TaxTMI 
TaxTMI 
2024 (5) TMI 1675
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.... the de-monetization exercise carried out by the Government beginning from 8.11.2016. Besides, a survey action was conducted on the assessee, during which excess stock and cash was found, and addition made on account of the same by the AO amounting to Rs. 1,14,24,765/- and Rs. 13,33,961/- respectively. 3. The ld. CIT(A) deleted the entire addition made on account of bogus sales, holding that the Revenue had not made out a case for treating the sales as bogus, but at the same, he rejected the books of accounts of the assessee, finding discrepancies in the same, and made addition on account of gross-profit amounting to Rs. 96.00 lakhs. The addition on account of excess stock was restricted by the ld. CIT(A) to Rs. 95,41,057/- as against Rs. 1,14,24,765/- made by the AO, while the addition made on account of excess cash was of Rs. 13,33,961/- was deleted. Further, the addition on account of GP amounting to Rs. 96 lakhs made by the ld. CIT(A), was telescoped against the addition on account of excess stock of Rs. 95,41,057/- and no separate addition on account of excess stock was held by the ld. CIT(A) to be made. Thus in all the Ld. CIT(A) made addition of Rs. 95,41,057/- on account....
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.... Rs.7,88,85,082 which was deleted by the Ld. CIT(A). IT(ss) 50/ Ahd/21 Departments Appeal Ground No.1 challenges the order of the Ld. CIT(A) deleting the addition of Rs.7.88 Crs made by the AO on account of bogus sales made by the assessee during demonetization period. 6. Brief background of the case is that the assessee is a jeweller and in the wake of de-monetization exercise carried by the Government, demonetizing high denomination currency notes of Rs. 500 and Rs. 1000 on 08/11/2016, and on the basis of subsequent information which came in the possession of the department, the Department was in the know that certain persons had adopted unscrupulous means to introduce their unaccounted income in cash in the banks during the de-monetization period. The assessment orders notes that while in some cases, fake bank accounts were opened to introduce cash of other persons in the said account; in other cases, especially jewellers, had resorted to selling their jewellery at highly inflated prices in cash to absorb unaccounted incomes of various persons held in cash. In the case of the assessee, it came to the notice of the Department that there was substantial cash deposited dur....
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....ovember, 2016, as compared to the sales made in the month of October and November, in the immediately preceding year i.e. 2015. 7. The assessee offered explanation of each of the anomalies/ discrepancies noted by the AO and the ld. CIT(A) found merit in the same, and by way of a detailed and speaking order, he held that the addition made on account of bogus sales was not tenable. 8. Before us, the ld. DR relied on the order of the AO, while the ld. Counsel for the assessee relied heavily on the finding of the ld. CIT(A). 9. We have heard both the parties, and gone through the orders of the Revenue authorities, and also taken note of various documents referred before us during the course of hearing, as also case laws relied upon by both the parties. 10. After considering all the above, and considering the entire facts and circumstances leading to the addition made of bogus sales we are in complete agreement with the ld. CIT(A) that there is no case made out by the Revenue for holding sales made by the assessee during demonetization period of Rs. 7.88 Crs as bogus. 11. At the cost of repetition, it is stated that the case of the Revenue is that the assessee being a jew....
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.... following steps: (i) According to retail sale process, a retail purchaser who is willing to purchase bullion / jewellery shall first enter shop. (ii) After that he will inquire about gold/ silver rate and / or specific design he is looking for and then finalize the rate. (iii) After finalizing rate, he will look multiple pieces for making informed decision with the assistance the employee (s). (iv) Then retail customer will select the piece. (v)There is no MRP printed in jewellery items (as it is in day to day items) and fixing of price takes time where relevant calculations are done by the concerned employee. The employee will weigh and then determine price as per rates. (vi) After final weighing, quantity and rate will be communicated and negotiations are made. Subsequently the price is finalized. (vii) Then the cash memo of retail sale will be generated from computer and print out of the same shall be taken. (viii) Then after print of cash memo one copy will be handed over to customer and in one copy the customer signs acknowledging the delivery. (ix) Thereafter customer shall make the payment whic....
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....before 8/11/2016 as claimed but has manipulated the opportunity and generated sales bills of cash sales to accommodate OHD Currency which were not recorded in regular books of However, majority of sales invoices generated on and after 8/11/2016 contains only name of the purchaser. Further the parties to whom additional sales were disclosed without have their identity, creditworthiness and genuineness of transaction. The facts and circumstances leads to the conclusion that the assessee has not done actual sales on 8/11/2016 as claimed but has manipulated the opportunity and generated sales bills of cash sales to accommodate OHD Currency." ● forensic report and digital data showing that backdated sales was recorded between 08/11/2016 and 22/11/2017 totalling in all Rs. 7,88,85,082/- (page 13-32 and para 10.5 page 48 of AO's order), "10.5 In addition to that forensic report of impounded digital data reveals that some entries made were of a previous invoice date but with actual time stamping of a later date. So, appearing at trailing record numbers / position in database. Further the data was entered in a FoxBASE Database using the Application named Ornet. The Orn....
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.... assessee. 15. On the contrary, we find, there is no anomaly noted on the above counts by the AO. He has not found any bogus purchases recorded by the assessee to justify bogus sales. The AO in fact has accepted all purchases made by the assessee. There is no finding of any anomaly in the stock position also. No negative stock is found disclosed in the records of the assessee. More pertinently even survey action conducted by the Department did not reveal any excess stock with the assessee commensurate with bogus sales alleged to have been made by the assessee. While the allegation of bogus sales levelled in the assessee is to the tune of Rs. 7.88 Crs all allegedly made during the demonetization period from 08-11-2016 to 31-12-2016, the survey conducted on the assessee immediately thereafter on 24-01-2017, which ought to have revealed excess stock to the said extent of bogus sales, revealed only excess stock of Rs.1.14 Crs, restricted to Rs. 95 lakhs by the ld. CIT(A). 16. All books of accounts including stock records, purchase and sales register, ledger journal and cash and bank book were maintained by the assessee which finds mention by the tax auditor in his report in Form ....
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....g the course of search and survey, which took place after such a short period of 2.5 months of the demonization period having started and within 24 days of the said period having ended, the excess stock was found in possession of appellant as against the alleged bogus sale of Rs.7,88,85,082/- and where the said amount of excess stock has already been treated as not fully disclosed investment u/s 69B of the Act and added to the total income of appellant, no incriminating material can be said to have been found and brought on record to support the claim of such bogus sale of 6.21 Therefore, in absence of any doubt raised on the genuineness of purchases, adequacy of stock and reduction of stock in accounts corresponding to the alleged bogus sale and in absence of any incriminating material found in possession of appellant during the course of search and survey action either in form of stock or any other asset confirming the bogus sale of such a huge amount of Rs. 7,88,85,082/-, it shall be unfair and unjustified to uphold the contention of the AO that the appellant has generated cash bills to accommodate the OHD currency. Therefore, the addition made based on such contention ....
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....edented rush of customers post-demonetization the appellant realized a huge business opportunity and decided to keep showroom open till 12 o'clock of the night on 8th November 2016. The appellant realized that it would not be possible to cater such huge crowd of customers if the option of selection of ornaments of their choice is provided and such option of selection could also increase the risk of theft/ defalcation of Gold Ornaments from showroom and therefore the appellant decided not to give option of selection of jewellery but to give readily prepared packet of Gold Ornaments only; that the administrative staff and family members were instructed to keep aside all other work and to prepare such small package of gold ornaments, two persons were exclusively allotted the work of preparing and handling the bills to the customers through the computerized billing process, due to barcode labels on each and every jewellery/ ornaments of showroom with all the requisite details of Jewellery for preparing bills mere scanning the barcode through barcode reader would fetch all the details of the jewellery on the ORNET Software for billing purpose and there is no need to enter the detail....
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....t of the F.Y. 2016-17 makes the cash sales data of the demonetization period i.e. 08-11-2016 to 31.12.2016 incomparable to the said data of corresponding period of F.Y. 2015-16 along with the fact that the retail sales was started by the appellant only from July 2016. The said historic and peculiar aspects of F.Y. 2016-17 do not make the increase in cash sales during the demonization period, in any manner, implausible and beyond belief. Furthermore, on perusal of the comparative data of Month of March for F.Y. 2016-17 and F.Y. 2015-16 as provided in the show cause notice dated 11.10.2018 as well as the Assessment Order, it is deduced that during the Month of March 2016 there was not a single amount of cash sales made by the appellant whereas in the Month of March 2017, the cash sales was Rs. 1,43,50,263/-. Further, the hike in cash sales for the March'17 when compared to the preceding Month of February'17 was 1074.88%. However, no explanation was required by the AO with regard to the hike in the Month of March'17 in the show cause notice whereas the highest hike is witnessed in the said month of March'17 only based on both yearly and monthly comparison. This, callin....
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....d herein above. The appellant in reply to same had submitted that it is not only when the new i.e. fresh entry is made from front end screen of the application to the database that the addition to the end (bottom) of the existing data in the database file takes place and new transaction ID is generated but it is also when any old voucher is opened and "save" or "Print" button is clicked, under modification mode in order to give appropriate effects, ORNET, the software used by appellant for accounting purpose, adds new records in the same database which in turn creates new transaction ID in the table by deleting the old records. Further, in case if voucher is reopened and "print" button is pressed for the purpose of reprinting, the effect of "save" button will be generated, causing generation of a new record number and thus, its sequencing will also get changed as explained above. From this, the appellant made it clear that sequencing of sales entry changes as and when any sales entry is either printed/Viewed or opened/ closed after recording it in the ORNET database/ software. In nutshell, it has been contended by the appellant that after the last made entry in the ORNET, ....
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....lant were not acceptable especially in view of the fact that the same was confirmed by the software developer itself. No reason was provided in the order as to why the functionality details of the software as provided by the software developer itself in letter dated 14.12.2018 confirming the contentions of appellant were not acceptable. If there was any doubt about the authenticity of the letter of software developer in the mind of AO or if there was any confusion with regard to any aspect of the same, the AO could, in the interest of justice, have asked the software developer to provide further details and explanations through the power conferred upon u/s 133(6) of the Act as the letter of developer dated 14.12.2018 had all necessary contact details and address of the developer for the said purpose. By providing the letter of software developer confirming the contention and view of appellant, the appellant had duly discharged the onus of proof cast upon it. The AO on the other hand failed to bring on record any proof or material that would have effect of outweighing and rebutting the contentions of appellant duly supported by the letter of software developer. Therefore AO did not ....
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.... period. Having regard to the above discussed facts and in absence of any incriminating material found during the course of search and survey action and any dispute with regard to the adequacy of stock as discussed in Para herein above, the addition is not sustainable on this ground. 6.27 It is observed that in present case, while passing the assessment order, AO has not doubted purchases recorded in books of account or closing stock shown at year end and only treated accounted sales as bogus sales and liable for tax u/s 115BBE. However, this contention cannot be accepted for the reasons that once sales are recorded in books of accounts and corresponding purchases are not in doubt, it cannot be subject matter of addition u/s 68 r.w.s 115BBE of the Act. Hon'ble Ahmedabad ITAT in case of Vishal Export in ITA No. 1684/ Ahd/ 2004 dated 07.08.2009 held as under: "The assessee had made export of goods to M/s Arina worth of Rs.70,00,000/- in the A.Y.1998-99. The AO having only such information that the assessee had also made so called bogus export to M/s Arina, he alleged that the assessee is also involved in such kind of bogus export of goods by ov....
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....of the same amount once again u/s.68 of the Act would tantamount to double taxation of the same income. Accordingly, we upheld the order of CIT(A) on this common issue. This common issue of the Revenue's appeals is dismissed." The Hon'ble Gujarat High Court in above case in Tax Appeal No 2471 of 2009 dated 03.07.2012 has held as under: "6. Having heard learned counsel for the parties and having perused the documents on record, we are in agreement with the above view of the Tribunal. According to the Assessing Officer Rs. 70 lakhs represented bogus sales and therefore the eligibility of the assessee's deduction under section 80HHC of the Act came to be reduced by such amount. Having done so, the Assessing Officer further proceeded to add the same amount under section 68 of the Act. 7. In view of the above situation, we do not find any reason to interfere with the Tribunal's order. Before closing, however, one issue needs clarification. As noted earlier, C.I.T. (Appeals) had allowed the appeal of the assessee in toto. He, in fact, reversed the Assessing Officer's finding that the sale was bogus and that no export was made. On this basis,....
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....efore do not find any infirmity in the order of the Ld. CIT(A) accepting assesses explanation with regard to the allegation of the AO of backdating entries of sales. 26. In view of the above we do not find any infirmity in the order of the ld. CIT(A) finding merit in the explanation given by the assessee of the anomalies and discrepancies noted vis-à-vis sales made of Rs. 7,88,85,082/- prior and during de-monetization, and we completely agree with the ld. CIT(A) that the purchases and stock available with the assessee having not been disputed by the AO, the question of bogus sales being made therefore, does not arise. As also the fact that no actual excess stock was found by the Department during survey conducted on the assessee post-demonetization commensurate to the bogus sales alleged to have been made by the assessee. We have no hesitation therefore in confirming the order of the ld. CIT(A) deleting the entire sales of Rs.7,88,85,082/- on account of bogus sales. Ground No. 1 raised by the Revenue is dismissed. Ground No.2 raised by the Revenue challenges the order of the Ld. CIT(A) restricting the addition made by the AO on account of excess stock found during s....
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.... Particulars Qty in Gms Unaccounted sale of jewellery found from first floor (6310.210 being stock as per books-5299.03 being physical stock) 1011.207 Unaccounted sale of 14 CT found from first floor being stock as per books as no physical stock was found 51.846 Total 1063.053 It is seen that the Assessing Officer has made addition on two grounds i.e. in respect of excess physical stock found in respect of certain items of jewellery and other one on account of unaccounted sale of certain other type of jewellery. The addition on account of discrepancy in stock as per above extract of statement of a partner aggregating to Rs 1,14,24,765 has been worked out as per the difference between the physical stock found on the ground and first floor of the showroom and stock as per books on the date of survey. 8.5 Further the appellant has contended that 18 Ct. Gold jewellery of 1510.210 grams as physically found by the IT department appointed registered valuer Shri Kamlesh S Nahar on the first floor of the showroom on the date of survey has not been considered - by the Assessing Officer while counting physical stock at the time of making addition of th....
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....ve made said addition solely on basis of statement made by partner on behalf of assessee - Held, yes 8.6 To make it clarify further considering the above working, it is once again noted that the Assessing Officer has assessed unaccounted sale of 1063.053 Grams in respect of the 18 Ct. Gold Jewellery meaning thereby the accounted stock of 18 Ct. Gold Jewellery in the books of the appellant on the date of survey was found more than that of physically found stock by 1063.053 Grams. However, as discussed above, the of the appellant of 1510.210 grams of 18 Ct. Gold Jewellery found on the first floor not considered and included in the physical stock found (although evident from the valuer's report reproduced above) by the Assessing Officer being found acceptable ipso facto results into excess stock (i.e. physical stock over book stock) of the 18 Ct. Gold Jewellery by 447.157 grams. [1510.210 grams of stock not considered in physical count (-) 1063.053 grams found short] as on the date of survey. Accordingly, the value of such excess stock of 447.157 gms of 18 CT gold jewellery comes to Rs. 9,81,956/- (447.157 Grams *21960 per 10 grams as on the date of survey). The same is u....
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....the course of survey proceedings in case of appellant in the above mentioned table amounts to Rs 95,41,057/- in place of Rs. 1,14,24,765/-. 30. Before us the Ld. DR was unable to controvert the factual finding of the Ld. CIT(A) resulting in restricting the addition made by the AO on account of excess stock of Rs. 1,14,24,765/- to Rs. 95,41,057/-. He was unable to controvert the fact noted by the Ld. CIT(A) that the registered valuer had found excess physical stock of 18Ct. gold jewellery from first floor of the business premises of the assessee of 1510.210 gms which the AO had noted to be short by 1011.207 gms. In the light of the same we do not find any infirmity in the order of the Ld.CIT(A) adjusting the data of stock of gold jewellery found from first floor premises of the assessee to this extent resulting in addition being restricted only to the resultant excess jewellery found of 447 147 gms. Also we do not find any infirmity in the Ld. CIT(A)'s order telescoping the addition made of investments in excess stock against the addition of unaccounted sales found to have been made by the assessee. In the result, we hold that the Ld.CIT(A) has rightly restricted the addit....
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....m on account of difference of cash." 33. The Ld. CIT(A)'s order accepting assesses explanation is at para 9.1 - 9.4 of his order as under: "9.1 I have carefully considered assessment order and submission filed by appellant. During the course of assessment proceedings, AO observed that survey was carried out at the premises of appellant and on the date of survey, it was found that physical cash was found at Rs 2,62,600 whereas cash as per books of account was Rs 15,96,561 and such facts are evident from Page No 18 of statement of Mr Kishor K Soni. It was contended that physical cash was found less than cash recorded in books of accounts hence it is not the case of unaccounted cash. However, this contention of appellant was not accepted by AO on the ground that appellant has given general reply. The AO has referred to reply to question No 30 wherein Mr Kishok K Soni has admitted such difference as unaccounted income of current year. 9.2 During the course of appellate proceedings, appellant has reiterated contentions as were raised before AO and contended that reconciliation between cash found during the course of survey and cash recorded in books of account w....
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....1,82,527/-. The AO has noted that the assessee firm has declared additional income of Rs. 24.20 Lakhs in the P&L account whereas no additional income was declared in respect of short cash found of Rs. 1,82,527/- and therefore, the AO made addition of short cash found of 1,82,527/-. We fail to understand the basis of making this additions. In fact, in the absence of any other evidence regarding the user of such cash available as per book but not found physically at the time of survey, the same should have been considered as utilizer for purchasing goods which was found in excess of book stock and therefore, even in respect of excess book stock, extra income to be declared or added could have been reduced to the extent of short cash found. But it is seen that the assessee has declared total amount of excess stock found as additional income. Be that as it may but in our considered opinion, no addition is called for in respect of short cash found at the time of survey in the facts and circumstances of the present case and hence, we delete the same." 8. Thus, like in the above said case, the Revenue did not have any evidence to show that the short cash was utilized elsewhere. C....
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....IT(A) as above, we see no reason to interfere in the order of the Ld. CIT(A) deleting the addition of cash found short during survey. 35. In effect the order of the Ld. CIT(A) both on account of restricting addition of excess stock to Rs.95,41,057/- as well as deleting addition of cash found short of Rs. 13,33,961/- is upheld by us. Ground of appeal No.2 is accordingly dismissed. In effect appeal of the Revenue is dismissed. 36. We shall now take up the assessee's appeal for adjudication. IT(ss)45/Ahd/21 Assessees appeal Ground No.1 challenges the addition made by the Ld. CIT(A) on account of Gross Profit to the tune of Rs. 96lacs after rejecting the Books of accounts of the assessee u/s 145 of the Act. 37. Perusal of the order of the ld. CIT(A) at para 6.46 reveals that during appellate proceedings he asked the assessee to file break-up of GP ratio earned pre & post de-monetization period, and he found that the GP prior to de-monetization was much higher than as compared to post de-monetization. However, no cogent reason or justification were given by the assessee. Further, noting the fact that excess stock was found with the assessee during survey, he rej....
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....ourse of survey, excess stock was found and same was admitted to be not accounted for in books of accounts which itself proves that books of account maintained by appellant is not showing true and correct picture of the financial affairs and the same is not reliable. 6.48 During the course of search proceedings carried out at the premises of appellant, no incriminating evidences were found which could prove that appellant had been carrying out any activity other than jewellery business or earned any undisclosed income from other sources to say that the income from such undisclosed sources had been utilized for investment in excess stock of jewellery found during the course of survey. 6.49 It is pertinent to note that during the course of assessment proceedings, AO has made addition of Rs 1,14,24,765 being excess stock found during the course of survey proceedings and such addition on merits is required to be restricted to Rs 96,00,000/- (excess stock found of Rs. 95,41,057/- and the same is estimated to Rs.96,00,000/) for the reasons discussed in subsequent paras of this order. This unaccounted investment in the excess stock found is got further supported with the....
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....d the excess stock duly explained by the assessee as noted by us above while dealing with the Revenues appeal on this issue. In view of the same, we see no reason to interfere in the order of the ld. CIT(A) confirming the addition on account of surplus stock found amounting to Rs.96 lakhs, though telescoped in the addition made on account of GP to the said extent. Ground of appeal No. 2 is thus dismissed. The assessee's appeal is accordingly dismissed. 42. In effect, both the appeals of the assessee and Revenue are dismissed. Order pronounced in the Court on 10th May, 2024 at Ahmedabad. ============= Document 1 2 202 3145 azpopetits 24/1/2017 (27) Books of Alls LIE Bucure Stock Difference STOCK as Ner Particulares Banks ( gims) stocks dound on verification mouse Ground floor (Gol) sector) 22 Cf. Gold 30777.307 39.655.63 [+) 1 378-323 Az GI Gold 1671 .660 1421.17 (-) 250-49 24 G. Gold 2209 .535 2270.10 (+) 66.75 Silver 58611 . 320 59 400 (+) 788.68 Stekt Sieck Jornal Differences Particulars as Pero Books (gas) i verification (oms) First floor (Diamond section) 18 Ct Gold 6310.210 (-) 1011.207 52 99.003 29 of....