M/s Prathibha Jewellery House, Bangalore V. DCIT, Bangalore

ITA 585/BANG/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3606 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 01-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FARHAT HUSSAIN QURESHI
• Assessee Lawyers: V SRINIVASAN
• Keywords: Search and seizure; Valuation report; Validity of assessment
• Section: 153A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER A ND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA NO. 585 /BAN G/2014 ASSESSMENT YEAR : 20 11 - 12 M/S. PRATHIBHA JEWELLERY HOUSE, #1/1, RAJA RAM MOHAN ROY ROAD, RICHMOND CIRCLE, BANGALORE 560 025. PAN: AABFP1771G VS. THE DCIT, CENTRAL CIRCLE 1 [4], BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI V. SRINIVASAN, ADVOCATE RESPONDENT BY : SHRI FARHAT HUSSAIN QURESHI, CIT (DR) DATE OF HEARING : 2 4 . 0 5 .2018 DATE OF PRONOUNCEMENT : 21 . 0 8 .2018 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE WHICH IS DIREC TED AGAINST THE ORDER OF LD. CIT (A) VI, BANGALORE DATED 28.02.2014 FOR ASSESS MENT YEAR 2011-12. IN FACT, THIS ORDER OF CIT (A) IS A COMBINED ORDER FOR 7 ASSESSMENT YEARS I.E. 2005-06 TO 2011-12. IN RESPECT OF ALL THESE SEVEN YEARS INCLUDING EARLIER SIX YEARS I.E. ASSESSMENT YEARS 2005-06 TO 2010-11, SEP ARATE APPEALS WERE FILED BY THE ASSESSEE WHICH WERE EARLIER DECIDED BY TRIBU NAL AS PER SEPARATE ORDER DATED 21.11.2014 IN ITA NOS. 579 TO 585/BANG/2014 A S PER WHICH THE TRIBUNAL RESTORED THE MATTER BACK TO THE FILE OF CIT (A) TO DECIDE ON THE VALIDITY OF ASSESSMENT BASED ON THE GROUND RAISED THAT THE SEAR CH ACTION WAS INVALID. LATER ON, THE ASSESSEE MOVED A MISCELLANEOUS PETITI ON AND AS PER ORDER DATED 23.01.2015 IN M.P. NO. 1/BANG/2015, IT WAS HELD BY THE TRIBUNAL THAT THE EARLIER TRIBUNAL ORDER IN ITA NO. 585/BANG/2014 DATED 21.11 .2014 IS RECALLED BECAUSE IT WAS FOUND BY THE TRIBUNAL THAT IN THIS YEAR, THE GROUNDS ARE AGAINST THE ADDITIONS MADE IN THE ASSESSMENT COMPLETED U/S. 143 (3) AND NOT AGAINST THE VALIDITY OF THE PROCEEDINGS U/S. 153A OF THE ACT. A S PER THIS DIRECTION OF THE ITA NO.585/BANG/2014 PAGE 2 OF 12 TRIBUNAL DATED 21.11.2014 FOR EARLIER SIX YEARS, TH E MATTER WAS RESTORED BACK TO THE FILE OF CIT(A) FOR FRESH DECISION FOR PROPER AD JUDICATION OF ADDITIONAL GROUNDS OF APPEAL RELATING TO VALIDITY OF JURISDICTION U/S. 153A AS WELL AS THE EXISTENCE OF CONDITIONS FOR ISSUANCE OF WARRANT U/S. 132A OF THE ACT AND THE ISSUE ON MERIT WAS NOT ADJUDICATED AS PER THIS TRIBUNAL ORDER AND THE LIBERTY WAS GRANTED BY THE TRIBUNAL TO THE ASSESSEE TO AGITATE THE ISSUE O N MERIT IN CASE THE CIT(A) DECIDES THE GROUNDS OF JURISDICTION AGAINST THE ASS ESSEE. ACCORDINGLY THE LD. CIT (A) HAS PASSED A FRESH ORDER DATED 11.02.2015 F OR THOSE EARLIER SIX YEARS AS PER WHICH HE HAS DECIDED THE ISSUE ON JURISDICTI ON. IN THE REMAINING APPEALS FOR EARLIER SIX YEARS I.E. ASSESSMENT YEARS 2005-06 TO 2010-11, THE ISSUES ON MERIT ARE BEING SEPARATELY DECIDED BY US IN ITA NOS . 2534 TO 2539/BANG/2017 AND THIS APPEAL FOR ASSESSMENT YEAR 2011-12 IS BEIN G DECIDED SEPARATELY AS PER THIS ORDER. 2. AT THE TIME OF HEARING OF THIS APPEAL, BOTH SIDE S AGREED THAT IN THIS YEAR, THERE ARE THREE ISSUES ON MERIT BEING 1) THE ADDITION MADE BY THE AO IN THE VALUATION OF CLOSING STOCK, 2) THE ADDITION MADE BY THE AO TO THE EXTENT OF GRO SS PROFIT ON ALLEGED UNACCOUNTED SALES AND 3) THE ADDITION MADE BY THE AO ON ACCOUNT OF EXCESS STOCK FOUND AT THE TIME OF SEARCH. 3. AT THE TIME OF HEARING, IT WAS ALSO AGREED BY BO TH SIDES THAT THE FIRST TWO ISSUES ARE COMMON IN THE EARLIER SIX YEARS AND THIS YEAR A ND THEREFORE, THE DETAILED ARGUMENTS MADE WHILE HEARING OF THE EARLIER SIX APP EALS FOR ASSESSMENT YEARS 2005-06 TO 2010-11 HEARD ON 21.05.2018 MAY BE CONSI DERED IN ASSESSMENT YEAR 2011-12 ALSO AND IN ASSESSMENT YEAR 2011-12, T HESE TWO ISSUES MAY BE DECIDED ON SIMILAR LINE. 4. REGARDING THIRD ISSUE I.E. REGARDING ADDITION ON ACCOUNT OF ALLEGED EXCESS STOCK FOUND AT THE TIME OF SEARCH, SEPARATE ARGUMENTS WER E MADE BY THE LD. AR OF ASSESSEE WHICH ARE LATER ON SUBMITTED BY HIM IN BRI EF SYNOPSIS AND WRITTEN SUBMISSIONS DATED 24.05.2018 AND THE RELEVANT PARAS OF THIS WRITTEN ITA NO.585/BANG/2014 PAGE 3 OF 12 SUBMISSIONS ARE PARA NOS. 6.1 TO 6.14 AND THE SAME ARE REPRODUCED HEREIN BELOW. ISSUE NO 3: ALLEGED EXCESS STOCK FOUND AT THE TIME OF SEARCH 6.1 IN COURSE OF SEARCH ON 02/09/2010 INVENTORY OF GOLD ORNAMENTS AND OTHER ITEMS OF JEWELLERY HELD BY THE APPELLANT FOR SALE CAME TO BE INVENTORISED BASED ON THE LOCATION VIZ., THE SAFE W HERE THE JEWELLERY WERE STORED AND THE COUNTERS WHERE THEY WERE DISPLA YED. SIMULTANEOUS INVENTORY WAS BEING TAKEN IN ABOUT 10 PLACES AND ONLY ONE PARTNER MR. MURALIMOHAN WAS PRESENT IN THE SHOP AND THE OTHER PARTNERS WERE AWAY IN THEIR RESIDENCES. THE INVENTO RY WAS DRAWN UP THROUGHOUT THE NIGHT AND CONCLUDED THE NEXT MORNING AT 10 AM. THE INVENTORY WAS TAKEN BY THE DEPARTMENTAL STAFF ONLY WITHOUT THE ASSISTANCE OF ANY APPROVED VALUER OR ANY OTHER EXPE RT IN THE FIELD OF JEWELLERY. IN AS MUCH AS THE PARTNERS OF THE APPELL ANT FIRM WERE NOT PRESENT WHEN THE INVENTORIES WERE TAKEN OR ANY PERS ON HAVING EXPERTISE OR KNOWLEDGE ABOUT JEWELLERY WAS PRESENT AND THE NET WEIGHT OF ORNAMENTS WERE NOTED DOWN ON APPROXIMATE BASIS A ND THE DIFFERENCE BETWEEN THE GROSS WEIGHT AND NET WEIGHT WAS TAKEN AS PRECIOUS STONES IN SEVERAL PAGES OF THE INVENTORY. SEVERAL GLARING ERRORS WERE FOUND IN MANY OF THE PAGES OF INVENTORY THAT RAN INTO 200 PAGES AND THIS WAS POINTED OUT IN SEVERAL CORRESPON DENCES WITH THE INVESTIGATION WING. THE ENTIRE INVENTORY TAKEN IN T HE SEARCH IS GIVEN IN PAPER BOOK NO.VI FROM PAGES 1061 TO 1277. 6.2 THE APPELLANT WAS CALLED UPON TO EXPLAIN THE DI FFERENCE BETWEEN THE BOOK STOCK AND PHYSICAL STOCK FOUND AT THE TIME OF SEARCH BY THE DDIT [INV.] AND VIDE LETTER DATED 27/09/2010, THE L EARNED DDIT FURNISHED THE PAGE-WISE REVISED TOTALS IN RESPECT O F SEVERAL PAGES OF INVENTORY WHERE THE APPELLANT HAD EARLIER POINTED O UT ERRORS [SEE PAGE 207 TO 208 OF THE PAPER BOOK NO.II]. 6.3 UPON RECEIPT OF THE SAME, THE APPELLANT VIDE LE TTER DATED 30/09/2010 [SEE PAGE 212 TO 218 OF THE PAPER BOOK N O.II] FILED AN EXPLANATION POINTING OUT THAT THERE WERE 30000 PIEC ES OF JEWELLERY AND 6000 PIECES OF SILVER ARTICLES AND THE SAME WERE PL ACED IN THE PALATIAL SHOW ROOM IN 11 DIFFERENT COUNTERS WHICH ARE CALLED BY DIFFERENT NAMES. THE JEWELLERY WERE MAINTAINED USING A SOFTWA RE PROGRAM AND EACH ITEM OF JEWELLERY BORE A TAG TO ENABLE FOOLPRO OF SYSTEM OF STOCK KEEPING AND REGULAR PHYSICAL STOCK WAS BEING TAKEN TO CHECK THE PHYSICAL STOCK ON A DAY-TO-DAY BASIS. IT WAS ALSO P OINTED OUT THAT THE ENTIRE ITEMS IN STOCK WERE SUPPORTED BY PURCHASE BI LLS AND THE SALE BILLS WITH GROSS WEIGHT AND NET WEIGHT OF EACH ITEM ENTERED IN THE SOFTWARE. RECONCILIATION OF THE GROSS WEIGHT OF ORN AMENTS IN ALL THE COUNTERS AS PER THE SOFTWARE FOR MAINTENANCE OF THE ORNAMENTS WHEN COMPARED TO THE FIGURE OF BOOK STOCK BASED ON PURCH ASES, SALES, ETC., RESULTED IN A MINOR VARIATION OF 424.478 GMS. ONLY, WHICH WAS ULTIMATELY REDUCED TO 115.248 GRAMS AS SHOWN IN PAR A 6.20 POST. ITA NO.585/BANG/2014 PAGE 4 OF 12 6.4 IT WAS ALSO POINTED OUT IN THE AFORESAID SUBMIS SION THAT THE RECONCILIATION OF THE BOOK STOCK WITH THE DEPARTMEN TAL INVENTORY TAKEN AT THE TIME OF SEARCH AS REQUIRED COULD BE TAKEN UP ONLY IF THE FIGURE OF NET WEIGHT MENTIONED IN INVENTORY BY THE DEPARTMENT OFFICERS WAS PROPERLY SUBSTANTIATED AND EXPLAINED. IT WAS POINTE D OUT THAT THE NET WEIGHT WAS NOT RECORDED IN THE INVENTORY BASED ON T HE NET WEIGHT OF THE ORNAMENT ALREADY ENTERED IN THE SOFTWARE FOR ST OCK MAINTENANCE, WHICH WOULD HELP IN EASILY IDENTIFYING THE ITEMS. I T WAS ALSO POINTED OUT THAT THE REQUEST OF THE APPELLANT TO TAKE THE S TOCK BASED ON THE COUNTERS AND THE SOFTWARE WAS REJECTED AND SIMULTAN EOUS STOCK WAS TAKEN UP IN DIFFERENT LOCATIONS WITHOUT CONSULTING THE APPELLANT. SEVERAL GLARING MISTAKES NOTICED IN THE DEPARTMENTA L INVENTORY SHEETS WERE ALSO CATALOGUED AND IT WAS POINTED OUT THAT ON E PAGE OF INVENTORY WAS MISSING AND SEVERAL ORDINARY STONES A ND CHEMICAL STONES WERE RECORDED AS PRECIOUS STONES OR DIAMONDS WITHOUT ANY EXPERT CERTIFYING THE SAID INVENTORY. IN SHORT, IT WAS PLEADED THAT THE PHYSICAL STOCK DRAWN AT THE TIME OF SEARCH WAS NOT RELIABLE AND THE RECONCILIATION OF THE ERRONEOUS FIGURES WITH THE BO OK STOCK WAS NOT POSSIBLE UNLESS THE WORKING SHEETS FOR DRAWING UP T HE INVENTORY WERE PROVIDED. 6.5 IN SPITE OF THE SAID POSITION, THE APPELLANT FU RNISHED A DETAILED RECONCILIATION OF PHYSICAL STOCK WITH BOOK STOCK AL ONG WITH THE EXPLANATION FOR THE DIFFERENCE WITH REGARD TO THE G OLD JEWELLERY, BULLION AND DIAMONDS VIDE LETTER DATED 12/11/2010 [ SEE PAGE 221 & AT 229 TO 237 OF THE PAPER BOOK NO.II]. IN RESPECT OF OTHER ITEMS LIKE SILVER, PLATINUM AND PRECIOUS STONES, THE APPELLANT SOUGHT FOR SOME TIME IN THIS LETTER. WHILE FURNISHING THE RECONCILI ATION, THE APPELLANT CORRECTED CERTAIN ERRORS IN THE PHYSICAL INVENTORY DRAWN LIKE WRONG TOTALS IN GROSS WEIGHT AND NET WEIGHT, ETC., AND AT PAGE 280 OF THE PAPER BOOK NO.II, THE MODIFIED LIST OF SUMMARY STAT EMENT OF STOCK SHOWING THE FIGURES BEFORE CORRECTIONS AND FIGURES AFTER CORRECTIONS IS GIVEN, WHICH IS THE SAME AS THE LIST IN THE MAIN LE TTER AT PAGE 230 OF THE PAPER BOOK NO.II. THE CORRECTED FIGURES FURNISH ED BY THE APPELLANT HAVE BEEN ACCEPTED BY THE DEPARTMENT AND THE ENTIRE ISSUE HAS BEEN EXAMINED ON THIS BASIS ONLY. THE APPELLANT HAS ALSO GIVEN THE BOOK STOCK OF THE FIRM ON THE DATE OF SEARCH AT PAGE 281 OF THE PAPER BOOK NO.II AND SUMMARIZED HEREUNDER IS THE PHYSICAL STOC K AND BOOK STOCK IN RESPECT OF DIAMONDS, 22 CT. ORNAMENTS, BULLION A S UNDER : CORRECTED PHYSICAL STOCK BOOK STOCK BULLION 5435.610 GMS. 5463.570 GMS 22 CT.ORNAMENT [NT. WT.] 231361.594 GMS. 239892.07 5 GMS 18 CT.ORNAMENT [NT. WT.] 29279.916 GMS. 29425.769 GMS DIAMONDS 5067.261 CTS. 5122.847 CTS. 6.6 IT IS SUBMITTED THAT THE APPELLANT HAS GIVEN IT S WORKINGS IN PAGES 277 TO 281 OF THE PAPER BOOK NO.II ALONG WITH DOCUM ENTARY EVIDENCE TILL PAGE 300 AND THERE IS NO DISPUTE WITH REGARD T O BULLION AND ITA NO.585/BANG/2014 PAGE 5 OF 12 DIAMONDS AS NO ADDITION HAS BEEN MADE IN RESPECT OF THESE 2 ITEMS. ONLY IN RESPECT OF 22 CT. GOLD, THE A.O. FOUND THAT THE APPELLANT HAS DEFICIT STOCK OF 8530.481 GMS. FOR WHICH AN ADDITIO N OF RS.12,18,163/- HAS BEEN MADE AS GROSS PROFIT ON UNACCOUNTED SALES. IN RESPECT OF 18 CT. GOLD ORNAMENTS, THE LEARNED A.O. HAS ARRIVED AT EXCESS STOCK OF 415.342 GMS. AND AN ADDITION OF RS.6,08,475/-HAS BE EN MADE AS UNACCOUNTED PURCHASES. THE RELEVANT DISCUSSION IN R ESPECT OF THESE 2 ADDITION ARE CONTAINED IN PARA [8] & [9] AT PAGES [ 18 & 19] OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2011-12. 6.7 GOING BACK TO THE POST SEARCH OPERATIONS, IT IS SUBMITTED THAT THE APPELLANT HAD ALSO FURNISHED A DETAILED RECONCILIAT ION IN RESPECT OF PLATINUM, SILVER AND PRECIOUS STONES VIDE LETTER DA TED 22/11/2018 [SEE PAGE 301 OF THE PAPER BOOK NO.II]. THE RECONCILIATI ON OF PLATINUM, SILVER AND PRECIOUS STONES ALONG WITH THE DETAILED EXPLANATION IN RESPECT OF EACH ITEM CAN BE FOUND AT PAGE 307 TO 31 4 OF THE PAPER BOOK NO.11. IT WAS POINTED OUT THAT THERE WAS NO EX CESS STOCK IN RESPECT OF THESE ITEMS FOUND AT THE TIME OF SEARCH. IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2011-12, THE LEARNED A.O. HAS ACCEPTED THE CONTENTIONS OF THE APPELLANT WITH REGARD TO PLA TINUM AND SILVERWARES SINCE NO ADDITION HAS BEEN MADE EITHER TOWARDS EXCESS STOCK OR DEFICIT STOCK IN RESPECT OF THESE ITEMS. H OWEVER, THE A.O. PROCEEDED TO MAKE AN ADDITION OF RS.2,40,00,000/- I N RESPECT OF PRECIOUS STONES HOLDING THAT THERE WAS AN EXCESS ST OCK TO TUNE OF 8700 GMS. THE RELEVANT DISCUSSION IS IN PARA [10] TO [10 .3] OF THE ASSESSMENT ORDER AT PAGE [19 & 20]. 6.8 ON APPEAL, THE LEARNED CIT [APPEALS] VIDE ORDER DATED 28/02/2014 DELETED THE ADDITION MADE IN RESPECT OF THE GROSS PROFIT ON DEFICIT STOCK OF 22 CT. ORNAMENTS OF RS.12.18,163/- SINCE AN ADDITION OF RS.33,10,000/- WAS ALREADY MADE BASED ON THE GROSS PROFIT ON UNACCOUNTED SALES BASED ON THE DATA FROM THE 4 LOG TABLES MENTIONED IN ISSUE NO.2 ABOVE. THE LEARNED CIT [APPEALS] CONF IRMED THE ADDITIONS MADE IN RESPECT OF THE ALLEGED EXCESS STO CK OF 18 CT. GOLD IN PARA [14] OF THE ORDER (PAGE 981 OF PAPER BOOK NO.V ] AND THE ADDITION OF RS.2,40,00,000/- TOWARDS THE ALLEGED EX CESS STOCK OF PRECIOUS STONES IN PARA [15.2] [PAGE 981 OF PAPER B OOK NO.V]. HOWEVER, SHE ALLOWED TELESCOPING TO THE EXTENT OF R S.20,91,837/- [RS.33,10,000 MINUS RS.12,18,163/-] TOWARDS UNEXPLA INED INVESTMENTS. THUS, THE APPELLANT IS AGGRIEVED WITH THE ADDITIONS MADE IN RESPECT OF THE SO-CALLED EXCESS STOCK OF 18 CT. ORNAMENTS AND PRECIOUS STONES SUSTAINED BY THE LEARNED CIT [APPEA LS]. 6.9 THE CONTENTIONS OF THE APPELLANT ARE THAT THERE WERE SEVERAL FOUNDATIONAL ERRORS THAT LED TO INCORRECT RECORDING OF THE INVENTORY TAKEN AT THE TIME OF SEARCH. THEY ARE : (A) ONE OF THE INVENTORY SHEET WAS MISSING; (B) PURITY OF ORNAMENTS EITHER 22 CT OR 18CT WAS NOT ME NTIONED IN A MANY OF SHEETS (C) NET WEIGHT OF ORNAMENTS BEING WRITTEN ON A GUESS WO RK BY THE ITA NO.585/BANG/2014 PAGE 6 OF 12 OFFICERS WHO HAD NO KNOWLEDGE OF JEWELLERY (D) DIAMOND WEIGHTS BEING WRONGLY NOTED UNDER PRECIOUS STONES COLUMN (E) DIFFERENCE OF GROSS WEIGHT AND NET WEIGHT OF ORNAME NTS WRONGLY NOTED UNDER PRECIOUS STONES COLUMN (F) NET WEIGHT COLUMN LEFT BLANK IN A FEW OF THE ENTRIE S (G) INVENTORY TAKING PLACE SIMULTANEOUSLY AT 10 PLACES (H) INVENTORY WAS NOT TAKEN IN THE PRESENCE OF ANY PART NER OR JEWELLERY EXPERT. 6.10 THE APPELLANT HAS SUMMARIZED THE AFORESAID SHO RT COMINGS IN THE INVENTORY IN PAGE [1060] OF THE PAPER BOOK NO.IV, B Y GIVING REFERENCE TO THE RELEVANT INTERNAL PAGE NUMBER OF THE INVENTO RY THAT RUNS INTO MORE THAN 200 PAGES, WHICH MAY KINDLY BE PERUSED. 6.11 THE AFORESAID ERRORS IN THE PHYSICAL INVENTORY TAKEN WERE REPORTED IMMEDIATELY UPON DISCOVERY TO THE LEARNED DDIT. HOWEVER, THE LEARNED A.O. IN THE ASSESSMENT ORDER HAS STATED THAT IT WAS REPORTED AFTER 80 DAYS FROM THE DATE OF SEARCH AND THUS, THE SAME CANNOT BE ACCEPTED. IT IS RELEVANT TO POINT OUT HER E THAT AT THE TIME OF SEARCH, THERE WAS NO ALLEGATION THAT THERE WAS EXCE SS STOCK OR DEFICIT STOCK IN THE STATEMENTS RECORDED U/S.132[4] OF THE ACT. THERE WAS NO STATEMENT TAKEN FROM ANY OF THE PARTNERS AT THE TIM E OF SEARCH ON THIS ISSUE BECAUSE THE GROSS TOTALS OF MORE THAN 200 PAG ES WERE NOT DONE IMMEDIATELY ON THE DATE OF SEARCH. EVEN LATER-ON WH EN THE SAME WERE GIVEN TO THE APPELLANT THERE WERE ERRORS AND THE SA ME WERE POINTED OUT AND THE APPELLANT HAS RECONCILED THE SAME WITH RESPECT TO ITS COUNTER STOCKS AVAILABLE IN THE SOFTWARE AND SUBMIT TED IT BY ITS LETTERS DATED 30/09/2010 AND 12/11/2010, WHICH HAVE BEEN RE FERRED TO IN THE EARLIER PART OF THESE SUBMISSIONS. THE PRODUCTS INV OLVED ARE GOLD AND DIAMOND STUDDED JEWELLERY OF DELICATE NATURE AND GR EAT VALUE AND THAT TOO OF AN ENORMOUS QUANTITY OF 300 KGS. AND MORE. I N SPITE OF ALL THE CONFUSION ARISING OUT OF THE ERRONEOUS MANNER IN WH ICH THE INVENTORY WAS TAKEN, THE APPELLANT PROCEEDED TO RECONCILE THE BOOK STOCK WITH RESPECT TO THE COMPUTER STOCK THAT WAS AVAILABLE IN THE HARD DISC AND ON RECONCILIATION, THERE WAS ONLY A VERY SMALL DIFF ERENCE OF 155.248 GMS, WHICH IS HARDLY A 0.015% OF THE TOTAL STOCK. T HIS FACT HAS BEEN TOTALLY LOST SIGHT OF BY THE LEARNED CIT [APPEALS] WHO HAS SUSTAINED THE ADDITION IN RESPECT OF THE ALLEGED EXCESS STOCK OF 18 CT. GOLD ORNAMENTS. THE SAME DESERVES TO BE DELETED. 6.12 COMING TO THE ADDITION OF RS. 2.4 CRORES MADE IN RESPECT OF THE STOCK OF PRECIOUS STONES, IT IS SUBMITTED THAT THE GENESIS OF THIS ADDITION STEMS FROM THE RECORDING OF THE 17438.940 GRAMS AS THE WEIGHT OF PRECIOUS STONES AT THE TIME OF TAKING PHY SICAL INVENTORY. IT IS SUBMITTED THAT WHILE DRAWING UP THE INVENTORY OF TH E GOLD ET OTHER JEWELLERY AT THE TIME OF SEARCH, THE GROSS WEIGHT O F THE ORNAMENTS AND THE NET WEIGHT OF THE ORNAMENTS ON APPROXIMATION WA S NOTED. THE DIFFERENCE BETWEEN THE TWO FIGURES WAS NOTED UNDER THE COLUMN 'PRECIOUS STONES' IN THE PRINTED INVENTORY. IT IS S UBMITTED THAT THE ITA NO.585/BANG/2014 PAGE 7 OF 12 OFFICERS WHO RECORDED THE INVENTORY HAD NO KNOWLEDG E OR EXPERTISE TO JUDGE WHETHER A STONE IS A GEM OR AN ORDINARY CHEMI CAL STONE AS THEY WERE NOT ASSISTED BY ANY EXPERT OR ANY OTHER COMPET ENT PERSON. THEY SIMPLY FILLED UP THE PRINTED INVENTORY SHEETS WHICH CONTAINED THE COLUMNS WITH HEADINGS PRINTED ON TOP OF THE COLUMNS NAMELY SL.NO. DESCRIPTION, GROSS WEIGHT, NET WEIGHT AND PRECIOUS STONE. AT ONE STAGE, IT WAS REALIZED THAT THE WORD 'PRECIOUS' IN WORD 'P RECIOUS STONES' WAS WRONG AND HENCE, THE SAME WAS CORRECTED AS 'STO NES'. UNFORTUNATELY, THE SAME CORRECTION WAS IGNORED TO B E DONE IN THE SUBSEQUENT PAGES WHERE THE COLUMN HEAD CONTINUED TO BE PRECIOUS STONES INSTEAD OF STONES. THE COPY OF THE INVENTORY SHEET IS PLACED PAGE 814 OF PAPER BOOK NO.IV. 6.13 IT IS SUBMITTED THAT THE CLAIM OF THE APPELLAN T AND THE ERRORS POINTED OUT LIKE DIAMONDS BEING NOTED AS PRECIOUS S TONES WAS ACCEPTED WITHOUT ANY RESISTANCE BY THE A.O. AND COR RECTED AS DIAMONDS. UNFORTUNATELY, WHEN THE APPELLANT POINTED OUT THAT THE ORDINARY CHEMICAL STONES WERE WRONGLY NOTED AS PREC IOUS STONES, THE A.O. REFUSED TO ACCEPT THE EXPLANATION OF THE APPEL LANT. THUS, AN UNIMAGINABLY HUGE QUANTITY OF ABOUT 17.5 KGS WAS RE GARDED AS PRECIOUS STONES, WHICH IS EQUIVALENT TO ABOUT 85,00 0 CTS. [5 CTS. EQUALS 1 GRAM] AS HELD BY THE APPELLANT AND 50% THE REOF OF 8.7 KGS. WERE BROUGHT TO TAX IGNORING THE SUBMISSION THAT TH E APPELLANT DID NOT CARRY EVEN 2% OF THE WEIGHT THAT WAS BROUGHT. TO TA X. IT IS SUBMITTED THAT SUCH HUGE QUANTITY OF PRECIOUS STONES IS NOT E VEN HELD BY PURE LOOSE GEM DEALERS, LEAVE ALONE, JEWELERS LIKE THE A PPELLANT. 6.14 IT IS SUBMITTED THAT THE ABOVE ARBITRARY APPRO ACH OF DETERMINING THE EXTENT OF PRECIOUS STONES IS WITHOUT ANY BASIS AND BY PLACING RELIANCE ON AN INCORRECT INVENTORY. IT IS NOT A CAS E WHERE THERE WERE PRECIOUS STONES FOUND AS LOOSE STONES BEING TRADED BY THE APPELLANT. WHATEVER STONES WERE FOUND WERE SET IN JEWELLERY AN D MAJORITY OF THESE ARE CHEMICAL STONES BEARING NIL VALUE. IN THE ABSENCE OF ANY DETAILS OF THE NATURE OF THE STONES IN THE INVENTOR Y, IT IS SUBMITTED THAT THE ADDITION MADE IS ARBITRARY ONE AND THE SAME HAS TO BE DELETED. IT IS PRAYED ACCORDINGLY. 5. SINCE THIS WAS THE MAIN SUBMISSION OF LD. AR OF ASSESSEE THAT THE INVENTORY AT THE TIME OF SEARCH WAS TAKEN BY THE DEPARTMENTAL ST AFF ONLY WITHOUT THE ASSISTANCE OF ANY APPROVED VALUER OR ANY OTHER EXPE RT IN THE FIELD OF JEWELLERY, THIS WAS A QUERY RAISED BY THE BENCH TO THE LD. DR OF REVENUE AS TO WHETHER THERE IS ANY VALUATION REPORT PREPARED AT THE TIME OF SEARCH BY ANY REGISTERED VALUER OR ANY PANCHANAMA DRAWN BY REGISTERED VALUER AT THE TIME OF SEARCH. IN REPLY, THE LD. DR OF REVENUE REQUESTED FOR TIME FOR SUBMITTING THE SAME AND THE TIME WAS GRANTED TO LD. DR OF REVENUE UP TO 31.05.2 018 ALTHOUGH THE APPEAL WAS TAKEN AS HEARD ON 24.05.2018. ON 31.05.2018, T HE LD. DR OF REVENUE ITA NO.585/BANG/2014 PAGE 8 OF 12 SUBMITTED A LETTER TO THE BENCH THROUGH THE AR OF I TAT ALONG WITH THE LETTER DATED 30.05.2018 RECEIVED BY HIM FROM AO I.E. ACIT, CENTRAL CIRCLE 1 [4], BANGALORE AND IN THESE LETTERS, IT HAS BEEN SUBMITT ED THAT REGISTERED VALUERS REPORT CANNOT BE FURNISHED AS IT IS NOT AVAILABLE W ITH THE AO OR THE SEARCH CONDUCTING TEAM I.E. UNIT-1(3), BANGALORE. ALONG W ITH THESE LETTERS OF LD. DR OF REVENUE AND OF THE AO, HE ALSO SUBMITTED A LETTER O F DDIT, INVESTIGATION WING, UNIT 1 (3), BANGALORE DATED 30.05.2018 AS PER WHI CH IT HAS BEEN SUBMITTED THAT SEARCH AND SEIZURE ACTION U/S. 132 IN THE CASE OF M/S. PRATIBHA JEWELLERY HOUSE ON 02.09.2010 HAD BEEN CARRIED OUT BY THE DDI T(INV.), UNIT 1(3), BANGALORE AND ALL THE RELEVANT DOCUMENTS HAVE ALREA DY BEEN SUBMITTED TO THE AOS FOLDER WHICH INCLUDES INVENTORY OF STOCKS AND HIS OFFICE IS NOT IN A POSITION TO FURNISH THE COPY OF REGISTERED VALUERS REPORT A S IT IS NOT AVAILABLE IN THE CONCERNED FOLDER. LEARNED DR OF THE REVENUE SIMPLY SUPPORTED THE ORDERS OF AO & CIT (A). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND IN RESPECT OF FIRST TWO ISSUES I.E. REGARDING ADDITION MADE BY THE AO IN RESPECT OF VAL UATION OF CLOSING STOCK AND IN RESPECT OF GROSS PROFIT ON ALLEGED UNACCOUNTED S ALES, WE DECIDE THESE TWO ISSUES IN FAVOUR OF THE ASSESSEE IN PRESENT YEAR AL SO IN LINE WITH THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2 005-06 TO 2010-11 AS DECIDED BY US AS PER OUR ORDER DATED 17.08.2018 IN ITA NOS. 2534 TO 2539/BANG/2017. 7. REGARDING THE THIRD ISSUE I.E. REGARDING ADDITIO N MADE BY THE AO IN RESPECT OF ALLEGED EXCESS STOCK FOUND AT THE TIME OF SEARCH, T HIS IS THE MAIN ARGUMENT OF LD. AR OF ASSESSEE THAT THE INVENTORY WAS TAKEN BY THE DEPARTMENTAL STAFF ONLY WITHOUT THE ASSISTANCE OF ANY APPROVED VALUER OR AN Y OTHER EXPERT IN THE FIELD OF JEWELLERY. IT IS ALSO SUBMITTED IN THE WRITTEN SUB MISSIONS AS REPRODUCED ABOVE THAT EVEN THE PARTNERS OF THE ASSESSEE FIRM WERE NO T PRESENT WHEN THE INVENTORIES WERE TAKEN OR ANY OTHER PERSON HAVING E XPERTISE OR KNOWLEDGE ABOUT JEWELLERY WAS ALSO NOT PRESENT AND THE NET WE IGHT OF ORNAMENTS WERE NOTED DOWN ON APPROXIMATE BASIS AND THE DIFFERENCE BETWEEN THE GROSS WEIGHT AND NET WEIGHT WAS TAKEN AS PRECIOUS STONES IN SEVE RAL PAGES OF THE INVENTORY. IT IS ALSO SUBMITTED IN THE WRITTEN SUBMISSIONS REP RODUCED ABOVE THAT SEVERAL ITA NO.585/BANG/2014 PAGE 9 OF 12 GLARING ERRORS WERE FOUND IN MANY OF THE PAGES OF I NVENTORY THAT RAN INTO 200 PAGES AND THIS WAS POINTED OUT IN SEVERAL CORRESPON DENCES WITH THE INVESTIGATION WING. IT IS ALSO SUBMITTED IN THE WR ITTEN SUBMISSIONS IN PARA 6.2 AS REPRODUCED ABOVE THAT THE ASSESSEE WAS CALLED UP ON TO EXPLAIN THE DIFFERENCE BETWEEN THE BOOK STOCK AND PHYSICAL STOC K FOUND AT THE TIME OF SEARCH BY THE DDIT [INV.] AND VIDE LETTER DATED 27/ 09/2010, THE LEARNED DDIT FURNISHED THE PAGE-WISE REVISED TOTALS IN RESPECT O F SEVERAL PAGES OF INVENTORY WHERE THE APPELLANT HAD EARLIER POINTED OUT ERRORS. IT IS SUBMITTED THAT THE SAME IS AVAILABLE ON PAGES 207 TO 208 OF PAPER BOOK. TH E REPLY OF THE ASSESSEE DATED 30.09.2010 IS AVAILABLE ON PAGES 212 TO 218 O F PAPER BOOK AND IN THE SAME, IT IS EXPLAINED THAT THERE IS MINOR VARIATION S OF 424.478 GRAMS ONLY WHICH WAS ULTIMATELY REDUCED TO 115.248 GRAMS AS SHOWN IN PARA 6.20. IT IS ALSO SUBMITTED THAT THE NET WEIGHT OF JEWELLERY WAS NOT RECORDED IN THE INVENTORY BASED ON THE NET WEIGHT OF THE ORNAMENT ALREADY ENT ERED IN THE SOFTWARE FOR STOCK MAINTENANCE, WHICH WOULD HELP IN EASILY IDENT IFYING THE ITEMS. IT IS ALSO SUBMITTED THAT IN RESPECT OF VARIOUS SHORTCOMINGS I N THE INVENTORY PREPARED BY THE DEPARTMENT AT THE TIME OF SEARCH, THE ASSESSEE HAS SUBMITTED DETAILED RECONCILIATION OF PHYSICAL STOCK WITH BOOK STOCK AL ONG WITH THE EXPLANATION FOR THE DIFFERENCE WITH REGARD TO THE GOLD JEWELLERY, B ULLION AND DIAMONDS VIDE LETTER DATED 12/11/2010 AVAILABLE ON PAGES 221 & 229 TO 23 7 OF PAPER BOOK. IT IS ALSO SUBMITTED THAT THERE WERE CERTAIN MISTAKES CORRECTE D BY ASSESSEE IN THE PHYSICAL INVENTORY DRAWN LIKE WRONG TOTALS IN GROSS WEIGHT AND NET WEIGHT, ETC., AND AT PAGE 280 OF THE PAPER BOOK NO.II IS THE MODI FIED LIST OF SUMMARY STATEMENT OF STOCK SHOWING THE FIGURES BEFORE CORRE CTIONS AND FIGURES AFTER CORRECTIONS. IT IS ALSO SUBMITTED THAT THE CORRECT ED FIGURES FURNISHED BY THE ASSESSEE HAVE BEEN ACCEPTED BY THE DEPARTMENT AND T HE ENTIRE ISSUE HAS BEEN EXAMINED ON THIS BASIS ONLY. IT IS ALSO SUBMI TTED THAT THE ASSESSEE HAS ALSO GIVEN THE BOOK STOCK OF THE FIRM ON THE DATE O F SEARCH AT PAGE 281 OF THE PAPER BOOK AND THE PHYSICAL STOCK AND BOOK STOCK IN RESPECT OF DIAMONDS, 22 CT. ORNAMENTS, BULLION ETC. HE SUBMITTED THAT IT I S AS UNDER:- CORRECTED PHYSICAL STOCK BOOK STOCK BULLION 5435.610 GMS. 5463.570 GMS 22 CT.ORNAMENT [NT. WT.] 231361.594 GMS. 239892.07 5 GMS ITA NO.585/BANG/2014 PAGE 10 OF 12 18 CT.ORNAMENT [NT. WT.] 29279.916 GMS. 29425.769 GMS DIAMONDS 5067.261 CTS. 5122.847 CTS. 8. IT IS ALSO SUBMITTED IN THE WRITTEN SUBMISSIONS THAT THE ASSESSEE SUBMITTED A DETAILED RECONCILIATION IN RESPECT OF PLATINUM, SIL VER AND PRECIOUS STONES VIDE LETTER DATED 22/11/2010 AVAILABLE ON PAGE 301 OF TH E PAPER BOOK AND THE DETAILED EXPLANATION IN RESPECT OF EACH ITEM IS AVA ILABLE ON PAGES 307 TO 314 OF THE PAPER BOOK. THIS WAS THE SUBMISSION OF ASSESSE E THAT THERE WAS NO EXCESS STOCK IN RESPECT OF THESE ITEMS FOUND AT THE TIME OF SEARCH. AS PER THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2011-12, THE A O HAS ACCEPTED THE CONTENTION OF ASSESSEE WITH REGARD TO PLATINUM AND SILVER SINCE NO ADDITION WAS MADE TOWARDS THESE TWO ITEMS EITHER ON THE BASIS OF EXCESS STOCK OR DEFICIT IN STOCK OF THESE ITEMS BUT THE AO PROCEEDED TO MAKE A DDITION OF RS. 2.40 CRORES IN RESPECT OF PRECIOUS STONES HOLDING THAT 8700 GRA MS IS EXCESS STOCK FOUND OF PRECIOUS STONES AS PER PARAS 10 TO 10.3 OF ASSESSME NT ORDER ON PAGES 19 & 20. ON APPEAL, THE CIT(A) HAS CONFIRMED THE ADDITI ON MADE IN RESPECT OF ALLEGED EXCESS STOCK OF 18 CT. GOLD IN PARA 14 OF O RDER OF CIT(A) AND HE ALSO CONFIRMED THE ADDITION OF RS. 2.40 CRORES TOWARDS A LLEGED EXCESS STOCK OF PRECIOUS STONES. IN THIS REGARD, THIS IS THE SUBMI SSION OF ASSESSEE IN PARA 6.9 OF THE WRITTEN SUBMISSIONS REPRODUCED ABOVE THAT ON E OF THE INVENTORY SHEET WAS MISSING, PURITY OF ORNAMENTS EITHER 22 CT OR 18 CT WAS NOT MENTIONED IN MANY OF SHEETS, NET WEIGHT OF ORNAMENTS BEING WRITT EN ON A GUESS WORK BY THE OFFICERS WHO HAD NO KNOWLEDGE OF JEWELLERY, DIAMOND WEIGHTS BEING WRONGLY NOTED UNDER PRECIOUS STONES COLUMN, DIFFERENCE OF G ROSS WEIGHT AND NET WEIGHT OF ORNAMENTS WRONGLY NOTED UNDER PRECIOUS STONES CO LUMN AND NET WEIGHT COLUMN LEFT BLANK IN A FEW OF THE ENTRIES. IN ADDI TION TO THESE OBJECTIONS THAT INVENTORY WAS TAKEN SIMULTANEOUSLY AT 10 PLACES WIT HOUT THE PRESENCE OF ANY PARTNER OR JEWELLERY EXPERT. THIS OBJECTION OF THE ASSESSEE IS SUPPORTED BY THIS FACT THAT THE DEPARTMENT COULD NOT PRODUCE ANY PANC HANAMA OR INVENTORY LIST PREPARED BY REGISTERED VALUER IN SPITE OF SPECIFIC QUERY / REQUIREMENT OF THE BENCH AND IT HAS BEEN CATEGORICALLY STATED BY THE D EPARTMENT THAT SUCH LIST IS NOT AVAILABLE. HENCE THIS CLAIM OF ASSESSEE SHOULD BE ACCEPTED THAT THE INVENTORY WAS PREPARED BY THE DEPARTMENTAL OFFICERS ONLY WHO HAD NO KNOWLEDGE OF JEWELLERY. IN RESPECT OF EXCESS STOCK FOUND OF 18 CT. GOLD ORNAMENTS, IT IS SEEN THAT THE DIFFERENCE IS VERY S MALL OF 155.248GMS, WHICH IS ITA NO.585/BANG/2014 PAGE 11 OF 12 HARDLY 0.015% OF THE TOTAL STOCK OF ABOUT 300 KGS. OR MORE. IN OUR CONSIDERED OPINION, FOR SUCH A SMALL DIFFERENCE AND THAT TOO I N THE INVENTORY PREPARED BY DEPARTMENTAL OFFICERS WITHOUT THE PRESENCE OF ANY J EWELLERY EXPERT OR REGISTERED VALUER, NO ADDITION IS JUSTIFIED AND HENCE, THE SAM E IS DELETED. IN RESPECT OF THE SECOND ADDITION OF RS. 2.4 CRORES IN RESPECT OF STO CK OF PRECIOUS STONES, WE FIND THAT AS PER THE DEPARTMENT, THERE IS PRECIOUS STONES FOUND OF 17438.940 GRAMS AT THE TIME OF TAKING PHYSICAL INVENTORY ON T HE DATE OF SEARCH OUT OF WHICH, ADDITION IS MADE TO THE EXTENT OF 50% OF THI S QUANTITY. IN THIS REGARD, IT IS THE SUBMISSION OF THE ASSESSEE THAT THE OFFICERS WH O RECORDED THE INVENTORY HAD NO KNOWLEDGE ABOUT PRECIOUS STONES WHETHER A ST ONE IS A GEM OR AN ORDINARY CHEMICAL STONE AS THEY WERE NOT ASSISTED B Y ANY EXPERT OR ANY OTHER COMPETENT PERSON. IT IS ALSO SUBMITTED IN THE WRIT TEN SUBMISSIONS REPRODUCED ABOVE THAT IT IS NOT CASE OF THE DEPARTMENT THAT TH ERE WERE PRECIOUS STONES FOUND AS LOOSE STONES BEING TRADED BY THE ASSESSEE. IT IS ALSO SUBMITTED THAT WHATEVER STONES WERE FOUND WERE SET IN JEWELLERY AN D MAJORITY OF THESE ARE CHEMICAL STONES BEARING NIL VALUE. WE FIND FORCE I N THIS SUBMISSION OF LD. AR OF ASSESSEE BECAUSE THIS IS ADMITTED POSITION THAT NO ORDINARY PERSON CAN SAY BY SEEING OR EXAMINING A STONE STUDDED JEWELLERY AS TO WHETHER STONE STUDDED IN THE JEWELLERY IS A PRECIOUS STONE OR AN ORDINARY CH EMICAL STONE BEARING NIL VALUE. CONSIDERING THESE FACTS, WE ARE OF THE CONS IDERED OPINION THAT MAKING ANY ADDITION ON THE BASIS OF SUCH INVENTORY PREPARE D BY THE DEPARTMENTAL OFFICERS WITHOUT ASSISTANCE OF ANY JEWELLERY EXPERT IS NOT JUSTIFIED AND HENCE, WE DELETE THE SAME. THE THIRD ISSUE IS ALSO DECIDED I N FAVOUR OF THE ASSESSEE. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DA TE MENTIONED ON THE CAPTION PAGE. SD/- SD/- (LALIET KUMAR) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 21 ST AUGUST, 2018. /MS/ ITA NO.585/BANG/2014 PAGE 12 OF 12 COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.