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TaxTMI 
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2022 (11) TMI 124
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....and disposed of by this common order for the sake of convenience. 2. The ground No.1 raised by the assessee was stated to be not pressed by the ld. AR at the time of hearing. The same is reckoned as a statement made from the Bar and hence, dismissed as not pressed. 3. The ground Nos.2-4 raised by the assessee for the A.Y. 2014-15 are challenging the disallowance of making charges amounting to Rs.49,83,491/-. 3.1. We have heard rival submissions and perused the materials available on record. We find that assessee is engaged in the business of manufacturing and trading of gold bearings and export of gold jewellery. The assessee is deriving business income which has been offered to tax in the return of income and had filed its return of income for the A.Y.2014-15 on 31/10/2014 declaring total income of Rs.3,63,52,110/-. A search and seizure action was carried out u/s.132(1) of the Act along with other cases of Gauti Group on 09/03/2015. The parent company of Gauti group is M/s. Sumatichand Gauti Jewellers pvt ltd. Consequent upon search, assessee's case was centralised and the jurisdiction vested with the ld. AO stated hereinabove. It was found in the search action that Gauti group....
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....cord a statement on oath u/s.131 of the Act from Shri Lob Ghorai. Accordingly statement on oath was recorded from Shri Lob Ghorai on 21/08/2015 wherein it was confirmed that the typed excel sheets found and seized contain the real transaction done which has issue of raw gold, purity, jewellery given back to M/s. Sumatichand Gauti Jewellers Pvt. Ltd., and its other concerns, closing balance etc. The ld. AO concluded that the excel sheets maintained is nothing but parallel books of accounts / parallel data maintained by the assessee containing real transactions. 3.3. The Gauti group is engaged in the business of manufacturing of gold jewellery and trading in jewellery. Bullion trading is carried out from both the places i.e. Mumbai and Kolkata. However, the jewellery manufacturing process is carried out and controlled only by the group entities based in Kolkata. The business operations of bullion trading takes place in the domestic market whereas the business operation in relation to jewellery manufacturing are mostly done in the export market. The jewellery is manufactured in Kolkata and the same is generally sold in the export market. In the domestic market, the group entities buy....
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....ded from these karigars concluded that the making charges is accepted only at Rs.3/- per gram and proceeded to disallow the excess making charges for A.Yrs. 2014-15 in the sum of Rs.49,83,491/- and Rs.25,40,622/- for A.Y.2015-16 respectively. The ld. CIT(A) primafacie dismissed the findings of the ld. AO as the disallowance has been made based on the statements recorded during the search. He further held that the making charges of the karigar are included in the wastage of gold in jewellery making and therefore no separate payments are required to be made to them for labour charges. 3.6. We find that the primary basis of making the addition is the excel sheets found and seized during the course of search, contents of which were explained by karigars i.e. Shri Lob Ghorai and Shri Golok Patra in their respective sworn statements. But it is pertinent to note that the said karigars had retracted their statements immediately after the search on the ground that the original statements were recorded form them under pressure and that the karigars were made to sign a pre-typed statements by the search parties. The retraction is made in the form of an affidavit in a non-judicial stamp paper....
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....Shri Lob Ghorai wherein the word "assessee" has been mentioned in several places. He argued that a layman like Shri Lob Ghorai while making a statement would never mention the word "assessee" instead would only refer in person by name. This goes to the prove that it is only a pre-typed statement given by the search party to Shri Lob Ghorai and Shri Lob Ghorai signing the same. Further, in response to Question No.12 by Shri Lob Ghorai, it has been stated that TDS is deducted on making charges at Rs.2/- per gram only which is factually incorrect as the TDS was deducted on the entire amount of Rs. 12/- to 13/- per gram. The ld. AR in this regard drew our attention to the ledger account of Shri Lob Ghorai enclosed in page 127 of the paper book. The ld. AR accordingly submitted that the statements recorded from Shri Lob Ghorai and Shri Golok Patra could not be relied upon at all as it contains (i) pre-typed statement given by the search party (ii) factually incorrect statements regarding TDS (iii) the word "assessee" being mentioned regularly by layman like Shri Lob Ghorai and Shri Golok Patra. Accordingly, he argued that the said statements which is the sole basis of making addition ca....
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....ly Rs.3/- per gram should be accepted as making charges, then these karigars i.e. Shri Lob Ghorai and Shri Golok Patra could not have reported the net profits as they are reflected in their respective income tax returns. This is evident from the table shown below:- Name of Karigar A.Y. Receipts of making charges from Gauti group ranging from Rs.12/- to Rs.18/- per gram Net profit from business shown in the return Shri Lob Ghorai 2012-13 50,86,852/- 4,42,048/- 2013-14 31,76,043/- 4,27,113/- 2014-15 37,31,598/- 4,76,716/- Shri Golok Patra 2011-12 27,84,427/- 4,45,508/- 2012-13 52,03,168/- 5,59,386/- 2013-14 42,93,713/- 5,15,246/- 2014-15 45,63,842/- 5,41,572/- Shri Malay Kopat 2013-14 33,85,305/- 5,80,986/- 2014-15 73,61,716/- 8,08,209/- 2015-16 1,50,55,851/- 16,88,237/- Shri Chinmay Kundu 2010-11 19,95,233/- 3,41,915/- 2011-12 21,13,737/- 4,10,619/- 2012-13 12,89,683/- 5,34,654/- Shri Sankar Samanta 2012-13 17,04,184/- 4,55,568/- 2013-14 25,47,699/- 5,76,830/- 2014-15 58,03,158/- 7,10,400/- 3.8. If the making charges rate as determined by ....
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....ree on the dictated statement of the authority and signed on the said pre-written statement of the authority. It is pertinent to note that the said retraction affidavit was duly filed by the assessee before the Investigation Wing as well as before the ld. AO. Further, the promoter of the assessee group M/s. Sumatichand Gauti Jewellers had also categorically denied making payment of any excess making charges during the course of his statement on 12/03/2015 vide reply to Question No.62. Hence, the disallowance made based on statement from Shri Kirit Kumar Gauti also falls flat and deserved to be dismissed. 3.11. Even though the statements relied upon by the Revenue had been dismissed, the excel sheets were actually seized during the course of search. According to Income Tax department, the said excel sheets are parallel books maintained by the assessee. In this regard, we have gone through the said excel sheets which are enclosed in pages 107 of the paper book onwards. We find that these excel sheets are merely a quantitative tally meant for control purpose prepared by some employee of the assessee company to meet the track of flow of stock of gold / jewellery. The said excel sheet ....
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....hed jewellery and gold coins as well as the fact that there are evidences of making charges being made through allowing certain level of wastage of karigars. These observations made by the ld. CIT(A) are not challenged by the revenue before us by bringing in any contrary evidences. Hence, we hold that excel sheets seized during the course of search cannot be construed as parallel books and they are merely controlling sheets maintained by employees for computation of jewellery after giving credit or deduction for standard quota of wastage. Hence, linking these excel sheets with the diaries marked as Annexure A-3 & A-7 would be incorrect. We find from the Annexure A-3 & A-7 notings contained in the diaries that they are merely rough jottings made by some employee and no way depict the cash receipt of the making charges from the karigars as alleged by the ld. DR herein. We find that the said diaries nowhere show that Rs.2/- per gram is retained with karigars and remaining amount is given back to the assessee in the form of cash. Hence, reliance placed on those diaries as corroborative evidence is grossly incorrect. Moreover, we also find that the notings found in those diaries were re....
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....9,83,491/- for A.Y.2014-15 is hereby directed to be disallowed. Accordingly, the ground Nos.2 & 3 raised by the assessee are allowed. 4. The ground Nos. 5 & 6 raised by the assessee for the A.Y. 2014-15 and ground Nos. 1-5 raised by the revenue are with regard to the disallowance made on account of wastage charges. 4.1. We have heard rival submissions and perused the materials available on record. The assessee had claimed wastage charges on an average ranging from 3-3.5%. The ld. AO by placing reliance on the statements recorded from karigars Shri Lob Ghorai and Shri Golok Patra and statement of Shri Kirti Kumar Gauti and excel sheets containing standard wastage percentage, arrived at the allowable wastage to be at 2.5%. According to the ld. AO, data of wastage recorded in the excel sheet seized contain the actual details of wastage. In the assessment order, the ld. AO compared the wastage appearing in the excel sheets with the wastage booked in the regular books of accounts and held that there is an excess reflected in the books and accordingly, proceeded to disallow the excess wastage for various assessment years as under:- Particulars AY 2013-14 AY 2014-15 AY 2015-16 T....
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....enting pure gold + 1790.77 representing wastage worked out at 2.25% of pure gold received) is shown as gold received back from karigar. It is inconceivable that the wastage remains at the standard percentage of 2.25% per each quantity of gold issued to karigar. This itself goes to prove that the excel sheet data does not contain actual wastage. But the data is maintained by the employee to keep the track of manufacturing of gold. We find that in the jewellery industry, the wastage of each jewellery would be depending upon the shape, size, design of the jewellery etc., Therefore, the adoption of fixed percentage of wastage in excel sheet data maintained by an employee cannot be used by the Revenue for arriving at the acceptable wastage and disallowing the remaining portion as excess. From the perusal of the excel sheet maintained by the employee, forming part of the seized document, we find that the balance figure of gold lying with smith i.e. karigar is also derived figure and not actual figure. This itself proves the fact that excel sheet has been prepared purely for control purposes and not for recording the actual wastage. The ld. CIT(A) had already taken cognizance of various d....
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....am and it had tallied with the book stock. Though some addition was made by the ld. AO in the sum of Rs.140,89,130/- towards unaccounted stock, the same was deleted by the ld. CIT(A), on the ground that the said addition has been made completely relying on the excel sheet seized during the course of search ignoring the factual deficiencies in those excel sheets. Against this deletion, the revenue had not preferred any appeal before us. 4.6. We find that Gems and Jewellery Council of Government of India had also accepted the normal standard wastage in respect of gold at 3.5%. The evidence in this regard was placed by the ld. AR in page 253 of the paper book. The wastage claimed by the assessee in the present case ranges from 3-3.5% which is in consonance with the Government approved standard of 3.5%. Moreover, the assessee had indeed given comparable cases of wastage from P C Chandra Jewellers, Kolkata wherein wastage is mentioned at 3.75%; Deys Guinea House, Kolkata at 4% ; Sremon Jewellers, Kolkata at 6% ; Sremon Jewellers at 5.5% on yet another date etc. This goes to prove that the wastage claimed by the assessee is much less than both the Government approved standard as well as....