TaxTMI 
TaxTMI 
2024 (12) TMI 1421
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....-22 vide orders of even date 31.03.2022. 2. The first two interconnected common issues in these six appeals of assessee is, first, as regards to the orders of CIT(A) confirming the action of AO in estimation made on gross profit whereas estimation should have been made on net profit basis and also on historical data and the profit rate in the line of business and second is as regards to enhancement made by CIT(A) by making disallowance u/s.40A(3) of the Act when the AO and CIT(A) made estimation on gross profit. The facts and circumstances are exactly identical in all these years and issues are also exactly identical and grounds raised by the assessee are also identical, hence, we will take the facts & grounds from ITA No.1046/CHNY/2024 for assessment year 2016-17 and will decide the interconnected issues. The relevant grounds of the above two interconnected issues are as under:- vii. The Learned AO/CIT(A) erred in confirming the addition towards gross profit based on the evidences collected from the third party without giving the opportunity of cross examination. viii. The Learned AO/CIT(A) ought to have seen that the legal presumption u/s 132(4A) that the con....
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....d the chats from Shri Ashwin. Shri Ashwin the employee of MJPL vide his statement recorded u/s.132(4) of the Act dated 10.11.2020 also confirmed the chats. During the course of search on MJPL, Income-tax Department found transactions of gold, old gold exchange, purchase of gold in cash recorded in ledger maintained in the name of 'AMANULLA KDR' in J-Pack software. According to AO, the transactions recorded in 'Amanulla KDR' in J-Pack software by MJPL are its unaccounted business transaction with various retailers including the assessee firm. The AO further recorded that the J-Pack software is used for recording of accounted and unaccounted transactions of MJPL as stated on oath by Shri Suresh Khatri while replying to question No.27 of statement recorded u/s.132(4) of the Act on 11.11.2020. When the 'Amanullah KDR' extracted from J-Pack software was maintained by MJPL was confronted to salesman and accountant of Shri Mohammad Anees, he replied during statement recorded u/s.132(4) of the Act that transactions recorded in ledger 'Amanullah KDR' pertains to the assessee firm and these transactions are either exchange of old gold or cash transactions entered into by assessee firm with M....
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....43868 The AO after discussing, the statements recorded, noted the unaccounted sale of jewellery received from MJPL by the assessee and for relevant assessment year 2016-17, he noted from the seized material that the total gold ornaments from the assessee firm by MJPL during financial year 2015-16 relevant to this assessment year 2016-17 is of 5417.85 grams, which was treated as unaccounted sales of the assessee firm during the year under consideration and he computed the average value of this gold at Rs. 1,36,05,133/-. The AO computed this by taking the average value of valuation on the basis of RBI data as under:- Average annual value of the 10 gms of gold (24 Carat) during the FY.2015-16 Rs.27414.55/10 gms (As per data taken from official website of Reserve Bank of India) Average annual value of the 1 gm of gold (24 Carat) during the FY 2015-16 Rs.2741.45/gm Average annual value of the 1 gm of gold (22 Carat i.e., 91.6%) during the FY.2016-17 Rs.2511.17/gm Average annual value of the 5417.85 grams of gold (22 Carat i.e. 91.6%) during the FY. 2016-17 Rs.1,36,05,133 Accordingly, he estimated the profit on unaccounted sale of jewellery at Rs. 16,32,616/....
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....s added Cash paid to M/s MJPL as consideration which is not recorded in books as unaccounted cash u/s 69A. 7.3.3 It is the contention of appellant that provisions of section 69A are not applicable since the appellant is not found in possession of cash during search in its case. The appellant can't be treated as owner of cash basing on entries made in some third-party unaudited accounts. Further, sworn statements of employee and Sri Amanullah alone can't be relied upon to conclude that appellant is owner of cash without any other corroborative evidence. The AO has wrongly used statements recorded subsequent to search to conclude that transactions recorded in 'Amanullah KDR' ledger account in J pack software pertain to appellant. The AO has erroneously Considered RTGS transactions, gold transactions that are recorded in books also as Unexplained jewellery and unaccounted cash. Net profit of 12% adopted by AO to tax profit on Gold purchased from M/s MJPL İs without any basis. The AO ought to have adopted net profit of 1% only which is the usual net profit obtained by appellant. It is also argument of appellant that in case of other retailers who had simil....
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....ced that the payment is made in cash only of Rs10,17,517/- as far as transactions found in J Pack Sotware are concerned. Ultimately income for appellant in this entire transaction is Profit on sale of Unaccounted purchase of gold jewellery made from M/s MJPL. It is to be considered that sale receipts from unaccounted sales are utilised for payment of cash for subsequent purchases of Gold from M/s MJPL, similarly investment in old Gold/gold bars which is also used as purchase consideration is also funded by unaccounted sales. When both purchase and sale transactions are not recorded in books, Hon'ble courts in following cases held that only Gross profit from sale transactions is to be subjected to tax. 1. JK Ramesh Gandhi Vs DCIT, ITA No: 547/Chny/2021: During the course of survey, unaccounted purchases & unaccounted sales were noticed. The assessee had admitted unaccounted purchases & unaccounted sales and also offered gross profit on unaccounted sales as income for the AYs 2015-16 to 2017-18 and filed revised return and also paid taxes. The AO, once again, made addition towards unaccounted purchases on the ground that source was not explained. We do not agree....
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....s were found in J pack software, department has taxed only gross profit on unaccounted sales is examined and found that in following cases where their respective ledger accounts containing gold purchases from M/s MJP Land payment of consideration in cash and Gold are found in J pack software, the AO has taxed only Gross profit on unaccounted sales of Unaccounted purchases from M/s MJPL. Gross profit taken is gross profit admitted by those retailers in previous years. 1. Balagopalan Jewellery Mart (PAN AAJFS7538N) : In this case, Account of assessee firm Was found to be maintained in J Pack software under the name Bal Gopal MD'. Modus operandi similar to that of appellant were followed of unaccounted cash, Gold payment wrt Unaccounted purchase of gold from M/s MJPL. But the AO has assessed only Gross profit on unaccounted purchase of gold and others from M/s MJPL by adopting GP rate admitted by assessee in the return filed for the year holding that unaccounted items purchased would have been sold during the year. 2. Mohammad Najeef: In this case, Account of assessee was found to be maintained in J Pack software under the name Safina Tenkhasi. Modus operandi sim....
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.... u/s 69A Rs 10,17,517/-is held to be not sustainable. 7.3.8 During appeal proceedings, the appellant has filed copies of trading and profit loss of appellant for the year. It is noticed that appellant itself has declared Gross profit of 8.49% on gold sales which is certified by chartered accountant. The AO is directed to adopt the gross profit percentage admitted by the appellant to arrive at unaccounted business income from Unaccounted sale of Unaccounted purchases from M/s MJPL for the Year. The AO may verify above accounts to arrive at correct number of Unaccounted purchases after excluding purchases already disclosed in the books. The Revenue is not in appeal against the order of CIT(A) deleting the addition of unexplained cash added by AO u/s.69A of the Act, amounting to Rs. 10,17,517/-. 4.1 The CIT(A) enhanced the assessment by disallowing cash payment made to the extent of Rs. 10,17,517/- by invoking the provisions of section 40A(3) of the Act. The CIT(A) directed the AO to disallow cash payment of Rs. 10,17,517/- u/s.40A(3) of the Act by observing in paras 7.3.9 & 7.3.10 as under:- 7.3.9 IT is undisputed that cash payment to the extent of Rs 10,17,51....
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....or assessment of gross profit on unaccounted sales of unaccounted purchases and enhancement on account of disallowance of cash payment u/s.40A(3) of the Act, the assessee came in appeal before the Tribunal. 5. Before us, the ld.counsel for the assessee argued that the profit estimation of gross profit directed by CIT(A) is not correct and actually net profit is to be estimated on the unaccounted sales. Even before us, the assessee has not contested that rather admitted that these amounts recorded in 'Amanulla KDR', one ledger found in the J-Pack of computer of MJPL, wherein the unaccounted cash is recorded. The assessee has not disputed the unaccounted sales of unaccounted purchases from MJPL by assessee, but only requested that net profit should be estimated and not the gross profit. The Ld.counsel for the assessee now before us filed the GP/NP ratio of the assessee from assessment years 2016-17 to 2021-22. The assessee filed the following chart:- Details 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Gross Profit % 8.49% 14.04% 8.20% 6.17% 8.52% 8.05% Net Profit % 0.34% 1.64% 1.15% 0.67% 0.90% 1.10% Net Profit ....
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.... assessee has made accounted purchases and unaccounted purchases both, accounted purchases are already disclosed on which profit is declared and those are payments through RTGS or through banking channel. Wherever unaccounted purchases and sale made to MJPL, for which no deduction is claimed by assessee and only net profit is applied, no disallowance u/s.40A(3) of the Act can be made. He stated that Revenue also admits that these purchases and consequent sale both are in cash and it is not accounted and no deduction has been claimed on this. He stated that when profit rate is applied, that will take care of everything and there is no need for AO to make scrutiny of the amount incurred on the purchases by the assessee. He relied on the above mentioned proposition for this issue. 8. On the other hand, the ld.CIT-DR stated that the CIT(A) has rightly directed the AO that the addition made on account of unaccounted sales is to be retrospective to the extent of gross profit on unaccounted sales made out of unaccounted purchases from MJPL and gross profit is to be adopted as admitted by assessee on gross sales in the return originally filed by it in the year under consideration and su....
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....nt find in J-Pack software. Hence, in view of the above direction for computation of income, the matter is restored back to the file of the AO for applying profit rate of 2% only on unaccounted cash payments made to MJPL. 10. As regards to intervening issue of applicability of provisions of section 40A(3) of the Act and disallowance made by CIT(A) by enhancing the assessment on cash payments, since we have adjudicated the issue of profit rate on unaccounted purchases and consequent sale, the provisions of section 40A(3) of the Act did not apply, where estimation of gross profit is made by rejecting the books of accounts. This view has been held by various High Courts and particularly the Hon'ble Rajasthan High Court in the case of Jadau Jewellers and Manufacturers (P) Ltd., supra, wherein the Hon'ble High Court has considered this issue as under:- 3 The counsel for the appellant has taken us through the order of the Assessing Officer as well as the Commissioner of Income-tax (Appeals)and contended that the view taken by the Assessing Officer is required to be restored. 3.1 The first issue is now covered by the decision of this court and the Tribunal has followe....
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....ndisclosed income' in spite of the purchases were assessed on an estimated basis in the said block assessment order?" and the Hon'ble High Court answered this question as under:- "7. We are called upon to decide whether the invocation of the provisions of s.40A(3) in the aforesaid facts and circumstances of the present case is justified in law. There is no dispute that the provisions of s.40A(3) apply to block assessments in general. The provision however, would apply only where expenditure in question has been incurred and claimed in the computation of income. The Supreme Court, in the case of Attar Singh Gurmukh Singh Vs. Income Tax Officer, Ludhiana (191 ITR 667), reiterates this position as well. In the present case, the Tribunal confirms as a finding of fact at para 17 of its order that no expenditure has been incurred except the investment in gold. The consideration paid towards the investment has been duly brought to tax as unexplained income, such income not having been claimed as expenditure in the computation of income. The objection of the Revenue is that the valuation of the gold per gram is not Rs. 500 but more as revealed by other disallowances made in....
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.... iii. The Learned AO/CIT(A) failed to note that an order u/s 153A can be passed only when reliance is placed on material found in course of search of Assessee. iv. The Learned AO/CIT(A) erred in passing order u/s 153Ả when in the Appellant's case the search of Appellant yielded nothing and only was based on materials found in the search of another person. Incriminating Materials Seized Belong to a Different Assessment Year: v. The Learned AO/CIT(A) erred in holding that incriminating materials relating to this assessment year were seized in the case of the assessee and thereby confirmed the assessment order, even though it pertained to a totally different AY. vi. The Learned AO/CIT(A) ought to have seen that the electronic evidences seized from the mobile phone of the accountant of the partner of the assessee were not relating to this year and is inadmissible in law. 11.1 During the course of hearing, the ld.counsel for the assessee has not made any argument on this issue and hence, it seems that the assessee is not interested in prosecuting this issue and hence, this common issue in all these six assessment years is dismissed.....