9911796707
TMI Blog1998 (12) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,64,123 relating to the accounting year from 1st April, 1996 to 3rd Nov., 1996, relevant to the asst. yr. 1997-98. The details of the income returned and assessed in the regular assessment and undisclosed income declared for each of the assessment year falling in the block period is given hereunder: ------------------------------------------------------------ Previous year Asst yr. Total income Returned/Assessed including income income ------------------------------------------------------------ 31-3-1987 1987-88 2,62,551 2,62,551 31-3-1988 1988-89 4,45,830 4,45,830 31-3-1989 1989-90 59,879 59,879 31-3-1990 1990-91 42,864 42,864 31-3-1991 1991-92 1,78,209 1,78,209 31-3-1992 1992-93 3,67,286 3,67,286 31-3-1993 1993-94 25,448 25,448 31-3-1994 1994-95 5,011 5,011 31-3-1995 1995-96 7,005 7,005 31-3-1996 1996-97 45,090 45,090 31-3-1996 1997-98 59,64,123 - --------- --------- 74,03,294 14,39,171 --------- --------- 2.1. The firm carried on business of manufacturing and sale of gold ornaments, silverware, etc. The assets found during the course of search were as under: Gold ornaments Weight (Gross) (Gms) Weight (net) (Gms) Value (Rs.) 26,471,060 24,944.760 95,67 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. According to the AO the total weight of gold as per these slips given to the Karigars comes to 4,662 gms. The ornaments manufactured out of such gold were neither found at the time of search nor the same were found recorded in the sales. According to the AO the assessee failed to give account of such gold delivered to karigars either at the time of search or during the course of assessment proceedings. The AO, therefore, required the assessee to explain why the gold weighing 4,662 gms. valued at Rs. 23,97,219 given to the karigars be not treated as representing unexplained investment. The assessee in reply denied having given any gold to karigars on this count. It was contended that it is not the practice of the assessee-firm to give gold in advance to karigars for manufacturing ornaments as ordered by the customers. Such explanation offered was not accepted by the AO for the following reasons: (i) It is the most common practice with all the jewellers to first give adequate amount of gold to the Karigars before the Karigars give them the ornaments manufactured as per the orders. (ii) Even the assessee has himself admitted having given 343.810 gms. of gold to the Karigars for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and preparation of petty items. He further pointed out that the AO's theory that gold had been given for making the ornaments was fallacious and untenable because if that were so there was no logic or point in indicating the rate of gold on the order slip. If the gold had indeed been given as assumed by the AO, then the rate would have no significance at all and it would be wholly superfluous. But that in fact was not so. The learned counsel has further contended that these slips were of such items which had not been collected by the customers despite the lapse of due dates or were such which having been collected remained undestroyed. As to the former their analysis and estimation was not possible because while preparing the valuation report of different items found with the assessee had been aggregated and consolidated for valuation. The items having lost their identity bars any subsequent analysis through identification. As to the latter no such exercise was necessary because the profit from such items formed part of the seizure which has already been surrendered. He further submitted that giving of gold with the order to the Viopari was not a feasible commercial proposition fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and annexed to the assessment order. We find that the assessee has admitted the booking of the orders of the customers for manufacturing of gold ornaments as per the specifications as per details given in the seized slips. We, however, find that in some of the slips the weight of ornaments and other details have not been mentioned. Date of delivery is also not mentioned against a number of entries. 3.5. The AO required the assessee to explain the transaction recorded in the said seized slips in his letter dt.4th Nov., 1997, placed at pp. 11 to 18 of the assessee's paper-book and the assessee gave the explanation in its reply placed at pp. 19 to 23 of the said paper-book. It is admitted in reply that the said annexures LP-3, LP-12 and LP-13 represented various orders placed by customers for making new ornaments which in fact was part of the stock found in search. All the said items had come for handing over to the customers as the Diwali was very near and the goods had to be given to them. The delivery dates as given on various slips had also been specified whereas other slips carried no delivery date. It was, therefore, contended that the delivery date of the said item of jewell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quiries from them about the manufacturing of the ornaments relating to the said slips found. It also appears that at the time of search these slips were not confronted to the assessee to seek their reaction and to make necessary spot enquiries on the date of search itself from the karigars or vioparies to whom orders were given for manufacturing of ornaments as ordered by the customers. There is otherwise no evidence brought on record by the Revenue to establish that the assessee-firm had given to the said amount of gold either to the karigars or to vioparies on booking of the orders for manufacturing of the said items of ornaments and in the absence of any such material evidence the view taken by the AO that the gold weighing 4,662 gms. belonged to the assessee-firm and was lying with the karigars as on the date of search is based on surmises and conjectures and not on any positive evidence. Further, the explanation given by the assessee and depositions made in their behalf by Sudhir Bansal partner remained uncontroverted and disproved. Moreover, as per Annexure "C" containing details of the said slips, the due date for delivery of the ornaments to customers had elapsed before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s borne from the facts on record. The AO noted that the rate applied by the valuer for valuing the gold ornaments is Rs. 4,150 per ten grams as against the then prevalent rate of Rs. 5,150 per ten grams for standard gold. As the ornaments are claimed to be of 22 cts. purity the rate applied by the valuer gave the purity level of 80 per cent. According to the AO this rate being on the lower side cannot be supposed to include making charges. The AO, therefore, separately estimated the making charges @ 5 per cent of the value of the ornaments found at the time of search which worked out to Rs. 4,78,389 and the same was adopted as undisclosed income of the assessee-firm for the block period. 4.1. The learned counsel for the assessee has strongly contested the authority of the AO to meddle with the expert opinion of the Valuation Officer. He has contended that the AO was not qualified to sit in judgment over an expert opinion. According to him there are direct authorities of the Supreme Court and the jurisdictional High Court which bar any such interference. On merits the learned counsel has pointed out that the presumption of the AO that the assessee-firm sold 22 cts. gold ornaments w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame would not fetch any making charges apart from the value of the gold contents. 4.4. We have also perused the accounts for the asst. yrs. 1996-97 and 1997-98 and we find that the assessee has not debited any labour charges in the trading account or P&L a/c. As is evident the assessee-firm either purchased ornaments from vioparies or got the same manufactured for Karigars. The purchases made from vioparies could not separately include the labour charges. As regards the jewellery got manufactured for Karigars there is general practice in the line that the Karigars do not separately charge for labour and whatever gold they save on account of soldering, polishing, etc. is sufficient enough to compensate them for labour and it is for this reason that no separate labour charges have been debited and claimed by the assessee-firm in its account. 4.5. Moreover, the AO has worked out the labour charges @ 5 per cent of the total value of the gold ornaments but he has not given any basis for working out the labour charges thereon. No enquiry has been made from the Karigars about the labour charges they received on manufacture of ornaments from the customers nor the assessee has been questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of 21,206.700 certain payments amounting to Rs. 73.50 have been made on different dates from 16th February to 18th February. The document indicates that the figure of 21,206.700 represents the weight of gold purchased in grams on few days of February, 1996 against which payment of Rs. 73.50 lacs had been made on different dates. According to the AO 73.50 is coded in lacs. According to the AO the detail of both sides of the document would show that the firm purchased gold weighing 17,810.950 gms. + 21,206.700 totalling to 39017.650 grams in February, 1996 against which payment amounting to Rs. 94.50 lacs (21 lacs + 73.50 lacs) were made in cash. There transactions of purchase of gold and the payments made their against were not found recorded in the books of account maintained by the assessee-firm. The AO has further noted that slips of Dharamkanta found indicate that the weighment made is only in respect of gold and not of silver to establish this fact he has given necessary details of the said Dharamkanta receipts as under: ---------------------------------------------------------- s. Entry Weight of Annexure No. of Date of No. Dharamkanta Dharamkanta Dharamkanta Receipt r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er LP-18 contains entries of working of stock prepared for a few days cannot be believed because the closing stock is worked out on a particular date and not for a particular period. The entries are in different ink i.e. in red ink for some dates and for others in black ink which also shows that these entries do not relate to stock. The payment made against each entry of weight clearly establish that the entries on the front side of paper represents purchase of gold and do not relate to stock weighment as claimed by the assessee. That the entries pertain to weighment of stock in proved wrong by the assessee's own books of a/c. It is fact that the closing stock as on31st March, 1996has been shown at 9.793 kgs. of gold and the assessee's sale during the month of February & March, 1996 are of about Rs. 3.00 lacs i.e. equivalent to about 600 gms. to 700 gms. of gold ornaments. By no stretch of imagination, the stock of gold ornaments with the assessee on the relevant dates in February, 1996 (given in LP-2/18) can exceed 10.500 kgs. Now can the assessee made weighments of 17,814.950 gms. and 21,206.700 gms. is simply impossible to understand. Further the closing stock is prepared at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (v) The assessee's contention that the different figures mentioned against four weighments represent the weighment charges is again wrong on the ground that there are four weighment entries and the different figures representing money against them are eight in number. This proves that the entries in amount are not weighment charges in any case. (vi) The heading of the paper 'D' a/c shows that it is not stock but account of some person with initial 'D'. (vii) The words 'C No.' written against entry indicate that it refers to cash memo No. (viii) The abbreviation "Gd" written at the top of entries prove beyond any doubt that all the four weights written underneath in respect of "gold" as "Gd" stands for gold and this abbreviation is very frequently used by the assessee. (ix) This abbreviation "Gd" for "gold" has been used several times by the assessee in the documents at page Nos. 3,4 & 5 of annexure LP-10. e.g following entries have been made at p. 4: 87,600 Gd to Motilal and 55.810 Gd to Chander. The first entry means that 87.600 gold has been given to Shri Moti Lal, the Karigar make new ornaments. Similarly the second entry in the case 35,180 gms. of gold has been given to C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d been taken because the weighing scale at the shop was small which did not have the capacity to weigh beyond 300 gms. at one time. The Dharamkanta was equipped to weigh up to 5 kg. at one time and for that purpose the goods at the shop were sent in reasonable instalments for security reasons to the Dharamkanta for weighment. The payment indicated on the front side of the paper against various dates were in rupees and paise only and were not in lacs of rupees as wrongly proposed by the AO. The amounts rather did not hear any relationship with the value of the gold and as such it could not be the account of gold. No other document had been found which could corroborate the AO's version with regard to the money as indicated on the paper forming part of the purchase price and having been paid in instalments as held by the AO. As regards the entries on back side of the paper the learned counsel submitted that the same were of silver and not of gold. 21,206 gms. of silver had been purchased. Elaborating the learned counsel further submitted that AO while treating the said entries as of gold had ignored a vital entry of Rs. 1,13,543.46 on the paper. The value of silver weighing 21,206.90 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there is no evidence otherwise in possession of the Revenue that said assets in possession of the assessee at the relevant time represented the undisclosed income of the assessee and in support he has placed reliance on the decision of Hon'ble Supreme Court in the case of CIT vs. Vindhya Metal Corporation & Ors. (1997) 139 CTR (SC) 436 : (1997) 224 ITR 614 (SC). 5.6. On the principle of double taxation he placed reliance on the Tribunal's decision in the case of Kantilal & Bros. vs. Asstt. CIT (1995) 51 TTJ (Pune) 513. In this case certain documents seized revealed borrowings and also acquisition of certain assets. It was held that the assessee apprehending that the creditors may not come forward for confirmation surrendered the amount relating to the borrowings found recorded in the seized papers. The Department accepted the amount surrendered and also made additions on account of cost of assets. The Tribunal held that addition on account of acquisition of assets was not justified as the borrowings were utilised in clearing the assets following the principle that no one should be harassed twice for the same cause. As regards the decyphering of the said figures in lacs the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had taken the plea that the said papers contain certain rough jottings, estimates etc. and the same were left over by the customers whereas during appellate proceedings the learned counsel of the assessee has admitted existence of the gold/silver and their weighment made on Dharamkanta. The entries of gold ornaments on the front side of the document are claimed to be the weighment made of the existing stock of gold ornaments and the entries on the back side of the paper claimed to be relating to the existing stock of silver on the given dates. According to the learned Departmental Representative the stand of the assessee is not consistent and accordingly the same could not be relied upon and accepted. 5.11. The learned Departmental Representative has further submitted that the figures of amount given against the value of the gold ornaments on front side of the paper have rightly been taken in lacs looking to the amount of gold involved in each lot. As regards the back side of the paper the learned Departmental Representative has pointed out that at the top of the paper there is a mention of "D a/c". This refers to the account of the person whose name starts with alphabet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exure LP-10 contains prefixes like "P", "R", "E", "Gd", "B" etc. According to the assessee "P" represented pearls, "R" represented Rubi, "E" represented emerald "B" represented bangles and "Gd" represented goods. He also submitted that the theory that silver was not weighed up to three decimal places was not correct as would be borne out from the statement of Dharamkanta owner, available on record. The learned counsel has also pointed out to an entry "Cr" at top of the entries in the paper. This endorsement cuts out the very root of the AO's presumption that fresh entries were advance for purchase. Payments for purchases would be debited and not credited. He further submitted that there was no truth in the statement made by the AO and the entire addition of Rs. 1.90 crore was superfluous and unwarranted. 5.13. We have carefully considered the facts, relevant material on records and the rival submissions made before us. We have also gone through the various papers placed in the paper-book both of assessee and the Department to which our attention was drawn during the course of hearing. It is an undisputed fact that the said paper at Annexure LP-2/18 was found and seized from the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aramkanta owners or persons working on Dharamkanta during the course of assessment proceedings and the same are placed at pp. 5 to 9 of the paper-book filed by the assessee. Shri Ashok Kumar who was working as Accountant with the Sarafa committee deposed that Sarafa Committee Dharamkanta is used for weighment of gold as well as silver and for that separate receipts are kept. He also averred that the weighment of gold is to the extent of miligram and as regards the weighment of silver he admitted that up to weighment of 2 kg. it is up to miligram and beyond the weighment of 2 kg. it is in grams but that is also taken upto miligram as per the demand of the customer. He however, clarified that normally weighment of silver upto 2 kg. is written in miligram and weighment above 2 kilograms is written in grams only as per the rules of the Sarafa Committee. The AO showed certain weighment receipts for the period29th Oct., 1997to4th Nov., 1997to Shri Ashok Kumar to indicate whether the weighment is given in miligram of silver beyond 2 kg. and in reply he stated that there is no such slip. The other persons examined were also shown Dharamkanta slips and they confirmed that said Dharamkanta w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purity whereas silver wares could contain impurity not exceeding 5 per cent whereas the value as shown on behalf of the assessee is of silver of 70 per cent purity. There is no material evidence found at the time of search or further adduced during the course of assessment proceedings to show that the assessee-firm also dealt in silver ornaments of 70 per cent purity and in the absence of any such evidence the explanation offered that figure of 1,13,543.46 represented the value of 21206.900 gms. silver cannot be accepted. 5.16. We also note that against the four weighment entries there are shown four figures as under thereagainst. 5.00 8.30 5.00 9.00 Further under these four entries there appears the following entries: 10.00 13.00 4.00 10.50 8.50 5.17. The total of all these figures comes to 73.50. According to the assessee these figures represented weighment and refining charges where according to the Revenue these represented the payment made for purchase of the said gold in coded figures. The Revenue has, however, not given any basis for decoding these figures in lacs and there is no material also found or brought on record to support the view taken by the Revenue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on 16th and 18th Feb., 1996 and the weighment charges are recorded their against along with certain weighment charges paid for the weighment of gold ornaments recorded on the front side of the paper as the amount recorded tallied with that shown in the Dharamkanta receipts found relating to the weighment recorded on the front side. There is however no material evidence brought on record to show that these ornaments were purchased by the assessee on the said dates, from whom these ornaments were purchased; how much payment was made and in what form the payment was made. There is no such details found at the time of search nor the AO has been made any efforts to ascertain such details before coming to the conclusion that the said gold ornaments were purchased by the assessee-firm out of the undisclosed income. The view thus taken by the AO is not based on any material evidence but on surmises and conjectures and accordingly we hold that such ornaments were not purchased by the assessee-firm on the said dates but the same were lying in its stock and these were only got weighed as the material on records suggests. 5.22. We find from the records that the assessee-firm was mainly eng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made on this ground is directed to be deleted. 5.26. As regards the entries recorded on the front side of the said paper we find that these relate to the weighment of the ornaments as per Dharamkanta receipts found. In the second column, date is given and in third column amount is given against each weighment entry. We find that the date of weighment as per the Dharamkanta receipts being 16th, 18th and 20th Feb., 1996, are different from the dates recorded in column No. 2 of the paper being 15th, 16th and 17th Feb., 1996. Obviously the dates given in column No. 2 of the paper are not the dates of weighment of the gold ornaments and the same could therefore, relate to the amount recorded against each entry in column No. 3 of the paper. We further find that at the top of column No. 3 giving amount against each weighment entry totalling to Rs. 21,000 there is a mention of "Cr" and this abbreviation is normally used for credit in the accounts. The entries thus made of amounts against the weighment entries in the paper therefore, represent the receipt of the amount. The analysis of the three columns would therefore, indicate that the said gold ornaments weighing 17,814.950 could have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side of the paper represent sale of gold ornaments. The valuer has adopted the market rate for valuing the stock found on3rd Nov., 1996, at Rs. 4,150 per ten gms. whereas these sales are in the month of February, 1996. The market rate of these ornaments on an average rate of Rs. 4,100 per ten gms. Would work out to Rs. 73,04,150 rounded to Rs. 73,04,000. These sales are in lots and apparently these are on wholesales. The assessee has disclosed a g.p. rate around 20 per cent but such g.p. rate is on retail sales and that also included the majoori charge form the customers for getting new ornaments made out of old ones from Karigars. The g.p. on wholesales should reasonably be adopted at 5% and at this rate the profit would work out to Rs. 3,65,200. We, therefore, sustain the addition to the extent of Rs. 3,65,200 which has not been disclosed to the Department for the asst. yr. 1996-97 falling in the block period. The addition made of the balance amount is directed to be deleted. 6. The next ground taken by the assessee-firm is against estimating the undisclosed sales at Rs. 2,33,81,737 and income therefrom at Rs. 43,81,662. The AO noted that the capital employed and sales effected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cs for the financial year 1995-96 relevant to the asst. yr. 1996-97 which the assessee failed to disclose. 7.1. We have heard both the parties and considered the facts in this behalf. As discussed above we have not accepted the unaccounted purchase of 1.90 crore on cash payment being not supported by any material evidence. There being no cash payment as such proved. There is no question of making any disallowance or treating part of such cash payment as income by invoking the provisions of s. 40A(3). The undisclosed income adopted at Rs. 38 lacs on this count in our view is totally misconceived and without the support of any corroborative material and the same is directed to be deleted. 8. The next ground raised is against proposing addition of Rs. 2,62,214. The AO noted from seized documents at LP-1, LP-2, LP-4, LP-10 that the assessee made purchases of Rs. 1,34,031, Rs. 3,63,307 and Rs. 4,96,025 and also effected sales at Rs. 69,574, Rs. 700 and Rs. 6,276 out of the books. When confronted it was explained that the said papers seized denote rough jottings and did not relate to actual happening of any transaction. The explanation so offered was not accepted by the AO observing th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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