TMI Blog2011 (4) TMI 1460X X X X Extracts X X X X X X X X Extracts X X X X ..... Kartha of Abirchand Galada(HUF). Abirchand Galada(HUF) is the proprietor of a business known as T.B. Jewellery, Chennai. A search and seizure operation u/s 132 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act' for short) was conducted on 19.5.2005, in the case of this assessee. One day before the search (on 19.5.2005), a survey operation u/s 133A of the Act was carried out at the businesscum-resident premises of Shri Surendra Kumar Galada. During the survey proceedings, it was found that the assessee and his family members were in possession of unaccounted gold jewellery, silver jewellery, diamond studded jewellery, loose diamonds and cash. Accordingly, the survey operation was followed by search operation as stated above. On 19.5.2005 itself survey operations u/s 133A were simultaneously carried at two other premises which are as under: (a) No.10, Nageswara Rao Road, T. Nagar, Chennai 17. This is the premise of M/s T.B. Jewellery, which is the proprietorship concern of A.Abirchand Galada(HUF), the Karta being Mr.Surender K.Galada and Shri Lalith Kumar Galada is the copacerner in the HUF and (b) No.4, Seethammal Colony Extension, II Main Road, Teyn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d investment in gold jewellery. 2.1. The CIT(A) failed to appreciate the fact that the last Wealth Tax filed was for the assessment year 1986-87 and the same was not shown In the opening balance In any of the trial balance filed for the subsequent years. 2.2. The Id CIT(A) erred In allowing the claim of the assessee simply based on the socio-economic status of the assessee while the same Is not supported by admission in their respective balance sheets. 3. The ld CIT(A) erred In allowing the claim of the assessee regarding jewellery received from the Achari Shri.Himanshu, but not accounted in respect of discrepancy noted In the closing stock. 3.1. The ld CIT(A) ought to have appreciated the fact that entry updated after search will have no bearing on the determination of closing stock. 3.2. The Id CIT(A) erred in not considering the fact the Assessing Officer has already taken Into account the entry found under 'alloy' while determining the stock. 3.3. The reliance of CIT(A) on jewellery received from Mr.Himangshu not booked as the entries had not been updated though the bill was available and had been noted by the search party' is misrepres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oad, T. Nagar, Chennai. Please annexures 1, 2 3 to this letter wherein the figures have been reconciled. In those annexures, which actually is the 'Note-appended to the return of income', the assessee gave a complete reverse picture:- Deficit of gold 5910.950 grms. Deficit of silver 221.899 kgs. Deficit of diamonds 201.360 cts. During the hearing stage, the AR of the assessee was asked to explain the basis of his calculation which have led to showing deficit in respect of all the items. He stated that apart from the jewelleries disclosed under VDIS 1997, most of the assessees had stock of opening jewellery in their hands and as an evidence, he produced the last wealth tax return filed by those assessees which were way back in AY 1986-87. The AR has also produced the respective persons' income tax records starting from A Y 1987-88 (for Smt. Nirmala AY 1983-84) wherefrom it could be seen that during the intervening period i.e. between 1985-86 and 2000-01 (the first year of search assessment), none of the family members has shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lada and Smt. Suryakanth Galada, four other names are included as under: Name Qty. of jewellery Smt. Sushma Galada 520.90 grm Rajul Galada 520.130 grm Akshay Galada 142.74 grm Ms. Ishita Galada (minor) 52.30 grm All these persons were stated to have received these jewelleries as gift on various occasions. I have gone through the returns of Smt. Sushma Galada for AY 2005-06 and 2006-07; for Rajul Galada for A Y 2006-07; for Akshay Galada AY 2006-07. In none of these cases, the trial balances attached with the returns reflect any jewellery. In respect of minor Ms. Ishita, who is the daughter of Mr Abhisek, no mention of this 52.30 grms of jewellery is reflected in the returns of Mr Abhisek Galada for any of the years upto A Y 2006-07. Accordingly, I conclude that the assessee has only cooked these up as an afterthought to explain the excess jewelleries and it is not to be accepted. Because of this contradiction, in argument as put forward by the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er carat will be reduced by 5% each year and this way, the value of diamond per carat during FY 1997-98 was reached at ₹ 24,546. Then, the figure of ₹ 1,50,625 (as per IT return of A.Y.1998-99) was divided by ₹ 24,546 to arrive at the quantity of diamond in carats, which worked out to 6.14 carat for Smt. Nirmala instead of her claim of 16 carats. Then, the figure of ₹ 1 ,66,750 (as per IT return of A. Y.1998-99) was divided by ₹ 24,546 to arrive at the quantity of diamond in carats, which worked out to 6.80 carat for Smt. Suryakanth instead of her claim of 17 carats. Following similar method for Smt. Nirmala Galada , the figure of Diamond purchase during 1998 , was worked out to be 6.14 carats instead of her claim of 16 carats. During survey u/s 133A at the business premises of M/s T.B. Jewellery at No.10, Nageswaran Road, T.Nagar, Chennai600 017, five compact discs (CDSs) were impounded vide Ann/AVK/CD/lmp. (to mahazarnama dated 20.5.2005) in which the account etc. which were stored in computer at the business premises of M/s T.B. Jewellery. On 2.11.2007, print-outs of some selected files copied in the CDs were taken out in the presence of Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age No.14. 50, the balance of (1870.1745) = 125 grams is treated as gold available at residence, over and above 9227.84 grams of jewellery, which works out to 9352.84 gms. As per the same printout, they (i.e. Mr. Surender and his family member and the HUFs) also deposited 77.79 carats of diamond with T.B. Jewellery as under :- Surender (Indl.) 2.79 Surender (HUF) 20.00 Surender (S.HUF) 20.00 Nirmala 25.00 Suryankanta 10.00 But this did not come to light during search/survey at residence of Surender Galada or at the premises of T.B. Jewellery. Now, on basis of seized record, i.e. parge no.14 of printout, this also becomes further quantity of diamond, as possessed by the family of Surender Galada, over and above 15 ct. found, as on the date of search. Thus the total diamond possessed by Mr. Surender and his family members on 20-05-2005 comes to 92.80 ct. Gold jewellery of 10956 grams was found at residence of Mr. Surender. Also vide letter dt.27-11-200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or financial year 2005-06 relevant to AY 2006-07 comes to ₹ 40,70,375/-. So, I decide to add back ₹ 40,70,375 to the returned- income of the assessee as investment made from undisclosed income for the FY 2005- 6 relevant to AY 2006-07. 9. Before the ld. CIT(A), the assessee further made the following submissions: The Assessing Officer has determined the excess jewellery found at the residence at 7141.01 gm, valued the same at the rate of ₹ 570 per gram, and made addition of ₹ 40,70,375. This he has done on the following basis: Total jewellery found at the residence, and at the Residence of brother Lalithkumar 16,493.85 Less: Jewellery items declared in VDIS and subsequent Purchase + 125 gms out of the gold bits declared Under VDIS (refer para 7.8 I page 4 of the Asst. order 9,352.84 7,141.01 Thus, he has arrived at an excess gold jewellery not disclosed and brought it to tax. The appellant submits that while computing the total jewellery owned by the appellant and his family members at 9352.84 gm, the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese persons had filed wealth tax returns for the assessment years 2000-01 to 2006-07, after the search. In the assessments made under section 16(3) for the assessment year 2004-05, the Assessing officer had accepted the value of jewellery disclosed in the returns filed. Copies of the assessment orders are enclosed for kind perusal. These assessment orders were passed by the Assessing officer on 20-12-2006 which is much before the income-tax assessment completed by him, and which is now before your goodself in appeal. The Assessing officer has not doubted the reliability or genuineness of the records. These records are part and parcel of his own assessment records. Despite this, the Assessing Officer has chosen to summarily reject the evidence which is his own records. The Assessing Officer has thus taken positions which are contradictory to each other. On the one hand, while completing the wealth tax assessment for assessment year 2004-05 which was prior to the completion of the income-tax assessments for assessment years upto 2006-07, he has accepted the wealth statements. Thereafter while completing the income-tax assessment, he takes a completely opposite stand on the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Grms Kgs. Rs. Carats 1] Annexure ANN/DV/GJ/NS3 3570.000 .... .. 2] Annexure ANN/DV/GJ/NS 1 5278.000 . . . 3] Annexure ANN/DV/GJ/NS 2108.000 . . . 4] Annexure ANN/DV/SILVER/NS . 33.547 . . 5] Annexure ANN/DR/CASH/NS . . 59700 As per income tax Panchanama not mentioned 15.000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han seven decades. The appellant has also been offering quite a substantial amount of income for assessment, year after year. A chart showing the income returned by the appellant, and his family members for the years 1998-99 to 2004-05 is enclosed (Annexure 1 )for kind perusal, which is an indication of the social status of the group. It can be seen that the income returned by the family members from assessment year 2001-02to 2005-06 has been ₹ 70.99 lakhs, 104.61 lakhs, 82.81 lakhs, 79.75 lakhs and 118.10 lakhs, respectively. These factors should themselves independently justify the possession of the small quantify of jewellery by the appellant's daughter-in-law, son, daughter and the grand daughter. The Assessing officer, however, did not take cognizance of these factors. In conclusion, the appellant submits that the Assessing officer has observed in page 4 of the assessment order that the appellant has cooked up explanations as an afterthought. This allegation is baseless and against facts of the case. As already submitted above, the records produced before the Assessing officer and on which the explanation is based, are part of the records with the department for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1236.07 gms Less: Jewellery declared in VDIS 1997 9352.84 gms 15986.65 gms Excess 507.20 gms Value of excess jewellery = 507.20x507 = ₹ 2,89,104/- In view of the above the impugned addition is reduced from ₹ 40,70,375/- to ₹ 2,89,104/-. This ground of appeal is partly allowed. 11. We have given our thoughtful consideration to the facts and the circumstances of this case in the light of the evidence available on record. In fact, a survey u/s 133A was conducted on 19.5.2005 in the business-cum-residence of Shri Surendra Kumar Galada, the present assessee, at No.42, Venkatanarayana Road, T. Nagar, Chennai. During survey, it was noticed that Shri Surendra Kumar Galada and other members of his family were in possession of unaccounted gold jewellery, silver jewellery, diamond studded jewellery, loose diamonds, cash etc., For that matter, the survey proceedings were converted into search operation u/s 132 which was initiated on 20.5.2005 i.e the following day after the survey. In the Panchnama prepared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lery found during survey at M/s Golden Moments jewellery. (ii) Excess stock of diamond found during survey from M/s Golden Moment jewellery (iii) Undisclosed fixed assets found at M/s Golden Moment jewellery (iv) Contravention of TDS provisions u/s 40A(a) of the Act (v) Gross profit from undisclosed jewellery business; and (vi) Capital introduced in M/s Golden Moment jewellery. 13. The case as put before the Assessing Officer from the side of the assessee through letter dated 29.11.2007, explained jewellery found at 42, Venkatanarayana Road, T. Nagar residence, reconciled the figures in Annexure 1, 2 and 3 appended to the letter by way of a note and appended to the return of income, as under: Deficit of gold 5910.950 gms Deficit of silver 221.899 gms Deficit of diamonds 201.360 cts 14. As against excess gold, silver and diamond found, the assessee has given details showing deficit of all these three itmes. The clarification for the above anomaly is that apart from jewelleries disclosed under VDIS 1997, the assessee and his family members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very well established dictum of Hon'ble Supreme Court rendered in the case of CIT vs Vegetable Product Ltd, 88 ITR 192. There is nothing abnormal in showing jewellery declared in VDIS which was a valid scheme under which if the declaration has been accepted, it has to be accepted for all purposes. In this case, there is no dispute with regard to the declared jewellery in this scheme which has also been accepted under this scheme and the requisite certificate has been issued by the CIT. The assessee has further explained that jewelleries were not shown earlier because it was thought that the jewellery received at the time of marriage, from gifts, on family functions, need not be disclosed to the Department. In our opinion, this is not an invalid explanation rather this explanation seems to be based on reality of life and cannot be ignored. The assessee has given a chart of opening jewellery of the family members. In this chart apart from seven members, viz Shri Surendra Kumar Galada (Individual, HUF, S.HUF), Shri Abhishek galada (Individual and HUF0, Smt Nirmala Kanwar Galada and Smt Suryakanth Galada, four other names are included as under : Smt Sushma Gala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has arrived at a rate of ₹ 24,546 as per the income tax returns of assessment year 1998-99. In this way, he has arrived at 6.14 carat in the case of Smt Nirmala Kanwar Galada instead of 16 carats claimed by her and shown in the income tax returns. Likewise, in the case of Suryakanta instead of 17 carats claimed, he has worked out 6.80 carats. In our considered opinion, this is not a justified and correct action of the Assessing Officer because he has refused to accept the records and at the same time, he has not accepted the earlier claim of the assessee regarding disclosed jewellery in Wealth Tax Returns only because it was not reflected in the income tax returns (in the trial balance). The Assessing Officer cannot blow hot and cold at the same time to simply reject the claim of the assessee. In our considered opinion, whatever has been disclosed in the returns has to be accepted following the same theory of probability as we have discussed above. 16. Five compact discs which were impounded during survey at the business premises of T.B. Jewellery, at No.10, Nageswaran Road, T.Nagar, Chennai, on 20.5.2005. On 2.11.2007, print outs of some selected files, copied in the CDs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kept there. Surprisingly, the Assessing Officer wanted proof of either selling of silver and diamond after rejecting the assessee s contention and refused to set off the deficit quantity of silver and diamond against excess found. In our considered opinion, in search cases, this is not at all justifiable when particularly the assessee is a jeweller, the more probable finding of fact is that excess in one kind of bullion may have been converted into another form of bullion. But the way the Assessing Officer has came to his conclusion is simply based on surmises and conjectures and is rather contradictory. He has ignored the deficit and has added the value of excess gold found either at assessee s residence or proprietoryship concern, which is not correct according to our considered opinion, the only plausible way is to set off the same against deficit. He cannot add the excess on account of undisclosed investment and just ignored the deficit. In case we venture to add gross profit on the sale of deficit, particularly in the given facts and the circumstances, where excess of one bullion is also noticed, is not at all reasonable and justified. The only acceptable possibility is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble Madras High Court in the case of S.Hastimal vs CIT, 49 ITR 273 and in the case of CIT vs Gani Silk Palace, 171 ITR 373 are relevant. In these cases, it has been held as under: S.Hastimal vs CIT : Held, the assessee had been able to point out a source for the sum of 15,000 and his explanation could not be rejected by the mere disability of the department to find out whether G was V s agent. There was no evidence to hold that the sum of ₹ 15,000 was income from undisclosed sources. But the sum of ₹ 10,000 represented income from undisclosed sources. After the lapse of a decade, an assessee should not be placed upon the rack and called upon to explain not merely the origin and source of a capital contribution but the origin of origin and source of source as well. The difficulty on the part of any assessee to explain a transaction which took place before a decade has to be borne in mind by the department and should under no circumstances be under-estimated or taken advantage of by them. Gani Silk Palace: Held, that when the assessee on its part had produced the discharged hundis and also vouchers showing payment of interest, that was sufficient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total weight 17754.280 grams Less: Stock as per books as on 19.5.05 3973.356 grams Excess stock 13780.924 grams Here it should be mentioned that as on the date of search, the stock book was not found to be updated and it showed a balance of 1269.538 grams as on 1-04- 05. Mr. S. Kasi Viswanathan, the then Accountant of the concern was allowed to enter all the sales/purchase entries upto 19-05-2005 and only after this exercise was done the closing stock figure of 3973.356 grams had been arrived at. In notice u/s 142(1), the assessee was required to explain the source of I such, excess stock which worked out to ₹ 7855170/- taking the rate of gold on that date at Rs. .570/- per gram. 20. The assessee objected to the above proposed addition and gave his own computation to arrive at excess stock at 8049.189 gms. The assessee s computation is as under: Total jewellery found at the time of search 17754.280 grams Possession of jewellery as per r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the two entries made on 19.5.2005 treating them to be a result of an after thought. The claim of alloy content was also not accepted on the basis of the reasoning that in the ledger itself there is a column Alloy and the same has already been taken care of by the assessee himself. Consequently, the value of excess stock which comes to 13780.924 501.1 = 13279.824 gms was added @ ₹ 570/-pr gm which works out to ₹ 75,69,499/- and added the same in financial year 2005-06 relevant to assessment year 2006-07. Before the ld. CIT(A), the assessee made following submissions: The Assessing Officer has stated that there is an excess stock of 13279.824 gms of gold jewellery and valued the same at ₹ 75,69,499. This he has worked out as under, based on the Mahassarnama, and consists of gold found in the shop and factory premises, the break up being: Ann/PC/GJ/Factory/NS-1 1501.13 gms Ann/PC/GJ/NS 12536.74 gms Ann/PC/GJ/Factory/NS-2 3716.41 gms 17754.280 gms Less: Stock as per b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery), while quantifying the stock as per books. The appellant wishes to submit the following: (vii) that the Assessing Officer has failed to take cognizance of the letters filed before him on 12.12.2007 9copy enclosed). (viii) That in the said letter, it was clearly explained that the excess stock at shop will be only 8049.189 gms and not 13279.824, the break up being: Total jewellery found 17754.280 Stock as per books 3973.356 Customers stock available on day of search 501.00 Jewellery received from Mr.Himanshu, not booked as the entries had not been updated though the bill was available and had been noted by the search party 5230.635 9705.091 Excess: 8049.189 (ix) that there was an excess of 8049.189 gms is not disputed by the appellant. (x) that this being the case, the cash deficit as on the date of search ₹ 28,81,767and also the accretions from finance business and interest income and als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we have examined the books of account and related fields maintained in the system and found a file, viz., Dhanraj. This particular account is maintained in 'Quicken Software . As seen from the file maintained in the name of Dhanraj , certain transactions have been reflected under cash account. A copy of the account was taken and shown the same to your son Mr. Abishek Galada who was present at the residence on the date of survey and Mr. Kasi Viswanathan, Accountant who was operating the system. As per the sworn statement recorded from them the transactions reflected in the file viz.; Dhanraj, were actually maintained by you. Kindly go through the printout of the account and explain the nature of the transactions reflected therein. Ans: I have gone through the printouts taken from the system and examined the same. Further I have signed the printouts for having gone through the same. This particular account was maintained in the system for the FY. 03-04 in the name of Dhanraj by me in Quicken software. These transactions are pertaining to my gold jewellery business and finance business which are not reflected in the regular books of account maintained by me. The entries ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jewellery/bullion without bills and also some amounts in finance business. (vii) that this being the case, the Assessing Officer has been very much in the wrong by arriving at conclusions like depositing the entire deficit calculated to the last grams and carats in the Hundi of Thirupathi temple etc. etc. . The Assessing Officer ought to have refrained from making such observations and restricted himself to the facts that had emerged from the search/survey and explanations offered during search on oath (which he relies on) and arrived at the true picture. Thus, in conclusion, it is submitted that the appellant has already paid the taxes on the funds utilized to invest in the excess gold in shop of 8049.189 gms and there is no further addition warranted here on this ground. The fund flow statement filed before the Assessing Officer is being reproduced hereunder for ready reference CASH FLOW STATEMENT ASST. YEAR 2003-04 DR. Rs. . CR Rs. . Amount received on sale of 221.899 Kgs of Silver 1,775,192.00 Interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le for investment in the excess gold found at the time of search I survey. Assessment year Income offered 2003-04 29,589 2004-05 7,74,568 2005-06 13,35,000 The appellant requests that the Hon'ble Commissioner of Income-tax may kindly delete the addition of ₹ 75,69,499 made on this account. 22. On the basis of the above explanation, the ld. CIT(A) held that the gross repayment could show that gold of 24 ct was issued to various goldsmiths for making jewellery. On examination of G-11 Register maintained by the assessee it was found that 4106 gms of gold of 24 ct was issued to Shri Himanshu Achary who was present in the workshop at the time of search also. So a bare credit of jewellery weighting 5230.635 gms converted out of stock issued to Shri Himanshu Achary (4106.036 of 24 ct jewellery ) was recovered for arriving at the book balance as against, the Assessing Officer has worked out excess stock of 13279.424 gms and after reducing the duly converted from raw gold issued to gold smit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for the stock available in the work premises. The ld. CIT(A) seems to have examined the G-11 Register. However, this Register was not produced before the Assessing Officer nor produced before us to examine the entries therein. In the absence of any entries in G-11 Register, such credits and debits cannot be worked out on that basis alone. Therefore, we are of the opinion that this issue of jewellery received from Shri Himanshu Achary has to be examined by the Assessing Officer afresh. If the entries are found subsequently in the G-11 Register, the Assessing Officer is directed to give credit for the jewellery to that extent worked out either at pure gold basis or with alloy content. The stock statement on 19.05.2005 indicates that only a debit of 4106.036 gms gold was stated to be issued to Shri Himanshu Achary. If any amount of credit is to be considered, it is to be at 4106.037 gms. and not 5230.635 gms. given credit by the ld. CIT(A). However, this aspect requires examination as we are not in a position to verify whether the physical stock found was pure gold or with alloy content. Moreover, the issue to Shri Himanshu Achary was dated 19.05.2005 only (as issued to him accounte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The Learned CIT(A) erred in deleting the undisclosed income to the extent of ₹ 1,90,47,759/- from the unaccounted finance business and jewellery business. 3. The Id CIT(A) erred in interpreting the 'minus' sign appearing in the seized material to money received when even as per the admissions of the assessee it represents the money 'due' from the debtors. 4. The Id CIT(A) erred In allowing relief by deducting the value of unaccounted sale of jewellery to the extent of ₹ 84,44,759/. 5. The Id CIT(A) ought to have appreciated the fact that the claim of sale of jewellery belonging to family members was not supported any documentary evidences. 6. The Id CIT(A) erred in not considering the fact the claim of the assessee regarding the sale of jewellery without the knowledge of the other members cannot be true as the assessee is the karta of Surendra Kumar (HUF) and the transactions could not take place without the knowledge of the assessee. 7. It is also pointed out here that gold was found to be In excess I at the residence of the assessee and the deficit of silver and diamond was 141.453 kg and 82.42 carat as against 221 kg and 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. negative sign) A.L.G. (- 58,930.00), Deep Chandji (42,000.00), Golden Moments( -4,500.00), Kannan (-) 1 ,000.00). As can be seen, this print out was authenticated by Shri Surender Kumar Galada himself on 26.5.2005 during the course of proceedings u/s 132(4). 31. Since Shri Surendra Kumar Galada was not present at the time of survey, he was questioned later on 26.5.2006 regarding this printout and his reply is as under: Ans: I have gone through the printouts taken from the system and examined the same. Further, I . have signed the printouts for having gone through the same. This particular account was maintained in the system for the F. Y. 03-04 in the name of Dhanaraj by me in 'Quicken software'. These transactions are pertaining to my gold jewellery business and finance business which are not reflected in the regular books of account maintained by me. The entries appearing in this are mentioned in coded form in thousands. But in really they are in lakhs. i.e. two zeros are omitted. In order to arrive at the correct amounts, the decimal appearing before the last two zeros should be removed . Further, 'minus' appearing before some of the entries represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about ₹ 28,81,767. Kindly go through the print outs containing the cash balance as per books and physical inventory of cash vide Ann/PC/Cash/NS and explain the discrepancy? Ans: I have gone through the cash balance as per books and inventory of physical cash prepared by survey team and verified the same . It is true that there is a shortage of cash to the tune of ₹ 28,81,767. I had invested this cash for the purpose of purchase and sale of gold jewellery/bullion without bills and also some amounts in finance business. In other words, the assessee implies that the deficit cash of ₹ 28,81,767 to be set off against the total fund circulated in the guise of 'Dhanraj'. In the context of issue relating to Dhanraj, the AIR submitted the following: The asseesee has already agreed to the finances having been made between the period 1.1.2003 to 7.2.2004 thereafter all the finances have been received back by March 2005 for the purpose of acquiring jewellery. The assessee further claims that even for the finances he used to sell gold, silver or diamond belonging to himself and his families members as and when the need used to arise without their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... setting off and also without allowing set off to intermediate possession of gold, silver and diamond against each other shall lead to a distorted assessment which is not based on facts and against the reality. The assessee, Mr. Surendra Kumar Galada, has contended in the Notes attached to the return for the A.Y.2003-04 (in fact the same Note has been attached with the returns for all years) that I have been incharge of all the affairs and have been carrying on all the activities. In the course of business, due to various emergencies, there have been occasions when the assets in particular gold, silver and diamond belonging to various family members and also of business have been utilised and disposed and deployed on finance or for reinvestment in gold, silver, diamond etc. Essentially, the jewelleries available with family members and the stocks in business have been utilised for various activities. Principally, there are occasions when items have been sold and used for finance and .the collections thereof have been reinvested either in gold, silver or diamond. None of my family members was aware or has any participation in the entire activity. I have not maintained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was sold during the F.Y. relevant to the A.Y.2003-04 for ₹ 17,75,192. The profit on this sale amounting to ₹ 1,50,000 has been offered for assessment in the return now filed for A.Y.2003-04. Out of these sale proceeds; ₹ 16 lakhs was advanced as loans. The interest due on this loan amounting to ₹ 29,589 has been offered for assessment in the return now filed for A.Y.2003-04. In the case of diamonds: On the date of search, 15 carats of diamonds was found whereas as per records the possession must be 216.360 carats. Thus there was a deficit of 201.360 carats of diamonds. This represents sale of diamonds during the previous year relevant for A. Y.2004-05 for a total amount of ₹ 66,68,567. The profit of ₹ 2,50,000 has been offered for assessment in the return now filed for A.Y.2004-05. Out of the sale proceeds, ₹ 65 lakhs was advanced as loans during the year. On the total advance of ₹ 81 lakhs (16 lakhs + 65 lakhs), interest due of ₹ 7,74,558 has been offered for assessment in the return of income for the A.Y.2004-05. On account of undisclosed finance business and jewellery business, the assessee has shown the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, he was able to produce their W.T. returns and LT. returns which are more than twenty years old. In this background it is hard to believe that such recent documents regarding sale and purchase of jewellery are not available. It is more likely that such documents cannot be produced only because no such sale or purchase ever took place. It only is an afterthought being put forward to explain the source of fund circulated in Dhanraj . That such an explanation given by the assessee is an afterthought is also evident from their W. T. returns for A. Yrs. 2000-01 to 2005-06 which the assesses filed after. the search, except in the case of Mr. Surendar Kumar Galada (Individual). While comparing the W.T. statements 'attached with their returns in cases of all the assesses for all the five years, it can be seen that the quantum of wealth i.e. Gold, Silver, Diamond etc., remained m9re or less same throughout the period except for some minor purchases by some of the assesses during that period. In course of hearing the AIR was asked about this evident anomaly and he explained that all the family members used to keep their jewelleries in custody of the senior most person of the fam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years. Jewellery worth ₹ 30,00,000/(Rupees Thirty Lacs only) has been given to T.B. Jewellery. The assessee has given no documentary evidence other than revised total income of earlier years and a letter explaining his acquisitions. We have relied upon the same and have no other supporting document to rely upon. 5. In respect of purchase of Gold jewellery of 13407.039 grams valued at ₹ 73.73 lacs, no independent evidence was made available to us to verify the purchase value and the same has been taken as per the statement given to us by the 'assessee . The above figure of 13407.039 grams is the sum total of 5357.850 grams and 8049.189 grams which are mentioned in the chart immediately before the para where the auditor's note started. This implies that the documents regarding purchase of gold was not produced before the auditor either. Thus it may be summed up that the entire explanation regarding the circle of sale of family members' jewellery- utilizing the fund for unaccounted finance and jewellery business-getting the funds back within March 2005 - and again reutilizing the fund for purchase of jewellery is nothing but an afterthoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit made of sale of Gold and Diamond in A;Y. 2004 - 05. The breakup of income for' A.Y. 2003 - 04 2004 - 2005 herein under: Particulars A.Y 2003-04 A.Y 2004-05 Silver profit on sale of ₹ 17,75,192/- ₹ 1,50,000 .. Gold/Diamond Profit on sale ₹ 66,68,567/- ₹ 2,50,000/- [vi] That he has also accepted the fact of Deficit Silver and Diamond as on date of search after detailed verification of all VDIS records and Wealth Tax records produced by appellant. However, he has chose to accept only VDIS records for computing the deficit [ Please refer Page 6 of Asst. Order 2006 - 07] and not given Credit for Wealth tax Records. Once the Wealth Tax Records are given credit the deficit Stock on search will be as under: CHART-A Particulars Found As per records [Opening balance] Excess/Deficit As per W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e viz., Dhanraj, were actually maintained by you. Kindly go through the p'rintout of the account and explain the nature of the transactions reflected therein. Ans: I have gone through the printouts taken from the system and examined the same. Further I have signed the printouts for having gone through the same. This particular account was maintained in the system for the FY. 03-04 in the name of Dhanraj by me in Quicken software. These transactions are pertaining to my gold jewellery business. and finance business which are not reflected in the regular books of account maintained by me. The entries appearing in this are mentioned in coded form in thousands. But in reality they are in lakhs, i.e. two 'zeros are omitted. In .order to arrive at the correct amounts,. the decimal appearing before' the last two zeros should be removed. (Further, 'minus' appearing before some of the entries represents amount due from the parties on account of sale of gold jewellery/bullion items) I shall explain the exact nature of the transaction in respect of all the entries appearing in the account in a couple of days time. It is seen that the A.O. has utilized the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed profit of ₹ 1,50,000/- and ₹ 2,50,000/- respectively for the unaccounted sale of jewellery, silver items etc. totaling to ₹ 17,75,192/- in A.Y 2003-04 and ₹ 66,68,567/- in the A.Y 2004-05. The A.O has not disputed the quantum of unaccounted sale and profit shown in the return for A.Yrs 200304 and 2004-05. This fact shows that the appellant s claim of source of the unaccounted deposit and cash is plausible to the extent of the amount received on account of unaccounted sale totaling to ₹ 84,44,759/- made in the financial year relevant to assessment years 2003-04 and 2004-05. The appellant s claim for setting off the shortage of cash found during the search against the unaccounted cash balance shown in the seized document is not plausible for the reason that the cash shown in the seized document is positive figure which was available with the appellant on the date of closing balance. In view of the above the total amount undisclosed cash and deposits is determined at ₹ 1,41,96,000/- out of which the source of fund is explained to the extent of ₹ 84,43,759/-. The source of balance amount of ₹ 57,52,241/- is not explained. In view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er this account, ₹ 34,17,850/- is shown under cash account which indicated that above amount was available in cash. But during survey, cash deficit was found. Cash deficit was explained by stating that as per the books there was a cash balance shortage to the tune of ₹ 28,81,767/- because this amount was invested for the purchase of gold jewellery and bullion without bills and some of the amounts were also invested in finance business. In fact, the case build-up by the assessee is that this large amount of ₹ 28,81,767/- was circulated in the transactions recorded on this secret book and this requires to be adjusted against any undisclosed income so computed. But the Assessing Officer wanted each and every transaction to be supported with evidence, which was found to be impossible by the assessee. Thus, the Assessing Officer has not given credit for what the assessee has sought for on the basis of the same statement which was recorded during survey but, at the same time, he has relied partly on this statement to make impugned addition. We have noticed that from the loose sheets found during search/survey, various purchases/sales were detected to have been made outs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. In the case of diamonds, on the date of search, 15 ct was found whereas as per the records there should be 216.360 carats available with him. Accordingly, there was deficit of 201.360 carat of diamonds. Again, the only presumption which can be drawn on from this fact is that during the previous year, relevant to assessment year 2004-05, the assessee sold this diamond for a total amount of ₹ 66,68,567/-. The assessee has offered profit of ₹ 2,50,000/- in this year. From this sale consideration, ₹ 65 lakhs is stated to have been advanced as loan on which interest due of ₹ 7,74,558/- has been offered for tax. So, it is found that most of the transactions recorded on this secret document named Dhanraj stand explained. He has treated ₹ 1,07,78,150/- as total loans advanced and on which estimated interest has been offered for tax. The Assessing Officer has simply brushed aside this explanation of the assessee and has also ignored the wealth tax returns filed for the years 2000-01 to 2005-06 which were obviously filed after search. Since it is a case of search and in such cases nothing can be added without there being any incriminating proof or connected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortunity to explain in the light of the confirmed amount in earlier years and during this year. 37. In the result, the appeal of the Revenue stands dismissed and the cross objection of the assessee stands allowed for statistical purposes. I.T.A.No. 1485/Mds/08 C.O No.23/Mds/09 38. The appeal of the Revenue and the cross objection of the assessee, for assessment year 2006-07, are directed against the order of the ld. CIT(A) dated 3.4.2008. The Revenue has raised the following grounds in its appeal: 1. The order of the learned CIT(A) is contrary to law and facts of the case. 2. The Learned CIT(A) erred in deleting the undisclosed income to the extent of ₹ 41,51,070/- made towards excess stock of gold jewellery 3. The Id CIT(A) erred in holding that the stock of 6632.810 found at the residence of Lalith Kumar Galada is to be considered In the hands of Lalith kumar Galada only. 4. The Id CIT(A) ought to have appreciated the fact that the claim was made by the parties concerned and disputed by the them at any stage later and allowance was given tot his extent in the assessment of Shri.Lalith kumar Galada. 5. The Id CIT(A) ought to have appre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old jewellery found in the residence of Lalith belonged to Abirchand Galada (HUF) whose Kartha is Surender Kumar Galada. Jewellery to the extent of 5454.55 gms belonging to 5urender (Indl.) has been given by him to the HUF. Therefore, the total excess of gold will come to 1818.38 gms. The same has been valued at ₹ 550 per gram 'and a sum of ₹ 10,00,113/- has already been offered by us in the return of income filed. It is correct that the assessee had in writing owned up 6632.81 gms of gold jewellery which was found during search at the residence of Mr. Lalith Galada. So, when added up with 649.77 gms of gold (quantified as excess during survey), the total excess comes to 7282.58 gms. But the assessee s contention that it should be reduced by 5454.55 gms because that quantity of gold was transferred from Mr.Surender (Indl.) resulting into net excess of 1818.38 gms cannot be accepted for the following two reasons: (a) During the survey, no such transfer entry was noted in the books of either of the assessees and neither did Mr Surender Galada (Kartha) mention this in his depositions dated 19.05.05, 20.05.05 and 26.05.05, nor did the other coparcener, Mr.Lalit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5632.220 gms, indicating that there was an excess stock of 640.124 gms. On the same day, the residential premises of Lalit Kumar Galada, one of the co-parceners of the appellant HUF was searched under section 132. At the residence of Lalit kumar Galada, excess gold jewellery to the extent of 6632.810 gms was found. it was explained to the search party that the excess jewellery found at the residence belonged to T.B. Jewellery. Thus, the total of the excess jewellery came to 7272.58 gms. It was explalned to the Assessing officer that out of 7272.58 gms, gold jewellery of 5454.55 gms represented gold jewellery transferred from Shri Surendrakumar Galada (Indl). On this basis, in the return of income filed by the appellant, a sum of ₹ 23 lakhs was offered by the' appellant towards the value of excess jewellery found. This was worked out as under: Value of excess jewellery found of 7272.934 gms ₹ 40,00,113 Silver 108-296 kgs ₹ 10,82,960 Diamonds 4.83 cts ₹ 1,20,750 Cash(deficit) (Rs. 50,452) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax may kindly delete the addition made. 42. The ld. CIT(A) has given following observation vide para 5.2 of his order as under: 5.2 I have examined the facts of the case. In para 7.1 of the assessment order the A.O. has given a finding that during the survey at M/s.T.B.Jewellery, the gold jewellery totalling to 87653.02 gms was found and the book balance on the date was 87003.247 gms and that excess stock was arrived at 649.77 gr,ns. In para 7.2 of the assessment order the A.O. has treated the jewellery weighing 6632.81 gms found at the residence of Lalith Galada as belonging to the appellant HUF. He has rejected the claim that out of this jewellery 5454.55 gms belong to Shri Surendra Galada. It is found that the A.O.'s finding in this respect is based on a letter submitted before the A.O. in which two claims were made that jewellery weighing 6632.810 gms found at the residence of Shri Lalith Galada belong to the appellant and that out of this jewellery 5454.55 gms was given_to the appellant by Shri Surendra Galada, Indl. The A.O. has accepted the first claim but rejected the second one. The A.O. 's decision is based mainly for the reason that there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his own way. He has made the impugned addition on the basis of these two letters sent to him during assessment proceedings. There is no other evidence to support this finding of the Assessing Officer and this is a settled law that the Assessing Officer cannot rely on a part of a particular statement and refuse to accept the other part which does not suit him. He has to rely on any piece of evidence in its entirety. Thus, only excess stock of 649.77 gms can be considered in assessee-HUF s case and since the HUF has already declared 1818.43 gms jewellery as excess stock in the return of income for assessment year 2006-07, no further addition on account of excess stock found can be made in its hands. Thus, the impugned addition was correctly deleted from the HUF s hands. We are fully in agreement with the ld. CIT(A) in this regard and confirm the same. 44. In the result, the appeal of the Revenue stands dismissed. 45. Now we proceed to decide the grounds of cross objection raised by the assessee, one by one. It was noticed that the cross objection was time barred by four days. A condonation petition supported by duly attested affidavit has been filed. The delay of four days is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 8 of his order. He has simply mentioned about the adoption of rate at ₹ 11,000 per kg which, according to him was not objected to by the assessee at the time of assessment. He has confirmed the addition of ₹ 13,09,613/- and has impliedly deleted the remaining addition. Since the assessee has itself offered the value of excess stock of silver valuing at ₹ 13,09,613/- in its return of income, the same amount cannot be added twice. We are in agreement with this submission of the assessee and therefore, cannot sustain this addition and delete the same from the hands of this assessee. Hence, we allow Ground No.1 of the cross objection. 48. The second issue of cross objection is regarding excess stock of diamonds. The facts of this issue are that addition of ₹ 1,33,208/- was made on account of deficit stock of diamonds found during survey as compared to books of accounts. As a result of survey, 42.832 cts deficit stock of diamonds was found at the residence of Shri Lalith Kumar Galada. This excess stock of diamond has been dealt with in the hands of Shri Lalith Kumar Galada by the Assessing Officer himself. In respect of certain items of jewellery containing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It has been prayed that the addition made in this regard is baseless and deserves to be deleted. The ld.DR has supported the version of the Assessing Officer but could not successfully confront the assessee s above version. It is true that the Assessing Officer has simply estimated the value of these items without any basis as against which the claim of the assessee seems to be more plausible. Since the assessee has already admitted income on account of these two items, no further addition can be made in this account. Consequently, we order to delete this addition and allow Ground No.3 of the cross objection. 51. The last issue raised vide Ground No.4 is in regard to addition of ₹ 3,09,080/- made on account of unaccounted sales. During survey, certain books of account and loose sheets were found and seized. Shri Lalith Kumar Galada appeared on behalf of the assessee on 7.12.2007 and explained the seized material in the light of books of account. The explanation was filed in writing containing seven pages. During assessment proceedings, the assessee admitted some documents which are ostensibly estimate-slips containing sales made during financial year 2005-06. On these loos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the addition of ₹ 642,824 under the head 'undisclosed sales' . The learned Commissioner of income-tax failed to, note that the addition made by the Assessing Officer was based on certain loose slips found at the appellant's shop, and such slips did not actually represent sale bills, but were only estimate slips provided to the customers The learned Commissioner of Income-tax (Appeals) ought to have appreciated that providing estimate slips to prospective purchasers when they visit the jewel!ery shops is a trade practice prevalent among iewellery shops, and therefore the jottings in such slips cannot be treated as sales effected by the appellant For these and other grounds which the appellant may be permitted to adduce at the time of the appeal, it is prayed, the order of the learned Commissioner of Incometax(Appeals) may be set aside, and justice rendered. 55. Consequent upon the same search, a notice u/s 153A was issued to the assessee and orders u/s 153C/153A r.w.s 143(3) of the Act were passed for assessment years 2004-05 and 2005-06. In the assessment orders addition on account of undisclosed sales were made in both the years. The assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der VDIS when the same was shown in the Trial Balance for the subsequent years. 4. The CIT(A) failed to appreciate the fact that the last Wealth Tax filed was for the assessment year 1986-87 and the same was not shown in the opening balance in any of the trial balance filed for the subsequent years. 5. The CIT(A) erred in deleting the value of diamond added based on the material found In the course of search. 6. The CIT(A) ought to have appreciated the fact that the assessee himself has accepted part of the details and claimed relief based on the same, in which case the evidentiary value of this detail cannot be ignored. 7. For these and other grounds that may be adduced at the time of hearing, It Is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored. 60. The only issue raised in Revenue s appeal is regarding deletion of addition of ₹ 25,21,365/- made on account of undisclosed investment in diamond jewellery. The facts apropos this issue are that total diamond found at the residence of the assessee was 139.037 carats. The assessee, Shri Lalith Kumar Galada had explained this jewellery. While replyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that on the data found in CD, the information available is regarding proposed deposit which was proposed to be deposited by Sri Lalith Kumar Galada(Individual), Lalith Kumar Galada (HUF) and Smt Illa Galada. But in the books of account of T.B.Jewellery undeniably, no such credit has been found. Thus, we are in agreement with the ld. CIT(A) as well as the ld.AR that addition of 68 carat diamonds based on the information available on the CD cannot be definitely said to be in the possession of this assessee and having been given to T.B.Jewellery. When two views from one set of facts are possible, the view favouring the assessee has to be accepted as per the settled position of law by the Hon'ble Apex Court. Thus, the total quantity of diamonds found during survey has to be taken at 96.655 carats only. The assessee has submitted that certain amount of carats of diamonds were declared in VDIS by him and his family members and certain items had been declared in wealth tax returns of Shri Lalith Kumar Galada and some items by Smt. Illa Galada. These documentary proofs were not considered at all by the Assessing Officer. This action of the Assessing Officer cannot be justified at a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - which was worked out based only on the personal books of Shri Lalith Kumar Galada. But Shri Lalith Kumar Galada is also the proprietor of L.G International in whose books there was a cash balance of ₹ 5,03,581/- which was not considered while working out the excess cash. The difference was adjusted against creditors. 66. After considering the entire facts, the Assessing Officer has made addition of ₹ 4,32,900/- on account of cash found by treating it as income of the assessee of the financial year 2005-06. This addition was also confirmed by the ld. CIT(A). 67. The case of the assessee is that the calculation made by the Assessing Officer regarding excess cash is not correct because he has failed to note that the assessee is the proprietor of a concern namely, LG International, which does finance business and in the said business as per the books of account maintained, there was a cash balance of ₹ 5,03,581/-. This explanation was given to the Assessing Officer even at the time of assessment proceedings. But the Assessing Officer did not accept this explanation in view of the statement given by the assessee s brother. So, it was argued that the statement ..... X X X X Extracts X X X X X X X X Extracts X X X X
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