TMI Blog2020 (9) TMI 761X X X X Extracts X X X X X X X X Extracts X X X X ..... ontravention to the circular and instruction of the CBDT and therefore the same deserves to be deleted. One major fact was ignored by the AO as well as by ld. CIT(A) that the sale was duly recorded in the books of accounts and after inclusion of the same in total sales, cash balance, profits and stocks were derived which were accepted by both the authorities without any doubts - further addition by alleging the same as excess cash tantamount to taxation of an income twice. One in the shape of sales and profits embedded therein and again by making addition by alleging the same as unexplained excess cash - we do not find any merit in the addition upheld by the ld. CIT(A) on account of excess cash. The A.O. is directed to delete the same. Excess stock found during search and admitted by partner in the statements recorded during the search operation - HELD THAT:- Statement of Shri Anup Bohra was recorded many times in bits and pieces and he was naturally under tremendous pressure, and he was satisfied about the inventory of physical stock so prepared in so far as quantity of the items are concerned but he is not a person well versed with the accounting principles, he accepted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of the prevailing situation of Covid-19 Pandemic. 3. Rival contentions have been heard and record perused. Facts in brief are that the assessee is a partnership firm, engaged in manufacturing and trading (including export) of designer jewellery made of gold and silver studded with precious and semi-precious stones. A search operation u/s 132 was carried out on 17.12.2014 at the business premises of the assessee situated at M.I. Road, Jaipur and its sales outlet at Hotel Rambagh Palace, Jaipur. Besides this, simultaneously the search at the residential premises of its partners and other key persons of the group was also carried out. During the course of search, loose papers and cash were found and seized and the entire stock available at both the business premises was valued by the departmental valuer at market price as on the date of search. Statements of the partners and key persons were also recorded and a surrender towards the alleged excess cash and stock was obtained in the statements recorded of one of the partner Shri Anup Bohra. 4. The assessee filed its return of income for the year under appeal on 16.09.2015 declaring total income at ₹ 9,97,510/- and the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case and in law Id. CIT(A) is justified in deleting of initiating penalty proceedings u/s 271AAB of the I.T. Act, 1961. 5. We have considered the rival contentions and carefully gone through the orders of the authorities below and found from the record that the AO in para 5 of the assessment order has observed that assessee is engaged in manufacturing and trading of gems and designer jewellery and handicrafts and its main clientele is rich Indian and international tourists. The AO then alleged that most of the sales made is in cash and not recorded in the book of accounts. It is true that assessee is engaged in manufacturing and trading of designer jewellery and its customers mainly comprises of foreign tourists however, neither the product is as such that the same could be sold at a hefty price since it is made of precious metal (gold and silver) whose price is governed by the international market and the extraordinary price cannot be asked for the precious stone embedded therein since the customer though coming from the international market but most of them are dealing in the same goods and having deep knowledge about the quality and tentative prevailing rate of such typ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t statement recorded on oath u/s 132(4) and 131 cannot be brushed aside unless and until the assessee explained that these statements were made under coercion or duress and these are having evidentiary value. Further, if the retraction is to be made, it should be at the earliest. However, in the instant case, the retraction was made indirectly by not declaring the undisclosed income as declared U/s 132(4)/131 in the return of income filed by the assessee. Reliance was placed by the ld. CIT-DR on the following judicial pronouncements in support of the above contention. (i) Video Master Vs JCIT (2016) 66 taxmann.com 361 (SC) (ii) Banna Lal Jat Construction P Ltd. Vs ACIT in ITA No. 720/JP/2017 vide order dated 29/12/2017 (iii) PCIT Vs Shri Roshan Lal Sancheti in DB ITA No. 47/2018 dated 30/10/2018 (iv) Bhagirath Aggarwal Vs CIT (2013) taxmann.com 274 (Del) (v) CIT Vs O Abdul Razak (2012) 20 taxmann.com 48 (Ker). (vi) CIT Vs Lekh Raj Dhunna (2012) 20 taxmann.com 554 (P H) (vii) Thiru S. Shyam Kumar Vs ACIT (2018) 99 taxmann.com 39 (Mad.) (viii) CIT Vs M.S. Aggarwal (2018) 93 taxmann.com 247 (Delhi). (ix) Ravindra Kr. Verma Vs CIT (2013) 30 taxmann.com 367 (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and the submissions made alongwith the relevant documentary evidence has concurred with the finding of the AO and confirmed the addition. 11. We also found that both the AO as well as ld. CIT(A) failed to appreciate the fact that sales to the extent of ₹ 33,57,000/- was duly incorporated and recorded in the books of accounts while completing the same after search and thus there remained no difference in the cash physically found and as per books of accounts as on the date of search, therefore, no adverse inference could be drawn. It is settled proposition of law that assessee should be allowed to complete its books of accounts upto the date of search. In this regard reliance is placed on the decision of the ITAT Ahmedabad Bench reported in 107 Taxman 85 in the case of V.M. Thakkar Vs. ACIT wherein it has been held that It is incumbent upon Authorised officer during search or during assessment to allow the assessee to complete his books till date of search . 12. Furthermore, we found that as on the date of search i.e. on 17.12.2014, the cash as per books was taken by the search team at ₹ 12,99,938/- was actually the closing cash balance of 15.12.2014 (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TCS was collectible and hence the allegation of the AO is incorrect, in as much as the excess cash found during search was indeed on account of genuine cash sales made, which were remained to be entered in the books, as on the date of search. The statements recorded u/s 132(4) cannot be made the sole basis for making additions unless it is supported by any documentary evidence. 14. In this regard, the CBDT has clarified by clarification dated 10/03/2003 (No. 286/2/2003-Income Tax) that while recording statement during the course of search and seizure and survey operations no attempt should be made to obtain confession as to the undisclosed income. Thus, the additions based on the alleged surrender obtained during the course of search are in contravention to the circular and instruction of the CBDT and therefore the same deserves to be deleted. 15. From the record, we also found that one major fact was ignored by the AO as well as by ld. CIT(A) that the sale of ₹ 33,57,039/- was duly recorded in the books of accounts and after inclusion of the same in total sales, cash balance, profits and stocks were derived which were accepted by both the authorities without any doubts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22 from where the value of stock of ₹ 20,47,95,518.00 is taken by the search team. The other most important factor which is ignored by the department is that while valuing the stock found, the departmental valuer took the value of precious metal and other precious and semi-precious stones at prevailing market price as on the date of search (18.12.2014) whereas in accordance with the specified norms and accounting standards, the stock recorded in the books is at the cost price and or market value whichever is lower and since cost price is lower, same has been recorded at cost price in the books. It is relevant to state that there is no dispute in quantity measured by the departmental valuer. It was thus contended that since the stock found at the time of search was valued at prevailing market value and to compare the stock as per books of accounts which had always been recorded on cost price, the profit element embedded in value estimated by DVO to bring both the values in parity and make them comparable and thereafter the AO is required to find out any excess or any shortage of stock. It was also found that after giving effect to the cash sales made on 16.12.2014, entry of wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducting the Gross Profit embedded in the valuation of physical stock and after considering the same, it was submitted by the Ld. A/R that the cost of physical stock so found was more or less same as of the cost of stock as per books of accounts and rather the physical stock was slightly on lower side and the slight difference was only due to estimation of the valuation of the physical stock so done by the approved valuer. The AO has not accepted the argument of the Ld. A/R merely on the ground that the partner of the firm in his statement recorded at the time of search has admitted and surrendered the excess stock. 9.4 Accordingly in the return of income so filed by the appellant, no additional income was offered on the impugned excess stock and a note to this effect was also made in audited financial results. The Ld. A/R has also given the working of G.P. rate of last four preceding years other than the current year in order to fortify his argument about the G.P. rate in the current year being in the same range as that in earlier years. Moreover the Ld. A/R has also furnished raw material wise working of last six years in order to support his argument that the value so taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Market Value of Stock 18,88,26,324.00 Less: G.P. @ 34.20% 6,45,78,603.00 3. Cost Price of Stock physically found 12,42,47,721.00 Add: Value of raw gold and silver 7,74,67,052.00 4. Cost price of total goods physically found 20,17,14,773.00 5. Stock as per books of accounts as on date of search 20,47,95,518.00 6. Shortage of goods due to estimation [5-4] 30,80,754.00 Thus there is actually a shortage of stock instead of surplus as is determined by the AO 9.7 This view was also taken by the Hon'ble ITAT in assessee's own case in A.Y. 1987-88, wherein similar issue of valuation of physical stock found during the search conducted was decided by holding that deduction of gross profit embedded in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent case it is not shown that the approved valuer was in any way interested in either of the parties. The estimation made by him of the cost of untagged a articles was, therefore, acceptable. Incidentally such estimation, more or less, tallied with the estimation made by the assessee. Therefore, the cost of the stock declared by the assessee at the time of search must have been accepted. There are thus reasons to take the view that since the basis of the addition of ₹ 54,250/- was after all estimation of the cost of articles and such estimation was done at an intermediary stage of the accounting period it is not safe to declare that the assessee was having any stock in excess of that mentioned in the books. It may be mentioned that the cost of the stock was not arrived at itemwise or weightwise so as to pin point the excess articles or weight. Under such circumstances we find it difficult to uphold the sustained addition even. The addition sustained by the learned CIT(A) therefore deserved to be deleted. However, as detailed at page 69 and shown in the chart supplied to us during the course of argument at the most addition of ₹ 24,476/- only, as declared by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ACIT (1TA No.916/JP/ 12 dated 17-10-2015 has held that: Assuming an addition on account of closing stock is somehow made, the same is to be allowed to the assessee in the next year as opening stock which will reduce the profits of next year. This exercise is essentially revenue neutral between two years. The Hon'ble Supreme Court in the case of CIT vs. Excel India, 358 ITR 295 has held that addition in such revenue neutral exercise should not be made by the Department. Thus on both the counts, there is no justification in retaining the addition which is deleted. 9.9 In above para, accordingly the addition so made by the AO is deleted and these grounds of appeal of A/R on this issue are allowed. On the facts and in the circumstances of the case, the AO is directed to delete the addition of 6,14,97,858/-. 19. Against the above order of the ld. CIT(A), the revenue is in further appeal before the ITAT. The ld. CIT DR has very vehemently argued to the affect that statement of partner of the firm Shri Anup Bohra recorded during the course of search u/s 132(4) wherein he has accepted the amount of ₹ 6,14,97,858/- as excess stock cannot be brushed aside and is ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an the rates adopted for the valuation by the DVO and thus reduction in the value by way of embedded GP is baseless. In this regard, we observe that during the course of assessment proceedings before AO, assessee had filed a table showing party-wise purchases made in the preceding six and half years by the assesse in respect of few item which is placed at paper book pages 60-80 according to which the average rate of gold per gram works out to ₹ 2262/- which is very much lower than the rate adopted by DVO (₹ 2714/- per gram). Similarly, average rate of purchase of emerald comes to ₹ 1390/- per ct. as against average fair market rate / value taken by DVO at ₹ 4500/- per ct. Similar is a position in respect of diamond where average purchase cost is ₹ 18567/- per ct. whereas DVO has taken the rate ₹ 25438/- per ct. Thus, this argument of the AO for not allowing deduction of GP embedded in the estimated market value, is devoid of any merit. 22. The ld. CIT-DR relied on the decision of the Hon ble Supreme Court in the case of Video Master Vs. JCIT (2016) 66 Taxmann.com 361 (SC), in which various loose sheets / papers and unrecorded vouchers were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the cited case are quite different from the instant case of the assessee. Similar is the position in respect of various other cases cited by the ld. CIT DR that facts of those cases are quite different and distinguishable with the facts of instant case of the assessee and therefore same are not applicable here. 24. With regard to contention of the ld. CIT-DR regarding deduction of gross profit embedded in the valuation of physical stock, we observe that the department itself in assessee s own case in AY 1987-88, wherein similar issue of valuation of physical stock found during the search conducted was decided has observed that that deduction of gross profit embedded in the market value of the physical stock should be given, copy of the assessment order and order of ITAT are placed in the paper book. Moreover, the Hon ble Jurisdictional High Court in the case of CIT vs. Akash Gems Pvt. Ltd. having identical issue is involved of allowing deduction of GP out of the value of stock estimated by department valuer at the time of search. The hon ble court has upheld the order of ITAT where the ITAT was of the view that it is a matter of common knowledge that the valuation done by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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