AI Drafter 
TaxTMI 
TaxTMI 
2020 (4) TMI 521
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....ugh it was categorically analyzed in the body of assessment order that there was unaccounted investment in rough diamonds by the assessee on the date of survey. 3. Succinctly, facts as culled out from the orders of lower authorities are that the assessee is a partnership firm engaged in the business of manufacturing and export of polished diamonds. The assessee has filed return of income on 30.09.2008 declaring total income of Rs. 8,52,39,087/-. The assessment was made under section 143(3) on 31.12 2010 by assessing total income at Rs. 88,09,26,973/-. During the course of survey proceedings under section 133A conducted on 14.02.2008 at business premises of the assessee, various document i.e. registers BS-1, 2 & 3 were found and impounded based on which the assessee has admitted additional income of Rs. 5 crores on account of excess stock of diamonds and income from unaccounted sales. During the course of survey proceedings, deficit stock of rough diamonds of 6146.57 carats was found. However, during the course of assessment proceedings, the AO noted that the assessee failed to produce satisfactory evidence for not entering the stock of rough diamond issued to laser department....
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...., sample notings in Annexure BF8 to 15 & 17 and worked out the diamonds sent to laser department at 97837.27 carats excluding Annexure BF-16 and duplicate entries taking net weight, which has been reproduced by the Ld. CIT (A) at Page No. 37 to 39 of appellate order. The CIT(A) observed that he has verified the contention of the assessee that there is availability of total rough diamonds to the tune of 114603.95 carats against which rough diamonds sent to the laser department are of 97837.27 carats. Thus, the rough diamonds available are much more than the diamonds sawed/cut in laser process. The AO has given set-off 35098.43 carats whereas the assessee-firm was having 114603.95 carats of rough diamonds stock and without considering the accounted rough diamonds available, the AO has treated all the rough diamonds noted in laser process registers as unaccounted. This shows that the AO, merely on the basis of notings in laser register and Kapan No. has treated all impounded registers, as maintained for unaccounted business, without having any corroborating evidences found during survey for purchase of rough diamonds nor he has not given proper set off of rough diamonds available, whi....
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....o the laser department. Whereas no excess stock of rough diamonds was found at the time of survey. Without prejudice, it was contended that when no excess physical stock found at the time of survey, then at most the profit could be estimated by the AO for unaccounted sales. Such profit is also covered by declaration made by the assessee. The movement of rough diamonds might have been more because of the unrecorded sales declared by the assessee. The assessee has declared Rs. 5 crores and therefore, considering the Gross Profit @6.27% of the unaccounted turnover comes to Rs. 79,74,48,166/-, which worked out less than the declaration made by the assessee. It is well settled principle that whole sales, cannot be added, and only percentage of profit can be added as held in the case of CIT v. President Industries 258 ITR 654 (Gujarat) by the Hon'ble Gujarat High Court. Unless there is concrete, evidence that the assessee has made investment outside books of accounts before receipts of the sale consideration no addition can be made. The assessee has declared the peak investment of the excess stock of polished diamonds at the time of survey, hence, no addition can be made. Therefore, C....
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....s, which are also covered by declaration made by the assessee and shown in that returned income. The movement of rough diamonds might have been more because of the unrecorded sales declared by the assessee. The assessee has declared Rs. 5 crores and therefore, considering the Gross Profit @6.27%, the unaccounted turnover comes to Rs. 79,74,48,166/- of which profit is far less than declaration as made by the assessee. This view is also fortified by decision of Hon'ble Gujarat High Court in the case of CIT v. President Industries 258 ITR 654 (Gujarat) wherein it was held that only percentage of profit could be considered for addition where shortage of stock. Therefore, considering the all the facts on record, circumstances of the case and the facts that the ld.CIT(A) has carried out detailed verification and working as filed before him, we therefore, do not find any infirmity in the order of ld.CIT(A), accordingly, same is upheld. This grounds of appeal of revenue is therefore, dismissed. 8. Ground No. 2 states that the Ld.CIT(A) has erred in law and on facts in deleting the addition made by the Assessing Officer of Rs. 22,47,56,571/- in respect of unaccounted income from sale ....
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....ocess to polishing process at 45.37% and worked out unaccounted income of Rs. 22,47,56,571/- from alleged sales of excess finished diamonds on suppression of yield at 45.37% on wrong presumption whereas the evidences of yield working are available in impounded records. Since the appellant has shown yield at 34.67%, which is correct, therefore, there is no suppressed sales or suppressed production. In view of the addition of unaccounted income of Rs. 22,47,56,571/- was deleted was deleted as per observation made at para No. 53 of the appellate order. 11. Being aggrieved, the Revenue has filed this appeal before the Tribunal. The Ld. CIT (DR) submitted that the AO based on Register BS 1, 2 &3 worked out yield at 45.37% as against the assessee has shown yield at 34.65%. However, the ld. CIT (A) had compared BF-49 register, on which no discussion is found in the assessment order. Therefore, the Ld. CIT (DR) relied on the order of the AO. 12. Per contra, Learned counsel for the assessee submitted as per impounded Annexure B-47 Page No. 90 to 99 & 10 to 104 , the yield till Ghat process comes to 69.86% and yield after Ghat process comes to 52.30% and therefore, the overall yield....
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.... Rs. 10,81,01,908/-. 15. Ground no.3 of Revenue and Ground no.2 of assessee are being considered together. 16. Brief facts are that impounded papers showed various job work done by the assessee. The verification of same revealed that these pages name of workers along with total nag (quantity) of diamond issued for processing with rate mentioned thereon. On these pages impounded as per annexure BF-45 and BF-46, it was specifically mentioned as "Karigar Pagar" i.e. labour charges. As the assessee had also mentioned in his submission that these pages are related to Majuri expenses. Therefore, the same were considered as labour expenses. As the assessee was unable to explain and reconcile them with books, hence the same were treated as unaccounted. Similarly, during the course of survey, loose papers from page 38 to 46 of annexure BF-46 were found and impounded. After careful examination of these papers, it was noticed that these papers are related to unaccounted job charges of expenses and not for unaccounted sale receipts. All these papers are of similar in nature like pages Nos. 1, 4, 5, 6, 7, 9, 16, 17, 18, 22,111 etc. "Total Pagar" word is also mentioned in bottom of these p....
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....g of unaccounted finished diamond from unaccounted rough diamond. It shows that the assessee was changing his replies, as he was unable to reconcile the expenditure with books. It is seen that nowhere in the books, the assessee claimed these expenses against the name mentioned in these pages. This fact clearly proves that these expenses are completely unaccounted. The assessee was given many opportunities during the course of assessment proceeding to reconcile these expenses with the books, but the assessee failed to reconcile even single expenses details from books of accounts. Further, in assessee's submission, it had also admitted that the same are not accounted in books. Therefore, a show-cause notice dated 09.12.2010 was issued as to why expenses of Rs. 10,81,01,908/- should not be treated as unaccounted expenditure and why it should not be added to total income. It was explained that that expenses be treated as having been incurred in relation to unaccounted turnover of the firm in respect of which additional income of Rs. 5 crores has been disclosed. However, the AO rejected the contention of the assessee and made addition of Rs. 10,81,01,908/- as per his finding given in....
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.... the books neither in current year nor in earlier years so in absence to the evidence all expenses should be treated for current year, only. The provisions of section 69C were directly applicable in this case and the unexplained expenditure are treated as deemed income of the assessee. Section 69C deals with unexplained source of expenditure. Section 69C was inserted on the statute book by the Taxation Laws (Amendment) Act, 1975 w.e.f. 1st April, 1976 and reads as under: "S.69C. Unexplained Expenditure, etc. - Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year: Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income." From seized documents, it Is evident that the....
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.... amendment. Without prejudice, it was submitted that the assessee made the disclosure of Rs. 5 crores after considering the unaccounted expenses. The disclosure of Rs. 5 crores was net income offered by the assessee after considering all the expenses by the assessee and therefore, no addition is required to be made for unaccounted expenditure, when the unaccounted expenditure is less than Rs. 5 crores. The assessee has declared Rs. 5 crores and therefore, considering GP of 6.27%, the unrecorded turnover comes to Rs. 79,74,48,166/- and, therefore, manufacturing expenses are clearly deductible under section 69C of the Act. 20. We have heard the rival submissions and perused the relevant material on record. We observe that the Ld. CIT(A) stated that some expenses are repetitive in nature and some expenses are pertains to earlier years. Therefore, no disallowance of such expenses can be made during year under consideration u/s.69C of the Act. The ld.CIT(A) observed that out of alleged unaccounted manufacturing expenses of Rs. 10,81,01,908/-, the amount of Rs. 6,04,11,050/- only could be determined and the remaining amount was pertaining to the financial year 2006-07 asper notings in....
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.... Radhe Developers [2010] 329 ITR 1 (Guj). Wherein in para No. 24 & 25 the Hon`ble High Court has observed as under: "24. Therefore, the only issue is, as to whether such a finding can be termed to be perverse. For determining as to whether a particular order suffers from vice of perversity or not, the well settled parameters may be applied to the facts of the case. This is not a case where relevant evidence has been ignored and irrelevant evidence has been taken into consideration. The only test that is thereafter required to be applied is: whether on the facts found and the state of evidence on record the conclusion arrived at by the Tribunal is one, which could have been arrived at by a reasonable person properly informed in law. Applying the previously mentioned test, it cannot be said that the decision recorded by the Tribunal is one, which could not have been arrived at by a reasonable person properly informed in law considering the state of evidence on record. Hence, in so far as the addition to the extent of Rs. 12,80,00,000 being upheld by the Tribunal is concerned, no interference is warranted and the Revenue cannot succeed on this count. 25. In ....
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....revenue is dismissed and Ground No. 2 of the appeal of the assessee is allowed. 22. Ground No.4: is against the deletion of unaccounted income from unaccounted manufacturing of finished diamonds from rough diamond and sold outside Books of Rs. 5,31,93,421/-. 23. Facts apropos of this ground are that the A.O. made the addition of Rs. 5,31,93,421/- as the assessee was found to be indulging itself in manufacturing of unaccounted finished diamond from unaccounted rough diamond and selling the same out of books of accounts. 24. Being, aggrieved, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) allowed the appeal of the assessee by observing as under: "17. I have carefully perused the assessment order, facts of the case and submissions of the appellant-firm, findings of the Assessing Officer, rebuttal explanations & evidences furnished by the appellant-firm, verification of contention of. Appellant with impounded registers 7 papers abstracts of accounts, etc. I am inclined to agree with the appellant's view for the following reasons: "(i) The appellant pointed out that the AO calculated unaccounted sales of Rs. 20,77,21,0007- after decoding ....
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....7 50. tl 34.71 77.08 7 1.82 7 1.43 78.57 7 0.72 50.35 39.56 118.61 5 1.71 5 1.3 76.02 5 0.61 46.92 35.67 224.28 6 1.24 6 0.94 ' 75.81 6 0.49 52.13 39.52 98B AY 74 315 72.85 313 52.06 71.46 311 27.8 53.40 38.16 AY 83 103 14.52 102 9.97 68.66 102 5.14 ' 51.55 35.40 AY 77 49 8.39 49 5.95 70.92 . 49 2.81 47.23 33.49 AY 80 59 12.74 57 8.47 66.48 57 4.23 49.94 33.20 99 AY 82 1444 637.16 1444 449. 18 70.50 1444 253.88 56.52 39.85 99B AY 76 2165 241.82 2161 171.13 70.77 2161 85.43 49.92 35.33 101 AY 54 39 4.62 39 3.36 72.73 39 1.71 50.89 37.01 AY 49 33 6,18 33 4.29 69.42 33 2.16 50.35 34.95 AY 52 27 4.01 27 2.85 71.07 27 1.42 49.82 35.41 AY 42 *78 12.2 78 8.55 70.08 78 4.24 49.59 34.75 I01B....
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....pression in sales of polished diamonds and deleted addition of unaccounted income of Rs. 22,47,56,6717/- made by AO. Therefore, when there is no unaccounted rough diamonds, the yield is correct, then there cannot be estimation of production of unaccounted polished diamonds and sales thereof to earn unaccounted profits. (iv) The appellant has admitted additional income of Rs. 5 crores, which includes unaccounted stock of polished diamonds found of Rs. 98,82,3647/- and unaccounted sales of Rs. 4,01,17,6367/-, thus, if there are any discrepancies or unaccounted sales, the disclosure take care of the same. 17.1 Having considered the above, I am of the opinion that the impounded pages relied by AO contains notings of production of polished diamonds in carats and yield, ratio, but there are no notings of any unaccounted sale proceeds as decoded by AO. In Ground No. 2 above, I have made discussion at length with regard to unaccounted stock of rough diamonds in laser process and held that there is .no, unaccounted rough diamonds and deleted addition of unexplained investment of Rs. 45,31,58,0507/- made by AO and similarly, in Ground no. 3 above with regard to unaccounted ....
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....k issued to the lesser Department and so Ld.CIT(A) has rightly deleted by giving detailed findings. Further no excess stock of rough diamonds was found at the time of survey. Thus, no physical stock was found at the time of survey, at the most the profit can be estimated by the AO for unaccounted sales which is covered by the declaration made by the assessee. The movement of rough diamonds might have been more because of unrecorded sales declared by the assessee. The assessee has declared Rs. 5 crores and therefore, considering Gross Profit of 6.27% , the unrecorded turnover comes to Rs. 79,74,48,166/-. It is well settled that the whole sales cannot be added and only % of the profit can be added in view of the decision of Hon'ble Gujarat High Court in the case of CIT v. president Industries 258 ITR 654 (Gujarat) and CIT Samir Synthetics 326 ITR 410 (Gujarat) unless there is no concrete evidence that the assessee has made investment outside the books before receipts of the sale consideration. 27. We have heard the rival submissions and perused the relevant material on record. We find that the assessee has declared Rs. 5 crores and therefore, considering Gross Profit of 6.27%, the....
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.... as discussed in the assessment order. 30. Being, aggrieved, the assessee filed an appeal before the Ld. CIT (A). However, Ld. CIT (A) has given his findings as under: "I have carefully pursued the assessment order facts of the case and submissions of the appellant-firm, findings of the assessing Officer, rebuttal explanations & evidences furnished by the appellant -firm, contents of disclosure at the time of survey etc. Assessing Officer has made addition of Rs. 98,41,8327/- on account of undervaluation of closing stock of polished diamonds and allowed set-off of disclosure of Rs. 98.82.364/- against this addition. I am inclined to agree with the appellant's view for the following reasons: (i) The appellant has offered disclosure of Rs. 5 crores and the same is credited to profit and loss account as income disclosed during survey u/s 133A of the Act. The disclosure includes Rs. 98,82,364/- on account of excess polished diamonds weighing 988.71 cts found and Rs. 4,01,17,6367- on account of unaccounted sale of polished diamonds/receivables. (ii) The appellant worked out closing stock as manufactured stock of polished diamonds weighing 11281....
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....uring the assessment proceedings addition of Rs. 98,41,832/- was proposed on account undervaluation of closing stock. The same issue was also raised in A.Y. 2007-08 in which the Ld. CIT(A) as well as the Hon'ble ITAT had confirmed the addition. During this A.Y. 2008-09 also when this issue was proposed for addition, the assessee had submitted to set-off the above addition with the excess stock of finished diamond of Rs. 98,82,364/-offered and disclosed in the balance-sheet. Accordingly, no separate addition of Rs. 98,41,832/- under the head undervaluation of finished stock was made and set off had been granted against excess finished stock disclosed of Rs. 98,82,364/-. The assessee had disclosed Rs. 5 Crore as unaccounted income including excess stock of Rs. 98,82,364/- and set-off of excess finished stoke of Rs. 98,82,364/- has already been granted against the proposed addition of Rs. 98,41,832/-. The Ld. CIT(A) has further granted set-off of Rs. 98,41,832/- on account of undervaluation of polished diamond by deleting the addition of undervaluation of polished diamond. 32. The learned counsel for the assessee submitted that the CIT (A) has allowed set off of Rs. 98,41....
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....d in deleting the addition as the AO had made addition on the ground that the assessee has not shown excess stock of Rs. 98,82,364/- in the Profit & Loss Account. 38. Au contraire, the learned counsel for the assessee submitted that the assessee has shown the stock of polished diamonds at Rs. 11,27,57,405/- in the Profit & Loss Account but in the balance sheet it was shown at Rs. 12,26,39,769/-. The stock disclosure of Rs. 98,82,364/- was included in the disclosure of Rs. 5 crores that was credited separately into Profit & Loss Account and therefore, Ld.CIT(A) has rightly deleted the addition on merits. 39. We have heard the rival submissions and perused the relevant material on record. We find that the assessee has included the excess stock of polished diamonds in the disclosure of Rs. 5 crores and not shown separately in the Profit & Loss Account but has shown the same in balance sheet at Rs. 12,26,39,769/- inclusive of excess stock of polished diamonds. Therefore, the findings recorded before the CIT(A) are appears to be correct. Hence, no interference is called for. Accordingly, this ground of appeal is therefore, dismissed. 40. Ground No. 7 states that the Ld. CIT(A) ....
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....me were rejected under section 145 of the Act. 46. Being, aggrieved, the assessee filed an appeal before the Ld. CIT (A). Wherein it was contended that books of accounts are audited and complete records are made. It was explained that impounded register BF-8 to 17 don't indicate any unaccounted stock of rough diamonds and impounded material BF 39,42,46 & 51 did not indicate any unaccounted production. Similarly, Annexure BF-45,47,& 51 do not represent any earning of unaccounted sale proceeds and requested that books of accounts be not rejected. However, CIT (A) observed that during the course of survey, there was impounding of registers and the papers related to diamond manufacturing business, discrepancies in stock and Appellant firm admitted additional income of Rs. 5 crores. The AO cited decision of Hon`ble Delhi High Court in the case of Action Electrical v. DCIT [2002] 258 ITR 188 (Delhi) held that books of accounts cannot be relied to be complete and liable to be rejection, as the same does not give correctness and completeness to the accounts. Therefore, the CIT (A) respectfully following the ratio of Hon'ble Delhi High Court upheld the rejection of books of accounts.....
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....ounds of appeal is allowed in the favour of the assessee as per findings given in Ground No. 3 of revenue appeal. 52. Ground No. 3 states that Ld. CIT (A) has erred in law and on facts in confirming the addition made under section 69 of the Act to the tune of Rs. 1,86,08,268/- on the ground of alleged unexplained investment made in finished diamonds. 53. During the course of survey, the excess stock of polished diamonds was found by 2851.37 Cts and deficit in Diamonds was found by 6146.57 cts. The discrepancy was explained by the assessee firm that from the quantity of lessor of rough diamonds of 6146.57 carats, finished/on its diamonds weighing 2129.79cts were manufactured (6146.57 cts x 34.65% yield). Thus, there was unaccounted excess stock of finished/polished diamonds to the tune of 721.58 Cts (excess polished diamonds 2851.37 cts less 2121.79 cts) polished diamonds manufacture from lessor rough diamonds only. The assessee firm actually offered excess unaccounted stock of polished diamonds found on survey dated 14. 02. 2008 at 9 88.71 cts as against actual discrepancy of 721.56 Cts. Accordingly, assessee has declared addition on account of unaccounted polished diamonds w....