TMI Blog2018 (8) TMI 1963X X X X Extracts X X X X X X X X Extracts X X X X ..... ck consistently followed by the assessee and accepted by the department. As per Form 3CB for the preceding year ended as on 31.03.2009 for A. Y. 2009 10 also available on page 105 of the paper book, there is no adverse comment. Form 3CB for A. Y. 2010 11 is available on page 147 of the paper book and in this year, the auditors has stated that valuation of inventory is on cost or net realizable value whichever is lower and cost is ascertained on LIFO method. It is also stated there that the same is on the same basis as in the preceding previous year but as per Form 3CB for the preceding year ended as on 31.03.2009 for A. Y. 2009 10 there is no such adverse comment of the auditors and in view of this comment of the auditors in Form 3CB for A. Y. 2010 11 that valuation is on the same basis as in the preceding year, the statement of the auditors become contradictory conflicting to each other because in one line, the auditors say in AY 2010 11 that the valuation is as per LIFO method and in the next line, it is said that the valuation is on the same basis as in the preceding year and in the preceding year s Form 3CB there is no adverse comment. This is also settled law th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istency, the addition made by the AO in the present years is not justified and therefore, the same is not sustainable and we delete the same. This issue is decided in favour of the assessee in all these years. Gross profit on such alleged unaccounted sales - HELD THAT:- The entire addition on the basis of alleged unaccounted sales is based on these three statements of this witness Mr. Venkatesh Vaidyanathan, Vice President of the software supplier company. As per Para 5.11 of the written submissions reproduced above, this is the claim of the assessee that all these three statements of the witness were recorded behind the back of the assessee and there was no witness present at the time of recording the statement and therefore, this statement cannot be relied upon at all - Also no opportunity was provided to the assessee to cross examine this witness on the basis of whose statement, adverse inference were drawn against the assessee - these statements cannot be relied upon for drawing any adverse inference against the assessee. We find that in the case of ANDAMAN TIMBER INDUSTRIES [ 2015 (10) TMI 442 - SUPREME COURT] it was held that not allowing the assessee to cross examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venience. 2. The grounds raised in all the years are identical and there is only one difference in the grounds i.e. regarding the amount in various years. Hence, we reproduce grounds from Assessment Year 2005-06 in ITA No. 2534/Bang/2017. The same are as under :- 1. The learned CIT [A] ought to have appreciated that the order of the learned A.O. passed u/s. 153A rws 143[3] dated 31/03/2013 and later as stood modified and merged with the order u/s.154 of the Act, dated 25/09/2013 in so far as it is against the appellant is opposed to law, equity, weight of evidence, probabilities, and accordingly ought to have allowed the appeal of the appellant. 2. The learned CIT[A] ought to have appreciated that in the absence of the discovery of any undisclosed income or asset based on any incriminating seized materials relevant for the assessment year under appeal found and seized during the course of search, the notice issued u/s.153A was bad in law as the impugned assessment is essentially on account of change of the opinion as to the principle of valuation of the closing stock and not on any falsification of material facts or understatement in the quantity of closing stock for taki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STOCK BROKING LTD., in GA No.1929/2016 dated 24/08/2016; (14) LANCY CONSTRUCTIONS reported in 237 TAXMAN 728 [Kar] (15) JAI STEEL [INDIA] LTD., V ACIT reported in 1 ITR-OL 371 [Raj] 3. Without prejudice to the above, since the appellant was not heard before the Joint Commissioner, before he accorded approval u/s.158D, the same was in gross violation of the principles of natural justice, which had to be read into the provisions of Section 158D of the Act, as the order involved visiting of serious civil consequences and not mere an administrative action at all and thus, the assessment order passed was in violation of the principles of natural justice and illegal and consequently, the initial assessment order before and after merger with the rectification order requires to be cancelled. 4. Without prejudice to the above, the learned CIT[A] failed to appreciate the fact that the appellant has maintained regular stock account of various ornaments on the computer which had been tallied to 100% in terms of weight and the appellant had valued the closing stock on the basis of the inventories prepared and preserved for each year which were seized during the course of search and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade on this count requires to be deleted. 6. The learned CIT[A] is not justified in sustaining an addition of ₹ 4,32,239/- as profit earned on the alleged unaccounted sales, which inference was made without appreciating that the movement of stocks in the stock logs of the general software called Cadmium with which the appellant was recording not only the financial transactions but also the day-to-day stock movement for purposes of controlling the stock in various counters where the stocks are displayed as sales not accounted in the financial logs thereby they were unaccounted sales warranting addition to be made by way of GP including therein. 6.1 The learned CIT [A] failed to appreciate the software used by the appellant was of the general shelf software and not a customized software designed for the appellant to facilitate such procedure and the finding is therefore perverse. 6.2 The learned CIT [A] erred in sustaining the addition made by the A.O. that all the plus key transactions are sales made outside the books even though the appellant has demonstrated that all the entries made therein were not sales and removal of item for polishing, retagging, etc., which ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on fees as part of the costs. 3. The amount in dispute in these 6 years along with next year is noted herein below. Sl. No. Assessment Year Revaluation of closing stock Estimated profit on unaccounted sales Total 1. 2005-06 3,02,97,477 4,32,239 3,07,29,716 2. 2006-07 2,79,96,558 7,28,837 2,87,25,395 3. 2007-08 4,58,03,457 1,80,058 4,59,83,515 4. 2008-09 2,64,61,562 2,38,630 2,67,00,192 5. 2009-10 4,59,19,693 71,023 4,59,90,716 6. 2010-11 4,33,72,512 83,53,007 5,17,25,519 7. 2011-12 4,32,00,485 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng valuation of closing stock at the year end and the second issue is about addition made by the AO of alleged profit on alleged unaccounted sales. This issue is raised in ground nos. 6,6.1,6.2,6.3 and 6.4. It was submitted by ld. AR of assessee that the AO has proceeded on this basis that the assessee is following Last in First Out (LIFO) method of valuing of closing stock and therefore, the inventory of old jewellery was valued by adopting old rates but the assessee is not following LIFO method of valuing closing stock and despite its submission that the assessee is following the method of valuing closing stock by valuing specific item at its specific cost of acquisition. He drawn our attention to letter dated 23.03.2013 submitted by assessee before the AO and reproduced by the AO in Para 4.4 of assessment order of Assessment Year 2005-06. He pointed out that it was categorically stated by assessee before the AO that the assessee is having own system of accounting for the last 60 years consistently which was not questioned by the department in any earlier year and it is also submitted before the AO that the entire purchase and sale of assessee are verifiable although the transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k, closing stock, stock included in closing stock, sales out of historical stock and sales out of remaining opening stock and thereafter, total sales out of total opening stock for the year ending 31.03.1988, 31.03.1989 and 31.03.1990 for Gold Jewellery, Diamonds and Precious Stones. Thereafter he submitted that the assessment order for Assessment Year 1989-1990 is available in paper book pages 714 to 724 of paper book and submitted that as against return of income of ₹ 9,34,074/-, the income was assessed at ₹ 10,85,940/- without making any addition in respect of under valuation of closing stock. Thereafter he submitted that copy of assessment order for Assessment Year 1990-91 dated 26.08.1992 is available on pages 730 to 740 of paper book. In this year also, there is no addition on account of under valuation of closing stock and as against returned income of ₹ 10,90,971/-, the income was assessed at ₹ 15,35,346/- and although some addition was made but no addition on account of under valuation of closing stock. Thereafter he submitted the copy of assessment order for Assessment Year 1991-92 is available on pages 752 to 755 of paper book and in this year als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock found at the time of search Total addition made for the year 2005 - 06 3,02,97,477 4,32,239 -- 3,07,29,716 2006 - 07 2,79,96,558 7,22,837 -- 2,87,19,395 2007 - 08 4,58,03,457 1,80,058 -- 4,59,83,515 2008 - 09 2,64,61,562 2,38,630 -- 2,67,00,192 2009 - 10 4,66,70,902 71,023 -- 4,67,41,925 2010 - 11 4,44,70,999 83,53,007 -- 5,28,24,006 2011 - 12 6,89,45,603 33,10,541 2,58,26,638* 9,80,82,782 TOTAL 29,06,46,558 1,33,14,335 2,58,26,638 32,97 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 986 of the Paper Book No.V 23/01/2015 Order passed by the Hon'ble ITAT in MP No. 1/Bang/2015 recalling the order in so far as AY 2011-12 is concerned since there was no ground challenging the search action for the said assessment year. The said appeal in ITA No. 585/Bang/2014 is posted for hearing as a part of this batch of appeals. See pages 987 to 989 of the Paper Book No.V 11/02/2015 Impugned Common order of the learned CIT [Appeals] disposing off the appeals restored by the Hon'ble ITAT holding that the search action was valid and that the same cannot be adjudicated by the learned CIT [Appeals] and was not maintainable. The issues on merits were not decided by the learned CIT [Appeals]. These impugned orders of the learned CIT [Appeals] are now challenged in the appeals filed in ITA No. 2534-2539/Bang/2017 and posted as a part of this batch. 07/11/2017 Orders of the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trilok Singh Dhillon on a similar issue where the Hon'ble Chattisgarh High Court has decided the issue in favor of the Revenue. However, the appellant was not successful in the aforesaid writ petitions filed as the Hon'ble High Court observed that the appellant was not correct in filing the writ petitions in light of the alternate remedy available of filing an appeal before the Hon'ble ITAT in the order passed in the W.P Nos.24646 to 24651 dated 07/11/2017. It has also, inter-alia, been observed that the impugned order of the learned CIT [Appeals] dated 11/2/2015 cannot be faulted on the ground relating to the validity of the search and hence, in light of these observations of the Hon'ble High Court, the appellant has not raised any grounds in these appeals relating to the validity of the search and all the grounds raised are only on merits of the additions made. The ground wise grouping of the issues involved for various years are as under:- SL.NO ISSUE Asst Years 2005 - 06 to 2010-11 GROUND NO. Asst Year 2011 - 12 GROUND NO. 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... everal decades. The appellant has detailed records of the year-end stock for each of the aforesaid assessment years and has maintained records to substantiate the physical stock taken and the valuation thereof, which was even found in course of the search conducted on 06/11/1990. 4.4 After the aforesaid search conducted on 06/11/1990, assessment proceedings were taken up by the Assessing Officer for assessment years 1989-90 to 1991-92. In course of these assessment proceedings, the learned A.O. raised a query about the method of valuation of closing stock by letter dated 31/07/1991 [placed at page 696 of the Paper Book No.IV]. Question No.14 of the said letter required the appellant to explain the method of valuation of stock. Another enquiry was also made by the A.O. by letter dated 28/08/1991 [placed at page 705 of the Paper Book No.IV]. 4.5 The appellant furnished his explanation vide letter dated 30/09/1991 [placed at page 699 to 702 of the Paper Book No.IV] and relied upon the explanation given vide letter dated 10/09/1991 23/09/1991. The appellant had replied vide letter dated 10/09/1991 [placed at page 706 707 of the Paper Book No.IV] indicating that the closing st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the paper book at pages 576 to 581 [31/03/2005] and 582 to 588 [31/03/2006] of the Paper book No.III. In all these inventories drawn at the end of each year, the appellant has followed the similar method of drawing up the inventory and working out the value of the same after physical inspection that has been followed for the past 60 years. 4.9 It can be seen from the above closing stock for the year ended 31/03/2005, the appellant had valued 22 Ct. Ornaments that includes certain historical jewellery at rates starting from ₹ 10 to ₹ 550 per gram. The A.O. in page [3] of the assessment order for the assessment year 2005-06 has given a break-up of the different quantities of jewellery held by the appellant and the different rates adopted for valuation of the same. Furthermore, in Page [15] of the assessment order for the assessment year2005-06, the A.O. has tabulated the figures and break up of closing stock for all the assessment years 2005-06 to 2011-12. It can be seen there from that the appellant has held the following historical gold ornaments and has valued the rates set-opposite the said items for all the 7 years under appeal and the said quantity has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is submitted that as on 31/03/2005, the appellant held 2,33,333.640 grams of 22 ct. gold ornaments, which was valued at ₹ 7,51,69,328.19. Out of the said ornaments that were valued at different rates from ₹ 10 to ₹ 550 per gram, the A.O. took the view that the appellant had not valued the closing stock by applying a proper method since, the appellant appears to have followed the Last In First Out [LIFO] method. In support of the said view, the A.O. mainly relied upon three factors i.e., firstly, the month wise purchases and sales for April, 2004 would show that the sales were more than the purchases for April, 2004 and hence, there were sale out of opening stock to the extent of 8,197.900 grams [please see Para [4.7] at page [9] of the assessment order]. The second factor relied upon by the A.O. is the seized documents A/SNS/1 pages 26 and 28 where one of the partners of the appellant firm had written in his own handwriting that the old jewellery on 01/04/2009 was 3842.388 grams, which seized documents have been scanned at pages 10 and 11 of the assessment order. Thirdly, the A.O. took the view that the appellant has only given general description of the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, it is true that the appellant's auditor has mentioned in the audit report for the assessment year 2010-11 that the cost of stock was ascertained on LIFO method, which has been extracted in the appellate order at Para 11.13. 4.13 Nothing turns much on the aforesaid view of the appellant's auditor for assessment year 2010-11, which is not the claim of the appellant before the learned A.O. and CIT [Appeals]. It may be mentioned here that the appellant's very same tax auditor has given the method of stock valuation in Form 3CD for all years including AY 2010-11 in the Paper Book.No.1, which can be seen at Page 23 of Paper Book No.I [Assessment year 2005-06], Page 46 of Paper Book No.I [Assessment year 200607], Page 66 of Paper Book No.I [Assessment year 2007-08], Page 86 of Paper Book No.I [Assessment year 2008-09], Page 134 of Paper Book No.I [Assessment year 2009-10], Page No.151 of Paper Book No.I [Assessment year 201011] Page 190 of Paper Book No.I [Assessment year 201 1-12]. wherein the method of stock valuation has been reported as Cost or net realizable value, whichever is less . Furthermore, there is no such qualification by the very same auditor for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he search on 06/11/1990, which are placed in the paper book at page 656 to 661 and pages 690 to 695 of Paper Book No.III, respectively to establish that the very same stock found at the time of the search on 06/11/1990 continues to remain with the appellant on 31/03/2005. (g) The appellant has been able to match the extent of stock as per the inventory valuation on 31/03/2005 [which is the same in respect of historical stock for all the years under appeal] with the extent of stock available as per the physical inventory drawn on 31/03/1986 and 31/03/1990. There is a minor variation in the description of the ornaments in these inventories which is on account of bunching them in different ways in different years. The relevant tabulation of the closing stock as per the inventories drawn on 31/03/1986, 31/03/1990 and 31/03/2005 are enclosed herewith as Annexure-1A, 1B 1C. (h) From the above chart [Annexure-1A, IB IC], the total quantity of the historical stock as per the seized inventory as at 31/03/1986, 31/03/1990 and the total quantity of the same stock in the inventory drawn on 31/03/2005 has been set-out in Annexure-2. This brings out that the historical jewellery in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar and it does not refer to the historical stock held by the appellant. In fact, no reliance has been placed on the seized material A/SNS/1 pages 26 and 28 to make any addition based on the profit shown therein, which is nothing but a working made by adopting the market value of gold and not by valuing the closing stock as per the accepted accounting principles and hence, nothing turns much on the said notings made. (n) It is also relevant to point out that the closing stock of the appellant as on 31/03/2005 was 2,33,334 grams and out of that the extent of jewellery that was valued on historical cost basis at ₹ 240 and less per gram was about 29,982.490 grams and that the historical stock held by the appellant constituted only a fraction of the entire stock held, as follows : 10 Rs. -- 3986.640 gms 15 Rs. -- 4002.350 gms 30 Rs. -- 5965.500 gms 60Rs. -- 5600.000 gms 100Rs. -- 3945.000 gms 180Rs. -- 3146.000 gms 200Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yed accordingly. ISSUE 2: GROSS PROFIT ON ALLEGED SUPPRESSED SALES: 5.1 The appellant uses the software called Cadmium since 2003 for purposes of recording financial transactions and also as a day-to-day stock book for purposes of controlling the stocks in various counters where the stocks are displayed for sale. This software was developed by one M/s. Jilaba Software Services Pvt. Ltd., Chennai and the software is an off the shelf general software used by jewellers in general and it is not any special customized software specifically designed for the appellant. The appellant is not aware of the internal working of the software or science behind the generation of the various financial and stock logs and the manner of working of the software as the appellant's staff have merely been trained to use the software for the functions of recording the day to day financial transactions and movement of stock from the counters by way of effective control of their movements for the purpose of business by way of internal control. 5.2 As submitted, the software records financial transactions and movement of stocks from various counters where they are displayed either on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is placed at pages No.569 to 574 of paper book No.III. 5.6 In answer to Q.No.7 [Page 570 of paper book no.III], he stated that the software package developed by them was supplied and used by the appellant since 2003. There was a major update done about 8 months back [He was examined in October, 2010 and the updating must be in February, 2010]. This update involved replacement of star [*] key and plus [+] key by End key to complete sales since the software now allowed 0 rate of tax to be recorded and there was no need to have a different method to record non-taxable sales. The stock log tables generated by the database in the hard disk under the name of Homerec , tagged , non-tagged and tagstone for various years were shown to the witness by the DDIT and he was asked to explain the same, which he explained in answer to Q.No.8 [Page 570-571 of paper book no.III]. Briefly, the explanation in aforesaid 4 logs Homerec , tagged , nontagged and tagstone as explained by the witness can be summarized as under: [a] Tagged Log: This log contains the several column containing details of the items that are transacted based on individual tags. The tagged table cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned DDIT requested the witness to explain the entries in each of the aforesaid 4 stock logs generated, where the column Wotax = Y was found in light of the statement that the wotax column in these togs can have 4 possible values and they are Y , N , null or blank . If the value is Y , the particular item has been removed from the counter on account of sale or on account of any other reason without collecting tax thereon. If the value is null , it means the item has not been removed from the counter. If the value is N or blank , it means the item has been sold after collecting the tax. He was asked why the transactions recorded and preserved in the tagged tables where wotax =Y were not recorded in the sales log. He stated in answer to Q.No.9 [Page 571 of paper book No.III], Q.No.10 [Page 572 of paper book No.III], Q.No.11 [Page 572 of paper book No.III] and Q.No.12 [Page 572 of paper book No.III], that the records in these 4 different logs could have been deleted. However, he also categorically maintained that the software package did not allow the deletion of the transactions recorded in the column wotax , where the value was N from the sales log. 5.8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorities below concluded that the two keys were installed in the computer with a design to give the user the choice to enter transactions differently depending whether it is to be reflected in its books or not. According to the learned A.O. and CIT [Appeals], the entire quantity of stock shown in the 4 logs homerec , tagged , nontaped and tagstone , where the column wotax =y was the quantity of jewellery that was sold by the appellant outside the books of accounts simply because the corresponding entries were not reflected and recorded in the financial logs of the software. The authorities below rejected the detailed explanation furnished by the appellant while taxing the Gross Profit on such alleged sales, which has been added as suppressed income for several years as depicted in Annexure-1, placed at pages 798 to 799 of Paper Book No.IV. Needless to submit that, during the search no trace of any evidence was detected with documentary proof to prove that the appellant was indulging in unaccounted sales outside the books of accounts. 5.11 Before going into the merits of the aforesaid addition made, it is firstly submitted that all the above 3 statements of the witness wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs manned by the sales persons recorded in the stock logs in the computer. Therefore having regard to the self-evident entries recorded in the 4 stock logs in the computer hard disk, it will be perverse to conclude these are suppressed sales on the basis of the entry in the column wotax =Y. 5.13 Properly analyzed and appreciated, what is found recorded in the 4 stock logs under the column wotax =y can only lead to the following conclusions: [a] Removal of the items from the counters are recorded in the 4 stock logs in the computer hard disk; [b] When these are removed from the counters for any other reason other than sales, they are recorded under wotax as Y in the 4 logs; [c] If they were sates, they would find a place in the financial sales log of the data base and it is impossible to delete them especially selectively by removing the value noted in these 4 logs; [d] Since these entries impugned in these 4 logs are not finding a place in the financial sales log but finding a place in the respective data stock logs under the column wotax =y, the removal is otherwise than by sales and not by sales. [e] From the enclosure of non-tagged items placed in pages [3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2013, which is placed at pages Nos. 489 to 501 of the Paper Book No.III. It has been proved with reference to each one of the entries numbering 1794 entries in these logs that these entries pertained to the following: [a] 611 entries were for removed and replaced after retagging; [b] 561 entries were removed to safe as damaged; [c] 258 entries were removed to exchange for suppliers; [d] 149 entries of tagged stones were removed from counter and given to the goldsmith for making ornaments, [e] 56 entries were removed for sale and is supported by sale bills. [f] 50 entries were removed for complimentary items like cleaning liquid, [g] 41 entries were removed for the removal of stones, [h] 39 entries represent purchase returns supported by bills; [i] 18 entries were removed for issuing the same to the smiths for modification - entered in our stock registers; and [j] 11 entries were removed for stringing. 5.15 It is submitted that the aforesaid entries were explained by the appellant and substantiated with other contemporaneous records like the hallmarking register, repair register, polish register, plus view and minus view from the computer, supplier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected in the receipt view of the counter is placed at page 800 of Paper Book No.IV and this can be verified from the seized hard disk available with the department. 5.17 Another example relates to Diamond ear rings having a gross weight of 14.990 gms. of gold and 9.89 carat diamond bearing tag No. 118-C-5584. The said item was also removed on 27/07/2010 and figures in the tagged log and tagged stone log for the financial year 2010-11. The said item was re-tagged and given to the counter with the fresh tag No. i 18-C5809 and the same is found reflected in the receipt view of the counter, placed at page 801 of Paper Book No.IV and this can also be verified from the seized hard disk available with the department. 5.18 The third example relates to a Diamond ring with 4.940 gms. of gold having 0.87 carat diamond bearing tag no. 117-A-344 and is shown in the tagged log and tagged stone log as removed on 03/08/2010. After retagging as No. 117-C-3409 it was once again issued to the counter on the same day i.e., 03/08/2010 and the same is reflected in the receipt view of the counter placed at page 802 of Paper Book No.IV and this can also be verified from the seized hard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is 22 carat gold ornament or 18 carat gold ornament or silver articles, stones, diamonds, platinum, etc. On a close examination of these entries with respect to the product codes, it is submitted that they contained 22 carat, 18 carat gold ornament, silver, etc. These were categorized and made available to the learned A.O., with a request for rectification after the assessment orders were passed, which was refused. When the same was also urged before the learned CIT [Appeals], no observations thereon have been made on this aspect of the matter that was urged by the appellant. The learned CIT[A] has upheld the addition in Para 12.8 to 12.11 of the order dated 28/11/2014 [Page 979 980 of paper book No. V]. 5.22 On this aspect of the matter, it is submitted that as far as the assessment year 2005-06 is concerned, it is glaringly from the entries in non-tagged log that it contains entries pertaining to the F.Y. 2003-04, which is beyond the period of assessment. This can be seen from the table enclosed to the assessment at page Nos.36 to 41 that SI.No.1 to SI.No.245 at page No.41 totaling to 1773.401 gms pertains to transactions for the financial year 2003-04 and hence, the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its order that the approved valuer had categorically stated that it is not possible to identify the age of old ornamental jewellery. He also pointed out that in the same Para 11.14, this finding is also given by CIT(A) that the value of entire 22 Ct jewellery including the unaccounted 22 Ct jewellery found in 1990 was valued at ₹ 270/- per gram and the assessee did not furnish the old jewellery details or objected to the valuation of any of the old jewellery at ₹ 270/- per gram. Hence, in the present proceedings, no item of old jewellery can be valued at price less than ₹ 270/- per gram. 7. In the rejoinder, it was submitted by ld. AR of assessee that the assessee can correlate the sale invoices with the purchase invoices. He submitted that as per purchase Invoice No. 7 dated 22.05.2004, purchase of 67.150 grams have been sold as per four sale invoices and the concerned sale invoices are invoice no. 65 dated 28.07.2004 of 20.12 grams, invoice no. 3245 dated 19.08.2004 of 9.87 grams, invoice no. 3898 dated 11.09.2004 of 35.74 grams and invoice no. 4330 dated 02.10.2004 of 1.42 grams. 8. We have considered the rival submissions. We find that as per the impu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60 5600 5600 5600 5600 5600 5600 5600 5600 100 3945 3945 3945 3945 3945 3945 3945 3945 180 3146 3146 3146 3146 3146 3146 3146 3146 200 2332 2332 2332 2332 2332 2332 2332 2332 240 1005 1005 1005 1005 1005 1005 1005 1005 300 145000 145000 145000 145000 145000 145000 145000 145000 450 7536.05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6000 1400 6250 1500 4240 1600 3092.803 219473 233334 270514 282972 271470 250403 231212 248611 9. From the above table reproduced from the order of CIT (A), it is seen that the various quantities were valued at various rates ranging from ₹ 10/- per gram to ₹ 1600/- per gram. It is also seen that the quantity of jewellery valued at ₹ 10/- per gram to ₹ 450/- per gram is identical in all these years i.e. Assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear of ₹ 562/- per gram for valuing the closing stock on 31.03.2005. It is also worthwhile that as per the valuation adopted by assessee, some quantity is valued by the assessee at ₹ 520/- per gram i.e. 10000 grams and some quantity of 16137.75 grams have been valued at ₹ 550/- per gram whereas the AO is valuing the entire 22 ct jewellery at ₹ 452/- per gram. The various reasons given by the AO for not accepting the valuation done by the assessee are summarized by AO on pages 20 and 21 of the assessment order which is reproduced herein below. To summarise 1. The assessee had neither proved nor substantiated its claim that the 22 ct gold ornaments need to be valued by adopting different rates and that it was following LIFO method for valuation of closing stock. 2. In respect of URD purchase of old ornaments from the customers, the assessee was immediately converting it into new ornaments which show that the assessee does not keep obsolete and out dated items in its shop. 3. The purchase and sale invoices do not give the detailed description of the 22 ct. gold ornaments and therefore it is not possible to know which item was sold first. 4. Gold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and the objections raised by the AO along with the main reasons of such objections and then examine the merit of such objections. We find that the case of the assessee is this that the assessee is not valuing the closing stock under LIFO method as stated by the auditors in one tax Audit Report in Form 3CB for A. Y. 2011 - 12 and as alleged by the AO CIT (A). The stand of the assessee is this that the closing stock is valued at the cost of each item at its specific cost of acquisition and in doing so, the assessee has valued some items of stock at a value of ₹ 10/- per gram to ₹ 550/- per Gram in A. Y. 2005 06. As against this, the AO has valued the entire closing stock as on 31.03.2005 for A. Y. 2005 006 at ₹ 10,54,66,805/- for 2,33,333.640 grams @ ₹ 452 per gram. 11. The various reasons given by the AO in assessment order for not accepting the valuation method adopted by assessee are based on suspicion only about the method adopted by assessee but it does not show that the method adopted by assessee is not an acceptable method because if the stock item can be identified as an item purchased in a particular year at a particular cost and the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be defective apart from some allegations that there are certain shortcomings being practical difficulties in following the method in valuing the closing stock as per the method adopted by assessee as per various objections of the AO reproduced above and noted from the assessment order. In summary, the main reasons given by the AO are three. First such reason is this that in the month of April , 2004, sales quantity is more than purchase quantity and hence, as per the AO, there was sale of 8197.900 grams in April 2004 out of opening stock as per Para 4.7 on page 9 of the assessment order. The second reason given by the AO is based on copy of seized documents scanned and reproduced on pages 11 12 of the assessment order and this objection is this that on these pages, one of the partners of the assessee firm has noted in his own hand writing that the old jewellery as on 01.04.2009 was 3842.388 grams. As per the third main reason given by the AO, he states that the assessee has given only general description of the ornaments in purchase and sales invoices and therefore, it was not possible to specifically identify the gold jewellery to accept that the same historical ornaments were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the description and Gross weight is either tallying exactly or is very close. We are concerned with valuation of stock and not about purchase and sale tallying. If the closing stock item is identifiable as shown by the assessee on these pages, it cannot be said that the method of valuation of closing stock followed by the assessee by valuing the stock item at the actual cost of that item is defective and not acceptable. This is at the best one shortcoming in the method adopted by the assessee because the assessee is not able to show any documentary evidence about identifying the ancient jewellery and such identification is dependent on the partners and/or jewellery experts employed by the assessee. But such shortcoming cannot be a basis to reject the method of valuation of closing stock consistently followed by the assessee and accepted by the department. 12. Now we consider and examine the observation of CIT(A) in Para no. 11.13 of its order dated 28.02.2014, available on page no. 962 of paper book wherein it is stated by CIT(A) that as per Tax Audit Report in Form 3CB dated 30.09.2010 for Assessment Year 2010-11 and similarly for other assessment years, it is reported by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 that the valuation is as per LIFO method and in the next line, it is said that the valuation is on the same basis as in the preceding year and in the preceding year s Form 3CB available on page 105, there is no adverse comment. This is also settled law that the comments of the auditors are not final and binding particularly if the same is not supported by evidence. On the basis of such a contradictory conflicting statement/ observation of the auditors, the method of valuation of closing stock consistently adopted by the assessee and accepted by the department in earlier and later years cannot be discarded. 13. We also examine the veracity of this observation of CIT (A) in Para 13.14 of his order dated 28.02.2014 that this is a finding of the AO that the entire 22 ct. jewellery including the unaccounted 22 ct. jewellery found in search conducted in 1990 was valued at ₹ 270/- per gram and the assessee did not furnish the old jewellery details or objected to the valuation of this old jewellery at ₹ 270/- per gram. We find that the assessment order dated 26.08.1992 for A. Y. 1990 91 is available on pages 730 to 740 of the paper book. In this year, there is no add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avour of the assessee in all these years. 15. The next issue to be decided is regarding the addition made by the AO in various years by alleging that there is some unaccounted sales and this addition is made by the AO to the extent of gross profit on such alleged unaccounted sales. In this regard, the written submissions of ld. AR of assessee is already reproduced above and as per the assessment order also, the DDIT examined one Mr. Venkatesh Vaidyanathan, Vice President of the software supplier company initially on 16.09.2010 and later on 06.10.2010 and thereafter again on 07/10/2010. The entire addition on the basis of alleged unaccounted sales is based on these three statements of this witness Mr. Venkatesh Vaidyanathan, Vice President of the software supplier company. As per Para 5.11 of the written submissions reproduced above, this is the claim of the assessee that all these three statements of the witness were recorded behind the back of the assessee and there was no witness present at the time of recording the statement and therefore, this statement cannot be relied upon at all. It is also submitted that no opportunity was provided to the assessee to cross examine this w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of whose statement, adverse inference was drawn against the assessee. Hence as per these judicial pronouncements noted above, the addition made by the AO on the basis of these three statements cannot be sustained because of violation of rules of natural justice. 16. Moreover in Para 6.6 of the assessment order for Assessment Year 2005-06, it is noted by the AO that the said witness Mr. Venkatesh Vaidyanathan has stated that the items were removed from counter either for sale or on account of any other reason without collecting tax thereon. In the same Para, it is also noted by the AO that the assessee has given various reasons for removal of tag or tagged items and the assessee also contended that the records do not pertain to sales and instead, they pertain to items issued for repair or hallmarking. But this explanation of the assessee was rejected by the AO by stating that the submission made by assessee cannot be accepted as definite evidence. In this regard. It is a submission of the ld. AR of assessee in Para 5.14 of written submissions as reproduced above that as per the reply dated 12/11/2010 available on pages 221 to 300 of the Paper Book No. II, the assessee enclosed v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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