TaxTMI 
TaxTMI 
2018 (5) TMI 798
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....n 13-14/10/2010 at the residence of partners and also survey U/s 133A of the Act at business premises of the assessee in this group. The assessee has filed return of income for the A.Y. 2011-12 declaring total income of Rs. 4,96,46,130/- on 11/7/2011. The assessee has taken into account undisclosed stock of Rs. 5,84,80,096/- of gold and silver in his account. The assessee has admitted unaccounted stock of Rs. 6,36,80,096/- during the survey operation. The assessment was completed at a total income of Rs. 7,91,58,320/-. The ld. CIT(A) has granted part relief to the assessee. 4. Now the revenue and the assessee are in appeals before the ITAT by taking following grounds of appeal:- Ground of revenue's appeal in ITA No. 452/JP/2015 "1. Whether on the facts and in the circumstances of the case, CIT(A) has erred in deleting the addition of Rs. 1,20,000/- made on account of remuneration to the partners ignoring that the said amount admittedly represents the undisclosed investment of the assessee and no deduction u/s 40(b) can be allowed therefrom. 2. Whether on the facts and in the circumstances of the case, the CIT(A) has erred in restricting the trading add....
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.... your honour indulgences to add, amend or alter of or any of the grounds of the appeal on or before the date of hearing." 5. In the ground No. 1 of the revenue's appeal, the issue involved is deleting the addition of Rs. 1,20,000/- made on account of remuneration to the partners. The ld. CIT(A) has granted relief to the assessee by holding as under: "3.3 I have carefully gone through the facts & submission made by assessee. It is a matter of fact that the 'surrendered undisclosed income" is in form of business stock, in hands of firm and the firm itself has no other business than to trade the jewellery of gold, silver & precious stones. The statements as recorded u/sec. 131, 132(4) of Act of partners & others also clearly states that it is all business income & thus the surrender of income cannot be considered otherwise & thus the assessee firm is rightly entitled for claim of salary / remuneration to partners in terms of section 40(b) at Rs. 2,70,000.00 as claimed. In this view the first ground of appeal of appellant is allowed. The alternative plea of appellant is that the firm and partners all are taxable at maximum marginal rate and any disallowances made in hands o....
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....8.00. 4.6.1 With regard to estimation of gross - profit margin at 14.77% (Taking average G.P.% of last 3 years e.g. 15.50%, 15.24% & 13.58% for asst, year 2010-11; 2009-10 & 2008-09) is also not fair and just because business has expanded in geographical bounds as well as items dealt in. Further several other factors such as: dealing in raw - gold, recently started business of diamond jewellery, volatility of gold prices has to be considered. In such situation G.P. rate just before survey 13.22% could be handy to resolve the issue instead relying on averages. Therefore, it would meet the end of justice to estimate the G.P. rate at 13.50% a little bit higher than G.P. rate just before survey i.e. 13.22% on estimated sales at Rs. 10.75 Crore. Thus the total gross profit to be estimated would be 13.50% on sales at 10.75 crore = 1,45,12,500.00 against declared G.P. of Rs. 55,55,405.00 & thus addition on this ground of appeal would be Rs. 89,57,095/- (1,45,12,500.00 - 55,55,405.00) only. The ground is accordingly decided to restrict the Trading addition as per Para 5.2.4 of the assessment order to the extent of Rs. 89,57,095/-." 8. While pleading on behalf of the assessee, t....
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....ii) That it was not feasible for A.O. to ascertain which old ornaments of which customers were given to the final outcome. (iv) That as per exhibit A-8 to A-12 (PB 129-147) of seized records from customers weighing 1655.380 GR. and cash as advance from customers Rs. 16,94,840.00 are all unrecorded purchases / sales & forms basis of unrecorded transactions. (Page 4 of AO's order) (v) Similarly few sales bills just before the survey dated 09.10.10 were found unposted in sales ledger & simultaneously Gold purchase just before date of survey were not found recorded, only after survey on reconciliation of facts the things came into notice & were formed part of reconciliation.(Page 22 para 6 of AO's order) (vi) The A.O. also noticed a negative cash balance at Kishangarh Branch of Rs. 10,09,273.00 (After reconciliation) the reasons of said negative cash balance was intimated to A.O. that in computer system the opening cash - balance as on 01.04.10 has been wrongly taken at Rs. 13,401/- whereas same should be Rs. 6,46,206/- as can be verified by audited accounts as on 31.03.10, by the time / date of survey these figures were already with department vide return fi....
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.... a matter of "DOUBLE SALES" "DOUBLE ADDITIONS". Similarly the A.O. has alleged for Gold bar not found in physical stock is again not justified since during survey complete stock was physically verified & was item wise inventorised. At few of the places the registered valuer's have mentioned "Mixed Items Weighing 706.50 GR. & 5132.210 GR. (S.No. 209 & 225 respectively) when the A.O. was asked for details no reply made". Thus merely on surmises and assumptions no reality can be established. If A.O. believes his theory right, than should have disclosed the nature & items of "MIXED ITEMS". Based on above defects or short comings the A.O. has estimated the assessee's firm sales at Rs. 12,00,00,000/- against declared sales at Rs. 10,32,62,598.00 and has further applied G.P. @ 14.77% against declared G.P. @ 5.28% is average G.P. of last 3 years e.g. (15.50%, 15.24%, 13.58% for assessment year 2010-11, 2009-10 & 2008-09) & thus has applied the provisions of section 145(3) of Income Tax Act, 1961 & thus has preferred to make the trading addition of Rs. 1,21,68,595/- (1,77,24,000.00(G.P. on sales of 12.00 Crore at 14.77%) 55,55,405.00 (G.P. as per books) In the first appeal th....
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.... 1. At the outset, we strongly rely upon the order of the CIT (A) to the extent it has granted relief to the assessee by reducing the estimated sale from Rs. 12 crores to Rs. 10.75 crores and the trading addition from Rs. 1.42 crores to Rs. 89.57 lakhs. 2. Further the detailed submission filed before the ld. CIT (A) and reproduced in his order, are strongly relied upon. However, some of the extracts are reproduced hereunder:- A. On Non-Applicability of S.145 it was submitted: "No care for following facts & evidences have been granted. xxxxxxxxxx The point wise assumptions of A.O. are subject to rebuttable with facts & findings as below:- (i) The A.O. has presumed that excess stock found & surrendered during survey is one of the reason & this shows that assessee is regularly indulged in such unrecorded transactions. No care of for complete quantitative tally, unit wise, and rate wise granted. Ever the subsequent sales (of advance received) have been taken "DOUBLE" by A.O. as discussed above. (ii) That the advances received from customers in form of Gold / Metal / & cash as per loose slips since not found recorded in books hence....
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.... Now coming on facts & records the features of accounts are such:- (1) That complete day to day accounts for all receipts / payments, sales / purchases, of all items, expenses etc. are being maintained as evidenced from the records impounded. (2) That complete quantitative details item wise, nature wise (Diamond, Silver, Gold etc.) were found recorded & only based of same the excess stock determined the A.O. has also accepted this fact in his order. (3) With regard to valuation of stock the assessee is following "Cost Price on Lifo Method" as evidenced from past audited accounts & form 3CD for the year & as per statement of partners, nowhere A.O. has challenged that the "Method of Valuation of Stock" or "Method of Accounting" is wrong or not as per accounting standards. x x x x x (4) Thus at any stage the A.O. is not able to sustain the defects in "Accounting Methods" and "Valuation of Stock" only on his own surmises the A.O. has applied the provisions of section 145(3) of Income Tax Act, 1961. B. On Merits: It was submitted 1.1 Fair estimation required - Legal Position: At the very outset, it is submitted that even invoking of S.1....
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.... Gm. Amount in (Rs.) Gm. Amount(Rs.) 3658.850 Rs.68,03,642/- 01.04.10 to 13.10.10 3644.880 Rs.6778612/- 13.970 Rs.25030 10682.260 Rs.1,83,50,926/- 14.10.10 to 31.03.11 10676.950 Rs.18339806/- 5.310 Rs.11120/- Total Rs.2,51,54,568/- 14321.83 Rs. 25118418/- 19.21 Rs. 36150 Thus it is clear that the G.P. of last year is not comparable to this year, or suitable amendments needed. (c) The assessee has also prepared monthwise quantitative / valuewise trading account depicting average rate of purchases, sales, quantity &Gross Profit Margin, the documents upto survey as on 13.10.10 are lying impounded with A.O. & thus cannot be denied for acceptance. (Page 1G)(PB 161-164) (d) From this Gross Profit Margin (Monthly Chart) (PB 161-164) it is clear that there is Gross Profit in case of Gold Jewellery& other but "DIAMOND TRADING ACCOUNT" reflects "A LOSS" (of 22.04 PB-162) & A.O. has considered average G.P.% of all items whereas assessee is maintaining separate trading account of each segment separately wi....
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....owards the sales made to them which is evidently clear from a detailed chart showing the relevant details (PB 118-119). The fact of receiving advance in cash and quantity was evident from the seized annexures A8 to A12 (PB 129-149) and the further column shows the details of the bills wherein the advance in terms of amount &quantity received, were adjusted. Sales in such cases was duly accounted for and this is also evident from some specimen copies of the ledger accounts of few customers (PBll 283- 290) supported by the copies of the sales bill issued to them (PBll 291- 311). The AO has not at all whispered any other evidence showing suppression of sale. Therefore, in absence of any further evidence to prove that there was still some sales remaining undisclosed, it was nothing but a mere suspicion. A suspicion cannot take the place of reality as held in the case of Dhakeshwari Cotton Mills Ltd. (1975) 26 ITR 775 (SC). The assessee, this way, declared total sale of Rs. 10.32 Crore however, the same was estimated by the ld. AO at Rs. 12 Crore (but the CIT(A) reduced the same to Rs. 10.75Crore). 5.2 Incomplete Accounts: The AO wrongly drawn adverse inference as regards suppr....
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....sence of any other contrary evidence, no other, inference is possible. Hence, it was wrongly treated as undisclosed sale. 5.4 Unaccounted sale of gold bar of 507.610 Gm: Similarly assessee firm had purchased gold bar 995 weighing 507.610 Gms for Rs. 10,00,000/- on 12.10.2010 from Shri S.K. Corporation, Jaipur, however, the AO alleged that the assessee has not entered the same in the purchases and further alleging that it was not in the inventory, was presumed to be a suppress sale. It is submitted that it was a case of purchases made from S.K. Corporation, Jaipur, vide BN SKC/753 dated 12.10.2010 for Rs. 10,00,000/- including VAT and Bill was also received on 12.10.2010 itself though the purchased was prior to survey but unfortunately remained to be entered because on the very next day survey was carried out. Notably, even payment had already been made vide Ch. No. 505436 through BOB on dated 08.10.2010. This was duly explained by Shri Ganpatlal Agarwar in Q-2 of his statement recorded u/s 131 on dated 20.10.2010. The AO himself made no separate addition of Rs. 10,00,000/- u/s 69 because it was considered in the GP addition. 6. It is evident from the above compara....
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....bmitted that this addition was estimated on irrelevant material. Hence has not deserved to be sustained. 10. We have heard both the sides on this issue. The excess stock worked out by the Assessing Officer was of 29,090.96 gms. of gold ornaments at Kishangarh Branch of Rs. 4,54,00,000/-. The excess stock worked out by the Assessing Officer was of 7,857.241 gms of gold ornaments valued at Rs. 1,43,00,179/- and silver ornaments of 168.284 kg valued at Rs. 39,79,917/- at Beawar branch. The Assessing Officer rejected the books of account by comparing the G.P. of the earlier years and pre and post survey period. In the assessment year 2008-09 and 2009-10 the G.P. rate was 13.58% and 15.24% respectively. There was only one establishment of the assessee located at Beawar and it was an old establishment. The turnover of three years was only Rs. 1,71,25,638/- for A.Y. 2008-09 and Rs. 1,78,02,399/- in A.Y. 2009-10. The turnover for A.Y. 2010-11 was of Rs. 2,51,12,770/-. In A.Y. 2010- 11, Kishangarh branch was newly opened on 03/2/2010. Thus, almost for ten months, the business was done from Beawar branch only. In the assessment year 2011-12, the sales increased from Rs. 2,52,12,770/- in A....
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.... other basis for rejecting the book results based on presumed sales of gold weighing 1655.380 gms. received from customers has also been adjusted against the sales bills raised on the execution of the orders for the same. The evidences placed in this regard are at page No. 265 to 266 of the paper book. Similarly in the case of gold bar weighing 1 kg, which was not found during the survey operation, which has been also made a basis for estimating the grows turnover. There is no clear cut finding that it was not a part of the valuation made by the valuer at the time of survey. The other issue considered for rejection of books of account and estimating the gross turnover and gross profit is sale of gold bar of 507.610 gms. The payment claimed to have been made by cheque but the sale was not entered into the books of account. Considering all these aspects and facts and circumstances, we are of the view that the assessee has already disclosed substantial unaccounted stock in its return of income which takes care of the various discrepancies noted in the books of account. However, considering the totality of facts and circumstances, we are of the view that at least the addition to the tu....
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....stomers as claimed by the appellant. Thus no separate addition for making charges as thought of by the AO can be contemplated. There is no basis for assumption by the AO that the making charges which would have incurred in creating above jewellery were not included in the valuation. No specific reasons with reference to items listed in valuation report of the registered valuer are advanced by the AO for making separate addition for making charges. 5.4.3 I also find that AO is not an expert to change the valuation of valuables found during the search and survey. More so when the excess stock found during search is valued by registered valuer and neither anything against the said valuation is pointed out by AO nor any action against the valuer has been taken by the department under the WT Act. Such addition based on hypothetical arithmetical recalculation cannot be sustained. The AO embarked upon such an exercise by misconstruing the statement of the partner Shri Vinod Agarwal about "Hall Mark jewellery". In fact before doing so the AO could have examine the individual items in valuation sheets of registered valuer and he could have found how the concept of "Hall Mark jewell....
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....dismissed. 15. In the ground No. 5 of the revenue's appeal, the issue involved is deleting the addition of Rs. 9,41,831/- made U/s 69B of the Act. The ld. CIT(A) has dealt this issue by holding as under: "7.3 I have gone through the findings of A.O. & assessee & it is an established fact that registered valuer has valued the stock as found as per Income Tax Rules in form 08A.The labour charges are also being charged by appellant separately in bills & separate income has been shown in profit and loss account for the year. In view of same reasons that are given in para 5.4 above for similar addition discussed in para 5 above, this addition of Rs. 9,41,831/- on account of reworked valuation of excess stock cannot be sustained and is hereby deleted." 16. We have heard both the sides on this issue. The ld. CIT(A) has granted relief to the assessee that the assessee was charging labour charges separately, which has been shown in the P&L account separately and also the reasons recorded in his order at para 5.4, which has been reproduced in the earlier part of this order while dealing with the issue of deletion of addition of Rs. 1,41,93,277/-. Considering the above facts an....