TaxTMI 
TaxTMI 
2011 (4) TMI 1460
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....ly, S.J. International and Golden Moments Jewellery. He is also the 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 copacer....
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....n 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 misrepresented and not supported by any post search report. 3.4. The Id CIT(A) erred in allowing telescoping of the income admitted In the earlier years ag....
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....#39;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 any capital gain loss in their total income computation sheets. So, the AR pleaded that it should be reasonably presumed that the jewelleries appearing in the wealth tax returns for AY 1985-86 for all the family members, increased by the amounts disclosed under VDIS....
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....ersons 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 rejection of opening jewellery in the hands of the four persons mentioned in the immediate preceding paragraphs, I decide to reject the assessee's claim of opening jewellery in the hands of some of the family members to the extent of the quantum as furnished by the assessee. Total Jewellery of Surender Kumar Galada and family as per VDIS '97 records and subsequent purchase: Name of the assessee Gold Bit (in grams) Gold Jew....
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.....11.2007, print-outs of some selected files copied in the CDs were taken out in the presence of Shri Lalith Kumar Galada, who is a co-parcenar and mandate holder of the HUF, M/s Abirchand Galada, proprietor of M/s T.B. Jewellery. On 17.12.2007, Mr Lalith Galada appeared before the undersigned and he explained about the contents of the seized/impounded documents made during survey/search at the residences and in the shops. At that time, the print-outs taken from CDs (marked page-1 to 18) were also shown to Shri Lalith Kumar Galada and discussed. When asked to explain the contents of page-14 of those print-outs (a photocopy of which is made overleaf as per page-11 of this assessment order), he replied that he would refer back to his accountant and auditor and would submit a reconciliation statement. Thereafter, on 12.12.2007, a reply was filed by Shri Abhirchand Galada (HUF) in this matter (kept in the folder of Shri Abhirchand Galada (HUF) for AY 2006-07) which is reproduced below: "Please refer to the loose sheet, Shri Heeralal, HUF and Smt. Asha Nahar. In the said sheet it has been depicted that gold 7345 grms has been shown as deposited with M/s T.B. Jewellery. ....
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....which was found at the residence of Mr. Latith Galada during search. So the total jewellery found to be owned by Mr. Surender as on 20-05-2005 comes to (10956 + 5537.85) grams = 16493.85 grams whereas as per records it should have been 9352.84 grams. Accordingly excess jewellery found comes to (16493.85 - 9352.84) grams = 7141.01 grams. Taking the rate of Rs. 570/grams as value of gold (done by Registered Valuer) on 20-5-2005, the total unaccounted investment made in Gold Jewellery during F. Y. 2005-06 comes to(7141.01 X 570) Rs. 40, 70,375/-. Total diamond found on the date of search (at residence + as per page 14 of CD printout was 92.80 carat whereas as per the chart above, it should have been 175.22 ct. So there was a deficit stock of 82.42 ct of diamonds. Total silver found at residence of Mr. Surender Galada, on 20-5-2005 was 33.547 kgs, whereas the total quantity disclosed in VDIS '97 by the family members is 175 kg. This means (17533.547) i.e. 141.453 kg of deficit silver was found as on 20.5.2005 at the residence of Shri Surender. There may be many reasons for finding such deficit stock of silver and diamonds viz. the assessee could have lost....
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.... 1986-87 (copy enclosed for kind perusal), the detailed break up being: Surendrakumar Galada(Indl.) 178.39 gm Surendrakumar Galada(HUF) 597.00 gm Suryakanta Galada(wife) 1,555.40 gm Nirmala Kawar Galada(mother) 3,066.95 gm 5397.74 gm The Assessing Officer also did not take into account the jewellery owned by other members of the family, the details being: Sushma Galada(daughter-in-law) 520.90 gm Rajul Galada(daughter) 520.130 gm Akshay Galada(son) 142.74 gm Ishita Galada(grand daughter) 52.30 gm 1236.07 gm If these two claims are considered, the position would be as under: Total gold jewellery found 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/page 4 of the Asst. Order accepted by the Assessing Officer 9,352.84 Wealth of the family members in whose cases WT returns were filed prior to the date of search i.e 1986-87 5,397.74 Wealth of the family members in whose cases Returns were filed after the search 15,986.65 1,236.07 Excess 507.20 The Assessing Officer has s....
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....of wealth furnished by the family members. The Assessing Officer has gone wrong in concluding that the other family members, viz., the daughter in law, daughter, son and grand daughter could not have owned even one gram of jewellery. Credit needs to be therefore given for the jewellery owned by these persons of 1236.07 gm. The appellant submits herewith a chart which indicates the details of jewelleries as per the wealthtax records, the declarations made by the family members under VDIS, vis a vis the jewellery found on the date of search. The same is depicted hereunder: CHART OF GOLD/SILVER DIAMOND/CASH FOUND AS ON DATE OF SEARCH VIS-À-VIS RECORDS Particulars Found Refer Sch. I As per Records Refer Sch. II Excess/Deficit Gold 10956.000 [Grms] 16866.950[Grms] -5910.950 [Grms] Silver 33.547 [ Kg] 255.446 [Kgs] -221.899 [Kgs] Cash Rs. 59700.00 Rs. 3,04,377.00 Rs. 2,44,677.00 [-] Diamond 15.00 Carats 216.360 [Carats] -201.360 [Carats] As per Schedule I As per Schedule II S.No. Panchanama No. Gold Silver Cash Diamonds ....
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....nt despite the fact that the explanation is based only on those records which were available with the department. Wealth of family members in whose cases returns were not filed before the date of search, but were filed after the date of search: Another important aspect which is quite relevant to the point at issue is the social status of the appellant and his family. The family has been in the jewellery business in Chennai from 1936, i.e. for more than 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 Rs. 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 Assessin....
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....s to be given at 9358.84 gms. In view of the above findings the excess jewellery found at the time of search is worked out as under: Excess determined by the A.O 16493.85 gms Less: Jewellery disclosed in WT returns of A.Y 1985-86 5397.74 gms Less: Jewellery declared by family Members in the WT returns filed after Date of search 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 = Rs. 2,89,104/- In view of the above the impugned addition is reduced from Rs. 40,70,375/- to Rs. 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 jewelle....
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....s per the Annexure CB/B&D/S. For assessment year 2006-07, in this assessee's hands, following seven assets/incomes were considered: (i) Excess gold jewellery found from residential premises during search and excess stock of gold jewellery 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 de....
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....ces'. Moreover, when two probable conclusions/opinions/views can be drawn from a given set of facts, the one favouring the assessee has to be accepted and this is the 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 A....
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....year 1997-98 he has arrived at a rate of Rs. 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....
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....een 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 th....
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....n'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 Rs. 15,000 was income from undisclosed sources. But the sum of Rs. 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,....
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....e 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 Rs. 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 records 3973.356 grams Customers' stock available on the date of search 501.100 grams Jewellery purchased on the date of search, not 5230.635 grams 9705.091 grams Booked as the entries had not been updated, though the bill was available and noted by the search party Excess 8049.189 grams Thus th....
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....9. 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 books as on 19.5.05 3973.356 gms 13780.924 gms Customers' stock 501.100 gms 13279.824 gms The above excess was arrived at on the basis of the G-11 register wherein the stock as per books was arrived at 3973.356. This document was seized by the search party. A copy of the same is enclosed for reference (Annexure 3). While arriving at the stock position as per books, the gold bits issued to our work shop to our Achary (Mr. Himanshu) of 4106 gms was reduced from the books and thereby the stock as per our books at show room came down by 4106 gms. However, while arriving at the physical stock, the gold at showroom and the workshop was taken together. This has led to the discrepancy. If the gold at showroom is compared to gold found in showroom, then this discrepancy will not be there and the gold issued to the workshop (to Mr. Himanshu Achary....
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....isations on sale of silver and diamond (which were physically not found at the time of survey) has to be telescoped to the physical wealth available in the form of gold on the date of survey; (xi) that the search/survey operations have resulted in bringing to fore the positions wherein there was: Excess of gold 8049.189 gms Deficit of silver 221.899 kgs Deficit of diamonds No finance business 201.36 cts This being the case, the Assessing officer also having admitted to the fact that the appellant has been engaging in selling and purchasing of jewellery, silver and diamonds, and also doing finance business which were not found in regular books, ought to have accepted the net position as on date of search/survey and not ignored the evidences so strong in nature,. before him., i.e., availability of excess gold on the one hand, and non-availability of silver, diamond, cash and finance. (vi) that in the entire proceedings, the appellant's statement on oath has been relied upon very heavily. It is not out of place to mention that the very document 'Dhanraj' on the basis of which the assessing officer has relied very heavily for ass....
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....e 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. Q.5: What was the mode of payment/receipt in respect of the above unaccounted transactions? Ans. All the transactions reflected in the above account are done in cash. Q.6: What are the source of funds in respect of unaccounted loans and purchase of gold jewellery reflected in the above account? Ans: The main source for the unaccounted investment in finance and gold jewellery business is profit generated on account of unaccounted purchase and sale of gold jewellery/bullion and undisclosed interest income from finance business. Q.7: During the course of survey operations conducted at No.4 Seethammal Colony 2nd Main Road on 19/5/05 & 20/5/05, the closing cash balance as per books was noted down as given below: Name of the concern Amoun....
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....5,000.00 Refund by Debtors 8,100,000.00 Asst. Year: 2006-2007 Purchase of jewellery 5357.850 grams 2,946,817.00 Purchase of jewellery 8049.189 grams 4,427,054.00 Purchase of 5454.54 grams of jewellery & contributed to Abirchand Galada HUF 3,000,000.00 Balance C/o. 18,682,906.00 18,682,906.00 FUND FLOW RECONSTRUCTED: PS : No evidence or records are available with us. The Fund Flow has been reconstructed based on flow of events and as I could remember. However I have included the finances as per financies as per the sheet, estimated the interest for A. Y. 2004 - 2005 and paid the taxes thereupon. The same has also been included in the Fund Flow. There are loose sheets with the department evidencing the purchases and sale of Gold, Diamond, Silver etc., but they are not continuous in nature. This being the case, the Fund Flow has been reconstructed partly based on material and also to the extent I could recall. (viii) That notwithstanding the above, the appellant also submits that the extra income offered on account of sale of silver, diamonds, and gold be....
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....ing credit to the income declared has also not correct. The Revenue is contesting these issues in ground No.3. After considering the rival submission we are of the opinion that the claims in this regard are to be examined by the Assessing Officer afresh. In the paper book No.4, pages 3, 4 & 5 filed by the Revenue are Annexure 1 prepared at the time of search in the premises of Golden Moments. As seen from the above working, stated to have been updated on the date of search, the opening stock was arrived at 126889.538 gms. Page 3 contains the purchase of stock from 01.04.2005 to 17.04.2005 totalling to 27436.185 gms. which include alloy content mentioned in the second column. As against the total stock arrived at like that at 40125.703 gms., the sales were detailed in pages 4 & 5 and arrived at the stock at 3973.356 gms. The physical stock found was 17670.120 gms. Even though, it is not stated whether the physical stock was pure gold or alloy, the assessee, however, has not disputed the excess stock arrived at 8049.189 gms valued at Rs. 45,88,037/-. To this extent the ld. CIT(A)'s order confirms the addition. The dispute by the Revenue is with reference to the credit given to Sh....
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....cash flow was not considered by the Assessing Officer, we are of the opinion that this issue requires re-examination by the Assessing Officer in order to make the correct working as claimed by the assessee. We restore this issue to the file of the Assessing Officer to examine it afresh and consequently the issue raised by the Revenue in this regard vide ground No.3 and ground Nos. 2 & 3 of the cross objection stand allowed for statistical purposes. The issues are restored to the file of the Assessing Officer. 25. The fourth ground of cross objection relates to estimation of gross profit from undisclosed jewellery business. This issue was not seriously argued by the ld.AR and therefore, we do not interfere in the appellate finding. 26. In the result, the appeal of the Revenue and the cross objection of the assessee are partly allowed for statistical purposes. I.T.A.No. 1484/Mds/08 and C.O 15/Mds/09 27. The appeal of the Revenue and the cross objection of the assessee are directed against the order of the ld. CIT(A) dated 4.4.2008. 28. The grounds raised in Revenue's appeal read as under: "1. The order of the learned CIT(A) is contrary to law and facts of the ....
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....st which the assessment order was passed on 26.12.2007 at a total income of Rs. 2,51,11,814/-. In doing so, the Assessing Officer made addition of Rs. 2,48,39,000/- on account of unaccounted cash and deposits and purchase of gold and bullion. During the course of survey u/s 133A at the premises No.4, Seethammal Colony, Teynampet, Chennai, at the time of checking the contents and files maintained in the computer, one file named 'Dhanraj' for the financial year 2003-04 was discovered which was created in 'Quicken Software'. It was noticed that the word 'Dhanraj' is nickname of Shri Surendra Kumar Galada. A printout of that file running into four pages was taken during survey and brought alongwith the other impounded documents. This document contain 20 entries as under: "Cash account (34,178.50), ACRIS (3,500), BALAJI (0), BASKER (0), D C S, GRAND CARS (29,141.50), KRG (700.00), M K B (0), MEENAKTCHI SILKS (1,050.00), PURPLE LOGISTICS DC SEKAR (2,190.00), PURPLE MAHA (28,200.00), RAJJAPA (6000.00), SIVAMANI (1000.00), USHA RAJAGOPAL (0), VASANTHI VISWANATHAN (15,000.00), VASU (16,000.00), VENKATALACHALAPATHY (5000.00). This list also contains a few code names prefixed with -v....
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.... 30,05,352 minus Rs. 1,23,585). Shri Surender, in his sworn statement dated 26.5.2005 (in reply to question No.7) explained the deficit, which is extracted as below: "Q.7: During the course of survey operations conducted at NO.4, Seethammal Colony, 2nd Main Road, on 19/05/05 & 20/05/05, the closing cash balance as per books was noted down as given below: Name of the concern Amount SJ International 5,81,222 AG International 5,84,041 LG International 5,03,581 Golden Moments jewellery 13,36,508 30,05,352 The printout containing the cash balance had been taken from the system and signed by your Accountant Mr.Kasi Viswanathan and your son Mr.Abhisekh Galada who were represent at the premises. On the other hand, as per the inventory of the cash found in the premises, the actual cash available as on the date of survey was Rs. 123585. As seen from this, it is quite clear that there was a deficit cash to the tune of about Rs. 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 ....
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....second part of the submission which is of the highest probability shall not be correct." The assessee has also pointed out that there are lot of instances of purchase and sale of jewelleries outside the books on the loose sheets. This he submits is an enough indication of the fact that the jewelleries sold and purchase outside the books. He has further elaborated that though the evidences are not conclusive in nature but then they can't be dismissed of either. The evidences though disjoined and not in continuous in nature however can't be ignored altogether. He states that the position as on the date of search where the position had in a state of affairs where there was excess gold, deficit silver, deficit diamond, deficit cash and Nil finance only goes to further testify that the amounts have been in circulation and have been changing one form or the other. In a sum up the assessee states that assessing the finance and the jewellery independent of each other without 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 ....
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.... accretions as far as possible of the respective years for assessment". Regarding this point of sale of jewellery, the assessee in his replies to notices u/s. 142(1) for A. Y.2004-05 and 2005-06 has stated that there was no sale during the years. Again, in the Note appended to the return for the year 2006-07 (Page 2), the assessee has written - "In the case of Gold: A. Surendra Kumar Galada: During the course of search, 10956 gms of gold was mentioned against my name. As per the records, the total jewellery should work out to 16866.950 gms. Thus there was a deficit of 5910.950, gms. This represents sale of gold during the F.Y.2003-04 relevant to the A. Y.2004-05 for Rs. 30,44,087/-" In page 3, the assessee has stated that - "In the case of silver: On the date of search, silver of 33.547 kg. was found whereas as per the records, the possession of silver must be 255.446 kg. Thus there was a deficit of 221.899 kgs. of silver. The deficit was because 221.899 kg. of silver was sold during the F.Y. relevant to the A.Y.2003-04 for Rs. 17,75,192. The profit on this sale amounting to Rs. 1,50,000 has been offered for assessment in the re....
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....been contributed to T.B. Jewellery." Here I would like to mention that the above contention of selling of the jewelleries utilising that fund for three years and again getting back the entire fund and with that fund purchasing jewelleries again seems very unlikely. Firstly he himself has admitted (as quoted earlier) that no record of sale or purchase of jewelleries has been kept. According to his own admission the sale took place during F. Y. 2002-03 and 2003-04, i.e. approximately four to five years ago. But while establishing the amount of jewelleries which as per him should be treated as available in respect of all the assessees(individuals and HUFs) on the day of search, 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 afterthou....
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.... the following chart :- 1.Purchase of jewellery 5357,850 gms Rs. 2,946,817/- 2. Purchase of jewellery 8049.189 gms Rs. 4,427,054/- 3. Purchase of 5454.54 gms of jewellery & contributed to Abirchand Galada,HUF Rs. 3,000,000/- In this regard it is note worthy that alongwith the audit report (submitted with return of income for A. Y. 06-07) the auditor mentioned the following two paras:- "4. During the year, the assessee has introduced funds from his personal sources. He has also offered the income in his personal hands for earlier years. Jewellery worth Rs. 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 Rs. 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.....
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.... and bundled up all as Unexplained Investments. This despite the fact that the same document. reveals the Net Balance of Unexplained Investment at Rs. 35,530/- [which on expanded figure means Rs. 35,53,000/- ] [iv] That he has not even discussed the other evidences as detailed in Exhibit - 2 and Exhibit - 3 of this paper book which were part of the search material and also been questioned upon by the Search Authorities. [v] That while accepting the income now returned, he has accepted the profit made on Sale of Silver in A.Y. 2003 - 2004 and 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 Rs. 17,75,192/- Rs. 1,50,000 .. Gold/Diamond - Profit on sale Rs. 66,68,567/- ... Rs. 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 - ....
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....ons reflected in the file 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 tha....
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....ed profit of Rs. 1,50,000/- and Rs. 2,50,000/- respectively for the unaccounted sale of jewellery, silver items etc. totaling to Rs. 17,75,192/- in A.Y 2003-04 and Rs. 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 Rs. 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 Rs. 1,41,96,000/- out of which the source of fund is explained to the extent of Rs. 84,43,759/-. The source of balance amount of Rs. 57,52,241/- is not explained. In view of the above the impugned addition is....
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....dicated 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 Rs. 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 Rs. 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 outside the books of account. This fact clearly establishes that the assessee was pur....
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....re 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 Rs. 66,68,567/-. The assessee has offered profit of Rs. 2,50,000/- in this year. From this sale consideration, Rs. 65 lakhs is stated to have been advanced as loan on which interest due of Rs. 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 Rs. 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 proof collected during investigation. No addition can be based simply on surmises and conjectures. In our considered....
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....evenue 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 Rs. 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 appreciated the fact that the claim of 5454.55 gms of gold belonging to ShrLSurendra kumar Galada Is not acceptable as already ex....
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....ry 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 Rs. 550 per gram 'and a sum of Rs. 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.Lalith Galada in the course of sworn statements recorded on 19/20.5.2005. Moreover, even at this assessment stage, till the date of this ....
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.... 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 Rs. 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 Rs. 40,00,113 Silver 108-296 kgs Rs. 10,82,960 Diamonds 4.83 cts Rs. 1,20,750 Cash(deficit) (Rs. 50,452) Silver fancy Rs. 2,26,653 Platinum Rs. 75,052 Others Rs. 893 Rs. 53,05,865 Less: Value of gold received from Surendrakumar Galada Rs. 30,00,000/-** Rs. 23,05,865 Roundly taken at Rs. 23,00,000 ** Value of 5454.55 gms of go....
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....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 no evidence to support that jewellery weighing 5454.55 gms was given by Shri Surendra Galada. It is important to note that there is no evidence also in support of the claim that jewellery weighing 6632.810 gms, found at the residence of Shri Laith Galada, actually belongs to, the appellant HUF. In view of this fact there is no justification for treating the jewellery found at the residence of Shri Lalith Galada as belonging to the appellant HUF. The source of jewellery found at the residence of Shri Lalith Kumar Galada can be examined in the case of Shri Lalith Galada only. Since there is no basis for treating the jewellery found at the residence of Shri Lalith Galada as belonging ....
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....n 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 stated to be a result of raising additional grounds in proper format although the original cross objection was filed in time. Therefore, considering the facts, we condone this delay and admit the cross objection as apart from being a case of revising the grounds filed in time, the assessee has got a reasonable cause for this delay which was caused as a result of legal advice. 46. The first issue of the cross objection relates to confirmation of addition of Rs. 13,09,630/- made on account of excess stock of silver weighing 165.107 kgs. The facts apropos this issue are that during survey, inventory of silver was prepared and on physical verification, silver aggregating to 4,80,928 gms ....
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....The facts of this issue are that addition of Rs. 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 diamonds, as per the Assessing Officer, quantification in terms of carats was not possible, therefore, he has assessed their value piece by piece at Rs. 1,33,208/- in total. The ld. CIT(A) has also confirmed this addition. The contention of the assessee is that it has itself offered the value of excess stock of diamond amounting to Rs. 1,20,750/-. The difference of little amount has been attributed to the adoption of multiple value of diamonds on the given date. From the perusal of para 7.2, at page 10 of the ld. CIT(A)'s order, we come to a quick conclusion that he has given no reasoning for sustaining this addition despite the fact that the assessee has submitted that towards excess stock of diamonds, it has already surrendered Rs. 1....
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....t 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 loose sheets, names and amounts are mentioned. The Assessing Officer did not find assessee's explanation as convincing. Therefore, as per the table extracted in Assessing Officer's order, the explanation of the assessee that when a customer visits the showroom and selects certain item of jewellery, a prima-facie, rough cost of article is made which is further bargained upon. It was further stated that the customer may or may not accept the proposed price of the jewellery item and from such slips which are found during search/survey it is not possible to say whether that particular item was actually sold or not sold. Since the Assessing Officer was not agreeable, he has made the impugned addition in assessment years 2004-05 to 2006-07. In assessment year 2006-07, addition of Rs. 3....
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....eal, 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 was aggrieved and preferred first appeal. The ld. CIT(A) was not agreeable with the assessee and, therefore, has sustained the impugned additions. 56. Before us it was argued that the additions have been made in both years only on the basis of some loose sheets which were seized at the time of search from the business premises, which are detailed at pages 2,3 & 4 of the assessment order. The contention of the assessee is that it is a custom/practice prevalent in the jewellery business that when a prospective buyer comes to the shop, he will inform the salesman about his requirements and also demand a fair estimate regarding weight and value of the articles of jewellery he proposes to purchase. In the ordinary course of business, many customers would ask for a copy of est....
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....arned 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 Rs. 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 replying Question No.6 in his statement recorded on 20.5.2005, he stated that certain quantity of diamond was actual stock of T.B Jewellery. A deficit stock of 42.382 ct diamonds was found compared to books of account. The Assessing Officer has worked out the quantity of diamonds belonging to Shri Lalith Kumar Galada at 96.655 carat. In the data found from CD, 68 carat of diamonds was further noticed. Thus, total diamonds belonging to Shri Lalith Kumar Galada comes to 164.655 carats. The Assessing Officer has treated total 164.655 carats as actually found on 20.5.2005. In this way, he has worked out excess diamonds found at 68.145 carats. He has taken the rate at Rs. 37,000/- per carat, as on date of search, and has arrived at its value at Rs. 25,21,365/-. By tre....
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....rvey 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 all unless he disproves the claim of the assessee. The assessee has claimed the following amount of carats declared or disclosed by them and purchased by his wife as under: "Declaration in VDIS of Shri Lalith Galada 29.72 cts Declaration in VDIS by Lalith Galada(HUF) 30.00 cts Declaration in vDIS by Smt. Illa Galada 29.59 cts As per wealth tax return of Shri Lalith Galada 5.70 cts Purchased by Smt Illa Galada 7.20 cts 102.20 cts" 62. In this way, the possession of diamond jewellery comes to more that what was found during survey at 164.655 cts. Therefore, we are unable to understand how the impugned addition can be made. We do not find any fault in the finding of the ld. CIT(A) in this regard and confirm the same. 63....
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....cer 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 of assessee's brother has no relevance to explain the cash found at the time of search. On the contrary, the case of the Revenue is that this addition is based on physical availability of cash which could not be explained by the assessee. When we examined the appellate order, the ld. CIT(A) has not given any reasons to confirm this addition. He has written "I have examined the facts of the case. On examination, it is found that the finding of the A.O is flawless hence this addition is being confirmed". Nowhere it has been refuted by the Revenue that the assessee is not the proprietor of LG International, which does finance business. As per the books maintained, cash balance of Rs. 5,03,581/- was available on the date of search. The Assessing Officer has neither rejected this explanation nor said anything about this. The availability of cash in respect of individual members of the family and the (HUF) has been accepted at Rs. 1,30,100/-. If these two amounts are added, it comes to Rs. ....