JOINT COMMISSIONER OF INCOME TAX(OSD), CENTRAL CIRCLE-4, JAIPUR vs. SILVER & ARTS PALACE, JAIPUR

The brief facts of the case are that the assessee is a partnership firm engaged in the business of precious and semi-precious stones, Jewellery, textile and handicraft items etc. The assessee filed his return of income under section 139 of 3 Silver & Arts Palace the Act on 15.02.2022, declaring total income at Rs. 8, 32,250/-. A search action under section 132 of the Act was carried out on 19.01.2021 on the assessee group and its associated concerns. Assessee was also searched under section 132 of the Act. Accordingly, notice under section 142(1) of the Act was issued and in response, the assessee submitted its reply. The AO made various additions to the returned income and assessed the total income at Rs. 45, 76, 59,325/-. The assessee being aggrieved with assessment order preferred an appeal before the Ld. CIT (A), who in turn allowed the following relief to the assessee: S. No. Particulars Amount of Addition 1. Addition on account of alleged excess stock found during the course of search. 31,60,77,481/- 2. Addition on account of GP on alleged unrecorded sale. 12,46,11,347/- 3. Addition on account of unaccounted stock used alleged unrecorded manufacturing activity (repair, rework, modification etc.) presumed value of stones used in such alleged manufacturing activity. 79,276/- 4. Addition on account of GP on unrecorded sale of paintings in cash. 62,600/- 5. Addition on account of alleged cash commission given. 12,65,800/-

Aggrieved by the order of the ld. CIT (A), the Revenue is in appeal against the relief allowed by the ld. CIT (A). 4. Ground No. 1 of the revenue is related to the addition of Rs. 63, 70,395/- sustained by the Ld. CIT (A) on account of unaccounted excess stock. The brief facts of the case are that search was conducted on the assessee and during the search Stock of Jewellery, Stones, etc. found at the business premises of the assessee and valued by the departmental valuer at Rs. 102,29,01,231/- and the books stock was worked out at Rs. 69,73,16,847. The AO considered the difference of Rs. 32,55,84,384/- (Rs. 102,29,01,231/- (-) Rs. 69,73,16,847/-) as excess unexplained stock and made the addition of Rs. 32,55,84,384/-. The assessee explained the difference before the Ld. CIT (A) and submitted that there was no excess stock in terms of quantity in physical stock found during search and stock found recorded in physical stock control sheet of the assessee and the stock (which included old stock also) has been valued at market price as against the method of valuation followed by the assessee which is cost or market price, whichever is lower. The Ld. CIT(A) accepted the method of valuation followed by the assessee and after examining the facts of the case, worked out the cost of goods found at the time of search by reducing GP rate of 30.90% from the market value of stock of Rs. 102,29,01,231. Further, the Ld. CIT(A) has also held that the quantity of stock found during search was matching with the stock as per books except a minor difference of 100.552 Grams in total stock of 5,08,573.380 grams. Being aggrieved with the action of the Ld. CIT (A), the revenue is in appeal before us.

We have heard bo authorities. We find it a (noted in para 5.3 from p regard to the relief so pro 5

We have heard bo record. We also deliberat the Ld. CIT (A) and by th has given this specific f method of valuation: cos and hence the Ld. CIT(A) profit embedded in such in detail and came to the Looking to the undispute the CIT (A). We find that view taken by Hon’ble IT [ITA No. 234/JP/2019] da Hon’ble Rajasthan High C are in agreement with th the appeal filed by the a consideration. Therefore Accordingly, we dismiss CIT (A). 17

Coming to Ground No. 2 which is related to relief of Rs. 12,46,11,347/- granted by the Ld. CIT(A) on short stock of Rs. 40,32,72,969/-. The brief facts relating to this issue are that the during the course of search, stock control sheets were found and inventoried as Annexure C-2, C-3, C-4, C-5, C-6, C-40, C-41, AS-32 and AS-33. These stock control sheets were carrying description of items along with Tag details which were alpha numeric in nature. The total value of the items found in the stock control sheet, was derived by the AO (by multiplying the numeric value of the code with multiplier of 2.07) at Rs. 132,11,25,459/-. Further, the value of the physical stock items, as determined by the departmental registered valuer, came to Rs. 91,78,52,490/-. The Ld. AO concluded that out of stocks of Rs. 1,32,11,25,459, the assessee sold the stock, amounting to Rs. 40,32,72,969/-(Rs. 1,32,11,25,459/- (-) Rs. 91,78,52,490/-) in the year F.Y. 2020-21 which was not routed through books of the assessee. This alleged short stock of Rs. 40, 32, 72,969/- was treated as unaccounted sale by the AO. The AO applied Gross profit rate of 30.90% on such unaccounted sale to ascertain profit of the assessee and added Rs. 12,46,11,347/- (Rs. 40,32,72,969/- * 30.90%) on account of unaccounted profit on unaccounted sales.

Before the Ld. CIT(A), the assessee submitted that stock found physically during the course of search and stock noted in the stock control sheets were same and no excess stock was found and the quantification of value of stock of Rs. 132,11,25,459/- is completely based on presumptive multiplier of 2.07. 9. We have heard both the parties and perused the material available on record. We note that the Ld. CIT(A) has deleted the addition of Rs. 12,46,11,347

We have considere made and relief provided we also note that the Ld matter under considerati appeal of the assessee. H CIT (A) since the order of he hasn’t accepted the co was allowed. Thus, we u ground of appeal raised b

The Revenue raise 79,276/- provided by th assessee certain materi Annexure-AS-C. The lowe to manufacturing activity issuing raw material, met and labour charges we manufacturing activities f were kept out of books 30

During the assessment and first appellate proceedings, the assessee submitted that the gold and silver mentioned in the seized material were not sourced externally rather sourced from melting of old or obsolete stock which is duly recorded. The assessee submitted evidences from the material seized during search which contains details of melting of existing stock and recovery of metals etc. therefrom. Further, the assessee also provided references from the seized material evidencing that the seized material clearly indicate that the stock items were issued for repair, rework etc. to karigars which was subsequently returned back after completion of such work. More importantly, items appearing in the seized material are duly found recorded in physical stock control sheet maintained by the appellant. Accordingly, in view of the evidence submitted during assessment, the assessee contended that it has not manufactured any stock out of books and whatever stock is appearing in the seized material are recovered from old/obsolete stock and indicating repair/rework of recorded stock. Further, the AR objected to the addition based on presumptive rate in case of precious and semi-precious stones since no supporting document were found in this regard. The Ld. CIT(A) did not find the submission as not tenable, however allowed the relief of Rs. 79,276/- for the claim of the assessee that gold/silver mentioned in the seized material is sourced from melting of old stock.

We have perused the order of the Ld. CIT (A) and also perused the relevant seized material. At the outset, we consider it necessary to produce the findings of the Ld. CIT (A) made in this regard:

On perusal of the impugned order, we note that the assessee submitted documentary evidences in support of his argument that the stock of gold/silver appearing in the seized material are recovered from the existing/old stock and does not represent any new stock. The claim of the AR of the assessee also backed by order of the Ld. CIT (A) as produced above. Hence, we concur with the view taken by the learned CIT (A) insofar as the relief granted on account of melting old/existing stock is concerned. However, the Bench has specifically dealt

Now, we take up Ground of Appeal no. 4 which is related to the relief of Rs. 62,900/- provided to the assessee on the addition emerged from the seized page inventoried as Exhibit C-32 of Annexure-AS-C. The said seized contain details of 18 paintings which was in the view of the assessee received on approval. However, the AO held that the said 18 paintings have been sold in cash and the same were not routed through books of accounts of the assessee. The AO further derived cash sales of Rs. 3,00,667/- (by applying multiplier of 2.07 to codes written against these paintings) and added the gross profit of Rs. 92,906/- (300667*30.90%) in the income of the assessee. The Ld. CIT perused the said seized sheet and arrived at the conclusion that out of 18 paintings, only 1 painting of Rs. 1,00,000/- has been sold by the assessee and the remaining were received back unapproved. Accordingly, provided relief of the 62,006 (Rs. 2, 00,667/- * 30.90%) to the assessee.

We have heard both the parties and also perused the seized material. It is apropos to re-produce the following findings and observation (mentioned in para 10.3 at page 156 to 158) of the Ld. CIT (A) made with regard to the ground under consideration:

On perusal of the speaking about the purpo incorporating the narrati barring 1 entry in the sei agreement with the findi and we do not find any re as relief of Rs. 62,006/- i hereby dismissed.

The Last Ground o provided by the Ld. CIT (A a small note pad was fo Annexure AS-C which w 65,800/- paid to various assessment claiming the assessee, however the AO 41

At the outset, we c (A) noted in para 11.3 at p 42

In view of the facts is fully fact based and is the assessee. The Ld. CIT sheet and also stated the find any reason to inter uphold the same. In th dismissed. Order pronounced (Dr. S. SEETHALAKSHMI) 43

अपीलाथ /The Appellant , 2. ितवादी/ The Respondent. 3. आयकर आयु CIT 4. िवभागीय ितिनिध, आय.अपी.अिध., Sr.DR., ITAT, 5. गाड फाइल/Guard file.