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TMI Blog2021 (12) TMI 1207X X X X Extracts X X X X X X X X Extracts X X X X ..... chase price of the assessee is misplaced and' erroneous and without giving cogent reasons. 4. On the fact and circumstances of the case and in law, the learned CIT(A) failed to appreciate that the appellant before the AO had not submitted any letter from the Jilaba manufacturer which clarified that the value of purchase/stock cannot be obtained from Jilaba data as purchases were not entered in the Jilaba system. 5. On the fact and circumstances of the case and in law, the learned CIT(A) erred in holding that the valuation of stock as arrived by the AO which forms the basis of addition made u/s. 69 is not based on any evidence and is merely based on presumption of the AO overlooking the fact that the column in Jilaba software is purchase price to the assessee. 6. On the fact and circumstances of the case in law, the learned CIT(A) erred relying on the fact that the stock has been verified by the Bank by appointing independent auditors which was not placed by assessee before AO, tantamounting to admission of additional evidence in violation of Rule 46A of Income Tax Rule 1962. 7. On the fact and circumstances of the case, the learned CIT(A) failed to appreciate that inadv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the written submissions are reproduced as under: "1.1 Our clients are engaged in the business of trading and manufacturing of gold/silver jewellery, articles and bullion. They had filed their income tax return U/S. 139(1) on 17/10/2016, declaring total income of Rs. 2,92,54,840/-. The said return was processed U/s. 143(1) on 05/11/2016. 1.2 Their case was selected under CASS for complete scrutiny and one of the reasons for selection was, 'large difference in the opening stock of current year and closing stock of previous year shown in the P & L account as per return of income'. 1.3 In this regard, our client had filed all the required details with evidences to prove that there were no differences between the opening stock of assessment Year 2016-17 and closing stock of assessment Year 2015-16. After due verification of the said details and evidences, the same was accepted by the Ld. A.O. 1.4 Thereafter vide his notice dated 13/12/2018, the Ld. A.O. ca led for the 'details of opening stock and closing stock as per Jilaba Software'. 1.5 In response to the said notice, our client, vide their submission dated 13/12/2018, had drawn the attention of the Ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book stock and the Jilaba Software. 3.1 The said fact that no such huge excess stock was found during the course of search and that the "purchase value" assumed by the then A.O. was in fact the "sale value", was also brought to the notice of the Ld. A.O. 4. The copy of letter received from Jilaba software company, was also submitted to the Ld. A.O., which clearly specified that "Thirdly, if column is used to find the value of stock, then it may be wrong as the is only an approximate value calculated based on the gold rate, wastage/making charges given at the time of tagging. While selling it, there may be a discount on wastage/making charges and also the gold rate may change. So, we cannot consider the column for the calculation of stock value. Apart from that, it is not calculated based on the purchase cost. So, we cannot consider it as stock value." 5. However, the Ld. A.O. has not appreciated the said facts and has made huge addition of Rs. 33,18,94,091/to the Income of Our Client, on following assumptions and presumptions: 5.1.1. That assessee company has stated that till the GST implementation, jilaba software' was in use. Hence, it becomes clear that though in As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought to his notice and has harped on production of details as per Jilaba software. 6.1.5. It is to be noted that the Ld. A.O. has not brought on record any discrepancy in the quantity of the closing stock during the year under consideration. Infact, he has accepted the fact that there was no difference between the stock of the earlier year and the current year after satisfying himself from all the details submitted before him. Hence, the said huge addition merely on assumptions and presumptions is not Justified. 6.1.6 Merely because the details of Jilaba. data could not be provided as desired by the Ld. A.O., due to the circumstances beyond control, the Ld. A.O. should not have made ad hoc disallowance, without pinpointing any defects in the audited books of accounts and financial statements that were produced before him. 6.1.7 We would like to draw Your Honour's attention to the fact that the Hon. ITAT, Nagpur Bench, vide its Order Dated 03/12/2018, in Appellant's own case has deleted the entire addition of Closing stock made on the suspicious assumption of difference between the book stock and the said Jilaba Software by observing as under: "in our considered v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of the appellant. The Assessee has given a detailed reply and working, which has been test checked by the CIT(A) and found to be correct. The CIT(A), has appraised the facts in right perspective before coming to the conclusion that the AO was erred in making addition towards difference stock u/s. 69 of the Act. The DR has not been able to point out any discrepancy during the hearing of the above appeal nor has been able to contradict the letter submitted by the Assessee from the Jilaba Software company, clearly stating that the in the Jilaba Software, cannot be considered as purchase price as contended by the AO." 7. Since the Hon. ITAT has confirmed the deletion of the said entire so called difference in the closing stock found as per the jilaba software and the Tally software, the Ld. A.O. was not justified in once again assuming and presuming the said differences specially when after the Order of Hon. ITAT, the closing stock for all the years, as per books remains unchanged and as such there is no difference between both the stocks. 7.1 We would further like to draw Your Honour's attention to the Hon. Supreme Court's judgement in the case of M/s. Dhakeswari Cot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, wherein it has been clearly specified that "the commissioners should advise the assessing officers in their charge to eschew unjustified over-assessments. The assessments have to be made in a reasonable and fair manner after considering all the relevant circumstances of the case. Even where the assessments has to be made ex parte, the information available should be reasonably weighted and a proper estimate made in the exercise of best judgement in the circumstances. There should be no tendency to frame assessments even in such cases mechanically on past basis, if there is evidence to the contrary." 9.1 The copies of all the above judgments are enclosed herewith for your Honour's immediate reference and record. 10. Also, the books of accounts of our client are duly audited under the Income Tax Act and no qualification was observed nor any adverse remark on the closing stock, was given by the auditor. This fact also clearly proves that during the audit, no discrepancy was noticed and there are no differences in the stock recorded as per books of accounts. 11. The Ld. AO has not only applied his mind to the facts and circumstances of our client's case but has also no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but the purchase cost." 6.3 The sale value of unsold product brought forward from earlier year remains same in the subsequent years, therefore it is purchase price to the assessee. The relevant observation of the AO in page 32 of the assessment order forming part of para 42 is as under: "for proper appreciation the valuation of a few top items of closing stock (minus date null) on the basis on value in Jilaba data was examined. The valuation of the closing stock is as per the sale value column and from the verification made out of the product tables of earlier years, using the tag key number, it was found that said sale value remains the same for the unsold product and actually it is the purchase cost to the assessee." 6.4 The AO had given various workings on the basis of the seized hard disk found during the course of search, which according to him revealed that the valuation of stock in trade was more than the book position in stock. The AO extensively discussed the issue in his assessment order so as to come to the conclusion that there is difference in price of purchase as per Jilaba software and books. He accordingly worked out difference in closing stock of gold and je ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... software and as per books of accounts maintained in tally ERP software. Admittedly there is no difference in quantity of stock as per Jilaba software and tally ERP software. In fact it is not the case of AO. On the other hand, the assessee had filed enough materials to prove that there is no difference in stock and also amount mentioned in salevalue column in Jilaba software is not purchase price of the assessee. It is also worth noting that the final result or trial balance taken out from Jilaba system shows very poor trading results i.e. it shows purchases/sales much lower than actual purchases/sales shown in tally ERP. It is pertinent to note that the assessee has maintained regular books of accounts in Tally ERP, but AO could not find any defects. The books of accounts are audited and quantitative details have been given. There has been no rejection of books of accounts u/s. 145 by the AO and as such book results are accepted. Thus, the AO cannot resort to some other accounting method and cherry pick certain data points from one source, another set of data from another source. Assessee's stock has been subject to verification and valuation by the bank, who has given loan a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omings and was also removed from all the systems, it was not possible for the appellant to give required details of stock as per Jilaba software. 6.12 It is also a fact on record that though the AO has made huge addition of Rs. 33,18,94,091/- to the income of the appellant, he has not brought on record any quantitative difference and the said addition is only on estimate basis. Further, he has also given credit of Rs. 5,14,29,709/-, being addition made on account of unexplained stock made in AY 2015-16, which has already been deleted by the Hon. ITAT. 6.13 In view of the above discussion and respectfully following the decision of Hon'ble ITAT in the assessee's own case, the said addition made by the AO is held as untenable and is directed to be deleted. In the result the appeal is allowed." 7. From perusal of the record, we observed that the assessee is a private limited company engaged in the business of trading and manufacturing of gold/silver jewellery, articles and bullion. The added Rs. 107,19,96,565/- on account of unexplained closing stock on the basis that the sale value column in the Jilaba Software represent purchase price. The AO had based his theory of trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade towards unexplained investment in stock merely because there is difference in price of certain items in Jilaba software, more particularly when assessee has explained such difference in price. We noticed that the ld. CIT(A) in his appellate order for AY 2012-13 had given a categorical finding that all the showrooms of the assessee were subjected to search and all the stock in various showrooms were valued by the departmental value and hence all the stock on the date of search was in the possession of the department and was subjected to valuation by the departmental valuer. Any discrepancy found as a result of this exercise was offered as additional income in its return of income for AY 2015-16 by the assessee. The assessee had also submitted a letter from the Jilaba manufacturer which clarified that the value of purchase/stock cannot be obtained from Jilaba data as purchases were not entered in the Jilaba system. 9. We found that during the assessment proceedings, the assessee had also submitted a letter from the Jilaba which clarified that "if column is used to find the value of stock, then it may be wrong as the is only an approximate value calculated based on the gold rate, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n books, and also when the search operation could not establish any unaccounted stock, merely for the reason of difference in price of stock items in one software which is used for monitoring stock movement, such a huge addition cannot be made towards unexplained investment in stock, that too when assessee has clarified the said difference and also the software developer clarified that the data in Jilaba software cannot be considered as true. Therefore, we are of the considered view that the AO was erred in making addition towards unexplained stock" 11. We found that during the assessment year under consideration, the AO had made addition only on the basis of the addition made by the then AO, as the assessee could not give details of stock as per Jilaba software. However, the AO has not brought on record any defects in the books of accounts nor has pointed out any unrecorded sales/purchases. We further, found that during the year under consideration also the assessee has obtained bank loan against the stock and the said stock has been verified by the bank by appointing independent auditors. The ld. AR has also pointed out that the AO has misrepresented the fact by mentioning that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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