ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-5(4), MUMBAI vs. M/S CORE JEWELLERY PRIVATE LIMITED, MUMBAI

This appeal by the Revenue and cross This appeal by the Revenue and cross-objection by the objection by the assessee, are directed against order dated 03.02.2023 passed by are directed against order dated 03.02.2023 passed by are directed against order dated 03.02.2023 passed by the Ld. Commissioner of Income the Ld. Commissioner of Income-tax (Appeals)-53, Mumbai [in short 53, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2019 ‘the Ld. CIT(A)’] for assessment year 2019-2020.

1. "Whether on the 1. "Whether on the facts and circumstances of the case and in facts and circumstances of the case and in law, Ld. CIT(A) erred in restricting the addition Rs. 34,17,276/ law, Ld. CIT(A) erred in restricting the addition Rs. 34,17,276/ law, Ld. CIT(A) erred in restricting the addition Rs. 34,17,276/- from Rs. 1,29,46,670/ from Rs. 1,29,46,670/- made by the Assessing Officer by made by the Assessing Officer by invoking the provision of section 69A on account of unexplained invoking the provision of section 69A on account of unexplained invoking the provision of section 69A on account of unexplained diamond stock of 538.49 car diamond stock of 538.49 carat by treating the diamond stock of at by treating the diamond stock of 380.66 carat as colour stone out of excess diamond stock of 380.66 carat as colour stone out of excess diamond stock of 380.66 carat as colour stone out of excess diamond stock of 538.49 carats ignoring the finding made during the course of 538.49 carats ignoring the finding made during the course of 538.49 carats ignoring the finding made during the course of survey action u/s 133A and ignoring the valuation report of the survey action u/s 133A and ignoring the valuation report of the survey action u/s 133A and ignoring the valuation report of the government approved valuer wherein government approved valuer wherein such stock of 538.49 carats such stock of 538.49 carats as valued at Rs. 1,29,46,670/ as valued at Rs. 1,29,46,670/- by the valuer." 2. "Whether on the facts and circumstances of the case and in 2. "Whether on the facts and circumstances of the case and in 2. "Whether on the facts and circumstances of the case and in law, Ld. CIT(A) erred in ignoring the valuation report of the law, Ld. CIT(A) erred in ignoring the valuation report of the law, Ld. CIT(A) erred in ignoring the valuation report of the government approved valuer even when such report was neve government approved valuer even when such report was neve government approved valuer even when such report was never objected to by the assessee and in fact the acceptance of such objected to by the assessee and in fact the acceptance of such objected to by the assessee and in fact the acceptance of such report was confirmed by the assessee in the statement recorded report was confirmed by the assessee in the statement recorded report was confirmed by the assessee in the statement recorded under oath during the survey proceeding and the assessee has under oath during the survey proceeding and the assessee has under oath during the survey proceeding and the assessee has never never never retracted retracted retracted his his his statement." statement." statement." ground 2.1 The grounds raised in cr The grounds raised in cross-objection are reproduced as objection are reproduced as under:

M/s Core Jewellery Pvt. Ltd. 3 M/s Core Jewellery Pvt. Ltd. & CO No. 68/Mum/2023 ITA No. 1543 & CO No. 68/Mum/2023 1.1. The Commissioner of Income 1.1. The Commissioner of Income-tax (Appeals) -53, Mumbai ["the 53, Mumbai ["the CIT(A)"], erred in confirming addition of Rs. 34,17,276 under CIT(A)"], erred in confirming addition of Rs. 34,17,276 under CIT(A)"], erred in confirming addition of Rs. 34,17,276 under section 69A of the Income 9A of the Income-tax Act, 1961 on account of alleged tax Act, 1961 on account of alleged excess diamond stock in spite of reconciliation submitted by the excess diamond stock in spite of reconciliation submitted by the excess diamond stock in spite of reconciliation submitted by the Respondent. 1.2. The Respondent prays that the addition of Rs. 34,17,276 1.2. The Respondent prays that the addition of Rs. 34,17,276 1.2. The Respondent prays that the addition of Rs. 34,17,276 under section 69A of the Act confirmed by the CIT(A) be deleted. under section 69A of the Act confirmed by the CIT(A) be deleted. under section 69A of the Act confirmed by the CIT(A) be deleted.

M/s Core Jewellery Pvt. Ltd. 4 M/s Core Jewellery Pvt. Ltd. & CO No. 68/Mum/2023 ITA No. 1543 & CO No. 68/Mum/2023 amounting 538.41 carat carat found during the course of survey se of survey but he did not question the the quantum of physical inventory of diamond physical inventory of diamond prepared by the registered valuer during the course of the survey. prepared by the registered valuer during the course of the survey. prepared by the registered valuer during the course of the survey. The Assessing Officer also The Assessing Officer also observed that the quantity of diamond that the quantity of diamond related to job works, repair and loan basi related to job works, repair and loan basis was excluded from the s was excluded from the valuation report and was not considered for the purpose of the valuation report and was not considered for the purpose of the valuation report and was not considered for the purpose of the valuation undertaken by the Registered Valuer. Before the valuation undertaken by the Registered Valuer. Before the valuation undertaken by the Registered Valuer. Before the Assessing Officer it was Assessing Officer it was also contended that difference in contended that difference in diamond/gold quantity found in valuation done by the quantity found in valuation done by the quantity found in valuation done by the registered valuer was on account of weighting scale fluctuations on account of weighting scale fluctuations on account of weighting scale fluctuations, rounding off differences etc. The Assessing Officer rejected the contention of the differences etc. The Assessing Officer rejected the contention of the differences etc. The Assessing Officer rejected the contention of the assessee and made addition amounting to Rs.1,29,46,670/- on assessee and made addition amounting to Rs.1,29,46,670/ assessee and made addition amounting to Rs.1,29,46,670/ account of excess stock of diamonds account of excess stock of diamonds, which was , which was held as unexplained. On further appeal, the Ld. CIT(A) allowed part relief to . On further appeal, the Ld. CIT(A) allowed part relief to . On further appeal, the Ld. CIT(A) allowed part relief to the assessee. As far as contention of the assessee the assessee. As far as contention of the assessee that color that color stones of 380.66 carats was treated as diamond of the registered valuer was treated as diamond of the registered valuer, was treated as diamond of the registered valuer the Ld. CIT(A) accepted the Ld. CIT(A) accepted the contention of the assessee the assessee and deleted the corresponding addition the corresponding addition. But as far as contention of the assessee as far as contention of the assessee of diamond received on loan basis or repair or job work was not of diamond received on loan basis or repair or job work was of diamond received on loan basis or repair or job work was accepted by the Ld. CIT(A) accepted by the Ld. CIT(A) and corresponding addition was and corresponding addition was sustained.

M/s Core Jewellery Pvt. Ltd. 5 M/s Core Jewellery Pvt. Ltd. & CO No. 68/Mum/2023 ITA No. 1543 & CO No. 68/Mum/2023

“5.3 I have considered the submissions of the appellant “5.3 I have considered the submissions of the appellant “5.3 I have considered the submissions of the appellant as also the order of the AO. One of the contentions of the also the order of the AO. One of the contentions of the also the order of the AO. One of the contentions of the appellant is that the colour stones of 380.66 cts was treated appellant is that the colour stones of 380.66 cts was treated appellant is that the colour stones of 380.66 cts was treated as diamonds during the course of stock taking. It is as diamonds during the course of stock taking. It is as diamonds during the course of stock taking. It is contended by the appellant that some pieces of jewellery contended by the appellant that some pieces of jewellery contended by the appellant that some pieces of jewellery have both natural diamon have both natural diamonds and colour stones embedded in ds and colour stones embedded in them and that they have been uniformly treated as them and that they have been uniformly treated as them and that they have been uniformly treated as diamonds at the time of physical stock taking. This diamonds at the time of physical stock taking. This diamonds at the time of physical stock taking. This contention contention contention of of of the the the appellant appellant appellant seems seems seems reasonable reasonable reasonable and and and acceptable on account of the following reasons: acceptable on account of the following reasons:- a. The physical stock stat The physical stock statement at the time of survey does ement at the time of survey does not include any item of colour stone. not include any item of colour stone. b. A perusal of the Form 3CD and Note No. 26 of Audited b. A perusal of the Form 3CD and Note No. 26 of Audited b. A perusal of the Form 3CD and Note No. 26 of Audited Financial accounts for F.Y. 2018 Financial accounts for F.Y. 2018-19 show the availability of 19 show the availability of colour stone with the appellant. colour stone with the appellant. c. A perusal of the Tax Audit Repor c. A perusal of the Tax Audit Report shows that the t shows that the appellant had opening stock of 36944 cts. of colour stones appellant had opening stock of 36944 cts. of colour stones appellant had opening stock of 36944 cts. of colour stones during the year and a closing stock of 37996 cts. at the end during the year and a closing stock of 37996 cts. at the end during the year and a closing stock of 37996 cts. at the end of the year, with the consumption during the year being at of the year, with the consumption during the year being at of the year, with the consumption during the year being at 3697 cts. only. Thus, it is a fact that colour stones were 3697 cts. only. Thus, it is a fact that colour stones were 3697 cts. only. Thus, it is a fact that colour stones were indeed available with the appellant at the time of survey. ndeed available with the appellant at the time of survey. ndeed available with the appellant at the time of survey.

M/s Core Jewellery Pvt. Ltd. 6 M/s Core Jewellery Pvt. Ltd. & CO No. 68/Mum/2023 ITA No. 1543 & CO No. 68/Mum/2023 d. Most importantly, the appellant has been able to identify d. Most importantly, the appellant has been able to identify d. Most importantly, the appellant has been able to identify the colour stones right from purchase to consumption on the the colour stones right from purchase to consumption on the the colour stones right from purchase to consumption on the basis of invoices and other details, and match them. Such basis of invoices and other details, and match them. Such basis of invoices and other details, and match them. Such an elaborate end an elaborate end-to-end reconciliation and matching cannot end reconciliation and matching cannot be discarded without valid reasons. It is also noted that the be discarded without valid reasons. It is also noted that the be discarded without valid reasons. It is also noted that the appellant has claimed the benefit of only 380.66 carats appellant has claimed the benefit of only 380.66 carats appellant has claimed the benefit of only 380.66 carats actually embedded in the jewellery and physically valued, actually embedded in the jewellery and physically valued, actually embedded in the jewellery and physically valued, as against higher stock of colour stones as against higher stock of colour stones available with it. available with it. In view of the above, the appellant has been able to In view of the above, the appellant has been able to In view of the above, the appellant has been able to reasonably demonstrate that the difference in diamond reasonably demonstrate that the difference in diamond reasonably demonstrate that the difference in diamond stock to the extent of 380.66 cts. is on account of colour stock to the extent of 380.66 cts. is on account of colour stock to the extent of 380.66 cts. is on account of colour stones stones stones being being being classified classified classified as as as diamonds. diamonds. diamonds. Hence, Hence, Hence, the the the corresponding addition corresponding addition in respect of this stands deleted.” in respect of this stands deleted.” 6.1 Before us, the Ld. Counsel Before us, the Ld. Counsel for the assessee referred to the the assessee referred to the notes to financial s financial statement for the year ended tatement for the year ended 31.03.2019, available on Paper Book Page 15 and quantitative tally of the raw available on Paper Book Page 15 and quantitative tally of the raw available on Paper Book Page 15 and quantitative tally of the raw material including diamond an material including diamond and color stone available in books of available in books of account as on 31/3/2019, which is part of the tax audit report in on 31/3/2019, which is part of the tax audit report in on 31/3/2019, which is part of the tax audit report in Form No. 3CD, and is available on page No. 33 of the Paper Book. Form No. 3CD, and is available on page No. 33 of the Paper Book. Form No. 3CD, and is available on page No. 33 of the Paper Book. The said quantitative detail of raw material is reproduced as under: The said quantitative detail of raw material is reproduced as under: The said quantitative detail of raw material is reproduced as under:

35 bA Raw Materials: S. No. Item Name Unit Openin Purchase Consumptio Sales Closin *Yield Percentag Shortag g Stock s during n during during g of e of yield e the the the Stock finished excess previous previous previou Product if any year year s year s 1. Gold grams 9483 132155 127650 4078 9910 123640 97 0 2. Diamond Carat 10398 50418 49110 0 11706 49110 100 0 3. Gold Grams 23 23 23 0 23 23 100 0 Mounting 4. Alloy Grams 16966 222000 215074 0 23892 103097 48 0 5. Finding Grams 1048 2481 2066 0 1463 2066 100 0 6. Colour Carat 36944 4749 3697 0 3799 3682 99 0 Stone 6 35 bB Finished products Sr. Item Name Unit Openin Purchase Quantity Sales Closin Shortage excess No. g stock s during manufactur during g the ed during the stock previous the previou

M/s Core Jewellery Pvt. Ltd. 7 M/s Core Jewellery Pvt. Ltd. & CO No. 68/Mum/2023 ITA No. 1543 & CO No. 68/Mum/2023 year previous s year year 7 Diamond Grams 4693 0 134198 129709 9182 0 Studded gold jewe 6.2 The Ld. Counsel The Ld. Counsel for assessee submitted that there was an submitted that there was an opening stock of color color stones of 36,944 carats. The assessee . The assessee purchased 4749 carat of purchased 4749 carat of color stones during the year under during the year under consideration. Out of consideration. Out of color stones available, the assessee consumed the assessee consumed 3697 carats during the year under consideration during the year under consideration, leaving balance closing stock of 37996 carat closing stock of 37996 carat at the year end. According to the Ld. . According to the Ld. Counsel, the registered valuer ha registered valuer has misclassified the the color stones of 380.66 carats and treated and treated those color stones as diamond. The Ld. as diamond. The Ld. Counsel referred to the Paper Book page 38 and 53 of the Paper Counsel referred to the Paper Book page 38 and 53 of the Paper Counsel referred to the Paper Book page 38 and 53 of the Paper Book and submitted that total diamond of quantity 14325.07 carat Book and submitted that total diamond of quantity 14325.07 carat Book and submitted that total diamond of quantity 14325.07 carat had been found from the pre had been found from the premises GJ-4, SDF, VII Building Seepz 4, SDF, VII Building Seepz Sez, Andheri (East) and diamond having quantity of 462.94 carat Sez, Andheri (East) and diamond having quantity of 462.94 carat Sez, Andheri (East) and diamond having quantity of 462.94 carat has been found from premises namely IT found from premises namely IT-12, SDF 12, SDF-VII Building, Seepz Sez, Andheri (East) Seepz Sez, Andheri (East). Thus, the total quantity of diamond the total quantity of diamond found was from those two places se two places amounts to 14,788.01 14,788.01 carats. The Ld. Counsel submitted that assessee has prepared a complete Ld. Counsel submitted that assessee has prepared a complete Ld. Counsel submitted that assessee has prepared a complete statement of color stones and diamond consumed during the year stones and diamond consumed during the year stones and diamond consumed during the year under consideration at various stages and according to that valuer under consideration at various stages and according to that valuer under consideration at various stages and according to that valuer has wrongly treated the has wrongly treated the color stone amounting to 380.66 carat 380.66 carats as diamond. The relevant reconciliation of diamond quantity The relevant reconciliation of diamond quantity The relevant reconciliation of diamond quantity filed by the assessee before the ld CIT(A) is reproduced as under: the assessee before the ld CIT(A) is reproduced as under: the assessee before the ld CIT(A) is reproduced as under:

M/s Core Jewellery Pvt. Ltd. 8 M/s Core Jewellery Pvt. Ltd. & CO No. 68/Mum/2023 ITA No. 1543 & CO No. 68/Mum/2023

Particulars Particulars Cts. Remarks Stock as per Books as on 06.02.2019 Stock as per Books as on 06.02.2019 Raw Material 10216.91 Stock in Process 1371.93 Finished Goods 2720.68 Total Stock as per Books on 06.02.2019 Total Stock as per Books on 06.02.2019 14,309.52 Annexure Annexure-A Stock as per Registered Valuer Stock as per Registered Valuer 14,848.00 Annexure Annexure-B Difference in Quantity as per Valuer Difference in Quantity as per Valuer 538.48 Less: Color Stones treated as Diamonds Diamonds 380.66 Annexure-C (Refer Note 1.) Annexure Party Loan Goods/Repairing Party Loan Goods/Repairing 157.82 Annexure-D (Sample invoice) Annexure Total Difference 0.00 6.3 The learned counsel submitted that 380.66 carats of colour The learned counsel submitted that 380.66 carats of colour The learned counsel submitted that 380.66 carats of colour stone which were studded in stone which were studded in jewellary were treated by the were treated by the Registered Valuer as diamond. He referred to the list of jewellary, Registered Valuer as diamond. He referred to the list of Registered Valuer as diamond. He referred to the list of which was exported subsequently by the assessee, where certain which was exported subsequently by the assessee, where certain which was exported subsequently by the assessee, where certain pieces were classified as CZ pieces were classified as CZ (Color stone). The lear stone). The learned counsel contended that the Custom A contended that the Custom Authorities also verified the colour so verified the colour stone studded in those jewellary. According to the learned counsel stone studded in those jewellary. According to the learned counsel stone studded in those jewellary. According to the learned counsel the jewellary exported matched with the exported matched with the jewellary jewellary listed by the registered valuer at premises namely IT at premises namely IT-12, SDF-VII Building, Seepz VII Building, Seepz Sez, Andheri (East). The learned c Sez, Andheri (East). The learned counsel also referred to the sample ounsel also referred to the sample invoices to support that the registered valuer has wrongly classified invoices to support that the registered valuer has wrongly classified invoices to support that the registered valuer has wrongly classified the CZ (color stone) as diamond. The learned counsel submitted the CZ (color stone) as diamond. The learned counsel submitted the CZ (color stone) as diamond. The learned counsel submitted that the stock has been wrongly classified in the goods lying at IT- that the stock has been wrongly classified in the goods lying at that the stock has been wrongly classified in the goods lying at 12, SDF-VII Building VII Building, Seepz Sez, Andheri (East). The The statement of M/s Core Jewellery Pvt. Ltd. 9 M/s Core Jewellery Pvt. Ltd. & CO No. 68/Mum/2023 ITA No. 1543 & CO No. 68/Mum/2023 consumption of color stones available on paper book page 75 is consumption of color stones available on paper book page 75 is consumption of color stones available on paper book page 75 is reproduced as under: reproduced as under:

M/s Core Jewellery Pvt. Ltd. 10 M/s Core Jewellery Pvt. Ltd. & CO No. 68/Mum/2023 ITA No. 1543 & CO No. 68/Mum/2023 6.4 The Ld .counsel referred to the statement of the director of the The Ld .counsel referred to the statement of the director of the The Ld .counsel referred to the statement of the director of the assessee company where he sought more time for re-conciliation of assessee company where he sought more time for re assessee company where he sought more time for re the inventory. The relevant part of the statement has already been The relevant part of the statement has already been The relevant part of the statement has already been reproduced by the Assessing Assessing Officer in para 4.3 of the assessment 4.3 of the assessment order, but for ready reference, same is extracted as under: order, but for ready reference, same is extracted as under: order, but for ready reference, same is extracted as under:

"Q 25 Please confirm that during the course of "Q 25 Please confirm that during the course of Survey Action U/s 133A at Survey Action U/s 133A at the premise M/s Core Jewellery Pvt Ltd the valuation of the Physical the premise M/s Core Jewellery Pvt Ltd the valuation of the Physical the premise M/s Core Jewellery Pvt Ltd the valuation of the Physical stock was done, The valuation of the physical stock, was done by the stock was done, The valuation of the physical stock, was done by the stock was done, The valuation of the physical stock, was done by the Government approved valuer Mr Kamlesh Nahar, at two premises of M/s Government approved valuer Mr Kamlesh Nahar, at two premises of M/s Government approved valuer Mr Kamlesh Nahar, at two premises of M/s Core Jewellery Pv Limite Core Jewellery Pv Limited at GJ-4, SDF VII, SEEPZ-SEZ, Andheri(E), SEZ, Andheri(E), Mumbai 400096 which was valued at R$ 35,48,36,076/ Mumbai 400096 which was valued at R$ 35,48,36,076/- - and premise address IT 12 SDF address IT 12 SDF -VII, SEEPZ-SEZ, Andheri(E), Mumbai was found to be SEZ, Andheri(E), Mumbai was found to be Rs 1,25,45,698/ Rs 1,25,45,698/- Please offer your comment. Ans. Yes sir, I confirm that Yes sir, I confirm that valuation was done at both the premises and valuation was done at both the premises and physical stock of is Rs 35,48,36,076/ physical stock of is Rs 35,48,36,076/- and of Rs 1,25,45,698/ and of Rs 1,25,45,698/- was found during at the abovementioned premises of M/s Core Jewellery Pvt found during at the abovementioned premises of M/s Core Jewellery Pvt found during at the abovementioned premises of M/s Core Jewellery Pvt Ltd. Q 26. During the course of survey action u/s 133A at the premise of M/ During the course of survey action u/s 133A at the premise of M/s During the course of survey action u/s 133A at the premise of M/ Core Jewellery that the stock as per the books of M/s Core Jewellery Pvt Core Jewellery that the stock as per the books of M/s Core Jewellery Pvt Core Jewellery that the stock as per the books of M/s Core Jewellery Pvt Ltd is Rs 30,36,68,015. However, on physical verification and valuation Ltd is Rs 30,36,68,015. However, on physical verification and valuation Ltd is Rs 30,36,68,015. However, on physical verification and valuation excess stock of Diamond is found 538.49 Ct having value of Rs excess stock of Diamond is found 538.49 Ct having value of Rs excess stock of Diamond is found 538.49 Ct having value of Rs 1,29,46,670/- and Gold in jewellery (equivalent to Pure gold) is found to to Pure gold) is found to be deficit by 1842.85 gms having value of Rs 60,44,548/ be deficit by 1842.85 gms having value of Rs 60,44,548/- - as compared to your stocks maintained in your books of account. Please confirm and to your stocks maintained in your books of account. Please confirm and to your stocks maintained in your books of account. Please confirm and offer you comment on the discrepancy found in the physical stock. offer you comment on the discrepancy found in the physical stock. offer you comment on the discrepancy found in the physical stock. Ans- Yes Sir, I confirm Yes Sir, I confirm that the valuation of the physical stock was done that the valuation of the physical stock was done at both the above mentioned premise of the M/s Core jewellery Pvt Ltd. I at both the above mentioned premise of the M/s Core jewellery Pvt Ltd. I at both the above mentioned premise of the M/s Core jewellery Pvt Ltd. I confirm hat that there is a discrepancy in the stock as per book vis confirm hat that there is a discrepancy in the stock as per book vis confirm hat that there is a discrepancy in the stock as per book vis-a-vis physical stock as per valuer report but / would like to s physical stock as per valuer report but / would like to state that I will tate that I will need some time to reconcile the same." need some time to reconcile the same." 6.5 The Ld. Counsel submitted that the assessee questioned the The Ld. Counsel submitted that the assessee questioned the The Ld. Counsel submitted that the assessee questioned the valuer report before the Assessing Officer and assessee has already valuer report before the Assessing Officer and assessee has already valuer report before the Assessing Officer and assessee has already filed complete track of the color stone and therefore relying on the stone and therefore relying on the M/s Core Jewellery Pvt. Ltd. 11 M/s Core Jewellery Pvt. Ltd. & CO No. 68/Mum/2023 ITA No. 1543 & CO No. 68/Mum/2023 decision of the Ld. CIT(A) decision of the Ld. CIT(A), no addition is called for in respect of no addition is called for in respect of diamond worth 380.66 carat. diamond worth 380.66 carat.

6.6 On the other hand, the Ld. DR submitted that as against On the other hand, the Ld. DR submitted that as against On the other hand, the Ld. DR submitted that as against availability of color stone having quantity of more than 30,000 more than 30,000 carat, no color stone was found dur stone was found during the course of the survey ing the course of the survey from the premises of the assessee. He submitted that it is from the premises of the assessee. He submitted that it is from the premises of the assessee. He submitted that it is unbelievable that such a huge quantity unbelievable that such a huge quantity of color stone was of color stone was appearing in the books of accounts appearing in the books of accounts but, not a single carat was not a single carat was found. He further submitted that during the cou found. He further submitted that during the course of the survey no rse of the survey no objection was raised by or on behalf of the assessee regarding the objection was raised by or on behalf of the assessee regarding the objection was raised by or on behalf of the assessee regarding the quantity of diamond recorded by the valuer and therefore diamond recorded by the valuer and therefore making diamond recorded by the valuer and therefore bald allegations after closing of survey operation after closing of survey operation that that color stone has been treated wrongly as has been treated wrongly as diamond cannot be accepted. cannot be accepted. He further submitted that the Registered valuer has prepared detailed further submitted that the Registered valuer has prepared detailed further submitted that the Registered valuer has prepared detailed inventory of each and every item of diamond fixed in jewelry found inventory of each and every item of diamond fixed in jewelry found inventory of each and every item of diamond fixed in jewelry found from premises namely “GJ amely “GJ-4, SDF-VII Building” , in the form of , in the form of three lists i.e. sr No. 1 to 88 three lists i.e. sr No. 1 to 88 ( 1836.61 carats), S.No. 1 to 61 , S.No. 1 to 61(692.17 Carats) and Sr. No. 1 to 40 and Sr. No. 1 to 40 (1450.02 carats). The inventory of loose . The inventory of loose diamonds (10,406.27 carats 10,406.27 carats) has been prepared separately as list been prepared separately as list No.

4. All such lists of inventory prepared by the Registered Valuer s of inventory prepared by the Registered Valuer s of inventory prepared by the Registered Valuer are available on assessee’s paper book pages 38 to e on assessee’s paper book pages 38 to 48.

M/s Core Jewellery Pvt. Ltd. 12 M/s Core Jewellery Pvt. Ltd. & CO No. 68/Mum/2023 ITA No. 1543 & CO No. 68/Mum/2023 VII Building” containing 462 carats of diamond is available on page VII Building” containing 462 carats of diamond is available on page VII Building” containing 462 carats of diamond is available on page 53 of the paperbook. 53 of the paperbook.

“Address:Unit No: Address:Unit No:- GJ - 4, SDF - VII Building, Seepz Sez, Andheri (East) VII Building, Seepz Sez, Andheri (East) Mumbai-96 The same has been examined by me to the best of my knowledge. The same has been examined by me to the best of my knowledge. The same has been examined by me to the best of my knowledge. lassess the respective value, Description No. of Pleces weight lassess the respective value, Description No. of Pleces weight lassess the respective value, Description No. of Pleces weight & net total weight of each article as mentioned in the FORM weight of each article as mentioned in the FORM-08 under section 34 08 under section 34-AB of Wealth Tax Act, 1957 Purpose for which Valuation is made. of Wealth Tax Act, 1957 Purpose for which Valuation is made. of Wealth Tax Act, 1957 Purpose for which Valuation is made. Sr. Particular Net Wt. Converted in Dia Cts. Dia Cts. Value (Rs.) No. Grms. to fine gold Summary 1. Diamond Jewellery 10 Jewellery 10 6,142.285 2,559.490 1,836.61 1,836.61 50,526,159 kL. (Purity 11.67 Sr. kL. (Purity 11.67 Sr. No 1 to 88) 2. Diamond Jewellery 14 Diamond Jewellery 14 4,316.653 2,518.335 692.17 23,246,401 kt. (purity 58.34 Sr. kt. (purity 58.34 Sr. No. 1 to 61) 3. 1,450.02 47,944,506 Diamond Jewellery 18 Diamond Jewellery 18 6,912.205 5,184.154 1,450.02 kt. ( Purity 75 Sr. No. kt. ( Purity 75 Sr. No. 1 to 40) 4. Loose Diamond Sr. No. Loose Diamond Sr. No. 10,406.27 10,406.27 224,137,424 1 to 53 Total 17,371.143 10,261.979 14,385.07 14,385.07 345,854,490

7.1 Further, at other location of the assessee, the inventory Further, at other location of the assessee, the inventory Further, at other location of the assessee, the inventory of diamond has been recorded by the Registered valuer diamond has been recorded by the Registered valuer is as diamond has been recorded by the Registered valuer under:

M/s Core Jewellery Pvt. Ltd. 13 M/s Core Jewellery Pvt. Ltd. & CO No. 68/Mum/2023 ITA No. 1543 & CO No. 68/Mum/2023

“Address:Unit No: Address:Unit No:- IT-12, SDF - VII Building, Seepz Sez, Andheri (East) VII Building, Seepz Sez, Andheri (East) Mumbai-96 The same has been examined by me to the best of my knowledge. The same has been examined by me to the best of my knowledge. The same has been examined by me to the best of my knowledge. lassess the respective value, Description No. of Pleces weight & net total lassess the respective value, Description No. of Pleces weight & net total lassess the respective value, Description No. of Pleces weight & net total weight of each article weight of each article as mentioned in the FORM-08 under section 34 08 under section 34-AB of Wealth Tax Act, 1957 Purpose for which Valuation is made. of Wealth Tax Act, 1957 Purpose for which Valuation is made. of Wealth Tax Act, 1957 Purpose for which Valuation is made. Sr. No. Particulars Gross Gross Wt. Wt. Net Wt. Converted in Dia. Cts. Dia. Cts. Value (Rs.) Grms. Grms. Grms. to file gold Summary 1. Diamond 2,023.757 1,517.818 462.94 462.94 12,168,503 Jewellery (Item No. 1 to 14) 7.2 Details of each of each and every diamond found during the course of found during the course of survey are available on page 38 to 55 survey are available on page 38 to 55 of the Paper Book of the Paper Book. Thus, the Registered Valuer has identified each and every diamond, but Registered Valuer has identified each and every diamond, but Registered Valuer has identified each and every diamond, but according the assessee, assessee, he has misunderstood color stone as he has misunderstood color stone as diamond to the extent of 380.66 carats. This explanation of the diamond to the extent of 380.66 carats. This explanation of the diamond to the extent of 380.66 carats. This explanation of the is not acceptable for many reasons. Firstly Firstly, the Registered assessee is not acceptable for many valuer of Jewellary is an expert in his field of valuation and it is is an expert in his field of valuation and it is is an expert in his field of valuation and it is unbelievable that he would commit such a able that he would commit such a mistake at mistake at large scale in differentiating in color stone and diamond. Secondly Secondly, no objection differentiating in color stone and diamond. was was raised raised regarding regarding alleged mis-classification classification or or wrong identification of the items of inventory by the assessee during the identification of the items of inventory by the assessee during the identification of the items of inventory by the assessee during the course of survey proceedings proceedings. The signature on behalf of the The signature on behalf of the assessee are appearing on assessee are appearing on each and every page of valuation report valuation report, but nowhere the assessee questioned but nowhere the assessee questioned regarding quantity of diamond quantity of diamond found except post survey post survey seeking reconciliation of quantity found seeking reconciliation of quantity found vis-à-vis books of account, which is clear from the statement of key vis books of account, which is clear from the statement of key vis books of account, which is clear from the statement of key

M/s Core Jewellery Pvt. Ltd. 14 M/s Core Jewellery Pvt. Ltd. & CO No. 68/Mum/2023 ITA No. 1543 & CO No. 68/Mum/2023 person recorded during survey proceedings as extracted above. person recorded during survey proceedings as extracted above. person recorded during survey proceedings as extracted above. Thirdly, huge stock of color stone of more than 30,000 carats was , huge stock of color stone of more than 30,000 carats was , huge stock of color stone of more than 30,000 carats was appearing in books of accounts of the assessee as on date of survey appearing in books of accounts of the assessee as on date of survey appearing in books of accounts of the assessee as on date of survey but no color stone ( except alleged claim of 380.66 carats color stone except alleged claim of 380.66 carats color stone except alleged claim of 380.66 carats color stone wrongly classified as diamond wrongly classified as diamond) was found from the premise ) was found from the premises of the assessee. The Ld. Counsel for the assessee also could not explain as The Ld. Counsel for the assessee also could not explain as The Ld. Counsel for the assessee also could not explain as why this huge amount of colour stone this huge amount of colour stone stock was not found not found available during survey.

7.3 Further, the statement of consumption of colour stone he statement of consumption of colour stone he statement of consumption of colour stone prepared by the assessee prepared by the assessee does not support the claim of the assessee laim of the assessee that 380.66 carat of diamond has been wrongly treated by the that 380.66 carat of diamond has been wrongly treated by the that 380.66 carat of diamond has been wrongly treated by the registered valuer as colour stone. registered valuer as colour stone. The assessee claim claimed that in post survey period, it had exported jewellary, which contain studded survey period, it had exported jewellary, which contain studded survey period, it had exported jewellary, which contain studded color stone or American diamonds, so it s color stone or American diamonds, so it should be presumed that hould be presumed that the Registered Valuer had misclassi the Registered Valuer had misclassified the color stone as diamond. fied the color stone as diamond. This claim of assessee This claim of assessee is also not tenable as because merely some because merely some color stones were appearing in exports post survey, we can’t ignore color stones were appearing in exports post survey, we color stones were appearing in exports post survey, we whatever whatever inventory inventory found found physic physically ally in in presence presence of of the the representative of the assessee. representative of the assessee. Further, such a reconciliation Further, such a reconciliation prepared by the assessee and filed on paper book pages 60 to 157 prepared by the assessee and filed on paper book pages 60 to prepared by the assessee and filed on paper book pages 60 to also does not support as how the inventory of diamond of 380.66 does not support as how the inventory of diamond of 380.66 does not support as how the inventory of diamond of 380.66 carat was color stone stock. In purchase carat was color stone stock. In purchase invoice available on page invoice available on page 64 of paper book , the color stone purchased are shown as ‘Rose 64 of paper book , the color stone purchased are shown as 64 of paper book , the color stone purchased are shown as M/s Core Jewellery Pvt. Ltd. 15 M/s Core Jewellery Pvt. Ltd. & CO No. 68/Mum/2023 ITA No. 1543 & CO No. 68/Mum/2023 quartz’, ‘Tourquize’, , ‘Lapis’, ‘Pearl’, ‘Green Aventure Green Aventure’, ‘duplet opel’ etc but in export invoices etc but in export invoices ( for example PB-84), those items are not those items are not appearing. The reasoning given by the Ld. CIT(A) on the basis of The reasoning given by the Ld. CIT(A) on the basis of The reasoning given by the Ld. CIT(A) on the basis of the financial statement of the assessee cannot the financial statement of the assessee cannot justify justify as how the Ld. Registered Valuer failed in recording the colour stone as Ld. Registered Valuer failed in recording the colour stone as Ld. Registered Valuer failed in recording the colour stone as diamond. The report of the registered valuer cannot be brushed diamond. The report of the registered valuer cannot be diamond. The report of the registered valuer cannot be aside so easily, which was prepared on the which was prepared on the basis of basis of physical inventory found in presence of employees/staff of the assessee who in presence of employees/staff of the assessee who in presence of employees/staff of the assessee who were well versed with the stock of the assessee were well versed with the stock of the assessee. T . The physical inventory is not prepared on the basis of any estimate and it is inventory is not prepared on the basis of any estimate and it is inventory is not prepared on the basis of any estimate and it is prepared whatever actually found during the course of the survey. atever actually found during the course of the survey. atever actually found during the course of the survey. Further, in the books of accounts of the assessee colour stone of Further, in the books of accounts of the assessee colour stone of Further, in the books of accounts of the assessee colour stone of quantity more than 30,000 carat quantity more than 30,000 carats was available but but same was not found during the course of the survey found during the course of the survey, that itself raises , that itself raises doubt on the entry of ‘color stone stock color stone stock’ in the books of accounts of the in the books of accounts of the assessee. In view of aforesaid discussion, . In view of aforesaid discussion, the finding of the Ld. the finding of the Ld. CIT(A) on the issue in dispute is set aside and the addition made by CIT(A) on the issue in dispute is set aside and the addition made by CIT(A) on the issue in dispute is set aside and the addition made by the Assessing Officer in respect of 380.66 carat of diamond is the Assessing Officer in respect of 380.66 carat of diamond the Assessing Officer in respect of 380.66 carat of diamond sustained.

M/s Core Jewellery Pvt. Ltd. 16 M/s Core Jewellery Pvt. Ltd. & CO No. 68/Mum/2023 ITA No. 1543 & CO No. 68/Mum/2023

“5.3.1 The next issue relates to the appellant's contention that 157.82 The next issue relates to the appellant's contention that 157.82 The next issue relates to the appellant's contention that 157.82 cts. were on account of party loan goods/repairing received by it. cts. were on account of party loan goods/repairing received by it. cts. were on account of party loan goods/repairing received by it. However, I am unable to accept the contention of the appellant due to However, I am unable to accept the contention of the appellant due to However, I am unable to accept the contention of the appellant due to the following reasons : the following reasons :- a. Such party loan Such party loan goods/repairing is too obvious to be ignored and not goods/repairing is too obvious to be ignored and not to be brought out at the time of survey. to be brought out at the time of survey. b. The statement of Shri Ashok Om Prakash Bhargav was recorded on The statement of Shri Ashok Om Prakash Bhargav was recorded on The statement of Shri Ashok Om Prakash Bhargav was recorded on 08.02.2019. Vide reply to Q.No. 18, he has confirmed that the items 08.02.2019. Vide reply to Q.No. 18, he has confirmed that the items 08.02.2019. Vide reply to Q.No. 18, he has confirmed that the items related to jobwork, repairs related to jobwork, repairs and loan basis have not been recorded in the and loan basis have not been recorded in the valuation report and that he has also confirmed the same from Shri valuation report and that he has also confirmed the same from Shri valuation report and that he has also confirmed the same from Shri Jatin Mehta. This being the case, to turn around and explain turn around and explain subsequently that the difference of 157.82 cts. is on account of party subsequently that the difference of 157.82 cts. is on account of party subsequently that the difference of 157.82 cts. is on account of party loan goods, repairing definitely seems to be an afterthought. repairing definitely seems to be an afterthought. repairing definitely seems to be an afterthought. c. The one page unsigned invoice stated to be issued by M/s. JTV, USA c. The one page unsigned invoice stated to be issued by M/s. JTV, USA c. The one page unsigned invoice stated to be issued by M/s. JTV, USA to account for these items is seen to be dated 04.09.2018 whereas the account for these items is seen to be dated 04.09.2018 whereas the account for these items is seen to be dated 04.09.2018 whereas the survey is conducted after a period of 5 months on 06.02.2019. It i survey is conducted after a period of 5 months on 06.02.2019. It i survey is conducted after a period of 5 months on 06.02.2019. It is inconceivable that a repair item has remained with the appellant for 5 inconceivable that a repair item has remained with the appellant for 5 inconceivable that a repair item has remained with the appellant for 5 months and without any other evidence including correspondence, mail months and without any other evidence including correspondence, mail months and without any other evidence including correspondence, mail exchange, details of defects etc. exchange, details of defects etc. d. Even otherwise, I find from the valuation report, at the time of survey, Even otherwise, I find from the valuation report, at the time of survey, Even otherwise, I find from the valuation report, at the time of survey, that an in item at S.No. 18 with the description "For Repairing an in item at S.No. 18 with the description "For Repairing an in item at S.No. 18 with the description "For Repairing-RD & FANCY Diamonds" weighing 181.47 cts. amounting to Rs. 39,28,826/ FANCY Diamonds" weighing 181.47 cts. amounting to Rs. 39,28,826/ FANCY Diamonds" weighing 181.47 cts. amounting to Rs. 39,28,826/- has already been considered. has already been considered. Thus, it is clear that no other additional repair items were available or Thus, it is clear that no other additional repair items were available or Thus, it is clear that no other additional repair items were available or identified at the time identified at the time of survey. In view of the above, the addition on this count stands sustained. In view of the above, the addition on this count stands sustained. In view of the above, the addition on this count stands sustained.” 8.1 Before us, the Ld. Counsel Before us, the Ld. Counsel for the assessee referred to the assessee referred to valuation of jewellary jewellary found from Unit GJ-4 SDF-VII Building Sppez VII Building Sppez Sez, Andheri (East), Mumbai which contained diamond amount to Sez, Andheri (East), Mumbai which contained diamo Sez, Andheri (East), Mumbai which contained diamo containing 181.47 carats which was received for containing 181.47 carats which was received for ‘ ‘repairing RD & Fancy diamonds’ and included in the valuation report of registered and included in the valuation report of registered and included in the valuation report of registered valuer. The Ld. Counsel for the assessee accordingly submitted that valuer. The Ld. Counsel for the assessee accordingly submitted that valuer. The Ld. Counsel for the assessee accordingly submitted that once, the diamond received on repair has bee once, the diamond received on repair has been included by the n included by the registered valuer, the findi , the finding of the Assessing Officer that same has ng of the Assessing Officer that same has M/s Core Jewellery Pvt. Ltd. 17 M/s Core Jewellery Pvt. Ltd. & CO No. 68/Mum/2023 ITA No. 1543 & CO No. 68/Mum/2023 been excluded by the registered valuer is contradictory and been excluded by the registered valuer is contradictory and been excluded by the registered valuer is contradictory and therefore, the claim of the assessee regarding diamond received on therefore, the claim of the assessee regarding diamond received on therefore, the claim of the assessee regarding diamond received on loan/repair need to be accepted and addit loan/repair need to be accepted and addition corresponding to the ion corresponding to the net amount of the diamond received need to be excluded. net amount of the diamond received need to be excluded. net amount of the diamond received need to be excluded.

8.2 The Ld. DR on the other hand, relied on the order of the lower The Ld. DR on the other hand, relied on the order of the lower The Ld. DR on the other hand, relied on the order of the lower authorities.

8.3 We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. relevant material on record. We find that the Assessing Officer has We find that the Assessing Officer has made addition for 538.49 carats out of which assessee has made addition for 538.49 carats out of which assessee has made addition for 538.49 carats out of which assessee has explained to have received 157.82 carats as loan/repairing purpose. explained to have received 157.82 carats as loan/repairing purpose. explained to have received 157.82 carats as loan/repairing purpose. The assessee substantiated substantiated its claim by following report of the by following report of the valuer, available on page valuer, available on page 57 of paper book:

Gross Sr. No. Particular Wt. Net Wt. Dia Pcs. Dia. Cts. Dia. Cts. Value (Rs.) 1 1 Pauch Pauch of of loose loose 1. Diamond 0.95 0.95 20,568 1 1 Pauch Pauch of of loose loose 2. Diamond 27.89 27.89 6,03,819 1 1 Pauch Pauch of of loose loose 3. Diamond (2 Plastic Bag) Diamond (2 Plastic Bag) 158.76 158.76 34,37,154 1 1 Pauch Pauch of of loose loose 4. Diamond (2 Plastic Bag) Diamond (2 Plastic Bag) 194.56 194.56 42,12,224 1 1 Pauch Pauch of of loose loose Diamond ( 2 Plastic Diamond ( 2 Plastic 5. Bag) 55.15 55.15 11,93,998 1 1 Pauch Pauch of of loose loose 6. Diamond (2 Plastic Bag) Diamond (2 Plastic Bag) 244.91 244.91 53,02,302 1 1 Pauch Pauch of of loose loose 7. Diamond (2 Plastic Bag) Diamond (2 Plastic Bag) 50.34 50.34 10,89,861 1 1 Pauch Pauch of of loose loose 8. Diamond (2 Plastic Bag) Diamond (2 Plastic Bag) 131.05 131.05 28,37,233 1 1 Pauch Pauch of of loose loose 9. Diamond (2 Plastic Bag) Diamond (2 Plastic Bag) 149.82 149.82 32,43,603 1 1 Pauch Pauch of of loose loose 10. Diamond ( 2 Plastic Diamond ( 2 Plastic 87.94 87.94 19,03,901

M/s Core Jewellery Pvt. Ltd. 18 M/s Core Jewellery Pvt. Ltd. & CO No. 68/Mum/2023 ITA No. 1543 & CO No. 68/Mum/2023

Bag) 1 1 Pauch Pauch of of loose loose 11. Diamond (2 Plastic Bag) Diamond (2 Plastic Bag) 202.81 202.81 43,90,837 1 1 Pauch Pauch of of loose loose Diamond & 3 Plastic Diamond & 3 Plastic 12. Bag 830.65 830.65 1,79,83,573 1 Bag Contaning Small 1 Bag Contaning Small Plastic Plastic Dubbies Dubbies Heaving Heaving Fancy Fancy 13. Diamonds 58.99 58.99 12,77,134 Rejection Dia., 1 Small Rejection Dia., 1 Small 14. Plastic Box 48.35 48.35 10,46,778 1 Box + 2 Tin Box 1 Box + 2 Tin Box Heaving Heaving (RD (RD Fancy Fancy 15. Dia.) 106.14 106.14 22,97,931 1 Tin Tin Bag Bag Heaving, Heaving, Broken Pcs - All qulites All qulites 16. / All size 1,177.99 1,177.99 2,55,03,484 Changing Stone Changing Stone 17. 20.71 20.71 4,48,372 For Repairing For Repairing -RD & 18. FANCY Diamonds FANCY Diamonds 181.47 181.47 39,28,826 Loose Diamonds Loose Diamonds 19. 1.09 1.09 23,599 Total 3,729.57 3,729.57 8,07,45,191 The assessee has worked out net amount of diamond received 8.4 The assessee has worked out net amount of diamond received The assessee has worked out net amount of diamond received on loan/repair as 157.82 carats after considering the diamonds 157.82 carats after considering the diamonds 157.82 carats after considering the diamonds and received on given by the assessee on loans/repairing given by the assessee on loans/repairing and received on loan/repair. In our opinion the fact of diamond received on . In our opinion the fact of diamond received on . In our opinion the fact of diamond received on repair/loan has been recorded by the registered valuer in the repair/loan has been recorded by the registered valuer in the repair/loan has been recorded by the registered valuer in the is having more evidentiary value as compared to valuation report is having more evidentiary value as compared to is having more evidentiary value as compared to statement of the employee of the assessee that no items of the statement of the employee of the assessee that no items of the statement of the employee of the assessee that no items of the o job work repairs and loan basis was included in diamond related to job work repairs and loan basis was included in o job work repairs and loan basis was included in the valuation report, the valuation report, therefore same need to be discarded. be discarded. However, wise items received for repair/loan complete reconciliation of party complete reconciliation of party wise items received for repair/ and given for repair /loan was and given for repair /loan was not produced before us and the item before us and the item of 157 carat repair items also include fancy diamonds, therefore, we 157 carat repair items also include fancy diamonds, therefore, we 157 carat repair items also include fancy diamonds, therefore, we

M/s Core Jewellery Pvt. Ltd. 19 M/s Core Jewellery Pvt. Ltd. & CO No. 68/Mum/2023 ITA No. 1543 & CO No. 68/Mum/2023 feel it appropriate to restore this issue back to the file of the l it appropriate to restore this issue back to the file of the l it appropriate to restore this issue back to the file of the Assessing officer for verification of claim of the assessee and allow Assessing officer for verification of claim of the assessee and allow Assessing officer for verification of claim of the assessee and allow in accordance with law. in accordance with law. Accordingly, we set-aside the the finding of the Ld. CIT(A) on the issue in dispute and ground of the cross on the issue in dispute and ground of the cross on the issue in dispute and ground of the cross-objection of the assessee is accordingly allowed of the assessee is accordingly allowed for statistical purpose for statistical purpose.