AJAY SHANTILAL LALWANI, HUF,,JALGAON vs. JOINT COMMISSIONER OF INCOME-TAX,,

आदेश / ORDER

PER D. KARUNAKARA RAO, AM:

This is the appeal filed by Assessee against the order of CIT(A)-2, Nashik dated 12.03.2015 for the assessment year 2010-11.

2 ITA No.717/PUN/2015 A.Y. 2010-11

engaged in the business of gold, silver and diamonds. There was survey

action on 24.09.2009 u/s.133A of the Income Tax Act, 1961 (hereinafter

referred to as ‘the Act’) in this case. This action resulted in the discovery of

certain valuation of closing stock. Assessee filed the return of income

declaring total income at Rs.96,38,859/-for this assessment year.

Assessing Officer determined the assessed income of the assessee at

Rs.3,49,61,900/- against the return of income Rs.96,38,859/-. The Assessing

Officer made various additions in the assessment and gist of the same as

given in his order is extracted as under:

“Total income as per return 96,38,859/- Add: Additions as discussed above, On a/c of unsecured loans of M/s. Mahaveer Green Gold & Others as per Para 5. 82,79,700/- On a/c of salary paid, as per para 6 13,35,000/- On a/c of Valuation of diamond para 7 6,22,170/- On a/c of Silver Stock as per para 8 8,69,800/- On a/c of loss due to theft Para 9 6,99,636/- On a/c of valuation stock of gold Ornaments 91.6 para 10 1,86,486/- On a/c of valuation of closing stock Para 11 1,07,27,204/- On a/c of vishwamangal bogram yatra Exp. as per para 12 40,285/- Reg. estimation of GP as per para 13 25,00,000/- On a/c of GDS gold para 14 62,760/- ______________________ 2,53,23,041/-

Total income 3,49,61,900/-”

From the above, it is evident that the Assessing Officer made various

additions. Apart from others, the addition on account of unsecured loans of

Rs.82,79,700/- (Rs.38,79,570/- + Rs.44,00,130/-) and the addition on

account of valuation of closing stock of Rs.1,07,27,204/- are major ones.

3 ITA No.717/PUN/2015 A.Y. 2010-11

CIT(A) by raising 17 grounds. During the proceedings before First Appellate

Authority, Assessee made various submissions and the same are extracted in

the impugned order as the need demands. Eventually, the CIT(A) partly

allowed the appeal of the assessee.

by raising following grounds. Revenue did not file any appeal.

“1.1 The Ld CIT (A) erred on facts and in law in confirming the action of the Ld AO in taking up the case of the appellant for scrutiny by issuance of notice u/s.143(2) of the IT Act. The notice u/s.143(2) had been issued by the Ld AO in contravention of the then existing instructions of the CBDT. Hence, the notice issued u/s.143(2) is illegal and needs to be quashed.

1.2 The Ld. CIT(A) erred on facts and in law in confirming the assessment order passed by the Ld. AO. The entire assessment order passed by the Ld. AO in the case of the appellant is void ab-initio and ought to have been cancelled.

1.3 The Ld. CIT(A) erred on facts and in law in confirming the addition of Rs.38,79,570/- on account of loan raised by the appellant from M/s. Mahaveer Green Gold.

1.4 The Ld CIT(A) erred on facts and in law in confirming the addition of Rs.5,86,680/- out of the addition of Rs.6,22,170/- made by the Ld AO on account of difference in valuation of the diamonds.

1.5 The Ld CIT(A) erred on facts and in law in confirming the addition of Rs.6,71,485/- out of the total addition made of Rs.8,69,800/- by the Ld AO on account of alleged suppression of silver stock.

1.6 The Ld.CIT(A) erred on facts and in law in confirming the disallowance of Rs. 6,99,363/- on account of theft of the silver stock.

1.7 The Ld CIT(A) erred on facts and in law in confirming the addition of Rs.1,07,27,204/- on account of alleged difference in the valuation of closing stock of gold.

1.8 The Ld CIT(A) erred on facts and in law in confirming disallowing of interest of Rs.59,652/- out of total interest of Rs.62,760/- paid on gold deposits.

1.9 The appellant craves to add, alter, amend or delete any of the above grounds of appeal any time before or at the time of hearing.”

4 ITA No.717/PUN/2015 A.Y. 2010-11

No. 1.5 relating to confirming of the addition of Rs.6,71,485/- on account of

alleged suppression of silver stock is not pressed. Accordingly, after hearing

Ld. Counsels for both the parties, the ground No. 1.5 raised in appeal by

assessee is dismissed as ‘not pressed’.

1.8 is also not pressed in view of the smallness of the addition. Assessee

contested the decision of invoking the provision of section 40(a)(ia) of the Act,

in respect of the interest payments made without making of disallowance of

TDS on gold deposits. The Assessing Officer disallowed the interest of

Rs.59,652/- out of total interest of Rs.62,760/- paid on gold deposits.

Accordingly, after hearing the parties, ground No. 1.8 raised in appeal by

assessee is also dismissed as ‘not pressed’.

We shall now take up the rest of the grounds for detailed adjudication

in the following paragraphs.

A. Ground No. 1.1 & 1.2 - Issue of notice u/s.143(2) of the Act.

assessee claims in the ground that the said notice was issued in

contravention of the then existing instruction of CBDT. As per the assessee,

the said notice is illegal and the same needs to be quashed.

that the issue of validity of notice u/s.143(2) of the Act was already the

subject matter of litigation before the Hon'ble Bombay High Court by way of

Writ Petition No. 630 of 2013 dated 10.05.2013. The Hon'ble High Court

5 ITA No.717/PUN/2015 A.Y. 2010-11

dismissed the said writ petition and decided the issue against the assessee. In

this regard, Ld. Counsel for the assessee brought our attention to the copy of

the judgment of the Hon'ble Bombay High Court and the same is placed at

page 48 of the paper book. Bringing our attention to the contents of Para 22

of the judgment at page 58 of the paper book, Ld. Counsel for the assessee

fairly submitted that this issue stands decided against the assessee. However,

with due regard for the said judgment, Ld. Counsel argued relying on the

ratio laid down in the case of UCO Bank Vs. CIT reported as 237 ITR 889

(SC) on one side and the CIT(A)’s order in the case of assessee’s sister concern

where the issue was decided in favour of the assessee on similar facts, Ld. AR

prayed for considering the above mentioned judgment/order and decide the

issue in favour of the assessee.

said paragraphs (Para 22) of the judgment of the Hon'ble Bombay High Court

(supra.) and submitted that the CBDT instructions were duly followed by the

Assessing Officer in the matters relating to issue of notice u/s.143(2) of the

Act. In this case, Assessing Officer obtained requisite approval and therefore,

there is no contravention of law/instruction in following the said instruction

of CBDT.

of Para 22 of the judgment of the Hon'ble Bombay High Court are relevant for

extraction and the same reads as under:

“22. The position is that the relevant guidelines relied on show that the assessing officer under clause (g) thereof is empowered to select a particular case for ‘scrutiny assessment’ Respondent No.1 who then was assessing officer after recording reasons for selection of petitioner’s case sought approval of Respondent No. 2 who was then the approving authority and had approved the selection. Subsequently, pursuant to provisions of IT Act, the case was assigned to Respondent No. 2 for assessment. Requisite

6 ITA No.717/PUN/2015 A.Y. 2010-11

procedure before issuing notices under section 143(2) and 142(1) of the IT Act appears to have been followed.”

From the above, it is evident that the Hon'ble High Court already

considered requisite fact and held that the Assessing Officer duly complied

with the requisite procedure in the manner relating to issue of notice

u/s.143(2) of the Act and u/s.142(1) of the Act. Further, it is also fact that

Writ Petition filed by assessee stands dismissed by the Hon'ble High Court.

Therefore, ground No. 1.1 and 1.2 raised by the assessee are dismissed.

B. Ground No. 1.3- Addition of Rs.38,79,570/-

loan raised by the assessee from M/s. Mahaveer Green Gold ( MGG). The

assessee received other loans too amounting to Rs.44,00,130/- from four

creditors i.e. (i) Rs.25,00,000/- on account of loan raised from M/s. Swastik

Gems, Surat, (ii) Rs.18,00,000/- on account loan raised from M/s. Gyan

Exports, Surat, (iii) Rs.8,130/- on account of difference in the account of

Multi Media Features Pvt. Ltd. and (iv) Rs.92,000/- on account of interest

paid to M/s. Backbone Construction.

During the assessment proceedings, the Assessing Officer invoked the

provisions of section 133(6) of the Act to verify the genuineness of said loans.

On observing the assessee’s failure to discharge of onus by the assessee,

these amounts were added as income of the assessee. The said unsecured

loan and the interest accrued thereon i.e. (Rs.38,79,570/-+ Rs.44,00,130/-),

amounting to Rs.82,79,700/-, was added to the income of the assessee. The

Assessing Officer discussed this issue vide para 5 and its sub paras of the

7 ITA No.717/PUN/2015 A.Y. 2010-11

assessment order. Loans from M/s. MGG was scrutinized thoroughly by the

Assessing Officer.

12.1 In this connection, the Assessing Officer recorded statement u/s.131 of

the Act of Shri Arvind Rameshchandra Kale, Proprietor of Maharashtra

Krushi Seva Kendra, who sold seeds to M/s. Mahaveer Green Gold. Earlier,

MGG confirmed the loan and stated that the loans were given out of its

agricultural income. M/s. Mahaveer Green Gold confirmed the fact of giving

loans to the assessee by filing a confirmation letter and submitted the

agricultural status of the assessee for various years. MGG gave loans in the

past too to the assessee and the said loan transactions were accepted by the

Assessing Officer in earlier assessment year. The details are available in Para

5.2 of the assessment order. It is the submission of the assessee as well as

MGG, the creditor that the loans were given to the assessee out of

agricultural income of MGG. The assessee further mentioned that Mr. & Mrs.

Lalwani are the partners of M/s. Mahaveer Green Gold in their individual

capacity. The Assessing Officer enlisted the land holding of the M/s.

Mahaveer Green Gold and mentioned the said lands were taken on lease by

M/s. Mahaveer Green Gold from 39 farmers. Relevant details are discussed in

Para 5.3 of the assessment order. The Assessing Officer examined this issue

at length in Para 5.10 to 5.17 of the assessment order. Eventually, the

Assessing Officer held that M/s. Mahaveer Green Gold obtained bogus bills

from M/s. Maharashtra Krushi Deva Kendra and manipulated his

agricultural income by creating bogus bills and bogus notings made in 7/12

extracts from the Revenue records. Further, the Assessing Officer relied on

the report of his Inspector who gave report against the assessee. The contents

of Para 5.11 and 5.12 are relevant and the same are reproduced herein below:

8 ITA No.717/PUN/2015 A.Y. 2010-11

“5.11 As can be seen from the Inspector’s report, the statement of the persons who have issued bills stating therein that even though there are no actual purchases, duplicate bills have been issued inserting the name of the assessee in the duplicate bills. Further, the genuineness of transaction is totally unproved for the fact that the evidence by way of statement recorded on oath, Inspector's report etc. Further, the assessee has relied upon the case of Golden Remedies Pvt. Ltd. Vs. ITA is not at all applicable to the facts of the case. In the case of assessee, the other person had clearly submitted that duplicate bills have been issued inserting the name of the assessee in the bill that too in duplicate bills even though actually there are no purchases. Further, the existence of the person from whom purchases have been proved beyond doubt showing that the said firm have already been closed since last 8 to 10 years and license have been cancelled. Without any proper authentication, no person can sale any valid goods.

5.12 From the above, it is crystal clear that M/s. Mahaveer Green Gold has obtained bogus bills from M/s. Maharashtra Krishi Seva Kendra and has tried to manipulate his agricultural income by creating bogus bills as well as bogus notings made in 7/12 extracts. In view of the full proof documentary evidence, I have no hesitation to hold that M/s. Mahaveer Green Gold has not earned any agricultural income but has only used the money of Shri Ajay Shantilal Lalwani HUF and has tried to route through legitimate channels. The Unsecured loan, therefore, held in the name of M/s.Mahaveer Green gold is nothing but the unaccounted cash /investment earned which is hereby added u/s.68 and added back to the total income. Thus an amount of Rs.38,79,570/- i.e. unsecured loans accepted during the year is hereby added to the total income of the assessee. Penalty proceedings u/s.271(1)(c) are separately initiated. AO is further directed to take necessary action in the earlier years also in the case of the assessee, as well as to take necessary action in the case of M/s. Mahaveer Green Gold and M/s. Shree Krishi Seva Kendra for the year under consideration and also for the earlier years also.”

submission regarding other loans involving M/s. Swastik Gems, Surat and

M/s. Gyan Exports, Surat etc. were not accepted by the Assessing Officer too.

Accordingly, Assessing Officer made addition of Rs.44,00,130/-. Para 5.16 of

the assessment order is relevant in this regard and the same is extracted as

under:

“5.16. Since the assessee could not offer any plausible explanation with regard to the letters issued u/s.133(6) and the onus on the assessee to prove the same have not been proved, I hereby add the same i.e. Rs.25,00,000+18,00,000+ 8,130+ 92,000 = 44,00,130 to the total income of the assessee.”

Thus, the Assessing Officer made addition of Rs.82,79,700 on account

of unsecured loans.

9 ITA No.717/PUN/2015 A.Y. 2010-11

relief on account of addition of Rs.44,00,130/-. There is no litigation on this

relief. The First Appellate Authority confirmed the addition of Rs.38,79,570/-.

The CIT(A) dealt with this issue vide para 9.1 of his order. The CIT(A) noticed

that Assessee received total loan amounting to Rs.77,10,570/- from MGG

which includes the loan taken in earlier years too from MGG. Agricultural

income is the common source of income for the M/s.Mahaveer Green Gold to

give the said loans to the assessee. Reacting to the land holding of the

assessee, the CIT(A) also discussed the fact that the assessee-firm did not

have enough agricultural land and therefore, it had taken agricultural lands

on lease from 39 farmers for paying the rent of Rs.1,500/- per acre per

annum. In Para 9.2, CIT(A) held that the lands were actually not cultivated

which is reflected from the contents available on 7/12 extract furnished by

the assessee before the Assessing Officer. Further, CIT(A) expressed the

doubts about the facts relating transportation of agricultural products by the

said firm for sales and for earning of the income from M/s. Maharashtra

Krishi Seva Kendra, Jalgaon. The CIT(A) also discussed the adverse statement

given by the Proprietor of M/s. Maharashtra Krushi Seva Kendra about bogus

nature of bills as well as sale of seeds by the said Kendra to the assessee for

cultivation. The CIT(A) also noted that Assessing Officer made enquiries

through his Inspector of Income Tax who reported in his enquiry report that

the said party Shree Krishi Seva Kendra was not found at the address given.

He also reported the cancellation of license long back. Eventually, the CIT(A)

held in Para 9.4 of his order that M/s. Mahaveer Green Gold and its

agricultural activities are not genuine. The contents of the Para 9.4 are

extracted as follows:

“9.4 In my considered view, the AO had made out a case against the appellant. There is no genuine agricultural activities carried out by M/s. Mahaveer Green Gold and as such, there is no agricultural income as

10 ITA No.717/PUN/2015 A.Y. 2010-11

claimed by the appellant. During the year, the appellant has accepted a sum of Rs.38,79,570/- as unsecured loan from the said firm. The AO has added the said amount u/s.68 of the Act as the appellant’s explanation is found to be unsatisfactory. After considering the facts of the case, the said addition is confirmed.”

ground No.1.3 before the Tribunal which has already been extracted above.

submitted that addition made by the Assessing Officer and confirmed by the

CIT(A) is not justified. He further mentioned that this is a case where the

assessee and creditors confirmed the correctness of the transaction of loan.

In such circumstances, enquiry of the Assessing Officer becomes case of

“source of source”. Relying on the various binding judgment, Ld. Counsel for

the assessee submitted that the Assessing Officer travelled into the prohibited

zone of “source of the source” where sources are established consistently by

the assessee in the assessment over the years. Further, Ld. AR mentioned

that these loans are not taken first time from MGG in this year. Similar loans

were taken in the past and source were remained the same. The Assessing

Officer accepted the said claims in the past and therefore, making addition in

this year under consideration is unsustainable in law as per set rule of

consistency.

of Assessing Officer and CIT(A). Further, Ld. DR brought our attention not

only on the report of Income Tax Inspector but also to the statement of Shri

Arvind Rameshchandra Kale which reveals that transaction of taking loan

from M/s. Mahaveer Green Gold is bogus.

11 ITA No.717/PUN/2015 A.Y. 2010-11

for adjudicating this issue include that the assessee took loans from MGG of

Rs.38,79,570/- in continuation of the earlier loans in the earlier years. The

sources of the loans taken in current year as well as past year are the

agricultural income of the MGG. Further, it is undisputed fact that assessee

and his wife are the partners of the MGG in individual capacity. Further,

similar loans taken by assessee in the past year and the same were accepted

by the Assessing Officer without making any addition. MGG the creditor, not

only confirmed the giving loans to the assessee but also confirmed the fact of

being assessed to income tax regularly. MGG informed the Department about

the modus-operandi of earning and declaring the agricultural income in its

return of income over the years. Modus-operandi includes leasing the land

from many landlords, using the same for agricultural produce for selling and

earning agricultural income. This modus-operandi remained undisturbed by

the Revenue over the years. Efforts made by the Assessing Officer for

generating any incriminating evidence in the matter of the purchase of seeds

from Maharashtra Krushi Seva Kendra, questioning the transportation

related services linked to the said purchase and sale of agricultural produce

etc. were not conclusively fruitful.

In such circumstances, in our view, assessee demonstrated the sources

of the loan. The Assessing Officer should have made addition, if any, in the

hands of MGG in case if any incriminating evidence is gathered relating to the

claim of agricultural activities of the MGG. In our view, so far as assessee

concerned, onus is rightly discharged by the assessee by giving all necessary

details on the identity, creditworthiness and genuineness of

12 ITA No.717/PUN/2015 A.Y. 2010-11

transaction etc. Therefore, the assessee is eligible for relief in respect of loans

received from MGG too.

proposition that the Assessing Officer is not allowed to travel in the issue of

source of source as held by catena of judgments. Further, we examine the

order of CIT(A) and contents of Para 9.4 are already extracted above. The

CIT(A) dismissed the Revenue’s contention that no genuine agricultural

activities were carried out by the MGG. Therefore, from the above point of

view i.e. lack of clear cut incriminating evidence both against the assessee as

well as MGG, the principles of consistency etc, we are of the opinion that

order of CIT(A) is required to be reversed on this addition. Accordingly,

ground No. 1.3 raised in appeal by assessee stands allowed in favour of

the assessee.

C. Ground No. 1.4 relates to the addition of Rs.5,86,680/-

gross addition of Rs.6,22,170/- made on account of difference in valuation of

the diamonds. Relevant facts includes on this issue that there was survey

action in this case on 24.09.2009. During the said proceedings, assessee

submitted the details of stock of diamond and the value per carat. The

Closing stock as on the date of survey is 115.154 carat. As per the details of

stock, rate per carat and the amount submitted by the assessee at the day of

survey action i.e. 24.09.2009, the closing stock as on 31st March, 2010 works

out to 85.97 carat. The assessee offered valuation of said stock at

Rs.19,16,940/-. The details of the working of stock and rates are reproduced

as under:

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“Opening Stock (CT) = 135.000 Less: Sales = 19.846 Closing Stock =115.154

Closing stock at the year end, i.e. 31.03.2010 was under:

Opening Stock (CT) =115.154 Less: Sales =29.184 Closing stock = 85.97

As per the details of stock, rate per carat and the amount submitted by the appellant at the time of survey operation and as per the statement given by the appellant, the valuation of stock of 85.97 (CT) should be as under: Particulars of stock Weight Amount Rate (Rs.) Purchase 2007-08 11.590 2,43,390/- 21,000/- Up to 31/03/2007 74.380 16,73,550/- 22,500/-” 85.970 19,16,940/-

From the above, it is evident; the diamond purchased in F.Y.2007-08

was valued as per the assessee at Rs.21,000/- per carat whereas, diamond

prior to F.Y.2007-08, was valued at Rs.22,500/-. The Assessing Officer made

addition by observing as under:

“7.6. In view of the above I have no hesitation to add the difference as worked out above i.e. Rs.5,86,680/- to the total income of the assessee. Apart from the above, the diamond sold over Rs. 50,380 has not been made out of opening stock as there is no higher rate purchase in opening stock or purchases made during the year. Hence it is taken as outside purchase from books of accounts and since its sale has been taken in account in toto, hence an addition u/s. 69 is being made. However, the same quantity is available with the assessee out of opening stock of 1.69 CT @ Rs.21,000, hence its value at Rs.35,490 is further added towards suppression of closing stock. The sale rate of diamond goes upto Rs. 30,570 is considered to be made out of opening stock. Hence total additions on this count comes to Rs.6,22,170/-. Penalty proceedings u/s.274 r.w.s. 271(1)(c) are separately initiated.”

para 14.2 and gave part relief to the assessee of Rs.35,490/- confirming the

balance amount of addition Rs.5,86,680/-. Otherwise, in the assessment

Assessing Officer made addition of Rs.6,22,170/- on this account.

14 ITA No.717/PUN/2015 A.Y. 2010-11

of Rs.21,000/- and Rs.22,500/- were supplied by the assessee during survey

action. However, the same are the market rates of that period. Further, Ld.

Counsel for the assessee submitted for the purpose of valuation of closing

stock, only cost figure should be considered. If the same is applied, the

addition will be either ‘Nil’ or ‘lessor’ than the sum of Rs.6,22,170/-.

of Assessing Officer and CIT(A). Ld. DR for the Revenue argued by stating that

figures of Rs.21,000/- and Rs.22,500/- given by the assessee constitutes

purchase price only and not market rates. Further, the fact that assessee

failed to substantiate the arguments evidencing the payment regarding

purchase of diamond of 85.970 carat was not evidenced otherwise. In the

absence of furnishing of such evidence, the figures furnished by assessee

held to be considered as purchase/ cost price only.

Revenue Authorities in general and contents of Para 14.2 in particular. For

the sake of completeness, contents of Para 14.2 are extracted as under:

“14.2 Whereas the appellant had valued at Rs.15,473/- per carat in respect of the opening stock of 85.970 (CT) thereby valuing the stock at Rs.13,30,260/- as against the above valuation of the said stock at Rs.19,16,940/-. The appellant has submitted that' the value arrived at the time of survey is tentative and is open to mistakes. This explanation of the appellant is not reasonable. The appellant is a jeweller having many years of experience. The valuation of diamond in India is standardized. The appellant knows the value of each diamond and therefore, he had given the valuation of the diamonds at the time of survey. The diamonds purchased after 31/03/2007 are valued at the higher rate. The lowest possible value of diamonds purchased prior to 31/03/2007 is Rs.21,000/- per carat. Therefore, the value of Rs.15,473/- per carat adopted by the appellant is without any basis and evidence. Therefore, the addition of Rs.5,86,680/- is justified. The AO has also made an addition of Rs.35,490/- without' basis and the same is deleted. Therefore, the addition of Rs.5,86,680/- is confirmed. The appellant gets a relief of Rs.35,490/-.

15 ITA No.717/PUN/2015 A.Y. 2010-11

From the above, it is undisputed position that the figure of Rs.21,000/-

and Rs.22,500/-, as the case may be, are the figures furnished by assessee

during survey action. It is the submission of the assessee during survey

action that these figures represent the cost price of the diamonds. Now the

assessee argues conveniently that the same constitutes market values of the

diamonds, the closing stock. In our view, the same constitutes change of

opinion. When the assessee raised this new argument, the onus is upon the

assessee to demonstrate with evidences the figures furnished by him during

survey action are the market values. Assessee needs to supply the purchase

cost figures with evidences. Assessee failed to do so even before us. In such

circumstances, contrary to the submission made by him during survey

action, these new arguments become self serving submissions only. It

becomes a case of an after-thought. Therefore, we find the order of CIT(A) is

fair and reasonable and it does not call for any interference on this issue.

Thus, ground No.1.4 raised in appeal by assessee is dismissed.

D. Ground No. 1.6 relates to disallowance of Rs.6,99,363/-

Rs.6,99,363/- on account of theft of the silver stock of the assessee. Relevant

facts includes that the assessee reported theft of silver stock and filed FIR

with police authorities. However, the assessee did not furnish any evidence

about Action Taken Report on the said FIR. The Assessing Officer doubted the

assessee’s claim of theft and consequently, Assessing Officer rejected the

claim of Rs.6,99,363/-. The Assessing Officer discussed this issue vide para

9 of assessment order and the same is extracted as under:

“9. Claim of loss due to theft: During the course of assessment proceedings, the assessee filed only a copy of FIR and no final report for the theft has been furnished and

16 ITA No.717/PUN/2015 A.Y. 2010-11

hence, the claim of loss is not determined. Hence claim of loss is disallowed and an addition of Rs.6,99,363/- to the total income. However, the assessee can claim it in the year in which it is determined by the proper authority.”

Assessee substantiating genuineness of the FIR. In the impugned order,

CIT(A) commented that the same is a stage-managed one. Thus, CIT(A)

confirmed the disallowance of Rs.6,99,363/-. Aggrieved with the same,

assessee is in appeal before the Tribunal.

theft, brought our attention to the contents of FIR dated 28.05.2009 placed at

pages 137 to 141 of the paper book and mentioned that it is not a case of

stage managed theft. Further, Ld.A.R. stated that the assessee has no reason

to resort to the same. He also reported non-return of the stolen goods by the

Police.

theft is stage managed one. However, he relied heavily on the order of

Assessing Officer and CIT(A).

silver items. We find, in principle, the FIR is filed by the assessee reporting

the event of theft occurred on 28.05.2009. This event falls within the

assessment year under consideration. Considering the arguments advanced

by both the parties, we find that the assessee has filed copy of the FIR to

prove that the fact of occurrence of theft, Assessing Officer did not establish

that is a stage managed event. It is not the case of the Assessing Officer that

the stolen goods are returned safely by the police. The onus is upon the

17 ITA No.717/PUN/2015 A.Y. 2010-11

Assessing Officer to demonstrate the mala-fide in filing FIR. Assessing Officer

failed to do so. In this case, Assessing Officer merely dismissed the claim of

reporting of the event to the police authorities. The FIR constitutes an extract

from the records of the police, Government of Maharashtra and the same

should be accepted as genuine. Otherwise, there is no evidence on the

contrary from the Assessing Officer’s side. Therefore, we are of the opinion

that disallowance, made by the Assessing Officer and confirmed by the CIT(A),

is unsustainable in law. Accordingly, ground No. 1.6 raised by the assessee

is allowed.

E. Ground No. 1.7 relates to addition of Rs.1,07,27,204/-

alleged difference in the valuation of closing stock of gold.

valuation of gold, followed the principle of FIFO and valued the closing stock

at Rs.6,05,30,845/- against the assessee’s valuation figure of

Rs.4,98,03,641/-. The difference works out to Rs.1,07,27,204/-. The

Assessing Officer invoked the provisions of section 145(3) of the Act and

added the said amount to the total income returned by the assessee. The

facts about excess stock, rates of gold and other details are discussed in Para

11.5 to 11.9 of the assessment order. For the sake of completeness, the said

paragraphs are extracted as under:

“11.5 The rate of pure gold as on 31/3/2008, 31/03/2009 and 31/3/2010, as per ready reckoner is as under: 31/3/2008 Rs.12,125/- 31/3/2009 Rs.15,105/- 31/3/2010 Rs.16,320/- Whereas above details shows the valuation of rate of gold as on 31/3/2010 have been shown less than the rate as on 31/3/2009 which is

18 ITA No.717/PUN/2015 A.Y. 2010-11

not correct as on 31/3/2009 the rate for purchases shown in F.Y. 2008-09 has been taken at 1276.82 per gram and for old stock of F.Y. 2007-08 has been shown at 1081.66 per gram and as on 31/3/2010 it has been reduced to 1027.96 per gram and 940.35 per gram.

11.6. Now coming to the assessee's submission at the first instance, the assessee has given the details of stock items i.e. gold in diamond ornaments, gold mode, gold ornaments 94, gold pure, and so on. But while explaining the details of valuation of opening stock of gold as on 1/4/2009 of all items of gold, the assessee has not shown item wise as shown in details of stock items. On going through the all items of gold as on the assessee has shown stock of gold of 1/4/2009, 36484.53bifurcating as out of opening stock as on 1/4/2008 at 12,791.53 and balance of 23693 as purchases in F.Y. 2008-09. This means that the assessee, since adopted FIFO method, the assessee is having stock of gold as on 1/4/2008 at 12,791.53 grams. Now coming to the details of closing stock of gold as on 31/3/2010, the assessee has shown stock of gold as on3 1/3/2010 at Net weight of 35,962.68 grams. But while bifurcating such net weight, the assessee has tried to mislead by stating herein that out of stock of gold 35962.68 grams, the break up is as under

Stock being purchased in F.Y. 2007-08 8446.23 Out of opening stock of 1.4.2007 7409.34 Purchases during the year 20107.11

11.7 From the above details as on 31/03/2010, the assessee is now relying on the fact that he was having the stock before 1/4/2007 of 7409.34 grams while submitting the details for the year under consideration, whereas while submitting the details for the F.Y.2009-10, the said opening stock as on 1/4/2007 was not at all appearing i.e. to say as on 1/4/2008 it has shown 12791.53. Thus on one hand it can be said that the assessee is having gold stock as on 1/4/2009 at 15,855.57 grams. Thus here also there is a difference.

11.8. The assessee has not maintained item to item weight wise purity wise stock details of ornaments or other items and thus it is not possible to verify that which item of particular year has been sold and during the course of survey the assessee has disclosed last year purchase of 12575.5 grams for a vale of Rs. 1,60,32,031 having a rate of 1274.86 per gram besides current year purchase and then why in closing stock as on 31/3/2010 its value has been taken at 1274.86 per grand and Rs.940.35 per gram by the assessee. The rate of gold has increased from 24/9/2009 to 31/3/2010. Thus just to reduce the income and avoid to pay taxes, the assessee has deliberately undervalued its closing stock.

11.9 From the above, it can be easily inferred and held without any hesitation that the assessee is valuing the stock as per his own will and whim without having any base and without any proper supporting evidences i.e. books of accounts. Thus, I have no hesitation to hold that the closing stock as shown by the assessee is to be valued on the basis of purchase value of current year, as old stock has already been sold out. Thus I hereby value the closing stock of the assessee at Rs.5,98,26,435/- ( 35962.68 x 1663.57 ) + Labour charges i.e. Rs.7,04,410 = 6,05,30,845 no whereas the assessee has shown closing stock at Rs. 4,98,03,641/-. Thus, the difference of Rs. 1,07,27,204/- ( 6,05,30,845 - 4,98,03,641 ) is hereby added to the total income of the assessee, by applying the provisions of Section 145(3) of the I.T.Act , 1961.”

19 ITA No.717/PUN/2015 A.Y. 2010-11

submitted that, barring the stock of “Gold Ornaments-94”, the method of

accounting of gold was consistently followed on the settled principle of FIFO.

Only with reference to valuation of the said stock of “Gold Ornaments-94”,

the assessee changed the method of accounting and therefore, there is

difference in value of closing stock valuation. The CIT(A) considered the facts

of the case and confirmed the addition made by the Assessing Officer as per

discussion given in Para 18.1 and 18.2 of his order. Thus, the AO and CIT(A)

did not allow the change in the method of valuation.

Para 11.9 extracted above, Ld. Counsel for the assessee submitted that

valuation of closing stock of gold at Rs.1663.57/- per gram is not proper and

is completely a case of adhocism. Further, Ld. Counsel for the assessee

submitted that closing stock valuation of “Gold Ornament-94” is only

disturbed in this year by the assessee.

Further, referring to the opening stock Balance figure in the next

assessment year, Ld. AR submitted that this change in method qua the “Gold

Ornament-94” is followed consistently in the subsequent assessment years

too. Further, Ld.AR submitted that the Assessing Officer in the next

assessment year did not grant consequential benefit in the opening stock

valuation of the subsequent assessment year. This failure of AO is patently

wrong on facts. This argument is raised by Ld. AR without prejudice to the

demand for accepting the changed mode of valuation. Therefore, Ld. Counsel

submitted for deletion of entire addition of Rs.1,07,27,204/-. Further, on this

issue, alternative argument advanced by the Ld. Counsel for the assessee to

grant consequential benefit to the opening stock in the next assessment year.

20 ITA No.717/PUN/2015 A.Y. 2010-11

Then, Ld. AR is fair in admitting that the assessee altered the method of

account qua the “Gold Ornament-94” which had the effect of profit reduction

of Rs.1,07,27,204/- in real terms.

of Assessing Officer and CIT(A). Relying on various judgments, Ld. DR

submitted that the decision of the assessee in going for the change in method

of valuation of stock has the direct effect on the profit of the year of the

assessee. Therefore, AO/CIT(A) are justified in rejecting the claim of the

assessee.

Revenue Authorities in general and contents of Para 18.1 and 18.2 of the

order of CIT(A) in particular. For the sake of completeness, the same are

extracted as under:

“18.1 From the above facts, the AO has made following observations:- 1) While valuing the opening stock at Rs. 4,44,81,390/-, the AO has considered gold purchased in F.Y. 2008-09 at 23,636 grams and stock of gold out of opening stock as on 01/04/2008 at 12791.53 grams. 2) While valuing the closing stock at Rs.4,98,03,641/-, the AO has considered closing stock of 8446.23 grams + 7409.34 grams = 15855.34 grams as purchased before 01/04/2007 to 01/04/2008. 3) In view of the above two observations, the AO has noticed that when in opening stock the stock acquired before 01/04/2008 was 12791.53 grams, the same cannot be 15855.34 grams in closing stock. This mistake pointed out by the A.O. in the valuation of closing stock is an apparent mistake of the appellant. 4) The A.O. has further noted that as the appellant has followed FIFO method and has affected huge sale during the year having the cost of gold sold at Rs. 9.57 crores, there cannot be any opening stock balance. The above contention of the AO is also found to be logical and acceptable. The appellant has also not filed any convincing submission or quantitative detailed stock record proving that the items in opening stock have not been sold in the year under appeal and the same are included in closing stock and accordingly the closing stock has been arrived at. In view of the above facts, I am of the considered view that the AO is justified in valuing the closing stock of gold at Rs. 1663.57/- per gram i.e. value of purchase of gold during the year under appeal. The AO is therefore justified in arriving at the value of the closing stock as under:-

21 ITA No.717/PUN/2015 A.Y. 2010-11

Gold weight 35962.68 grams X Rs.1663.57 = Rs.5,98,26,435/- Add : Labour Charges = Rs.7,04,410/- Total value of closing stock = Rs.6,05,30,845/- 18.2 The addition of Rs.1,07,27,204/- (Rs.6,05,30,845/- - Rs.4,98,03,641/- on account undervaluation of closing stock of gold is therefore confirmed.”

From the above, it is the finding of the Assessing Officer that the

quantification of the closing stock of 15855.34 grams is not correct. Assessing

Officer also found mistakes in matters relating to FIFO adopted by the

Assessee. Therefore, CIT(A) confirmed the Assessing Officer’s calculations

leading to the addition of Rs.1,07,27,204/-. We have also considered the

alternative argument of the Ld. AR regarding the necessary corrections to be

made to the opening stock balance figure in the next assessment year.

On hearing both the parties and on perusal of the orders of the

AO/CIT(A), we find that “all is not well” with the way the assessee maintained

the closing stock account qua its valuation. For the first time before us, Ld.

AR came up with the explanation that the stock of “Gold Ornament-94” and

the change in its valuation in the year under consideration are the cause of

the discrepancies in valuation noted by the AO/CIT(A). Further, it is the

alternate arguments of the Ld. AR that the assessee shall be content if the

consequential benefit is granted adjusting the opening stock in the

subsequent assessment years. In that case, Ld. AR shall not press for

accepting the earlier arguments in favour of deletion of the addition of

Rs.1,07,27,204/-. On considering all the above, we are of the opinion that

there is merit in the said alternative submission made by the Ld. Counsel

for the assessee regarding the grant of consequential benefit with respect to

adjustment to the opening stock in next assessment year. Accordingly, we

direct the Assessing Officer to consider the same after hearing the assessee

22 ITA No.717/PUN/2015 A.Y. 2010-11

and allow consequential benefit as per the law, if any, in the next assessment year. Hence, we allow the alternative submission of the assessee as mentioned above. Considering this relief, we are of the view that the other arguments made by the Ld. AR stand dismissed as academic. Accordingly, ground No.1.7 raised in appeal by the assessee is partly allowed.

Order pronounced on 28th day of November, 2018.

Sd/- Sd/- (सुषमा चावला / Sushma Chowla ) (डी.क�णाकरा राव/D. Karunakara Rao) �या�यक सद�य /JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे / Pune; �दनांक / Dated : 28th November, 2018. SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :

अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeal)-2, Nashik. 4. The Pr. CIT-2, Nashik. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.