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2023 (10) TMI 1061
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....y members was subjected to search operations under section 132 of the Act on 09-03-2015 by the Investigation wing of the Income tax department. Consequent thereto, the assessments were completed in the hands of the assessee for the above said year under section 143(3) read with section 153A of the Act. 3. The Kolkata investigation wing of the department had reported that many paper companies are indulging in providing accommodation entries in the form of share capital/share premium to various beneficiaries. It was noticed by the department that the assessee's group has received share capital/share premium from such paper companies. Accordingly, during the years under consideration, the AO has made following additions:- (a) Addition towards Making charges in all the four years under consideration. (b) Addition towards Wastage claims in AY 2014-15 and 2015-16. (c) Addition towards Profit on unrecorded sales in AY 2014-15 (d) Addition made u/s 68 of the Act in AY 2011-12 (e) Addition u/s 14A of the Act in AY 2014-15 and 2015-16. The Ld CIT(A) (i) Confirmed the addition relating to "making charges in all the four years under c....
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....dentical additions were made in the assessee's group concern named M/s Saurav Jewellers Pvt Ltd and they have been deleted by the coordinate bench, vide its order dated 28-10-2022 passed in ITA Nos. 999 & 998/Mum/2021 and ITA Nos. 2504/Mum/2021 on a detailed reasoning. For the sake of convenience, we extract below the order passed by the coordinate bench in the above said case:- "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....
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.... the Act on 11/08/2015. Further commission u/s.131(1)(d) of the Act was issued on DDIT (Investigation), Unit 1(3) Kolkata requesting him to record 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....
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....bited in the books of the assessee. These excel sheets for the period 01/04/2009 to 09/03/2015 (A.Y.s 2010-11 to 2015-16) are enclosed in pages 107 to 126 of the paper book. The ld. AO based on the statement recorded 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 karigarsi.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 origin....
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....2/- to 3/- per gram and remaining payments of Rs.10 to Rs.11/- per gram would be passed to the sub-karigars who actually engage in the manufacturing of jewellery. The ld. AR also drew the attention to the statement of 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 state....
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....rom Gauti group which includes assessee also and had inturn made making charges to Rs.33,08,138/- to sub-karigars. Thereafter, total net profit from business declared by Shri Lob Ghorai for A.Y.2014-15 is Rs.4,76,716/-. If the contention of the Revenue that only Rs.3/- per gram should be accepted as making charges, then these karigarsi.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/- 2....
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....lso retracted from his statement given on 09/03/2015 vide his retraction affidavit dated 18/03/2015 which is immediately after the search wherein he had affirmed that he was mentally put under pressure by the Income Tax authorities and he had lost his mental balance and accordingly, he had signed the statement without understanding the contents recorded thereon. He had also stated that under the threat from the department, he had no option but to agree 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 th....
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....ance of excel sheets, there is no doubt about the authenticity of transaction between the group and the karigars as far as the volume of gold is concerned. The ld. CIT(A) observed that -to this extent, it is proposed to rely on the excel sheet. As noted above, it is possible to use the excel sheet for further computation if necessary corrections are introduced in the sheet to take care of some glaring omissions like non-computation of wastage on semi-finished 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....
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....me for the remaining period of time; (h) Rough jottings made in the diaries did not contain any evidence or noting to prove that excess making charges paid by the assessee has been received back as cash from the karigars by the assessee; (i) Comparable market price of P C Chandra Jewellwers prove the payment of making charges at Rs.18/- per gram which is far higher than the making charges debited by the assessee herein. 3.14. In view of the above, the disallowance made on account of making charges amounting to Rs.49,83,491/- 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 s....
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.... product received back from them are within the expected tolerance range of wastage. Hence it could be concluded that the excel sheet is meant for control for the purpose of quantitative tally of flow of stock. As stated at the cost of repetition, we would like to state that the receipt mentioned in the said excel sheet is only standard / fixed percentage of wastage allowed to the concerned karigar. This is evident from the excel sheets wherein for the period 01/09/2014 to 09/03/2015 pure gold received from the karigars was 79589.58 and standard wastage of 2.25% worked out at 1790.77 grams is mentioned has been computed and the resultant figure of 81,380.34 gms (78689.58 gms representing 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 ....
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.... 4.4. Further, with respect of entries of wastage being received back from karigars to the appellant as alleged by AO, it is submitted that said notings are not receipt of wastage; rather the same are domestic purchase which are used in the manufacturing process in order to compensate the excess loss in the jewellery making. Moreover, such purchases are issued to karigars and not received from karigars which is duly reflected in the excel sheet. This fact has been duly considered and accepted by CIT(A) in para 16.31 at page no. 67 of the appellate order. Therefore, the said allegation of the ld. AO is incorrect. 4.5. It is pertinent to note that during the course of search, no discrepancy in physical stock was found by the search team. In fact physical verification of bullion was carried out by the search team 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. Agai....
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....also, following the above said decision of the co-ordinate bench, we modify the orders passed by Ld CIT(A) and direct the assessing officer to delete the additions relating to Making Charges and Wastage claims in all the years under consideration. 8. The next issue relates to the addition on account of profit on unrecorded sales made in AY 2014-15. Since the Ld CIT(A) has deleted above addition, the revenue is challenging the said decision. This addition has also been made on the basis of Excel Sheets found during the course of search. We noticed earlier that the data maintained in the Excel Sheet was considered to be parallel books by the AO and accordingly made additions. The quantity of gold shown in the Excel sheet was found to be lower than the quantity of gold disclosed in the books of accounts of the assessee. The AO treated the shortage in the gold stock as sale outside the books of accounts and accordingly estimated the profit on unrecorded sales @ 2% and added the same. 9. Before Ld CIT(A), the assessee demonstrated various discrepancies in the data recorded in the Excel Sheets and accordingly contended that the Excel Sheets cannot be taken as the correct one. The L....
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....excel sheet. 12.7 It is noted that the AO has computed the stock difference based on the position of gold in the hands of karigars and closing stock position as reflected in the books of the appellant as on 31st March of the concerned financial years. The submission made by the assessee that the position of gold with karigars as contained in the excel sheet does not represent the final position of gold stock lying with the assessee is found tenable looking at the following facts: i. The excel sheet does not contain export details but merely the details of gold lying with the karigars. There is distinct possibility of gold lying with the assessco which has not been exported but has been received from the karigars. The regular books do not reveal the fact that all the gold forming a part of closing stock is lying with karigars. Hence, the total quantity of gold lying with the karigars at any point of time does not reflect the stock of gold lying with the assessee. ii. As seen from manufacturing of medallions and coins, part of the manufacturing process is outside the excel sheet and needs to be incorporated to arrive at the final stock position. ii....
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....y presuming that the shortage in stock represents unaccounted sales and estimating a profit of 2% on such sales." 10 In the case of Saurav Jewellers Private Limited (supra), the co-ordinate bench has accepted the contentions of the assessee that the Excel Sheets cannot be considered as parallel books of account and they are merely controlling sheets maintained by employees for computation of jewellery after giving credit or deduction for standard quota of wastage (paragraph 3.11). We notice that the Ld CIT(A) has also noticed many discrepancies in the Excel Sheet. One of the main discrepancies is that the manufacture and sale of medallions and coins were not recorded in the Excel Sheets, which would make huge difference. Besides the above, the search officials did not find any discrepancy between book stock and physical stock. Accordingly, we are of the view that the order passed by ld CIT(A) in deleting this addition is a well reasoned order and the same does not call for any interference. Accordingly, we uphold the order passed by Ld CIT(A) on this issue. 11. The next issue relates to the addition made u/s 68 of the Act. In assessment year 2011-12, the assessee had received....
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.... sake and the operations of the company are being managed by some other person. 14. Accordingly, the AO took the view that the genuineness of transactions remained unexplained. Accordingly, the AO asked the assessee to prove the cash credit. It was also show caused as to why such share application money received should not be added to the total income of the assessee. 15. In response to the same, the assessee furnished various documents and submitted that it has proved the three ingredients, viz., Identity of the lender, Genuineness of transactions and Credit worthiness of the lender by producing documents like Incorporation certificate, PAN card, bank statements and financial statements of the creditors. It was further submitted that these companies are engaged in the business of share trading and all the transactions related to the same may be verified from the financial statements of the said companies. It was also submitted that the Share premium is a capital receipt and it has been received as per the private negotiations made between the assessee and share subscribers. It was further submitted that the Companies Act has put in restrictions with regard to the usage of sh....
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.... of the related companies and the Ld CIT(A) had confirmed the addition in their respective hands. The Ld CIT(A) held that the amount so confirmed cannot be assessed again in the hands of the assessee. Depending upon the quantum of addition confirmed by him, theLd CIT(A) granted partial relief in respect of this addition as detailed below:- S.No. Name of Subscriber Addition made by AO Relief granted by Ld CIT(A) 1 Anubhuti Suppliers P Ltd 5,34,99,940 5,34,99,940 2 Borex Mercantile P Ltd 8,93,99,990 8,93,99,990 3 Agarwal Trexim P Ltd 50,00,000 50,00,000 4 AarpeeConco P Ltd 35,00,000 35,00,000 5 Zenstar Marketing P Ltd 6,50,00,000 2,50,00,000 TOTAL 21,63,99,930 17,63,99,930 Accordingly, the ld CIT(A) confirmed the addition to the extent of Rs.4.00 crores and deleted the remaining addition. Aggrieved, both the parties in appeal on this issue. 19. We heard rival contentions and perused the record. In the instant case, the addition has been made u/s 68 of the Act, wherein cash credits, which are essentially share capital/share premium money received by the assessee, have been add....
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....it u/s 68 of the Act. We noticed from the record that the assessee has filed following documents in order to discharge the burden placed upon it under section 68 of the Act :- a) Certificate of Incorporation of share subscribers. b) PAN number of share applicants. c) Balance Sheet of share subscribers d) Bank Statement of Share subscribers. e) Acknowledgement of Return of income filed by Share subscribers. f) Form 2 filed before ROC for allotment of shares. g) Valuation report of shares From the details submitted it can be seen that the identities of share subscribers stand proved. Since they have made payments from their bank accounts through account payee cheques, these transactions cannot be treated as bogus. Since the payments have been made from of funds available with them, the credit worthiness would also stand proved. We notice that the AO has observed that these subscribers are either showing loss or meager profits and such meager profits are not commensurate with the investments made by them. However, there is no bar under the law that a person could not make investments out of borrowed funds. In the instan....
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....only if he finds fault with those documents. We notice that the AO did not find any deficiency or fault with the evidences produced by the assessee. 24. With furnishing of all these documents, in our view, the assessee has discharged initial burden placed upon it under section 68 of the Act by furnishing above said documents. Hence the source as well as the source of source also stands proved by the subscribers. 25. The question that arises is whether the Assessing Officer could have made addition under section 68 of the Act by relying upon report of investigation wing or the statement given by the alleged accommodation entry providers. It is apposite to refer to the decision rendered by the Coordinate Bench in the case of M/s. Moraj Realty Pvt. Ltd. (ITA No.708 & 709/Mum/2019 dated 08-12-2020), wherein the decision was rendered by following the decisions rendered by Hon'ble Bombay High Court. It was held as under :- "17. Moreover, except for relying on the statement of VVB the Assessing Officer has not done any inquiry himself except for referring to a notice issued under section 133(6) in A.Y. 2009-10 only. The learned counsel of the assessee has challenged the ver....
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....astructure Pvt. Ltd. (394 ITR 680) has held as under :- ............. (ii) Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in CIT v/s. Lovely Exports (P)Ltd. 317 ITR 218 in the context to the preamended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit. 20. Similarly Hon'ble Bombay High Court in the case of CIT Vs. Apeak Infotech (397 ITR 148) has held as under :- "Amendment to Section 68 of the Act by the addition of proviso thereto took place with effect from 1st April, 2013. Therefore, it was not applicable for the subject Assessment year 2012-13, So for as the pre-amended Section 68 of the Act was concerned, the same cannot be invoked in this case, a....
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.... the share premium received by the Respondent - Assesses in the previous year relevant to the assessment year 2012 - 2013. Similarly, the amendment to Section 68 of the Act by addition of proviso was made subsequent to previous year relevant to the subject Assessment year 2012-13 and cannot be invoked. It may be pointed out that High Court in Commissioner of Income Tax vs. M/s. Gangadeep Infrastructure (P) ltd (Income Tax Appeal No. 1613 of 2014 decided in 20 March 2017) has while refusing to entertain a question with regard to Section 68 of the Act has held that the proviso to Section 68 of the Act introduced with effect from 1 April 2013 will not have retrospective effect and would be effective only from Assessment year 2013-14. In view of the above, Question No .B as proposed also does not give rise any substantial question of law as it is an issue concluded by the decision of High Court in M/s Vodafone India Services Pvt. Ltd. (Supra) and in the Apex Court in M/s G.S. Homes & Hotels P. Ltd. (supra). Thus not entertained. " 21. Accordingly in the background of aforesaid discussion and precedent in our considered opinion assessee has given all the necessary details requi....
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.... Loss Account and schedules for the year ended 31.03.2009. (i) Audited account and Directors report thereon including balance sheet, Profit and Loss Account and schedules for the year ended 31.03.2010 (j) The Bank Statement highlighting receipt of the amount by way of RTGS. (k) Banks certificate certifying the receipt of the amount through Banking channels." 6. On going through the documents which have been produced which are basically from the public offices, which maintain the records of the Companies. The documents also include assessment Orders for last three preceding years of such Companies. 7. The Appellants have failed to explain as to how such Companies have been assessed though according to them such Companies are not existing and are fictitious companies. Besides the documents also included the registration of the Company which discloses the registered address of such Companies. There is no material on record produced by the Appellants which could rebut the documents produced by the Respondents herein. In such circumstances, the finding of fact arrived at by the authorities below which are based on documentary evidence on record ....
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....t at all be justified. The Assessing Officer, if he so desired, ought to have allowed the Assessee to cross examine such persons in case the statements were to be relied upon in such proceedings. Apart from that, the voluminous documents produced by the Respondents cannot be discarded merely on the basis of two individuals who have given their statements contrary to such public documents. 10. We find no infirmity in the findings arrived at by the ITAT as well as CIT Appeals on the contentions raised by the Appellants-Revenue in the present case and, as such, the question of interference by this Court in the present proceedings under Section 260A of the Income Tax Act would not at all be justified." 27. In our view, the above said decisions rendered by the jurisdictional Hon'ble High Court and the co-ordinate bench supports the case of the assessee. Accordingly, following the above said decision, we hold that the additions made by the Assessing Officer under section 68 of the Act in all the years, in the facts and circumstances of the case, were not justified. We noticed earlier that some of the cash credits were received in the earlier year and not during the year under....