TaxTMI 
TaxTMI 
1998 (12) TMI 105
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....sclosed income of Rs. 59,64,123 relating to the accounting year from 1st April, 1996 to 3rd Nov., 1996, relevant to the asst. yr. 1997-98. The details of the income returned and assessed in the regular assessment and undisclosed income declared for each of the assessment year falling in the block period is given hereunder: ------------------------------------------------------------ Previous year Asst yr. Total income Returned/Assessed including income income ------------------------------------------------------------ 31-3-1987 1987-88 2,62,551 2,62,551 31-3-1988 1988-89 4,45,830 4,45,830 31-3-1989 1989-90 59,879  ....
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....p; 24,944.760 95,67,790 Precious stones 4,24,840 Silverwares and Silver bars 30kg. 30kg. 1,80,000 ----------- Total value ....
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....assessee declared undisclosed income on account of gold ornaments and silver at Rs. 59,64,123 the AO made an addition therein of the balance amount of Rs. 12,891 for the asst. yr. 1997-98 falling in the block period. 3. The first ground raised by the assessee is against an addition of Rs. 23,08,219. The AO noted that during the course of search certain loose papers listed as Annexure LP-3, LP-4 and LP-13 were found and seized. These loose papers were in fact customers' order slips. When a customer places an order a slip containing details of the weight of gold, rate of gold, description of ornaments to be made, etc. is prepared. Thereon karigars are given requisite amount of gold for making of ornaments as per specification of the customer. According to the AO the total weight of gold as per these slips given to the Karigars comes to 4,662 gms. The ornaments manufactured out of such gold were neither found at the time of search nor the same were found recorded in the sales. According to the AO the assessee failed to give account of such gold delivered to karigars either at the time of search or during the course of assessment proceedings. The AO, therefore, required the assessee....
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....nd submitted that according to the AO these slips contained particulars of customers, design, rate of gold, weight of gold along with due dates of delivery. He further invited our attention to the statement of Shri Sudhir Bansal, partner of the assessee-firm, placed at pp. 10 and 11 of the Departmental paper-book wherein he clarified that the assessee first receives order for an ornament from a customer and the same is noted down in the slip. Thereafter the order is placed with a viopari for manufacturing of the said item of gold. At that point of time neither gold nor money is paid to the viopari. The payment is made at the time of receipt of the ornaments. He however, admitted that some gold was given to Karigars but that was merely for minor repairs and preparation of petty items. He further pointed out that the AO's theory that gold had been given for making the ornaments was fallacious and untenable because if that were so there was no logic or point in indicating the rate of gold on the order slip. If the gold had indeed been given as assumed by the AO, then the rate would have no significance at all and it would be wholly superfluous. But that in fact was not so. The learned....
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....rigars and also getting corroborative statement from them. The learned Departmental Representative, therefore, contended that on given facts and material available on records the AO was fully justified in treating the said amount of gold as representing undisclosed income of the assessee-firm and the addition made on this count deserves to be confirmed. 3.4. We have carefully considered the facts, material evidence available on records and the rival submissions. Admittedly the said slips of papers giving details of ornaments, market rate of gold, value of gold and date of delivery were found and seized from the business premises of the assessee as per Annexure LP-3, LP-12 and LP-13 of the Panchnama. The AO has tabulated the details of these slip of papers and annexed to the assessment order. We find that the assessee has admitted the booking of the orders of the customers for manufacturing of gold ornaments as per the specifications as per details given in the seized slips. We, however, find that in some of the slips the weight of ornaments and other details have not been mentioned. Date of delivery is also not mentioned against a number of entries. 3.5. The AO required the a....
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....er from vioparies or karigars as to when they handed over the items manufactured and whether the gold was given to them or not for manufacturing of ornaments as per orders booked. 3.7. We further note that as per the deposition of Sudhir Bansal the names of customers were given in the said slips but the Department made no efforts to make necessary enquiries from them about the status of the orders booked such as whether they had given any old ornaments for manufacturing of new ones, whether by the date of search they had got the delivery of the ornaments ordered and payments made, etc. The Department has also not ascertained the names and addresses of various karigars from whom the gold ornaments are got manufactured by the assessee-firm and to make further enquiries from them about the manufacturing of the ornaments relating to the said slips found. It also appears that at the time of search these slips were not confronted to the assessee to seek their reaction and to make necessary spot enquiries on the date of search itself from the karigars or vioparies to whom orders were given for manufacturing of ornaments as ordered by the customers. There is otherwise no evidence brough....
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....nbsp; 7,530 8-11-1996 LP-12-11 6,025 5-11-1996 LP-12/19 60,255 8-11-1996 LP-12/24 16,064 8-11-1996 LP-12/25 49,698 8-11-1996 LP-12/26 17,570 14-11-1996 LP-12/27 17,570 14-11-1996 LP-12/30 25,150 8-11-1996 LP-12/35 23,735 5-11-1996 3.8. W....
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....as per the market practice the rate as quoted is always under-rated because the making charges are always nominal and weight loss in soldering, polishing and other manufacturing operations is lucrative enough to cover up the making charges also. Moreover, the AVO has carried out the valuation according to the accepted market practice and, therefore, the value determined by him requires no further adjustments. The learned counsel has, therefore, pleaded that the addition made on account of labour charges, etc. is totally misconceived and there being no material to support the addition so made deserves to be deleted. 4.2 The learned Departmental Representative, on the other hand, has relied upon the order of the AO. He has further submitted that admittedly the assessee-firm has been getting the ornaments manufactured through Karigars and the labour charges are obviously paid to them. The DVO in his report has taken the value of the metal contents of the ornaments only and the payment made on account of the labour charges to the Karigars, etc has to be taken into account to ascertain the correct value of the ornaments found and the AO was right in doing so. 4.3. We have carefull....
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....y material evidence and accordingly the addition made deserves to be deleted and we do so. 5. The next ground taken by the assessee is about adopting the undisclosed income at Rs. 1.90 crores based on seized documents including Dharam kanta receipts. The AO noted that annexure LP-2/18 is a piece of paper seized from the premises of the assessee-firm during the course of search. This paper contained entries of transactions on both sides and it was found clipped with Dharam Kanta weighment slips. The document contained entries on the front side as under: Cr. 1. 2,004.100 15/2 6,000 2. 2,503.300 15/2 4,000 Muha 3. 2,003.400 &nbs....
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....nbsp; 20,000 8. 1,638.401 17.2 1,000 ------ ------ 17,814 21,000 ------ ------ The back side of the document also contained the following entries: D a/c "Gd" C. No. 5,220.200  ....
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....; 8.50 ----- 5.1 As regards the front side of the document the AO noted that figures on the left hand side indicated the weight of gold purchases in grams and milligrams and figures on the right hand side indicate the unaccounted payments made on the dates mentioned against them. The AO noted that payments shown appear to have been written in code words and the decimal shown therein is not to be taken into consideration. The front side of the paper suggests that against the purchase of 17814.950 gms. of gold payments of the order of Rs. 21 lacs were made in cash within three days from 15th February though only the date and month is given and not the year but the transactions are of February 1996 as is ap....
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....00 13,14 16-2-1996 (5) 1,909.650 1,909.650 12-A 18-2-1996 (6) 2,208.150 2,208.150 12 18-2-1996 (7) 3,020.650 3,020.6500 11 20-2-1996 (8) 1,638.400 1,638.450 17-A -1996 ---------------------------------------------------------- 5.2. The AO, therefore, held the view that the entries on front side of the document are in respect of gold only and the said gold was got weighed from Dharamkanta from 14th Feb., 1996, to 20th Feb., 1996 and the weighment figures given in the Dharamkanta slips tallied exactly with those found recorded on the seized document. The AO required the assessee to offer e....
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....th of February & March, 1996 are of about Rs. 3.00 lacs i.e. equivalent to about 600 gms. to 700 gms. of gold ornaments. By no stretch of imagination, the stock of gold ornaments with the assessee on the relevant dates in February, 1996 (given in LP-2/18) can exceed 10.500 kgs. Now can the assessee made weighments of 17,814.950 gms. and 21,206.700 gms. is simply impossible to understand. Further the closing stock is prepared at the end of the year i.e. 31st March and not in the month of February. For taking weighment of one's own stock one need not go to an outside person i.e. Dharamkanta and expose himself and the stocks to risk. An independent weighment facility/Dharamkanta is used only when the transaction is with the outsiders, to ensure impartiality. The very fact that the gold was not weighed with the help of in house weighment facility, proves that the gold in question was not the assessee's stock but is purchases made from other persons. (b) The contention of the assessee that transaction of Rs.21,000 cannot be read as 21 lac, is also not believable because against purchase of 17,814.950 gms of gold payments cannot have been made in amounts of thousands because the value....
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....; ---------- The facts prove that the assessee was never in possession of silver weighing more than 1,184 gms. during the financial year 1995-96. (ii) Though silver bullion etc. weighing 30 kgs amounting to Rs. 1,80,000 was found at the time of search, but the same is the acquisition of financial year 1996-97 as is further confirmed by the assessee himself by declaring its value in financial year 1996-97 as is further confirmed by the assessee himself by declaring its value in financial year 1996-97 and not m financial year 1995-96. (iii) The assessee's contention that the figures of 1,13,543.46 represents the value of 21 kgs. 206 gms. of silver is further without any basis. The rate of silver at the relevant time being Rs. 6,800 per kg. the value of silver should be around Rs. 1,44,200. (iv) If the figures are to be treated as silver, the 8 figures mentioned against it totalling to 73.50 would lose its meaning. (v) The assessee's contention that the different figures mentioned against four weighments represent the weighment charges is again wrong on the ground that there are four weighment entries and the different figures representing money agains....
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....r against made payments in cash of Rs. 94.50 lacs. The value of the gold at the rate prevalent during the period was worked out to Rs. 1.90 crores. Since these purchases were not found recorded in the regular books of account, the AO treated the same as undisclosed income representing unexplained investment in the purchase of gold at Rs. 1.90 crores for the financial year 1995-96 relevant to the asst. yr. 1996-97 falling in the block period. 5.5 The learned counsel of the assessee has strongly opposed such action taken by the AO and he has further submitted that the addition made was based on mere conjectures and surmises without any reasonable or proper appreciation of the seized material. He further contended about the entries relating to the front side of the document that it was the normal business practice to weigh the stock of goods at the shop periodically so as to ensure some internal control over the stock holdings. Recourse to weighment at Dharamkanta had been taken because the weighing scale at the shop was small which did not have the capacity to weigh beyond 300 gms. at one time. The Dharamkanta was equipped to weigh up to 5 kg. at one time and for that purpose the ....
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....he learned counsel further made a submission that the AO had attempted a double taxation on the same income. In the first place he has taken for assessment the entire amount of excess gold and silver which was found at the time of search weighing 12,456.580 gms. of gold and 30 kg. of silver respectively besides the assessee had goods in the books of account weighing 9,398.435 gms. The aggregate of these two was more than sufficient to cover up and explain the stock of goods in hand at the relevant time and it was that which was got weighed from Dharamkanta. After so doing it was not permissible for the AO to return once again to the Dharamkanta slips and make that the basis of fresh addition without giving credit for what had already been added and assessed. The learned counsel has further pointed out that the assessee having surrendered 30 kg. of silver for assessment could well be held to have had 21,206.900 gms. on the relevant dates. The learned counsel submitted that there is no evidence otherwise in possession of the Revenue that said assets in possession of the assessee at the relevant time represented the undisclosed income of the assessee and in support he has placed relia....
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....aid paper was found and seized from the business premises of the assessee-firm during the course of search and as per provisions of s. 132(4A) it is presumed that these documents belonged to the assessee and contents thereof are correct. He also submitted that similar presumption is also available under s. 278D for tendering of evidence in support of the prosecution launched. He also referred to the decision of the Hon'ble Allahabad High Court in the case of Pushkar Narayan Saraf vs. CIT (1990) 86 CTR (All) 110 : (1990) 183 ITR 386 (All) and submitted that facts in that case are distinguishable and accordingly ratio of that decision is not applicable to the facts of the present case. 5.10. Learned Departmental Representative carried us through the entries of the said paper seized and submitted that the said documents contained weight of the gold ornaments and weight given is fully supported by Dharamkanta receipts. He further pointed out that during the course of assessment proceedings the assessee had taken the plea that the said papers contain certain rough jottings, estimates etc. and the same were left over by the customers whereas during appellate proceedings the learned co....
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....73.50 against the weighment entries and the same has rightly been decoded by the learned AO in lacs which conforms to the valuation of the gold of that weight. The weight and amount shown there against on both sides of the paper therefore suggest and establish that the assessee made purchases of gold to the extent of 39,021.650 gms. and its purchase amount has been adopted as per market at Rs. 1.90 crores. Admittedly such transactions filed no place in the regular books of account of the assessee-firm. The AO is, therefore, fully justified in treating the investment made in the purchase of gold as from undisclosed source. The learned Departmental Representative therefore pleaded that the action of the AO is fully justified and the same deserves to be upheld. 5.12. In the rejoinder the learned counsel for the assessee Shri K. Sampath has submitted that the AO's hypothesis as also the defence of the Departmental Representative is erroneous and untenable inasmuch as every item forming part of Annexure LP-10 contains prefixes like "P", "R", "E", "Gd", "B" etc. According to the assessee "P" represented pearls, "R" represented Rubi, "E" represented emerald "B" represented bangles and ....
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....hat P stands for pearl; R for rubi, e stands for emerald likewise Gd obviously stands for gold. We also note that such abbreviations have been used against certain weight given to Karigars.Pearl, rubi, emerald are given to Karigars for setting gold ornaments where as gold is given to Karigars for manufacture of ornaments therefrom. Moreover, the goods would indicate all types of items including gold ornaments, precious stones, etc. but when abbreviation such as P, R, E is used for pearl, rubi and emerald separately it is logical to infer that "Gd" is used for gold and not for goods. 5.14. Another argument taken by the Revenue is that it is only the gold which is weighted to the extent of miligarm and the position being so the weighment recorded could only be of gold and not of silver. The assessee on the other hand has referred to the statements recorded of the Dharamkanta owner and claimed that weighment of silver is also to the extent of miligram. We find that the AO has recorded statement of Dharamkanta owners or persons working on Dharamkanta during the course of assessment proceedings and the same are placed at pp. 5 to 9 of the paper-book filed by the assessee. Shri Ashok ....
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.... at the bottom corner of the paper. Moreover, we find that the assessee-firm was mainly engaged in the manufacture and sale of gold ornaments. Moreover, 30 kg. silver was found during the course of search and the same has been valued by the approved valuer at Rs. 1,80,000. The rate per kg. comes to Rs. 6,000. It so appears that as per the valuer's report 30 kg. silver comprised of silver bars and solid silver and not of ornaments whereas if 1,13,543 is taken as valuation of Rs. 21,206.900 gms. the average rate per kg. works out to Rs. 5,350. The assessee had filed a certificate of Sarafa Committee according to which market rate of silver of 70 per cent purity as on27th Feb., 1996is Rs. 5,350 per kg. Normally silver ornaments could be of 70 per cent purity but as mentioned above the assessee is not engaged in manufacturing and sale of silver ornaments and the silver found at the time of search was comprised not of silver ornaments but of silver bullion and silver wares. Silver bullion is of 100 per cent purity whereas silver wares could contain impurity not exceeding 5 per cent whereas the value as shown on behalf of the assessee is of silver of 70 per cent purity. There is no mater....
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....bsp; 4 5.18. The weighment charges recorded in other Dharamkanta receipts is not legible, the photo copies thereof being not clear. We, however, find that the aforementioned weighment charges find place on the back side of the said paper below -.04 items. It could, therefore, be logically inferred that these entries represent the weighment charges exclusively. This shows that the said four lot of ornaments were got weighed from some Dharamkanta and weighment charges were paid but weighment slips have not been retained and accordingly not found at the time of search. 5.19. It thus becomes clear that the back side of the paper contained entries of weighment of gold ornaments to the extent of 21,206.900 gms. in four lots comprised of 5,220.200 gms. 5,247.900 gms., 5,177.400 gms. and 5,561.400 gms. on 16th & 18th February and since the Dharamkanta receipts as referred to above-mentioned the year 1996 these weighments were got done by the assessee on 16th and18th Feb., 1996. On these facts we conclude that such gold ornaments were is possession of the assessee-firm on 16th and 18th Feb., 1996 and there being no other claim or any material to pro....
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....rnaments account 8,297.745 gms. Broken gold a/c 250.425 gms. 5.24. We also find that as on15th Feb., 1986as per books of the assessee the stock of gold ornaments was as under: Old ornaments Opening stock as on 1st April, 1995 5,162.720 Purchase during the period 1st April, 1995 to 16th Feb., 1996 3,553.480 ---------  ....
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....bsp; --------- Balance 2,405.680 --------- Broken ornaments Opening stock as on 1st April, 1995 250.420 Purchases from 1st April, 1995  ....
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.... ---------- Total goods 22,434.945 ---------- Thus with gold ornaments, total stock of gold ornaments available was of 22,434.945 gms. 5.25. The stock weighed as per back side of the aforecited document comes to 21,206.700 gms. This is fully covered by the total gold ornaments as should be available with the assessee during the relevant period including that disclosed and offered for taxation for the block period. For gold ornaments, the weighment of which is found recorded on the back side of the said paper, in our considered view, n....
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....; 2,000 Pappu 5.28. The names given of these persons in short also indicate that the said advance amounts were received through these persons. We find that the AO has not made any efforts to ascertain the full names of the persons and to enquire from them about the nature of the said entries or any transactions made through them nor the assessee has offered any explanation about the names appearing of such persons against the entries of the said amounts given is column No. 3 of the paper, though the assessee is in full knowledge of the actual state of affairs. Having regard to the above discussions the only inference that could be drawn is that the said entries relate to sale of gold ornaments. There is otherwise no material brought on record by the Revenue to show that these entries represent purchase of gold ornaments or the total amount given as 21,000 in fact represented Rs. 21 lacs. In the absence of any such material the hypothesis put forward by the AO that the assessee purchased the said gold ornaments on such dates out of its undisclosed income is not supported by any material and ....
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....p; 16,53,862 1995-96 36,75,699 17,47,457 1996-97 50,86,232 17,99,413 6.1. The AO observed that to make sales of Rs. 16 lacs to 18 lacs the assessee had maintained capital in the range of Rs. 29 lacs to Rs. 50 lacs. The AO further noted that the entire payment against the unaccounted purchases of Rs. 1.90 crore was made in cash during the period14th Feb., 1996to20th Feb., 1996and such payment was made out of the undisclosed income of the assessee. He, therefore, treated the amount of Rs. 1.90 crore utilised for purchase of 39.21 kg. Of gold as unexplained investment for the financial year 1995-96. On that basis the AO estimated that unexplained sales at Rs. 2,33,81,737 and applying thereon a g.p. rate of 18.74 per cent as disclosed in the books of account he worked out the profit at Rs. 43,81,662 which the assessee failed to disclose in the asst. yr. 1995-96. 6.2. We have heard the learned representatives of the assessee as well as the Revenue and also considered the facts in this behalf. While consi....