TMI Blog2022 (2) TMI 607X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the course of stock valuation - HELD THAT:- AR submitted a chart reconciling the difference between the physical stock and stock as per the books of account for each precious metal with the documentary evidence and the minor difference arise due to weighing difference. Further the A. O. has not considered sales and sales return effected prior to the date of search. We considering the ratio of the decision of M/S. MAHENDRA BROTHERS EXPORTS PVT. LTD. AND (VICE-VERSA) [ 2021 (12) TMI 302 - ITAT MUMBAI] find that there is difference is stock which could not be reconciled completely in respect of the precious metals and supported with material evidence. Accordingly, we direct the Assessing officer to consider only gross profit in respect of said sale transactions difference after adjusting above said sales returns and partly allow the grounds of appeal of the Assessee. - ITA No. 1983/Mum/2020 - - - Dated:- 10-2-2022 - Shri S Rifaur Rahman, Accountant Member And Shri Pavan Kumar Gadale, Judicial Member For the Appellant : Mr. Vijay Mehta. C A. AR For the Responden : Mr. S. N. Kabra. Sr. DR ORDER PER PAVAN KUMAR GADALE JM: The assessee has fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnover and has other operating incomes. The assessee has produced the books of accounts for examination and the purchases/sales have been verified by the A. O. A search operation was carried out u/s 132 / 133A of the Act on the group concerns- 18 entitieson 8-8-201. Whereas the assessee has filed the explanations and the bills/invoices of purchases and sales have been produced and verified, there were also some loose papers found at the time of search and were examined. (i) The Assessing officer (A. O) on examination of miscellaneous expenses account found that they are not properly supported and are un verifiable and estimated disallowance @ 15% which worked out to ₹ 3,29,387/-. (ii)Similarly in respect of conveyance vehicle expenses the assessee could not produced the complete details and the vouchers are remained unverified. The AO has estimated the adhoc disallowance @ 15% being ₹ 2,68,727/-. (iii) The A. O found that there is stock difference in search carried out in respect of various stocks of precious metals as referred at Para 6 of the AO order and the assessee has filed the detailed explanations on 15. 11. 2011. The AO dealt on the facts and reconciliation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adjusted physical stock as above Adjusted book stock as on date of search i. e 08. 08. 2011 Actual difference in the stock Rate Valuation Diamond 16,566. 56 18,304. 48 (1,737. 92) 34,000 5,90,89,280 Gold 98,970. 27 96,464. 54 (2,505. 73) 2,585 64,77,309 Platinum 16,574 20,807. 53 (4,233. 05) 2,590 1,09,63,600 Color stones 32,047. 20 31,143. 04 (904. 16) 800 7,23,328 Pearls 5,112. 43 4,719. 09 393. 34 1,500 5,90,010 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s operations and activities are of the opinion that such addition is without identifying the particular transaction and also the assessee could not substantiate the claims with the proper evidence and are not verifiable. We find the addition made by the A. O. @ 15% is on higher side and restrict the addition to the extent of 5% and this percentage is applicable for this assessment year only. Accordingly,we restrict the addition to the extent of 5% of the expenses discussed and modify the Ld. CIT(A) order sustaining the addition @ 5% and partly allow the grounds of appeal of the assessee. 7. On the ground of appeal no 4 5, The Ld. AR submitted that the assessee has furnished the details in respect of reconciliation of precious metals and is evident from the documents filed in the course of hearing proceedings. The Ld. AR referred to the facts with respect to the difference in the valuation for various metals. We find that the assessee has disclosed the factual position and has filed the reconciliations of diamond jewellery as under: Stock as per books of accounts as on 08. 08. 2011 18,304. 48 Less: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the invoice copies/sales return at page 100 to 127 of the paper book. Similarly, the assessee has filed the reconciliation for platinum, color stones and pearls and supported with party wise data with respect to sale of platinum and other details. The Ld. AR emphasized on the invoices issued by courier services i. e. air bill evidence in respect of delivery of goods. The contentions raised by the Ld. AR that the addition made by the AO is excessive and gross profit embedded only has to be taxed. The Ld. AR submissions are realistic considering the factual aspects and the documents filed. We find on similar and identical issues the Hon ble Tribunal in assessee s group case M/s Uni Design Jewellery Pvt Ltd Vs DCIT in ITA No 2578/Mum/2018 for the A. Y 2012-13 has dealt on disallowance under section 69A and 69B of the Act at page 8 Para 9 to 13 of the order, which is read as under: 9. In grounds no. 2 and 3, the assessee has challenged the additions/disallowances made of Rs₹ 3,70,237 and ` ₹ 4,49,017, under section 69A and 69B of the Act respectively. 10. Brief facts are, during the search and seizure operation in the business premises of the assessee, stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental Representative strongly relying upon the observations of the Assessing Officer and learned Commissioner (Appeals) submitted that the difference in stock was established on record as the assessee was unable to reconcile the difference with valid explanation. Therefore, the additions made should be sustained. 13. Having considered rival submissions, we are of the view that the assessee was unable to reconcile the difference between the physical stock and the stock as per books of account with valid reasoning. Therefore, to that extent, the facts are established. However, we find merit in the alternative plea of the assessee for restricting the addition to the gross prof it. The Assessing Off icer is directed to compute the disallowance accordingly. Grounds are partly allowed. 8. In the present case, the A. O. has treated the book stock and physical stock of the precious metals as out of book sale and no enquiry was made by the AO. Similarly with respect to the pearls, the AO has made the addition as excess stock and was confirmed by the CIT(A) by treating the difference between the book stock and physical stock of the pearls as unexplained investment in the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... polished diamonds were carried out by the authorised valuer in the presence of the assessee. The ld. AO observed that in view of the accurate manner in which the stocks are maintained by the assessee, the shortage of 48. 94 carats in diamond industry for cut and polished diamonds representing difference really matters and the same cannot be attributed to the weighing difference. The ld. AO applied the valuation of ₹ 23764. 89 per carat on the shortage quantity of 48. 94 carats and made an addition of ₹ 11,63,054/- as sales made out of books and added the same u/s. 69A of the Act. This action of the ld. AO was upheld by the ld. CIT(A). We find that admittedly there was only a shortage of stock of 48. 94 carats found at the time of search i. e. physical stock was less by 48. 94 carats. This goes to prove that assessee could have made sales out of books. Hence, only the prof it element embedded on the said sale could be brought to tax. The argument of the ld. AO could be accepted when there is excess stock found physically either at the time of search / survey wherein the purchases of excess physical stock found need to be explained. In the instant case, since, there was o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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