOR'S OFFI CE AS NOTED IN THE STATEMENT ON OATH OF SHRI F . N. RANKA RECORDED U/S 132(4) AND ALSO ON THE CIRCUMSTANTIAL FACTS FOR ARRIVING AT THE FINDING THAT THE IMPUGNED BILLS WERE BOGUS, BUT IT IS CLEAR FROM SOME RELEVANT OBJECTIONS RA ISED BY AUTHORISED REPRESENTATIVE THAT SOME RELEVANT FACTS WERE IGNORED. THE SUSPICION BEING RAISED CAN BE SEEN FROM THE STATEMENT OF MR . F.N. RANKA, WHEREIN THE AUTHORIZED OFFICER IN THE STATEMENT RECORDED ON 28/1 0/2002, HAS ASKED QUESTIONS SAYING THAT THIS BILL WAS EARLIER NOT AVAILABL E IN THE DRAWER AND THEREFORE HOW THE SAME CAME THERE. IT HAS BEEN CLAIM ED BY THE APPELLANT DURING APPEAL THAT THE SEARCH COMMENCED ON 24/10/200 2 AND THEREAFTER THE BUSINESS PREMISE HAS REMAINED UNDER THE CONTROL OF T HE SEARCH PARTY TILL THE SEARCH WAS FINALLY CONCLUDED AND THEREFORE IT CAN NEITHER BE ASSUMED NOR CONSIDERED THAT ANYBODY CAN PLANT SOME PAPER IN T HE PREMISE WITHOUT THE KNOWLEDGE OF THE SEARCH PARTY. IN VIEW OF THE A BOVE, THE APPELLANT HAS CONTENDED THAT IT HAS TO BE HELD IN THE FACTS OF THIS CASE THAT THE IMPUGNED BILLS WERE EXISTING IN THE BUSINESS PREMISE AND AS THE SAM E WAS EXISTING IN THE NORMAL COURSE OF BUSINESS, THE SAME HAS TO BE CONSID ERED WHILE EVALUATING THE STOCK OF GOLD JEWELLERY FOUND DURING SEARCH VIS-A-VIS THE BOOKS OF ACCOUNT . IT HAS BEEN CLAIMED THAT THE ASSESSING OFFICER HAS IGNO RED THE PURCHASES MADE THROUGH THESE BILLS DIRECTLY FROM H . KUMAR AND ALSO FROM SHRI . O.N. RANKA, FOR DETERMINING THE AFORESAID ADDITION AS EXCESS STOCK. 51 ITA NOS.2188 AND 2189/PN/2012 ON CAREFUL CONSIDERATION OF MATERIAL AVAILABLE ON RE CORD, IT IS NOTED THAT THOUGH THE AUTHORIZED OFFICER, DURING THE COURSE OF SEARCH HAS RAISED SUSPICION ABOUT COMING INTO THE PREMISE OF THE IMPUGNE D BILLS, WHILE RECORDING THE STATEMENT OF SHRI . F.N.RANKA ON 28/10/2002 , BUT THERE IS NO EVIDENCE AVA I LABLE OR FOUND WHICH CAN SUBSTANTIATE THE SAID SUSPICI ON. CIRCUMSTANTIAL FACTS CANNOT NEGATE THE FACT THAT THE PREMISE WAS UNDER THE CONTROL OF THE SEARCH PARTY FROM 24.10.2002 ONWARDS. UNDISPUTEDLY THE BILLS OF PURCHASE BY THE APPELLANT OF GOLD ORNAMENTS FROM H . KUMAR WAS FOUND FROM THE DRAWER OF THE DIRECTOR ON 28/10/2002 AND THEREFORE UNLESS THERE ARE EVIDENCES AVAILABLE WHICH CAN SHOW THAT THE SAME W AS PLANTED UNSCRUPULOUSLY, IT WILL BE DIFFICULT IN LAW TO HOLD T HE SAME. IT IS FURTHER NOTED FROM THE COPIES OF THE PUNCHNAMAS PREPARED FOR THE SEA RCH OF THE BUSINESS PREMISE THAT THE FIRST SEARCH APPARENTLY TOOK PLACE O N 24/10/2002. AS PER THIS PANCHNAMA THE SEARCH COMMENCED AT 6 . 30 PM AND WAS CONCLUDED AT 6 . 45PM, WITHOUT PREPARING ANY INVENTORY OR ANY MATERI AL FOUND OR SEIZED OR RECORDING OF ANY STATEMENT . IT IS NOTED IN THIS PANCHNAMA THAT THE PREMISE WAS SEALED AND PROHIBITORY ORDER U/S 132(3) WAS SERVED ON THE DIRECTOR . ON 26/10/2002, T HE SEARCH RESUMED AT 11 . 45 AM AND CONTINUED TILL 1.30 AM OF 27/10/2002, THERE UPON AGAIN THE PREMISE WAS SEALED AND PROHIBITOR Y ORDER WAS SERVED. THE SEARCH THEREAFTER SUBSEQUENTLY COMMENCED ON 27/10/2002 AT 10.30 AM AND WAS TEMPORARILY SUSPENDED ON 29/10/2002 AT 1.30 AM. THE PREMISE WAS AGAIN SEALED AND PROHIBITORY ORDER WAS SERVE D. AS PER THIS PANCHNAMA THE STATEMENT OF SHRI . F.N. RANKA WAS RECORDED. THEREFORE FROM THE PERUSAL OF THE PANCHNAMA ALSO, IT HAS TO BE ACCEPTED THAT TH E BUSINESS PREMISE HAS REMAINED IN THE CONTROL OF THE SEARCH PART Y AND THERE IS NO MATERIAL AVAILABLE ON RECORD WHICH CAN SUGGEST THAT T HE PROHIBITORY ORDER SERVED ON THE APPELLANT U/S 132(3) WAS VIOLATED. IF IT IS ASSUMED THAT THE SUSPICION OF THE AUTHORIZED OFFICER THAT SOMEBODY DURI NG THE COURSE OF THE SEARCH IMPLANTED THESE BILLS, THEN ALSO THE RESPONSIBILI TY HAS TO BE ON THE SEARCH PARTY, IN CHARGE OF THE SEARCH, AS THE SAME WOU LD SUGGEST LAPSE ON THEIR PART . NOBODY SAW ANYBODY OR CAUGHT ANYBODY PLACING THE BIL LS IN THE DRAWER AND THEREFORE THE SUSPICION RAISED BY THE AUTHO RIZED OFFICER HAS TO BE IGNORED. AS PER THE REGULAR PROCEDURE THE SEARCH P ARTY HAS TO SEARCH THE PERSONS ENTERING THE PREMISE AND AFTER THEIR SEARCH TO THE PARTY SEARCHED OR THEIR REPRESENTATIVES IN THE PRESENCE OF PANCHAS AT TH E TIME OF COMMENCEMENT/ RESUMPTION OF SEARCH OR ITS TEMPORARY SUS PICION . THEREFORE IT HAS TO BE ACCEPTED THAT THE BILL DATED 22/10/2002 WAS FOUND DURING SEARCH AND WAS NOT RECORDED IN BOOKS, AS THE BOO KS WERE ADMITTEDLY WRITTEN UPTO 21/10/2002 ONLY. IT IS ALSO NOTED THAT NOT MUCH OF DISCREPANCY WAS FOUND AT THE END OF SELLER AT AHMEDABAD DURING SUR VEY CONDUCTED ON 29/10/2002 EXCEPT FOR SOME CORRECTION IN THEIR STOCK BOOK. THESE DISCREPANCY NOTED AT THE END OF THE SELLER WERE NOT F OUND SUFFICIENT BY THE DEPARTMENT TO EVEN REJECT THE BOOKS OF ACCOUNT, AS IS APPARENT FROM THE ORDER OF CIT (A) QUOTED SUPRA . THE SALES MADE TO RANKA GROUP WERE FOUND TO BE ACCEPTABLE IN THE HANDS OF H. KUMAR GEMS INTERNATI ONAL . THOUGH THE CORRECTION APPEARING IN THE BILLS SEIZED AT THE APPEL LANT'S PREMISE AS WELL AS IN THE BOOKS OF THE SELLER AND SIMILAR OTHER CONTRADIC TIONS INCLUDING THE DATE OF INVOICE BEING ON THE DATE OF ARRIVAL IN PUNE BY HITESH KUMAR, RAISES SOME SUSPICION BUT THAT ALONE CANNOT BE HELD TO BE STRONG E NOUGH TO DENY OTHER FACTS WHICH ARE MUCH STRONGER AND ARE IN FAVOUR OF T HE APPELLANT . SIMILARLY OTHER DISCREPANCIES POINTED ' OUT BY THE ASSESSING OFFICER, IN RESPECT OF ' DIFFERENT STATEMENTS ARE ALSO OF CIRCUMSTANTIAL IN NATU RE FOR WHICH VARIOUS EXPLANATIONS HAVE BEEN GIVEN AND IN THE FACTS AVAILAB LE, IT IS NEITHER POSSIBLE TO ACCEPT THEM OR REJECT THEM AND THEREFORE THEY HA VE TO BE IGNORED OR TREATED AS EXPLAINED AS THE BALANCE OF OVERALL EVIDEN CES, MORE PARTICULARLY THE DIRECT EVIDENCES ARE IN FAVOUR OF THE APPELLANT . SINCE THE BILLS WERE FOUND AND SEIZED DURING THE COURSE OF THE SEARCH ITSELF, IT C ANNOT BE IGNORED UNLESS 52 ITA NOS.2188 AND 2189/PN/2012 IT IS ESTABLISHED THAT THE BILL WAS ONLY AN ACCOMMODATI ON ENTRY TO INFLATE THE PURCHASES. THIS IS A CASE WHERE OVERWHELMING EVIDENCES A RE AVAILABLE TO SUGGEST THAT PART OF THE SALES AND THE PURCHASES HAVE BE EN KEPI OUTSIDE THE BOOKS OF ACCOUNTS AND THEREFORE IN THE BACKDROP OF TH E SAME, IT IS NOT POSSIBLE TO ACCEPT THAT SUCH AN ASSESSEE WOULD TAKE A BOGU S BILL IN REGULAR COURSE OF BUSINESS. HAD IT BEEN FOUND WITH CONCLUSIVE EV IDENCES THAT THE APPEL L ANT OBTAINED THE SAME SUBSEQUENT TO THE SEARCH TO EXPLA IN THE EXCESS STOCK FOUND, AS WAS ATTEMPTED BY THE ASSESSING OFFICER, TH E MATTER COULD BECOME ACCEPTABLE. IN THE PRESENT CASE SINCE THE BILL WAS FOUND IN THE REGULAR COURSE OF BUSINESS DURING SEARCH ITSELF, IT CANNO T BE ASSUMED TO BE REPRESENTING A BOGUS BILL. FURTHERMORE, THIS FACT WAS N O T FOUND AT THE END OF SELLER ALSO. THE SURVEY PARTY COULD NOT FIND THAT THE BILLS WERE BOGUS OR THE BILLS WERE ISSUED WITHOUT HAVING ANY STOCK WITH HIM AND THEREFORE THE FINDINGS OF THE ASSESSING OFFICER CANNOT BE ACCEPTED. TH IS VIEW FURTHER GETS STRENGTH FROM THE FACT THAT THE SHORTAGE HAS BEEN DETE RMINED BY THE APPELLANT IN ITS EXPLANATION, WHICH HAS BEEN FOUND A CCEPTABLE BY THE SPECIAL AUDITOR AT 5666.240 GMS. FOR THIS, BOTH THE IMPUGNED PURCHASES OF 13,189 GMS AND 4950.150 GMS HAVE BEEN CONSIDERED . AFTER TREATING THESE PURCHASES AS BOGUS, THE ASSESSING OFFICER HAS COMPUTED THE E XCESS GOLD STOCK AT 13,189 . 160 GMS TO MAKE ADDITION OF RS . 66 , 73,715 @ RS . 506 PER GM. IF THE CLAIM OF THE ASSESSING OFFICER IS TAKEN AS CORRECT THAT THE APPEL LANT ARRANGED FOR THESE TWO BOGUS BILLS ON 28.10.2002 AFTER THE RECONCILIATION WAS MADE DURING SEARCH, THEN IT IS NOT EXPLAINABLE WH Y HE WILL TAKE TWO BILLS TO ARRIVE AT A SHORTAGE OF 5666.240 GMS. IN FACT THE ONE BILL IN APPELLANT'S OWN NAME FOR 13,865.250 GMS WOULD HAVE SATISFACTORILY EXPLAINED THE STOCK FOUND . IN THIS CONSIDERATION ALSO FINDING OF ASSESSING OFFICER LO OKS NOT LOGICAL . SIMILAR FACTS CAN BE NOTED IN RESPECT OF PURCHASES MADE FROM SHRI . O.N.RANKA. THOUGH MR. O.N . RANKA HAS PURCHASED THE JEWELLERY SOLD TO THE APPELLANT FROM THE SAME PARTY AT AHMEDABAD BUT IN TH IS CASE ALSO NOTHING ADVERSE WHICH CAN SUBSTANTIATE THE CLAIM OF THE ASSESSING OFFICER WERE FOUND. FURTHERMORE, THE EVIDENCES SUBMITTED BY THE AP PELLANT DURING APPEAL IN THE FORM OF THE ASSESSMENT ORDER MADE U/S 143(3) SHOWI NG THAT THE CAPITAL GAINS SHOWN ON THE IMPUGNED SALE IN ITS RETURN WAS ACCEPTED BY THE ASSESSING OFFICER, AS WELL AS THE COPY OF THE STOCK REGIST ER ETC SEIZED DURING THE SEARCH FROM THE PREMISE OF RANKA JEWELLERS, RAVIWAR PETH, HAVING DETAILS OF PURCHASE AND SALE RECORDED ALREADY BEFORE SE ARCH, TILTS THE BALANCE IN FAVOUR OF THE APPELLANT . AS DISCUSSED ABOVE, EVEN IF THIS BILL IS NOT ACCEPTED THE EXCESS STOCK REMAINS EXPLAINED. FURTHERMOR E, IT IS ALSO A FACT THAT THE M/S H.KUMAR GEMS INTERNATIONAL WAS ACCEPTEDLY HAVING REGULAR BUSINESS TRANSACTIONS WITH THE APPELLANT FOR THE LAST MAN Y YEARS AND IS NAME EVEN APPEARS IN THE DOCUMENTS FOUND ON THE BASIS OF WHI CH INCOME FROM UNACCOUNTED TRANSACTIONS HAVE BEEN COMPUTED BY THE ASSE SSING OFFICER IN THIS ASSESSMENT ORDER . THIS CONCERN HAS BEEN FOUND REGISTERED FOR SALES TAX AND THE INVOICES SEIZED INDICATE CHARGING OF SALES TAX . . NOTHING ADVERSE IN RESPECT OF THIS PAYMENT OF SALES TAX ON IMPUGNED BILLS, IS AVAILABLE ON RECORD. THE CLAIM MADE BY THE APPELLANT THAT THIS IS NOT AN O RDINARY ASSESSMENT BUT AN ASSESSMENT CONSEQUENT UPON THE SEARCH, WHERE NO SCOPE E XISTS FOR ANY PRESUMPTION OR ASSUMPTION, ALSO CANNOT BE IGNORED. THE ARGUMENT MADE BY THE LEARNED A. R. THAT THE STATEMENT RECORDED DURING THE PROCEEDINGS HAS TO BE READ IN WHOLE AND THEREFORE THE A.O. WAS NOT JUSTI FIED IN IGNORING CERTAIN ANSWERS WHICH WERE IN FAVOUR OF THE APPELLANT, IS ALSO CORRECT IN LAW. IT IS SIGNIFICANT TO BE NOTED THAT ALL THE CONCERNED PERSON S WHOSE STATEMENTS HAVE BEEN RELIED UPON BY THE A.O . , TO HIGHLIGHT SOME DISCREPANCIES, HAD ACTUALLY ACCEPTED THE TRANSACTION OF SALE OF GOLD THE APPELLANT AND THEREFORE MUCH IMPORTANCE GIVEN BY THE A.O. TO THE DISCREPANCY IN THE STATEMENT OF SHRI . PRAGNESH, WHICH HE HAD CORRECTED IN THE SAME STATEMEN T IS NOT JUSTIFIED FOR DRAWING ADVERSE INFERENCE. THE LEARNED A.O. HAS N OT TAKEN INTO ACCOUNT 53 ITA NOS.2188 AND 2189/PN/2012 THE DIRECT AND RELEVANT EVIDENCES AVAILABLE ON THE I SSUE, APPARENTLY BECAUSE THEY WERE NOT HIS FINDINGS. AN ASSESSING OFFICER CANNOT D ISREGARD AN EVIDENCE WHICH IS DIRECT AND RELEVANT ON CERTAIN PRE SUMPTIONS . HE IS DUTY BOUND TO CONSIDER ALL THE MATERIALS AVAILABLE ON RECO RDS AND EVALUATE THE SAME IN A DISPASSIONATE MANNER TO FINALLY CONCLUDE THE INFERENCE. THEREFORE, THE APPELLANT HAS BEEN ABLE TO SHOW THAT THE ASSESSING OF FICER BY IGNORING CERTAIN FACTS AVAILABLE ON RECORD, VIZ. SEIZURE OF BI LLS AT THE SEARCH PREMISE, ACCEPTANCE OF THE SAME ON THE FIRST AVAILABLE OCCASION BY THE DIRECTOR, ENTRIES OF SALE APPEARING IN THE BOOKS OF SHRI . O.N.RANKA SEIZED DURING SIMULTANEOUS SEARCH AND ALSO IN THE BOOKS OF M/S. H.KUMAR INTERNATIONAL , DURING SURVEY ALMOST AT THE SAME TIME I . E . ON 29/10/2002 AND SIMILAR SUCH EVIDENCES, HAS IGNORED TO CONSIDER MANY RELEVANT ISSUES F OR COMING TO THE FINDING WHICH IS IN DISPUTE IN THIS GROUND OF APPEAL . IN VIEW OF THE ABOVE AND AFTER CONSIDERING ALL THE RELEVANT MATERIALS AVAILABL E ON RECORD FOR THE IMPUGNED ADDITION OF RS.66,73,715, I AM OF THE OPINI ON THAT THE ASSESSING OFFICER ERRED IN GIVING THE FINDING THAT THE BILLS O F PURCHASE FROM SHRI . O.N . RANKA AND MIS H. KUMAR GEMS INTERNATIONAL ARE TO BE I GNORED WHILE CONSIDERING THIS EXPLANATION GIVEN BY THE APPELLANT I N RESPECT OF STOCK OF GOLD JEWELLERY FOUND DURING SEARCH AT THE BUSINESS PREM ISE OF THE APPELLANT . IT IS ALSO IMPORTANT TO BE NOTED FROM THE TABLE OF CO MPUTATION GIVEN ABOVE, ON THE ASSET SIDE APPROACH AS WELL AS THE INCOME SIDE APP ROACH, THAT THE ASSESSING OFFICER HAS TAKEN THE EXCESS CASH ON THE ASSET SIDE APPROACH AT RS.99,51,101 FOR COMPUTING THE TOTAL UNDISCLOSED INCOM E ON THE ASSET SIDE APPROACH OF RS.2,67,11,893. IT HAS BEEN FOUND THAT TH IS EXCESS CASH OF RS.99,51,101, COMPRISED OF CASH ACTUALLY SEIZED OF RS . 9,51,101 AND RS.90,00,000 DECLARED SUO MOTO IN THE BLOCK RETURN AS CASH AVAILABLE AT THE NATIVE PLACE . ON BEING ASKED ABOUT THIS DECLARATION, IT WAS EXPLAI NED BY THE AR DURING APPEAL THAT THIS DECLARATION FOR CASH WAS MADE TO COVER UP T HE UNDISCLOSED INCOME DECLARED IN THE RETURN AT RS.1,50,0 0,000. THERE IS NO OTHER DISCUSSION AVAILABLE IN THE ASSESSMENT ORDER ON THI S ISSUE. THEREFORE IT IS APPARENT THAT THE DECLARATION OF CASH OF RS.90,00,0 00 IS NOT BASED ON ANY FINDING OF THE SEARCH. THOUGH . THE ACT OF DECLARING CASH AT NATIVE PLACE OF RS.90,00,000 WITHOUT ANY SUCH FINDING IN SEARCH IS INTR IGUING, BUT FOR THE LIMITED PURPOSE OF THE ISSUE IN HAND, IT INDIRECTLY LE NDS SUPPORT TO THEIR CLAIM THAT AN ASSESSEE WHO IS DECLARING SO MUCH , OF CASH WITHOUT ANY FINDING OF EVIDENCE WOULD PROBABLY NOT RESORT TO IMPLANTING OF BILLS, AS HAS BEEN SUSPECTED BY THE ASSESSING OFFICER . IT IS ALSO NOTEWORTHY THAT AFTER ACCEPTING THE CLAIM OF THE IMPUGNED BILLS AS PART OF THE PURCHA SE ALSO THE STOCK DOES NOT TALLY COMPLETELY. AS PER APPELLANT'S OWN COMPUTAT ION THE GOLD ORNAMENTS FOUND DURING SEARCH IS SHORT BY 5666.240 GMS. IT IS AN ACCEPTED FACT THAT THE APPELLANT WAS ENGAGED IN CONCEALING TH E TRANSACTIONS AND INCOME, FOR WHICH THE ASSESSING OFFICER HAS MADE THE COM PUTATION SEPARATELY ON INCOME APPROACH BUT THE RELEVANT ISSUE I S THAT THE SAID ACTIVITY HAS BEEN CARRIED OUT FROM THE SAME PREMISE . NO SEPARATE BOOKS OF ACCOUNTS OR STOCK ETC RELATING TO THIS CONCEALED TRANSACTION HA VE BEEN FOUND. THE MATERIAL FOUND CLEARLY SHOWS THAT THE TRANSACTIONS WERE CARRIED GUT TOGETHER AND PART OF IT WERE NOT RECORDED IN THE DI SCLOSED BOOKS OF ACCOUNT. THEREFORE, EVEN IF ON THE STRENGTH OF OVERWRITING, I T IS PRESUMED THAT THE IMPUGNED BILL RELATED TO CONCEALED PURCHASES AND WAS N OT TO BE ACCOUNTED FOR BEFORE SEARCH, AND THE DATE WAS CHANGED FROM 12/1 0/2002 TO 22/10/2002, AFTER SEARCH TO EXPLAIN THE EXCESS STOCK, STILL IT WILL HAVE TO BE CONSIDERED FOR ARRIVING AT THE QUANTUM OF EXCESS STOCK AS THE STOCKS FOR DISCLOSED AND UNDISCLOSED BUSINESS WAS SAME AND THE INCOME FOR CONCEALED TRANSACTIONS ARE SEPARATELY BEING COMPUTED. IT IS AN AD MITTED FACT THAT THE BOOKS WERE RECORDED UPTO 21/10/2002 AND PAYMENTS FOR IMPUGNED PURCHASES WERE MADE AFTER SEARCH, THOUGH UNDULY LATE B UT THIS WILL NOT JUSTIFY EXCLUSION OF THESE PURCHASES. AS ALREADY DISCUSSED , THE 54 ITA NOS.2188 AND 2189/PN/2012 OVERWHELMING EVIDENCES WERE ON RECORD WHICH OVER WEI GHS THE OBJECTIONS RAISED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS G IVEN THE FINDING BY IGNORING THESE RELEVANT FACTS, MOSTLY ON PLACING RE LIANCE OF CIRCUMSTANTIAL EVIDENCES. THOUGH THE CIRCUMSTANTIAL EVIDENCES ARE MA NY AND CREATE A REASONABLE DOUBT BUT THE SAME CANNOT OVERRULE DIRECT EVIDENCES. IT IS A TRITE LAW THAT PREPONDERANCE OF CIRCUMSTANTIAL EVIDENCES AN D HUMAN PROBABILITIES CAN BE APPLIED WHERE DIRECT EVIDENCES A RE NOT AVAILABLE. IN THIS CASE, THE ASSESSING OFFICER BY IGNORING THE DIRECT EVIDE NCES, HAS MADE AN ERROR OF JUDGMENT. THEREFORE, GROUND NO.2 OF THE A PPELLANT IS ALLOWED. 71. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 72. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY OPPOSE D THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE SEARCH TOOK PLACED ON 24-10-2002 AND THE BOOKS WERE WRITTEN UPTO 21-10-2002. THE MAJO R DISPUTE IS REGARDING THE BILL OBTAINED FROM M/S. H. KUMAR GEMS INTERNA TIONAL, AHMEDABAD IN A VERY SUSPICIOUS MANNER. HE SUBMITTED THA T ON THE DATE OF SEARCH, THE BILL WAS NOT FOUND WHEREAS THE SAME W AS FOUND IN THE DRAWER ON THE VERY NEXT DAY. FURTHER, THERE WAS SOME OVER WRITING ON THE ABOVE BILL. THEREFORE, THE MANNER IN WHICH THE BILL WA S FOUND RAISES SUSPICION. HE SUBMITTED THAT THE AO HAD GIVEN VALID REASONS FOR NOT ACCEPTING THAT BILL. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE REVERSED ON THIS ISSUE AND THE GROUND RAISED BY THE REVENU E BE ALLOWED. 73. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED THAT ON THE D ATE OF SEARCH, I.E. 24-10-2002 THE SHOP WAS SEALED AND THE SHOP WAS OPEN ED ON THE EVENING OF 26-10-2002. REFERRING TO THE ANSWER OF SHRI F. N. RANKA TO QUESTION NO.5 IN THE STATEMENT RECORDED U/S.132(4) ON 28- 10-2002 HE SUBMITTED THAT THE AUTHORIZED OFFICER HAD SPECIFICALLY ASKED AS TO WHETHER THERE ARE ANY GOODS/ARTICLES IN THE SHOP FOR W HICH THE PURCHASE BILLS HAVE NOT BEEN RECEIVED. REFERRING TO THE ANSWER HE SUBMITTED THAT 55 ITA NOS.2188 AND 2189/PN/2012 SHRI F.N. RANKA IN HIS STATEMENT HAD CATEGORICALLY STATED THAT THEY HAVE RECEIVED THE GOODS AND THE BILL OF M/S. H. KUMAR GEMS INTE RNATIONAL IS NOT FED IN THE COMPUTER BUT IS IN THE DRAWER. HE SUBMITT ED THAT IF THE CONTENTION OF THE LD. DEPARTMENTAL REPRESENTATIVE THAT T HE BILL WAS SUBSEQUENTLY INSERTED IN THE DRAWER, THEN WHY NO ACTION HAS BEEN TAKEN AGAINST THE OFFICERS OF THE DEPARTMENT PRESENT DURING THE SEARCH. HE SUBMITTED THAT WHEN M/S. H. KUMAR GEMS INTERNATIONAL HAD ADMITTED TO HAVE SOLD THE GOODS TO THE ASSESSEE AND THE VARIOU S OTHER FAMILY MEMBERS IN HIS STATEMENT RECORDED DURING THE COURSE OF SURVEY AND WHEN THE ASSESSMENT OF M/S. H. KUMAR GEMS INTERNATIONA L WAS COMPLETED U/S.143(3) ACCEPTING SUCH SALE OF GOODS TO THE ASSESSEE AND THE OTHER MEMBERS, THEN THERE IS NO REASON TO DOUBT THE PURCHASES MADE BY THE ASSESSEE FROM M/S. H. KUMAR GEMS INTERNATIO NAL. HE SUBMITTED THAT WHEN ONE WING OF THE DEPARTMENT HAS AC CEPTED SALE OF JEWELLERY AS A GENUINE SALE, THERE IS NO REASON TO DOUBT THE PURCHASES MADE BY THE ASSESSEE. FOR THE ABOVE PROPOSITION HE RE LIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. BERGER PAINTS INDIA LTD. REPORTED IN 266 ITR 99 AND THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF A.E. LOKHANDWALE REPOR TED IN 35 ITD 50. FURTHER, M/S. H. KUMAR GEMS INTERNATIONAL IS A REG ISTERED DEALER BOTH UNDER THE STATE AND CENTRAL SALES TAX ACTS AND TAX ON THIS TRANSACTION HAS BEEN PAID. THE SPECIAL AUDITOR HAS ALSO A CCEPTED THE TRANSACTION AS GENUINE. THEREFORE, THE ORDER OF THE CIT(A ) BEING IN CONSONANCE WITH LAW SHOULD BE UPHELD. 74. THE LD. DEPARTMENTAL REPRESENTATIVE IN HIS REJOINDER S UBMITTED THAT THE SPECIAL AUDITOR CANNOT SAY THE TRANSACTION AS GENUINE OR NOT. HE IS TO BASE HIS REPORT ON THE BASIS OF THE PAPERS FOUND. 56 ITA NOS.2188 AND 2189/PN/2012 75. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIO US DECISIONS CITED BEFORE US. WE FIND THE EXCESS STOCK OF 13189.160 GM S OF GOLD WAS DETERMINED BY THE AO ON THE BASIS OF ACTUAL STOCK FOUND AND THE STOCK AS PER BOOKS. THE VALUE OF THE ABOVE AMOUNT WAS RS.66,7 3,715/-. ON BEING CONFRONTED BY THE AO IT WAS SUBMITTED BY THE ASS ESSEE THAT IT HAS PURCHASED GOLD JEWELLERY WEIGHING 13865.250 GMS FROM M/S. H. KUMAR GEMS INTERNATIONAL, AHMEDABAD. THE AO DID NOT ACCEPT TH E ABOVE CONTENTION OF THE ASSESSEE ON THE GROUND THAT THE BILL IS SUED TO THE ASSESSEE, I.E. M/S. RANKA JEWELLERS PVT. LTD. WAS FABRICATED AN D THERE WAS OVERWRITING ON THE DATE OF THE BILL. THE DATE WRITTEN ON THE BILL IS 22-10-2002 WHEREAS THE AO INFERRED THE SAME AS 12-10-2002. WE FIND THE AO FURTHER NOTED THAT THERE W ERE CERTAIN DISCREPANCIES IN THE STATEMENTS OF SHRI PRAGNESH SUKHADIA AND THE STATEMENTS GIVEN BY SHRI F.N. RANKA, SHRI ANIL RANKA AND SH RI OMPRAKASH RANKA REGARDING THE DATE OF ORDER AND DATE OF RECEIPT OF THE GOLD ORNAMENTS. FURTHER, THE ASSESSEE INFORMED THE DEPA RTMENT ABOUT THE BILL ONLY ON 28-10-2002 WHEREAS THE SEARCH WAS CAR RIED OUT ON 24- 10-2002, I.E. 4 DAYS AFTER THE INITIAL SEARCH THAT THE BILL OF M /S. H. KUMAR GEMS INTERNATIONAL WAS NOT DEBITED IN THE BOOK PR IOR TO THE SEARCH. FURTHER ACCORDING TO THE AO THE PAYMENT WAS MADE AFTER A FEW MONTHS WHICH DO NOT PROVE THE GENUINENESS OF THE TRANS ACTION. WE FIND THE CIT(A) ACCEPTED THE GENUINENESS OF THE BILL ON THE GRO UND THAT THE BILL ISSUED BY M/S. H. KUMAR GEMS INTERNATIONAL TO THE ASSE SSEE WAS FOUND IN THE ASSESSEES PREMISES. SHRI ANIL RANKA AND SHR I OMPRAKASH RANKA HAD ALSO PURCHASED JEWELLERY FROM THE S AID PARTY WHICH WERE DULY RECORDED IN THEIR BOOKS BEFORE THE DATE OF SEARCH. THEREFORE, THE AO SHOULD NOT HAVE DISBELIEVED THE BILL ISSUED TO M/S. 57 ITA NOS.2188 AND 2189/PN/2012 RANKA JEWELLERS PVT. LTD. I.E., THE ASSESSEE. FURTHER, M/S. H. KUMAR GEMS INTERNATIONAL HAD ACCEPTED THAT THE JEWELLERY WAS SOLD TO THE ASSESSEE AND THE SALE WAS FOUND RECORDED IN HIS BOOKS O F ACCOUNT. M/S. H. KUMAR GEMS INTERNATIONAL HAS GIVEN THEIR CONFIRMATIO N. M/S. H. KUMAR GEMS INTERNATIONAL IS A REGISTERED DEALER IN STAT E AND CENTRAL SALES TAX ACT AND THE SALES TAX ON THIS TRANSACTION HAS BEEN PAID BY M/S. H. KUMAR GEMS INTERNATIONAL WHICH ARE REGULARLY ASSE SSED TO TAX AND HAVE DISCLOSED THE ABOVE TRANSACTION IN THEIR BOOKS OF ACCOUNT. FURTHER, ASSESSMENT HAS BEEN COMPLETED U/S.143(3) FOR A.Y. 2003-04 IN THE CASE OF M/S. H. KUMAR GEMS INTERNATIONAL WHEREIN SUC H SALE OF GOLD TO THE ASSESSEE HAS BEEN ACCEPTED AS GENUINE. WE THEREFORE FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSE E THAT WHEN ONE WING OF THE DEPARTMENT HAS ACCEPTED THE SALE OF JE WELLERY AS GENUINE SALE, THERE IS NO REASON TO DOUBT THE PURCHASES MADE BY THE ASSESSEE FROM THE SAID PARTY. FURTHER, THE SPECIAL AUDITO R IN HIS REPORT HAS ALSO ACCEPTED THE PURCHASES FROM M/S. H. KUMAR GEM S INTERNATIONAL AS GENUINE. WE FIND DURING THE SURVEY AT M/ S. H. KUMAR GEMS INTERNATIONAL, AHMEDABAD SHRI PRAGNESH SUKHADIA, AN EMPLOYEE AND SHRI HITENDRA GUNDECHA, THE OWNER WERE EXAMINED AND THEIR STATEMENTS WERE RECORDED. THEY HAVE ACCEPTED THAT S ALES HAVE BEEN EFFECTED TO M/S. RANKA JEWELLERS PVT. LTD., SHRI ANIL RANKA AND SHRI OMPRAKASH RANKA. FURTHER, THE SUBMISSION OF THE LD. COU NSEL FOR THE ASSESSEE THAT IN A.Y. 2003-04 SHRI OMPRAKASH RANKA HAS SHOWN THE CAPITAL GAINS ON TRANSFER OF THESE JEWELLERY PURCHASED FROM M/S. H. KUMAR GEMS INTERNATIONAL TO M/S. RANKA JEWELLERS PVT. LTD. AND THAT CAPITAL GAIN WAS OFFERED TO TAX WHICH HAS BEEN ACCEPTED BY THE AO IN THE ORDER PASSED U/S.143(3) COULD NOT BE CONTROVERTED B Y THE LD. DEPARTMENTAL REPRESENTATIVE. IN VIEW OF THE ABOVE FACTS AND IN VIEW OF THE DETAILED REASONING GIVEN BY THE CIT(A) WHILE DELETING THIS ADDITION 58 ITA NOS.2188 AND 2189/PN/2012 WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). ACC ORDINGLY, THE ORDER OF THE CIT(A) ON THIS ISSUE IS UPHELD AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 76. GROUND OF APPEAL NO.3 BY THE REVENUE READS AS UNDER : 3. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS.1,76,553/- ON ACC OUNT OF EXCESS STOCK OF SILVER WHEN THE VALUATION OF THE STOCK WAS DONE BY A Q UALIFIED GOVERNMENT VALUER . 77. FACTS OF THE CASE, IN BRIEF, ARE THAT DURING THE COU RSE OF SEARCH AT THE BUSINESS PREMISES OF THE ASSESSEE AT LAXMI ROAD, SILV ER ARTICLES WEIGHING 21,709 GMS WERE PUT UNDER DEEMED SEIZURE. AS P ER THE INVENTORY PREPARED AT THE TIME OF SEARCH ACTION TOTAL WE IGHT OF SILVER ARTICLES WAS TAKEN AT 36,14,108 GMS DURING THE COURSE OF SEARCH AS WELL AS ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO HOW THE ABOVE SILVER HAS BEEN ACCOUNTED FOR IN THE BOOKS. I T WAS EXPLAINED BY SHRI F.N. RANKA, DIRECTOR OF THE ASSESSEE COMPANY THAT AS PER INVENTORY TAKEN BY THE DEPARTMENT, THE GROSS WEIGHT O F 36,14,108 GMS INCLUDE THE WEIGHT OF THE PLASTIC BAGS AND PLASTIC BOXES. I T WAS SUBMITTED THAT THE PLASTIC BAGS AND PLASTIC BOXES WERE W EIGHING 1,14,400 GMS. THUS THE NET WEIGHT OF THE SILVER ARTICLES WA S 35,00,108 GMS. IT WAS FURTHER EXPLAINED THAT ONE COMPANY NAMELY M/S.SYNGENTA OF 1170/27, REVENUE COLONY, SHIVAJINAGAR, PUNE HAS PLACED O RDER FOR SILVER COINS FOR 93500 GMS. THE ORDER WAS READY ON 10-1 0-2002 AGAINST WHICH THE SALE BILL WAS MADE ON 10-10-1002 VIDE BILL NO.S/47 55. AN AMOUNT OF RS.7,84,627/- WAS RECEIVED BY CHEQUE NO.936588 ON 18-10- 2002 FOR WHICH RECEIPT WAS ISSUED VIDE NO.231 DATED 18-10 -2002 ON THE SAME DAY, I.E. 18-10-2002. THE LETTER WAS GIVEN TO THE SA ID COMPANY STATING THE FACT THAT EVEN THOUGH THE PAYMENT HAS BEE N RECEIVED, 59 ITA NOS.2188 AND 2189/PN/2012 HOWEVER, THE DELIVERY IS YET TO BE TAKEN BY THE COMPANY . SINCE THE PROGRAMME WAS POSTPONED, IT WAS REQUESTED BY THE COMPANY TO KEEP THE COINS AND THEY WILL TAKE WHEN THE PROGRAMME IS FIXED. IT WAS SUBMITTED THAT THESE COINS HAVE BEEN INVENTORISED BY THE DEPARTM ENTAL VALUER WHILE TAKING THE INVENTORY. ACCORDINGLY THE ASSESSEE REC ONCILED THE STOCK AND IT WAS SUBMITTED THAT THE EXCESS, IF ANY IS ONL Y 22780.570 GMS. THE ASSESSEE ACCORDINGLY SUBMITTED THAT THERE IS ACTUALLY NO EXCESS STOCK. 78. HOWEVER, THE AO DID NOT ACCEPT THE ABOVE CONTENTION OF THE ASSESSEE. HE NOTED THAT THE APPROVED VALUER WHILE VALUIN G THE SILVER ITEMS HAS GIVEN DUE CREDIT FOR THE WEIGHT OF THE PLASTIC BA GS AND BOXES. THIS SHOWS CLEAR CUT OF EXCESS SILVER ARTICLES WHICH COMES TO 22,780.570 GMS. APPLYING THE RATE OF RS.7750/- PER KG, THE AO DETE RMINED SUCH EXCESS STOCK OF SILVER AT RS.1,76,553/- WHICH HE ADDED TO THE TOTAL UNDISCLOSED INCOME OF THE ASSESSEE FOR THE BLOCK PERIOD U/ S.69A OF THE ACT. 79. BEFORE CIT(A) IT WAS SUBMITTED THAT THE MAIN DIFFERENCE IS ON ACCOUNT OF VALUATION OF PLASTIC BAGS. THE BAGS CONTAIN THE SILVER ARTICLES AND THE WEIGHT OF THE BAGS RANGES FROM 2 GMS TO 15 GM S. IT WAS SUBMITTED THAT SHRI UTTAM JAIN, DEPARTMENTAL VALUER HAS RE DUCED 114.400 KG ON ACCOUNT OF WEIGHT OF PLASTIC BAGS OF AROUND 22000 BAGS AND THEREBY TAKING AN ADHOC WEIGHT OF 5 GMS PER BAG. S HRI F.N RANKA IN HIS STATEMENT RECORDED U/S.132(4) HAS POINTED OUT CERT AIN DISCREPANCIES IN THE VALUATION MADE BY SHRI UTTAM JAIN AND HAD POINTED OUT THAT THE WEIGHT OF THE PLASTIC BAGS WAS NOT TAKEN CORRECTLY. IT WAS ARGUED THAT IF THE AVERAGE WEIGHT PER BAG IS TA KEN AT 6 GMS AS AGAINST 5 GMS ADOPTED BY SHRI UTTAIN JAIN THERE WOULD BE NO EXCESS STOCK AT ALL. THE INVENTORY ITSELF SHOWS THAT THERE HAVE BEEN NUMBER OF 60 ITA NOS.2188 AND 2189/PN/2012 ITEMS FOR WHICH THE WEIGHT OF PLASTIC BAGS WAS TAKEN AT MO RE THAN 5 GMS BY THE VALUER. THEREFORE, THERE IS NO BASIS GIVEN BY THE VALUER FOR ADOPTING THE AVERAGE WEIGHT PER PLASTIC BAG AT 5 GMS. IT WAS ARGU ED THAT THE ADDITION MADE BY THE AO SHOULD BE DELETED. 80. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER : 7.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE LAW AS APPARENT FROM RECORD. IT IS APPARENT FROM THE MATER IAL AVAILABLE THAT SILVER STOCK OF 36,14,109 GMS WAS FOUND DURING SEARCH, OUT OF WHICH SILVER ARTICLE WEIGHING 21,709 GMS WERE PLACED UNDER DEEMED SEIZURE. AS PER THE FATS NOTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, SHR I F.N. RANKA, THE DIRECTOR OF THE APPELLANT COMPANY WAS FOUND TO HAVE STATED U/S.132(4) ON 25/11/2002, IN RESPECT OF INVENTORY OF SILVER ARTICLE S THAT THE REGISTERED VALUERS HAVE WEIGHED THE SILVER ARTICLES ALONG WITH PL ASTIC BAGS AND BOXES, IN WHICH THEY WERE KEPT AND THE WEIGHT OF SUCH CONTAINE RS WAS TAKEN AT 114400 GMS ON ESTIMATE BASIS. AS PER APPELLANT IT SHOULD HAVE BEEN MORE. ON THIS BASIS IT WAS EXPLAINED THAT THE NET WEIGHT IS 35 ,00,108 GMS. THE ASSESSING OFFICER HAS FURTHER NOTED IN PARA 26 OF THE ASSE SSMENT ORDER THAT MR. F.N. RANKA HAS FURTHER EXPLAINED IN THE SAID STATE MENT THAT SILVER COINS WEIGHING 93,500 GMS WERE SOLD TO M/S. SYNGENTA OF PUNE AND THE DELIVERY OF THE SAME WAS YET TO BE TAKEN. THEREFORE THE APPELLAN T REQUESTED TO REMOVE THESE ITEMS. THE CLAIM FOR EXCLUSION OF SILVER COINS W AS ACCEPTED BY THE ASSESSING OFFICER, HOWEVER, THE CLAIM FOR HIGHER RELIED FOR CONTAINERS WAS NOT ACCEPTED. THEREFORE, THE EXCESS OF SILVER ARTICL ES OF 22,780.57 GMS COMPUTED AFTER REMOVING 93,500 GMS OF SILVER COINS BUT TAKING THE WEIGHT OF PLASTIC CONTAINER AT 114400, AS DETERMINED BY THE DEP ARTMENTAL VALUER WAS TAKEN BY THE ASSESSING OFFICER AS UNDISCLOSED ASSET U/S.69A @ RS.7750 PER KG OF SILVER (RS.1,76,553). THE CLAIM OF THE APPELLA NT THAT THIS EXCESS SHOULD BE TREATED AS EXPLAINED AS AN OBJECTION WAS RAISED BY M R. F.N. RANKA EVEN DURING SEARCH IN HIS STATEMENT RECORDED ON 25.11.2002 THAT THE WEIGHT OF CONTAINER IS MORE, AND EVEN IF THE WEIGHT OF 22000 C ONTAINER IS RAISED FROM 5GM TO 6GM PER CONTAINER, THE EXCESS WILL GET EXPLAIN ED, WAS NOT ACCEPTED BY THE ASSESSING OFFICER. THIS WAS CLAIMED TO HAVE BEEN REJECTED WITHOUT ASSIGNING MUCH REASONS ONLY ON THE GROUND THAT THE VAL UATION WAS DONE BY A QUALIFIED PERSON. THE APPELLANT HAS DISPUTED THE SAME AND HAS RELIED ON THE VALUATION REPORT OF THE DEPARTMENT WHEREIN MR. UTTA M JAIN WAS CLAIMED TO HAVE ESTIMATED THE WEIGHT OF PLASTIC BAGS AT 114400 GM S BY TAKING THE WEIGHT OF 22,000 BAGS @ 5 GMS PER BAG. IT HAS BEEN CO NTENDED THAT MR. RANKA IN HIS STATEMENT GIVEN U/S. 132(4) DURING THE SEARCH ITSELF ON 25/11/2002 HAS POINTED OUT THIS .DISCREPANCY BUT THE D EPARTMENT DID NOT TAKE THE SAID SERIOUSLY. IT HAS BEEN STATED IN THIS RESPEC T THAT IF THE WEIGHT OF THESE BAGS IS INCREASED FROM 5 GMS TO 6 GMS THE DIFFEREN CE WOULD VANISH. IT IS NOTED THAT THE AUDITOR IN HIS REPORT PREPARED U/S 1 42(2A), AT ANNEXURE 8- 2 HAS GIVEN THE RECONCILIATION OF THE SILVER STOCK FOU ND IN THE BUSINESS PREMISE AND HAS ARRIVED AT THE EXCESS SILVER STOCK OF 22 ,780.570 GMS. HOWEVER, IN THE CONCLUDING PARA IN THE SAME ANNEXURE , THE AUDITOR HAS STATED THAT 'ACTUAL EXCESS 22781 GMS I.E. 22.781 KG BUT OFFICER BY MISTAKE CALCULATED EXCESS AS 21.709 KG AND MADE DEEMED SEIZURE. THE ASSESSEE HAS EXPLAINED THAT IN FACT THERE IS NO EXCESS. AT MANY PLA CES WEIGHT OF PLASTIC BOX AND BAGS ARE NOT DEDUCTED. SIMILARLY, THE WEIGHT OF PLASTIC BAG IS TAKEN AD- 61 ITA NOS.2188 AND 2189/PN/2012 RANDUM. THE WEIGHT OF PLASTIC BAGS ARE NOT TAKEN IN A CTUAL. NO PROPER DEDUCTION OF PLASTIC BAGS, PLASTIC BOXES IS DONE. HENCE, THE EXCESS OF 22.281 HAS COME. I HAVE VERIFIED THE EXPLANATION AND LIST OF PLASTIC BAGS PREPARED BY THE VALUER SHRI UTTAM JAIN AND FOUND THAT WEIGHT OF PLASTIC BAGS AND PLASTIC BAGS OF SOME ITEMS ARE NOT CONSIDERED. HOWEVER, THE SAME CANNOT BE CONSIDERED NOW AS THE SEARCH PARTY HAS NOT CONSIDERED T HIS ASPECT.' ON CAREFUL CONSIDERATION OF THE VARIOUS MATERIALS AVAILAB LE ON RECORD, IT IS NOTED THAT THE ADDITION MADE BY THE ASSESSING OFFICER IS WITHO UT ANY BASIS. THE ASSESSING OFFICER HAS NOT GIVEN ANY REASONS IN THE ASSESSMENT ORDER AS TO WHY HE HAS NOT CONSIDERED THE REPORT OF THE SPECIAL AUDITOR ON THIS ISSUE AND HAS ALSO NOT ACCEPTED THE ARGUMENTS THE APPELLANT. IT IS NOTED THAT THE OBJECTION ABOUT THE WEIGHT OF PLASTIC BAGS WERE TAKEN DURING THE PENDENCY OF THE SEARCH ON 25/11/2002, BEFORE THE SEARCH WAS FIN ALLY CONCLUDED AND THEREFORE IT OUGHT TO HAVE BEEN VERIFIED AS THE SEARC H PREMISE WAS STILL UNDER THE CONTROL OF SEARCH PARTY. AS THE AFORESAID O BJECTION OF THE APPELLANT, HAVING BEEN FOUND CORRECT BY THE SPECIAL AUDITOR AND RAISED PROPERLY AT THE RELEVANT POINT OF TIME, HAVE REMAIN ED UNATTENDED BY THE SEARCH PARTY AS WELL AS THE ASSESSING OFFICER, THE EXPLAN ATION GIVEN BY THE APPELLANT HAS REMAINED UNCONTROVERTED AND THEREFORE HAS TO BE ACCEPTED IN THE FACTS OF THE CASE AND IN THE LAW. AN ADDITION C ANNOT BE SUSTAINED IN THE ABSENCE OF FACTS AND MATERIALS WHICH CAN SHOW THAT THE SAME HAS BEEN DONE IN A FAIR MANNER. GROUND NO.3 THEREFORE IS ALLOWED. 81. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 82. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND DURING THE COURSE OF SEARC H SILVER STOCK OF 36,14,108 GMS WAS FOUND. THE AO ASKED THE ASSESSEE T O EXPLAIN AS TO HOW THESE SILVER ARTICLES ARE APPEARING IN THE BOOKS O F ACCOUNT. ALTHOUGH THE ASSESSEE TRIED TO RECONCILE THE SAME, HOWE VER, THE AO NOTED THAT THERE IS EXCESS STOCK OF 22780.570 GMS. THE SUBMISSION OF THE ASSESSEE THAT THERE IS NO EXCESS STOCK AS AT MAN Y PLACES THE WEIGHT OF PLASTIC BAGS AND BOXES ARE NOT DEDUCTED AND IN SOME CASES THE WEIGHT OF PLASTIC BAGS HAS BEEN TAKEN AT RANDOM WAS REJECTED BY THE AO ON THE GROUND THAT THE VALUER HAS GIVEN DUE CREDIT FOR THE WEIGHT OF PLAST IC BAGS AND BOXES. WE FIND THE LD.CIT(A) CONSIDERING THE SUBMISSION OF THE ASSESSEE THAT THE WEIGHT OF PLASTIC BAGS HAVE NOT BEEN PROPERLY CONSIDERED BY THE SEARCH PARTY AS WELL AS THE VALUER AC CEPTED THE 62 ITA NOS.2188 AND 2189/PN/2012 CONTENTION OF THE ASSESSEE AND DELETED THE ADDITION WHICH HAS ALREADY BEEN REPRODUCED IN THE PRECEDING PARAGRAPH. WE FIND TH E ORDER OF THE CIT(A) IN THE INSTANT CASE IS A DETAILED AND WELL REASONED ONE WHICH D OES NOT CALL FOR ANY INTERFERENCE FROM OUR SIDE. WE THEREFORE U PHOLD THE SAME AND THE GROUND RAISED BY THE REVENUE ON THIS ISSUE IS DISMISSED. 83. GROUND OF APPEAL NO.4 RAISED BY THE REVENUE HAS ALREA DY BEEN ADJUDICATED WHILE DECIDING GROUND OF APPEAL OF APPEAL NO. 2 IN ASSESSEES APPEAL. THEREFORE, THIS GROUND IS NOT BEING S EPARATELY ADJUDICATED. 84. GROUND OF APPEAL NO.5 BY THE REVENUE READS AS UNDER : 5. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS.19,97,934/- ON AC COUNT OF UNDERVALUATION OF STOCK, WHEN, IN FACT THE ASSESSING OFFICER HAS FOLLOW ED THE WELL ESTABLISHED METHOD OF VALUATION OF STOCK. 85. FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSES OF RAN KA GROUP I.E. M/S RANKA JEWEILERS RAVIWAR PETH, RANKA JEWELLERS PVT. LT D, AND RANKA JEWELLERS, KARVE ROAD ARE FOLLOWING AVERAGE SYSTEM O F ACCOUNTING FOR VALUATION OF CLOSING STOCK. THE AVERAGE SYSTEM MEANS T HAT THE ASSESSES ARE TAKING THE QUANTITY AND VALUE OF OPENING S TOCK AS WELL AS PURCHASES MADE DURING THE YEAR. IN THIS QUANTITY AND VA LUE, THE QUANTITY AND VALUE OF MIXING I.E. COPPER AND SILVER ETC. IS A DDED AND BURNING LOSS IS REDUCED. FROM THE VALUE ARRIVED IN THIS MA NNER, THE OPENING STOCK AND PURCHASES IS ADDED AND SIMILARLY THE Q UANTITY IS ALSO ADDED. THE VALUE IS DIVIDED BY THE QUANTITY TO ARRIVE AT AN AVERAGE PRICE. THE QUANTITY OF THE CLOSING STOCK IS MULTIPLIED BY THE AVERA GE PRICE TO ARRIVE AT THE VALUE OF THE CLOSING STOCK. THIS METHOD OF V ALUATION HOLDS GOOD IF THERE ARE NO UNACCOUNTED PURCHASES AND SALES. H OWEVER, DURING 63 ITA NOS.2188 AND 2189/PN/2012 THE COURSE OF SEARCH, EVIDENCES WERE FOUND THAT THE ASS ESSES, OF RANKA GROUP WERE INDULGED IN MAKING UNACCOUNTED PURCHASES AND SALES. IF THE UNACCOUNTED PURCHASES ARE ALSO TAKEN INTO CONSIDER ATION FOR THE PURPOSE OF DETERMINING THE AVERAGE PRICE THE AVERAGE PR ICE IS INCREASED IN COMPARISON TO THE AVERAGE PRICE DETERMINED BY THE A SSESSEE FOR THE PURPOSE OF VALUATION OF CLOSING STOCK SHOWN IN THE BOOKS. THUS, THE ASSESSES OF THIS GROUP HAS UNDERVALUED THE STOCK AS PE R BOOKS OF ACCOUNT. 86. DURING THE COURSE OF ASSESSMENT PROCEEDING THE FACT OF THE UNDER VALUATION WAS BROUGHT TO THE KNOWLEDGE OF THE ASS ESSEE AND HE WAS ASKED TO EXPLAIN AS TO WHY THE VALUE OF THE CLOSING STOCK AS PER BOOKS SHOULD NOT BE ENHANCED AND IT SHOULD BE TREATED THAT STOCK WAS SOLD ON FIFO METHOD. IN RESPONSE TO THE SAME IT WAS SUBMITTED BY TH E ASSESSEE THAT AVERAGE COST METHOD IS REGULARLY BEING FO LLOWED AND ACCEPTED BY THE DEPARTMENT. THE METHOD OF VALUATION IS A LREADY DISCLOSED TO THE DEPARTMENT IN THE REGULAR RETURNS AND HENCE THE ISSUE IS OUT OF THE PURVIEW OF CHAPTER XIV B. IT WAS FURTH ER CONTENDED THAT BOTH THE OPENING AND CLOSING STOCK SHOULD BE VALUED ON THE SAME LINE AND HENCE EFFECT WILL BE NEGLIGIBLE. 87. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE REFERRED TO THE ORDER IN THE CASE OF M/S. RANKA JEWELLERS, SISTER CONCERN OF THE ASSESSEE WHERE SIMILAR ADDIT IONS WERE MADE. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASS ESSEE THE AO MADE ADDITION OF RS.19,97,934/- BY OBSERVING AS UNDER : 52. THE CONTENTION OF THE ASSESSEE HAS BEEN CONSIDERED B UT FOR THE REASONS DISCUSSED ABOVE AND EXAMPLE GIVEN, THE CONTENTIO N OF THE ASSESSEE IS NOT ACCEPTED. DURING THE COURSE OF SEARCH AT THE B USINESS PREMISES OF RANKA JEWELLERS PVT. LTD. GOLD JEWELLERY WEIGHING 88 627.28 GMS WAS FOUND AND THE TOTAL VALUE SHOWN IN THE BOOKS WAS 4,41,59,4 24/-. THUS THE STOCK WAS VALUED AT RS.4982.59 FOR 10 GMS (44159424/88627.28 ). HOWEVER AS 64 ITA NOS.2188 AND 2189/PN/2012 DISCUSSED ABOVE THE MINIMUM VALUE OF ACQUISITION OF JEW ELLERY AFTER JUNE 2002 WAS RS.5208 PER 10 GMS. THEREFORE, THE VALUE OF THE GOLD JEWELLERY LYING AT THE PREMISES OF THE ASSESSEE SHOULD BE 520.8 X 8 8627.28 = RS.4,61,57,358/-. THUS THE ASSESSEE HAS OVERVALUED THE ST OCK BY RS.19,97,934/- WHICH IS ADDED TO THE UNDISCLOSED INCOM E OF THE BLOCK PERIOD. 88. BEFORE CIT(A) THE ASSESSEE SUBMITTED AS UNDER WHICH H AS BEEN REPRODUCED BY THE CIT(A) AT PARA 14.2 OF HIS ORDER AND W HICH READS AS UNDER : THE ASSESSEE HAS BEEN FOLLOWING THE AVERAGE COST METHOD FOR DETERMINING THE VALUATION OF THE CLOSING STOCK AT THE END OF EACH YEAR IN THE BOOKS. THE AVG. COST IS DETERMINED ON THE BASIS OF PURCHASES MADE D URING THE YEAR AND THE VALUE OF THE OPENING STOCK. THE A. O. HAS APPLIED FIFO METHOD FOR VALUING THE CLOSING STOCK. IT IS SUBMITTED THAT THE ASSE SSEE'S METHOD IS A RECOGNIZED METHOD OF VALUATION OF STOCK AND IT HAS BE EN ACCEPTED IN THE PAST BY THE DEPT. IN THE REGULAR ASSTS. SECONDLY, THIS ADDIT ION AT BEST CAN BE CONSIDERED TO BE BASED ON THE DIFFERENCE OF OPINION W HICH IS NOT JUSTIFIED IN THE BLOCK ASST. THIRDLY, IN THE CASE OF RANKA JEWELLER S, RAVIWAR PETH, SIMILAR METHOD HAS BEEN ADOPTED BY THE ASSESSEE FOR-VALUATION O F STOCK AND IN THE BLOCK ASST. APPEAL, THE LEARNED CIT(A) HAS DELETED THI S ADDITION. [COPY OF THE ORDER IS ON PAGE 318-391]. ACCORDINGLY, THE ADDITION MADE BE DELETED. 89. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER : 43. THE FACTS OF THE CASE WERE DULY CONSIDERED AND IN MY CONSIDERED OPINION, THE ADDITION MADE BY THE ASSESSING OFFICER CAN NOT BE UPHELD AS THE ABOVE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY MY LEARNED PREDECESSOR IN THE CASE OF RANKA JEWELLERS, RAVIWAR PET H, PUNE AS CLAIMED BY THE APPELLANT IN THEIR SUBMISSION QUOTED ABOVE. FUR THERMORE, IT IS NOTED THAT THE AFORESAID FINDING OF THE CIT(A) HAS BEEN UPH ELD BY THE I TAT, PUNE IN ITA NO. 801/PN/2006 BY THE ITAT 'A' BENCH IN THE IR ORDER DATED 6.6.2011. AS IT IS NOT IN DISPUTE THAT THE FACTS AND CI RCUMSTANCES OF THIS ADDITION IS SIMILAR TO THE FACTS AND CIRCUMSTANCES OF TH E ADDITION MADE IN THE CASE OF RANKA JEWELLERS, RAVIWAR PETH, THE AFORESAID D ECISIONS HAS TO BE FOLLOWED. IN VIEW OF THE ABOVE, THIS GROUND OF APPEA L IS TREATED AS ALLOWED. 90. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 91. AFTER HEARING BOTH THE SIDES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). WE FIND ADDITION ON IDENTICAL GROUND WAS MADE IN THE CASE OF SHRI VASTUPAL RANKA, PROPRIETOR OF M/S. RANKA JEWELLERS BY 65 ITA NOS.2188 AND 2189/PN/2012 THE AO WHICH WAS DELETED BY THE CIT(A). ON APPEAL BY THE REVENUE THE TRIBUNAL VIDE ITA NO.1376/PN/2013 ORDER DATED 30-04-201 4 FOR THE BLOCK PERIOD 01-04-1996 TO 24-10-2002 DELETED THE ADDIT ION BY OBSERVING AS UNDER : 4. AFTER HEARING BOTH THE SIDES, WE FIND AN IDENTICA L ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF M/S. RANKA JEWELL ERS VS. ADDL.CIT VIDE ITA NOS. 801, 820 AND 984/PN/2006 ORDER DATED 06-06- 2011 FOR THE BLOCK PERIOD 01-04-1996 TO 24-10-2002. WE FIND THE TRIBU NAL WHILE DECIDING IDENTICAL ISSUE HAS DISMISSED THE APPEAL FILED BY THE RE VENUE BY OBSERVING AS UNDER : 30. GROUND NO.3 THE RELEVANT FACTS ARE THAT THE ASSESSEE FIRM ENGAGED IN JEWELLERY BUSINESS AND FOLLOWING AVERAGE COST METHOD FOR VALUING THE STOCK IN THE BOOKS I.E. IT TAKES AVERAGE OF OPENING STOCK AND P URCHASES DURING THE YEAR AND VALUES THE CLOSING STOCK AT THAT RATE. TH IS METHOD WAS BEING FOLLOWED REGULARLY AND THE SAME WAS BEING ACCEP TED BY THE DEPARTMENT IN THE PAST. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. HELD THAT THE AVERAGE COST METH OD FOLLOWED BY THE ASSESSEE IS NOT CORRECT AND THE ASSESSEE SHOULD HAVE FOL LOWED THE FIFO METHOD FOR VALUING THE STOCK. THE A.O. WAS THUS O F THE VIEW THAT THE CLOSING STOCK SHOULD BE VALUED AS PER THE CLOSING PU RCHASE RATE IN THE MONTH OF MARCH BY ADOPTING THE FIFO METHOD. ACC ORDINGLY HE HELD THAT THERE WAS UNDER VALUE OF STOCK AS PER BOOKS BY RS.22,06,664/-. ACCEPTING THE MAIN SUBMISSION OF THE ASSE SSEE THAT ADDITION IS MADE BEYOND THE SCOPE OF BLOCK ASSESSMENT, TH E LEARNED CIT(A) HAS DELETED THE ADDITION. 31. IN SUPPORT OF THE GROUND THE LEARNED DR HAS PLAC ED RELIANCE ON THE VIEW TAKEN BY THE A.O. AS DISCUSSED ABOVE. THE L EARNED AR ON THE OTHER HAND TRIED TO JUSTIFY THE FIRST APPELLATE O RDER. HE REITERATED THE SUBMISSIONS MADE BEFORE THE FIRST APPELLATE AUTHORIT Y. 32. CONSIDERING THE ABOVE SUBMISSIONS WE FIND THAT THE ADDITION MADE BY THE A.O. WAS OBJECTED BY THE ASSESSEE BEFORE TH E LEARNED CIT(A) WITH THIS CONTENTION, THAT THERE WAS NO INCRIM INATING EVIDENCE FOUND DURING THE COURSE SEARCH RELATING TO ST OCK VALUE. HENCE, THE ADDITION SHOULD NOT HAVE BEEN MADE IN THE BLOCK ASSESSMENT. THE ASSESSEE ALSO CLARIFIED THAT AVERAGE COST ME THOD IS ACCEPTED METHOD OF STOCK VALUE AND IT WAS BEING ACCEP TED BY THE DEPARTMENT IN ASSESSEE'S OWN CASE IN THE PAST. IN SUPPORT O F THE SAME, DECISIONS WERE CITED WHICH HAVE BEEN REPRODUCED BY THE LEARNED CIT(A) AT PAGE NOS. 32 AND 33 OF THE FIRST AP PELLATE ORDER, WHEREIN THE HON'BLE COURTS HAVE ACCEPTED SUCH AVERAGE COST METHOD FOLLOWED BY THE ASSESSEES. CONSIDERING THESE SUBMISSIONS LEAR NED CIT(A), IN OUR VIEW HAS RIGHTLY COME TO THE CONCLUSIO N THAT THERE WAS NO REASON TO REJECT THE METHOD OF VALUATION OF STOCK AND THE ADDITION MADE WAS THUS NOT JUSTIFIED. WE ALSO FIND SUBSTANCE IN T HE OBSERVATIONS OF THE LEARNED CIT(A) ON THE ISSUE THAT U NDISCLOSED INCOME HAS TO BE WORKED OUT ON THE BASIS OF SEIZED PAPE RS AND SINCE IN THE PRESENT CASE NO SUCH INCRIMINATING EVIDENCE WA S FOUND 66 ITA NOS.2188 AND 2189/PN/2012 REGARDING METHOD OF VALUATION OF STOCK AS THE A.O. TR IED TO ADOPT, THE LEARNED CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE ON THIS ACCOUNT. THE FIRST APPELLATE ORDER IN THIS REGARD IS T HUS UPHELD. GROUND NO.3 IS ACCORDINGLY REJECTED. 4.1 RESPECTFULLY FOLLOWING THE DECISION OF THE COORDI NATE BENCH OF THE TRIBUNAL IN THE CASE OF THE SISTER CONCERN UNDER IDENT ICAL CIRCUMSTANCES AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR N OTICE WE FIND NO INFIRMITY IN THE ORDER OF LD.CIT(A) DELETING THE AD DITION. WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE. THE GRO UND RAISED BY THE REVENUE IS THEREFORE DISMISSED. 92. SINCE IDENTICAL GROUND HAS BEEN DECIDED BY THE TRIBUNA L IN THE CASE OF SISTER CONCERN OF THE ASSESSEE WHICH HAS BEEN FO LLOWED BY THE CIT(A) WHILE DELETING THE ADDITION MADE BY THE AO ON THIS IS SUE, THEREFORE, IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE AGAINST THE ORDER OF THE TRIBUNAL IN THE CASE OF THE SISTE R CONCERN OF THE ASSESSEE ON IDENTICAL ISSUES WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) DELETING THE ADDITION. ACCORDINGLY, THE SAME IS UPHE LD AND THE GROUND RAISED BY THE REVENUE ON THIS ISSUE IS DISMISSED. 93. GROUND OF APPEAL NO.6 BY THE REVENUE READS AS UNDER : 6. THE COMMISSIONER OF INCOME-TAX (APPEALS HAS ERRED O N FACTS AND IN LAW IN NOT AGREEING TO THE WORKING OF THE UNDISCLOSED TURNOVER FOR THE F.Y. 2002-03 GIVEN BY THE ASSESSING OFFICER AND THE SPECIAL AUDITOR ON THE BASIS OF THE SEIZED DOCUMENTS AND SUBSTITUTING IT WITH HIS OWN WORKING. 94. AFTER HEARING BOTH THE SIDES, WE FIND THE LD.CIT(A) AT PARA NO.12.3.3 OF HIS ORDER HAS DISCUSSED THE ISSUE WHERE THE A SSESSEE HAS CHALLENGED THE COMPUTATION OF UNACCOUNTED TRANSACTIONS M ADE BY THE AUDITOR AS WELL AS THE AO FOR F.Y. 2002-03 AT RS.12,22,96,618 /-. THE EXPLANATION OF THE ASSESSEE AS WELL AS THE FINDING OF THE LD .CIT(A) AT PARA 12.3.3 OF HIS ORDER HAS ALREADY BEEN REPRODUCED AT PARA 47 OF THIS ORDER. WE FIND THE LD.CIT(A) IN HIS ORDER HAS GIVEN A FINDING THAT THE METHOD ADOPTED BY THE AO AND THE AUDITOR IS FAULTY BECA USE THEY HAVE NOT TAKEN INTO CONSIDERATION THE FLUCTUATION OF BUSINESS NO RMALLY 67 ITA NOS.2188 AND 2189/PN/2012 HAPPENING IN DIFFERENT MONTHS. HE, THEREFORE, ADOPTED HIS OW N FORMULA AND CAME TO THE CONCLUSION THAT SINCE THE ASSESSEE WAS INDULGED IN UNACCOUNTED TRANSACTION, THEREFORE, THE METHOD BECOMES MORE PROXIMATE TO DETERMINE THE PROFIT ON THE BASIS OF THE UNA CCOUNTED PURCHASES WHICH WERE SYSTEMATICALLY RECORDED BY THE AS SESSEE AS AGAINST THE ESTIMATION OF TURNOVER BY THE AO AND THE S PECIAL AUDITOR. THIS REASONED FINDING OF THE CIT(A) IN OUR OPINION DOES NOT C ALL FOR ANY INTERFERENCE. ACCORDINGLY, THE SAME IS UPHELD AND GROUND OF APPEAL NO.6 BY THE REVENUE IS DISMISSED. 95. GROUNDS OF APPEAL NO.7 AND 8 BEING GENERAL IN NATURE ARE DISMISSED. 96. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISS ED AND THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23-09-2016. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE ; DATED :23 RD SEPTEMBER, 2016. & '#)! *! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A ) - I, PUNE 4. 5. 6. THE CIT-I, PUNE $ ''(, (, / DR, ITAT, B PUNE; - / GUARD FILE. / BY ORDER , // TRUE COPY // // $ ' //TRUE /0 ' ( / SR. PRIVATE SECRETARY (, / ITAT, PUNE