TaxTMI 
TaxTMI 
2024 (1) TMI 50
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....ereto, 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 Kolkatta 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. Hence the AO made additions u/s 68 of the Act in various years. Besides the above, the AO has also made additions for suppression of making charges and wastage claim in manufacturing of jewellery and also made addition on account of profit from alleged unrecorded sales. In AY 2014-15 and 2015-16, the AO also made addition u/s 14A of the Act. The Ld CIT(A) granted partial relief and hence both the parties are in appeal on the issues decided against each of them. 4. We shall deal with these appeals issue wise. We shall first deal with the addition relating to making charges and wastage claims. We noticed that the assessee is engaged in the business of manufacture and sale/export of gold jewellery. The searc....
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.... 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 has been concealing its correct income by obtaining accommodation entries in the form of introduction of share capital from companies and inflating making charges and wastage so claimed in the books of accounts of various group entities. During the search operation, parallel books of accounts of Gauti group were found to have been placed at premises known as 17/3, S. N. Das Lane, Kolkata. Accordingly, soft copy in the form of hard disc containing the back up of soft data taken by the assessee in pen drive was also seized during the search action. During the course of search, Shri Kirti Kumar Gauti in his statement recorded u/s. 132(4) of the Act on 11/03/2015 confirmed that the premises at 17/3, S. N. Das Lane, Kolkata- 700 050 is th....
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..... 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 duty paid gold from banks and sell it to various jewellers in the local market. Apart from sale of bullion these entities also sell manufactured jewellery item in the domestic market. As regards exports of jewellery items manufactured by the group entities based in Kolkata, the following process is involved:- a) Receipt of orders b) Import/purchase of raw material/gold bars from banks on credit. c) Giving Orders to Karigars for Bullion Manufacturing:- The gold purchase from banking channel is issued to various karigars along with specifications, item code etc. According to ld. AO, Karigars are paid making charges and are allowed to keep the gold wastage as part of their payment. At the time of issuance of gold to....
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....ich 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 on 18/03/2015 by Shri Lob Ghorai and on 11/05/2015 by Shri Golok Patra. Both these affidavits are forming part of the paper book filed and placed on record before us. In the said affidavit, both the karigars had affirmed that the concerned officer had given them a written statement and asked to sign under oath and did not even allow them to read the contents of the statement. Both the parties had even affirmed that the original statements were recorded under pressure from the Income Tax authorities and they were not having proper mental balance at the time of giving those statements. It was submitted by the ld. AR that the contents of the affidavit filed by the karigars gets further strengthened by the fact that Shri Lo....
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....ge 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 cannot be relied upon. Further, the ld. AR argued that the statements given by Shri Lob Ghorai and Shri Golok Patra that difference of Rs. 10/- to Rs. 11/- per gram towards making chares were withdrawn by them in cash and given back to the assessee is to be understood in the manner that the said cash payments were not given back to the assessee but instead paid to the small sub-karigars by them towards the work actually carried out by these sub-karigars in manufacturing of jewellery. In other words, the ld. AR submitted that the statements of Shri Lob Ghorai and Shri Golok Patra are to be understood in the following manner:- (a) Assessee will make Rs. 12/- to Rs. 13/- per gram to Shri Lob Ghorai and Shri Golok Patra....
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....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 the Revenue at Rs. 3/- per gram has to be considered, the aforesaid karigar's net profit declared by them from the business in their respective tax returns would be higher than the gross receipts of making charges at Rs. 3/- per gram. This itself goes to prove that the making charges cannot be at Rs. 3/- per gram. These facts and figures are staring on us to conclude that making charges paid by the assessee ranging from Rs. 12/- to Rs. 13/- per gram is acceptable and correspondingly the making charges determined by the ld. AO @Rs.3/- per gram is devoid of merits and baseless. 3.9. Hence, from the above facts and figures, it could be safely concluded that the disallowance of making charges made by t....
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....l 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 can never be construed as the books of the accounts or the parallel books of account. The ld. AR submitted that the standard wastage and standard making charges had been mentioned by the employee who had maintained this quantitative data. This is recorded by the employee just to have a control as to the quantity of jewellery received back from the karigar after reducing standard wastage thereon. In fact, in para 16.11 of the order of the ld. CIT(A), it has been categorically mentioned by ld. CIT(A) that the said excel sheets reveal entries concerning issue and receipt of gold to the karigars along with necessary weight of said issues / receipts. The ld. CIT(A) observed that however, the complet....
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....he 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 relating to cash transactions for a limited period of time. The ld. AO in the instant case had extrapolated the same for the remaining period and disallowed the entire making charges debited over and above Rs. 2/- per gram. 3.12. We find that the assessee had submitted the comparable price from the market with various parties which goes to prove that the making charges prevailing in the market are ranging from Rs. 13 - Rs. 18/- per gram. The gold receipt vouchers issued by P C Chandra Jewellers, Kolkata show making charges @Rs.18/- per gram. Even going by this comparable data, the making charges debited by the assessee is much lesser than the market price. Hence, there cannot be any disallowan....
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.... 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 Total wastage as per actual books (In Kgs.) 81.17 149.10 145.59 Total Wastage as per excel sheet (In Kgs.) 60.23 89.63 52.52 Difference (In Kgs.) 20.94 59.47 93.07 Proportionate addition in assessee Nil* 82,42,155 98,81,191 * No business in assessee company in A.Y. 2013-14. 4.2. The ld. CIT(A) estimated the wastage at 3% to be reasonable on finished jewellery. Further, the ld. CIT(A) allowed wastage on semi-finished jewellery and coins on the ground that data contained in excel sheet had glaring omissions like non-computation of wastage of semi-finished jewellery and gold coins. Accordingly, the ld. CIT(A) granted relief to that extent and addition of Rs. 15,06,455/- w....
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....e 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 discrepancies that had crept in in the excel sheets maintained by the employee for which suitable credit has already been given to the assessee. Hence, the excel sheet data, in our considered opinion, is unreliable. Moreover, we find that the ld. AO had disallowed the wastage expenses as excess only for A.Y.2013-14, 2014- 15 and 2015-16 by placing reliance on the excel sheet as sacrosanct. Whereas the same excel sheets contains data from A.Y.2010-11 onwards which was also seized during the course of search. For A.Yrs.2010-11, 2011-12 and 2012-13, the wastage reflected in excel sheet was much higher than the wastage reflected by the assessee in its books. Hence, the ld.AO had resorted to i....
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....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% ; SremonJewellers, Kolkata at 6% ; SremonJewellers 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 the wastage claimed by the comparable cases. It is also pertinent to note that the aforesaid Government of India norms of allowing wastage at 3.5% has been followed and accepted by the Co-ordinate Bench of Kolkata Tribunal in the case of Anjali Jewellers Pvt. Ltd., vs. DCIT in ITA No.2252/Kol/2014 for A.Y.2010-11 dated 21/03/2016. In view of the aforesaid observations and respectfully following judicial precedents relied upon hereinabove, we hold that there is absolutely no case made out by the Revenue to disallow the wastage expenses on the ground that it is excess. The ld. AO is hereby directed to delete the entire disallowance made on account of wastage. Accordingly, the ground N....
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....:- "7.5 The main submission of the appellant is that the ledger of receipt and issue of gold maintained in the excel sheet do not represent complete books of account but merely an account of the gold received from banks and the subsequent ledger of gold issued to the karigars for manufacturing and the subsequent receipt of jewellery from them. It is claimed that such ledger does not contain the entire transactions related to gold manufacturing. As an example, it has been claimed that the manufacturing of medallions and gold coins, which constitute significant component of the assessee's Manufacturing and export activity do not form a part of the excel sheet and has been maintained separately through a different passbook. The wastage made on manufacturing of these items, although a matter of record, do not form a part of computation of stock with the karigars. The assessee has also cited instances where sales made have been reflected as amounts issued in the hands of karigars (basically indicating that the linkages created in the software are not correct). 7.6 The assessee has also submitted that the stock of the assessee has been elaborately taken at the time of search acti....
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.... reveals that the gold stock was not only with the Karigars but part of the gold was also lying with the assessee itself. iv. Evidence of sale of gold items outside the books has not been found from any of the premises during the search proceedings including the secret premises. v. While dealing with the issue of wastage/payment of making charges, it has been held that the excel sheets are not sacrosanct and do not represent complete books of account and need to be corrected for various non-inclusions in order to arrive at the correct position of business of the various assessees. vi. There is no breakup for earlier years with respect to gold with the assessee and gold with karigars and hence revisiting the stock position based on excel sheet is not accurate. 7.8 In light of the above facts, the action of the AO in relying completely on the excel sheet ignoring the above factual deficiencies in these sheets while computing the stock position of the appellant for earlier years is not found to be in order. It is also noted that while dealing with the issue of wastage claim of the appellant wherein it has been held that the assessee has indeed been charging excess wastage ....
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....t year 2010-11, the assessee has received share capital of Rs. 2.00 crores from a company named M/s Anubhuthi Suppliers P Ltd. It has also received loan of Rs. 1.65 crores from a company named M/s Oasis Syntex P Ltd. The AO added both the above amounts u/s 68 of the Act. The Ld CIT(A) deleted the addition of Rs. 2.00 crores received from M/s Anubhuthi Suppliers P Ltd, since he had confirmed the addition made u/s 68 of the Act in the hands of above said company. Hence the revenue is challenging the said relief granted by Ld CIT(A). The Ld CIT(A) confirmed the addition of Rs. 1.65 crores of loan received from M/s Oasis Syntex P Ltd and hence the assessee is challenging the said decision. 12.2 In assessment year 2012-13, the assessee has received share application money aggregating to Rs. 9.95 crores from 16 companies, which was added by AO u/s 68 of the Act. The Ld CIT(A) confirmed the said addition and hence the assessee is challenging the said decision. 12.3 In assessment year 2014-15, the assessee has received share capital of Rs. 15.00 lakhs from a company named M/s Meghraj Commercials Pvt Ltd and it was added by AO u/s 68 of the Act. The Ld CIT(A) confirmed the said addition a....
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.... operations of the company are being managed by some other person. 15. The AO asked the assessee to furnish various details of the subscriber companies. According to AO, the assessee furnished certain details, but they were incomplete. Further, the share application forms were also not properly filled up. 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. 16. 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 capit....
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.... respective addresses. All of them have not responded to the notices issued by the AO. Accordingly, the Ld CIT(A) held that the assessee has failed to discharge the onus placed upon it. Accordingly, the ld CIT(A) confirmed the addition. Aggrieved, the assessee has filed this appeal. 20. In AY 2010-11, the Ld CIT(A) deleted the addition of Rs. 2.00 crores relating to Share capital received from M/s Anubhuti suppliers on the reasoning that he had confirmed the addition made u/s 68 of the Act in respect of above said company. Hence the revenue is challenging the said decision. 21. 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 added. Sec. 68 enables assessment of such types of cash credits, if the assessee fails to prove the nature and source of cash credits. "Nature of cash credit" would mean that the assessee is required to show that it is not of revenue nature. In order to prove the sources, the assessee should discharge initial burden to prove the cash credits placed upon his shoulders of the asse....
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....i Sanjay Dugar in the statement taken u/s 132(4) of the Act during the course of search. We noticed earlier that the assessee is contending that Shri Sanjay Dugar was not a director during the period in which the search has taken place and hence his statement will not bind the assessee. Be that as it may, we notice that both the parties have admitted during the course of search on the clear reasoning that they immediately did not have details with them. Accordingly, it was agreed to surrender the share capital received by them. After the conclusion of search, these persons have retracted the statements and furnished all the details relating to the share capital received by the assessees. It was also submitted that they have surrendered the income only under pressure. Thus, we notice that the evidences furnished by the assessee to prove the cash credits would outweigh the statements given by them and hence there is merit in the retraction made by them. Accordingly, in the facts and circumstances of the case, we are of the view that the tax authorities could not have relied upon the statements given by the above said two persons without bringing any material contrary to the evidences....
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....xcept for the statement of the entry operator which was also retracted the addition made by the authorities below is devoid of cogent material. In this regard we note that in similar circumstances honourable Bombay High Court in the case of CIT Vs. Orchid Industries Pvt. Ltd. (ITA No. 1433 of 2014 dated 5.7.2017)(397 ITR 136) held as under :- "The Assessing Officer added Rs. 95 lakhs as income under Section 68 of the Income Tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account. The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of....
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....e Act before the Tribunal. High Court may also point out that decision of High Court in Major Metals Ltd. vs. Union of India, 359 ITR 450 proceeded on its own facts to uphold the invocation of Section 68 of the Act by the Settlement Commission. In the above case, the Settlement Commission arrived at a finding of fact that the subscribers re shares of the Assessee - Company were not creditworthy in as much as they did not have financial standing which would enable them to make an investment of Rs. 6,00,00,000/- at premium of Rs. 990 per share. It was this finding of the fact arrived at by the Settlement Commission which was not disturbed by High Court in its writ-jurisdiction. In the present case the person who have subscribed to the share and paid share premium have admittedly made statement on oath before the Assessing Officer as recorded by the Tribunal. No finding in this case has been given by the Authorities that shareholder/share applicants were unidentifiable or bogus. High Court find that the impugned order of the Tribunal upheld the view of the CIT(A) to hold that share premium is capital receipt and therefore, cannot be taxed as Income. This conclusion was reached by t....
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.... credits. It was further held that non-appearance of the share subscriber before the AO will not change this position. It is also apt to refer to the decision rendered by Hon'ble Bombay High Court in the case of PCIT vs. Paradise Inland Shipping (P) Ltd (2017)(84 taxmann.com 58)(Bom). In this case, it was allegation of the revenue that the assessee has received share application money from fictitious companies. The Hon'ble jurisdictional High Court held as under:- 5. We have given our thoughtful considerations to the rival contentions of the learned Counsel and we have also gone through the records. The basic contention of the learned Counsel appearing for the Appellants revolves upon the stand taken by the Appellants whether the shareholders who have invested in the shares of the Respondents are fictitious or not. In this connection, the Respondents in support of their stand about the genuineness of the transaction entered into with such Companies has produced voluminous documents which, inter alia, have been noted at Para 3 of the Judgment of the CIT Appeals which reads thus : "The assessment is completed without rebutting the 550 page documents which are unflinching records ....
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....ntial question of law which arises in the present Appeal for consideration. 8. The Apex Court in the case of Orissa Corpn. (P.) Ltd. (supra), has observed at Para 13 thus : "13. In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were income- tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under S. 131 at the instance of the assessee, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises." 9. This Court in....