TMI Blog2023 (10) TMI 1061X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be considered as parallel books of account and they are merely controlling sheets maintained by employees for computation of jewellery after giving credit or deduction for standard quota of wastage - Since the facts and circumstances relating to both these additions are same in these cases also, following the above said decision of the co-ordinate bench, we modify the orders passed by Ld CIT(A) and direct the assessing officer to delete the additions relating to Making Charges and Wastage claims in all the years under consideration. Addition on account of profit on unrecorded sales - CIT(A) has deleted above addition - HELD THAT:- We notice that the Ld CIT(A) has also noticed many discrepancies in the Excel Sheet. One of the main discrepancies is that the manufacture and sale of medallions and coins were not recorded in the Excel Sheets, which would make huge difference. Besides the above, the search officials did not find any discrepancy between book stock and physical stock. Accordingly, we are of the view that the order passed by ld CIT(A) in deleting this addition is a well reasoned order and the same does not call for any interference. Accordingly, we uphold the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals for AY 2010-11, 2011-12, 2014-15 and 2015-16. The revenue has filed appeals for AY 2011-12, 2014-15 and 2015- 16. All these appeals are directed against the orders passed by Ld CIT(A)- 52, Mumbai. Since common issues are urged in these appeals, they are being disposed of by this common order, for the sake of convenience. 2. The facts relating to the cases are stated in brief. The assessee herein is engaged in the business of manufacture and sale/export of Gems and jewellery. It belongs to Gauti Group. The assessee along with other group concerns/family members was subjected to search operations under section 132 of the Act on 09-03-2015 by the Investigation wing of the Income tax department. Consequent thereto, the assessments were completed in the hands of the assessee for the above said year under section 143(3) read with section 153A of the Act. 3. The Kolkata investigation wing of the department had reported that many paper companies are indulging in providing accommodation entries in the form of share capital/share premium to various beneficiaries. It was noticed by the department that the assessee s group has received share capital/share premium from such paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,08,14,046 2015-16 4,28,86,993 9,70,04,837 5. The Ld CIT(A) confirmed the addition relating to jewellery making charges and gave partial relief relating to wastage claim. Hence the assessee is challenging the decision of Ld CIT(A) in confirming the addition relating to making charges. With regard to wastage claim, the Ld CIT(A) confirmed the additions to the extent of Rs.1.29 crores in both AY 2014-15 and 2015-16 and deleted the remaining additions. The revenue is challenging the relief granted and the assessee is challenging the additions confirmed by Ld CIT(A). 6. We heard the parties on these issues and perused the record. We notice that identical additions were made in the assessee s group concern named M/s Saurav Jewellers Pvt Ltd and they have been deleted by the coordinate bench, vide its order dated 28-10-2022 passed in ITA Nos. 999 998/Mum/2021 and ITA Nos. 2504/Mum/2021 on a detailed reasoning. For the sake of convenience, we extract below the order passed by the coordinate bench in the above said case:- 3. The ground Nos.2-4 raised by the assessee for the A.Y. 2014-15 are challenging the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of raw gold received from various banks, the gold issued to the Karigars - Shri Lob Ghorai and Shri Golok Patra, among other karigars, jewellery received from them after the job work and the closing balance of gold lying with Karigar. 3.2. The search operations were also conducted in the premises of Karigars Shri Lob Ghorai and Shri Golok Patra on 09/03/2015. The seized papers impounded from residential premises of Shri Lob Ghorai on 09/03/2015 was marked as LKG/03. Similarly papers were seized from the residential premises of Shri Golok Patra during the course of search on 09/03/2015. These papers were confronted with Shri Kirit Kumar Gauti who admitted in his statement on oath recorded u/s.131 of the Act on 11/08/2015. Further commission u/s.131(1)(d) of the Act was issued on DDIT (Investigation), Unit 1(3) Kolkata requesting him to record a statement on oath u/s.131 of the Act from Shri Lob Ghorai. Accordingly statement on oath was recorded from Shri Lob Ghorai on 21/08/2015 wherein it was confirmed that the typed excel sheets found and seized contain the real transaction done which has issue of raw gold, purity, jewellery given back to M/s. Sumatichand Gauti Jewellers Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making charges and / or wastage. 3.5. The statement of Karigars i.e. Shri Lob Ghorai and Shri Golok Patra were recorded during the course of search wherein they had stated that actual making charges received by them is Rs.2/- per gram whereas cheque they had received was for Rs.13/- to 18/- per gram and difference is given back in cash to the assessee. Shri Kirit Gauti incharge of Kolkata operations of the group, in his statement recorded during the course of search proceedings accepted to that actual making charges paid of Rs.3/- per gram. The excel sheets termed as alleged parallel books seized from the premises showed that actual making charges were lower than making charges debited in the books of the assessee. These excel sheets for the period 01/04/2009 to 09/03/2015 (A.Y.s 2010-11 to 2015-16) are enclosed in pages 107 to 126 of the paper book. The ld. AO based on the statement recorded from these karigars concluded that the making charges is accepted only at Rs.3/- per gram and proceeded to disallow the excess making charges for A.Yrs. 2014-15 in the sum of Rs.49,83,491/- and Rs.25,40,622/- for A.Y.2015-16 respectively. The ld. CIT(A) primafacie dismissed the findings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . During this process, little wastage would be incurred. After making jewellery, he would hand over the manufactured jewellery to Gauti group. The ld. AR submitted that this answer goes to prove that the making charges are to be paid to Mr. Golok Patra (karigar) and to other sub-karigars. Admittedly all those subkarigars are engaged by the main karigar. The assessee is no way connected with the sub-karigars. The same is with the case of another Karigar Shri Lob Ghorai. The ld. AR submitted that statement given to Shri Lob Ghorai and Shri Golok Patra is that only Rs.2/- to 3/- per gram has been charged as making charges, had to be understood in a way that they would be getting only Rs.2/- to 3/- per gram and remaining payments of Rs.10 to Rs.11/- per gram would be passed to the sub-karigars who actually engage in the manufacturing of jewellery. The ld. AR also drew the attention to the statement of Shri Lob Ghorai wherein the word assessee has been mentioned in several places. He argued that a layman like Shri Lob Ghorai while making a statement would never mention the word assessee instead would only refer in person by name. This goes to the prove that it is only a pre-typed st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already placed on record. Hence, no statements of the karigar could be relied upon for the purpose of making addition in the hands of the assessee. It is not in dispute that the assessee while making payments to karigars had deducted tax on the entire payment of Rs. 12/- to Rs.13/- per gram towards making charges. The main karigarsi.e. Shri Lob Ghorai and Shri Golok Patra had duly accounted the same as their income in their books and had offered the net profit earned by them in their respective tax returns. In this regard, for A.Y.2014-15, we find from the audited financial statement of Shri Lob Kumar Ghorai, he had received total making charges of Rs. 48,15,373/- from Gauti group which includes assessee also and had inturn made making charges to Rs.33,08,138/- to sub-karigars. Thereafter, total net profit from business declared by Shri Lob Ghorai for A.Y.2014-15 is Rs.4,76,716/-. If the contention of the Revenue that only Rs.3/- per gram should be accepted as making charges, then these karigarsi.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. This is evident from the table shown below:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 3.9.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. 3.10.Now what remains to be addressed is the corresponding statement given by Shri Kirit Kumar Gauti, the key person of the group. The ld. AO in his assessment order had stated that the statements of karigars were confronted with Shri Kirit Kumar Gauti who had also accepted that actual making charges is only Rs. 3/- per gram and that the difference is received back from the karigars in cash. In this regard, Shri Kirit Kumar Gauti had indeed filed police complaint on 13/03/2015 i.e. within four days from the date of search, making various allegations against the search team stating that he was brutally beaten up by the search team du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This is recorded by the employee just to have a control as to the quantity of jewellery received back from the karigar after reducing standard wastage thereon. In fact, in para 16.11 of the order of the ld. CIT(A), it has been categorically mentioned by ld. CIT(A) that the said excel sheets reveal entries concerning issue and receipt of gold to the karigars along with necessary weight of said issues / receipts. The ld. CIT(A) observed that however, the completeness of the data in the excel sheets are indeed in doubt as far as overall picture of gold quantity is concerned. The ld. CIT(A) further observed that although in the top of the sheet, making charges rate @Rs.3/- per gram was mentioned, karigar wise computations are not made in the said excel sheets. The ld. CIT(A) also observed that the most significant deficiency noted in such excel sheet is that no wastage has been shown in the cases where the semi-finished jewellery has been manufactured by the karigars. Similarly, no wastage has been shown in cases where coins have been manufactured by the karigars. The ld. CIT(A) also observed that if the ld. AO s argument that making charges are in the form of wastage is to be acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind that the assessee had submitted the comparable price from the market with various parties which goes to prove that the making charges prevailing in the market are ranging from Rs.13 Rs.18/- per gram. The gold receipt vouchers issued by P C Chandra Jewellers, Kolkata show making charges @Rs.18/- per gram. Even going by this comparable data, the making charges debited by the assessee is much lesser than the market price. Hence, there cannot be any disallowance of making charges on the ground that it is paid in excess by the assessee. 3.13. To sum-up, the disallowance made by the Revenue on account of excess making charges deserve to be deleted due to- (a)Statements of karigars Shri Lob Ghorai and Shri Golok Patra containing various factual inconsistencies; (b) Statements of Shri Lob Ghorai and Shri Golok Patra were retracted; (c)Statement of Shri Kirit Kumar Gauti which stood subsequently retracted; (d) Statement of promoter of the assessee group M/s. Sumatichand Gauti Jewellers wherein he had 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; (e) Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 149.10 145.59 Total Wastage as per excel sheet (In Kgs.) 60.23 89.63 52.52 Difference (In Kgs.) 20.94 59.47 93.07 Proportionate addition in assesseeNil* 82,42,155 98,81,191 * No business in assessee company in A.Y. 2013-14. 4.2. The ld. CIT(A) estimated the wastage at 3% to be reasonable on finished jewellery. Further, the ld. CIT(A) allowed wastage on semi-finished jewellery and coins on the ground that data contained in excel sheet had glaring omissions like non-computation of wastage of semi-finished jewellery and gold coins. Accordingly, the ld. CIT(A) granted relief to that extent and addition of Rs.15,06,455/- was confirmed by the ld. CIT(A) as against the addition made by the ld.AO in the sum of Rs.82,42,155/- made by the ld. AO. Aggrieved, both the assessee as well as the revenue are in appeal before us against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind that the balance figure of gold lying with smith i.e.karigar is also derived figure and not actual figure. This itself proves the fact that excel sheet has been prepared purely for control purposes and not for recording the actual wastage. The ld. CIT(A) had already taken cognizance of various discrepancies that had crept in in the excel sheets maintained by the employee for which suitable credit has already been given to the assessee. Hence, the excel sheet data, in our considered opinion, is unreliable. Moreover, we find that the ld. AO had disallowed the wastage expenses as excess only for A.Y.2013-14, 2014-15 and 2015-16 by placing reliance on the excel sheet as sacrosanct. Whereas the same excel sheets contains data from A.Y.2010-11 onwards which was also seized during the course of search. For A.Yrs.2010-11, 2011-12 and 2012-13, the wastage reflected in excel sheet was much higher than the wastage reflected by the assessee in its books. Hence, the ld.AO had resorted to ignore those excel sheets for A.Yrs.2010-11, 2011-12 and 2012-13 as it is favouring assessee. The following tabulation would prove this fact:- Financial Year Assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been made completely relying on the excel sheet seized during the course of search ignoring the factual deficiencies in those excel sheets. Against this deletion, the revenue had not preferred any appeal before us. 4.6. We find that Gems and Jewellery Council of Government of India had also accepted the normal standard wastage in respect of gold at 3.5%. The evidence in this regard was placed by the ld. AR in page 253 of the paper book. The wastage claimed by the assessee in the present case ranges from 3- 3.5% which is in consonance with the Government approved standard of 3.5%. Moreover, the assessee had indeed given comparable cases of wastage from P C Chandra Jewellers, Kolkata wherein wastage is mentioned at 3.75%; Deys Guinea House, Kolkata at 4% ; SremonJewellers, Kolkata at 6% ; SremonJewellers 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 by the Co-ordinate Bench of Kolkata Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discrepancies in the data recorded in the Excel Sheets and accordingly contended that the Excel Sheets cannot be taken as the correct one. The Ld CIT(A) was convinced with the contentions of the assessee and accordingly deleted this addition in various years in the hands of all group concerns. The decision rendered by Ld CIT(A) on this issue is extracted below:- 12.5 The main submission of the appellant is that the ledger of receipt and issue of gold maintained in the excel sheet do not represent complete books of account but merely an account of the gold received from banks and the subsequent ledger of gold issued to the karigars for manufacturing and the subsequent receipt of jewellery from them. It is claimed that such ledger does not contain the entire transactions related to gold manufacturing. As an example, it has been claimed that the manufacturing of medallions and gold coins, which constitute significant component of the assessee's manufacturing and export activity do not form a part of the excel sheet and has been maintained separately through a different passbook. The wastage made on manufacturing of these items, although a matter of record, do not form a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing process is outside the excel sheet and needs to be incorporated to arrive at the final stock position. iii. The physical stock position of the assessee as computed by the Department at the time of search and seizure action did not detect any variation between the physical stock position and the stock as per books of account. Also, the stock taken by the Department reveals that the gold stock was not only with the Karigars but part of thegold was also lying with the assessee itself. iv. Evidence of sale of gold items outside the books has not been found from any of the premises during the search proceedings including the secret premises. v. While dealing with the issue of wastage / payment of making charges, it has been held that the excel sheets are not sacrosanct and do not represent complete books of account and need to be corrected for various non-inclusions in order to arrive at the correct position of business of the various assessees. vi. There is no breakup for earlier years with respect to gold with the assessee and gold with karigars and hence revisiting the stock position based on excel sheet is not accurate. 12.8 In light of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he next issue relates to the addition made u/s 68 of the Act. In assessment year 2011-12, the assessee had received share capital from following companies aggregating to Rs.21.63 crores from six companies as detailed below:- S.No. Name of Subscriber Amount 1 Anubhuti Suppliers P Ltd 5,34,99,940 2 Borex Mercantile P Ltd 8,93,99,990 3 Agarwal Trexim P Ltd 50,00,000 4 AarpeeConco P Ltd 35,00,000 5 Zenstar Marketing P Ltd 6,50,00,000 TOTAL 21,63,99,930 The Ld CIT(A) granted relief to the tune of Rs.17,63,99,930/- and confirmed addition to the extent of Rs.4,00,00,000/-. 12. The facts relating to this addition are discussed in brief. During the course of search proceedings, Shri Sumati Chand Gauti, one of the key persons of the group submitted in the statement recorded u/s 132(4) of the Act that he could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged in the business of share trading and all the transactions related to the same may be verified from the financial statements of the said companies. It was also submitted that the Share premium is a capital receipt and it has been received as per the private negotiations made between the assessee and share subscribers. It was further submitted that the Companies Act has put in restrictions with regard to the usage of share premium amount. Accordingly, it was contended that the addition u/s 68 could not be made. 16. The assessing officer did not accept the contentions of the assessee. The AO, after referring to various case laws, held that the share application money received by the assessee is unexplained. Accordingly he assessed the same as unexplained cash credit u/s 68 of the Act. 17. Before Ld CIT(A), the assessee contended that the admissions were made by Shri Sumati Chand Gouti on pressure from search officials and further the relevant materials were not readily available. It was submitted that the assessee could contact the relevant share subscribers and could collect all details to prove the genuineness of share application money received. Accordingly, it was co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m P Ltd 50,00,000 50,00,000 4 AarpeeConco P Ltd 35,00,000 35,00,000 5 Zenstar Marketing P Ltd 6,50,00,000 2,50,00,000 TOTAL 21,63,99,930 17,63,99,930 Accordingly, the ld CIT(A) confirmed the addition to the extent of Rs.4.00 crores and deleted the remaining addition. Aggrieved, both the parties in appeal on this issue. 19. We heard rival contentions and perused the record. In the instant case, the addition has been made u/s 68 of the Act, wherein cash credits, which are essentially share capital/share premium money received by the assessee, have been added. Sec. 68 enables assessment of such types of cash credits, if the assessee fails to prove the nature and source of cash credits. Nature of cash credit would mean that the assessee is required to show that it is not of revenue nature. In order to prove the sources, the assessee should discharge initial burden to prove the cash credits placed upon his shoulders of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by Share subscribers. f) Form 2 filed before ROC for allotment of shares. g) Valuation report of shares From the details submitted it can be seen that the identities of share subscribers stand proved. Since they have made payments from their bank accounts through account payee cheques, these transactions cannot be treated as bogus. Since the payments have been made from of funds available with them, the credit worthiness would also stand proved. We notice that the AO has observed that these subscribers are either showing loss or meager profits and such meager profits are not commensurate with the investments made by them. However, there is no bar under the law that a person could not make investments out of borrowed funds. In the instant case, it is not the case of the AO that the applicants did not have funds available with them for making investments in the assessee company. In fact, the said investments have been routed through the bank accounts of the assessee as well as the subscribers. Further, these investments are duly reflected in their books of account. 22. We notice that the tax authorities have first relied upon the surrender made by Shri Sumati Chand Gout ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arises is whether the Assessing Officer could have made addition under section 68 of the Act by relying upon report of investigation wing or the statement given by the alleged accommodation entry providers. It is apposite to refer to the decision rendered by the Coordinate Bench in the case of M/s. Moraj Realty Pvt. Ltd. (ITA No.708 709/Mum/2019 dated 08-12-2020), wherein the decision was rendered by following the decisions rendered by Hon ble Bombay High Court. It was held as under :- 17. Moreover, except for relying on the statement of VVB the Assessing Officer has not done any inquiry himself except for referring to a notice issued under section 133(6) in A.Y. 2009-10 only. The learned counsel of the assessee has challenged the very veracity of this observation. He has submitted that assessee has asked for the copy of the said notice issued under RTI Act. In response it was replied that copies thereof are not available. Hence, this shows that even the so called inquiry by the Assessing Officer was done in case of only one party for A.Y. 2009-10 and the veracity of which is itself in doubt. 18. We find ourselves in agreement with the submissions of the assessee s co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee s income as unexplained cash credit. 20. Similarly Hon'ble Bombay High Court in the case of CIT Vs. Apeak Infotech (397 ITR 148) has held as under :- Amendment to Section 68 of the Act by the addition of proviso thereto took place with effect from 1st April, 2013. Therefore, it was not applicable for the subject Assessment year 2012-13, So for as the pre-amended Section 68 of the Act was concerned, the same cannot be invoked in this case, as evidence wasled by the Respondents- Assessee before the Assessing Officer with regard to identity, capacity of the investor as well as the genuineness of the investment Therefore, admittedly, the Assessing Officer did not invoke Section 68 of the Act to bring the share premium to tax. Similarly, the CIT(A),on consideration of facts, found that Section 68 of the Act cannot be invoked, in view of the above, it was likely that the Revenue may have taken an informed decision no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le refusing to entertain a question with regard to Section 68 of the Act has held that the proviso to Section 68 of the Act introduced with effect from 1 April 2013 will not have retrospective effect and would be effective only from Assessment year 2013-14. In view of the above, Question No .B as proposed also does not give rise any substantial question of law as it is an issue concluded by the decision of High Court in M/s Vodafone India Services Pvt. Ltd. (Supra) and in the Apex Court in M/s G.S. Homes Hotels P. Ltd. (supra). Thus not entertained. 21. Accordingly in the background of aforesaid discussion and precedent in our considered opinion assessee has given all the necessary details required for establishment of identity creditworthiness and genuineness under extant provisions of section 68 of the IT Act. The onus cast upon the assessee stands discharged. The addition by invoking amended provisions of section 68 of the Act which are not applicable for the assessment year is not sustainable. 26. The Hon ble Bombay High Court has held in the case of CIT vs. Orchid Industries (P) Ltd (397 ITR 136)(Bom) that the addition u/s 68 could not be made once the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (j) The Bank Statement highlighting receipt of the amount by way of RTGS. (k) Banks certificate certifying the receipt of the amount through Banking channels. 6. On going through the documents which have been produced which are basically from the public offices, which maintain the records of the Companies. The documents also include assessment Orders for last three preceding years of such Companies. 7. The Appellants have failed to explain as to how such Companies have been assessed though according to them such Companies are not existing and are fictitious companies. Besides the documents also included the registration of the Company which discloses the registered address of such Companies. There is no material on record produced by the Appellants which could rebut the documents produced by the Respondents herein. In such circumstances, the finding of fact arrived at by the authorities below which are based on documentary evidence on record cannot be said to be perverse. Learned Counsel appearing for the Appellants was unable to point out that any of such findings arrived at by the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied upon in such proceedings. Apart from that, the voluminous documents produced by the Respondents cannot be discarded merely on the basis of two individuals who have given their statements contrary to such public documents. 10. We find no infirmity in the findings arrived at by the ITAT as well as CIT Appeals on the contentions raised by the Appellants-Revenue in the present case and, as such, the question of interference by this Court in the present proceedings under Section 260A of the Income Tax Act would not at all be justified. 27. In our view, the above said decisions rendered by the jurisdictional Hon ble High Court and the co-ordinate bench supports the case of the assessee. Accordingly, following the above said decision, we hold that the additions made by the Assessing Officer under section 68 of the Act in all the years, in the facts and circumstances of the case, were not justified. We noticed earlier that some of the cash credits were received in the earlier year and not during the year under consideration. Accordingly, we confirm the relief granted by Ld CIT(A) for the reasons discussed above and set aside the decisions rendered by the learned CIT(A) in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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