TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 96
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...., the assessee is a private limited company which is engaged in the business of manufacture and wholesale trading of gold bullion & gold jewellery. The assessee also provides making/job-work services to its customers. A search action u/s 132 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") was conducted on the assessee, its director(s) and others, on 10.11.2020 in the course of which several material & electronic data was found & seized and statement(s) of key person(s) were recorded. Subsequent thereto, the AO issued notice(s) u/s 153A of the Act on 30.08.2021 and the details of income returned by the assessee in response to the said notice(s) for the AYs in question, are noted to be as under:- Asst Year Return Amount (in Rs.) 2017-18 153A 4,37,68,120 2018-19 153A 32,99,63,510 2019-20 153A 33,24,62,890 2020-21 153A 32,43,15,690 2021-22 139(1) 53,75,18,770 3. The summary of the additions/disallowances in Rupees made by the AO in the assessments which were completed u/s 153A/143(3) of the Act for AYs 2017-18 to 2020-21 and u/s 143(3) of the Act for AY 2021-22, which are in dispute in the cross- appeals are as....
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....nd the other group concerns, which comprised of both the accounted and unaccounted transactions, and that consolidated entries were made in the J-pack software at the end of the day. As a consequence, this software served as a central depository for tracking stock movements across group concerns and branches and thus it did not contain any entity-specific ledgers. The AO in assessment proceedings is noted to have required the assessee to explain the nature of entries found in several of the ledgers extracted from the J-Pack software. It was explained by the assessee that, these were consolidated entries, nonentity specific and also contained entries of inventory movements inter-se group entities, customers, goldsmiths etc. which had no financial implication. It is observed from the assessment order as well as the statement of Shri Kothari that, the daily reports prepared by the assessee and group concerns were the source documents basis which the entries were being made in J-pack software, from which the entries could have been segregated and the unaccounted entries could have been easily identified. The Investigating authorities is noted to have gathered in the course of search th....
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....nversion process was recorded by way of receipt entries in this 'Ghat' Ledger which entirely represented the assessee's profit, and that such wastage gold was used outside the books to make new ornaments which was sold through unaccounted means. The assessee is noted to have disputed this version of the Revenue and instead contended that the entries in 'Ghat' Ledger comprised of the alloy addition made to the new gold ornaments manufactured by the company. The assessee submitted that, the gold bullion which was purchased by the assessee or received from customers, was converted into gold ornaments through the goldsmiths and that the quantity of alloy which was added to the gold ornaments was entered in 'Ghat' Ledger for record purposes, and that these entries did not represent any metal entry i.e. gold. The assessee is found to have later on furnished documentary evidences to support its claim, which upon being examined in the remand proceedings, was found to be tenable. The Ld. CIT(A) for the reasons set out in his appellate order, is noted to have deleted the addition made on account of 'Ghat'. 5.3 Similarly another ledger titled 'MC Khata' was found in the J-Pack Software, wh....
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....his remarks where according to him, addition(s) were required to be upheld. Taking into account the comments of the AO, the rejoinder filed by the assessee and having regard to the facts of the case, the Ld. CIT(A) is noted to have deleted addition(s) made on certain items in its entirety and allowed partial relief on other issues emanating from the 'J-Pack' Software, which we shall be discussing in the ensuing paragraphs. Being aggrieved by the order of the Ld. CIT(A), now both the assessee and Revenue are in appeal before us. 6. Before we advert to the several grounds taken in the cross appeals impugning the above discussed addition(s), it is relevant to cull out the background facts which led to these addition(s), more particularly the nature & purpose of the 'J-Pack' Software which was found in the course of search, as the same would be relevant to adjudicate the issue(s) impugned before us. It is observed that, the assessee group comprises of the assessee (M/s Mohanlal Jewellers Pvt Ltd) which was the flagship company, M/s Mohanlal Jewellers Chennai Private Limited, M/s Mohanlal Jewellers Kolkata (Prop: Shri Mohanlal Khatri HUF), M/s Shanthi Jewellers Mumbai (Prop: Shri Sur....
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.... proprietorship entities i.e. M/s Mohanlal Jewellers Kolkata, M/s Shanthi Jewellers Mumbai & M/s Mohanlal Jewellers were based out of Kolkata & Mumbai and they were getting the gold jewellery manufactured on job work basis locally. The finished products so manufactured were dispatched by these entities for sale through the Chennai based companies i.e., M/s Mohanlal Jewellers Pvt Ltd & M/s Mohanlal Jewellers Chennai Private Limited. In April 2018, with the object of augmenting the production capacity & also for partially localizing their manufacturing operations, the assessee company also established an inhouse manufacturing facility at Chennai. Consequently therefore, out of the total manufacturing operations, almost 20% of the manufacturing process got localized. The assessee also explained the modus operandi behind manufacture of gold jewellery, which involves procurement of 24 carat gold bullion and its conversion into 22 carat gold jewellery either through outsourced goldsmiths or through the in-house manufacturing facility. The assessee further pointed out that, more than 95% of the total sales comprise of the sales made to retailers, who operate retail jewellery outlets and t....
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....ftware also enabled the assessee to only record the movement of goods without assigning any values or prices thereto. This particular feature was useful as when the goods were dispatched on 'approval-basis' to customers, the sale prices were not fixed as it was to be decided and agreed upon only at the time of approval, depending upon the gold prices, as prevailing then. Accordingly, the assessee would pass notional entries of the goods sent on 'approval-basis' in the J-Pack Software but no corresponding entry would be passed in Tally Software, as there was no financial transaction involving transfer of ownership in goods from the assessee group to the customers. This software was thus used to integrate and manage the stock movement and the operational data across all entities, thereby providing a consolidated view of the group's inventory and the inter-entity movement of goods. The assessee explained that, the J-pack software was not an accounting software but rather a custom-built inventory software, meant to provide proper inventory control. On the other hand, the regular accounting software was used to maintain separate accounts for each entity as they were separate juridical p....
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....ounting software. We now take up the individual issue(s) emanating from J-Pack Software, which are in dispute before us. 7. Issue 1: Additions made on a/c of 'Ghat' Ground Nos. 2 to 4 of the Revenue's appeal for AYs 2017-18 to 2021-22 7.1 It is observed that, in the course of search, the Investigating authorities had come across one ledger titled 'Ghat' in the J-Pack Software, which contained receipt & issue entries. According to the Revenue, the receipt entry in this ledger was made when wastage gold was being generated from conversion of old gold / bullion bars into new gold ornaments and that the issue entries were only square off entries, which was to be ignored. The AO was of the view that, the wastage gold was retained by the assessee was in lieu of the fees for the job-work services rendered to its customers. The AO is noted to have explained the same with an example in his assessment order viz., if a customer provided gold bar weighing 995 grams, the assessee would make gold jewellery which would contain minimum of 916 grams as per the government rules and that the remaining 79 grams would be retained by the assessee and that would represent the income derived ....
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....ed the matter in appeal. Before the Ld. CIT(A), the assessee submitted that, the Ghat account in the J-Pack Software was used as an 'alloy' account while converting pure gold into gold ornaments and this account was maintained to record the difference in purity of gold. The assessee accordingly sought to rebut the statement of Shri Rajendra Kothari and for this they brought on record several details along with evidences to disprove his statement. The Ld. CIT(A) is noted to have called for a remand report from the AO on this issue. In the remand proceedings, the assessee is noted to have submitted details of fifteen (15) sample transactions for AY 2017-18 [and similar sample size for other years as well] along with invoice copies of purchase, alloy addition calculation, making charges, ledger extracts where the purchase & sale are reflected. The relevant portion of the explanation furnished by the assessee, is noted to be as under: "1. The Ghat Account used in the J Pack Software was majorly used as an alloy account while converting Pure Gold into Gold Ornaments and vice versa. 2. The GHAT Account was maintained to record the difference in purity of gold occurring ....
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....rnaments was also found reflected in the 'Assorted gold Jewellery' ledger. The AO also noted that, where the gold was being converted into new ornaments on behalf of the customers, the assessee was actually earning making charges from such job-work transactions, which was reflected in 'Making Charges for Jewellery mfg' ledger in Tally Accounts and the 'MC-Khata' Ledger in the J-Pack Software. Though having held so, the AO stated that, due to paucity of time, he was unable to verify each and every entry in the Ghat ledger and therefore according to him, possibility of unaccounted transactions being recorded in this ledger cannot be ruled out. The AO reiterating his reliance on the statements of Shri Kothari & Shri Khatri and the Developer of JPack Software, in his remand report, urged that the addition(s) made on account of 'Ghat' may be sustained. 7.5 After considering the submissions of the assessee and the remand report of the AO, the Ld. CIT(A) is noted to have taken specific note of the AO's finding of fact that, the entries in the 'Ghat' ledger are only that of 'alloy' addition value and not that of 'metal' addition. The Ld. CIT(A) also verified and acknowledged that, the c....
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...., the AO was of the view that, the ledger titled 'Ghat' maintained in the customized software 'J-Pack' contained receipt entries ('Ghatjama') for the excess 'metal' (gold) retained by the assessee outside the books, while rendering job-work services to the customers. This analogy of the AO is found to primarily emanate from the statements given by Shri Rajendra Kothari u/s 132(4) and 131 of the Act, and we note that, there was no other corroborative material or evidence referred to by the AO, to justify such an inference. Relying upon their statements, the AO is noted to have theorized that, the assessee was receiving old gold or bullion bars from the customers for remaking into ornaments, and in this process, a portion of the gold supplied by the customers remained as excess, for which receipt entries ('Ghatjama') was passed in 'Ghat' Ledger and that the issue entries ('Ghatnamma') were essentially squaring off entries, which was to be ignored. The sum total of the receipt entries in the Ghat Ledger across all the years was treated as the unaccounted income in the form of wastage gold by the assessee. Before the AO, the assessee is noted to have explained that, the entries in the ....
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....hat' Ledger in the J-Pack Software. Having considered the foregoing, we find merit in the assessee's claim that the entry in 'Ghat' ledger was that of 'alloy' addition value to the gold ornaments being made by karigars on their behalf and didn't constitute any entry of wastage gold retained from the customers. It is observed that, similar such instances were also noted by the AO in his remand report dated 18.11.2024, which is reproduced hereunder: - BNS BANK INVOICE NO-L/XG1MD 16-17/10 PURCHASE BULLION (8000X99.5%) 8000.00 ALLOY 91.66% 684.27 Gold + Alloy 8684.27 GOLD WT (8000.00 X99.5) 7960.00 BALANCE WT GHAT (P NO-3) 724.27 HDFC BANK INVOICE NO-L/XG95 CHN 1617/08 PURCHASE BULLION (15000X99.5%) 15000.00 ALLOY =91.66% 1283.00 Gold + Alloy 16283.00 GOLD WT (15000.00 X99.5) 14925.00 BALANCE WT GHAT (P NO-4) 1358.00 HDFC BANK INVOICE NO-L/XG95CHN1617/182 PURCHASE BULLION (20000X99.5%) 20000.00 ALLOY 91.66% 1710.67 Gold + Alloy 21710.67 GOLD WT (20000.00 X99.5) 19900.....
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....LANCE WT GHAT (P NO-29) 3782.52 MMTC-PAMP INDIA PVT LTD INVOICE NO-TN-2016-2017-0121 PURCHASE BULLION (11000.00x99.5%) 11000.00 ALLOY 91.70% 935.66 Gold + Alloy 11935.66 GOLD WT (11000.00X99.5%) 10945.00 BALANCE WTGHAT (P NO -31) 990.66 MMTC-PAMP INDIA PVT LTD INVOICE NO-TN-2016-2017-0201 PURCHASE BULLION (15000.00X99.5%) 15000.00 ALLOY 91.70% 1275.90 Gold + Alloy 16275.90 GOLD WT (15000.00X99.5%) 14925.00 BALANCE WT GHAT (P NO-35) 1350.90 ZAVERI & CO PVT LTD INVOICE NO-CHN/20/2016-17 PURCHASE BULLION (30700.00X99.5%) 30700.00 ALLOY 91.70% 2611.34 Gold + Alloy 33311.34 GOLD WT (30700.00x99.5%) 30546.50 BALNCE WT GHAT (P NO -40) 2764.84 7.10 It is seen that even the AO in his remand report had verified the above instances pointed out by the assessee and noted that they reconciled with the entries found in the 'Ghat' Ledger and thereafter recorded a finding of fact ....
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....mporaneous facts brought on record showed that, the entries found in 'Ghat' Ledger (even on sample basis) pertains to alloy addition and not metal (gold), then it is a natural corollary that, all receipt entries in the same ledger would pertain to the same item i.e. alloy and it cannot relate to metal i.e. gold. The assertion of the Ld. CIT, DR that, there may be ghat entries relating to metal (gold) cannot be countenanced, since it not only lacks basis but logic as well, as it would be highly unusual that the same ledger would contain some entries of 'alloy' and some of 'metal'. Considering the facts discussed supra & infra, we agree with the Ld. AR that, once the character of entries was demonstrated to be alloy additions, then it was safe to presume that all entries in the same ledger would bear the same character, which is that of alloy additions, unless it is disproved by relevant materials. 7.12 Coming to the Ld. CIT, DR's contention that, all the entries ought to have been verified instead of a sample set, it is seen from the remand- report that, the AO had refrained from examining all entries in 'Ghat' Ledger citing paucity of time and voluminous size of data. In our con....
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....hat the seized materials do not have the daily report along with yellow and white slips for the entire period of FY 2016-17 to 2020-21. However, these seized materials are available for limited period only. For the remaining period, these daily reports and slips were destroyed in a periodical manner by the appellant and it was the reason for which the search team could not find and seize the corresponding reports and slips for the entire period from FY 2016-17 to 2020-21. In this regard, the AO was requested to produce the relevant seized material for verification. In response, the AO had furnished the following seized material which contains the daily reports along with yellow and white slips for verification with the GHAT entry which is available for the period mentioned as under: Seized material Period ANN/VD/RK/LS/S-01 14.07.2020 to 21.07.2020 ANN/VD/RK/LS/S-02 22.07.2020 to 31.07.2020 ANN/VD/RK/LS/S-03 01.08.2020 to 06.08.2020 ANN/VD/RK/LS/S-04 07.08.2020 to 12.08.2020 ANN/VD/RK/LS/S-05 13.08.2020 to 19.08.2020 ANN/VD/RK/LS/S-06 20.08.2020 to 24.08.2020 ANN/VD/RK/LS/S-07 25.08.2020 to 31.08.2020 ANN/VD/RK/LS/S-08 01.09.2020....
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....ceived is also mentioned in both pure gold i.e. 'Fine' and gross weight with the purity percentage. In the above slip, two bars of 99.5% purity which contains 1990.00 grams of 100% pure gold along with a broken bar of 99.5% purity of 935.41 grams, which contains 930.73 grams of 100% pure gold, was received. The weight of 100% pure gold of 2920.73 grams is recorded under 'Fine', and the gross weight is converted into 94.5% gold of 3090.72 grams and recorded under 'Wt'. The GHAT issued of 165.310 grams is arrived by taking the difference between 3090.72 grams and 2925.41 (1990 + 935.41) grams. This difference is nothing but the alloy to be added for manufacturing gold ornament by converting 24 carat gold into 22 carat gold ornament and also adding the making charges equal to that of gold. The same is mentioned in 'Ghat Naamae' in the daily report for the said date. Further, the total Ghat Naamae for the said date was 224.060 grams which includes 165.310 grams of the transactions related to 'T NAGAR SMJ (GRF)' and another party 'MALABAR MDS' of 58.750 grams and the same was debited as 'GHAT issue' in the GHAT ledger for the date 27.07.2020. The relevant page of the GHAT ledger is also....
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....7/2020 METAL ISSUE 5.400 100.00 5.400 25/07/2020 METAL RECEIPT 38.540 100.00 38.540 25/07/2020 METAL ISSUE SJ CBE RATIO DIFF 24.170 100.00 24.170 25/07/2020 METAL ISSUE 84.400 100.00 84.400 25/07/2020 METAL ISSUE 0.420 100.00 0.420 25/07/2020 METAL ISSUE 2.870 100.00 2.870 27/07/2020 METAL RECEIPT 1.410 100.00 1.410 27/07/2020 METAL ISSUE 91.650 100 00 91.650 27/07/2020 METAL RECEIPT 426.790 100.00 426.790 27/07/2020 METAL ISSUE 224.060 100.00 224.060 27/07/2020 METAL ISSUE AKB 4.450 100.00 4.450 28/07/2020 METAL....
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....een 3181.63 grams and 2925.41 (1990 + 935.41) grams. It is also noted that the working of 3181.63 grams was arrived at to convert 2920.73 grams of 100% pure gold to manufacture 91.6% purity, the minimum requirement of 91.8% of pure gold is needed taking into account some wastage while melting and also the impurities in the 24 carat gold beyond the level mentioned in the bullion itself. Thus, the 'Ghat Jama' for this transaction was worked out at 256.22 grams and the same is mentioned in 'Ghat Jama' in the daily report for the said date. Further, the total 'Ghat Jama' for the said date was 426.790 grams which includes 256.22 grams of the transactions related to 'T NAGAR SMJ (GRF)' in the name of 'ARJUN FACTORY, 169.740 grams in the name of 'VIJAY FACTORY' and 0.830 grams in the name of another party 'M S BACK CHAIN' and the same was credited as 'GHAT receipt' in the GHAT ledger for the date 27.07.2020 as reproduced above. 5.8.7. The above findings, arising out of the seized material which is available with the AO, clearly proves that the GHAT issue and receipt entered in the GHAT ledger of J-Pack are not that of gold received from the customers as stated by Shri Rajendra Ko....
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....and also submitted the delivery challan for the job-work dated 25.07.2020. The same is reproduced as under: On perusal of the above delivery challan, it is noted that M/s Shree Mahalakshmi Jewellery has delivered 2935.410 grams of bullion of 99.5% purity and gave the instruction to add alloy of 239.300 grams to make 22 carat gold ornaments of 3174.710 grams. The same bullion was received on 27.07.2020 by MJPL which has been acknowledged by both the parties. The quantity mentioned in the delivery challan is exactly matching with the above seized material sheet number 288 of the said annexure (reproduced above), but the only difference is 14.68 grams which is on account of conversion of 99.5% to 100% purity. Thus, the seized material matches with the delivery challan. Further, the party ledger in the name of 'T NAGAR SMJ' maintained in J-Pack (reproduced in para no. 5.8.8. below) is also examined and it is found that the metal receipt of 2920.730 grams of 100% pure gold with the gross of 3090.720 grams of 94.50% purity is also given credit. The quantity of 24 carat pure gold received from M/s Shree Mahalakshmi Jewellery for job-work as per seized material in sheet no. 288 an....
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....hat the same amount of Rs. 9,78,587/- was entered as receipt from M/s Shree Mahalakshmi Jewellery on 11.09.2020 in the credit side of the said ledger. Further, it is also noted from the party's ledger account maintained in Tally (as reproduced above) that an amount of Rs. 10,12,837/- was received by bank transfer on 11.09.2020. The said payment received through bank on 11.09.2020 is against the making charges payable by M/s Shree Mahalakshmi Jewellery to the appellant for which the following invoices were raised for making charges payable: Sr. No Date Making Charges (in Rs.) GST (in Rs.) Total (in Rs.) 1. 11-06-2020 52,655 2,632 55288 2. 08-08-2020 1,22,316 6,116 128432 3. 08-08-2020 3,80,965 19,048 400013 4. 08-08-2020 1,14,174 5,709 119883 5. 26-08-2020 3,08,477 15,424 323901 TOTAL 9,78,587 48,929 10,27,517 As seen from the above table, the making charges of Rs. 9,78,587/- received on 11.09.2020 is included in the amount received through bank transfer of Rs. 10,12,837/- (after considering TDS of Rs. 14,679) and the same is accounted in the Tally and also in 'MC KHATA' an....
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.... and receipt of payment by way of cheque, the reversal of equivalent metal for the amount received is credited in the same party's ledger. Hence, it can be concluded that when the metal equivalent to that of making charges are debited at the time of issue of gold ornaments in advance, the parties get equivalent amount of metal back into their account by way of credit entry when there is a payment of making charges after the invoices were raised by the appellant for the making charges. Thus, this reversal of metal on account of receipt of making charges by way of payment does not alter the transactions already recorded in Tally on account of making charges received. This also proves beyond doubt that there is no escapement of income on account of MC KHATA ledger maintained in JPack vis-à-vis the making charges already accounted in the regular books of accounts." 7.15 At the time of hearing, the Ld. CIT, DR on behalf of the Revenue had referred to one debit entry of 95.10 grams of metal found in the name of the above party in the same daily report which was seized in the course of search, and contended that this entry also ought to have verified by the Ld. CIT(A). We find t....
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....either prudent nor safe to rely on their statements to draw adverse view against assessee. In this context therefore, we concur with the following findings rendered by the Ld. CIT(A), which is reproduced hereunder:- ".Firstly, the statements of the above persons are examined in detail. The AO had relied on the statement of Shri Rajendra Kothari dated 26.11.2020 which is also part of the assessment order. However, it is also noted from the assessment order that there is one more sworn statement recorded from Shri Rajendra Kothari on 30.11.2020, which is after four days from the initial statement recorded from him, which is also part of the assessment order itself. If both these statements are seen closely, it is noted that Shri Rajendra Kothari has changed his initial statement dated 26.11.2020 in the subsequent statement recorded on 30.11.2020. Shri Rajendra Kothari, in his initial statement had explained that M/s MJPL receive gold bars for making ornaments from the parties and it normally receives 975 grams of gold for making 1 kg of gold ornaments and they add alloy to make the ornaments and make 1 kg of ornaments with only 935 grams of gold and the remaining 40 grams of....
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....rall therefore, the specific findings rendered by the AO in his remand report acknowledging that, the entries in 'Ghat' ledger were that of alloy adjustments and not wastage gold, coupled with the verification exercise undertaken by the Ld. CIT(A) clearly disproved the testimonies of Shri Kothari & Shri Khatri making it unreliable. Hence, the reliance placed by the Revenue on the decision rendered in the case of B Kishore Kumar Vs CIT (52 taxmann.com 449) is found to be misplaced and factually distinguishable, as that decision turned on facts where the statement was consistent, credible, and corroborated with evidence, which as discussed in the foregoing, is absent in the present case. Instead, we find the reliance placed by the Ld. AR of the assessee Shri Anand on the decision of the Hon'ble jurisdictional High Court in the case of CIT v. S. Jayalakshmi Ammal (390 ITR 189)(Mad) to be of relevance, wherein it was held that, unless the statement recorded under Section 132(4) of the Act is corroborated by documentary evidence, such statement alone cannot be the sole basis for making additions in the assessment. The relevant findings of the Hon'ble High Court is as under:- "1....
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....nd Shri Khatri, no independent corroborative material has been brought on record by the AO which would show that the receipt entries in 'Ghat' ledger comprised of 'metal' received by the assessee. Rather, the contemporaneous facts as discussed above, proves the contrary viz., the entries related to 'alloy' additions to the gold ornaments. Hence, having examined of the gamut of facts placed on record, we find that the 'Ghat Jama' entries only related to the quantities of alloy added for conversion of 24 carat bullion into 22 carat gold ornaments and does not involve any gold entries. We thus are entirely in concurrence with the following conclusive findings of the Ld. CIT(A) which is reproduced hereunder: - "After examination and verification of the contents of available seized material in ANN/VD/RK/LS/S-1 to 15 for the period available (as reproduced above in Para 5.8.5) with GHAT and MC KHATA ledger maintained in J-Pack software, it can be concluded that: (i) The GHAT account is entered with only the quantity of alloy added for conversion of 24 carat bullion into 22 carat gold ornaments and does not involve any gold. (ii) The issue and receipt side of GH....
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....therwise also found to be correct with the other part of his statement that it is primarily used for recording metal-based trading which is not available in Tally. (v) Furthermore, the AO had also relied on the statement of Shri Suresh Khatri dated 04.12.2020, wherein he had stated that for manufacturing 1 kg of gold ornaments,960 grams of gold bar is used, whereas in the process of adding alloy only 930 grams will be used and remaining 30 grams will be the wastage for him. Further, he has also stated that small portion of weights will be credited in the GHAT ledger and also admitted that 3764.109 kgs of gold received as per the GHAT ledger are of gold metal weight for FY 2016-17 to 2020-21. He had also claimed that there are GHAT outgo. On the basis of the findings of the AO in the remand report after verification carried out by him in the remand proceedings and also the verification carried out by me independently on the basis of seized material and ledgers of J-Pack and Tally, the facts are found otherwise. Thus, this statement of Shri Suresh Khatri is found to be not correct as per the contents of seized material and entries made in the books of accounts. Hence, it can....
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....mise and also demonstrated that the entries in the J-Pack Software were not pertaining to making charges incurred by the assessee but related to the receipt of making charges from various parties through banking channel / RTGS. The assessee is found to have shown that all these entries in 'MC Khata' ledger were that of receipts (not payments) which were accounted and credited in the Profit & Loss Account of the respective years across the respective concerns of the assessee group. The assessee is noted to have submitted the entry-wise details in the 'MC KHATA' ledger of J-Pack software with that of the party-wise ledgers maintained in Tally software to correlate that the entries of amount received in 'MC KHATA' ledger was entirely accounted in the regular books of accounts of the assessee. 8.3 Though the AO is found to have dropped his initial show cause that, the entries in 'MC Khata' Ledger related to unaccounted making charges payments which was based on the statement of Mr. Kothari, but the AO still treated the entries to be unaccounted for, by referring to one note book found in the course of search at Super Saravana Stores Group of companies, which was marked as ANN/SR/SSS....
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.... addition on this account was warranted. The Ld. CIT(A) is noted to have also examined the statements of Shri Rajendra Kothari and Shri A. Julian of M/s Super Saravana Stores (Jewel) Super LLP and found the same to be factually incorrect. With these observations, the Ld. CIT(A) is noted to have deleted the impugned addition. Now, the Revenue is in appeal before us. 8.6 The Ld. CIT, DR appearing for the Revenue primarily relied on the note book found in the course of search at the premises of M/s Super Saravana Stores (Jewel) Super LLP which according to her suggested that the assessee was paying cash in lieu of making charges income received from the customers, to justify the impugned addition. Per contra, the Ld. AR relied upon the verification exercise undertaken by the AO in his remand report and also the findings rendered by the Ld. CIT(A). 8.7 Heard both the parties. From the facts as narrated in the foregoing, it is observed that the initial case sought to be made out by the AO was that the entries found in 'MC Khata' Ledger represented unaccounted making charges payments made by the assessee, as Shri Kothari had averred so in his statement recorded u/s 132(4) of the Ac....
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....r respective ITRs for the respective years. The relevant verification observations made in the remand report in AY 2017-18 [which is found to be similar in subsequent AYs 2018-19 to 2021-22 as well], is noted to be as under:- "In the assessment order a sum of Rs 20,44,84,681 was added as unaccounted income on account of making charges for the AY 2017-18. It is seen that this is the total amount of MC Khata ledger in the JPACK software for the AY 2017-18. The assessee submitted that they have admitted the making charges (Net figure) in their books of accounts and offered to tax as under :- Ledger of Gross Receipts Net Receipts MJPL 16,53,21,918 8,14,17,869 Mohanlal Jewellers (Prop Concern) 13,91,37,035 5,00,38,778 Mohanlal Jewellers Chennai P Ltd 2,59,15,185 1,46,31,971 Total 33,03,74,138 14,97,83,013 In order to verify the claim of the assessee that the entries relating to making charges found in the JPACK software are accounted for in their books of accounts, the same were examined and cross checked. The entries found in the JPACK ledger (M C Khata) were cross checked with the parties ledger in the books of accounts of....
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....also found that the closing balance of these parties are fully reflected in the P & L account of the appellant as a receipt. Thus, the AO had verified each and every entry of the MC KHATA ledger in J-Pack with the books of account maintained and the P & L account of the appellant and found that it is fully offered as an income in the hands of the appellant. In addition, the AO had also verified and found that against the making charges received of Rs. 16,53,21,918/- for the year under consideration, the appellant had debited Rs. 8,39,04,049/- as making charges paid and offered net income from making charges of Rs. 8,14,17,869/- in the hands of appellant. Similarly Rs. 5,00,38,778/- was offered as net income from making charges in the hands of M/s Mohanlal Jewellers, Proprietary concern of Shri Mohanlal Khatri. However, after coming to the conclusion that the entries made in the MC KHATA ledger are in fact making charges received by the appellant and recorded in the books of accounts, the AO had also relied on the statement of Shri A Julian of M/s Super Saravana Stores (Jewel) Super LLP dated 01.12.2021 and stated that the addition made by the Assessing Officer is on account of rece....
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....aking charges payable by the party for job work done by the appellant. In other words, whenever the 22-carat gold ornaments are issued by the appellant to the party, M/s Prince Jewellery, the appellant debits the gold equivalent to that of making charges in the party's ledger in J-Pack at the time of delivery of ornaments to the party. However, when the making charges are received by way of payment through banking channel from the said party, the gold equivalent to the amount received in bank account is duly credited in the same party's ledger account in J-Pack, otherwise, it will be a double payment by the party towards making charges which no customer will allow to happen. In this case of M/s Prince Jewellery, the appellant had given credit of 424.620 grams equivalent to Rs. 13,99,128/- in the same party's ledger account vide entry dated 20.03.2019 which is equivalent amount of prevailing gold rate as on that date. Thus, it can be stated that the making charges included as metal weight at the time of issue of gold ornaments by the appellant is duly reverted back once the same is paid through banking channel with equivalent amount of metal in the party's ledger by way of crediting....
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....hari and Shri A. Julian of M/s Super Saravana Stores (Jewel) Super LLP, which was also found to be incorrect as per the detailed discussion in the above paragraphs. Hence, I am of the opinion that the addition of Rs. 20,44,84,681/- made by the AO on account of entries made in MCKHATA ledger account in J-Pack is to be deleted. Accordingly, these grounds raised by the appellant are allowed." 8.11 The Ld. CIT, DR appearing for the Revenue was unable to pin point any factual infirmity in the above findings of the Ld. CIT(A) nor was she able to controvert the remarks given by the AO in his remand report wherein he himself had accepted that the entries in the 'MC Khata' ledger are duly reflected in the books of account of the assessee and the corresponding amounts have already been offered to tax. According to us, when it is not in dispute that the impugned sum has already been credited and offered to tax by the assessee, the case sought to be made out by the Revenue for sustaining the addition(s) being impugned before us has no legs to stand on, as it would amount to double addition of the same amount, which is impermissible in law. 8.12 In spite of the above admitted factual matr....
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....t that the assessee is in the business of rendering job work services for its customers and therefore the making charges earned by it cannot arbitrarily be disbelieved as non-genuine, particularly when no such contrary material or evidence was found or seized in the course of search. Rather, the verification exercise done by the AO & Ld. CIT(A) is found to support the assessee's case. 8.15 Moreover, assuming for a moment that there is some credence in the statement of Shri Julian, then by that logic, the receipt of making charges from M/s Super Saravana Stores (Jewel) Super LLP as credited in the P&L A/c is to be treated as not genuine, then such income ought to have been excluded from the computation of the assessable income, which has not been done by the Revenue. Hence, the action of the Revenue itself is found to be contrary to the statement of Shri Julian, which they seek to rely upon. According to us therefore, the statement of Shri Julian is of no assistance to the Revenue. 8.16 For the above set out reasons therefore, we therefore uphold the order of Ld. CIT(A) deleting the addition(s) made on account of making charges, as it was already accounted in the regular books....
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....-18 7,68,38,850 2018-19 8,80,42,489 2019-20 7,04,04,429 2020-21 8,62,761 2021-22 1,45,54,166 TOTAL 25,07,02,695 9.3 According to the AO, the above 'byaj' & 'vatav' receipts had not been offered to tax and therefore added the same to the total income of the assessee across all the years. Aggrieved by the order of the AO, the assessee preferred appeal before the Ld. CIT(A). 9.4 Before the Ld. CIT(A), the assessee is noted to have claimed that, while calculating the 'byaj' income, the AO had erroneously included the squared off entries as interest receipts which were routed through 'PP' Account and sought exclusion of the same. The assessee further pointed out that, there were several debits to the account of one Shri Laxmi Pondy, expressed in gold weight (grams), but they were only book entries, and no such interest was actually received in gold or cash from this person. The assessee thus prayed for deletion of the 'byaj' amount reflected in Shri Pondy's account as well. The Ld. CIT(A) is noted to have called for a remand report on this issue from the AO. After considering the facts of the case and the remand report, the Ld. CIT(A) is noted to h....
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....hat, the AO had accepted these infirmities in the calculation as pointed out by the assessee, and as a consequence the quantum of the aggregate 'vatav' income was reduced across AYs 2017-18 to 2021-22 from Rs. 25,07,02,695/- to Rs. 11,55,12,445/-. It is observed that, after considering the remand report, the Ld. CIT(A) also accepted that the squaring off entries made at the end of each month in the 'Vatav' account towards the difference arising between the receipt side and issue side and vice-versa, was to be deleted. The Ld. CIT(A) also held that, there are both cash receipts (credit entries) and cash payments (debit entries) on a continuous basis which are arising out of the same 'Vatav' ledger and therefore only the net amount was to be considered. Hence, the corrected Vatav income as quantified by the Ld. CIT(A) on the basis of the AO's remand report, is noted as under:- AY Vatav computed by AO (in Rs.) Vatav computed by Ld. CIT(A) (in Rs.) 2017-18 7,68,38,850 2,12,06,805 2018-19 8,80,42,489 4,23,91,890 2019-20 7,04,04,429 1,42,38,299 2020-21 8,62,761 2,31,21,285 2021-22 1,45,54,166 1,45,54,166 TOTAL 25,07,02,695 11....
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....j' income & 'vatav' income to Rs. 31,05,19,624/- & Rs. 11,55,12,445/- respectively. We find that, the Ld. CIT(A)'s quantification of these two items of income have not been disputed by either party before us and therefore we find the quantification of 'byaj' & 'vatav' to have attained finality. The limited issue raised by the assessee in their appeal(s) is that, whether the impugned addition(s) in their hands was justified, when these very sum(s) had already been offered and taxed in the hands of Shri Mohanlal Khatri. 9.10 In this context, the Ld. AR first invited our attention to the notice(s) issued under u/s 153A of the Act on Shri Mohanlal Khatri and the computation of income returned u/s 153A of the Act for AYs 2017-18 to 2021-22, details of which is found placed at Pages 16 to 48 of Volume V of the Paper Book. It is seen that, Shri Khatri had declared the following income to tax in AYs 2017-18 to 2021-22. AY Income declared u/s 139 Income declared u/s 153A 2017-18 12,25,27,950 22,08,89,150 2018-19 10,51,56,860 42,21,12,240 2019-20 10,47,49,160 26,47,49,160 2020-21 11,58,63,680 27,58,63,680 2021-22 NA 35,35,96,800 9.1....
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....ntry on the issue side of the difference between the two sides is done and vice versa. The amount specified in these entries is only the actual income of your assessee for the relevant period. 8.4. It is hereby stated that while arriving at the above stated figures, the search team had also added the transfer entries which were made at the end of each month for squaring off the ledger. This is because the grand total was considered by the search team which was inflated due to transfer entries. 8.5. Therefore, the actual income of the assessee for the period under consideration being the transfer entries are as below: - Assessment Year Amount 2017-18 6,92,00,000 2018-19 2,52,00,000 2019-20 4,54,00,000 2020-21 9,14,00,000 2021-22 2,25,00,000 25,37,00,000 8.6. Further, entries of one Shri Laxmi Pondywas added in the byaj ledger column on year on year basis. This entry was because the receivable of metal from Laxmi Pondy was due from very long time and hence the interest was added. However, it is hereby stated that the same were merely book entries but the same were never received as evident from JPACK. Hence t....
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.....03.2022." 9.13 We thus note that, Shri Mohanlal Khatri had specifically explained that the 'Byaj' Ledger & 'Vatav' Ledger found in J-Pack software pertained to him and accordingly he had offered the relevant entries therein to tax, on the basis of his own quantification. We note that, Shri Khatri at Para 13 of the same reply dated 24.03.2022, had furnished the manner of quantification of the additional income declared u/s 153A of the Act, which is noted to be as under:- "13. Additional Business Income Offered with respect to Search Proceedings (Source):- 13.1 As briefly stated above, the precise unaccounted income of the business of your assessee cannot be derived with precision due to complexities of accounts maintained by the business of your assessee. Further, the only income which is identifiable out of all the issues during the course of search are "Byaj Income" and "Vatav Income". 13.2 Further, it is hereby stated that the unaccounted business income of your assessee is again utilized in the business of the assessee only and the same can be reflected as either excess stock or receivables in the J Pack Software. Further, as stated in point 12.11 ....
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....returns of income filed u/s 153A of the Act for AYs 2017-18 to 2021-22 and that such additional income inter alia included 'byaj' & 'vatav' receipts quantified from the 'Byaj' and 'Vatav' ledgers of the J-Pack software found in the course of search. The details of the additional income offered on these two counts are noted to be as under:- AY Byaj Vatav Total 2017-18 5,51,84,434 2,12,06,805 7,63,91,239 2018-19 2,14,05,138 4,23,91,890 6,37,97,028 2019-20 2,80,62,373 1,42,38,299 4,23,00,672 2020-21 6,19,56,043 2,31,21,285 8,50,77,328 2021-22 2,25,45,278 - 2,25,45,278 Total 18,91,53,266 10,09,58,279 29,01,11,545 9.16 In view of the above, we do not countenance the Ld. CIT(A)'s observations that, the additional income offered by Shri Mohanlal Khatri lacked break-up, for him to verify whether such additional income so offered had emanated from the entries found in J-Pack Software. Instead, we note that, Shri Mohanlal Khatri had made it explicity clear in his submissions that, out of the total additional income of Rs. 96.42 crores offered by him in AYs 2017-18 to 2021-22, the sum aggregating to Rs. 29.....
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....t is noted that, in the course of assessments being framed u/s 153A/143(3) of the Act for AYs 2017-18 consequent to the present search which was conducted on 10.11.2020, Shri Mohanlal Khatri had furnished the break-up of income as offered before ITSC. It is seen that the said break-up was stated to include the 'byaj' & 'vatav' receipts from the J-Pack Software. The AO in the assessment orders passed u/s 153A/143(3) for AYs 2017-18 has not disputed the aforesaid submission of Shri Mohanlal Khatri. In light of these facts, we reject the Ld. CIT, DR's plea that the additional income offered to tax for AYs 2017-18 cannot be said to include the impugned sums. 9.18 It is further observed that, for denying the benefit of the additional income offered by Shri Mohanlal Khatri, the Ld. CIT(A) had acted on the mistaken understanding of fact that, the entries in J-Pack Software related to the assessee alone. From the discussions made in the earlier paragraphs, it is amply clear that, the J-Pack Software was being used by the assessee group as a whole and that the entries related to all the group entities including proprietorship concerns and other companies of the assessee group. It is obse....
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....ri of the assessee group and it would not have been received by the assessee company. According to us, in the absence of clear nexus of the entries found in J-Pack software to any specific person or entity, the unaccounted income ordinarily should be attributedto the person who exercise control, holds the capital and manages the operations, all of which points to Shri Mohanlal Khatri. Therefore, when clear identification as to whom the entries in 'byaj' & 'vatav' ledger pertained to was evidently not possible, and given the fact that, the key person of the assessee group i.e. Shri Mohanlal Khatri had owned up these entries and offered the relevant entries to tax in his individual hands, then no further addition on the same issue could have been legally made again in the hands of the assessee company. 9.20 The Ld. AR also pointed out that the applicable tax rates in the hands of Shri Mohanlal Khatri and the assessee was the same. Rather, the tax rate in the hands of company was comparatively lower than the individual in some years. Hence, we find that, it was also not a case that there was any Revenue leakage or any tax benefit being availed by the assessee group, by offering the....
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....ce the entries in 'Byaj' ledger has been attributed to Shri Mohanlal Khatri and his quantification of the 'byaj' & 'vatav' income has been accepted by the AO in his personal income-tax assessments, then no further sum could be attributed to the assessee company qua the remaining unlinked entries. We however are unable to countenance this plea of the assessee. It is indeed true that, Shri Mohanlal Khatri had admitted to the 'byaj' & 'vatav' receipts found in the J-Pack Software and offered the same to tax in his hands, but as noted above, the values quantified by him does not match with the amounts quantified by the Ld. CIT(A) in the impugned order(s). Before us, the Ld. AR was unable to show any infirmity in the calculation of the 'byaj' & 'vatav' receipts by the Ld. CIT(A) and therefore we are of the view that, this quantification is indeed correct. As noted above, the entries in the J-Pack software pertained to the entire group and there was no specific identification or demarcation to attribute specific unaccounted entries to any specific entity or individual. We therefore are of the considered view that, when Shri Mohanlal Khatri had admitted to the 'byaj' & 'vatav' receipts to....
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.... found to have explained that, the AO had mistook the nature of 'Cash' ledger by assuming its meaning in colloquial sense. The assessee submitted that, the terms and language used in the J-Pack account was customized to the assessee's specifications. The assessee showed that, there was no ledger by the name 'Bank' in the software and that all the payments received and paid through banking channels were also entered in the 'Cash Ledger' as it represented the funds available with the assessee. Similarly, the assessee showed that the payments made to several parties through banking channels was also recorded in this 'Cash' Ledger. The assessee demonstrated the same with sample instances of sub-ledgers found in the 'Cash' ledger. The assessee further pointed out that, the 'Cash' Ledger also inter alia included entries relating to goods which were sent on approval basis to their customers, which were accompanied by proforma bills and since the J-Pack software was used to record the movement of goods, the amounts mentioned in proforma bills, when sent on approval basis, was correspondingly routed through 'Cash' Ledger. Later on, if and when the goods are returned without approval, the en....
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....income of the assessee. Aggrieved by the order of the AO, the assessee preferred appeal before the Ld. CIT(A). 10.3 On appeal before the Ld. CIT(A), the assessee is found to have furnished a detailed reconciliation statement with workings to show that at most the unidentifiable sales for the AYs 2017-18 to 2021-22 would work out as follows:- AY Unaccounted Sales estimated by AO Unaccounted sales as per assessee 2017-18 1993.12 699.22 2018-19 2725.66 497.84 2019-20 136.89 767.52 2020-21 1055.17 540.76 2021-22 627.11 146.91 10.4 For arriving at the above quantification, the assessee is noted to have pointed out calculation errors in quantification of certain ledgers, which had already been added or considered separately such as 'Byaj' or 'Vatav' etc. The assessee also furnished additional evidences tagging certain sub-ledgers and entries with the books of accounts. The assessee also identified contra entries, group transfers and sales contra etc., which according to them, was to be excluded as well. The Ld. CIT(A) after considering the remand report furnished by the AO and the submissions of the assessee is noted to have qua....
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....ntries. The Ld. AR argued that, the Revenue had also tacitly acknowledged that the assessee was making consolidated entries on the basis of daily reports in the J-Pack Software and that these daily reports were systematically weeded out at regular intervals and therefore in absence of the same, it is not possible to bifurcate and tag the remaining entries with the books of accounts. The Ld. AR thus urged us that, having regard to the overall facts of the case, the quantum of alleged unaccounted sales may be estimated on a reasonable basis. 10.7 The next argument of the assessee was that the gross profit rate of 2.5% estimated by the Ld. CIT(A) was on the higher side. Taking us through the gross profit rates reported across several years, the Ld. AR showed us that, the average gross profit rate of the assessee for multiple years did not go beyond 1.5%. He further submitted that, in none of the years, had the Revenue rejected the book results. According to him therefore, the Ld. CIT(A) was unjustified in estimating the gross profit at 2.5%, and that it ought to further reduced to 1.5%. In this regard, the Ld. AR relied on the judgments of the Hon'ble jurisdictional Madras High Cou....
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.... making other additions in the hands of the assessee and, those sub-heads which had been considered by the AO separately in the hands of Shri Suresh Khatri and, also those sub-heads which comprised of actual sales recorded in the books of accounts of the entities belonging to assessee group. The Ld. CIT(A) is also noted to have excluded the contra entries, sales contra & group transfers which were identified and pointed out by the assessee with supportings. Having gone through the remand report and the findings rendered by the Ld. CIT(A) in his appellate order(s), we are of the view that the Ld. CIT(A)'s quantification of unaccounted sales was reasonable. 10.11 We find that there is force in the assessee's contention that, in their line of business, where goods are sent on approval basis to the customers, it cannot be regarded as sales. As noted earlier, the J-Pack Software was meant to provide inventory control and therefore there could be entries in 'Cash Ledger' which pertain to goods which were sent on approval basis. Further, as noted while adjudicating other issues in this appeal, the J-Pack Software was being used to record inventory movement of the goods of the entire as....
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....observed that, the lower authorities had not rejected the above book results of the assessee nor had invoked provisions of Section 145(3) of the Act. In our thoughtful consideration therefore, the average profits earned by the assessee itself in the comparable years is a reasonable barometer to estimate the gross profit derived by the assessee from the unaccounted sales, as the business activities of the assessee is identical. Our view is supported by the decision of the jurisdictional Tribunal in the case of New Saravana Stores Bramandamai vs DCIT (supra), wherein it was held that adopting the GP rate as adopted by the assessee on the accounted sales during the year, would be a realistic and reasonable approach. In this decision, it was also held that the GP rate offered on accounted sales can be adopted because there was no defect pointed out in the regular books of accounts. From the table above, it is observed that the average GP rate across the five (5) years works out to 1.5% and it ranges between 0.74% in AY 2017-18 to 1.85% in AY 2021-22. We further observe that, the Ld. CIT(A) had also examined the entries in the J-Pack Software and noted that, the Gross Profit recorded in....
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....eedings that the unaccounted sale transactions of Rs. 1527,03,32,138/- is outside the books of accounts maintained in Tally and the rejection of books of the appellant may be detrimental to the appellant for the reason that the GP arrived in the regular books of accounts may also be altered without any findings of defects in the said books of accounts. Hence, I am of the opinion that on the facts and circumstances of the case of the appellant, adopting the GP% on the basis of the findings of the search and estimating the income at such GP rate on unaccounted sale transactions and making an addition to the total income already disclosed in the books of accounts will be more realistic approach to arrive at the total business income of the appellant for the year under consideration. I had also considered the average GP% offered by the appellant for the AY 2017-18 to 2021-22. The average rate of GP for these 5 years is worked out at 1.5% as per the GP% declared by the appellant in the ITRs filed and it ranges from 0.74% for AY 2017-18 to 2.58% for the AY 2020-21. Meaning thereby, the average GP for all the 5 years i.e. 1.5% is almost closer to the average GP recorded in the Jpack ledge....
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....seen that consolidated entries are passed in this J-pack software for all the entities belonging to the assessee group. We observe that, this factual aspect also came to light while adjudicating the issue of making charges (already discussed earlier) wherein it was gathered that the 'MC Khata' Ledger of J-Pack Software included making charges credited to the accounts of the assessee, Mohanlal Jewellers Chennai private Limited & M/s Mohanlal Jewellers (Prop : Shri Mohanlal Khatri). These admitted facts thus clearly evidences that the entries in J-Pack Software did not relate to the assessee alone but it comprised of all the entries/transactions of the entire assessee group. It is also observed that, several entries in J-pack software lacked narration and therefore there was no specific demarcation or identification to any specific entity of the assessee group. We note that, the assessee was able to identify and correlate certain ledgers and entries in J-pack software which corresponded to the regular books of accounts of several entities of the assessee group and therefore the same has been appropriately considered in their respective hands. It is the remaining untagged entries, whi....
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....ree with the Ld. AR that, Shri Mohanlal Khatri had offered additional income to tax in the returns of income filed u/s 153A of the Act for AYs 2017-18 to 2021-22 and that such additional income inter alia included unaccounted profit from business aggregating to Rs. 67,44,02,067/-, details of which have already been tabulated above. 10.18 It is further observed that, the aggregate unaccounted sales quantified by the Ld. CIT(A) in the impugned order(s) and the profit estimated thereon is not exclusive of the profit offered to tax by Shri Mohanlal Khatri. It is seen from the remand report(s) and the Ld. CIT(A)'s order that, the Ld. CIT(A) had first considered the aggregate entries in the 'Cash' Ledger and thereafter excluded (a) the ledgers relating to 'Byaj, 'Vatav', 'MC Khata' etc. which had been separately taxed in the hands of the assessee, (b) those sub-ledgers which related to unaccounted transactions of Shri Suresh Khatri and had been taxed in his individual hands, (c) bank entries found in the regular books of accounts and (d) reversal/ group / contra entries; to arrive at the quantum of unaccounted sales. Having regard to the foregoing, we are in agreement with the Ld. AR ....
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.... totaling to Rs. 72,56,51,898/- across AYs 2017-18 to 2020-21 in the hands of the assessee, as tabulated above. As shall be seen from the above table, the addition confirmed by the Ld. CIT(A) in AY 2021-22 stands deleted in full. Hence, overall therefore, the grounds raised by the Revenue stands dismissed and the grounds of the assessee is partly allowed. 11. Issue Nos. 6 to 10 : Additions made on a/c of unaccounted physical stock, unexplained cash & silver and unaccounted receivables Ground Nos. 6 to 11 of the Assessee's appeal for AY 2021-22 11.1 These grounds raised by the assessee relate to the addition made by the AO on account of unexplained stock, unaccounted receivables, unexplained cash & silver etc. all of which aggregated to Rs. 204,53,60,116/-. It is observed that, the Investigating authorities found a 'Party Balance Sheet' as on 10.11.2020 wherein gold stock of 814253.03 gms was found recorded in the receipt side against different party names. Upon being confronted with the same, Shri Suresh Khatri is noted to have submitted that some entries are reflected in books of accounts and some are unaccounted for. Later on, the assessee had filed a letter before t....
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....s found to have contended that, the additions made on account of 'byaj', 'vatav' & 'profit on unaccounted sales' in their hands and in the hands of Shri Mohanlal Khatri, ought to be telescoped to these unexplained assets. The assessee accordingly submitted before the Ld. CIT(A) that, after allowing the benefit of telescoping, no further addition would be warranted in this regard. 11.4 It is observed that, the Ld. CIT(A) had rejected each of the assessee's objections to the merits and quantification of unexplained assets unearthed from the 'Party Balance Sheet' and which was physically found in the course of search, except on account of quantification of excess stock, which he partially agreed and reduced the quantum from 368825 gms to 312115 gms. The Ld. CIT(A) also denied the benefit of telescoping the 'intangible additions' on account of 'Byaj', 'vatav' and 'profit from unaccounted sales' made in the hands of Shri Mohanlal Khatri to be set-off against these unexplained assets. The Ld. CIT(A) however directed that, the addition(s) to the extent which is confirmed on account of 'Byaj', 'vatav' and 'profit from unaccounted sales' in the hands of the assessee is allowable to be te....
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....thout prejudice to his objections to the merits of these addition(s), had submitted that, the Ld. CIT(A) was unjustified in valuing the excess gold stock as per the 'party balance sheet' and the silver found in the course of search with reference to the market rates prevailing as on 10.11.2020. According to the Ld. AR, this excess stock found appearing in the J-Pack software and also the silver was a cumulation of the excess stock generated over the years and therefore it ought to be appropriately apportioned amongst the respective years and be valued with reference to the market rates prevailing in those years. The Ld. AR has furnished a calculation sheet, in terms of which, the value of excess gold stock and silver, as per the assessee, works out to Rs. 1,01,84,40,250/- and Rs. 25,07,183/- respectively. The Ld. AR contended that, having regard to this corrected stock values and the value of other unexplained assets, as confirmed by the Ld. CIT(A), if the benefit of telescoping for the unaccounted income offered to tax by Shri Mohanlal Khatri, in addition to the unaccounted income assessed in the hands of the assessee, is also allowed, then the entire impugned addition shall stand....
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.... against investment / expenditure and allowed the assessee's claim by holding as under:- "The question in issue is quite simple and yet the Tribunal misdirected itself and went wrong. It is a hard fact that for the two years 1947-48 and 1948-49 a total addition of Rs. 52,230 was made by the department in computing the assessable income. This was, therefore, treated as the real income of the assessee for the years in question. There was nothing notional or fictional about it. However convenient it might be to describe the addition as "intangible" as has been done by the department and the Tribunal, the fact is that it was found to have accrued to the assessee and was not merely supposed to have been earned by him. Once the addition is made the department is fixed to the position that the assessee earned the amount in the relevant year. There can be no relaxation from that position and we have no doubt that the department cannot deviate from or wriggle out of it without departing from ordinary standards of justice and fair play. If in such a case the assessee points to that addition as the source from which he got a particular amount which he is called upon to explain, t....
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....its had been kept outside its books. Now those secret profits less the income-tax paid, therefore, would be available with the company for distribution as dividends. Once the secret profits had been assessed to tax, it would have been open to the company to bring those profits into the books and distribute them, or what remained after payment of tax, as dividends. Having assessed the company on a large sum as its undisclosed income, it cannot, at the same breath, say that these profits did not in fact exist because they did not appear from the company's books and could not, therefore, have been available for the payment of dividends. Among common men, such an attitude would be regarded as blowing hot and cold or playing fast and loose." The order of the Tribunal shows that it has missed the real point for decision. The only question that the Tribunal had to decide was whether the assessee could have derived the amount of Rs. 52,230 from the prior years which according to the department the assessee did earn. The Tribunal does not say, nor would the materials on record enable it to say, that the sum was not available to the assessee either to advance the mortgage loan i....
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....ned." 11.9 The above view is noted to have been reiterated by Hon'ble jurisdictional Madras High Court in the case of CIT v. K. S. M Guruswamy Nadar and Sons, [1984] 149 ITR 127. In the decided case also, it was held that when there are two separate additions viz., one on account of suppression of profit and another on account of cash credit, then it is open to the assessee to explain that, the suppressed profits had been brought in as cash credits and has to be telescoped into the other. 11.10 Gainful reference may also be made to the decision of the Hon'ble Bombay High Court in the case of CIT vs J.J. Gandhi (39 CTR 127). In this judgment also, the Hon'ble High Court had approved the theory of telescoping and held that it could be applied in cases where additions in relation of unexplained money/investment are sought to be made in the hands of the assessee. The Hon'ble Court explained that if an addition towards undisclosed income was made and the AO also seeks to make certain addition in relation to unexplained investment then, it can be treated by the assessee that the unexplained investment is sourced out of the undisclosed income already taxed. 11.11 ....
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....s in the J-Pack software was not specifically identifiable to any specific entity of the assessee group. Rather, the facts placed on record showed that, they comprised of consolidated and complex mix of entries & transactions relating to all the entities of the assessee group. As a corollary therefore, even the unexplained asset(s) identified from this software was not individually identifiable to any specific entity of the assessee group. Instead, it represented the unaccounted assets of the entire assessee group as a whole. In that view of the matter, according to us, the aggregate unaccounted income offered to tax by the entities of the assessee group qua the entries found in this J-Pack software is to be allowed to be telescoped against the unexplained assets found from the same J-Pack software. As noted earlier, the additional income of Rs. 96,42,02,070/- offered to tax by Shri Mohanlal Khatri, key person & Director of the assessee, was with reference to the same entries found in the same J-Pack software. It is observed that, there is a clear nexus between the additional income offered to tax by Shri Mohanlal Khatri apropos the impugned unexplained asset(s) identified in the c....
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.... In our view, telescoping is permissible to be granted to the assessee as the flat was purchased in the name of the Director." 11.16 We also gainfully refer to the decision of the ITAT, Mumbai in the case of ACIT Vs Konark Infrastructure (ITA Nos. 30213024/Mum/2023) dated 27.02.2024 wherein also the unaccounted income offered to tax by the individual JV partners was held to be eligible for telescoping against the unaccounted asset found in the hands of the assessee-JV in the same search. The findings of the Tribunal which are found to be relevant in the context of the present case, is as follows:- "57. The principle which emerges from the above is that, the same income should not be taxed twice i.e. once at the time of generation and thereafter at the time of application for routing back into the business. The said principle would equally apply where the cash generated by business concerns are routed through partners/directors. Having regard to this settled legal position, we now come back to the facts of the case. It is not in dispute that the assessee had declared additional income of Rs. 9,50,56,072/- before the ITSC, Mumbai in AY 2013-14. It is noted that the assess....
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....of telescoping, according to us, since the additional income offered to tax in earlier years was sufficient to cover such cash investment alleged to have been made by JV partners, no separate protective addition was required to be made in the hands of assessee JV. Accordingly, the appeal of the Revenue is dismissed." 11.17 Having regard to our above findings, the aggregate unaccounted income taxed in the hands of the assessee and Shri Mohanlal Khatri available for the benefit of telescoping is found to be Rs. 182,57,74,492/- (Rs. 86,15,72,422 + Rs. 96,42,02,070) which is eligible to be set off against the impugned unexplained asset(s) found in the course of search. 11.18 Having held so above, we now turn our attention to the quantification of the unexplained asset(s) unearthed by the Revenue in the course of search. It is noted that, one of the arguments raised by the assessee was against the valuation of the excess stock found in the 'Party Balance Sheet', as extracted from the J-Pack Software. The Ld. AR pointed out that, the excess stock mentioned therein was not the result of the FY 2020-21 alone but represents the cumulative sum of excess stock generated over the years f....
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....oned across years and ought to be valued with reference to the market rates prevailing in those years. We thus do not countenance the action of the lower authorities in assuming that the impugned excess stock was purchased entirely during FY 2020-21 so as to be valued at the rate prevailing on the date of search i.e. 10.11.2020. 11.20 In light of the above, we find it fit and reasonable to apportion the excess stock found in J-Pack software in the ratio of the unaccounted income taxed in the hands of the assessee and Shri Mohanlal Khatri with reference to the entries found in the same J-Pack Software and, accordingly revise the value the excess stock at the market rates prevailing in those years. Accordingly, the computation of the same, works out as follows:- Asst Year Income taxed in hands of MLK Income taxed in hands of assessee Total Ratio Excess Stock apportioned Rate taken for valuing "byaj' Value 2017-18 9,83,61,198 39,42,83,932 49,26,45,130 26.98% 84217.37 2930 24,67,56,909 2018-19 31,69,55,379 24,87,64,691 56,57,20,070 30.99% 96709.49 2978 28,80,00,861 2019-20 16,00,00,000 9,08,92,642 ....
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.... 27-07-2020 8 8 Item Name Wt % Fine R @@ME1990X100 2105.820 94.50 1990.00 @@ ME935.41X9 984.900 94.50 930.73 Total 3090.72 2920.73 Balance -3090.72 -2920.73 Net Balance -2920.73 TNVAT As Applicable Document 3 275 ROUGH ESTIMATION ARJUN FACTORY 27-07-2020 21 Item Name Wt % Fine N @@ ME1990X100 2167.760 100.00 2167.76 @@ MC935.41X9 1013.870 100.00 1013.87 Total 3181.63 3181.63 Balance 3181.63 3181.63 Net Balance 3181.63 TNVAT As Applicable Document 4 SHREE MAHALAKSHMITHREE HAHALAKSHMI JEWELLERY JEWELLERY Delivery Chalian (Jonwork) Party Kake ---- Total => RUNNINGE. --- Document 5 Makina Chances Tax invoice IGIST) Invoice to Johansial Jewellery Put. Lidt Ow F/ 446.154 127.87.2000 there Maissisisters Jewellery ------ 33AAWFRTSIF32N avid Nadu Amsure 0.684.13 2.50 % Inclus Bupoes Pour Lakh TEwere Only tention Rupees Nineteen Thousand Forty Eight and Toursy Dis posies Only Commny's PAN ----------------. QUDACOT TO GHETIIN JUREDITION Document 6 Mohantal Jewellers Pvt. Lid. Choca . 60000 Shree Mahalaksluni Jewellery - MC Letper ....
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....09/2020 MI TAL ISSUE 37.970 94.00 35.690 19:09/2020 METAL ISSUE 24.070 22.380 22/099/2020 MI TAL RECEIPT 214.100 94 10 202.320 21/09/2020 METAL RECEIPT 453.760 94.30 428.800 28.09/2020 METAL RECEIP 1010.700 94.50 955.110 28.099/2020 METAL ISSUE 516.010 93.61 483.020 28/09/2020 METAL ISSUE 464.250 94.00 436.390 28.09/2020 METAL ISSUE 144.620 94.25 136.300 10/19/2020 METAL ISSUE 193.000 100.00 193.000 11/16/2026 CASH 0.29 Page i att Document 9 1303/2019 METAL ISSUE 1093.690 94.53 1033.840 1783/2019 CASH TALLY 1983/2019 CASH 1911332 19932019 RATE PURCHASE $19.280 105.00 $76.740 1011332 20032019 RATE PURCHASE 408.290 104.00 424.620 13991.28 26032019 METAL RECEIPT 131.880 95.22 125.580 2003/2019 METAL ISSUE 771.860 95.13 734.250 21.93/2019 CASH MC 3068.79 21832019 CASH MC 5592.30 2103/2019 CASH MC 1596.25 2103 6019 CASH MC 1027.44 20032019 CASH MC 1042.44 21.03/2019 CASH MC 1064.15 2403/2019 RATE PURCHASE 11.010 94.00 10.460 346.75 2493/2019 CASH TALLY 2883/2019 METAL ISSUE 62.290 95.49 59.480 31832019 CASH TALLY Total 54538.....
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.... 08/01/2019 METAL RECEIPT BILL MJPL 1071.050 96.90 1037.850 01/08/2019 SALES WATCH 618.30 01/08/2019 METAL ISSUE 3523.350 95.09 3350.250 0206/2019 CASH CASH NIL 618.30 82 08/2019 METAL RECEIPT NIL 3523.350 95.09 3350.250 1208/2019 METAL ISSUE 20/06/2019 METAL ISSUE 11.880 12.160 93.94 94.00 11.160 11.430 22.09.2019 METAL ISSUE 2214.140 94.21 2086.020 24/09/2019 METAL RECEIPT 2238.180 94.21 2108.610 16/18.2019 SALES WATCH 22.75 16/10/2019 METAL ISSUE 23.250 92.98 22.789 25/10/2019 CASH CASH NIL 22.75 25185019 METAL RECEIPT 23.250 96.00 22:327 Page 1 of 2 32.520 14.170 96.59 95.48 Document 12 MC KHATA Date Details Receipt Isund Gross Touch Net WI Grosa Touch Net Wt Amount 01/04/2019 CASH DRY 23436.00 01.04/2019 CASH SSS PORUR 15084.51 01/04/2019 CASH OKJ 17576.49 Total 56097.00 Balance 56097.00 Document 13 Mohanlal Jewellers Pvt. Ltd. Old No. 121 N.S.C.Bose Rows, Soncarpet Chennai - 600001 Saravana Stores (Jewel) Super LLP- Me Ledger Account No.108, Ground Floor, Mount Poonamalice Rond. Porur Chennai - 800 118 PAN NO.ADMFS8506J 1-A....