TMI Blog2023 (11) TMI 1141X X X X Extracts X X X X X X X X Extracts X X X X ..... uantity and it is the usual practice followed by the assessee and it has to be inferred that there was a movement of stock from assessee s shop to MD s house. Hence, there was an impugned shortage of jewellery in the hands of present assessee. It is quite natural to give telescopic benefit to the assessee by observing that the jewellery found at the residence of MD of present assessee is belong to the assessee itself and due telescoping benefit to be given. As such, the finding of lower authorities that there was suppression of sale of jewellery in the hands of assessee have no legs to stand. Accordingly, the addition is deleted and this ground of the assessee is allowed. Unexplained investment in silver articles - excess silver articles to the tune of 1.801 kgs. - HELD THAT:- The contention of the ld. A.R. is that total stock of silver articles was at 1008 kgs. On weighing the same, there was excess of silver articles to the tune of 1.801 kgs., which is very minimal and which is only 0.1786%. It may be due to weighing difference in scale due to wind or due to any other reasons. This minimum difference cannot be considered as excess silver articles found during the course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit on sale of gold jewellery estimated by applying the gross profit rate of 6.44 % on the value of the alleged deficit stock found in course of search under the facts and in the circumstances of the appellant's case. 2.1 The learned CIT[A] ought to have appreciated that the stocks found in the deficit in the shops of the appellant, which is almost identical to the extent of stock found and seized in the residence of the appellant's Managing Director Sri R. Ramesh, did not warrant an inference that the appellant has made any such sales outside the books under the facts and in the circumstances of the appellant's case. 2.2 The learned CIT[A] ought to have appreciated that the appellant has established the practice for keeping the stocks of the shops in the residence of the Managing Director based on stock reports given to bankers much before the search and therefore, no inference of any deficit stock or sales made outside the books of accounts can be made under the facts of the case. 2.3 The learned CIT[A] ought to have appreciated that the stock found in the residence of the appellant's Managing Director bear the mark RR indicating that the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading in gold and silver articles. A search action was taken place u/s 132 of the Act in the case of M/s. R.R. Gold Palace and M/s. R.R. Gold Palace Pvt. Ltd. on 8.2.2013. Consequent to this, the case of the assessee has been centralized to Central Circle-1(2) vide order of the CIT-IV, Bangalore dated 25.3.2014. Later, the case was transferred from Central Circle 1(2) to the ACIT Central Circle-1(1), Bangalore. The assessee e-filed the return on 28.2.2014 in response to notice issued u/s 153A of the Act for the assessment year 2013-14 declaring income of Rs. 5,89,84,460/- being income from business and other sources. 2.1 On 8 th Feb. 2013 the department had conducted search and seizure operation at the residence of the assessee company. The department also conducted search and seizure at the residence of Sri Ramesh Ramachandra Rao at No.98: Sathyanarayana Layout, 3 rd Stage, 4 th Block Basaveshwar Nagar. Bangalore As pointed out in the earlier paragraph that the department had also conducted search at the residential premises of Sri R. Ramesh, Managing Director of the company. the search party there had found the same quantity of gold ornaments in a wooden cupboard in the roo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... joint warrant of the assessee company and Sri R. Ramesh, the Managing Director was seized despite the fact it was claimed as belonging to him yet the proceedings have not been taken u/s. 153C of the Act. for the assessment year 2003-04. 2. The learned A.O. is not justified in holding that the stocks found in the deficit in the shops, which is almost identical to the extent of stock found in the house warranting an inference that the stocks deficit have been sold outside the books when they were found corresponding extent of stock in the residence of Sri R. Ramesh, the Managing Director where they were seized as not belonging to-him as there was no warrant for initiating such proceedings personally u/s. 132(1) of the Act and no proceedings u/s. 153C was also taken on that count for the assessment year 2013-14 and only a regular assessment has been made contrary to the provisions of section 153C of the Act, which ought to have been invoked if the stock found did not belong to the assessee. 3. Without prejudice to the above, the alleged sale of the stock found in deficit is large enough to telescope the other additions made in the order and therefore, the other additions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deficit of gold jewellery found totalling to 40.01 kgs. Gold Bar 2.56 -2.56 -2.56 Silver Articles 528.049 524.049 4 480.859 483.055 -2.196 1.804 Excess silver articles found 1.804 kgs. 3.2 The ld. AO computed the gross profit on account of suppression of the sale of gold ornaments at 80% of the gross weight as follows: Gross weight of deficit gold jewellery found - 40.01kgs. Net weight is worked out into - 30 kgs.(40.01 x 85%) The rate of gold jewellery as on 8.2.2013 Rs. 2867/- per gm. Accordingly, the value of deficit stock works Rs. 9,74,78,000/- 3.3 Accordingly, he computed the gross profit on this at Rs. 9,74,78,000/- at 6.4% of gross profit worked out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amesh. From that angle, even for the assessment year 2013-14, the assessment should have been made on Mr. R. Ramesh u/s. 153C of the Act. If the value of the jewellery as considered, there was no justification to hold there was deficit in the quantity of gold jewellery and silverware to warrant any addition in the hands of the assessee company on the ground such jewellery was sold and some income was earned as done by the learned A.O. On the other hand, the learned A.O. unreasonably held that the jewellery was sold away and he had estimated certain amount as profit on the sale of jewellery. The A.O. unreasonably held the jewellery found in the residence of the Mr. R. Ramesh did not belong to the assessee but belonged to Mr. R. Ramesh, overlooking the following facts and circumstances viz., the search in the residential premises of Mr. R. Ramesh preceded the search in the shops of the assessee company. Even in the preliminary statement before the commencement of search, Mr. R. Ramesh had stated that the jewellery found in his house belonged to the assessee company, which he had brought home for several purposes like hallmarking, repairs, etc. At the time of commencement of the searc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see belonged to it. 4.4 He further submitted that, the assessee had hypothecated the stock to the State Bank of Rajajinagar Branch, who had appointed MI B. N. Pai Company, Chartered Accountants, to conduct a stock audit on their behalf and they have conducted a stock audit on 29/12/2012 to 06/01/2013 and an audit report was also filed with the A.O. The Auditors in the report dated 06/01/2013 have stated that in physical verification of stock at page 16] about the stock at Jayanagar shop, Malleswaram Shop and MD's residence and the dates of visit. Further at pages [4 5], the location of stock and quantity-wise is also indicated and the quantity of stock at MD's residence is also indicated. In other words, keeping the stock in the MD's residence, which are supported by the issue register, books, computer back-up, the hallmarking engraved on each one of the items go to prove conclusively that the stock belonged to the assessee and therefore the invocation of section 153C for the assessment years 2007-08 to 2012-13 and not invoking section 153C of the Act for the assessment year 2013-14 in the hands of Mr. R. Ramesh, if their satisfaction were to be genuine and which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the stock audit report of M/s. Nagesh Pai, which clearly shows that the stock auditors of the bank have stated that the stock hypothecated to the bank were stocked even in the residence of the Managing Director. This goes to show the stock of the company used to be kept under some circumstances In the residence of the Managing Director also. This is cited by the A.O. only to show that the stock in the residence of the Managing Director did not have any tags or hallmarks and therefore, it belonged to Sri R. Ramesh, separately and not to the assessee company. The A.O. failed to appreciate that all the jewellery seized are with the department. The name RR is engraved on these jewellery consequents to hallmarking. The assessee submitted that the A.O. may examine the jewellery to find out whether the words RR is engraved on the jewellery or not, which would clinch the issue one way or other. That, the A.O. conveniently omitted to do and on the other hand has simply made sweeping counter allegations. Be it what it may, the stock found in deficit was in agreement with the stock found in the residence. On overall consideration of the matter, the presence of stock in the residence and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o light in the absence of a search. Further, the quantity and also the considerable value involved is substantial, which would necessarily warrant maintenance of proper books of accounts including stock register, which is being a Private Limited company. In the absence of proper entry in the stock register showing the transfer of this stock to the Managing Director, no benefit to be given to the assessee and addition to be sustained. 6. We have heard the rival submissions and perused the materials available on record. In the present case, there is a shortage of stock to the tune of 40.01 kgs. Gold jewellery. The contention of the ld. A.R. is that same amount of jewellery was found in the residence of Managing Director of assessee during the course of search action and the same was the stock taken from the shop by Managing Director for the purpose of safe custody. Further, the contention of the ld. A.R. is that this is a normal practice to keep the portion of the stock of jewellery in the Managing Director s house for security purpose and they are not usually making any entries in the stock register as the keeping of jewellery at shop and keeping of jewellery at residence of Mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of jewellery in the hands of present assessee. It is quite natural to give telescopic benefit to the assessee by observing that the jewellery found at the residence of MD of present assessee is belong to the assessee itself and due telescoping benefit to be given. As such, the finding of lower authorities that there was suppression of sale of jewellery in the hands of assessee have no legs to stand. Accordingly, the addition is deleted and this ground of the assessee is allowed. 7. Next ground in this appeal is with regard to unexplained investment in silver articles. In the course of survey action on 8.2.20123, there was excess silver articles to the tune of 1.801 kgs. And the ld. AO valued this stock at Rs. 1,05,359/- and brought to tax. 7.1 The ld. A.R. submitted in so far as the other addition made for the assessment year 2013-14 is concerned, he submitted that the learned A.O. is not justified in holding that there was excess quantity of silver items aggregating to 1.804 kg. which was erroneous in that, it was not properly weighed since it involved about 33,000 items of silverware items weighing about 1008 kgs. approximately and Infinitival point 01 gm. of weight in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Nos.441 442 Oct 2012 20,74,113 4,83,370 25,57,483 A/RR/CO/09 Page Nos.457 458 Nov 2012 18,82,225 5,85,218 24,67,443 A/RR/CO/11 Page Nos.580 581 Dec 2012 38,55,181 12,06,270 50,61,451 A/RR/CO/14 Page Nos.61 62 Jan 2013 32,96,080 9,37,305 42,33,385 Total 175,34,814 57,86,343 233,21,157 On that basis, the ld. AO has made above additions. 10.2 With regard to the addition based on the excel sheets the ld. A.R. submitted that the learned A.O. made an addition of Rs. 2,33,21,57/-as unexplained cash expenditure u/s. 69 of the 1.T. Act. He submitted that the addition was made on the basis of typed lose sheets seized from the business premises of the assessee. He submitted that during the course of search statement u/s. 132(4) of the Act, was recorded from one Sri K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entries represented information necessary for managerial and administrative purposes and it has not found place in the books of accounts of the assessee. As such, these represent the income or expenditure relating to the assessee company. In view of this, the addition to be sustained. 12. We have heard the rival submissions and perused the materials available on record. It is an admitted fact that the department has not collected any corroborative material supporting the entries in these loose slips. In our opinion, unless it is substantiated or corroborated by any material evidence in support of such notings in the loose slips or notings in diary, the addition cannot be made by the authorities. The suspicion in the minds of the revenue authorities that the assessee has made certain payments as per the loose slips cannot be reason to make an addition. In the absence of concrete evidence brought on record by the authorities concerned, the addition cannot be made. The suspicion cannot replace the material evidence brought on record. It is also be noted that the authorities have to follow the principles of natural justice and the description of the documents in the form of loose ..... X X X X Extracts X X X X X X X X Extracts X X X X
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