AKASH GEMS P LTD., Jaipur V. ACIT, Jaipur

ITA 235/JPR/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 47938 (ITAT-JAIPUR)
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 15-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA
• Assessee Lawyers: O P AGARWAL
• Keywords: Loose papers; Document seized; Valuation report; Documents seized
• Section: 133A; 153A; 132; 2

Judgement Text

1 ITA 235(2)-11 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 235/JP/2011 ASSTT. YEAR : 2008-09. M/S. AKASH GEMS PVT. LTD., VS. THE DCIT, CENTRAL CIRCLE-2, 14, VISHNU PURI, JAGATPURA, JAIPUR. MALVIYA NAGAR, JAIPUR. ITA NO. 432/JP/2011 ASSTT. YEAR : 2008-09. THE DCIT, CENTRAL CIRCLE-2, VS. M/S. AKASH GEMS P VT. LTD., JAIPUR. JAIPUR. (APPELLANTS) (RESPONDENTS) ASSESSEE BY : SHRI O.P. AGARWAL & SHRI MANIS H AGARWAL DEPARTMENT BY : SHRI SUBHASH CHANDRA ORDER DATE OF ORDER : 10/06/2011. PER R.K. GUPTA, J.M. THESE ARE TWO APPEALS BY ASSESSEE AND DEPARTMENT A GAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2008-09. 2. THROUGH GROUND NO. 1, THE ASSESSEE IS OBJECTING IN SUSTAINING ADDITION OF RS. 5,45,50,000/- ON THE ALLEGATION OF EXCESS STOCK STA TED TO BE FOUND DURING THE COURSE OF SEARCH AS PER VALUATION REPORT OF APPROVED VALUER A ND THE DEPARTMENT IN ITS APPEAL IS OBJECTING IN PARTLY REDUCING ADDITION BY RS. 47,27, 500/- OUT OF TOTAL ADDITION MADE BY AO 2 AT RS. 6,83,50,000/- ON ACCOUNT OF EXCESS STOCK FOU ND DURING THE COURSE OF SEARCH OPERATION. 3. SINCE BOTH THESE GROUNDS ARE INTER LINKED, THERE FORE, THEY ARE BEING DISPOSED OFF TOGETHER. 4. THE BRIEF FACTS DISCUSSED BY LD. CIT (A) IN HIS ORDER ARE THAT THE SEARCH U/S 132 OF THE ACT WAS CONDUCTED ON 23-08-2007 ON SEVERAL PREM ISES BELONGING TO THE MEMBERS OF RMC GROUP WHOSE ONE OF THE MEMBERS IS THE ASSESSEE- COMPANY. 4.1. DURING THE COURSE OF SAID SEARCH, INTER ALIA, STOCK WAS FOUND AT THE PREMISES OF THE ASSESSEE-COMPANY. THE VALUATION OF STOCK SO FOUND W AS DONE BY A REGISTERED VALUER AS PER THE FOLLOWING DETAILS - S.NO. LOCATION WHERE STOCK WAS FOUND / PREMISES AMOUNT ( RS. ) 1 14, VISHNUPURI, JAGAT PURA ROAD, JAIPUR 6,67,17,6 62/- 2 14A, VISHNUPURI, JAGAT PURA ROAD, JAIPUR 6,54,800/- 3 696, PANO KA DARIBA, SUBHASH CHOWK, JAIPUR 9,45, 50,000 /- TOTAL 16,19,22,462 /- THE VALUE SO CALCULATED BY THE DEPARTMENT'S VALUER WAS COMPARED WITH THE VALUE DISCLOSED BY THE ASSESSEE-COMPANY IN ITS BOOKS OF A CCOUNT AT RS. 5,14,00,000/WHICH REVEALED THAT THE ASSESSEE-COMPANY HAD HUGE AMOUNT OF STOCK WHICH WAS NOT DISCLOSED IN THE BOOKS OF ASSESSEE TOTALING TO RS. 11,05,22,462/- 4.2. THE ASSESSEE-COMPANY, IN ITS RETURN OF INCOME FOR AY 2008-09 HAD DECLARED AN INCOME AMOUNTING TO RS. 4,21,00,000/- ONLY ON ACCOUNT OF EXCESS STOCK, THE REFORE A LETTER WAS ISSUED BY THE AO DATED 19.01.2009 WHEREIN THE A SSESSEE COMPANY WAS REQUIRED TO EXPLAIN THE FOLLOWING: 3 'IN THE COURSE OF SEARCH AND SURVEY U/S 133A AT DIF FERENT BUSINESS PREMISES THE DETAILS OF STOCK FOUND IS AS UNDER:- A. 14, VISHNUPURI, JAGATPURA ROAD, JAIPUR RS. 66717662/- B. 14A, VISHNUPURI, JAGAT PURA ROAD, JAIPUR RS. 654800/- C. 696, PANO KA DARIBA, SUBHASH CHOWK, JAIPUR RS. 94550000/- D. 942, MIRBASKSHI KI GALI, SUBHASH CHOWK, JAIPUR RS. 11973852/- E. SHOP NO. 104, FIRST FLOOR, CITY PULSE, NS CIRCLE, JAIPUR RS. 256230/- QUERY PLEASE EXPLAIN THE POSITION OF STOCK AVAILABLE IN D IFFERENT BUSINESS UNITS RUN FROM THE ABOVE PLACES AS PER RESPECTIVE BOOKS OF ACCOUNT ON THE DATE OF SEARCH. IT WAS FOUND THAT IN MOST OF THE CASES BOOKS OF ACCOUNT WERE NOT WRIT TEN UP TO DATE OF SEARCH. EVIDENCES REGARDING TRANSACTIONS OF EARLIER DATES WRITTEN AFT ERWARDS I.E. THE DATE OF SEARCH BE PRODUCED FOR VERIFICATION. IN CASE OF DISCREPANCY IN VALUE OF STOCK PHYSICALLY FOUND AND AS PER BOOKS OF ACCOUNTS SURRENDER OF AMOUNT, IF ANY, MADE BE EXPLAINED AND FURNISHED WITH THE WORKING TO DERIVE THE VALUE OF UNEXPLAINED STOCK. VALUATION OF STACK AT RS. 9,45,50,000/- FOUND FROM 696, PANA KA OARIBA, 5UBHASH CHOWK, JAIPUR WAS NOT ACCEPTED. REFER TO YOUR REPLY OF QUESTION NO. 6 OF STATEMENT OF SH. CHAMPALAL CHOUDHARY RECORDED ON 27-08-2007 AT 14, VISHNUPURI, LAGATPURA, LAIPUR. /T WAS CLAIMED THAT STOCK FOUND FROM ABOVE PREMISES WAS OLD STOCK AND IT SHOU LD BE VALUED AT RS. 4 CRORE. PLEASE EXPLAIN HOW THE VALUATION IS NOT CORR ECT AND EXPLAIN WITH EVIDENCES WHEN THE IMOUGNED STOCK WAS PURCHASE D AND HOW ITS VALUE HAS BEEN DETERMINED AT RS. 4 CRORE? IN CASE OF YOUR FAILURE TO SUBSTANTIATE YOUR CONTENTION WHY NOT THE VALUE OF STOCK SHOULD BE TAK EN AT RS. 94550000/-?' 4.3. THE AO CONSIDERED THE REPLY OF THE SUBMISSION OF THE APPELLANT AND OBSERVED AS BELOW:- 4.4. IN RESPECT OF VALUATION OF STOCK A) THE VALUATION OF THE STOCK AT 696, PANO KA DARIB A, JAIPUR WAS DONE ON 23.8.07 BY A REGISTERED VALUER AND THE SAID STOCK WAS VALUED A T RS. 9,45,50,000/-. THE REPORT OF THE REGISTERED VALUER, BEING AN EXPERT AT VALUING SUCH STOCK, IS AN AUTHENTIC RECORD AND 4 EVIDENCE OF SUCH A VALUATION. THIS BEING THE CASE, THE VALUE OF THE STOCK IS TAKEN TO BE RS. 9,45,50,000/- AND NOT RS. 4,00,00,000/-. B) IT HAS BEEN CLAIMED BY THE ASSESSEE COMPANY THAT THE I.T. DEPTT. HAD CONSIDERED AND ACCEPTED THE VALUATION OF STOCK AT 696, PANO KA DARIBA, SUBHASH CHOWK, JAIPUR AT RS.4,00,00,000/- INSTEAD OF RS.9,45,50,000/- AS VAL UED ON 23.08.07 VIDE ANNEXURE B(PAGE NO.1) OF EVEN DATE. HOWEVER, THE ASSESSEE COMPANY H AD FAILED TO FURNISH ANY DOCUMENTARY EVIDENCE IN RESPECT OF SUCH AN ACCEPTAN CE OF VALUE AT RS. 4,00,00,000/-. C) FURTHER IN SUPPORT OF ITS CLAIM OF VALUE OF STOC K AT RS. 4,00,00,000/- THE ASSESSEE COMPANY HAS NOT FURNISHED EVEN A SINGLE DOCUMENTARY EVIDENCE WHICH CAN ESTABLISH THE FACT THE VALUE OF THE SAID STOCK WAS RS. 4 CRORE AND NOT RS. 9,45,50,000/- IN ABSENCE OF DOCUMENTARY EVIDENCE TO THAT EFFECT, THE CLAIM OF T HE ASSESSEE COMPANY IS BASED MERELY ON THE WISHFUL THINKING AND CONJECTURE. D) IT IS PERTINENT TO MENTION HERE THAT THE VALUATI ON OF STOCK WAS DONE IN THE PRESENCE OF PANCHAS AND NONE OF THE PANCHAS HAS REPORTED THA T THERE WERE DISCREPANCIES IN THE VALUATION PROCESS. IT ONLY GOES ON TO ESTABLISH THA T THE ASSESSEE IS TRYING TO RAISE AN ISSUE ON WHICH IT COULD NOT EVEN AT THE TIME OF SEARCH AN D LATER ON DURING THE COURSE OF ASSESSMENT PROCEEDINGS, PRODUCE ANY DOCUMENTARY EVI DENCE IN ITS SUPPORT. E) IT IS PERTINENT TO MENTION HERE THAT IN RESPECT OF VALUATION OF STOCK FOUND AT 14, VISHNUPURI, JAGAT PURA ROAD, JAIPUR, THE ASSESSEE C OMPANY HAD OBJECTED TO VALUATION OF CERTAIN ITEMS OF STOCK AT RS. 82,50,000/- (ITEM NO. 126 OF ANNEXURE IS DATED 23. 08.07 AND THE SAME WERE GOT REVALUED BY THE DEPARTMENT BY A R EGISTERED VALUER AT A VALUE OF RS. 5 79,27,000/- (ITEM 1 TO 4 OF ANNEXURE S DATED 17.8.0 7). IF ONE CONSIDERS THE PERCENT ERROR IN THIS VALUATION, IT COMES TO MERELY 3.6% WHEREAS IN THE CASE OF STOCK VALUED AT 696, PANO KA DARIBA, SUBHASH CHOWK, JAIPUR, AS PER THE A LLEGATION OF THE ASSESSEE, THE ERROR COMES TO 57.7% WHICH IS EXTREMELY UNLIKELY. THIS AL SO ESTABLISHED THE FACT THAT THE CLAIM OF THE ASSESSEE THAT THE VALUE OF ITS STOCK LYING A T THE SAID PREMISES IS RS. 4 CRORE AND NOT RS. 9,45,50,000/- IS COMPLETELY FALSE. F) AS FAR AS OFFER OF THE ASSESSEE COMPANY THAT THE STOCK IS STILL LYING UNTOUCHED AT THE SAME PREMISES AND THE SAME COULD BE VALUED AT T HIS STAGE IS PURELY AN ACADEMIC EXERCISE AND A SELF SERVING STATEMENT WITH NO LEGAL CONSEQUENCES. G) IN RESPECT OF THE STOCK LYING AT THE IMPUGNED AD DRESS, THE ASSESSEE COMPANY HAS NOT BEEN ABLE TO FURNISH DETAILS AS TO WHEN THE SAI D STOCK WAS BROUGHT, HOW MUCH WAS CONSUMED AND HOW COMES SO MUCH OF STOCK WAS FOUND A T THE SAID PREMISES. IF IT CLAIMS THAT THE SAID STOCK WAS OLD, THEN IT SHOULD HAVE ES TABLISHED AND DETAILED RECONCILIATION AS TO HOW IT MOVED IN ITS STOCK REGISTER OVER THE YEAR S, IN OTHER WORDS, AS PER THE DETAILS FURNISHED BY THE ASSESSEE COMPANY, THE STOCK OF 855 0 KG. OF AMETHYST FOUND AT THE SAID ADDRESS WAS NEVER PART OF THE DECLARED STOCK. SIMIL AR IS THE STATUS WITH OTHER ITEM OF STOCK FOUND AT THE SAID ADDRESS, 696, PANO KA DARIBA, SUB HASH CHOWK, JAIPUR. H) IN SUPPORT OF ITS CONTENTION THAT THE ASSESSEE C OMPANY HAD BOUGHT THIS STOCK LONG BACK, ALL THAT THE ASSESSEE COMPANY HAS FURNISHED A RE BILLS OF PURCHASE OF STOCK FROM ITS SISTER CONCERN M/S RATNAWALI GEMS IN RESPECT OF WHI CH NEITHER THE PURCHASE NOR THE PAYMENT COULD BE VERIFIED. 6 HENCE THE CONTENTION OF THE ASSESSEE COMPANY IN RES PECT OF THE VALUATION ITS STOCK ARE REJECTED AND THE VALUE OF STOCK AS PER VALUATION DO NE BY THE REGISTERED VALUER IS TAKEN AT RS. 9,45,50,000/-. THEREFORE AN ADDITION OF RS. 5,45,50,000/- I.E. ( RS. 9,45,50,000/- - RS. 4,00,00,000/-) IS MADE TO THE TOTAL INCOME OF ASSES SEE COMPANY. 4.5. IN RESPECT OF PROFIT ELEMENT CLAIMED. A) THE CLAIM OF THE ASSESSEE THAT STOCK WAS VALUED AT MARKET PRICE AT THE TIME OF VALUATION DURING THE COURSE OF SEARCH ON 23.8.07 AN D THEREFORE THE SURRENDER OF RS. 5.59 CRORE ON ACCOUNT OF EXCESS STOCK INCLUDES AN ELEMEN T OF PROFIT OF RS. 1.38 CRORE AND THEREFORE A DECLARATION OF RS. 4.21 CRORE HAS BEEN MADE IN ITS RETURN OF INCOME F OR A.Y. 2008-09 IS BLATANTLY WRONG SINCE SH. CHAMPA LAL CHO UDHARY, THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY IN HIS REPLY TO QUESTION 7 HAD CATEGORICALLY ACCEPTED COST VALUE OF STOCK FOUND AT THE VARIOUS PREMISES OF THE ASSESSEE COMPANY. ACCORDING TO HIS REPLY, THE VALUE OF STOCK WAS TAKEN ON THE BASIS OF ITS COST A ND NOT THE MARKET PRICE. B) NOWHERE IN THEIR STATEMENT(S) SHRI CHAMPA LAL CH OUDHARY OR ANY OTHER EMPLOYEE OF THE ASSESSEE COMPANY HAS CLAIMED OR STATED THAT THE VALUE OF STOCK WAS CALCULATED BY THE REGISTERED VALUER ON THE BASIS OF MARKET PRICE AND NOT ON THE BASIS OF COST. C) SHRI CHAMPA LAL CHOUDHARY AND OTHERS HAVE UNAMBI GUOUSLY ACCEPTED THE VALUATION OF THE STOCK DONE BY THE REGISTERED VALUE R BY APPENDING THEIR SIGNATURE TO THEIR ACCEPTANCE OF THE SAID VALUATION. NOWHERE HAS IT BE EN MENTIONED THAT VALUATION WAS DONE BY TAKING MARKET PRICE AS THE BASIS AND NOT THE COS T PRICE. HENCE THE CLAIM OF THE ASSESSEE COMPANY THAT THE ST OCK WAS VALUED AT MARKET PRICE AND THEREFORE INVOLVE AN ELEMENT OF PROFIT IS REJECTED AND CONSEQUENTLY AN ADDITION OF RS. 7 1,38,00,000/- IS MADE TO THE TOTAL INCOME OF THE AS SESSEE COMPANY. 4.6. AFTER CONSIDERING THE REPLY FILED BY THE ASSES SEE THE AO FOUND THE SAME UNTENABLE FOR REASONS THAT, THE VALUATION OF THE STOCK AT 696 , PANO KA DARIBA, SUBHASH CHOWK, JAIPUR WAS DONE ON 23-08-2007 BY A REGISTERED VALUE R AND THE SAID STOCK WAS VALUED AT RS. 9,45,50,000. THE REPORT OF THE REGISTERED VALUE R, BEING AN EXPERT AT VALUING SUCH STOCK, IS AN AUTHENTIC RECORD AND EVIDENCE OF SUCH A VALUATION. THUS THE AO HAS TAKEN THE VALUE OF THE STOCK AT RS. 9,45,50,000/- AND NOT RS. 4,00,00,000/-. 4.7. FURTHER THE AO OBSERVED THAT THE CLAIM OF THE ASSESSEE REGARDING THE VALUATION OF STOCK AT MARKET PRICE IS BLATANTLY WRONG SINCE SH.C HAMPA LAL CHAUDHARY, THE MANAGING DIRECTOR OF THE ASSESSEE-COMPANY IN HIS REPLY TO Q. 7 HAD CATEGORICALLY ACCEPTED COST VALUE OF STOCK FOUND AT THE VARIOUS PREMISES OF TH E ASSESSEE COMPANY AND THEREFORE THE AO REJECTED THE CLAIM OF ASSESSEE COMPANY REGARDING THE VALUATION OF STOCK AT MARKET PRICE AND CONSEQUENTLY MADE THE ADDITION OF RS. 13800000 TO THE TOTAL INCOME. 5. DETAILED WRITTEN SUBMISSIONS WERE FILED BEFORE L D. CIT (A) WHICH HAS BEEN REPRODUCED IN THE ORDER OF LD. CIT (A) ARE AS UNDER : 5.1. BRIEFLY STATED THE FACTS GIVING RISE TO THE AS SESSMENT U/S 153A AND THE CONSEQUENT ADDITIONS MADE ON ACCOUNT OF ALLEGED EXCESS STOCK A RE THAT A SEARCH U/S 132 WAS CONDUCTED AT THE OFFICE AND THE RESIDENTIAL PREMISE S OF THE ASSESSEE ON 23.08.2007. SIMULTANEOUSLY SURVEY U/S 133A WERE ALSO CONDUCTED. THE TOTAL STOCKS AS INVENTORIZED DURING THE COURSE OF SEARCH AND THE SURVEYS AS COND UCTED WERE STATED TO BE AS BELOW: S.NO. PLACE AMOUNT 1. 14, VISHNUPURI, JAGATPURA ROAD, JAIPUR 6,67,17,662.00 2. 14-A, VISHNUPURI, JAGATPURA ROAD, JAIPUR 6,54,800.00 3. 696, PANO KA DARIBA, SUBHASH CHOWK, JAIPUR 9,45,50,000.00 4. 942, MISHRAJI KI GALI, SUBHASH CHOWK, JAIPUR 1,19,73,852.00 8 5. 104, FIRST FLOOR, CITY PULSE, N.S. CIRCLE, JAIPUR 2,56,230.00 17,41,52,544.00 SINCE THE STOCKS AT S. NO. 1, 2 AND 3 ONLY BELONG T O THE ASSESSEE (M/S AKASH GEMS PVT. LTD.) AND AT S. NO. 4 & 5 SINCE BELONGED TO M/S CAR VE CREATIONS PVT. LTD., THE ASSESSEE OBJECTED TO THE NOTICE OF THE LD. AO AND REQUESTED FOR THE CONSIDERATION OF STOCK AT S. NO. 1, 2 & 3 ONLY IN THE CASE OF ASSESSEE. 5.2. DURING THE COURSE OF SEARCH PROCEEDINGS LOOSE PAPERS / DOCUMENTS AND BOOKS OF ACCOUNTS OF ASSESSEE COMPANY AND OTHER GROUP CONCER NS WERE ALSO SEIZED AND THE STATEMENTS OF VARIOUS OTHER PERSONS INCLUDING DIREC TORS, THEIR RELATIVES AND EMPLOYEES WERE ALSO RECORDED. A REQUEST FOR THE SUPPLY OF THE COPY OF THE SAME WAS MADE TO THE ADIT III, JAIPUR ON 17.10.2007 IN RESPONSE TO WHI CH COPIES OF CERTAIN DOCUMENTS / LOOSE PAPERS WERE SUPPLIED TO THE ASSESSEE BY THE A DIT AND THE ASSESSEE WAS DIRECTED TO OBTAIN THE REMAINING COPIES OF THE SEIZED DOCUMENTS AND THE STATEMENTS FROM THE CONCERNED ASSESSING AUTHORITY WITH WHOM THE CASES O F THE ASSESSEE GROUP WERE CENTRALIZED. THUS THE ASSESSEE VIDE LETTER DATED 07 .02.08 HAD MADE A REQUEST FOR THE SUPPLY OF THE REMAINING DOCUMENTS / STATEMENTS TO T HE ASSESSING AUTHORITY I.E. THE ACIT, CENTRAL CIRCLE 2, JAIPUR WHICH REQUEST WAS FOLLOW ED BY THE REMINDERS: S.NO. DATE OF REMINDER 1. 11.03.2008 2. 23.05.2008 3. 06.08.2008 4 27.01.2009 AFTER THE VIGOROUS FOLLOW UP AND REPEATED REQUEST I N PERSON THE COPIES OF THE SEIZED MATERIAL AND STATEMENTS RECORDED DURING THE SURVEY PROCEEDINGS WERE SUPPLIED IN FEBRUARY, 2009 , I.E. NEARLY AFTER 21 MONTHS OF THE DATE OF SEARCH AND THIS INORDINATE DELAY AS HAD OCCURRED APPEARS TO BE DELIBERATE WITH THE I NTENTIONS TO DEPRIVE THE POOR AND 9 HELPLESS ASSESSEE TO TAKE CORRECTIVE MEASURES WITH REFERENCE TO ITS BOOKS OF ACCOUNTS AND ALSO TO TAKE THE ISSUE AS GRIEVANCE BEFORE HIGHER A UTHORITIES. 5.3. AFTER RECEIVING COPIES OF SEIZED PAPERS ASSESS EE MADE RECONCILIATION OF THE AVAILABLE STOCK AS PER THE BOOKS OF ACCOUNTS AND AS PHYSICALLY QUANTIFIED BY THE DEPARTMENT DURING THE COURSE OF SEARCH AND ULTIMATE LY OFFERED A SUM OF RS. 4.21 CRORES ON ACCOUNT OF EXCESS STOCK IN ITS RETURN OF INCOME ON THE UNDERSTANDING OF THE FACTS AS SUBMITTED HERE ABOVE. 5.4. AS ALREADY SUBMITTED DURING THE COURSE OF SEAR CH THE STATEMENTS OF THE DIRECTORS OF THE ASSESSEE COMPANY WERE RECORDED U/S 132(4) WHERE IN THEY CATEGORICALLY DISPUTED THE MODE AND MANNER OF QUANTIFICATION AND ALSO THE VALU ATION OF STOCK WITH SPECIAL REFERENCE TO THE VALUATION OF STOCK AT 696, PANO KA DARIBA, S UBHASH CHOWK, JAIPUR WHICH WAS VALUED AT RS. 9,45,50,000/- . THE RELEVANT COPIES O F THE STATEMENTS OF SHRI CHAMPA LAL CHOUDHARY HAVE ALREADY BEEN SUBMITTED AND THE STATE MENT OF OTHER TWO DIRECTORS NAMELY SHRI SUNIL KUMAR AGARWAL AND VIKAS CHOUDHARY ARE EN CLOSED HEREWITH FOR YOUR READY REFERENCE AND RECORD. THE RELEVANT QUESTIONS AND AN SWERS ARE REPRODUCED HERE BELOW: STATEMENT OF SHRI SUNIL KUMAR AGARWAL RECORDED ON 2 7.08.2007 (U/S 132(4) IZ'U% 4 RYKKH DH DK;ZOKGH DS NKSJKU VKIDH COMPANY DS STOCK DK TKS HKKSFRD LR;KIU GQVK GS] ML FO'K; ESA VKIDK D;K DGUK GS \ MKJ% GEKJH COMPANY DS FOFHKUU BUSINESS PREMISES IJ TKS STOCK VALUATION GQVK] ML IJ GEKJH DQN VKIFRR;K FKH TKS JH PEIKYKY PKS/KJH US I ZDV DJ NH GSAA GEKJK HKKSFRD LR;KIU DS VK/KKJ IJ STOCK RS. 10.73 CRORE GKSUK PKFG,] JH PEIKYKY PKS/KJH US VKT FN;S C;KUKSA ESA BL FO'K; IJ VIUS FOLRRS.R C;KU FN; S GSA FTL IJ ESA IWJH RJG LGER GWWA STATEMENT OF SHRI VIKAS CHOUDHARY RECORDED ON 27.08 .2007 (U/S 132(4) IZ'U% 3 FNUKAD 23@24 VXLR] 2007 RFKK VKT FNUKAD 27@ 08@2007 DKS RYKKH DH DK;ZOKGH DS NKSJKU VKIDH BUSINESS CONCERN DK AUTHORIZED VALUER }KJK VKIDK STOCK VALUE FD;K X;K GS BLDS FO'K; ESA VKIDK D;K DGUK GS\ 10 MKJ% ESAUS] ESJS FIRKTH US RFKK VU; DIRECTORS US BL VALUATION DH WORKING DKS HKYHHKKAFR NS[K FY;K GS ,OA BL LANHKZ ESA ESJS FIRKTH JH PEIKY KY PKS/KJH US FOLRRS.R C;KU HKH FN;S GSA FTLESA MUGKSAUS TGKA TGKA STOCK VALUATION DS CKJS ESA VKIFRR FKH BLDS CKJS ESA HKH MUGKSAUSA FOLRRS.R C;KU NS FN;S GSAA GEKJK ;G EKUUK GS FD GEKJS TOTAL STOCK DK VALUE RS. 10.73 DJKSM+ EKUK TKUK PKFG, FTLDS VK/KKJ IJ GEKJK V?KKSF 'KR STOCK YXHKX RS. 5.59 DJKSM+ VKRK GS BL V?KKSF'KR STOCK DKS RFKK VU; VK; DKS JH PEIKYKY PKS/KJH US VIUS C;KUKSA ESA LOHDKJ DJ PQDS GSAA ESA BU C;KUKSA LS IWJH RJG LGER GWWA STATEMENT OF SHRI CHAMPA LAL CHOUDHARY RECORDED ON 25.08.2007 (U/S 132(4) IZ'U%38 VKIDH RYKKH DH DK;ZOKGH DS CKJSA ESA VKI D QN DGUK PKGRS GSA \ MKJ% ESA ES- FKOK VKVZ~L DKS TKURK GWW] EQ>S ,SLK KKR GS FD ESA BLESA 8&10 O'KZ IWOZ IKVZUJ FKKA RYKKH DH DK;ZOKGH DS NKSJKU TKS LVKWD ;GKA 14 ] FO'.KQIQJH] TXRIQJK JKSM+] T;IQJ DK EWY;KADU GQVK GS MLDKS ESA IQU% TKAP D:AXK ,OA T KS CKDH LVKWD CPK GS MLDK EWY;KADU CKN ESA DJKAXKA PWAFD ESA EWY;KADU LS LGE R UGHA GWW ESJS XKSNKE 696] IKUKSA DK NJHCK] T;IQJ DS LVKWD DS EWY;KADU LS ESA LGER UGHA GWWA MLDH HKH IQU% TKAP DJUK PKGWAXKA IT IS FURTHER SUBMITTED THAT THE ASSESSEE COMPANY W AS INCORPORATED ON 19.02.2004 AND HAD ACQUIRED THE RUNNING BUSINESS CONCERNS NAMELY M/S A KASH GEMS AND M/S VASUNDHARA GEMS AND THE STOCK AVAILABLE WITH THESE CONCERNS ST OOD VESTED TO THE ASSESSEE, WHICH WERE DULY RECORDED IN STOCK REGISTER MAINTAINED BY THE ASSESSEE AS WELL IN THE STOCK REGISTERS OF RESPECTIVE TAKEN OVER ENTITIES BEFORE ACQUISITION AND ALL THESE RECORDS WERE AVAILABLE AT THE BUSINESS PREMISES OF THE ASSESSEE AT THE TIME OF SEARCH OUT OF WHICH THE STOCK REGISTER OF THE APPELLANT FOR THE PERIOD FROM 01.04.07 TO 22.08.07 WAS SEIZED IN TERMS OF ANNEXURE A-1 SL. NO. 1 3, COPY OF ANNEXU RE ENCLOSED. THIS WOULD ALSO BE RELEVANT TO NOTE THAT IN THE ASSESSMENTS OF THE TAK EN OVER CONCERNS NAMELY M/S AKASH GEMS AND M/S VASUNDHARA GEMS AS WELL AS IN THE ASSE SSMENT OF ASSESSEE COMPANY THESE VALUATIONS OF THE STOCK ALONGWITH THE SALE AND PURC HASE VOUCHERS NO DOUBTFUL EXPRESS BY THEIR ASSESSING AUTHORITIES. 11 5.5. THE STOCK AS PURCHASED BY THE ERSTWHILE FIRMS M/S AKASH GEMS AND M/S VASUNDHARA GEMS WHICH WERE TAKEN OVER BY THE ASSESS EE WAS DULY INCORPORATED IN THE STOCK REGISTERS SEIZED AND WITH REGARD TO THEIR ACT UAL COST, WE HAVE ALREADY SUBMITTED THE NECESSARY BILLS, ACCORDING TO WHICH THE COST HAS BE EN WORKED OUT AT RS. 11,24,150/-. HOWEVER, TO PURCHASE THE PEACE THE TOTAL EXCESS STO CK OF RS. 4.21 CRORES WAS OFFERED AS ADDITIONAL INCOME IN THE RETURN OF INCOME FILED U/S 153A OF THE INCOME TAX ACT, 1961. 5.6. IT IS FURTHER SUBMITTED THAT THE DEPARTMENTAL VALUER HAD VALUED THE STOCK AVAILABLE AT 696, PANO KA DARIBA, JAIPUR AT RS. 9,45,50,000/- BY TAKING THE VALUE OF GOODS (PER KG.) AS UNDER: 1. AMETHYST RS. 8000/- PER KG. [8550 KG. - RS. 68400000/-] 2. ROSE QUARTZ RS. 6000/- PER KG. [250 KG. - RS. 1500000/-] 3. CITRINE RS. 5000/- PER KG. [600 KG. - RS. 3000000/-] 4. ROTILE RS. 7000/- PER KG. [100 KG. - RS. 700000/-] 5. TOURMALINE RS. 11000/- PER KG. [1050 KG. - RS. 11550000/-] 6. PERIDOT RS. 12000/- PER KG. [200 KG. - RS. 2400000/-] 7. GARNET RS. 15000/- PER KG. [50 KG. RS. 750000/-] 8. AQUAMARINE RS. 9000/- PER KG. [650 KG. - RS. 58,50,000/-] AS AGAINST THE AVERAGE VALUE AS STATED ABOVE, WE AR E ENCLOSING HEREWITH A CHART CONTAINING THE AVERAGE PURCHASE AND SALE PRICE FOR THE YEARS STARTING FROM 1996-97 TO 2007-08 WITH RESPECT TO M/S AKASH GEMS, M/S VASUNDH ARA GEMS (TAKEN OVER ENTITIES) AND THE ASSESSEE M/S AKASH GEMS PVT. LTD. ALONGWITH THE COPIES OF RESPECTIVE PURCHASES AND SALES BILLS. FROM THE PERUSAL OF THESE DETAILS IT WOULD BE EVIDENT THAT THE ASSESSEE OR ITS PREDECESSOR ENTITIES NEVER DEALT IN THE ITEMS O F SUCH A HIGH VALUE EXCEPTING IN THE CASE OF A SPECIAL TRANSACTION OF TOURMALINE WHERE ERST WHILE M/S VASUNDHARA GEMS IN RELATIONS TO A.Y. 2003-04 MADE AN IMPORT FROM FOREI GN COUNTRIES AND THE SAME WERE SOLD AT HIGHER PRICE AND NO STOCK WAS LEFT. (QUANTITATIV E STATEMENTS OF PURCHASE AND SALE OF SUCH IMPORTED MATERIAL ENCLOSED). SINCE THE ASSESSE E IS A MANUFACTURER AND HAD PURCHASED 12 'ROUGH' WHICH IS SOLD AFTER ITS SORTING, CUTTING AN D POLISHING AND THE STOCK FOUND AT 696, PANO KA DARIBA BEING THE RAW MATERIAL WHICH THE ASS ESSEE COULD NEVER PURCHASE AT A VALUE ARRIVED AT BY THE DEPARTMENTAL VALUER. 5.7. FURTHER THE LD. AO HAS OBSERVED IN PARA 'D' AT PAGE 6 OF THE ORDER THAT THE STOCK WAS VALUED IN PRESENCE OF PANCHAS( IAP X.K ) AND NONE OF THEM HAD OBSERVED ANY SUCH DISCREPANCY. IN THIS REGARD IT IS SUBMITTED THAT TH E PANCHAS ARE NOT JEWELLERY EXPERTS TO KNOW SUCH VALUATION DIFFERENCES AND MAKING SUCH OBS ERVATIONS BY THE LD. AO IS NOTHING BUT AN ATTEMPT TO DIVERT THE ATTENTION OF THE READE R FROM THE BASIC ISSUE OF SERIOUS DISCREPANCIES IN THE VALUATIONS. GOING THROUGH THE STATEMENT OF THE DIRECTORS OF THE ASSESSEE COMPANY RECORDED DURING THE COURSE OF SEAR CH U/S 132(4) AND SUBSEQUENT PROCEEDINGS IT WOULD COME TO SURFACE THAT THE OBJEC TION TO THE VALUATION WAS DONE AT EVERY POSSIBLE OCCASION AND THE DEPARTMENT HAD WITH THE INTENTIONS TO PREVENT THE ASSESSEE FROM GETTING JUSTICE HAD NEVER PROCEEDED T O REDRESS THE GRIEVANCES. THE STATEMENTS RECORDED BY SHRI SALMAN KHAN, DDIT (INV. ) II, JAIPUR ON 27.08.2007 U/S 132(4) WHEREIN THE VALUATION OF THE STOCK AVAILABLE AT 696, PANO KA DARIBA, JAIPUR STATED BY SHRI CHAMPA LAL CHOUDHARY AT RS. 4.00 CRORES CAR RIES A FINAL ASSERTION BY THE DIRECTOR OF THE COMPANY SHRI CHAMPA LAL CHOUDHARY AND THE DE PARTMENT PROCEEDED NO FURTHER IN THE MATTER WHICH IS A CONCLUSIVE PROOF THAT SUCH A VALUATION WAS ACCEPTABLE TO THE DEPARTMENT. 5.8. LD. AO HAS FURTHER TRIED TO SLIP OUT OF THE ON US CASTED UPON HIM WHEN ASSESSEE HAS SUBMITTED THE COMPLETE RECONCILIATION OF THE ST OCK AVAILABLE AS PER BOOKS AND QUANTIFIED BY THE SEARCH PARTY WITH THE HELP OF THE STOCK RECORDS AND SUBMITS THE NECESSARY BILLS. IF THE RECONCILIATION OF STOCK WAS EXAMINED BY THE LD. AO IN PROPER 13 MANNER, HE WOULD NOT MAKE REMARKS LIKE MADE IN PARA G AT PAGE 7 OF THE ORDER THAT . IN OTHER WORDS AS PER THE DETAILS FURNISHED BY THE ASSESSEE COMPANY, THE STOCK OF 8550 KG. OF AMETHYST FOUND AT SAID ADDRESS WAS NEVE R PART OF ITS DECLARED STOCK SIMILAR IS THE STATUS OF OTHER ITEM OF STORE FOUND AT THE SAID ADDRESS 696, PANO KA DARIBA, SUBHASH CHOWK, JAIPUR. THE AFORESAID OBSERVATIONS ARE PATENTLY WRONG AS DU RING THE COURSE OF ASSESSMENT PROCEEDINGS AS PER THE RECONCILIATION STATEMENT SUB MITTED THE ENTIRE STOCK FOUND AT 696, PANO KA DARIBA, SUBHASH CHOWK, JAIPUR STOOD AVAILAB LE WITH ASSESSEE AS PER STOCK RECORDS IN PARTICULAR THE STOCK OF AMETHYST WAS OF 8600 KG. AS PER ASSESSEES STOCK RECORDS AS AGAINST WHICH 8550 KG. WERE FOUND AT THE SAID ADDRESS, THUS SUCH OBSERVATIONS DESERVES NO CREDENCE. 5.9. TO SUMMARIZE THE CONTENTIONS, IT IS SUBMITTED THAT THE VALUATION OF THE STOCK WAS CHALLENGED ON THE GROUNDS THAT THE VALUATION DONE W ERE UNREALISTIC, MERE APPROXIMATIONS AND WHEN THE VALUATION WAS CHALLENGED DURING THE SE ARCH ITSELF THE DEPARTMENT PROCEEDED TO PUT CORRECTIONS TO THE VALUATION THOUGH NOT IN E NTIRETY. THE ASSESSEE ALSO BROUGHT TO THE NOTICE OF THE HIGHER AUTHORITIES OF THE SEARCH WING ABOUT THE ARBITRARINESS, HIGH HANDEDNESS AND GROSS IN-JUSTICE INFLICTED UPON THE APPELLANT TO OBTAIN SURRENDER OF INCOME WHICH HAS BECOME THE FASHION OF THE DAY IN THE SEAR CH WING OPERATIONS. 5.10. IT IS SUBMITTED WITH PAIN THAT THE LD. AO HAS MISERABLY FAILED TO APPRECIATE THE CONTENTIONS OF THE APPELLANT BY IGNORING THE FACT T HAT: 14 1. THAT THE ASSESSEE MAINTAINED REGULAR BOOKS OF AC COUNTS WHICH WERE SUBJECTED TO AUDIT U/S 44AB AND THE RETURNS OF INCOME WERE COMPANIED B Y STOCK DETAILS, NO DISCREPANCY WHEREIN HAD EVER BEEN FOUND. 2. SEARCH WAS CONDUCTED ON 23.08.07 IN THE MORNING AND WAS CONCLUDED ON THE NEXT DAY I.E. 24.08.07 IN THE EVENING, THEREBY MEANING THAT APPROXIMATELY 1 WORKING DAY WAS USED TO ANALYZE THE WHOLE THING INCLUDING CASH, STA TEMENTS, STOCK, JEWELLERY AND IMPOUNDING OF PAPERS ETC. 3. THAT QUANTIFICATION AND VALUATION OF STOCK BEING ONE OF THE BASIC FUNCTION DURING SEARCH AND IN THE CASE IN HAND THIS ENTIRE EXERCISE WAS UNDERTAKEN BY A SINGLE VALUER WHO CANNOT BE PRESENT AT VARIOUS PLACES WHERE THE G OODS WAS STATED TO HAVE BEEN FOUND AND QUANTIFIED AS WITHOUT PHYSICALLY INSPECTI NG EACH AND EVERY ITEM IT IS PRACTICALLY NOT POSSIBLE TO VALUE THE SAME MORE PAR TICULARLY WHEN THE STOCK IS OF THE PRECIOUS AND SEMI PRECIOUS STONES IN NATURE AND WAS VALUED AT A FIGURE OF RS. 16,17,22,462/- BY ONE SINGLE VALUER WHEREIN THE STO CK VALUED BY HIM WAS APPROXIMATELY 96085 KGS. WHICH VALUATION DONE IN A SHORT SPAN OF TIME IS HUMANLY NOT POSSIBLE. 4. THE VALUATION AS DONE BY THE VALUER WAS AT THAT VERY POINT OF TIME WAS NOT ACCEPTED BY THE ASSESSEE WHICH IS CRYSTAL CLEAR FROM HIS STA TEMENTS RECORDED ON 27.08.07 I.E. AFTER THE DATE OF SEARCH WHEREIN IN ANSWER TO Q. NO . 4 HE CATEGORICALLY SAYS THAT HE DISPUTED THE VALUATION DONE ON THE DATE OF SEARCH. 5. THE STOCK SO VALUED BY ONE SINGLE VALUER WAS PLA CED AT THREE DIFFERENT PLACES, ADDRESSES OF WHICH ARE AS BELOW: A) 14, VISHNUPURI, JAGATPURA ROAD, JAIPUR B) 14-A, VISHNUPURI, JAGATPURA ROAD, JAIPUR 15 C) 696, PANO KA DARIBA, SUBHASH CHOWK, JAIPUR THE DEPARTMENTAL VALUER CANNOT BE SO COMPETENT THA T IN SUCH A SHORT SPAN OF TIME HE HAS QUANTIFIED THE ENTIRE GOODS WITH THAT MUCH OF A CCURACY AS IF HE WAS WEIGHING RAW IRON INSTEAD OF PRECIOUS AND SEMI PRECIOUS STONES. THUS IT IS APPARENT THAT THE STOCK WAS INVENTORIED AND WEIGHED IN GROSS MANNER AND CANNOT BE ACCEPTED REMOTELY WHICH WOULD FURTHER FOR TIFIED BY THE FOLLOWING FEW MISTAKES MADE IN THE QUANTIFICATION OF THE STOCK. A) THE VALUER HAS MEASURED THE GROSS AND NET WEIGHT OF TOURMALINE AT 28285.040 KG AND 25861.300 KG RESPECTIVELY, FOUND THE DIFFERENCE OF MORE THAN 2000 KGS IN THE WEIGHT WHICH COULD OCCURRED ONLY DUE TO THE PACKING MATERIAL HOWEVER, IN THE CASE OF PRECIOUS STONE LIKE TOURMALINE TOTAL GROSS QUANTITY IF STORED IN PLASTIC BAGS OF HAVING AVERAGE CAPACITY OF 50KG EACH, THE TOTAL BAGS REQUI RED WOULD NOT BE MORE THAN 600 BAGS AND THE TOTAL WEIGHT OF THESE 600 BAGS WOULD N OT BE MORE THAN BY 25 KG. B) FURTHER THE VALUER CANNOT BE SO COMPETENT THAT H E COULD WEIGHT (FOR EG.) 8550 KG. AT A TIME AND MENTIONED ON THE INVENTORY LIST AS BELOW: ,FEFLFK;K DVSYK 171 CSX 50 KG. = 8550 KG. IT IS BEST KNOWN TO THE VALUER HIMSELF THAT WHETHE R HE HAS COUNTED THE BAGS TOTALING TO 171 OR HAS WEIGHED EACH BAG TO CONFIRM THAT EACH BA G CONTAINED 50 KG OF WEIGHT. THUS IN THE CIRCUMSTANCES IT IS BEYOND UNDERSTANDIN G AS TO HOW THE DEPARTMENTAL VALUER HAS QUANTIFIED THE ENTIRE STOCK. 16 5.11. HOWEVER, TO PURCHASES THE PEACE AND WITHOUT G OING INTO FURTHER ASSESSEE ACCEPTED THE QUANTITY ASPECT BUT THE MAJOR QUESTION REMAINED IS THE VALUATION OF THE SAME. THE DEPARTMENTAL VALUER HAS HERE AGAIN MADE THE WILD ES TIMATION BY TAKING THE VALUE OF THE GOODS AT PRICES ACCORDING TO HIS SWEET WILL WITHOUT LOOKING TO THE FACT THAT THE SAID GOODS WERE PURCHASED BY THE ASSESSEE AND THEIR PURCHASE P RICE ARE AVAILABLE WITH THE ASSESSEE. IT IS AN ESTABLISHED PRINCIPLE THAT STOCK HAS TO BE VA LUED AT COST PRICE WHICH ASPECT HAS BEEN DELIBERATELY IGNORED BY THE DEPARTMENTAL VALUER. 5.12. IF THE COST PRICE OF EACH ITEM IS SUBSTITUTED TO THE QUANTITY MEASURED THE CORRECT VALUE OF THE TOTAL STOCK WOULD COME TO RS. 4,84,41, 294/- INSTEAD OF RS. 16,17,22,462/- VALUED BY THE DEPARTMENT (DETAILED WORKING IN REGAR D TO AFORESAID FIGURES ENCLOSED). AS AGAINST THIS THE ASSESSEE HAS DECLARED THE ADDITION AL STOCK OF RS. 4.21 CRORES IN THE RETURN OF INCOME FILED IN CASE OF M/S AKASH GEMS (P) LTD. IN ADDITION TO THE STOCK OF RS. 5,27,89,101.77 AVAILABLE WITH THE ASSESSEE AS PER S TOCK REGISTER AS ON THE DATE OF SEARCH. 5.13. WITH REGARD TO THE ADDITION OF RS. 1,38,00,00 0/- MADE BY ALLEGING THAT THE DIRECTORS OF ASSESSEE COMPANY HAVE ACCEPTED THE EXC ESS STOCK AT RS. 5.59 CRORE IN THE STATEMENTS RECORDS BUT AND HAD INCLUDED RS. 4.21 CR ORE AND THEREFORE RS. 1.38 CRORE HAS BEEN ADDED IN THE HANDS OF THE ASSESSEE. 6. SINCE THE GOODS AVAILABLE AS ON THE DATE OF SEAR CH HAS BEEN VALUED BY THE DEPARTMENTAL VALUER AS PER THE PREVAILING MARKET PR ICE AND THEREFORE IN ORDER TO ARRIVE AT THE COST TO THE ASSESSEE, A DEDUCTION OF THE G.P. E MBEDDED CONTAINED THEREIN WAS REDUCED BY THE ASSESSEE AND BALANCE AMOUNT WAS SURRENDERED. IN THIS REGARD IT IS FURTHER SUBMITTED THAT DURING THE COURSE OF SEARCH, THE REFERENCE TO THE ENTIRE RECORD IS NOT POSSIBLE AND THEREFORE, IT CANNOT BE HOLD THAT WHATEVER STATED I S TO BE TAKEN AS IT IS SINCE THE ASSESSEE 17 IN EVERY POSSIBLE MANNER HAD BEEN ABLE TO SUBSTANTI ATE ITS CLAIM, FURTHER THE ASSESSEE ONLY AFTER RECEIVING THE COMPLETE STOCK INVENTORIES HAD BEEN ABLE TO MAKE THE NECESSARY LINK AND RECONCILIATION AND AFTER ALL THE EXERCISE IT HA S CAME TO SURFACE THAT THE STOCK VALUED AT THE TIME OF SEARCH WAS VALUED AT PREVAILING MARKET RATE. THE LD. AO HAS NEITHER DOUBTED THE PURCHASES NOR SALES AND THE RESULTS DECLARED BY THE ASSESSEE HAVE BEEN ACCEPTED, THUS THE GROSS PROFIT DECLARED IS TACITLY ACCEPTED BY HI M, THUS IN THE CIRCUMSTANCES THE ADDITION OF RS. 1.38 CRORES DESERVES TO BE DELETED. 7. THEREAFTER COPY OF WRITTEN SUBMISSIONS FILED ON BEHALF OF THE ASSESSEE WERE SENT TO THE AO AND THE AO HAS SENT HIS REMAND REPORT WHICH IS DISCUSSED BY LD. CIT (A) IN HIS ORDER IN PARA 2.3 AT PAGE 13. THE AO MORE OR LESS HAS SUPPORTED THE ASSESSMENT ORDER. THEREAFTER, LD. CIT (A) CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD ALONG WITH THE SUBMISSIONS OF THE ASSESSEE AS WELL AS REMAND REPORT OF THE AO GAVE HIS FINDING RECORDED IN PARA 2.3 AT PAGES 15 TO 19 WHIC H ARE AS UNDER :- 2.3 I HAVE CONSIDERED THE SUBMISSION OF THE LD. AR AND HAVE PERUSED THE ASSESSMENT ORDER, REMAND REPORT OF AO AND MATER IAL ON RECORD. AS REGARDS CONTENDED DELAYED SUPPLY OF THE PHOTOCOPY O F THE SEIZED DOCUMENTS, IT IS SEEN THAT THE COPIES OF THE LOOSE PAPERS AND DOCUMENTS WERE GIVEN TO THE APPELLANT BY THE ADI (INV.) ON TH E REQUEST OF THE APPELLANT VIDE LETTER DATED 17.10.07, WHICH IS MENT IONED BY THE APPELLANT ITSELF IN HIS REQUEST LETTER DATED 7.2.08. ONLY SOM E OF THE ANNEXURE NAMELY A-1/5, A-1/18 OF PANCHNAMA OF 14A, VISHNUPURI AND A NN. AS-1 TO 11 AND THE INVENTORY LIST WAS NOT GIVEN, AS PER REQUEST MA DE VIDE LETTER DATED 11.3.2008 AND 25.3.2008. HOWEVER, COPIES OF THE STO CK INVENTORY AND VARIOUS OTHER DOCUMENTS WERE SUPPLIED ON 6.8.08 AND ONLY FEW SEIZED DOCUMENTS WERE SUPPLIED LATER ON. MOREOVER, IT WAS NOTICED BY THE UNDERSIGNED THAT THE AO HAS NOT USED ANY OF THE SEI ZED DOCUMENT AGAINST 18 THE APPELLANT. MOREOVER, THERE WAS NO SEIZED DOCUME NT WHICH COULD NOT BE PRODUCED BY THE AR BEFORE THE AO DUE TO DELAYED SUP PLY OF THE PHOTOCOPIES OF THE DOCUMENTS, WHICH HAD ADVERSELY A FFECTED THE INTEREST OF THE APPELLANT, MORE PARTICULARLY WITH REFERENCE TO THE ADDITION MADE BY THE AO WHICH IS DISPUTED IN THE PRESENT APPEAL. HOWEVER , IT IS ADDED THAT THESE OBSERVATIONS ARE NOT TO BE MIS-CONSTRUED AS J USTIFYING THE DELAY OF THE AO IN SUPPLY THE PHOTOCOPIES OF THE SEIZED DOCU MENTS. 2.4 NOW COMING TO THE MAIN ISSUE OF DISPUTE IN THE VALUATION OF STOCK FOUND DURING THE COURSE OF SEARCH / SURVEY AT THE V ARIOUS PLACES. IT IS SEEN THAT 5 BUSINESS PREMISES OF THE APPELLANT GROUP WER E COVERED AND VALUATION OF THE STOCK WAS DONE BY THE APPROVED VAL UER AND SAME WAS AS BELOW:- S.NO. PLACE AMOUNT 1. 14, VISHNUPURI, JAGATPURA ROAD, JAIPUR 6,67,17,6 62.00 2. 14-A, VISHNUPURI, JAGATPURA ROAD, JAIPUR 6,54,80 0.00 3. 696, PANO KA DARIBA, SUBHASH CHOWK, JAIPUR 9,45, 50,000.00 4. 942, MISHRAJI KI GALI, SUBHASH CHOWK, JAIPUR 1,1 9,73,852.00 5. 104, FIRST FLOOR, CITY PULSE, N.S. CIRCLE, JAIPU R 2,56,230.00 17,41,52,544.00 2.5 BEFORE THE A.O., IT WAS ARGUED THAT THE STOCK F OUND AT SR. NO. 4 AND 5 DOES NOT BELONG TO THE APPELLANT COMPANY AND ACTU ALLY BELONGS TO OTHER FIRM. THE ARGUMENT OF THE APPELLANT WAS ACCEPTED AN D ONLY PHYSICAL STOCK FOUND AT FIRST THREE PREMISES BELONGING TO THE APPE LLANT WAS CONSIDERED BY THE A.O. THE TOTAL VALUE OF THE PHYSICAL STOCK AT T HESE PREMISES WERE DETERMINED AT RS. 16,19,22,462/-. THE ARGUMENT OF THE APPELLANT IS T HAT THE VALUATION OF STOCK DONE AT 696, PANO KO DARIBA, SUB ASH CHOWK IS QUITE EXCESSIVE. THE APPELLANT HAS POINTED OUT THAT SAME WAS OBJECTED AT THE TIME OF SEARCH ITSELF. THE A.O. HAS CONSIDERED THE ARGUMENT. IT HAS BEEN OBSERVED BY THE A.O. THAT THE VALUATION AS DONE BY THE REGISTERED VALUER AND REGISTERED VALUER IS AN EXPERT. AS REGARDS OBJE CTION OF THE VALUATION DONE BY THE REGISTERED VALUER, A.O. HAS OBSERVED TH AT THE APPELLANT HAS 19 EARLIER ALSO OBJECTED TO THE VALUATION OF CERTAIN I TEMS OF STOCK FOUND AT 14, VISHNUPURI, JAGATPURA, TOTALING RS. 82,25,000/- AND CONSIDERING THE STRONG OBJECTION OF THE APPELLANT, THE SAME WAS GOT REVALU ED BY THE DEPARTMENT IN THE PRESENCE OF THE DIRECTORS OF THE APPELLANT. AFT ER REVALUATION, ITS VALUE CAME TO RS. 79.27 LAKHS, WHICH WAS DULY ACCEPTED BY THE MANAGI NG DIRECTOR SH. CHAMPA LAL CHOUDHARY OF THE APPELLANT COMPANY IN HIS STATEMENT RECORDED DURING THE COURSE OF SEARCH. THU S THE A.O. HAS RIGHTLY POINTED OUT THAT THE PERCENTAGE ERROR IS MERELY 3.6 % AND HENCE THE ALLEGATION OF THE APPELLANT OF THE TOTAL STOCK AT P ANO KA DARIBA, SUBASH CHOWK ONLY VALUING RS. 4 CRORE AND NOT RS. 9,45,50,000/- WHICH WILL GIVE ERROR OF 57.77%, IS EXTREMELY UNLIKELY. THE A.O. FU RTHER OBSERVED THAT APPELLANT COMPANY HAS NOT FURNISHED THE COMPLETE DE TAILS AS TO WHEN THE EXACTLY THE STOCK WAS BOUGHT AND HOW MUCH OUT OF TH AT WAS CONSUMED IN DIFFERENT YEARS FOR MANUFACTURING OR OTHERWISE FOR DIRECT SALES AND HOW WAS THE MOVEMENT OF STOCK OVER THE YEARS TILL THE D ATE OF SEARCH, IF THE STOCK WAS CONTENDED TO BE PURCHASED IN VARIOUS EARL IER YEARS OR CONTENDED TO BE TAKEN OVER FROM ERSTWHILE TWO CONCERNS NAMELY M/S AKASH GEMS AND M/S VASUNDRA GEMS. THE A.R. HAS CLAIMED THAT HE HAS FILED COPIES OF PURCHASE BILLS BEFORE A.O., THE COPIES OF WHICH WAS ALSO FILED BEFORE ME. FROM CURSORY PERUSAL OF THE PURCHASE BILLS BY THE U NDERSIGNED, IT IS SEEN THAT SOME OF THE PURCHASES HAVE BEEN SHOWN IN TO BE MADE BY ERSTWHILE M/S AKASH GEMS AND M/S VASUNDRA GEMS AS BACK AS IN THE YEAR 1994, IN THE YEAR 1999 AND IN THE YEAR 2000. IT IS EXTREMELY UNBELIEVABLE TO ACCEPT THE CLAIM OF THE APPELLANT THE SUCH STOCK PU RCHASED AS BACK AS 13 YEARS, 8 YEARS AND 7 YEARS AGO HAS STILL CONTINUED TO REMAIN FIRSTLY WITH THE ERSTWHILE FIRMS AND LATER ON CONTINUED TO REMAIN WI TH THE APPELLANT COMPANY INTACT AND THAT WAS SURELY NOT USED FOR MAN UFACTURING OR TRADING. UNLESS, SAME IS SPECIFICALLY PROVED BY THE APPELLAN T BY SHOWING THE STOCK REGISTER FOR ALL THOSE EACH OF 13 YEARS (WHICH WOULD COVER 8 YEARS AND 7 YEARS, AS THE CASE MAY BE). THE APPELLANT HAS MISER ABLY FAILED ON THIS ACCOUNT TO PUT FORWARD HIS CLAIM ALONGWITH PROPER E VIDENCE BEFORE A.O. 20 AND EVEN BEFORE UNDERSIGNED. I AGREE WITH THE REMAR K OF THE A.O GIVEN IN THE REMAND REPORT THAT IF THE VALUATION OF THIS STO CK FOUND AT PANO KA DARIBA WAS ONLY RS. 11,24,150/- AS CONTENDED BY THE APPELLANT DURING T HE ASSESSMENT PROCEEDINGS, THEN HOW THE APPELLANT HAS SHOWN AND ADMITTED THE VALUE OF SUCH STOCK IN THE RETURN OF INCOME AT RS. 4.21. CRORE. 2.6 CONSIDERING THESE FACTS AND OVERALL CIRCUMSTANC ES OF THE CASE, I SEE NO REASON TO INTERFERE IN THE FINDING OF THE A.O. R EGARDING TAKING THE VALUATION OF T HE PHYSICAL STOCK FOUND AT 696, PANO KA DARIBA, SUBHASH CHOWK AT RS. 9,45,50,000/- AS VALUED BY THE APPROVED REGISTERED VALUER. 2.7 NOW COMING TO THE OTHER ARGUMENT OF STOCK VALUA TION BEING DONE AT MARKET VALUE, THE A.O. HAS POINTED OUT THAT SH. C.L. CHOUDHARY, M.D. OF THE APPELLANT COMPANY IN HIS REPLY TO QUESTION 7 HAS CATEGORICALLY ACCEPTED 'COST VALUE' OF THE STOCK FOND AT THE VARI OUS PREMISES OF THE APPELLANT COMPANY EXCEPT THE VALUE OF STOCK AT 696, PANO KA DARIBA. ON PERUSAL OF STATEMENT DATED 27.08.07 OF SH. C.L. CHO UDHARY, PARTICULARLY ANSWER TO QUESTION NO. 7, IT WAS NOTICED BY THE UND ERSIGNED THAT HE HAS STATED AS FOLLOWS:- 'WHATEVER STOCK WAS FOND DURING THE COURSE OF SEARC H IN THE DIFFERENT PREMISES OF THE APPELLANT, THE COST VALUE OF THE SAME IS AS BELOW:- (I) STOCK FOUND AT 14, VISHNUPURI , JAGATPURA ROAD RS. 6.67 CRORE (II) STOCK FOUND AT 696, PANO KA DARIBA RS. 4.00 CRORE A. STOCK FOUND AT 14-A VISHNUPURI JAGATPURA ROAD RS. 0.06 CRORE TOTAL STOCK RS. 10.73 CR. THUS IT IS CLEAR THAT THE STOCK FOUND AT OTHER TWO PLACES HAS ALREADY BEEN ACCEPTED TO BE VALUED AT COST PRICE. REGARDING VALUATION OF STOCK FOUND AT 696 PANO KA DARIBA, THE M.D. SH. C.L. CHOU DHARY HAS STATED IN ANSWER TO QUESTION NO. 6 THAT THE VALUATION HAS BEE N DONE AT VERY HIGHER VALUE CONSIDERING THE PRESENT MARKET VALUE OF THE V ARIOUS ROUGH STOCKS. ACCORDINGLY ARGUMENT OF A.R. OF APPELLANT OF VALUAT ION DONE AT MARKET VALUE IS CONSIDERED ACCEPTABLE IN RESPECT OF STOCK AT 696, PANO KA DARIBA. 21 THE CLAIM OF THE APPELLANT THAT THE STOCK WAS PURCH ASED IN DIFFERENT EARLIER YEARS AND IS VEY OLD WAS NOT FOUND VERIFIABLE AND C ORRECT BY THE A.O. ACCORDINGLY, IT WILL BE APPROPRIATE TO DETERMINE TH E COST VALUE OF STOCK AT 696, PANO KA DARIBA BY CONSIDERING THE G.P. ON THE ROUGH STOCK. IT IS SEEN THAT THE APPELLANT IS ENGAGED IN THE MANUFACTURING WHEREIN THE ROUGH IS SORTED AND THEN PUT TO MANUFACTURING ACTIVITY AND F INALLY CUT AND POLISHED AND THEN FINISHED PRECIOUS AND SEMI PRECIOUS STONES ARE SOLD. ACCORDINGLY, THE G.P. SHOWN BY THE APPELLANT CANNOT AT ALL BE AP PLIED FOR DETERMINING COST VALUE FROM THE MARKET VALUE OF THE STOCK OF RO UGH. IT IS THE G.P. RATE OF ROUGH TRADING BUSINESS FIRM, WHICH HAS TO BE APP LIED TO FIND THE COST OF ROUGH FROM MARKET VALUE OF ROUGH. NORMALLY, THE G.P . SHOWN IN THE TRADING BUSINESS OF VARIOUS TYPES OF ROUGH OF PRECI OUS AND SEMI PRECIOUS STONES FOND THE STOCK OF THE APPELLANT IS AROUND 5% . CONSIDERING THE SAME THE COST VALUE OF THE STOCK AT 696 PANO KA DARIBA I S TAKEN AT RS. 8,98,22,500/- BY REDUCING THE G.P. OF 5% ON MARKET VALUE RS. 9,45,50,000/- WHICH WILL CALL FOR RELIEF OF RS. 47,57,500/- OUT OF TOTAL ADDITION OF RS. 6,83,50,000/-. BALANCE ADDITION OF RS. 6,36,22,500/- IS HEREBY CONFIRMED. 8. NOW BOTH ARE IN APPEAL HERE BEFORE THE TRIBUNAL. 9. THE ASSESSEE IS OBJECTING THE SUSTENANCE OF ADDI TIONS WHICH WERE MADE BY THE AO AND THE DEPARTMENT IS OBJECTING IN REDUCING THE ADD ITION BY RS. 47,27,500/- OUT OF TOTAL ADDITION OF RS. 6,83,50,000/-. 10. THE LD. COUNSEL OF THE ASSESSEE FILED COPY OF W RITTEN SUBMISSIONS. IT WAS FURTHER EXPLAINED THAT THERE IS NO DISPUTE IN ITEM AND QUAN TITY OF THE STOCKS FOUND DURING THE COURSE OF SEARCH. HOWEVER, THERE IS DISPUTE OF ADOP TION OF VALUATION OF THE SAME. IT WAS EXPLAINED THAT THE CLOSING STOCK FOUND DURING THE C OURSE OF SEARCH WAS OLD PURCHASED IN THE YEAR 1996 ONWARDS AND LYING AT THE PREMISES. TH E PREMISES NAMED PANO-KA-DARIBA 22 WAS USED FOR STORING ROUGH STOCK AND DURING THE PER IOD OF SEARCH ITSELF ALL THE DIRECTORS OF THE ASSESSEE COMPANY HAVE CLEARLY STATED THAT STOCK S FOUND AT THE PREMISES AT PANO-KA- DARIBA IS PURCHASED IN LAST SO MANY YEARS. HOWEVER, THE VALUATION MADE BY DEPARTMENT IS NOT CORRECT AND, THEREFORE, IT WAS REQUESTED THAT R EVALUATION OF THE STOCK FOUND AT PANO-KA- DARIBA AS WELL AS STOCK FOUND AT OTHER TWO PREMISES SHOULD BE REVALUED. IT WAS FURTHER EXPLAINED THAT THE STOCK FOUND AT OTHER TWO PLACES WERE RE VALUED AND DIFFERENCE IN VALUATION WAS FOUND BY THE VALUER DEPUTED BY THE DE PARTMENT. HOWEVER, WHERE SUBSTANTIAL STOCK WAS FOUND NO REVALUATION WAS MADE FOR THE REASON KNOWN TO THE SEARCH PARTY. IT WAS NOT A CASE THAT SEARCH WAS COMPLETED IN ONE DAY AS THE SAME WAS GOING ON FOR FIVE DAYS AND REVALUATION COULD HAVE BEEN DONE VERY EASILY, NEITHER THE CONTENTION OF THE ASSESSEE WAS ACCEPTED NOR THE REVALUATION WAS D ONE BY THE DEPARTMENT. IT WAS FURTHER SUBMITTED THAT THOUGH THE STOCKS FOUND AT T HE PREMISES AT PANO-KA-DARIBA WAS PURCHASED FOR MEAGER AMOUNT OF RS. 11,00,000/- OR ODD, HOWEVER, DUE TO COMPELLING CIRCUMSTANCES AND DUE TO IGNORANCE OF DIRECTORS IT WAS STATED THAT THE COST (LAGAT) OF STOCK FOUND AT PANO-KA-DARIBA WAS ABOUT RS. 4,00,00,000/- AND IT WAS EXPLAINED THAT AFTER ADMISSION OF THIS FACT THE DEPARTMENTAL AUTHORITY D ID NOT DO ANYTHING FURTHER AS THEY WERE CONVINCED BY THE VALUATION OF STOCK DISCLOSED BY TH E ASSESSEE AT THAT POINT OF TIME. THIS FACT WAS BROUGHT TO THE NOTICE OF THE AO AS WELL AS TO THE KNOWLEDGE OF LD. CIT (A). HOWEVER, THEY HAVE NOT ACCEPTED THE EXPLANATION GIV EN BY THE ASSESSEE THAT THE SEARCH PARTY WAS AGREED FOR A SUM OF RS. 4,00,00,000/- ADM ITTED BY THE ASSESSEE ON ACCOUNT OF VALUATION OF STOCK AND, THEREFORE, THIS MAYBE THE R EASON THAT THEY HAVE NOT REVALUED THE STOCK FOUND AT PANO-KA-DARIBA. THE AO AS WELL AS LD . CIT (A) HAS REJECTED THE CONTENTION BY OBSERVING THAT THERE IS NO EVIDENCE IN SUPPORT O F THE ABOVE CONTENTION OF THE ASSESSEE. 23 WHAT EVIDENCE COULD BE THERE IT IS NOT KNOWN. ONLY SUBSTANTIAL EVIDENCE IS THERE THAT THE SEARCH PARTY DID NOT GO FOR REVALUATION WHEREAS THE REVALUATION WAS MADE OF THE STOCK FOUND FOR AT OTHER TWO PLACES. ATTENTION OF THE BEN CH WAS DRAWN ON OBSERVATIONS OF THE AO AND LD. CIT (A) MADE IN THEIR RESPECTIVE ORDERS ON THIS ACCOUNT. 10.1. IT WAS FURTHER SUBMITTED THAT TIME AND AGAIN THE ASSESSEE HAS STATED THAT THE VALUATION WAS NOT CORRECT AND, THEREFORE, IT SHOULD BE REVALUED. ATTENTION OF THE BENCH WAS DRAWN ON COPY OF PANCHNAMA WHERE INVENTORY OF T HIS ITEM OF STOCK FOUND AT PANO- KA-DARIBA PREMISES WERE ENTERED AND ATTENTION OF TH E BENCH WAS ALSO DRAWN ON VARIOUS ITEMS OF ONE QUALITY, NAMELY, AMETHYST ROUGH AND IT WAS THAT AT DIFFERENT PREMISES DIFFERENT RATE OF THE SAME QUALITY HAS BEEN ADOPTED BY THE VALUER AND THIS WAS THE MAJOR REASON FOR DIFFERENCE OF THE VALUATION. HOWEVER, T HIS CONTENTION OF THE ASSESSEE WAS NOT EXAMINED EITHER THE AO OR BY LD. CIT (A). IT WAS F URTHER SUBMITTED THAT IF THIS CONTENTION COULD HAVE EXAMINED THEN IT WOULD HAVE FOUND THAT T HERE IS NO DIFFERENCE IN THE VALUATION OF THE CLOSING STOCK DISCLOSED BY THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT EVEN THE PURCHASE VOUCHERS OF THE CLOSING STOCK FOUND DURING THE COURSE OF SEARCH WAS PRODUCED BEFORE THE AO WHICH WERE IN CONSONANCE WITH THE ENT RIES RECORDED IN THE STOCK REGISTER WHICH WAS IMPOUNDED BY THE SEARCH PARTY. THEREFORE , THIS IS NOT A CASE OF MIS- REPRESENTATION OR MANIPULATION OF ACCOUNTS. ALL THE COPIES OF PURCHASE VOUCHERS WERE FURNISHED BEFORE THE AO BUT HE DID NOT BOTHER TO EX AMINE THOSE PURCHASE VOUCHERS. HE SIMPLY OBSERVED THAT THE ASSESSEE IS NOT ABLE TO SH OW THAT THE SAME ITEM PURCHASED SO MANY YEARS BACK ARE THE SAME ITEMS WHICH WERE FOUND DURING THE COURSE OF SEARCH. IN SUPPORT OF THIS CONTENTION, THE LD. A/R STATED THAT THESE ITEMS ARE MENTIONED IN THE CLOSING STOCK AND THE VALUATION BY THE DEPARTMENTAL VALUER HAS BEEN MADE OF THESE ITEMS. 24 THEREFORE, IT CANNOT BE SAID THAT SOME OTHER MATERI AL WAS FOUND OR THE PURCHASE VOUCHERS PRODUCED BY THE ASSESSEE WERE OF SOME OTHER MATERIA L. ALL THE MATERIALS WERE PURCHASED THROUGH PROPER BANKING CHANNEL AS THE PAYMENT ON AC COUNT OF THESE PURCHASES WERE MADE THROUGH ACCOUNT PAYEE CHEQUES. THEREFORE, THIS IS N OT A CASE OF MANIPULATION OF CLOSING STOCK AS THERE IS NO DIFFERENCE IN ITEM AND QUANTIT Y. 10.2. TO BUY PEACE, THE ASSESSEE HAS ADMITTED COST OF THESE STOCKS AT RS. 4,00,00,000/- AND THE SAME HAS BEEN DISCLOSED IN THE RETURN FILED UNDER SECTION 153A. THEREFORE, THE BONAFIDE INTENTION OF THE ASSESSEE SHOULD HAVE BEEN ACCEPTED BY THE AO WHILE COMPLETING THE ASSESSMENT. THERE IS NO ADVERSE MAT ERIAL AGAINST ASSESSEE FOR HOLDING THAT THE CLOSING STOCK FOUND DURING THE COURSE OF SEARCH WAS NOT SAME WHICH WAS ENTERED IN THE STOCK REGISTER WHICH IS SUPPORTED BY THE VALID PURCHASE VOUCHERS, NEITHER ANY VERIFICATION WAS MADE FROM THE SELLING PARTIES NOR ANY OTHER MATERIAL WAS BROUGHT ON RECORD TO HOLD OTHERWISE. IT WAS ALSO SUBMITTED TH AT THE BONAFIDE INTENTION OF THE ASSESSEE IS PROVED FROM ITS ACT THAT NO BENEFIT OF THE HIGHE R VALUATION DISCLOSED BY THE ASSESSEE HAS BEEN OBTAINED BY THE ASSESSEE. THE CLOSING STOCK F OUND DURING THE COURSE OF SEARCH IS STILL LYING WITH THE ASSESSEE AS THERE IS NO MARKET OF THIS MATERIAL AS THIS MATERIAL WAS PURCHASED AS ROUGH MATERIAL. HOWEVER, THE ASSESSEE IS NOT ABLE TO SELL. THEREFORE, THE SAME IS LYING IN ITS STOCK. ALL THESE ITEMS ARE SHO WN IN EACH AND EVERY YEAR AND THE CLOSING STOCK SHOWN BY ASSESSEE HAS BEEN ACCEPTED B Y THE DEPARTMENT. EVEN THE CLOSING STOCK SHOWN IN SUBSEQUENT YEAR HAS BEEN ACCEPTED BY THE DEPARTMENT ON THE SAME VALUE SHOWN BY THE ASSESSEE, WHICH IS BASED ON THE PURCHA SE VOUCHERS. THEREFORE, THERE WAS NO QUESTION OF ENHANCING ANY VALUE OR ADOPTING THE VAL UE SHOWN BY VALUER WHICH IS SHOWN ON THE BASIS OF MARKET VALUE AND THIS FACT IS APPAR ENT FROM THE VALUATION REPORT ITSELF 25 WHEREIN THIS FACT IS DISCLOSED BY THE VALUER THAT T HE MATERIAL FOUND DURING THE COURSE OF SEARCH IS VALUED ON THE MARKET RATE. THE AO AS WEL L AS THE LD. CIT (A) HAS DISCARDED THE EXPLANATION OF THE ASSESSEE BY OBSERVING THAT NO SU PPORTING EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE THAT THE VALUE ADOPTED BY TH E VALUER IS ON THE BASIS OF MARKET VALUE AND NOT ON THE BASIS OF COST VALUE. ATTENTION OF TH E BENCH WAS DRAWN ON COPY OF VALUATION REPORT PLACED ON RECORD. ATTENTION OF THE BENCH WAS ALSO DRAWN ON COPY OF STOCK REGISTER PLACED IN THE PAPER BOOK AT PAGES 167 TO184 AND ON PAGES 227 TO238 WHERE THE LIST OF THE ITEMS FOUND ARE PLACED. ATTENTION OF THE BENCH WAS DRAWN ON OTHER VARIOUS PAGES OF PAPER BOOK WHERE OTHER RELEVANT DETAILS ARE PLACED. ACCORDINGLY IT WAS SUBMITTED THAT THE LD. CIT (A) WAS NOT JUSTIFIED IN SUSTAINING THE ADD ITION ON ACCOUNT OF VALUATION AND ON ACCOUNT OF GROSS PROFIT ADOPTED BY THE VALUER IN TH EIR REPORT. IT WAS FURTHER REQUESTED THAT THE WRITTEN SUBMISSION FILED DURING THE APPELLATE P ROCEEDINGS MAY ALSO BE CONSIDERED. 11. ON THE OTHER HAND, THE LD. CIT D/R PLACED RELIA NCE ON THE ORDER OF THE LD. CIT (A) TO THE EXTENT TO WHICH THE ADDITIONS ARE SUSTAINED. IT WAS FURTHER SUBMITTED THAT ALL THE CONTENTIONS RAISED BY LD. A/R HAVE ALREADY BEEN CON SIDERED BY THE AO AS WELL AS BY LD. CIT (A). THEREFORE, THE ORDERS OF THE AO AS WELL A S ORDER OF LD. CIT (A) DO NOT SUFFER FROM ANY INFIRMITY. ON QUERY FROM THE BENCH THAT W HY THE REVALUATION WAS NOT DONE OF THE STOCKS FOUND DURING THE COURSE OF SEARCH AT PAN O-KA-DARIBA BECAUSE OF THE REASON THAT THIS WAS THE MAJOR PORTION OF THE STOCK FOUND DURIN G THE COURSE OF SEARCH WHICH WAS NOT SHOWN BY THE ASSESSEE IN HIS ACCOUNT AS PER THE CON TENTION OF THE SEARCH PARTY, IT WAS SUBMITTED BY LD. CIT D/R THAT REVALUATION OF THE ST OCK FOUND AT OTHER TWO PLACES WERE ALREADY MADE AND THERE WAS A MINOR DIFFERENCE OF RS . 3 LACS TO RS. 4 LACS. THEREFORE, NO USEFUL PURPOSE WOULD BE SERVED IN REVALUING THE STO CK, RATHER IT WOULD BE WASTAGE OF TIME 26 ON ACCOUNT OF REVALUATION OF THE STOCK. IT WAS FUR THER SUBMITTED THAT THERE WAS NO PRESSURE ON THE ASSESSEE TO ACCEPT THE VALUATION OF RS. 4,00,00,000/- WHEREAS THE ASSESSEE HAS SHOWN THE PURCHASES AT A MEAGER AMOUNT OF RS. 1 1,00,000/- OR ODD. SINCE THERE WAS UNDER VALUATION DONE BY THE ASSESSEE, THEREFORE, ON LY THE ASSESSEE HAS ACCEPTED THE VALUATION AT RS. 4,00,00,000/-. HOWEVER, REGISTERED VALUER HAS ADOPTED THE VALUATION AT RS. 9.45 CRORES OR ODD AND THIS VALUATION IS MADE B Y NOT ORDINARY VALUER AS THE VALUATION WAS DONE BY THE APPROVED VALUER OF THE DEPARTMENT. THEREFORE, IF THE ORDER OF THE AO IS NOT SUSTAINED FULLY THEN AT LEAST THE ORDER OF LD. CIT (A) IS LIABLE TO BE SUSTAINED AS LD. CIT (A) HAS GIVEN A DETAILED REASONING FOR NOT ALLOWING THE GROUND OF THE ASSESSEE IN FULL. 12. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. WE HAVE ALSO PERUSED THE MATERIAL ON WHICH OUR ATTENTION HAS BEE N DRAWN BY THE RESPECTIVE PARTY INCLUDING THE ORDER OF AO AND LD. CIT (A). FIRST I SSUE IN THE APPEAL OF THE ASSESSEE IS IN RESPECT TO SUSTAINING THE ADDITION OF RS. 5,45,50, 000/- ON ACCOUNT OF EXCESS STOCK FOUND AT PANO-KA-DARIBA. 12.1. AS STATED ABOVE, THE SEARCHES AT THE RESIDENT IAL PREMISES AS WELL AS BUSINESS PREMISES OF THE ASSESSEE WERE CONDUCTED UNDER SECTI ON 132 ON 23.8.2007 WHICH CONTINUED UPTO THE DATE 27.08.2007. SIMULTANEOUSLY SURVEY UND ER SECTION 133A WAS ALSO CONDUCTED. ULTIMATELY THE STOCKS ADMITTED BY THE ASSESSEE IN T HE STATEMENT RECORDED ON 27.8.2007 IN WHICH HE ADMITTED THAT STOCK FOUND AT 14, VISHNUPUR I, JAGATPURA ROAD, JAIPUR WAS RS. 6.67 CRORES, STOCKS FOUND AT 696, PANO-KA-DARIBA WA S RS. 4,00,00,000/- AND STOCKS AT 14A, VISHNUPURI, JAGATPURA ROAD, JAIPUR WAS RS. 0.0 6 CRORES TOTALING TO RS. 10.73 CRORES. IN RESPECT TO STOCK AT 14, VISHNUPURI AND 14A, VISH NUPURI, THERE IS NO DISPUTE WITH THE DEPARTMENT. THE DISPUTE IN RESPECT OF STOCK FOUND A T PANO-KA-DARIBA FOR WHICH THE 27 ASSESSEE HAS STATED THIS STOCK IS BEARING COST OF R S. 4,00,00,000/- PURCHASED LAST SO MANY YEARS BACK. THE STATEMENT OF THE ASSESSEE WAS ALSO RECORDED ON 23.8.2007AND ON THIS DATE ALSO THE ASSESSEE HAS ADMITTED THAT STOCK FOUND AT PANO-KA-DARIBA WAS PURCHASED IN THE PAST AND THE STOCK FOUND AT PANO-KA-DARIBA CONTAINS ROUGH STOCK WHICH WAS PURCHASED FROM THE MARKET ON A VERY LOWER RATE. HOWEVER, HE HAS ADMITTED THE COST OF THIS STOCK AT AROUND RS., 4,00,00,000/-. THE DEPARTMENT GOT VALUE D THIS STOCK AT RS. 9,45,50,000/-. 13. AFTER REDUCING THE STOCK AS PER BOOKS OF CCOUNT AT RS.5.14 CRORES, THE REMAINING STOCK WAS ARRIVED AT RS. 5.59 CRORES. THE ASSESSEE HAS SHOWN G.P. RATE OF 20% IN ITS REGULAR TRANSACTION RECORDED IN THE BOOKS OF ACCOUN T AND ON THE BASIS OF THE TRADING RESULT, THE ASSESSEE REDUCED 20% OF PROFIT FROM STOCK OF RS . 6.67 CRORES AND 0.60 CRORES FOUND AT 14, VISHNUPURI AND 14A, VISHNUPURI. THE ABOVE STAT ED VALUATION WAS MADE BY THE DEPARTMENTAL APPROVED VALUER. REVALUATION ON ACCOU NT OF THIS STOCK WAS ALSO DONE AND IN REVALUATION THERE WAS A MARGINAL DIFFERENCE AND ULT IMATELY THE VALUER HAS VALUED THE STOCK OF 14, VISHNUPURI AT RS. 6.67 CRORES AND STOCK OF 1 4A, VISHNUPURI AT RS. 0.06 CRORES. ACCORDINGLY THE ASSESSEE REDUCED THE G.P. RATE @ 20 % WHICH RESULTED IN A REDUCTION OF RS. 1.38 CRORES. 13.1. AFTER REDUCING THIS AMOUNT ON ACCOUNT OF GROS S PROFIT, THE REMAINING RS. 4.21 CRORES WAS SHOWN BY THE ASSESSEE IN ITS RETURN AS A DDITIONAL INCOME ON ACCOUNT OF COST OF STOCK UNDERVALUED BY THE ASSESSEE IN ITS BOOKS OF A CCOUNT. HOWEVER, THE AO AS EXPLAINED IN EARLIER PARAS DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AS IN HIS VIEW THE VALUATION OF STOCK FOUND AT PANO-KA-DARIBA WAS RS. 9,45,50,00 0/-. THEREFORE, HE TOOK THE VALUE OF THIS AMOUNT INSTEAD OF AMOUNT OF RS. 4,00,00,000/- SHOWN BY THE ASSESSEE. THE EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED INSPIT E OF THE FACT THAT ORIGINAL PURCHASE 28 VOUCHERS WERE PRODUCED BEFORE THE AO TO SUBSTANTIAT E ITS CLAIM THAT THE STOCK WAS OLD AND WAS RECORDED IN THE BOOKS OF ACCOUNT AS WELL AS STOCK REGISTER MAINTAINED WHICH WAS SEIZED BY THE SEARCH PARTY. THE AO HAS OBSERVED THA T VALUATION WAS MADE BY THE DEPARTMENTAL VALUER AND IN RESPECT TO OTHER TWO PRE MISES REVALUATION WAS ALSO MADE AND ONLY MINOR DIFFERENCE WAS FOUND WHICH WAS ACCEPTED BY THE ASSESSEE HIMSELF. THEREFORE, HE REJECTED THE EXPLANATION OF THE ASSESSEE AND MAD E AN ADDITION OF RS. 5,45,50,000/- WHICH HAS BEEN CONFIRMED BY THE LD. CIT (A). AFTER EXAMINING ALL THE RECORDS AND SUBMISSIONS IT IS SEEN THAT DURING THE SEARCH PERIO D AND ON THE VERY 1 ST DAY OF THE SEARCH THE STATEMENT OF THE ASSESSEE WAS RECORDED AND HE H AS CLEARLY STATED THAT THE STOCK FOUND AT PANO-KA-DARIBA IS PART OF BOOKS OF ACCOUNT. HOW EVER, THE COST OF THE SAME IS ABOUT RS. 4,00,00,000/- WHICH HE WILL SURRENDER AS HE HAS NOT SHOWN THE IN THE BOOKS OF ACCOUNT. THIS STAND WAS TAKEN ON DAY ONE OF THE SEARCH. THE REAFTER VALUATION OF STOCK WAS DONE WHICH WAS ARRIVED AT RS. 5,45,50,000/- BY THE VALUE R. THE DATE OF VALUATION HAS BEEN MENTIONED BY THE VALUER ON 23.8.2007. IT MEANS THE VALUE OF THE ABOVE STOCK WAS VALUED AS ON THE DATE 23.8.2007, WHEREAS THE ASSESSEE HAS CATEGORICALLY STATED THAT THERE IS A VAST DIFFERENCE IN THE VALUATION WHICH IS NOT ACCEPTABLE TO HIM. THE STATEMENT WAS AGAIN RECORDED ON27.8.2007 AND ON THIS DATE ALSO HE HAS C ATEGORICALLY STATED THAT THE VALUATION MADE BY THE VALUER IS NOT ACCEPTABLE TO HIM AS THER E IS A VAST DIFFERENCE AND AT THAT POINT OF TIME HE ADMITTED THAT THE STOCK OF RS. 4,00,00,0 00/- WILL BE OFFERED FOR TAXATION AS THE COST OF THE SAME IS RS. 4,00,00,000/- AND AS PER RE CORD AVAILABLE. THEREAFTER NO INVESTIGATION WAS DONE BY THE SEARCH PARTY NEITHER REVALUATION WAS DONE ON ACCOUNT OF STOCK FOUND AT PANO-KA-DARIBA WHEREAS REVALUATION W AS DONE IN RESPECT OF STOCK FOUND AT OTHER TWO PLACES. THEREFORE, THIS IS A CASE OF STRO NG PRESUMPTION THAT THE DEPARTMENT HAS 29 AGREED WITH THE EXPLANATION OF THE ASSESSEE THAT TH E COST OF STOCK WAS OF RS. 4,00,00,000/- AND HE IS READY TO SURRENDER THE SAME. THE ASSESSE E HAS SURRENDERED ALSO THE VALUATION OF THIS STOCK BY DECLARING A EXTRA INCOME OF RS. 4.21 CRORES ON ACCOUNT OF EXCESS STOCK. THE PURCHASE VOUCHERS OF THE ITEMS FOUND AT PANO-KA-DAR IBA ARE PLACED ON RECORD. THEY ARE MATCHING WITH THE ENTRIES IN THE STOCK REGISTER AND STOCK REGISTER WAS SEIZED BY THE SEARCH PARTY. THEREFORE, THERE CANNOT BE ANY DOUBT THAT T HE STOCK WAS OLD AND WAS PART OF THE BOOKS OF ACCOUNT. THOUGH THE VALUATION OF THIS STOC K HAS BEEN SHOWN AT RS. 11,00,000/- OR ODD IN THE BOOKS OF ACCOUNT WHEREAS THE ASSESSEE HAS ADMITTED THAT THE COST OF STOCK WAS RS. 4,00,00,000/- AND RS. 4,00,00,000/- HAVE BE EN SURRENDERED ALSO. THEREFORE, IN OUR CONSIDERED VIEW THE AO SHOULD HAVE TAKEN INTO C ONSIDERATION THIS EXPLANATION AND THIS ASPECT OF THE CASE AND THEN SHOULD HAVE TAKEN A REASONABLE VIEW IN RESPECT OF THE VALUATION OF CLOSING STOCK. HOWEVER, THE SAME HAS NOT BEEN DONE BY THE AO NOR LD. CIT (A) HAS TAKEN THE COGNIZANCE OF THIS ASPECT. ALL T HE PURCHASE VOUCHERS ALONG WITH DETAILED WRITTEN SUBMISSIONS WERE FILED BEFORE LD. CIT (A). THE COPY OF STOCK REGISTER SEIZED BY THE DEPARTMENT WAS ALSO FILED BEFORE LD. CIT (A). HOWEVER, LD. CIT (A) WAS ALSO IN AGREEMENT WITH THE AOS FINDING AS IN HIS V IEW THE ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM TO PROVE THAT THE COST OF STOCK FOUND AT PANO-KA-DARIBA WAS OF RS. 4,00,00,000/-. ACCORDINGLY HE HAS CONFIRMED THE ORDER OF AO IN THI S RESPECT. 14. THE VITAL FACT, WHICH THE LD. CIT (A) COULD NOT CONSIDER IS THAT EVEN VALUATION DONE BY THE VALUER IS NOT CORRECTLY DONE. FROM THE COPY OF THE ITEMS FOUND AT PANO-KA- DARIBA AND SAME ITEMS FOUND AT BASEMENT AND GROUND FLOOR OF 14, VISHNUPURI AND 14A, VISHNUPURI, IT IS SEEN THAT THE VALUER HAS TAKEN A DIFFERENT VALUE OF THE SAME ITEMS FOUND AT THREE PLACES. FOR EXAMPLE, ONE ITEM AMETHYST ROUGH WAS FOUND AT BASEMENT OF 30 VISHNUPURI AND RATE OF THIS ITEM HAS BEEN TAKEN BY THE VALUER AT RS. 550/- PER KG. THIS ITEM WAS ALSO FOUND AT GROUND FLOOR OF VISHNUPURI A ND RATE HAS BEEN TAKEN AT RS. 3,000/- PER KG. SAME ITEM WAS FOUND AT PANO-KA-DARIBA AND H ERE RATE HAS BEEN TAKEN AT RS.8,000/- PER KG. THE ITEM IS SAME. HOWEVER, THERE IS A VAST DIFFERENCE IN RATE FOR THE REASON KNOWN TO THE VALUER ONLY. IT HAS BEEN CATEG ORICALLY STATED BY THE LD. COUNSEL OF THE ASSESSEE THAT THESE ITEMS ARE THE SAME. HOWEVER , THEY HAVE BEEN CALCULATED ON A DIFFERENT RATE. THE REQUEST OF THE ASSESSEE WAS NO T ACCEPTED TO MAKE THE REVALUATION OF THE STOCK FOUND AT PANO-KA-DARIBA. SIMILAR EXAMPLE OF VARIOUS OTHER ITEMS FOUND AT THREE PLACES DIFFERENT VALUE HAS BEEN TAKEN BY THE VALUER . A COPY SHOWING THE SAME ITEMS FOUND AT THREE DIFFERENT PLACES HAS BEEN FILED BY T HE LD. COUNSEL WHICH HAS BEEN COMPILED WITH THE STOCK REGISTER AS COPY OF THE STOCK REGIST ER IS ALSO ENCLOSED ALONG WITH THE CHART, AND AFTER GOING THROUGH THIS CHART AND STOCK REGIST ER ENTRIES, IT IS CLEARLY ESTABLISHED THAT THE VALUER HAS ADOPTED A DIFFERENT YARDSTICK FOR VA LUING THE SAME ITEM FOUND AT THREE DIFFERENT PLACES. THE STOCK FOUND AT BASEMENT OF VI SHNUPURI IS VALUED ON A VERY LOWER RATE THAN STOCK FOUND AT GROUND FLOOR OF VISHNUPURI WHERE THE VALUE HAS BEEN ADOPTED ON SOME HIGHER PRICES WHEREAS THE STOCK OF SAME ITEM F OUND AT PANO-KA-DARIBA HAS BEEN VALUED ON A VERY HIGH PRICE. THE DIFFERENCE IS ABOU T RS. 5,000/- TO RS. 6,000/- AND NO REASON WHATSOEVER HAS BEEN ASSIGNED BY THE VALUER T HAT WHY THIS DIFFERENCE IS THERE WHEREAS THE SAME ITEMS WERE FOUND. FOR THE SAKE OF CLARIFICATION, WE ARE ENCLOSING HEREWITH THIS CHART ALONG WITH CHART SHOWING DETAIL S OF ENTRIES IN THE STOCK REGISTER OF GOODS LYING AT PANO-KA-DARIBA DURING THE COURSE OF SEARCH AS ANNEXURE A AND ANNEXURE- B. 31 15. THERE IS ONE MORE POINT TO BE CONSIDERED THAT T HE VALUER HAS SHOWN THE TOTAL WEIGHT OF AMETHYST ROUGH FOUND AT PANO-KA-DARIBA AT 8550 KG AND THIS HAS BEEN ARRIVED AT BY THE VALUER AS UNDER :- 171 BAGS X 50 KG = 8,550 KG. IT MEANS THAT EACH BAG OF THIS ITEM CONTAINS 50 KG WEIGHT. THIS IS NOT POSSIBLE. THE ACTUAL WEIGHT CANNOT BE 50 KG OF EACH BAG. THERE MUST BE S OME DIFFERENCE. IT MEANS THE STOCK HAS NOT BEEN COUNTED PROPERLY AND, THEREFORE, TOTAL EXACT WEIGHT HAS NOT BEEN NOTED BY THE VALUER. THIS COULD HAVE BEEN VERIFIED FROM THE STOC K REGISTER WHERE WEIGHT IS MENTIONED OF EACH ITEM WHICH IS SUPPORTED BY PURCHASE VOUCHER S. THEREFORE, THIS CREATES A DOUBT THAT FAIR VALUATION HAS NOT BEEN DONE BY THE VALUER . 15.1. IT IS FURTHER NOTICED THAT THE CONTENTION OF THE ASSESSEE THAT THE COST OF STOCK FOUND AT PANO-KA-DARIBA WAS NOT MORE THEN RS. 4,00,00,000 /- AND THIS CONTENTION OF THE ASSESSEE HAS NOT BEEN FOUND INCORRECT. ONLY IN SUP PORT OF THE CONTENTION OF THE DEPARTMENT IS VALUATION REPORT WHEREAS AS EXPLAINED ABOVE THE VALUERS REPORT IS DEFECTIVE ON VARIOUS COUNTS. THEREFORE, EITHER DEPARTMENT SH OULD HAVE ACCEPTED THE OFFER OF THE ASSESSEE OR SHOULD HAVE REVALUED THE STOCK. THERE I S A STRONG PRESUMPTION IN FAVOUR OF THE ASSESSEE THAT DEPARTMENT ITSELF WAS NOT GOING FURTH ER FOR MAKING REVALUATION OR EXAMINING THE ISSUE AS THEY FOUND THAT ASSESSEE HAS OFFERED T O SURRENDER RS. 4,00,00,000/- AS COST OF STOCK FOUND AT PANCHNAMA. EVEN AND OTHERWISE THIS IS A FACTUAL ASPECT THAT COST OF THE MATERIAL HAS TO BE TAKEN, AS ASSESSEE IS VALUING IT S STOCK ON THE BASIS OF PURCHASE PRICE OR MARKET PRICE WHICHEVER IS LOWER. THE ACCOUNTS OF TH E ASSESSEE ARE AUDITED. IT IS ALSO A MATTER OF FACT THAT AS AND WHEN THE STOCK IS SOLD T HE SALE VALUE WILL BE TAKEN INTO ACCOUNT AND IF ASSESSEE HAS SHOWN LOWER COST THEN THE PROFI T WILL BE MORE AND THE SAME SHALL BE 32 OFFERED FOR TAXATION AS THE PROFIT HAS TO BE SHOWN ONLY AFTER SALE AND NOT BEFORE. THEREFORE, IT IS NOT A CASE OF THE DEPARTMENT THAT IF THE VALUATION ADOPTED BY THE DEPARTMENTAL VALUER WHICH IS AS PER MARKET RATE IS NOT ACCEPTED THEN THERE WILL BE A LOSS TO THE REVENUE. IT IS ALSO A MATTER OF FACT THAT THE VALUATION DONE BY THE DEPARTMENT IS ON THE BASIS OF MARKET PRICE AND NOT ON THE BASIS OF COST PRICE. THIS IS EVIDENT FROM THE VALUATION REPORT AS IN THE REPORT IT IS MENTIONED T HAT THE DATE OF VALUATION IS 23.8.2007. THEREFORE, IT IS CLEAR THAT THE VALUER HAS ADOPTED MARKET RATE. IT IS ALSO A MATTER OF COMMON KNOWLEDGE THAT VALUATION DONE BY THE DEPARTM ENTAL VALUER OR ANY OTHER VALUER HAS TO BE MADE ON THE BASIS OF MARKET PRICE AND IF THE PRICE HAS TO BE DETERMINED ON THE BASIS OF COST PRICE THEN THE DATE OF VALUATION HAS TO BE MADE IN THE VALUATION REPORT BY MENTIONING THAT THIS IS THE DATE FOR THE PURPOSE OF COST PRICE WHICH IS NOT MENTIONED IN THE VALUERS REPORT AND THE DATE OF VALUATION IS MENTIO NED AS 23.8.2007 ASSTATED ABOVE. WE HAVE ALSO GONE THROUGH THE COPY OF PURCHASE BILLS W HICH ARE PLACED IN THE COMPILATION AND AS PER THESE PURCHASE BILLS THE MATERIAL FOUND AT PANO-KA-DARIBA WAS PURCHASED FROM ASSESSMENT YEAR 1996-97 TO 2003-04. THEREFORE, THER E IS NO DOUBT THAT THE STOCK WAS PURCHASED IN THE PAST WHICH HAS BEEN RECORDED IN TH E BOOKS OF ACCOUNT ALSO. 16. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CA SE OF AMAR KUMARI SURANA, 226 ITR 344 HAS HELD THAT MERELY ON THE BASIS OF VALUAT ION REPORT ADDITION CANNOT BE MADE AND ASSESSEE SHOULD BE GIVEN OPPORTUNITY TO EXPLAIN AS TO WHY NOT THE SAME SHOULD BE TAKEN AS THE BASIS OF DETERMINING COST OF INVESTMEN T AND IF THE ASSESSEE HAS DISPUTED THE SAME, INFERENCE SHOULD BE DRAWN AFTER CONSIDERING T HE OBJECTION RAISED BY THE ASSESSEE. 33 17. IN THE PRESENT CASE THE ASSESSEE HIMSELF HAS RA ISED THE OBJECTION DURING THE SEARCH PROCEEDINGS ITSELF. HOWEVER, NO REVALUATION WAS DO NE. THEREFORE, IN OUR CONSIDERED VIEW THE ADDITION MADE ON THE BASIS OF VALUATION REPORT WAS NOT JUSTIFIED AND, THEREFORE, THE LD. CIT (A) WAS ALSO NOT JUSTIFIED TO CONFIRM THE ACTIO N OF THE AO. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE DELETE THE ADDITION OF RS. 5,45,5 0,000/-. 18. NEXT ISSUE INVOLVED IN THE APPEAL OF THE ASSESS EE AS WELL AS IN THE APPEAL OF THE DEPARTMENT IS AGAINST NOT ALLOWING THE BENEFIT OF G ROSS PROFIT REDUCED BY THE ASSESSEE ON ACCOUNT OF VALUATION MADE ON ACCOUNT OF 14, VISHNUP URI AND 14A, VISHNUPURI. 19. THE AO HAS MADE ADDITION OF RS. 1.38 CRORES ON THIS ACCOUNT BY NOT ACCEPTING THE EXPLANATION OF THE ASSESSEE THAT THE VALUATION DONE BY THE VALUER IS ON THE BASIS OF MARKET VALUE AND THE VALUATION DATE IS BETWEEN 23.8.2007 T O 27.8.2007. THEREFORE, THE VALUATION EMBEDDED WITH THE GROSS PROFIT AND THE SAME HAS TO BE REDUCED. THE AO HAS REJECTED THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT ASSESS EE FAILED TO SUBSTANTIATE THAT THE VALUATION WAS MADE ON THE BASIS OF MARKET VALUE. TH E AO HAS ALSO OBSERVED IN HIS ORDER THAT ON VALUATION REPORT THE ASSESSEE HAS MADE HIS SIGNATURE. IT MEANS THE ASSESSEE HAS ACCEPTED THE VALUATION DONE BY VALUER. THE LD. CIT (A) AFTER CONSIDERING THE SUBMISSIONS HAS GIVEN PART RELIEF BY REDUCING 5% ON ACCOUNT OF GROSS PROFIT. 20. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE ARE OF THE CONSIDERED VIEW THAT ASSESSEE DESERVES TO SUCCE ED HERE ALSO THOUGH IN PART. WE HAVE ALREADY DISCUSSED THE ISSUE IN RESPECT OF VALUATION THAT WHETHER THIS IS BASED ON THE MARKET VALUE OR ON THE COST PRICE. IN THE VALUATIO N REPORT ALSO THE VALUER HAS MENTIONED THE DATE OF VALUATION MEANING THEREBY THE VALUATION HAS BEEN DONE ON THEBASIS OF MARKET 34 RATE AND NOT ON THE BASIS OF COST PRICE. THE ASSES SEE HAS ACCEPTED THE VALUATION DONE BY THE VALUER IN RESPECT OF THE STOCK FOUND AT 14 AND1 4A, VISHNUPURI. ASSESSEE IS NOT DENYING THE VALUATION DONE BY THE VALUER, HOWEVER, REDUCING THE GROSS PROFIT EMBEDDED IN THE VALUATION. THE GROSS PROFIT AS PER TRADING RES ULT SHOWN BY ASSESSEE AT 20% THEREFORE, HE REDUCED THE GROSS PROFIT OF 20% FROM THE VALUATI ON SHOWN BY VALUER ON ACCOUNT OF STOCK FOUND AT VISHNUPIRI. IT IS SETTLED POSITION IN LAW THAT THE PROFIT EMBEDDED IN THE STOCK HAS TO BE REDUCED WHILE TAKING THE COST PRICE OF THE SAME. THE ADDITION CAN BE MADE ON THE BASIS OF COST PRICE OR MARKET PRICE WHICHEVE R IS LOWER AS THE ASSESSEE IS VALUING THE CLOSING STOCK ON THIS METHOD I.E. MARKET PRICE OR C OST PRICE WHICHEVER IS LOWER. PROFIT CANNOT BE ADDED BEFORE MAKING THE SALE OF THAT STOC K. AFTER SALE IT MAY BE 20% OR MAY BE MORE AND THE SAME HAS TO BE SHOWN ONLY AFTER THE SA LE OF STOCK. THE STOCK FOUND AT THESE TWO PLACES ARE STOCK IN HAND, THEREFORE, THE PROFIT CANNOT BE ADDED. ACCORDINGLY, WE ARE OF THE VIEW THAT ASSESSEE WAS RIGHT IN REDUCING THE GROSS PROFIT RATE FROM THE VALUATION OF THE CLOSING STOCK ADOPTED BY THE VALUER WHICH IS BA SED ON THE MARKET PRICE ON THE DATE OF VALUATION. 20.1. HOWEVER, THE CORRECT FIGURE WILL BE RS.1,31,4 0,000/- AND NOT RS.1,38,00,000/- SHOWN BY THE ASSESSEE. 20.2. THE COPY OF PROFIT & LOSS ACCOUNT IS PLACED O N RECORD AND AFTER GOING THROUGH THE SAME IT IS FOUND THAT THE GROSS PROFIT SHOWN BY ASS ESSEE IS 19.7% AND NOT 20%. THEREFORE, DEDUCTION HAS TO BE ALLOWED @ 19.7% OF THE GROSS PR OFIT. THE VALUATION OF THE CLOSING STOCK AT 14, VISHNUPURI AND 14A, VISHNUPURI IS OF R S. 6.67 CRORES AND RS. 0.06 CRORES RESPECTIVELY. TOTAL OF BOTH WILL BE OF RS. 6.73 CRO RES AND @ 19.7% G.P. THE FIGURE WILL COME TO RS 1.31,40,000/-. THEREFORE, TO THIS EXTENT THE DEDUCTION HAS TO BE ALLOWED ONLY AND NOT RS.1.38CRORES. ACCORDINGLY, WE DIRECT THE AO TO MODIFY HIS ORDER TO GIVE BENEFIT OF REDUCTION OF GROSS PROFIT AT RS. 1,31,40,000/- A GAINST CLAIM OF RS.1.38,00,000/-. IN THIS WAY, THIS GROUND OF THE ASSESSEE IS ALLOWED PARTLY AND THE GROUND OF THE DEPARTMENT FAILS. 35 21. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D IN PART AND APPEAL OF THE DEPARTMENT IS DISMISSED. 22. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 10 .6.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER ENCLOSED. ANNEXURES-A AND B. JAIPUR, D/- COPY FORWARDED TO :- M/S. AKASH GEMS PVT. LTD., JAIPUR. THE DCIT CENTRAL CIRCLE-2, JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 235(2)/JP/2011) BY ORDER, AR ITAT JAIPUR. 36 AKASH GEMS PVT. LTD CHART SHOWING THE DETAILS OF ENTRIES IN THE STOCK R EGISTER OF THE GOODS LYING AT PANO KA DARIBA DURING THE COURSE OF SEARCH S.NO. DESCRIPTION OF GOODS DATE BILL NO. PARTY NAME BUYER NAME OTY. (IN KG) AM OUNT APB OF BILL APB OF STOCK REGISTER 1 AMETHYST 18.04.1994 2363 KEDIA JEWELLERS AKASH GE MS 250 10,000 169 CITRINE 250 10,000 2 AMETHYST 27.05.1999 J-7/99-00 RAJENDRAKUMAR A SHA H VASUNDHARA GEMS 2450 122,500 170 40 3 AMETHYST 14.12.1999 J-66/99-00 RAJENDRAKUMAR A SH AH VASUNDHARA GEMS 1108 66,480 171 40 4 AMETHYST 07.10.2000 J-58/00-01 RAJENDRAKUMAR A SH AH VASUNDHARA GEMS 350 5,250 172 44 AMETHYST 200 65,000 44 5 AMETHYST 14.08.2002 72 RATNAWALI GEMS VASUNDHARA GEMS 1000 110,000 173 53 6 AMETHYST 23.06.2003 J-13/03-04 RAJENDRAKUMAR A SH AH VASUNDHARA GEMS 1383 208,800 174 59 7 AMETHYST 11.09.2003 109 RATNAWALI GEMS VASUNDHARA GEMS 1300 143,000 175 59 8 AMETHYST 13.07.2000 971 MODI EXPORT HOUSE VASUNDH ARA GEMS 200 37,000 176 43 9 GARNET 05.10.2004 163 RATNAWALI GEMS AKASH GEMS P VT LTD 454.12 54,494 177 132 H GARNET 407.8 69,326 10 CITRINE 11.06.2003 1114 V.K. ENTERPRISES AKASH G EMS 500 40,250 178 CITRINE 16 1,840 AQUMARINE 100 13,000 125 11 AQUMARINE 23.07.2003 66 ANMOL RATAN AKASH GEMS 9 88.205 123,525 179 125 CITRINE 110.73 12,180 12 PERIDOT 12.10.1998 75 NARAYAN GEMS AKASH GEMS 20 0 26,286 180 AMETHYST 359 258,475 PERIDOT 1294.5 41,230 TOURMALINE 232.67 43,043 TANZONITE 22.14 5,535 13 TOURMALINE 04.03.2000 267 BARDIYA ENTERPRISES AK ASH GEMS 485 97,485 181 14 TOURMALINE 19.10.2001 30 RATNAWALI GEMS AKASH GE MS 885 39,825 182 15 ROTILE 21.08.2006 1334 BARDIYA ENTERPRISES AKASH GEMS PVT LTD 105.46 10,651 183 155 AMETHYST 800 1,720,000 149 16 ROSE QUARTZ 28.03.2007 97 SHAIL IMPORTS PVT. LTD AKASH GEMS PVT LTD 550 22,000 184 154 CORNOLINE 25 3,500 LABRADONIT 2 200 TOTAL 16028.625 3,360,876 37 M/S AKASH GEMS PVT. LTD. COMPARISION CHART OF VALUATION DONE AT VARIOUS PLAC ES DURING THE COURSE OF SEARCH BASEMENT AT VISHNUPURI PANNO KA DARIBA PARTICULARS DATE OF VALUATION 27.08.07 DATE OF VALUATION 23.08. 07 DESCRIPTION OF GOODS APB ITEM NO. RATE PER KG. APB ITEM NO. RATE PER KG. AMETHYST ROUGH 227 1 550 238 1 8000 AQUMARINE ROUGH 227 2 760 238 9 9000 GARNET ROUGH 227 3 200 238 7 15000 CITRINE ROUGH 227 18 450 238 3 5000 TOURMALINE ROUGH 227 20 140 238 5 11000 AMETHYST ROUGH 227 24 125 238 1 8000 PARIDOT ROUGH 227 23 300 238 6 12000 ROSE QUARTZ 227 11 75 238 2 6000 ROTILE ROUGH 227 19 35 238 4 7000 GREEN AMETHYST ROUGH - - - 238 8 8000