TMI Blog2018 (5) TMI 798X X X X Extracts X X X X X X X X Extracts X X X X ..... his addition is sustained as addition to net profit and after considering the fact that all expenses related to such income have been debited in P&L account and allowed. Accordingly, the ground of assessee’s appeal is partly allowed and ground of revenue’s appeal is dismissed. Addition on account of value of excess stock - Held that:- CIT(A) has granted relief by passing a speaking order. The stock was valued by registered valuer. AO has not accepted the same without any basis. The assessee has separately shown labour income(Gadhai/Majduri) from both the premises. The difference of gadhai/majduri have been debited in P&L account. Thus, no separate addition is required to be made for such income. Similarly the A.O. has invoked the concept of ‘hallmark jewellery’ without any basis. There is no contrary material on record against the order of the ld. CIT(A), therefore, the same is hereby upheld. - ITA No. 452/JP/2015 And ITA No. 314/JP/2015 - - - Dated:- 7-5-2018 - SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM For The Revenue : Shri J.C. Kulhari, (JCIT) For The Assessee : Shri Mahendra Gargieya And Shri Fazlu Rahman (Adv) ORDER PER: BHAGCHAND, A.M. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Whether on the facts and in the circumstances of the case, the CIT(A) has erred in restricting the addition of ₹ 4,11,908/- to the extent of ₹ 6,490/- ignoring that disclosure made on account of excess stock of diamond was brought to tax by considering the undisclosed investment u/s 69B of the Act. 5. Whether on the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of ₹ 9,41,831/- ignoring that disclosure made on account of excess stock was brought to tax by considering the undisclosed investment u/s 69B of the Act. 6. Whether on the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of ₹ 67,313/- ignoring that disclosure made on account of excess stock was brought to tax by considering the undisclosed investment u/s 69B of the Act. 7. Whether on the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of ₹ 10,09,273/- made on account of negative cash balance ignoring that the cash balance reconciliation statement was reproduced by the assessee itself during the assessment proceedings. 8. Whether on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s appeal and ground No. 2 of the assessee s appeal are on the issue of part relief granted by the ld. CIT(A) from the trading addition and ground No. 1 of assessee s appeal is against sustaining the rejection of books of account which is also connected to ground No. 2 of assessee s appeal. The Assessing Officer made addition of ₹ 1,21,68,595/- being trading addition by estimating sales at ₹ 12,00,00,000/- and applied G.P. rate @ 14.77%. The ld. CIT(A) restricted it to ₹ 89,57,095/-. The ld. CIT(A) has dealt these issues by holding as under: 4.6 I have gone through the observation as made by A.O. submissions as made by assessee as discussed in above paras. It is true that assessee maintains day to day accounting of sales, purchase cash flow including quantitative tally of traded goods. But the discrepancies excess stock as found during survey also cannot be denied shows that assessee firm has indulged in transactions over and above the books. Thus the A.O. had no option has rightly applied the provisions of section 145(3); since books results cannot be relied upon. However the jacking up the estimation of sales from ₹ 11,12,63,154/- worked out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,857.241 Gm ₹ 1,43,00,179/- Silver Ornaments 168.284 Kg ₹ 39,79,917/- ₹ 6,36,80,096/- Reasons of invoking s.145: (1) The A.O. observed that looking to vast variation in G.P. rate analysis the books of accounts are liable to be rejected u/s 145 of Income Tax Act, 1961, according to A.O.:- G.P. Chart for Last 3 years (Including surrender Amount) A.Y. SALES (RS.) G.P. (RS.) G.P. % 2011-12 10,32,62,598/- 6,40,35,501/- 62.00% 2010-11 (Beawer) (Kishangarh) 03.02.2010) 2,51,12,770/- 38,91,575/- 15.50% 2009-10 (Only Beawer) 1,78,02,399/- 27,12,437/- 15.24% 2008-09(Only Beawer) 1,71,25,638/- 23,25,858/- 13.58% Further on analysis after excluding the surrender amount includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ash balance was intimated to A.O. that in computer system the opening cash balance as on 01.04.10 has been wrongly taken at ₹ 13,401/- whereas same should be ₹ 6,46,206/- as can be verified by audited accounts as on 31.03.10, by the time / date of survey these figures were already with department vide return filed for assessment year 2010-11 it was system error actual there was no cash negative, the reconciliation submitted for same is as per A.O s order page 26 (Para 10). (Page23 para 7 of AO s order) (Page 113 to 155)(PB 117) Based on above issues so called discrepancies the A.O. has prepared his sales reconciliation chart as below:(AO s order page 28 para 5.2.3) S.N. Particulars Amount (Rs.) Remark 1. Regular sales recorded in books 01.04.2010 to 31.03.10 10,32,62,598/- 2. Unrecorded sales made on a/c of cash Received from customers (Note: This is actually not sales upto survey dated 12.10.10, since only advance against order converted into sales from 13.10.10 to 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assumptions no reality can be established. If A.O. believes his theory right, than should have disclosed the nature items of MIXED ITEMS . Based on above defects or short comings the A.O. has estimated the assessee s firm sales at ₹ 12,00,00,000/- against declared sales at ₹ 10,32,62,598.00 and has further applied G.P. @ 14.77% against declared G.P. @ 5.28% is average G.P. of last 3 years e.g. (15.50%, 15.24%, 13.58% for assessment year 2010-11, 2009-10 2008-09) thus has applied the provisions of section 145(3) of Income Tax Act, 1961 thus has preferred to make the trading addition of ₹ 1,21,68,595/- (1,77,24,000.00(G.P. on sales of 12.00 Crore at 14.77%) 55,55,405.00 (G.P. as per books) In the first appeal the ld. CIT(A) partly reduced the addition from ₹ 1.42 Crore to ₹ 89.75 Lakh by holding as under: I have gone through the observation as made by the A.O. submissions as made by assessee as discussed in above paras. It is true that assessee maintains day to day accounting of sales, purchase cash flow including quantitative tally of traded goods. But the discrepancies excess stock as found during survey also cannot be denie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racts are reproduced hereunder:- A. On Non-Applicability of S.145 it was submitted: No care for following facts evidences have been granted. xxxxxxxxxx The point wise assumptions of A.O. are subject to rebuttable with facts findings as below:- ( i) The A.O. has presumed that excess stock found surrendered during survey is one of the reason this shows that assessee is regularly indulged in such unrecorded transactions. No care of for complete quantitative tally, unit wise, and rate wise granted. Ever the subsequent sales (of advance received) have been taken DOUBLE by A.O. as discussed above. ( ii) That the advances received from customers in form of Gold / Metal / cash as per loose slips since not found recorded in books hence the books are incomplete, whereas these are advances from customers not our Own Stock . The advances are against execution of orders which only after work order completes, converts into sales proper sales bills subsequent by for such advances on loose papers are issued entered in accounts. ( iii) That when complete premises served by Income Tax department physical verification of stock made, than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also accepted this fact in his order. ( 3) With regard to valuation of stock the assessee is following Cost Price on Lifo Method as evidenced from past audited accounts form 3CD for the year as per statement of partners, nowhere A.O. has challenged that the Method of Valuation of Stock or Method of Accounting is wrong or not as per accounting standards. x x x x x ( 4) Thus at any stage the A.O. is not able to sustain the defects in Accounting Methods and Valuation of Stock only on his own surmises the A.O. has applied the provisions of section 145(3) of Income Tax Act, 1961. B. On Merits: It was submitted 1.1 Fair estimation required - Legal Position: At the very outset, it is submitted that even invoking of S.145 does not confer blind powers upon the AO and he is not at liberty to assess the income at whatever figure he wants. He is bound to make an honest estimation of income, keeping in view of the material available on record, past history of the case, local knowledge and repute of the assessee. He is also supposed to collect necessary material for the purpose, if so required. An arbitrary, capricious and wild estimation, as done in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.25030 10682.260 Rs.1,83,50,926/- 14.10.10 to 31.03.11 10676.950 Rs.18339806/- 5.310 Rs.11120/- Total Rs.2,51,54,568/- 14321.83 ₹ 25118418/- 19.21 ₹ 36150 Thus it is clear that the G.P. of last year is not comparable to this year, or suitable amendments needed. ( c) The assessee has also prepared monthwise quantitative / valuewise trading account depicting average rate of purchases, sales, quantity Gross Profit Margin, the documents upto survey as on 13.10.10 are lying impounded with A.O. thus cannot be denied for acceptance. (Page 1G)(PB 161-164) ( d) From this Gross Profit Margin (Monthly Chart) (PB 161-164) it is clear that there is Gross Profit in case of Gold Jewellery other but DIAMOND TRADING ACCOUNT reflects A LOSS (of 22.04 PB-162) A.O. has considered average G.P.% of all items whereas assessee is maintaining separate trading account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were later on adjusted towards the sales made to them which is evidently clear from a detailed chart showing the relevant details (PB 118-119). The fact of receiving advance in cash and quantity was evident from the seized annexures A8 to A12 (PB 129-149) and the further column shows the details of the bills wherein the advance in terms of amount quantity received, were adjusted. Sales in such cases was duly accounted for and this is also evident from some specimen copies of the ledger accounts of few customers (PBll 283- 290) supported by the copies of the sales bill issued to them (PBll 291- 311). The AO has not at all whispered any other evidence showing suppression of sale. Therefore, in absence of any further evidence to prove that there was still some sales remaining undisclosed, it was nothing but a mere suspicion. A suspicion cannot take the place of reality as held in the case of Dhakeshwari Cotton Mills Ltd. (1975) 26 ITR 775 (SC). The assessee, this way, declared total sale of ₹ 10.32 Crore however, the same was estimated by the ld. AO at ₹ 12 Crore (but the CIT(A) reduced the same to ₹ 10.75Crore). 5.2 Incomplete Accounts: The AO wrongly drawn a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.3.4 In absence of any other contrary evidence, no other, inference is possible. Hence, it was wrongly treated as undisclosed sale. 5.4 Unaccounted sale of gold bar of 507.610 Gm: Similarly assessee firm had purchased gold bar 995 weighing 507.610 Gms for ₹ 10,00,000/- on 12.10.2010 from Shri S.K. Corporation, Jaipur, however, the AO alleged that the assessee has not entered the same in the purchases and further alleging that it was not in the inventory, was presumed to be a suppress sale. It is submitted that it was a case of purchases made from S.K. Corporation, Jaipur, vide BN SKC/753 dated 12.10.2010 for ₹ 10,00,000/- including VAT and Bill was also received on 12.10.2010 itself though the purchased was prior to survey but unfortunately remained to be entered because on the very next day survey was carried out. Notably, even payment had already been made vide Ch. No. 505436 through BOB on dated 08.10.2010. This was duly explained by Shri Ganpatlal Agarwar in Q-2 of his statement recorded u/s 131 on dated 20.10.2010. The AO himself made no separate addition of ₹ 10,00,000/- u/s 69 because it was considered in the GP addition. 6. It is evident from the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. He also submitted that this addition was estimated on irrelevant material. Hence has not deserved to be sustained. 10. We have heard both the sides on this issue. The excess stock worked out by the Assessing Officer was of 29,090.96 gms. of gold ornaments at Kishangarh Branch of ₹ 4,54,00,000/-. The excess stock worked out by the Assessing Officer was of 7,857.241 gms of gold ornaments valued at ₹ 1,43,00,179/- and silver ornaments of 168.284 kg valued at ₹ 39,79,917/- at Beawar branch. The Assessing Officer rejected the books of account by comparing the G.P. of the earlier years and pre and post survey period. In the assessment year 2008-09 and 2009-10 the G.P. rate was 13.58% and 15.24% respectively. There was only one establishment of the assessee located at Beawar and it was an old establishment. The turnover of three years was only ₹ 1,71,25,638/- for A.Y. 2008-09 and ₹ 1,78,02,399/- in A.Y. 2009-10. The turnover for A.Y. 2010-11 was of ₹ 2,51,12,770/-. In A.Y. 2010- 11, Kishangarh branch was newly opened on 03/2/2010. Thus, almost for ten months, the business was done from Beawar branch only. In the assessment year 2011-12, the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a chart placed at page No. 118 to 119 of the paper book. The other basis for rejecting the book results based on presumed sales of gold weighing 1655.380 gms. received from customers has also been adjusted against the sales bills raised on the execution of the orders for the same. The evidences placed in this regard are at page No. 265 to 266 of the paper book. Similarly in the case of gold bar weighing 1 kg, which was not found during the survey operation, which has been also made a basis for estimating the grows turnover. There is no clear cut finding that it was not a part of the valuation made by the valuer at the time of survey. The other issue considered for rejection of books of account and estimating the gross turnover and gross profit is sale of gold bar of 507.610 gms. The payment claimed to have been made by cheque but the sale was not entered into the books of account. Considering all these aspects and facts and circumstances, we are of the view that the assessee has already disclosed substantial unaccounted stock in its return of income which takes care of the various discrepancies noted in the books of account. However, considering the totality of facts and circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 326335- ₹ 141685) are credited in these GHADAI / Majuri KHATAS due to the receipts from customers as claimed by the appellant. Thus no separate addition for making charges as thought of by the AO can be contemplated. There is no basis for assumption by the AO that the making charges which would have incurred in creating above jewellery were not included in the valuation. No specific reasons with reference to items listed in valuation report of the registered valuer are advanced by the AO for making separate addition for making charges. 5.4.3 I also find that AO is not an expert to change the valuation of valuables found during the search and survey. More so when the excess stock found during search is valued by registered valuer and neither anything against the said valuation is pointed out by AO nor any action against the valuer has been taken by the department under the WT Act. Such addition based on hypothetical arithmetical recalculation cannot be sustained. The AO embarked upon such an exercise by misconstruing the statement of the partner Shri Vinod Agarwal about Hall Mark jewellery . In fact before doing so the AO could have examine the individual items in valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose papers and finally reconciliation of the diamond stock. Hence, we find no merit in this ground of revenue s appeal, hence dismissed. 15. In the ground No. 5 of the revenue s appeal, the issue involved is deleting the addition of ₹ 9,41,831/- made U/s 69B of the Act. The ld. CIT(A) has dealt this issue by holding as under: 7.3 I have gone through the findings of A.O. assessee it is an established fact that registered valuer has valued the stock as found as per Income Tax Rules in form 08A.The labour charges are also being charged by appellant separately in bills separate income has been shown in profit and loss account for the year. In view of same reasons that are given in para 5.4 above for similar addition discussed in para 5 above, this addition of ₹ 9,41,831/- on account of reworked valuation of excess stock cannot be sustained and is hereby deleted. 16. We have heard both the sides on this issue. The ld. CIT(A) has granted relief to the assessee that the assessee was charging labour charges separately, which has been shown in the P L account separately and also the reasons recorded in his order at para 5.4, which has been reproduced in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 23294 999380 Add:- Reed. Ghadai Majduri as on 20.09.2010 Bill No. 410 8250 1007630 Add:- Cash Reed. From customers against order as per (Annexure 4) 1694840 2702470 Add:- bills of sales was not entered till survey date Bill No. 224 to 227 of date 09.09.2010 90000 2792470 Less:- Purchase Gold from sundry customers for order as per loose paper 1 051.280GMS. @ 1950/- per GM (Annexure 2) 2050000 742470 Less:- Cash withdrawal by Partner Shri Vinod Kumar Agarwal as on 12.10.2010 (AO miss this entry) 223170 Total physical cash found as on 13.10.2010 at the time of I.T. Survey at Swamganga Jewellers, Kishangarh 519300 Thus, the cash gets reconciled and therefore, the addition of ₹ 10,09,273/- is hereby deleted. 20. After he ..... X X X X Extracts X X X X X X X X Extracts X X X X
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