TMI Blog1998 (12) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 - --------- --------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of gold ornaments and silver at Rs. 59,64,123 the AO made an addition therein of the balance amount of Rs. 12,891 for the asst. yr. 1997-98 falling in the block period. 3. The first ground raised by the assessee is against an addition of Rs. 23,08,219. The AO noted that during the course of search certain loose papers listed as Annexure LP-3, LP-4 and LP-13 were found and seized. These loose papers were in fact customers' order slips. When a customer places an order a slip containing details of the weight of gold, rate of gold, description of ornaments to be made, etc. is prepared. Thereon karigars are given requisite amount of gold for making of ornaments as per specification of the customer. 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 4,66 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slips contained particulars of customers, design, rate of gold, weight of gold along with due dates of delivery. He further invited our attention to the statement of Shri Sudhir Bansal, partner of the assessee-firm, placed at pp. 10 and 11 of the Departmental paper-book wherein he clarified that the assessee first receives order for an ornament from a customer and the same is noted down in the slip. Thereafter the order is placed with a viopari for manufacturing of the said item of gold. At that point of time neither gold nor money is paid to the viopari. The payment is made at the time of receipt of the ornaments. He however, admitted that some gold was given to Karigars but that was merely for minor repairs 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 sl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt from them. The learned Departmental Representative, therefore, contended that on given facts and material available on records the AO was fully justified in treating the said amount of gold as representing undisclosed income of the assessee-firm and the addition made on this count deserves to be confirmed. 3.4. We have carefully considered the facts, material evidence available on records and the rival submissions. Admittedly the said slips of papers giving details of ornaments, market rate of gold, value of gold and date of delivery were found and seized from the business premises of the assessee as per Annexure LP-3, LP-12 and LP-13 of the Panchnama. The AO has tabulated the details of these slip of papers 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded over the items manufactured and whether the gold was given to them or not for manufacturing of ornaments as per orders booked. 3.7. We further note that as per the deposition of Sudhir Bansal the names of customers were given in the said slips but the Department made no efforts to make necessary enquiries from them about the status of the orders booked such as whether they had given any old ornaments for manufacturing of new ones, whether by the date of search they had got the delivery of the ornaments ordered and payments made, etc. The Department has also not ascertained the names and addresses of various karigars from whom the gold ornaments are got manufactured by the assessee-firm and to make further enquiries 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igars as on the date of search at 343.810 gms. This otherwise fully covers the gold ornaments due to be delivered after the date of search at 297.115 gms. and on this count also no addition could be made in the undisclosed income computed for the block period. 3.9. Looking to all the facts and circumstances discussed the undisclosed income computed by the AO on this count at Rs. 23,97,219 is not justified and the same is directed to be deleted. 4. The next ground taken by the assessee is against an addition of Rs. 4,78,389 on account of valuation of stock. The AO noted that the valuation of gold ornaments found at the time of search was prepared by the approved valuer and that gives only the value of metal and precious stones but he has not taken into account the making charges which amounted to 5 per cent on account of labour, shortage, polishing etc. When confronted it was explained that labour charges are included in the rate applied by the approved valuer as is 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 go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntory of gold ornaments prepared at the time of search is placed on pp. 88 to 94 of the Departmental paper-book. The valuation was got made on the date of search from the approved valuer Chandra Prakash Rastogi. In the valuation report the AVO has given description of the gold ornaments, nature of the metal contents, gross and net weight and the value. There is no mention made in the report about the purity of the gold ornaments whether made of 22 cts. gold or 20 cts. gold. Normally the AVO value particular item of ornaments considering the purity of the gold contents, precious stones embodied therein, if any. We find that the AVO has separately valued the precious stones found embodied and included the same in the total valuation. Moreover, the AVO has estimated the market value of the said ornaments and while doing so the value has to be put only for gold contents and it is only the gold contents which carry market value and if offered for sale in the open market the same 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 lab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 20,000 8. 1,638.401 17.2 1,000 ------ ------ 17,814 21,000 ------ ------ The back side of the document also contained the following entries: D a/c "Gd" C. No. 5,220.200 5.00 C. No. 5,247.900 16.2 8.50 C. No. 5,177.400 18.2 5.00 C. No. 5,561.400 18.2 9.00 - 10.00 Total 21,206.900 gms. 20.2 13.00 1,13,543.46 6.00 4.00 10.50 ----- 65.00 8.50 ----- 5.1 As regards the front side of the document the AO noted that figures on the left hand side indicated the weight of gold purchases in grams and milligrams and figures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13,14 16-2-1996 (5) 1,909.650 1,909.650 12-A 18-2-1996 (6) 2,208.150 2,208.150 12 18-2-1996 (7) 3,020.650 3,020.6500 11 20-2-1996 (8) 1,638.400 1,638.450 17-A -1996 ---------------------------------------------------------- 5.2. The AO, therefore, held the view that the entries on front side of the document are in respect of gold only and the said gold was got weighed from Dharamkanta from 14th Feb., 1996, to 20th Feb., 1996 and the weighment figures given in the Dharamkanta slips tallied exactly with those found recorded on the seized document. The AO required the assessee to offer explanation on the question posed as under: (a) Why the purchase of gold weighing 39 kgs. 31 gms. 850 ml. gms. entered on both sides of paper may not be treated unaccounted purchases for the period14th Feb., 1996, to20th Feb., 1996. (b) why the undisclosed income on unaccounted sales may not be estimates at the G.P. rate disclosed in regular account books. (c) Why the value of gold of 39 kg. 21 gms. 850 ml. gms. be not treated undisclosed income utilised for purchase of unaccounted gold. (d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king weighment of one's own stock one need not go to an outside person i.e. Dharamkanta and expose himself and the stocks to risk. An independent weighment facility/Dharamkanta is used only when the transaction is with the outsiders, to ensure impartiality. The very fact that the gold was not weighed with the help of in house weighment facility, proves that the gold in question was not the assessee's stock but is purchases made from other persons. (b) The contention of the assessee that transaction of Rs.21,000 cannot be read as 21 lac, is also not believable because against purchase of 17,814.950 gms of gold payments cannot have been made in amounts of thousands because the value of 17,814.950 gms. comes to amount of Rs. 86,75,880. Further the assessee has also not stated as to what was the purpose of the entry of amount 21,000 and why it was written on the paper. (c) The contention of the assessee that the 4 entries on the back side of LP-2/18 represents weight of stock of silver is totally without any merit for the following reasons: (i) The assessee never had silver of 21,205 gms at any time during the financial year 1995-96, is apparent from the figures given below: Op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Chander, the Karigar to make new ornaments. (x) The entry is in figure against the weights with dates of 16.2, 18.2 etc. indicate the payments in lakhs of rupees paid by the assessee against the purchase of gold. (d) The contents of the assessee that amounts of 65.00 and 8.50 represent weighing charges is not acceptable because on back side of the paper only four weighments are mentioned while amounts written on the right hand side are eight in number which fact belie the claim of the assessee that these amounts are weighing charges. The further contention of the assessee that amounts 65.00 lacs and 6.50 lacs is not acceptable because the amounts of 65.00 and 8.50 in code language represents Rs. 65.00 lacs as payments towards cost of purchase of gold weighing 21,206 gms. of gold will come to about Rs. 1,03,27,322 which fact also prove that amount 65.00 and 8.50 represent 65 lacs and 8.50 lacs respectively. (e) the contention that Dharamkanta receipts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06 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 21,206.900 gms. was at Rs. 1,13,543.46. In order to project and perpetuate his hypothesis of the said four items representing gold, the learned AO had ignored totally the figure of Rs. 1,13,543.46 and construed the word "Gd" as representing gold and rejected the assessee's contention that "Gd" represented goods. As to the entries on the right hand side on back of the paper the learned counsel submitted that these represented weighment and refinement charges paid on different occasions. He also pointed out that the AO was inconsistent in his theory of the cash entries being in lacs. He argued that whereas the entries on the front side of the paper were generally in four figures plus 2 decimals, the ones at the back of the paper were in single figure with the double figures after the decimals. As regards the figures on the front side of the paper the AO has held that the decimals are to be ignored and on so doing the four figure amounts would get converted into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 learned counsel also placed reliance on the following decisions: (1) Ashwani Kumar vs. ITO (1992) 42 TTJ (Del) 644; and (2) Brijlal Roopchand vs. ITO (1991) 40 TTJ (Indore) 668. 5.7. While submitting that there was no basis or material in support of the decoding done by the AO of the said figures, the learned counsel also placed reliance on the following decisions in support of the proposition that the addition made is based on surmises and conjectures and not on any corroborative and supporting material evidence: (a) Asstt. CIT vs. Shalesh S. Shah (1997) 59 TTJ (Mumbai) 574 : (1997) 63 ITD 153 (Mumbai); (b) CIT vs. Mahesh Chand (1992) 104 CTR (All) 327: (1992) 199 ITR 247 (All); (c) Addl. ITO vs. T. Mudduveerappa Sons (1993) 45 ITD 12 (Bang); (d) Ashok Kumar Rastogi vs. CIT 55 Taxman 433 (All); (e) CIT vs. Surjeet Singh Mahesh Kumar (1994) UPTC 233; and (f) Vishwanath Paran vs. ITO (1992) 41 ITD 6 (Cal). 5.8. The learned counsel, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 "D". There is also a mention of "Gd" which means gold. The learned Departmental Representative further pointed out from the seized document lR-10 that the assessee therein has used the abbreviation "P" for pearl, "R" for rubi, "E" for emerald and since abbreviations used are of a particular item the "Gd" would obviously mean "gold" and not "goods" as claimed by the learned counsel of the assessee as the goods would include all items such as gold, silver, pearl, rubi, emerald and there was no necessity of separately using the abbreviation for pearl, rubi, emerald etc. According to the learned Departmental Representative the weight given therein is of gold and this in no way means silver as claimed. He has pointed out that the weight mentioned is to the extent of miligram. Normally weight of silver is taken up to grams and not up to miligrams. This also suggests that the weighment is given of gold and not of silver. He has further submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one 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 business premises of the assessee-firm at the time of search and this fact has also not been denied by the assessee. This document is written on both sides and the entries made therein are presumed to be correct as per provisions of s. 132(4A) of the IT Act. Both sides of the document needs to be examined to ascertain the nature of the entries recorded therein. We in the first instance examine the entries recorded at the back side of the said paper. At the top of the paper there is written "D a/c". "D" appears to represent the first alphabet of name of a certain person or it could also be Dummarge A/c kept by the assessee-firm separately. There is however, no explanation offered by the assessee about the nature and meaning of "D a/c" and in the absence of any valid explanation the account shown is presumed to be taken that of the assessee-firm within the meaning of s. 132(4A) of the IT Act. Further, at the top of the weighment given the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7to 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 weighment slips are of gold and the weighment is to the extent of miligram. It would be seen from the entries made on back side of the said paper that all the weighment are above 5 kg. and as per the Sarafa Committee rules the weighment of silver above 2 kg. is to be only in grams whereas in the present case the weighment shown is in miligrams and there is no material adduced by the assessee to establish that the weighment was taken in miligram on its demand. Thus looking to the details of the weighment given it could be of gold and not of silver. 5.15. According to the assessee a vital entry made in this document is of 1,13,543.46 as given below the weighment entries. According to the learned counsel this is the value of the total weight given at 21,206.900 looking to the market rate of silver of 70 per cent purity. This amount only represent the value of silver weighing 21,206.900 gms. According to the Revenue these figures given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue 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 of decoding these figures in lacs. The decoding made by the Revenue is therefore, based only on surmises and conjectures in the absence of any corroborative evidence. The claim of the assessee on the other hand that these represented the weighment and refining charges appears to be correct to some extent. We have perused the Dharamkanta receipts annexed to the assessment order and we find that these Dharamkanta receipts are for weighment of gold and these contain the columns for weighment in kilograms and miligrams, nug, date, weighment charges and signature of the Dharamkanta owner. We find that these contain the weighment charges as per details below: Annexure No. of items Weighment charges B-2 34 10.50 B-3 39 10 ------------ 2003.400 mg. B-4 4 5.18. The weighment charges recorded in other Dharamkan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 engaged in the following activities: (1) purchase and sale of new ornaments: (2) purchase of old ornaments and their sale after carrying out minor repairs polishing, etc. (3) Manufacturing of ornaments from Karigars from the old ornaments given by the customers or the gold provided by the assessee-firm as per orders of the customers. 5.23. As per the records maintained the substantial stock of ornaments available with the assessee-firm were of old ornaments as is evident from details of stock of gold ornaments found on the date of search on3rd Nov., 1996. New ornaments account 1,933.800 gms. Old ornaments account 8,297.745 gms. Broken gold a/c 250.425 gms. 5.24. We also find that as on15th Feb., 1986as per books of the assessee the stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the weighment of which is found recorded on the back side of the said paper, in our considered view, no separate addition could justifiably be made on account of the said gold ornaments and that would amount to the double taxation and this view is supported by the decision of the Tribunal reported in 51 TTJ (Pune) 513 and a number of other judgments on the subject. The addition thus 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 agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m as per back side of the paper the ornaments on the front side were weighed subsequently and these could be for sale out of those recorded on the back side of the paper. There is, therefore, sufficient indication that such sales as per entries on the front portion of the paper are not of the existing stock of gold ornaments including that recorded on the back side of the paper. Having regard to all the facts and, circumstances discussed we come to the conclusion that the various entries recorded on front 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 adopt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he financial year 1995-96 at Rs. 43,81,662 based on the said unaccounted sales of Rs. 2,33,81,337 is not supported by any material evidence and the same being on presumption and surmises the undisclosed income computed deserves to be deleted and we order accordingly. 7. The next ground raised is against an addition of Rs. 38 lacs. The AO noted that the payment for unaccounted purchases of Rs. 39.21 kg. of gold was made by the assessee in cash at Rs. 1.90 crore and the AO invoking the provisions of s. 40A(3) adopted 20 per cent thereof as income at Rs. 38 lacs 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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