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2016 (1) TMI 802 - ITAT MUMBAI

2016 (1) TMI 802 - ITAT MUMBAI - [2016] 45 ITR (Trib) 636 - Confession of additional income during the course of search and seizure and survey operation - Held that:- The very fact that the surrender was made in odd hours, that too after grilling the assessee for almost four days, would only take us to the conclusion that the assessee should have been pressurized to offer additional income, without which the search team was not ready to conclude the search proceedings. It is further stated that .....

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ng that the alleged excess stock pointed out by the search officials has since been reconciled by the assessee. It is also pertinent to note that the assessing officer did not make any addition on account of alleged excess stock, meaning thereby, he was also satisfied with the reconciliation statement furnished by the assessee. We have already taken the view that the admission of ₹ 6.00 crores is related to the alleged excess stock found during the course of search. We have also noticed th .....

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re was alleged excess stock. The assessee has maintained books of account and further the alleged difference in stock has been duly reconciled. Thus we are of the view that the Ld CIT(A) was justified in deleting the addition - Decided in favour of assessee

Unexplained investment u/s 69 - Held that:- the transactions noted down in the pocket diary could possibly be in the nature of trade transactions only. Since the assessee has not discharged the presumption and further since the ass .....

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jewellery noted down in the pocket diary without recording the same in the books of account. Though there is no supporting evidence in support of the above said inference, in the absence of proper explanations from the assessee and also in the absence of proper case being made out by the AO, we have no other option but to proceed on the inference cited above. In this back ground, in our view, this issue could be resolved by estimating the gross profit that would have been earned on sale of the a .....

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on this issue and direct the AO to restrict the addition to the above said sum of ₹ 5,60,000/- on this issue. - Decided in favour of assessee in part

Addition made on “unaccounted sales” - CIT(A) converting the addition made by the AO from “unaccounted sales” into “unexplained stock” - Held that:- Since the documentary evidences furnished by the assessee in support of claim of receipt of goods on sale or return basis have not been controverted by the tax authorities, in our view .....

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ght difference or on account of other minor factors like beeds, alloys, tie slips etc. In our view, there is merit in the said explanations of the assessee that the above said minor difference should be ignored, in the facts and circumstances of the case.

On legal grounds also, we find merit in the contentions of the assessee. The Ld CIT(A) while altering the head of income and also in enhancing the addition has violated the provisions of sec. 251(2) of the Act in not providing opport .....

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amy ORDER Per Bench: These cross appeals are directed against the orders passed by Ld CIT(A)-37, Mumbai and they relate to the assessment years 2009-10 and 2010-11. All these appeals were heard together and hence they are being disposed of by this common order, for the sake of convenience. 2. The assessee is aggrieved by the decision of Ld CIT(A) on the following issues:- (a) Assessment Year 2009-10:- Unexplained investment u/s 69 - ₹ 62,21,950/- (b) Assessment year 2010-11:- Unaccounted S .....

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m its showroom situated at New Delhi. The revenue carried out search and seizure operations u/s 132 of the Act in the hands of the assessee, its directors, group concerns and related persons on 18-09-2009. Consequent to the search operations, the assessments of the assessment years under consideration were completed u/s 143(3) r.w.s. 153A of the Act. 5. We shall first take up the appeals filed by the revenue, since the issues urged therein arise out of common set of facts. The revenue is aggriev .....

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Kishore Zaveri, wherein he agreed to offer a sum of ₹ 2.00 crores in AY 2009-10 and ₹ 4.00 crores in AY 2010-11, vide the answer given to question no.43. For the sake of ready reference, the relevant question and the answer given thereto are extracted below:- Do you want to say anything else? Ans :- I hereby voluntary agree to declare sum of Rs. Six crores. In this F.Y. 2008-09. I declare Rs. Two crores and in the F.Y. 2009-10 Rs. Four crores. I undertake to pay the taxes as applicab .....

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xcess stock pointed out by the search officials has forced the director to offer a sum of ₹ 6.00 crores as additional income in two years as stated above. It was further submitted that, during the course of post search enquiries also, the assessee made a plea before the investigating officials to assess the entire amount of ₹ 6.00 crores in AY 2010-11, since the excess stock aggregating to ₹ 5,45,77,020/- was found during the course of search. Accordingly, the assessee contende .....

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ices issued u/s 153A of the Act, the assessee did not offer the above said sums. It filed Returns of Income for AY 2009-10 declaring a total income of ₹ 2,36,22,689/- and for A.Y. 2010-11 declaring a total income of ₹ 4,45,18,640/-, which did not include the amounts offered in the statement given u/s 132(4) of the Act. 7. Hence the assessing officer called for explanations from the assessee as to why the income of ₹ 6.00 crores surrendered in the statement given u/s 132(4) of t .....

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psychological pressure was built up to declare some amount to buy peace and more particularly to avoid harsh and uncalled for / untoward consequences and that any failure to comply to such indirect subtle suggestion would make him liable to face dire consequences under the various provisions of Law. Moreover, he was given the impression that they had immense unfettered powers at their disposal with them and this whole situation was explained to him repeatedly. Since this type of peculiar situat .....

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g to verify from the financial and other records. After conclusion of the search, our Accounts Dept. has recalculated and rechecked the working of stock inventory prepared by the Dept. and found that there was no tangible difference in the stocks which, too, has also been explained elsewhere in this letter in response to your Query at Sl. No.3 and 4 and, as such, the basis of disclosure itself has no factual legs/foundation to stand/justify and, consequently, the declaration although made volunt .....

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officials. Accordingly, the assessee said that it did not offer additional income of ₹ 6.00 crores in its return of income. The assessing officer did not accept that the director of the assessee was under stress and a pressure was built upon him by the search team, since the director seems to have maintained his cool throughout the search proceedings. In this regard, the AO made reference to some of the replies given by the director. Further, the AO observed that the assessee has surrende .....

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d not proceed further, only because the assessee agreed to surrender its undisclosed income. If the director had not surrendered the income, the search officials would have continued the search and could have investigated entire matter on the basis of various facts & circumstances during the course of search itself. In this regard, the AO placed reliance on the decision rendered by the Mumbai bench of ITAT in the case of Hiralal Maganlal & Co. Vs. DCIT (2005)(96 ITD 113), wherein it was .....

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The AO also expressed the view that the assessee has tried to establish the nexus between the additional offer of ₹ 6.00 crores with the value of excess stock only during the course of post search enquiries and not at the time of search. Further, during the fag end of assessment proceedings only, the assessee has pointed out that there are computational errors in the valuation done by the search officials, so that the liability on account of voluntary disclosure of ₹ 6.00 crores can .....

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ee did not retract from its offer on the earliest available occasion, but only after fourteen months. He further held that the admission made in the statement recorded u/s 132(4) of the Act falls squarely within the ambit of section 115 of the Indian Evidence Act, 1872 and hence the same is neither open for retraction nor required any further corroboration. Though the assessing officer accepted that the statement given under sec. 132(4) can be rebutted, yet he took the view that the assessee has .....

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e addition of ₹ 2.00 crores and ₹ 4.00 crores referred above in AY 2009-10 and AY 2010-11 respectively. Aggrieved, the revenue has filed this appeal before us. 10. The Ld. D.R submitted that the assessee has offered the additional income voluntarily during the course of search and because of the said surrender, the search officials have concluded the search operations and thus, the assessee has cleverly prevented the search officials to proceed further. Hence, the assessee is not ent .....

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does not have evidentiary value, cannot be held to irrelevant. He submitted that the Hon ble Supreme Court in the case of Padmausundara Rao (Dead) & Ors Vs. State of T.N & Ors (Appeal (Civil) 2226 of 1997 dated 13-03-2002) has held that the Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. It was further held that the Courts cannot read anything into a statutory pr .....

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₹ 6.00 crores should be assessed in AY 2010-11. He further submitted that the assessee did not retract from the statement given by him by filing any letter or affidavit. Hence the addition made by the assessing officer should be upheld as held by the Hon ble Delhi High Court in the case of Bhagirath Aggarwal Vs. CIT (2013)(351 ITR 143). He further submitted that there is no allegation that the statement was obtained from the assessee under coercion or duress and further the assessee did n .....

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on the contrary, submitted that the additions of ₹ 2.00 crores and ₹ 4.00 crores have been made by the AO in AY 2009-10 and 2010-11 respectively on the basis of the reply given to Question No.43 (referred supra). He further submitted that the tax authorities are not correct in observing that the search officials were precluded from proceeding further by the voluntary offer made by the assessee. He submitted the conduct of the search officials and surrounding circumstances would amply .....

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act that the assessee was put a lot of pressure or undue influence could be inferred from the conduct of the search officials. He submitted that the recording of sworn statement commenced on the date of commencement of search on 18.09.2009 and on that date 24 questions were posed to the assessee. It was discontinued on 18.09.2009 and again commenced on 19-09-2009 and on that date six questions were posed. It was discontinued at 11.30 p.m on 19-09-2009 and again commenced on 20-09-2009 at 02.30 p .....

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n 21.09.2009. These conduct would show that the search officials did not intend to conclude the search until the additional income was offered by the assessee. Hence, the assessee was forced to offer additional income of ₹ 6.00 crores in the answer given to Q.No.43 and immediately thereafter, the search officials concluded the search operation. He submitted that this conduct of the search official would amply make it clear that the confession was obtained by force. He submitted that the se .....

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ials were pressuring the assessee to offer additional income. 14. The Ld A.R further submitted that the assessing officer was not correct in observing that the additional income of ₹ 6.00 crores surrendered by the assessee is independent of the alleged excess stock found at the time of search. He submitted that search officials simply stated to the director of the assessee that there was excess stock of diamonds without furnishing a copy of inventory taken by them and thus, they were putti .....

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m. Hence, when it was repeatedly pointed out that there was excess stock to the tune of ₹ 5.45 crores, that too without explaining as to how they have arrived at the excess stock and when the search team was not ready to conclude the search proceedings, the director had no other option, but to make offer under the mistaken belief that the statement of search officials may be correct. Even otherwise, the director did not have any other option, since the search officials were not concluding .....

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that the assessing officer has accepted the reconciliation statement and hence he did not make any addition towards alleged excess stock. Hence the assessing officer has proceeded to take the view that the additional officer of ₹ 6.00 crores is independent of the alleged excess stock and accordingly made the addition. 16. The Ld A.R further submitted that income under the Income tax Act is not computed on the basis of admission alone, but as per the provisions of the Act. He also submitted .....

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ference diamond stock arrived at by them at ₹ 5.45 crores and has taken admission without referring to any of the seized material or any transaction giving rise to the income. He submitted that the admission was retracted by the assessee immediately before the ADI and is also deemed to have been retracted in view of return of income filed in pursuance to the notice u/s 153A of the Act. He submitted that though the admission is the best piece of evidence, yet the same is not conclusive and .....

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ce, other than the alleged excess stock/diary, the Ld D.R admitted that no other incriminating material supporting the additional income was found by the search team. 18. We have heard the rival contentions and carefully perused the materials available on record. Since the impugned addition of ₹ 6.00 crores made in the two years under consideration was made on the basis of statement given by the assessee u/s 132(4) of the Act, it is imperative to discuss about the search operations. We hav .....

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he tune of ₹ 5.45 crores in respect of diamond jewellery and shortage to the tune of ₹ 31.77 lakhs in respect of gold jewellery. According to the assessee, the surrender of ₹ 6.00 crores was made only in connection with the alleged excess stock of diamonds, but according to the assessing officer, the surrender of ₹ 6.00 crores was independent of excess stock found during the course of search. 19. We shall examine the claim of both the parties on this issue first. The Ld A .....

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t the assessee was put pressure to surrender additional income. This inference is further fortified by the fact that the search was concluded immediately after the surrender of ₹ 6.00 crores. It is also pertinent to note that the recording of sworn statement commenced on 18-09-2009 and continued upto 21.09.2009, i.e., the search officials were posing questions to the assessee for almost four days. Hence, in our view, it is not correct to say that the assessee was not put any pressure. Cont .....

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, which was claimed to the huge amount of ₹ 5.45 crores. It is quite strange, since normally the explanations of the assessee with regard to any incriminating material/difference would be sought in the sworn statement recorded u/s 132(4) of the Act. However, the assessee has contended before the tax authorities that the search team was pointing out the excess stock without furnishing copy of inventory statement. We have also noticed that the search took place for about four days continuous .....

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details of net profit declared by it from AY 2004-05 onwards at page 34 of the paper book. The average net profit declared by the assessee was seen at around ₹ 2.50 crores. It is not inconceivable that an assessee declaring such a huge profit would agree to offer such a huge sum for no reason. Hence, in our view, the surrounding circumstances would show that the surrender of ₹ 6.00 crores should have been made only on the basis of alleged excess stock found during the course of sear .....

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s and further there is nothing like res judicata or estoppel. In order to tax any income under the Income Tax Act, it is required to be shown that such income has accrued to the assessee or is deemed to have accrued. Income is not earned in air or vacuum. The income presupposes receipt or movement of funds, which are revenue in nature. It is settled law that normally, the onus is upon the revenue to show that any income has accrued to the assessee, particularly when the assessee is disputing the .....

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lmost four days and the entire business premises were under the control of search team. Hence it is not a case that the search was completed within a short period from the time of commencement of search because of surrender of additional income. If no incriminating material supporting the offer of ₹ 6.00 crores was found in four days, then it is not correct to say that the search team could have found some other thing, if the offer of ₹ 6.00 crores had not been made. Hence, in our vi .....

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her the explanation tendered by the assessee would be considered by the authorities below. It is also to be seen as to whether an addition made is merely based on the statement recorded by the Assessing Officer under section 132(4) of the Act and whether any cognizance may be taken of the retracted statement. So far as case on hand is concerned, the glaring fact required to be noted is that the statement of the assessee was recorded under section 132(4) of the Act at mid night. In normal circums .....

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ng with the affidavit, it would immediately be clear that the assessee has given proper explanation for all the items under which disclosure was sought to be obtained from the assessee… 26. In view of what has been stated hereinabove we are of the view that this explanation seems to be more convincing, has not been considered by the authorities below and additions were made and/or confirmed merely on the basis of statement recorded under section 132(4) of the Act. Despite the fact that th .....

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y to such admission. Hence there is no reason not to disbelieve the retraction made by the Assessing Officer and explanation duly supported by the evidence. We are, therefore, of the view that the Tribunal was not justified in making addition of ₹ 6 lakhs on the basis of statement recorded by the Assessing Officer under section 132(4) of the Act. The Tribunal has committed an error in ignoring the retraction made by the assessee. (emphasis supplied.) In the instant case also the search was .....

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surrender was made in odd hours, that too after grilling the assessee for almost four days, would only take us to the conclusion that the assessee should have been pressurized to offer additional income, without which the search team was not ready to conclude the search proceedings. It is further stated that the search was concluded immediately after the surrender of ₹ 6.00 crores. A careful perusal of the assessment order would show that the assessing officer has not brought on record any .....

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come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, such confessions during the course of search & seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there .....

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ficers should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders. Instruction : F. No. 286/2/2003-IT (Inv. II), dated 10-3-2003. The assessing officer s stand that the surrender of ₹ 6.00 crores was voluntary and independent of alleged excess stock is in contradiction to the instruction issued by the CBDT. 24. Before us, the Ld A.R also placed reliance on the decision rendered by Hon ble Suprem .....

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on the principle of "approbate and reprobate", from pleading that the income they derived subsequently by realization of the revived debts is not taxable income. The doctrine of "approbate and reprobate" is only a species of estoppel ; it applies only to the conduct of parties. As in the case of estoppel, it cannot operate against the provisions of a statute. If a particular income is not taxable under the Income-tax Act, it cannot be taxed on the basis of estoppel or any ot .....

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ed in placing sole reliance on the provision of section 115 of the Indian Evidence Act. 25. The Ld D.R as well as the assessing officer has reiterated that the admission was made in the sworn statement recorded u/s. 132(4) and the same is admissible in evidence. A careful perusal of provisions of sec. 132(4) as well sec. 292C would show that the said provisions state that the statement taken u/s 132(4) may be used in evidence in any proceeding under the Act . Thus, this provision gives a discret .....

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ble Bombay High Court has dealt with this issue in case of Balmukund Acharya (310 ITR 310) and has held as under:- 31. Having said so, we must observe that the Apex Court and the various High Courts have ruled that the authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If any assessee, under a mistake, misconceptions or on not being properly instructed is over assessed, the authorities under the Act are required t .....

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A. Balasubramaniam, CIT [2004] 269 ITR 1 has held that there cannot be any estoppel against the statute. Article 265 of the Constitution of India in unmistakable terms provides that no tax shall be levied or collected except by authority of law. Acquiescence cannot take away from a party the relief that he is entitled to where the tax is levied or collected without authority of law. In the case on hand, it was obligatory on the part of the Assessing Officer to apply his mind to the facts disclos .....

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not in accordance with such principles, it is open to the assessee to contend that the value as may be determined upon correct application of the law should form the basis of assessment. The revenue authorities, in our view, cannot be heard to say that merely because the assessee has returned a figure which is higher than the annual value determined in accordance with the correct legal principles, such higher amount and not the correct amount should be lawfully assessed. An assessee is liable t .....

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sed otherwise than according to the mandate of the law (sic). It is always open to an assessee to take the plea that the figure, though shown in his return of total income, is not taxable in law. The Tribunal, therefore, in our view did not commit any error in directing to fix the correct annual letting value of the premises in question, in accordance with the provisions of section 23 of the said Act with reference to the municipal valuation, although such sum was lower than the figure shown by .....

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00 crores is related to the alleged excess stock found during the course of search. We have also noticed that the assessee has reconciled the difference in stock, meaning thereby, the assessee has rebutted the admission made by it, which was under pressure and mistaken belief. 28. Now we shall examine the facts available on the case laws relied upon by Ld D.R. In the case of Hukum chand Jain (supra), the assessee therein failed to discharge the onus of proving that concession made by him u/s 132 .....

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achittar Singh (supra), the revenue carried out a survey operation u/s 133A of the Act and the addition was made on the basis of statement recorded during the course of survey proceedings. The assessee contended that the statement taken during the course of survey does not have evidentiary value. However, a careful perusal of the facts available in the above said case would show that the assessee therein did not produce any record, books of account or income tax record to rebut the presumption. .....

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le Supreme Court in the case of Padmausundara Rao was relied upon by Ld D.R only to reiterate certain legal principles. 29. Hence, in our view, the various case laws relied upon by Ld D.R is either distinguishable on facts or not applicable to the facts prevailing in the instant case. 30. In view of the foregoing discussions, we are of the view that the Ld CIT(A) was justified in deleting the addition of ₹ 2.00 crores and ₹ 4.00 crores made by the assessing officer in AY 2009-10 and .....

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cher clear YKZ Pending 50 chains 7,88,318 10,76,720 15.10.08 18,65,038 13,56,912 28 H Set 32,21,950 In the sworn statement taken u/s 132(4) of the Act, the director of the assessee disowned the diary. In fact, in the sworn statement, he was asked only about ₹ 30.00 lakhs stated in the above said noting and no question was asked about the remaining items. However, the addition was made by the AO with regard to the remaining items only. During the course of assessment proceedings, the AO too .....

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ands of the assessee. In the appellate proceedings, the assessee stood by its contentions that the pocket diary did not belong to it. However, the Ld CIT(A) was not convinced with the said contentions, since the provisions of sec. 132(4A) places presumption against the assessee. Accordingly he confirmed the assessment of ₹ 62,21,950/-, referred above. 33. Before us, the Ld A.R vehemently argued that the pocket diary was a dumb document and hence the same cannot be relied upon. He submitted .....

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to him. Accordingly he submitted that the Ld CIT(A) was not justified in confirming the addition of ₹ 62,21,950/- made on the basis of a dumb document. 34. On the contrary, the Ld D.R submitted that the entries found in the pocket diary tallied with the transactions carried on by the assessee and it also contained the name of one of the directors and hence the same cannot be considered as dumb document. He further submitted that the assessee could not rebut the presumption placed upon it u .....

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y the assessee. In view of the presumption enshrined in sec. 132(4A) of the Act, the burden to disprove the documents found during the course of search lies upon the assessee. We notice that the assessee has simply disowned the document, but did not offer any other explanation. Hence, we agree with the contentions of the Ld D.R that the assessee did not discharge the burden placed upon it u/s 132(4A) of the Act. 36. At the same time, we notice that the tax authorities themselves have stated that .....

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r sold 50 chains and 28 H sets, as nobody will purchase such a huge quantity of chains and other sets as investment. Hence, in our view, the transactions noted down in the pocket diary could possibly be in the nature of trade transactions only. Since the assessee has not discharged the presumption and further since the assessing officer has failed to substantiate the addition as unexplained investment, in our view, this issue could be resolved only via media. We have noticed that the transaction .....

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he absence of proper explanations from the assessee and also in the absence of proper case being made out by the AO, we have no other option but to proceed on the inference cited above. In this back ground, in our view, this issue could be resolved by estimating the gross profit that would have been earned on sale of the above said jewelleries. The assessee has furnished details of sales and gross profit ratio in page 34 of the paper book. We notice that the assessee has declared gross profit ra .....

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r assessment year 2010-11. The issue arising therein is whether the Ld CIT (A) was justified in facts and in law in converting the addition made by the AO from unaccounted sales into unexplained stock and in that process enhancing the addition in violation of sec.251(2) of the Act. 38. The facts relating to the above said issue are discussed in brief. During the course of search, the physical stock of gold jewellery was found to be 93051.300 grams as against the book stock of 95365.600 grams. Th .....

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bmitted that it had received following items on sale or return basis from its suppliers and hence they should be excluded from the book stock:- (a) M/s Rajeev Jewels, Rajkot 2,028.000 (b) M/s K.K. Exports, New Delhi 233.150 2,261.150 By making adjustments of above said two categories, the assessee arrived at the physical stock of gold at 96,051.250 (93051.300 (+) 5251.100 (-) 2261.150). The book stock was 95365.600 and hence the assessee worked out the excess stock of gold at 685.650 grams. The .....

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ock of jewellerry (95365.600 less 93051.300) is to be treated as unaccounted sales and accordingly assessed a sum of ₹ 31,77,094/- as income of the assessee. 40. In the appellate proceedings, the Ld CIT(A) partially accepted the reconciliation statement filed by the assessee, i.e., he accepted that the search team did not consider the old gold, broken pieces, standard gold bars and items receivable from karigars aggregating to 5251.100 grams. By including the same, the physical stock worke .....

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to give an opportunity to the assessee as mandated in sec.251(2) of the Act on the following reasons:- 4.7.8 In view of the above factual legal analysis, I am of the firm view that the actual stock found on the datge of seartch was to be calfulated at 98302.400 gms as against which the admitted stock as per appellants books of accounts as on th same date was 95365.600 and therefore an addition of 2936.800 gms of excess stock is to be made and to that extent the addition needs to be rvised. 4.7. .....

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criteria for affording an opportunity to the appellant in case the income is enhanced. Hence, ground nos 4(a)to 4(c) are dismissed subject to above observation. However, it is pertinent to note that the addition of ₹ 31,77,094/- made by the assessing officer as unaccounted sales was deleted by the Ld CIT(A) and instead, he directed the AO to make addition towards excess stock as unexplained investment and the same has resulted in an addition of ₹ 40,31,668/- . 41. It is pertinent to .....

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notice that the Ld CIT(A) did not accept the submission of the assessee that it was holding jewellerires belonging to the suppliers weighing 2261.150 grams, which were sent by them on sale or return basis. From the paper book, we notice that the assessee has furnished the delivery challans sent by the two suppliers cited above and also the purchase bills subsequently raised by them. We notice that the tax authorities has discarded these evidences as self serving documents on the reasoning that ( .....

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hat he needs to consult his accountant. Hence, in our view, it may not be correct to place full reliance on the statement given by the director to the effect that the gold stock belonging to others were not available with the assessee. We notice that the director had also stated that the gold stock belonging to the assessee were not kept with others. However, the Ld CIT(A) has accepted that the gold stock belonging to the assessee was available with the karigars, which is in contradiction to the .....

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