TMI Blog2011 (9) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... tock came to ₹ 1,79,35,023/-. Shri Neeraj Lakhi partner of the firm offered excess stock of ₹ 1,79,35,023/- as undisclosed income for the assessment year 2006-07 vide statement recorded during the survey. However, in the return of income, the assessee has disclosed ₹ 1,35,61,270/- as excess stock. The AO therefore, required the assessee to explain as to why excess stock of ₹ 1,35,61,270/- has been disclosed in the return as against ₹ 1,79,35,023/- offered for taxation in the statement given by one of the partner at the time of survey. The assessee filed an explanation vide letter dated 17-06-2008. It has been mentioned that on that date some purchases and sales were not recorded in the books of account. After considering such entries, the assessee prepared a recasted trading account. It was further pointed out that the Department has valued the stock at market value and reduced the value by 10% , the gross profit, to ascertain the cost of the goods found at the time of survey. The assessee has applied the G.P.Rate of 15.89% to arrive at the cost of the inventory prepared by the Department. The assessee has disclosed the G.P.Rate of 18.68% . The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods which were lying in the business premises were still to be entered but the partner stated that stock as per books has been correctly taken at ₹ 44.20 lacs. However, the G.P.Rate of 18.68% was accepted by the AO to determine the cost price of the stock. The AO accordingly determined excess stock at ₹ 1,58,38,634/- while the assessee has offered the excess stock of ₹ 1,35,61,270/-. The AO accordingly made the addition of ₹ 22,77,364/-. 2.4 Before the ld. CIT(A), the assessee stated that the AO has ignored the purchases of ₹ 14,55,382/- and sales of ₹ 2,95,018/-. The purchases included purchases amounting to ₹ 7,03,570/- from M/s. Royal Gems Source, Bangkok. Before the ld. CIT(A), it was submitted that purchase are supported by purchase invoice and the copy of ledger account of that party in the books of account of the assessee. In respect of purchases from four other parties, it was stated that such purchases are supported from purchase invoice. The AO should have give credit in respect of the purchases to the extent of ₹ 14,55,382/-. The assessee has worked out the excess stock in the case independently. Even on the reworking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocal parties credit could not be given because the summons issued to such parties were returned back with the remark not found. The evidences furnished by the appellant in support of such purchases at best can only establish paper existence of such parties. But the fact remains that the purchases from such parties remained unverified and no credence can be given to such purchases. Considering the totality of circumstances, the position of excess stock would work out as under: Particulars Appellant Firm Other group Firms Total Market value of physical stock in survey 2,49,12,240/- 2,41,05,219/- 4,90,17,459/- Less: GP rate @ 18.68% and 14.92% respectively (as on the date of survey) 46,53,606/- 35,96,498/- 82,50,104/- 2,02,58,634/- 2,05,08,721/- 4,07,67,335/- Less: Book Stock 49,28,196/- 2,20,35,551/- 2,69 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per books Physical Excess Bihari Lal Hola Ram 44,20,000/- 2,49,12,240/- 2,04,92,240/- Kushboo Jewellers 69,00,000/- 2,41,05,219/- 23,44,529/- Lucky Gems 71,89,022/- Siddhant Jewells 61,37,239/- Royal Gem Source 15,34,429/- Total of other group Firms 2,17,60,690/- Grand Total 2,61,80,690/- 4,90,17,459/- 2,28,36,769/- 2.8 The ld. AR further submitted that it is undisputed the stock was taken at market rate and the AO has reduced the G.P.Rate for arriving at the quantum of excess stock. The assessee while filing the return worked out the correct book stock of all the concerns on the date of survey at ₹ 2,76,67,316/- after entering the purchase and sales made before survey but not recorded in the books and average G.P.Rate of all the concerns was taken at 15.89%. The excess stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Royal Gems Source, Bangkok Bill No. 004/2005 dated 11-08-05 7,03,570/- 2 Laxmi Jewellers, Jaipur Bill No. 127 dated 01-08-05 2,54,864/- 3 P S Gems, Jaipur Bill No. 51 dated 02-08-05 2,17,287/- 4 Laxmi Jewellers, Jaipur Bill No. 128 Dated 03-08-05 2,44,353/- Total 14,55,382/- Out of these purchases, purchase of ₹ 7,03,570/- from M/s Royal Gems Source Co. Ltd, Bangkok is vide invoice no. 4 dated 09-08-05 which was cleared from custom authorities on 11-08-05. The copy of the invoice and the relevant ledger account is at PB 27-28. This is not disputed by the AO. Thus this purchase is fully verifiable. The another three purchase from two parties are local purchase for which the bills are at PB 29-31. The AO has doubted these purchase on flimsy ground. He has also not caused any direct enquiry from these parties in spite of the specific request by the assessee. These parties are also not the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal Market value of physical stock in survey 2,49,12,240/- 2,41,05,219/- 4,90,17,459/- Less: GP rate @ 18.68% and 14.92% respectively (as on the date of survey) 46,53,606/- 35,96,498/- 82,50,104/- 2,02,58,634/- 2,05,08,721/- 4,07,67,335/- Less: Book Stock 49,28,196/- 2,20,35,551/- 2,69,63,747/- Excess Stock / Short Stock 1,53,30,438/- (15,26,830/-) 1,38,03,608/- In view of above the addition, the excess stock determined by CIT (A) at ₹ 1,38,03,608/- be accepted as against excess stock of ₹ 1,35,61,270/- offered by the assessee and ₹ 1,58,38,634/- determined by the A O. Therefore the order of CIT (A) in restricting the addition for excess stock at ₹ 2,42,338/- be upheld by dismissing the grounds of the department. 2.10 We have heard both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in accepting such purchases. 2.12 Purchase vouchers in respect of other three parties are available at pages 29 to 31 of the paper book. It is noticed that M/s. Laxmi Jewellers has issued vouchers in consecutive numbers. As per order of the AO, these vouchers are dated `1-8-85 and 3-8-85. However, in the Photostat copy, these details are not legible. It is noticed that in both the vouchers the details are the same in respect of amount and quantity of different precious stones and at the same rate. The bill even does not contain the telephone number. Similarly the bill of M/s. P.S Gems, Jaipur also do not contain any telephone number. The AO has noticed that such parties have been found to be indulging in issuing bogus bills. The ld. CIT(A) was therefore, justified in not accepting the purchases from these parties. Looking to the working of the assessee, we feel that the ld. CIT(A) was justified in reducing the trading addition to ₹ 2,42,338/- as against ₹ 22,77,364/- made by the AO. Thus Ground No. 1 of the Revenue is dismissed. 3.1 The second ground of the Revenue is that the ld. CIT(A) has erred in restricting the trading addition to ₹ 3,885/- against ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these loose papers and made the addition. No addition can be made on the basis of such approval memos. The profit earned on the basis of these approval memos get invested in stock and such excess stock has been offered to tax. Hence, no separate addition is required to be made on the basis of such loose papers. 3.4 The ld. CIT(A) after considering the submissions of the assessee has recorded the detailed finding with reference to each paper at pages 14 to 21 and sustained the addition to ₹ 3,885/- by giving following findings at page 21 and 22 of his order. It have held that on the basis of these papers the unaccounted sales works out at ₹ 24,07,995/- and unexplained expenditure at ₹ 3,885/-. So far as unexplained expenditure of ₹ 3,885/- is concerned, since the assessee has failed to explain the source of the same, the same is confirmed. In respect of unaccounted sales, as held in various cases including decision of MP High Court in case of Mohan Sodani vs. CIT 304 ITR 52, entire sale proceeds cannot be added but only profit should be considered on the same. Respectfully, following the same, I estimate the profit @ 19% on such sale of ₹ 24,07, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresenting the amount due to the assessee from this concern. This amount is realized during the year as noted in the ledger. Thus in fact the paper shows that assessee has realized this amount out of the opening amount due to the party. Thus this amount is available as a source for the assessee for making investment in the stock which is found in excess. The AO has wrongly invoked section 69 as during the year there is no investment rather it is a case of realization of investment. Hence no addition for this amount can be made during the year rather it becomes the source for making the investment in the stock which is found in course of search and offered in the return and therefore the addition for unexplained stock should be reduced by this amount rather for making addition for the same. In these facts CIT (A) has rightly deleted the addition. Annexure 8 pg no. 51 A O page 19 CIT (A) page 15- 16 7,14,959/- Goods sent on approval, treated as unaccounted stock . On perusal of Annexure -8 it can be noted that this annexure contains working of goods received/ sent on approval or calculation of the goods. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vested in the stock found in excess in survey and offered for tax. The CIT (A), considering this factual position, has rightly deleted the addition and considered it for determination of profit on sale. Annexure 8 pg no. 12, A O 19 43,280/-CIT (A) 17 Goods sent on approval, treated as unaccounted stock. The amount of ₹ 43,280/- on this page is covered by page 13 of annexure 8 above (PB 48). Hence CIT (A) rightly deleted the addition. Annexure 22, 23 24 A O page 19-20 CIT (A) page 17-18 75 lacs Estimated cost of goods sent for display, added as unaccounted stock Annexure 22, 23 24 are approval memo in respect of goods taken from the show room by the staff or the partners of the firm for exhibition or marketing to other places. On this annexure only name of the item and weight is noted. Rate is not mentioned. These are prepared for carrying the goods to other places and not for giving it to the buyers for approval. The analysis of these annexure would further show that only few of the approval memo pertains to the year und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he balance amount of ₹ 29,455/- (13646/- + 15809) was personal expenditure of the partners and born by them. The CIT (A) has considered this paper on substantive basis in case of M/s. Lakhi Gems and therefore rightly deleted the protective addition from the hands of the assessee. Annexure A 49 pg no 21 A O 21 CIT (A) 19-20 12,695/- Unexplained expenditure added u/s 69 C. This paper is the details of the printing expenses of ₹ 12,695/-. Out of this expenses of ₹ 8810/- (4000 + 270 + 1740 + 2800) is duly recorded in the books. (PB 69-71) The balance amount of ₹ 3885/- is not verifiable. The CIT (A) has therefore rightly restricted the addition to ₹ 3,885/-. Annexure A 49 pg no. 24 A O page 21-22 CIT (A) page 20 3,00,592/- Unexplained expenditure added u/s 69 C. This is the approval memo of the goods received from Armila Gems on 10-08-2005 for ₹ 3,00,591/-.These goods was returned back on 17-08-2005 as per the copy of the approval return memo enclosed (PB 72-73). Hence on the basis of this approval ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed back and some have been booked as sale. At the time of survey, it was stated by the partner that loose papers will be get verified subsequently. We are not having the benefit of perusing this page of Annexure 7. We are also not aware about the date to which such page relates. The assessee should have preserved such page or the revenue should have either impounded it or should have obtained the copy at the time of survey. Looking to the fact that quantum is undisputed; we feel that ld. CIT (A) has drawn a right conclusion. 3.8 Page No. 30 31 of Annexure 8:- This is ledger account of the assessee firm in the books of assessee for the period 1.4.2005 to 15.4.2005. Entries at page 31 are included in ledger account at pages 30. Such pages are available at pages 43 44 of Paper Book. In the books of Kamlesh Co., the assessee was having credit balance as on 1.4.2005. It means the assessee was to receive payment of ₹ 17,29,000/-. The assessee has made cash payments and such payments exceed ₹ 20,000/-. We are not aware as to whether any goods were sold or Loan was advanced before 1.4.2005. Hence these papers are not relevant for A.Y. 06-07 as it shows receipts of cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 20 of the assessment order has mentioned that these annexure contain approval memos with serial number. There is no evidence that such approval memos are for the itme3s taken for exhibition. No evidences filed. One has to appreciate the evidence on the basis of human probability. Approval memos from 601 to 614 are for 04.01.2003 to 17.08.2003. Approval memos not co-related to specific exhibition. Rate is not mentioned. The ld. CIT (A) after considering the rate of weight estimated the turnover relevant to the year under consideration at ₹ 10 lakh. Hence finding of ld. CIT (A) is upheld. 3.15 Annexure A-53:- This annexure is available at pages 49 67 of the paper book. It contains entries from 7.1.2005 to 26.6.2005. At pages 59 to 67 of Paper Book contains entries and ledger folio is also mentioned. Explanation before A.O. is that it is petty Cash book entries are considered as normal. It will be useful to reproduce entries on 26/6 Balance 3314.8 + 50,000 Balance 8314.8 Here entries may be in hundred. Looking to the perusal of document, we feel that A.O. was reasonable in mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s providing bogus bills in the case of Chanchal Lakhi for the assessment year 2006-07. 3.19 Page No.58 to 60 of Annexure A-45: These are available at pages 74 to 76 of paper book. Page 58 of Annexure A-45 is dated 5.5.2005 and on top it is mentioned as for Mumbai Market . Against 3 items, the work sold is mentioned while the no. of items of which entries are there on this paper are 36. The ld. CIT (A) has drawn a right conclusion and the same is upheld. 3.20 Page 59 is available at page 75 of paper book and is dated 3.8.2005. It contains the items, weight and amount. Against total value of all items of ₹ 20693.75, the assessee received ₹ 15,000 in cash-balance and amount due is ₹ 5693.75. We therefore feel that sum of ₹ 5693.75 is outstanding debt not included in the stock. Hence in addition to profit, a sum of ₹ 5693.75 is also to be added. Hence addition of ₹ 5693.75 will be further added to the income upheld by ld. CIT (A). 3.21. Pages 16 to 18 of Annexure A-12: Copy this annexure has not been filed. On these papers, the A.O. has added ₹ 3982 while the ld. CIT (A) has directed to consider the same for profit. We uphold the fin ..... 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