ITO WARD-47(1), NEW DELHI vs. SURENDER KAPOOR, NEW DELHI

Heard and perused the records. Though ld. DR has defended the assessment order and substantiated arguments on the grounds raised, however, on appreciating the material on record and submissions we find that first addition u/s 68 of the Act was made on account of cash deposits made during the demonetization period, AO has alleged that the Assessee has booked concocted cash sale to adjust his undisclosed income and the sales disclosed by the Assessee was denied by presuming that the Assessee has made out of books sales and on that basis AO rejected the books of the Assessee. Ld. CIT(A) observed that the addition of INR 1,02,35,000 would not sustain as the AO has made the casual remark in the assessment and proper examination and analyses was not done for the documents and evidences placed on record by the Assessee.

We find that assessee submitted the complete details of sales along with PAN, address of buyers, Bank statement depicting purchases, party-wise details of purchase, stock details etc.. AO himself admitted that the appellant had sufficient stock. Ld. CIT(A) thus rightly concluded that when assessee was having sufficient stock so could have sold the same and by submitting all the documents established that such sales were made by him during 1st week of Nov’2016, should not have been doubted. Especially when no discrepancy was pointed by AO in purchases & opening stock. Hence, once the purchases are accepted, the corresponding sales could not be questioned. The findings of CIT(A) need no interference.

Second addition was made on account of undervaluation of closing stock. AO has re-valued closing stock of assessee. The closing stock was revalued to the tune of INR 3,16,36,633 and differential value from the value of stock reported by the assessee was added to the returned income. The Ld. CIT-(A) while deleting the addition had observed that the AO had not worked out correctly the difference in the valuation of stock for the purpose of addition and in the interest of justice confirmed the addition of 5% of INR 1,74,50,004/- i.e. INR 8,72,500/-.

We find that no discrepancy in quantity of stock of gold and diamond was found by AO. Value of gold and diamond jewellery as calculated by the AO relying on average purchase rate / last purchase rate was not in accordance with the method of valuing the stock, since there is a method for such valuation under prescribed in “ICDS-II Valuation of Inventories”. AO did not mention why method of valuation is adopted by appellant incorrect and which was consistently followed in earlier years. Ld. CIT(A) also observed that appellant was not granted with reasonable opportunity to explain the difference. Ld.AR has submitted that job work was done on 24K gold to 22KT gold along with other alloys to make Kundan jewellery which involved wax with a weight up to 25-40% of total value which could be varied similarly, thus, the assessee has 3 itself reduced the weight of stone from 18KT gold stock while doing the valuation. Then, Ld. CIT(A) has observed that assessee had reduced the value of diamond without any proper justification and also based on the quantity of gold lying with the Kundan jewellers, accordingly confirmed 5 % of such difference on account of under valuation. Assessee has not challenged the same. However, the fact that without giving assessee an opportunity to explain the reasons for revaluation the addition was made and that being the major ground to give benefit by the Ld. CIT(A), needs no interference.