TMI Blog2022 (11) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue that only Rs.3/- per gram should be accepted as making charges, then these karigars i.e. Shri Lob Ghorai and Shri Golok Patra could not have reported the net profits as they are reflected in their respective income tax returns. If the making charges rate as determined by the Revenue at Rs.3/- per gram has to be considered, the aforesaid karigar s net profit declared by them from the business in their respective tax returns would be higher than the gross receipts of making charges at Rs.3/- per gram. This itself goes to prove that the making charges cannot be at Rs.3/- per gram. These facts and figures are staring on us to conclude that making charges paid by the assessee ranging from Rs.12/- to Rs.13/- per gram is acceptable and correspondingly the making charges determined by the ld. AO @Rs.3/- per gram is devoid of merits and baseless. Hence, from the above facts and figures, it could be safely concluded that the disallowance of making charges made by the ld. AO by placing reliance on the statements recorded from two karigars is totally baseless. Corresponding statement given by Shri Kirit Kumar Gauti, the key person of the group - We find that Shri Kir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % ; Sremon Jewellers, Kolkata at 6% ; Sremon Jewellers at 5.5% on yet another date etc. This goes to prove that the wastage claimed by the assessee is much less than both the Government approved standard as well as the wastage claimed by the comparable cases. It is also pertinent to note that the aforesaid Government of India norms of allowing wastage at 3.5% has been followed and accepted in the case of Anjali Jewellers Pvt. Ltd., [ 2016 (3) TMI 1445 - ITAT KOLKATA] - In view of the aforesaid observations and respectfully following judicial precedents relied upon hereinabove, we hold that there is absolutely no case made out by the Revenue to disallow the wastage expenses on the ground that it is excess. AO is hereby directed to delete the entire disallowance made on account of wastage. Accordingly, the ground Nos. 5 6 raised by the assessee are allowed and ground Nos. 1-5 raised by the Revenue are also hereby dismissed. Addition made on account of share application money u/s.68 - HELD THAT:- We are unable to understand as to what grievance the Revenue could have in the instant case in as much as the ld. CIT(A) had deleted the protective addition in the hands of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.1. We have heard rival submissions and perused the materials available on record. We find that assessee is engaged in the business of manufacturing and trading of gold bearings and export of gold jewellery. The assessee is deriving business income which has been offered to tax in the return of income and had filed its return of income for the A.Y.2014-15 on 31/10/2014 declaring total income of Rs.3,63,52,110/-. A search and seizure action was carried out u/s.132(1) of the Act along with other cases of Gauti Group on 09/03/2015. The parent company of Gauti group is M/s. Sumatichand Gauti Jewellers pvt ltd. Consequent upon search, assessee s case was centralised and the jurisdiction vested with the ld. AO stated hereinabove. It was found in the search action that Gauti group has been concealing its correct income by obtaining accommodation entries in the form of introduction of share capital from companies and inflating making charges and wastage so claimed in the books of accounts of various group entities. During the search operation, parallel books of accounts of Gauti group were found to have been placed at premises known as 17/3, S. N. Das Lane, Kolkata. Accordingly, soft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concluded that the excel sheets maintained is nothing but parallel books of accounts / parallel data maintained by the assessee containing real transactions. 3.3. The Gauti group is engaged in the business of manufacturing of gold jewellery and trading in jewellery. Bullion trading is carried out from both the places i.e. Mumbai and Kolkata. However, the jewellery manufacturing process is carried out and controlled only by the group entities based in Kolkata. The business operations of bullion trading takes place in the domestic market whereas the business operation in relation to jewellery manufacturing are mostly done in the export market. The jewellery is manufactured in Kolkata and the same is generally sold in the export market. In the domestic market, the group entities buy duty paid gold from banks and sell it to various jewellers in the local market. Apart from sale of bullion these entities also sell manufactured jewellery item in the domestic market. As regards exports of jewellery items manufactured by the group entities based in Kolkata, the following process is involved:- a) Receipt of orders b) Import / purchase of raw material / gold bars from banks on credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther held that the making charges of the karigar are included in the wastage of gold in jewellery making and therefore no separate payments are required to be made to them for labour charges. 3.6. We find that the primary basis of making the addition is the excel sheets found and seized during the course of search, contents of which were explained by karigars i.e. Shri Lob Ghorai and Shri Golok Patra in their respective sworn statements. But it is pertinent to note that the said karigars had retracted their statements immediately after the search on the ground that the original statements were recorded form them under pressure and that the karigars were made to sign a pre-typed statements by the search parties. The retraction is made in the form of an affidavit in a non-judicial stamp paper on 18/03/2015 by Shri Lob Ghorai and on 11/05/2015 by Shri Golok Patra. Both these affidavits are forming part of the paper book filed and placed on record before us. In the said affidavit, both the karigars had affirmed that the concerned officer had given them a written statement and asked to sign under oath and did not even allow them to read the contents of the statement. Both the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sponse to Question No.12 by Shri Lob Ghorai, it has been stated that TDS is deducted on making charges at Rs.2/- per gram only which is factually incorrect as the TDS was deducted on the entire amount of Rs. 12/- to 13/- per gram. The ld. AR in this regard drew our attention to the ledger account of Shri Lob Ghorai enclosed in page 127 of the paper book. The ld. AR accordingly submitted that the statements recorded from Shri Lob Ghorai and Shri Golok Patra could not be relied upon at all as it contains (i) pre-typed statement given by the search party (ii) factually incorrect statements regarding TDS (iii) the word assessee being mentioned regularly by layman like Shri Lob Ghorai and Shri Golok Patra. Accordingly, he argued that the said statements which is the sole basis of making addition cannot be relied upon. Further, the ld. AR argued that the statements given by Shri Lob Ghorai and Shri Golok Patra that difference of Rs.10/- to Rs.11/- per gram towards making chares were withdrawn by them in cash and given back to the assessee is to be understood in the manner that the said cash payments were not given back to the assessee but instead paid to the small sub-karigars by them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g from Rs.12/- to Rs.18/- per gram Net profit from business shown in the return Shri Lob Ghorai 2012-13 50,86,852/- 4,42,048/- 2013-14 31,76,043/- 4,27,113/- 2014-15 37,31,598/- 4,76,716/- Shri Golok Patra 2011-12 27,84,427/- 4,45,508/- 2012-13 52,03,168/- 5,59,386/- 2013-14 42,93,713/- 5,15,246/- 2014-15 45,63,842/- 5,41,572/- Shri Malay Kopat 2013-14 33,85,305/- 5,80,986/- 2014-15 73,61,716/- 8,08,209/- 2015-16 1,50,55,851/- 16,88,237/- Shri Chinmay Kundu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we do not deem it fit to get into this aspect of police complaint made by Shri Kirit Kumar Gauti, about the manner in which statements were recorded from him. However, we find that Shri Kirit Kumar Gauti had also retracted from his statement given on 09/03/2015 vide his retraction affidavit dated 18/03/2015 which is immediately after the search wherein he had affirmed that he was mentally put under pressure by the Income Tax authorities and he had lost his mental balance and accordingly, he had signed the statement without understanding the contents recorded thereon. He had also stated that under the threat from the department, he had no option but to agree on the dictated statement of the authority and signed on the said pre-written statement of the authority. It is pertinent to note that the said retraction affidavit was duly filed by the assessee before the Investigation Wing as well as before the ld. AO. Further, the promoter of the assessee group M/s. Sumatichand Gauti Jewellers had also categorically denied making payment of any excess making charges during the course of his statement on 12/03/2015 vide reply to Question No.62. Hence, the disallowance made based on statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking charges to various karigars or determining wastage. Further, the ld. CIT(A) in para 16.13 of his order had categorically stated that though the assessee had pointed out certain flaws with the maintenance of excel sheets, there is no doubt about the authenticity of transaction between the group and the karigars as far as the volume of gold is concerned. The ld. CIT(A) observed that -to this extent, it is proposed to rely on the excel sheet. As noted above, it is possible to use the excel sheet for further computation if necessary corrections are introduced in the sheet to take care of some glaring omissions like non-computation of wastage on semi-finished jewellery and gold coins as well as the fact that there are evidences of making charges being made through allowing certain level of wastage of karigars. These observations made by the ld. CIT(A) are not challenged by the revenue before us by bringing in any contrary evidences. Hence, we hold that excel sheets seized during the course of search cannot be construed as parallel books and they are merely controlling sheets maintained by employees for computation of jewellery after giving credit or deduction for standard quota of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er; (g) Rough jottings made in the diaries Annexure A-3 A-7 are meant only for limited period of time and the ld. AO erred in extrapolating the same for the remaining period of time; (h) Rough jottings made in the diaries did not contain any evidence or noting to prove that excess making charges paid by the assessee has been received back as cash from the karigars by the assessee; (i) Comparable market price of P C Chandra Jewellwers prove the payment of making charges at Rs.18/- per gram which is far higher than the making charges debited by the assessee herein. 3.14. In view of the above, the disallowance made on account of making charges amounting to Rs.49,83,491/- for A.Y.2014-15 is hereby directed to be disallowed. Accordingly, the ground Nos.2 3 raised by the assessee are allowed. 4. The ground Nos. 5 6 raised by the assessee for the A.Y. 2014-15 and ground Nos. 1-5 raised by the revenue are with regard to the disallowance made on account of wastage charges. 4.1. We have heard rival submissions and perused the materials available on record. The assessee had claimed wastage charges on an average ranging from 3-3.5%. The ld. AO by placing reliance on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the perusal of the said excel sheets enclosed in page 107 of the paper book onwards, we find that the said sheets do not contain actual wastage. The employee who had maintained the said data had only mentioned the standard wastage percentage uniformly for all the years only to ensure that the quantity of raw material issued to the karigars and finished product received back from them are within the expected tolerance range of wastage. Hence it could be concluded that the excel sheet is meant for control for the purpose of quantitative tally of flow of stock. As stated at the cost of repetition, we would like to state that the receipt mentioned in the said excel sheet is only standard / fixed percentage of wastage allowed to the concerned karigar. This is evident from the excel sheets wherein for the period 01/09/2014 to 09/03/2015 pure gold received from the karigars was 79589.58 and standard wastage of 2.25% worked out at 1790.77 grams is mentioned has been computed and the resultant figure of 81,380.34 gms (78689.58 gms representing pure gold + 1790.77 representing wastage worked out at 2.25% of pure gold received) is shown as gold received back from karigar. It is inconceivable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48.81 58.40 -9.59 FY 2012-13 AY 2013-14 81.17 60.23 20.94 FY 2013-14 AY 2014-15 149.10 89.63 59.47 FY 2014-15 AY 2015-16 145.59 52.52 93.07 4.3.1. No assessee would record lesser wastage in its books than what has been actually incurred by it since the same would lead to shortage in the gold quantity. This itself goes to prove that the excel sheet did not record the actual wastage incurred by the assessee and is meant purely for control purpose only and not otherwise. 4.4. Further, with respect of entries of wastage being received back from karigars to the appellant as alleged by AO, it is submitted that said notings are not receipt of wastage; rather the same are domestic purchase which are used in the manufacturing process in order to compensate the excess loss in the jewellery making. Moreover, such purchases are issued to karigars and not received from karigars which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reby dismissed. 5. The ground No.7 raised by the assessee for A.Y.2014-15 is general in nature and does not require any specific adjudication. 6. The next issue to be decided in the appeal of the Revenue is as to whether the ld. CIT(A) was justified in deleting the addition made on account of share application money in the sum of Rs.3,10,00,000/- u/s.68 of the Act in the facts and circumstances of the instant case. 6.1. We have heard rival submissions and perused the materials available on record. During the year under consideration, the assessee company received share application money amounting to Rs.3.10 crores from its group concern M/s. Starpoint Dealers Pvt. Ltd., The ld. AO treated the said receipt as not genuine and proceeded to treat the same as unexplained cash credit and added u/s.68 of the Act. The ld. AO however, observed in the order that since the source of the said amount was already added in the hands of M/s. Starpoint Dealers Pvt. Ltd., the addition in the hands of the assessee herein was made on protective basis. On first appeal, the ld. CIT(A) deleted addition in the hands of the assessee since the substantive addition was confirmed by him in the hands ..... X X X X Extracts X X X X X X X X Extracts X X X X
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