TaxTMI 
TaxTMI 
2025 (6) TMI 2124
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....first be relevant to cull out the basic facts of the case and effect of law in brief in respect of certain AYs. The assessee is a private limited company engaged in the business of manufacturing and trading of jewellery and articles made of precious metals and stones, catering to the retail segment across South India, having almost sixty (60) showrooms. The taxable income declared by the assessee in the AYs impugned before us are as follows: Asst Year Returned income 2016-17 Rs. 96,37,10,370/- 2017-18 Rs. 52,41,64,040/- 2018-19 Rs. 134,29,66,360/- 2019-20 Rs. 139,74,81,200/- 2020-21 Rs. 188,82,39,920/- 2021-22 Rs. 286,51,12,790/- 3. Search u/s 132 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") was conducted in the group cases of the assessee, M/s. Lalithaa Jewellery Mart Pvt. Ltd. (in short 'LJMPL'), on 04-03-2021 thereby triggering Section 153A of the Act. Prior to the date of search, the income-tax assessment under section (hereinafter referred to as "u/s.") 143(1) / 143(3) of the Act (scrutiny assessment) for AYs 2016-17 to 2019-20 stood completed and were not pending before Assessing Officer (AO) on the da....
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....naccounted interest paid to parties - - - - 13,52,07,096 45,74,07,096 9. Disallowance of excess labour charges paid to Asita Jewellery Manufacturing Pvt Ltd - - - - 16,33,38,625 6,86,75,232 10. Addition made on account of valuation of closing stock - - - - - 10,42,97,645 4. We first take up the appeal filed by the assessee for AY 2016-17 in ITA No. 675/Chny/2025. For AY 2016-17, the assessee had filed return of income on 30.11.2016 declaring total income of Rs. 96,37,10,370/-. It is understood that the income tax assessment was completed u/s 143(1) of the Act. After the search was conducted on 04.03.2021, the assessee filed a return in response to notice u/s 153A of the Act, and thereafter statutory notices u/s 143(2) & 142(1) of the Act were issued calling for certain details/information. The AO in his show- cause notice dated 13-01-2023 conveyed to the assessee that an email attachment was downloaded from the mail-box of Mr. Stanley, AGM-Operations of the assessee company, which contained an Excel Sheet whose printouts were given by way of an Anne....
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....un-19 6,14,629 FY 19-20 Jul-19 7,67,184 FY 19-20 Aug-19 6,16,950 FY 19-20 Sep-19 15,20,174 FY 19-20 Oct-19 7,25,118 FY 19-20 Nov-19 FY 19-20 Dec-19 13,69,981 FY 19-20 Jan-20 1,83,855 FY 19-20 Feb-20 7,12,000 FY 19-20 Mar-20 1,20,50,000 10,13,68,457 Year-Wise summary Period AY Amount FY 15-16 2016-17 1,30,59,974 FY 16-17 2017-18 1,81,04,999 FY 17-18 2018-19 2,02,45,191 FY 18-19 2019-20 3,04,26,937 FY 19-20 2020-21 1,95,31,356 10,13,68,457 12.1. As per the summary of sheet, they have received as sum of Rs. 10,13,68,457/-from various operations which were not recorded in the books of account. Since the above income has escaped assessment. Please show cause as to why an amount of Rs. 10,13,68,457/- should not be taxed for the assessment years mentioned above." 4.1 According to the AO therefore, the assessee had received following cash receipts aggregating to Rs. 10,13,68,457/- from various operations which were not recorded in the books of accounts, ....
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.... documentary evidence that this excel sheet only provided values of the articles and did not relate to cash receipts. The AO held that as the assessee was unable to bring any such credible acceptable evidences to support their claim, the AO proceeded to make the addition on account of unaccounted income of Rs. 1,30,59,974/- in the relevant year, as mentioned in the show cause notice. 4.2 Aggrieved by the action of the AO, the assessee preferred an appeal before the Ld. CIT(A). On appeal, the Ld. CIT(A) is noted to have upheld the action of the AO by relying upon the statement of Mr. Stanley wherein he had stated that, the details of these articles mentioned in the excel sheet are not reflected in the tally accounts. The relevant findings of the Ld. CIT(A) is as under: "8.4 I have perused the assessment order and the submissions made by the appellant. The printout of the e-mail is taken form Stanly mail with name MD Sheet. When questioned during search proceedings, it was explained by Sri Stanley that he deals with old fold melting: in the process of melting, he recovers stones, other valuable metals like silver, copper (other than gold), etc. As per the appellant since ....
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....ther purchases. According to him therefore, being the supervisor of the old gold processing, it was understandable that Mr. Stanley would maintain an internal control sheet of the articles and materials recovered during the process of melting of old gold ornaments and thereafter deployed for re- use in manufacture of new gold ornaments. The Ld. AR explained that, he would estimate the value of such recoverable items, which was being recorded by Mr. Stanley in this excel sheet for the control & knowledge of the management of the company. 4.4 Upon query from the Bench, as to how were these notings inferred by the AO to be cash withdrawals by the Managing Director, the Ld. AR Shri Anand pointed out that, the title of this excel sheet was 'MD Sheet' and based on this titular reference, the AO had assumed that the Managing Director was withdrawing cash generated from these articles and materials recovered during the process of melting of old gold ornaments. The Ld. AR thus submitted that, this entire inference of the AO was based on his own figment of imagination, which was not backed by any corroborative material or tangible evidence. 4.5 Shri Anand further pointed out....
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.... these notings to be an approximation of the estimated values of these articles. He further pointed out that, there was no name or details of any purchaser or mention of any cash receipt on this sheet and thus, it was unjustified to infer this excel sheet to be a statement of cash receipts. 4.8 Shri Anand, thereafter took us through the statement of Mr. Stanley and particularly, his answer to Question No.5, and pointed out that there was no mention of any cash receipt therein. He explained to us that his statement was based on mistaken understanding of fact and was therefore, not reliable, which we shall discuss in the ensuing paragraphs. The Ld. AR submitted that, the contemporaneous facts available on record in fact negated this statement of Mr. Stanley. It was explained that, these left over articles were reused in the new gold ornaments manufacturing process and it is for this reason that their details were not separately reflected in the tally accounts, as they formed part of the consolidated inventory value. It was submitted that the entire process of melting and converting the old gold into bullion as well as the deployment of these recoverable wastage of metals other tha....
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.... process of new gold ornaments. Having regard to his job-profile, we agree with the assessee that Mr. Stanley was expected to maintain the internal records of the process involving conversion of old gold ornaments into raw gold and other articles / metals for control purposes. 4.11 In view of the above, we first examine the contents of the excel sheet which was found from his email attachment. Reading of this excel sheet reveals that, it only contains the names of the metals / articles which are recovered in the process of melting the old gold ornaments and certain values / amounts are mentioned against the same. The Ld. AR has rightly pointed out that, there is no mention of any sale or cash or receipt against these items. Considered on a stand-alone basis, this excel sheet cannot be said to be contain anything incriminating and it didn't suggest details of sale of metals/articles outside the books of accounts. Prima facie therefore, the case made out by the lower authorities doesn't appear to emanate from the contents of this excel sheet. We are in agreement with the Ld. AR that, it would be imprudent to read anything new or import additional context into these notings....
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....ted out that, apart from giving a general statement that the notings found in excel sheet denoted sales and were not reflected in tally accounts, the statement of Mr. Stanley didn't contain a whisper of any specific details viz., the manner in which these articles / metals were diverted, to whom were they sold, details of the same, manner of cash receipts and modus of cash withdrawals made by Managing Director etc., particularly when even the excel sheet, as discussed above, was bald and bereft of the same. Taking us through the statement, the Ld. AR submitted that, his answer was only a general averment which had no basis whatsoever. Per se, the statement, according to the Ld. AR, was hollow and therefore cannot be used to draw adverse inference in any manner against the assessee, particularly in the absence of any evidence or material to corroborate his empty averment. Therefore, according to the Ld. AR, Shri Stanley's statement was bald and bereft of any factual basis and so it deserves to be ignored and no weight be given to it. 4.16 It was also brought to our notice that, the above answer was not given in his statement(s) u/s 132(4) of the Act dated 06-03-2021 & 07-....
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....the said statement cannot, in our view, be the sole basis for making any addition and it must be independently corroborated by evidences. It is also open to the assessee to show the circumstances in which such statement was recorded, if under threat or coercion or based on mistake of fact. 4.19 In light of the above legal understanding, we now proceed to examine the veracity of the statement of Shri Stanley in the facts and circumstance of this case. Accordingly, for the reasons discussed above and in the given facts of the case before us, it was for the Revenue and not the assessee to corroborate the statement u/s 131 of the Act, with other independent tangible and corroborative material. We however find the same to be lacking in the present case. Rather, the assessee is noted to have all along been denying this statement and disputing its correctness by bringing on record facts & supporting to prove the contrary. 4.20 From the answers given by Shri Stanley to his Q Nos. 11 & 12 of the statement u/s 132(4) of the Act dated 06-03-2021, it is observed that, Mr. Stanley had explained in detail his job-profile which was only to supervise and manage the old gold processing. Perus....
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....ding of fact stated that, they are not reflected in the tally accounts, whereas the contemporaneous fact remains that, it formed part of the inventory recorded under the head 'old gold' and 'gold jewellery' in the books of accounts. 4.22 In support of the above, the Ld. AR brought to our notice the details of the purchases, stock inventory movement etc. which was placed on record to show that the entire process of purchase of old gold ornaments, melting, movement of gold and other articles/metals and their corresponding value and subsequent re-use in manufacturing process was recorded in the books of accounts. We accordingly note that the metals / articles which are recovered in the process of melting the old gold ornaments formed part of the books of accounts and there was nothing on record nor was anything found in the course of search which would corroborate the AO's case or the statement of Shri Stanley that such metals / articles were diverted or sold outside the books of accounts. 4.23 The Ld. AR had also taken us through the relevant details and supporting submitted for all the years in which this impugned issue was involved. Having perused the same....
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....during the course of search, the Investigating authorities had taken physical stock of the gold, gold jewellery and other items/articles which was reconciled with the stock appearing in the books of accounts and that there was no discrepancy found whatsoever. We are in agreement with the assessee that, had the articles / metals been diverted or sold outside the books, then the physical stock would have been lesser than what was reflected in the books of accounts. This was however not the case. According to us, this material fact further corroborates the assessee's case and disproves the correctness of the statement given by Shri Stanley. 4.26 In light of the above explanation & relevant facts brought on record by the assessee, we find that, not only was the excel sheet bald and unreliable but even the statement of Mr. Stanley considered on its own did not in itself inspire confidence to justify the addition made by the AO u/s 68 of the Act, for the reason that not only were there apparent factual inconsistencies with the facts available on record but also the averment made by him was general in nature, which didn't divulge any specific details regarding the sales/diversi....
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....ugned addition made in AY 2017-18. 8. Ground Nos. 9 to 13 of the assessee's appeal for AY 2017-18 relates to the addition of Rs.6,85,00,000/- made on account of unaccounted repayment of loan to Shri Anbuchezhiyan [in short 'Anbu']. The facts relating to this issue are that, a search action u/s 132 of the Act was conducted upon Shri Anbu on 05-02-2020, wherein several documents, diaries and notebooks were found and seized. The AO has observed that, these material inter alia contained details relating to several unaccounted cash transactions between Shri Anbu and the assessee. The AO further observed that, immovable property deeds of Shri Kiran Kumar, Managing Director of the assessee, promissory notes, blank cheques, etc. was found in control of the associates of Shri Anbu, which according to the AO, was a collateral given by the assessee for the money lent by Shri Anbu to them in cash. These material seized from Shri Anbu was provided to the assessee by way of Annexure-7 to the show cause notice. This material, according to the AO, unambiguously revealed that, there were cash loans accepted and repaid by the assessee. 8.1 The AO further observed that, in the cours....
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....lained expenditure u/s 69C of the Act. 8.4 The assessee is noted to have furnished their response vide letter dated 02-02-2023. The assessee had first explained that, the purported data which was extracted from the database seized from their premises was incorrect, corrupted and contained malware. For buttressing this, the assessee showed that the data in the purported trial balance was mixed up as it contained numerous accounts which though duly reflected in the books of other companies, firms and individuals of the assessee group had shifted from one account to another and was appearing in the name of the assessee. The assessee also demonstrated on sample basis that, the details found mentioned in the data software against the name of the assessee company actually related to its sister concern and / or individual / family members of the directors which were conducted through banking channel and were not cash transactions. The assessee therefore submitted that, it was incorrectly being assumed by the AO that, all these data entries were unaccounted and represented cash transactions. According to the assessee, due to the AO's reliance on this corrupted data, the purported re....
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.... On appeal, the assessee challenged the addition both on legal grounds and merits. The assessee also furnished the details of loans which the assessee group had availed from Shri Anbu and it was claimed that these loan transactions were conducted through banking channel and were recorded in the books of accounts. The Ld. CIT(A) is noted to have called for a remand report based on the submissions of the assessee. After considering the counter submissions of the assessee, the Ld. CIT(A) first rejected the legal plea of the assessee that, the impugned addition could not have been made in the assessment u/s 153A of the Act, as it was based on incriminating material found in the premises of third party, i.e. Shri Anbu. According to the Ld. CIT(A), the impugned addition had a reference to the seized material found from the assessee's premises and was not solely based on third party material. On merits, the Ld. CIT(A) observed that, the seized material found from the premises of the assessee, evidenced that the assessee accepted huge loans from Shri Anbu and the net credit balance as on 31.05.2019 was Rs.134 crores. The entries in the 'voucher log' was noted to contain the nam....
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....hese entries to be in cash because the same was not found recorded in the regular books of the assessee company. The Ld. AR showed us that, these entries inter alia comprised of different loans availed by other assessee's of the group, which were wrongly appearing in the name of the assessee, in the database, due to corruption/malware in the system. The assessee brought to our attention that, actually the loans availed by their group from Shri Anbu was Rs. 114.70 crores and not Rs. 134 crores as found in the corrupted database, and that all these loans were received through banking channel and not cash. The assessee further showed us that, correspondingly repayment of loans to the extent of Rs.50.67 crores had been made and not Rs.1 crore as found mentioned in the corrupted database and that, the balance was outstanding and duly reflected in the respective books of accounts of the other assessees of the group. The Ld. AR thus submitted that, the loan transactions with Shri Anbu was transacted through proper banking channel and that there was no element of cash involved, and more particularly, the transactions were majorly with Shri Kiran/MD; and thus under no circumstances, any....
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....0.67 crores and that the outstanding balance was reflected and recognized as due to Shri Anbu in the books of accounts. 8.11 Coming back to the premise of the impugned addition viz., the material seized from the premises of Shri Anbu, the Ld. AR argued that such third party material which comprised of notings found on loose sheets / diaries was not admissible as evidence against the assessee. The Ld. AR, relying upon Section 34 of the Indian Evidence Act, 1872, submitted that, the entries in the books of accounts found, even if regularly kept, are not sufficient by themselves to charge any person with liability. He also relied upon the decisions of the Hon'ble Supreme Court in the cases of Hon'ble Supreme Court in the case of V.C. Shukla [1998] 3 SCC 410 and Common Cause (A Registered Society) Vs Union of India (394 ITR 220) wherein it was held that loose sheets or diaries found in third party premises containing mention of names of third person cannot be treated as admissible evidence qua such third person. The Ld. AR further showed us that, even Shri Anbu, from whose possession these notings were found had denied any cash transactions with the assessee, in his statemen....
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....nt Commission in the matters of Shri Anbu had not made any addition on the basis of these notings, but according to him, the findings of the IBS in the matters of Shri Anbu was only binding upon the applicant, i.e. Shri Anbu and that these findings could not be taken into account for adjudicating the impugned issue in the matters of the assessee. 8.14 We have heard both the parties and perused the material placed on our record. Upon taking note of the facts as discussed above, the dispute before us relates to the addition of Rs.6,85,00,000/- made in the relevant AY 2016-17 on the basis of the notings found in the loose sheets seized in the course of an unrelated search conducted upon a third party, Shri Anbu on 05-02-2020, much prior to the search conducted upon the assessee. According to the lower authorities, the notings found in the loose sheets seized from the premises of Shri Anbu were in the name of the assessee i.e. 'Lalitha' and there was mention of 'cash' also in these notings. The AO observed that, these notings suggested that the assessee had repaid loans to the extent of Rs.94.96 crores in cash to Shri Anbu, which in his opinion, was paid out of asses....
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....ny cash transactions with the assessee and had instead averred that all the transactions were recorded in the books of accounts and had sought time to provide the same. We thus note that, it is not a case where the third person from whose possession the impugned material was found had incriminated the assessee in any manner. We find that, there is also no material brought on record which shows that the Revenue had unearthed any other independent tangible material or evidence in the course of search upon Shri Anbu, which would corroborate these notings found in the loose sheets seized from his premises. It is necessary to keep in mind that, the presumption u/s 132(4A) of the Act regarding the contents of seized material is only against the searched person and not to any other third party, which is the assessee in the present case. Reason being that, if any notings found in the seized material at third party premises is presumed to pertain to third party, at its face value, then any person for that matter can mention anyone's name in any loose paper / diary at their sweet will and that can be used to implicate such other person for no fault of the latter. Accordingly, an entry ma....
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....in revert back to the facts of the present case. It is observed that, later on, during the course of search upon the assessee, the Investigating Officer had also confronted the Managing Director of the assessee, Shri Kiran Kumar regarding these notings found in the material seized from the premises of Shri Anbu, who is also found to have denied having any cash dealings with him and had clearly averred that the loan transactions were forming part of the books of accounts. The relevant portion of his statement is set out hereunder :- "Q.20 I am showing you certain promissory notes, agreements, blank cheques and other supporting evidences containing your signature seized from Shri. Anbuchezhiyan (Gopuram Films) during the course of search u/s. 132 of the IT Act, 1961. On verification of the details as per the books of account maintained by Shri. Anbuchezhiyan, you have accepted cash loan amounting to Rs.64,15,05,800 and repaid a sum of Rs. 94,96,24,250/-. Please go through the papers which is annexed to this statement as annexure 1 and annexure 2, and identify the documents. A.20 I have neither taken any cash loan from Mr Anbu Chezhiyan nor paid any cash to Mr. Anbuc....
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....d from factual inaccuracies in as much as several entries pertained to other assessees of the group. The Ld. CIT, DR for the Revenue was also unable to factually controvert the same. 8.22 Our above view is further supported by the conspicuous silence on these contemporaneous facts in the orders of the lower authorities, which according to us, shows that the lower authorities had also tacitly acknowledged that the entries found in the database was not reliable. Had that not been the case, then the purported entries which ran into several thousand crores and did not reconcile with the books of the assessee company (since it was recorded in books of other assessees of the group), would otherwise been viewed adversely. 8.23 It is also noted that, the loans found mentioned in the database were mostly availed by Shri Kiran Kumar who happens to be Managing Director of the assessee from Shri Anbu in his individual capacity and were found recorded in his personal books of accounts. Hence, these loans are not availed by the assessee. Also, the collaterals, promissory notes, receipts etc. found from the premises of Shri Anbu, which are placed at Pages 15 to 28, 30 to 32 of Paper Book, a....
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....lanation from him and then affording the assessee to cross-examine him. We however note that, the AO had miserably failed to do so. Rather, the AO is noted to have simply treated these third party notings to be gospel truth and added the same in the hands of the assessee. Having regard to the ratio decidendi laid down in the above decisions (supra), which is found to be applicable in the facts of the present case, we hold such action of the AO to be unsustainable. Instead, for the above discussed reasons, we are of the considered view that, the notings found in loose sheets seized from the premises of third party, Shri Anbu was not reliable and admissible for making addition in the hands of the assessee, due to lack of any corroborative material or evidence. 8.27 We further find that the case of the assessee is fully supported by the findings rendered in the assessment of Shri Anbu. It is observed that, post search, Shri Anbu had approached the Interim Board of Settlement ('IBS') wherein he offered additional income and sought immunity from penalty and prosecution. It is observed that, before the IBS, Shri Anbu had inter alia stood by his statement recorded u/s 132(4) of....
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....the facts of the case are that, the AO in his show cause notice dated 13-01-2023 had required the assessee to explain the non-assessability of the cash deposits of Rs. 61,48,21,500/- made during the demonetization period of November, 2016. The assessee is noted to have furnished their explanation vide letter dated 02-02-2023. It was submitted that, the assessee is engaged in the business of wholesale cum retail trading of jewellery items with their branches & showrooms situated at prime location across South India and having regard to the nature of trade, cash sales is a common phenomenon. The assessee is noted to have submitted the details of cash sales made during the month of demonetization, ledgers, cash book, stock registers and bank statements to substantiate the source of cash deposited. 9.1 The assessee also furnished a comparative chart giving the month wise details of the cash sales for FY 2014-15, 2015-16 and 2016-17. The assessee submitted that, though, their total sales had increased from Rs.5860.85 crores in FY 2015-16 to Rs. 6055.70 crores in FY 2016-17, but their aggregate cash sales made during the relevant FY 2016-17 was lower than the earlier year. According t....
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....aving conducted intrusive search action u/s 132 of the Act. The assessee further submitted that, if these cash sales on 08-11-2016 was being doubted to be bogus, then as a corollary, at the time of search, the physical inventory ought to have been higher than the closing inventory as per books, which was not the case and instead the inventory physically found and as per books stood fully reconciled. The assessee further submitted that even the inventory details, purchases and sales found in the books of accounts during the course of search was not doubted by the Revenue. These material facts, according to the assessee, supported the genuineness of the sales made on the date of demonetization. 9.4 The assessee further submitted several comparative charts relating to month-wise, period-wise cash deposited by them in FY 2016-17 and FY 2015-16 to justify the cash deposited during demonetization period. The assessee also submitted that, the AO was proceeding on the wrong presumption that the cash sales ought to be consistent across all the months. The assessee pointed out that, in their line of trade, cash sales during festive periods are substantially higher than cash sales on any o....
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....ustomers were cash ready awaiting demonetization announcement and reached the assessee's shops in no time with hoards of demonetized currency and that the assessee was willing to give away gold jewellery in crores in such a short duration of about 3 hours, accepting the SBNs whose future was totally uncertain at the dawn of the following day j) As started the invoices which do not carry the employee code especially in respect of the transactions which in such cases relate to bring more than the value of Rs. 1 Lakh does not carry the stamp genuineness as no employer would venture into taking the risk of effecting sale even to a lesser value / lesser quantity of jewellery for obvious reason k) It is hard to accept that the assessee could have allowed the billing of such high value of more than Rs. 1 Lakh without carrying the employee code. l) It is also noted that the assessee in its software as made the entry as being relating to sale of gold jewellery even though the respective bills specify the particulars of items sold. In this connection it is to be stated that other invoices which were sold on 08/11/2016 carrying the employee code have been entere....
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....n of the lower authorities, the Ld. Counsel for the assessee, Shri Anand contended that the reasoning given by them to justify the impugned addition was based on surmises and conjectures and that none of these reasons were decisive enough to make this addition. The assessee submitted that their books of accounts were subjected to regular internal audit, tax audit and statutory audit, and that the AO did not reject the books of accounts by invoking Section 145(3) of the Act nor did he record any adverse finding in relation to the corresponding purchases and the closing stock, and thus it was unjustified on the AO's part to dispute the correctness of the cash sales made on the date of demonetization. The assessee contended that, the fact that there was no rejection or books of accounts u/s 145(3) of the Act led to a presumption that the entries recorded in the books were correct. The Ld. AR submitted that, if the source of cash deposit out of the accounted cash sales, was being disputed, then the corresponding purchases, closing inventory, etc. would also have to be disturbed or doubted upon. According to the assessee, the fact that the AO did not dispute these aspects lends cred....
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.... the bills issued on that date did not contain employee code. The Ld. AR pointed out that the absence of employee codes was not any substantive irregularity which would render these sales invoices to be fundamentally improper. Overall therefore, the assessee has contended that the impugned addition lacked any factual or legal basis and thus, the Ld. AR prayed that the same be deleted. 9.11 Per contra, the Ld. CIT, DR appearing for the Revenue supported the order of the lower authorities. According to him, the fact that the employee codes were not mentioned on these invoices suggested that these items were claimed to have been sold without the help of the employees, which in his view, was impossible. He submitted that the reason given by the assessee for the non-mention of employee code on the date of demonetization was general and vague. Also, some of the invoices were not produced for verification. He thus urged that the orders of the lower authorities should not be interfered with. 9.12 We have heard both the parties and gone through the material placed before us. It is noted that, the AO had made addition of Rs. 54,11,66,350/-on account of cash deposited during demonetizat....
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....tal 2,01,786.34 62,62,18,585 25,86,544.80 7% 9.14 We thus observe that the sales shown by the assessee was duly supported by the inventory available in stock, and that the quantity relating to the said sales was reduced in the stock register from the opening stock as well as purchases made during the year under consideration and thereafter the closing inventory has been reported. We note that, during the course of search conducted on 04-03-2021, no discrepancy in respect of cash or stock was found. This material fact corroborates the genuineness of the impugned sales recorded on the date of demonetization, as otherwise excess stock would have been found or discrepancy in cash balance would have been noted. The Ld. CIT, DR also could not controvert this factual aspect that, the intrusive search action did not reveal any discrepancy in stock register, closing inventory, cash balance etc. 9.15 It is also noted that, the assessee was also filing regular returns with the VAT Department, copies of which are placed at Pages 1572 to 1592 of Paper Book, and in those VAT Returns also, no difference/defect was pointed out which clearly shows that the stock available with the....
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....lling the jewellery/goods out of the opening stock and the purchases, was otherwise utilized elsewhere and not deposited in the bank account. We also find force in the Ld. AR's contention that, if the source of cash deposits was not the cash sales, then the Revenue was required to bring on record some material or evidence to show as to wherefrom did the assessee generate such magnitude of cash which it deposited in the bank account during the demonetization period. 9.19 In the instant case the opening stock, purchases and the closing stock has not been doubted, no inflated purchases were found or suppressed sales were noticed during the course of search conducted on 04-03-2021. It is also not the case that the assessee has not been making cash sales regularly or that the cash sales shown on the date of demonetization is inconsistent with the cash sales reported in earlier period(s) or that there is any unusual deviation in gross profit margin due to the impugned sales in dispute. From an analysis of the audited financials for the relevant FY 2016-17 and the past two years, the details of turnover reported by the assessee is noted to be as follows :- FY Total Sales (in ....
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....tion, was comparable to the earlier year and that there was no unusual surge of sales reported during the demonetization period. The relevant details taken note of by us, is as follows :- "Total sales vs Cash Sales FY 2014-15 Month Total sales Cash sales April 4,60,31,66,608 1,34,50,69,968 May 6,47,96,92,387 2,10,45,60,894 June 4,74,90,84,237 1,81,66,50,310 July 3,63,87,41,663 1,33,49,19,422 August 4,16,53,59,596 1,71,67,13,701 September 3,63,84,66,016 1,83,89,88,988 October 5,17,86,49,465 1,8364,41,549 November 6,87,31,46,787 2,47,49,80,939 December 7,93,622,29,133 1,41,21,04,020 January 7,17,57,57,556 1,30,13,06,999 February 4,91,95,36,084 1,22,79,02,153 March 7,46,13,57,629 2,13,64,09,868 Total 66,88,91,87,161 20,54,60,48,811 FY 2015-16 Month Total sales Cash sales April 4,60,31,66,608 1,34,50,69,968 May 6,47,96,92,387 2,10,45,60,894 June 4,74,90,84,237 1,81,66,50,310 July 3,63,87,41,663 1,33,49,19,422 August 4,16,53,59,596 1,71,67,13,701 September 3,63,84,66,016 1,83,89,88,988 Octobe....
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....ment. The comparative year-wise, month-wise sales pattern, gross profit margins etc. are also found to be justifiable with no major deviation in trend. Also there was no difference / discrepancy in stock or cash balance found at the time of search and, therefore, the sales made by the assessee out of the existing stock is found to sufficiently explain the deposit of cash (obtained from realization of the sales) in the bank account. On these facts, in our considered opinion, the lower authorities were unjustified in treating the impugned sales as undisclosed income of the assessee. 9.26 In this regard, we rely on the decision of the Hon'ble Delhi High Court in the case of Pr. CIT v. Agson Global (P.) Ltd. (441 ITR 550) wherein on similar facts and circumstances, the Hon'ble High Court upheld the findings of this Tribunal that, when the stock was available in the form of opening & purchases, then it was unjustified to hold that the sales made by the assessee were not out of the available stock and the same could not have been treated as unexplained. The relevant findings of the Hon'ble High Court found relevant to the present case, are noted as under :- "16.5 ....
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....4, which was Rs. 22.26 crores, December 2015, which was Rs. 97.35 crores and December 2016, which was Rs. 69.83 crores. The comparison made showed that the cash sales in December 2015, as compared to December 2014, in absolute terms, increased by Rs. 75.09 crores, whereas when figures of cash sales of December 2015 was compared with December 2016, it showed a dip of Rs. 27.52 crores. In percentage terms, the increase in sales between December 2014 and December 2015 was 337.33%, whereas, in December 2016, cash sales decreased by 28.27%. This again demonstrated, according to the Tribunal, that assessee had not attempted to book cash sales that had not taken place, as alleged by the revenue. 16.9 In sum, it was the Tribunal's assessment of the material placed on record that cash deposits made by the assessee with its bankers, as noticed above, more or less compared with the cash sale transactions entered into by it with its customers. The Tribunal's view was that given the fact that there was no allegation made by the revenue that the assessee had backdated its entries to enhance its cash sale figures, one could only conclude that there was a growth in the assessee....
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....sponding cash deposited by the assessee with earlier years, we are of the view that there was nothing placed on record-which could have persuaded the Tribunal to conclude that the assessee had, in fact, earned unaccounted income i.e., made cash deposits which were not represented by cash sales. Therefore, in our opinion, the Tribunal correctly found in favour of the assessee and deleted the addition made by CIT(A) of Rs. 73.13 crores, under section 68 of the Act." 9.27 Similarly the Hon'ble Patna High Court in the case of Lakshmi Rice Mills (97 ITR 258) held as under: "It is a fundamental principle governing the taxation of any undisclosed income or secreted profits that the income or the profits as such must find sufficient explanation at the hands of the assessee. If the balance at hand on the relevant date is sufficient to cover the value of the high denomination notes subsequently demonetized and even more, in the absence of any finding that the books of account of the assessee were not genuine, the source of income is well disclosed and it cannot amount to any secreted profits within the meaning of the law. What has to be disclosed and established is the source....
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....sales as unexplained cash credits. The Ld. AR had explained to us the rationale behind the mention of the employee code on their invoices. The Ld. AR submitted that, this practice assisted the assessee in identifying the meritorious employees at the individual showrooms who were outperforming and generating more sales. It was also done to identify and incentivize the sales employees based on their sales performance, whose details have been provided at Page 1608 of the Paper book. He however submitted that, on the date of demonetization, apprehending the huge rush & sales in the showrooms and that multiple customers would be handled by the workforce, the assessee had immediately taken a strategic call to suspend their incentive system for that night, to avoid any confusion or misunderstanding amongst employees, and that the employees would concentrate solely on making the sales and also assist their co-workers, free from any bias that their incentive would get hampered. He further explained that, the sales on the date of demonetization was not due to any sales efforts of the employees but as a consequence of the extraordinary event. Hence, the assessee had opted not to incentivize t....
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.... sum is found credited in the books of an assessee maintained for any previous year, and he assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year: From the perusal of section 68, the sum found credited in the books of accounts for which the assessee offers no explanation, the said sum is deemed to be income of the assessee. In the instant case the assessee had explained the source as sales, produced the sale bills and admitted the same as revenue receipt. The assessee is engaged in the jewellery business and maintaining the regular stock registers. Both the DDTT (Inv.) and the AO have conducted the surveys on different dates, independently and no difference was found in the stock register or the stocks of the assessee. Purchases, sales and the Stock are interlinked and inseparable. Every purchase increases the stock and every sale decreases the stock. To disbelieve the sales either the assessee should not have the sufficient stocks in their possession or ....
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....tization through the country. Hence, we are of the view that the impugned addition made by the AO and sustained by the Ld. CIT(A) was not justified, accordingly the same is deleted." 9.32 In the present case also, the assessee maintained the proper books of account in regular course of business which were duly audited by the independent Chartered Accountant under section 44AB of the Act, and the same has not been rejected by the lower authorities. All the sales & purchases and stocks were recorded in the books of account which had not been doubted by the AO. The sales shown by the assessee had been accepted by VAT/ Sales Tax Department. The book results shown by the assessee are found to be on the same lines as the preceding years. The cash sales made by the assessee had been credited in the books of account and reduction in the stock has not been doubted. Even during the course of search, neither any excess nor shortage of stock was found in the stock register maintained by the assessee. So, respectfully following the decisions (supra), we are of the view that the impugned addition made by the AO and sustained by the Ld. CIT(A) was not justified, accordingly the same i....
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....d above should not be treated as its unexplained expenditure. 10.2 The assessee vide their reply dated 02-02-2023 is noted to have denied any unaccounted transactions with MJPL. The assessee also disputed the reliability and admissibility of the material seized from a third party premises. The assessee submitted that, the search action had not revealed any discrepancy in physical stock or cash or any unaccounted transactions carried out with MJPL and therefore it was contended that, the third party material being relied upon, was uncorroborated and unsubstantiated. The assessee pointed out that, according to the show cause, the assessee had made unaccounted purchases equivalent to 613 kgs which was not a small quantity and therefore, the search action ought to have revealed any corresponding unaccounted stock or investment or unaccounted sales or cash balance, which was not the case. The assessee further submitted the details of the transactions actually carried out with MJPL, which were recorded in their books of accounts. The assessee submitted that, it had no control over the manner in which MJPL passes entries in their 'Jpack' application and thus they could not be e....
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....transactions are reflected in the books of accounts in respect of Mohanlal Jewellers and there are no unaccounted transactions and requested the AO to submit the report on this issue. During the remand proceeding, the assessee has claimed that amount of Rs. 214,51,60,793/- crores out of the total addition of Rs. 283,63,59,247/- crores for the AY 2017-18 to 2021-22, is accounted for in the books of accounts of the assessee and a difference of Rs. 69,11,98,454/- is not appearing in the books of accounts. The assessee has submitted the supporting documents such as copy of bill/invoice, ledger copy of Mohanlal Jewellers in the books of assessee, ledger copy of assessee in books of Mohanlal Jewellers, copy of GST/VAT credit application, copy of gold stock register, as well as bank account statements in support of its claim. Additionally, this office has obtained the ledger account of Mohanlal Ledgers and compared the entries to that of ledger account of Lalithaa jewellers. Further, the entries in J-pack software was traced back to the ledger and supporting documents submitted were verified on sample basis and is found to be correct. So it is requested that the CIT(A) may consid....
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....-18 at Rs. 81,05,050/- [Rs. 13,33,06,740 * 6.08%] and deleted the balance addition made by the AO. Aggrieved by this order of the Ld. CIT(A), the assessee is now in appeal before us. 10.7 The Ld. AR appearing for the assessee submitted that, the impugned addition made by the lower authorities was based solely on third party material and that, no incriminating material was found in the course of search conducted upon the assessee. According to him, therefore, in absence of any incriminating material found during the search at the assessee premises, no addition could have been legally made in the unabated assessments u/s 153A of the Act on the basis of such third party information. 10.8 The Ld. AR further submitted that, there is no evidence brought on record by the Revenue to show that the residual unmatched entries pertained to the assessee. It was contended that, the assessee has no control over the manner in which MJPL is passing entries in its books of accounts and as to whether entries pertaining to some other persons has been either mistakenly or deliberately reflected in assessee's name. It was also submitted that, the unmatched entries were recorded in common gener....
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....h team of the MJPL, this 'Jpack' application software was being maintained by Shri Rajendra Kothari, who in his statement had submitted that, these entries represented unaccounted transactions with the assessee. We find that, later on in the course of search, the Managing Director of the assessee was confronted with these material seized from the premises of MJPL, to which he is noted to have averred that he would reconcile and explain these notings in a week's time. The relevant portion of his statement is reproduced below, for the sake of convenience :- "Q. 22 I am showing you various ledgers of Lalitha Jewelery Mart Private Limited in the actuals books of M/s Mohan Lal Jewellers Private Limited during the course of search u/s 132 of the IT Act, 1961 on M/S Mohan Lal Jewellers, on verification it was noticed that you have involved in large scale unaccounted transactions with M/s. Mohn Lal Jewellers Private Limited. On cross examination of the actual ledgers seized from M/s. Mohan Lal Jewellers with the tally accounts maintained by you, it was noticed that most of the entries are not matching with the entries as per tally accounts. Please go through the ledger....
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....AO. However, we note that, there was no such incriminating material or unaccounted asset found in the course of their search. In light of these material facts, the observations rendered by the AO that these entries represented unaccounted transactions of the assessee, according to us, was to be taken with a pinch of salt and cannot be simply accepted at its face value. The AO having dual role of an investigator and adjudicator was thus required to probe further to unearth the true facts and belly his suspicion. However, Ld. AO has failed to do so in the present case. 10.13 We agree with the Ld. AR that, the assessee cannot be expected to prove a negative. Instead, the onus lay on the Revenue to substantiate these entries with some independent tangible material, if they were seeking to use the same against the assessee. According to us also, the entries found in 'Jpack' application software which was seized from the premises of MJPL, could have been explained by MJPL alone. The case of the Revenue is that, Shri Kothari of MJPL had claimed these entries to be unaccounted for, and thus it was rightly added in the hands of the assessee. On the other hand, the Ld. AR has subm....
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....nly because two cheque entries on these seized pages matched with the books of the assessee did not ipso facto mean that other entries on these pages represented unaccounted transactions. The Tribunal is noted to have accordingly deleted the addition. 10.16 Gainful reference is also made to another decision of the coordinate bench of this Tribunal at Mumbai in the case of Naren Premchand Nagda v ITO (ITA No. 3265/Mum/2015). In this case also, a search was conducted at the premises of builder. The statement of key person of the group was recorded who stated that the assessee had paid cash to the group. When the statement of the key person was put to the assessee, he denied of making any payment in cash. However, the department made addition by relying on the statement of key person of the group. This Tribunal relying on series of judicial pronouncements held that in absence of any evidence found against the assessee, no addition can be made on the basis of documents found from the premises of third party and the statements recorded during the course of search conducted in third party premises. 10.17 We also refer to the decision of the Hon'ble ITAT, Lucknow in the case of ....
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....que appearing in the ledger copy and actually made by the assessee tallied, it cannot lead to the conclusion that the assessee has also made the cash payments. More so, when from the very beginning the assessee has vehemently denied of having made the cash payments. Thus, in my considered opinion, in absence of any clinching evidence to show that the assessee had made the cash payments, the addition of so called cash payment of Rs.17 lacs could not have been made. Accordingly, the addition made, being wholly unsustainable, I direct the Assessing Officer to delete the same." 10.18 In light of the above decisions (supra), we thus agree with the assessee that the contents of the 'Jpack' software, which was unilaterally maintained by a third party cannot be straightway used adversely against the assessee, without any corroborative material evidence. The Ld. AR pointed out to us that, though the impugned entries were not found from the premises of the assessee and therefore, the assessee had no knowledge about it, but still the assessee had undertaken the exercise of attempting to reconcile the same with their books of accounts. It is an admitted factual position before us th....
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.... of 'Metal Issue' of 18905.000 gms on 28/12. Though these contra entries were pointed out by the assessee to the lower authorities, but they are noted to have wrongly refrained from taking cognizance of the same. According to us, these bald contra entries further cements the assessee's contention that, the nature and content of these entries were not reliable and are fraught with mistakes and infirmities. 10.20 In so far as the unmatched entries are concerned, the assessee has contended that, these could have been mistakenly entered by Shri Rajendra Kothari in the software under the name of the assessee. To support his contention, he referred to the above contra entries, which in his view, suggested that, when Shri Kothari identified the entries which were wrongly posted to the name of the assessee, he would pass a contra entry to transfer it to the correct head. According to Ld. AR therefore, these unmatched entries could also be a case of incorrect accounting, mistaken identity or that the entries of some other customers were wrongly posted to these accounts. The Ld. AR pointed out that, the name `Lalitha' is commonly used by jewellery businesses and persons in....
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....asis of unverified, unilateral data maintained by a third party. The entries made therein do not bear the endorsement or acknowledgment of the assessee. Hence, such entries are not conclusive proof against the assessee, without independent corroboration. As noted above, the assessee had not only dispelled the AO's case that, all the entries in the Jpack application software were unaccounted for, but instead also showed that majority of it reconciled with their books of accounts. The assessee also showed that, the use of nomenclature 'cash' in this software was factually misplaced and, also there were several contra entries in the software. These facts also rendered the statement of Shri Rajendra Kothari to be unreliable as being based on mistake of fact qua the assessee. Further, even the search action conducted upon the assessee did not reveal any discrepancy in stock or cash or any unaccounted transactions with MJPL. In light of these facts and circumstantial evidences, coupled with the confirmations provided by MJPL, we are of the considered view, on the given facts before us that, the onus was on the Revenue to corroborate their case that the unmatched entries repre....
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....ordingly, these grounds are being dismissed as not being separately adjudicated upon. 13. Ground No. 4 to 8 of the appeal relates to the addition of Rs.2,02,45,191/- made by way of unaccounted cash receipts found noted in the mail attachment of Mr. Stanley. After considering the rival submissions, it is observed that, except variation in figures, the reasoning adopted both by the AO & Ld. CIT(A) to justify this addition is verbatim same as in AY 2016-17. 13.1 Following our conclusions drawn while deciding Ground Nos. 4 to 8 of assessee's appeal in A.Y. 2016-17, we hold that the addition of Rs. 2,02,45,191/- is untenable on facts and in law. We therefore allow the Ground Nos. 4 to 8 raised by the assessee and direct the AO to delete the impugned addition made in AY 2018-19. 14. Ground Nos. 9 to 13 raised in the appeal are against the addition of Rs. 35,14,00,000/- made by way of unaccounted repayment of cash loans to Shri Anbu u/s 68 of the Act. After considering the rival submissions, it is observed that, except variation in figures, the reasoning adopted both by the AO & Ld. CIT(A) to justify this addition and the arguments put both by the rival parties before us are ....
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....d to have acknowledged the retraction(s) filed by BBPL in relation to their tally data but rejected the same by observing that their retraction was an after-thought. The AO further held that, the fact that the entries found in the tally data of BBPL was not reflected in the books of the assessee was sufficient to justify the impugned addition. The AO is therefore noted to have added sum of Rs.15,30,00,000/- by way of unexplained cash expenditure u/s 69C of the Act. The assessee carried this matter in appeal before the Ld. CIT(A) who is noted to have confirmed the order of the AO. Being aggrieved by the order of the lower authorities, the assessee is now in appeal before us. 15.1 Assailing the action of the lower authorities, the Ld. AR Shri Anand contended that, it is a well settled jurisprudence that, the entries found in third party ledger by itself cannot be treated as conclusive proof to justify addition in the hands of the assessee without there being any corroborative material to support the same. He submitted that, the impugned addition was solely based on the entries found in a ledger extracted from tally data seized in the course of search conducted at a third party, M/....
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....ording to him therefore, having regard to the principle laid down that the Hon'ble Supreme Court in the case of Pr.CIT Vs Abhisar Buildwell Pvt Ltd (454 ITR 212), the impugned addition made in the unabated AYs was legally unsustainable due to the absence of any incriminating material found in the course of search at the assessee's premises. 15.4 The Ld. CIT, DR appearing for the Revenue, on the other hand, vehemently supported the order of the lower authorities. Taking us through the order of the Ld. CIT(A), he pointed out that the Managing Director of the assessee had undertaken certain loan transactions with BBPL around the same period which according to him, indicated that the assessee knew BBPL and thus contended that the entries found in the tally data related to the assessee. He further argued that, the fact that the entries found in the tally data of BBPL was missing in the books of accounts of the assessee, incriminated the assessee of being involved in making unaccounted cash payments. According to him, the entries in the tally account were unambiguously clear that the assessee had made cash payments to BBPL. He accordingly urged us not to interfere with the ord....
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....o be in possession of any property developed by BBPL, then, the case built by the Revenue that the assessee had made cash payments to BBPL in connection therewith, fails. 15.7 The Ld. AR also pointed out to us that BBPL was neither related nor a group entity of the assessee. Instead, it was an independent and unrelated real estate company. He submitted that, ordinarily, any booking by a customer in any project undertaken by a real estate developer would necessarily be evidenced by some form of MOU or agreement or an allotment letter, etc. Also, ordinarily, at least some amount would have been paid by cheque to the builder towards such property. It is highly unlikely that any customer, would pay such huge sums of monies to a real estate developer towards purchase of any property or investment without there being any unregistered or registered agreement or at least some portion of the aggrieved consideration paid through cheque so as to establish right to specific performance qua such property or investment. We find this explanation of the assessee to be reasonable. 15.8 For the above reasons, in our considered opinion, the assessee's denial with regard to the contents of t....
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....anaging director of the assessee knew BBPL and had availed regular business loan from them. 15.10 It is true that section 132(4A) read with section 292C of the Act, raises a presumption that that the contents of books of account and other documents seized during the course of search is true. But it should be kept in mind that this presumption is only qua the person who is searched and/or from whose possession the books of account and documents are found and none else. Moreover this presumption is rebuttable. In the given facts of the case, since the documents in question was not found or impounded from the assessee's premises but in the course of search conducted against a third party, the presumption set out in Section 132(4A) / 292C of the Act does not apply to the assessee. The assessee, therefore, is legally entitled to an opportunity of examining these documents, which were admittedly not impounded from its premises, and can seek cross examination of the third party from whose possession such document was found and furnish its rebuttals and defense with cogent evidence. 15.11 As discussed above, the assessee has been able to furnish reasonable explanation rebutting t....
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....ing our reasons and conclusions recorded while deciding Ground Nos. 21 to 27 of assessee's appeal in A.Y. 2017-18, we accordingly hold that, the entries found in the material seized from the premises was unreliable and therefore the addition of gross profit of Rs.1,10,28,230/- made on account of unmatched entries between the assessee's books and the data seized from the premises of MJPL is held to unjustified both on facts and in law. We therefore allow these grounds and direct the AO to delete the impugned addition made in AY 2018-19. ITA No.678/Chny/2025 for AY 2019-20. 17. We now take up the assessee's appeal in ITA No.678/Chny/2025 for AY 2019-20. 18. Ground Nos. 1 to 3 are noted to be general in nature and are therefore being dismissed as not being separately adjudicated upon. 19. Ground No. 4 to 8of the appeal relates to the addition of Rs. 3,04,26,937/- made by way of unaccounted cash receipts found noted in the mail attachment of Mr. Stanley. After considering the rival submissions, it is observed that, except variation in figures, the reasoning adopted both by the AO & Ld. CIT(A) to justify this addition is verbatim same as in AY 2016-17. 19.1 Fo....
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....y allowed. 22. Ground Nos. 19 to 23 raised by the assessee relate to the addition partially confirmed by the Ld. CIT(A) on account of excess wastage loss claimed upon conversion of old gold ornaments into new gold. The facts as noted are that, the AO had observed that the assessee had converted its old / new gold ornaments back into fine gold. The AO observed that the assessee had claimed wastage on such conversion which, in his view was excessive. According to the AO, the gold ornaments in the assessee's inventory ought to have been of 91.6% purity as per the Government Gold Standard Regulations. The AO noted that the assessee was doing purity checking in the stage of making these ornaments and these ornaments were also hallmarked as 91.6% purity. In this background, the AO was of the view that the loss on conversion of these ornaments to fine gold should only be 8.4% [100% (-) 91.6%]. For this, the AO relied upon the data obtained from the Jilaba Application of all the branches and the sample test check which was done on 02-11- 2020 at the time of operation of the PO, whose working was provided to the assessee. The AO noted that the sample test check revealed that the ston....
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....m. It was further submitted that even the wastage rate of the assessee of 14.14%, adopted by the AO was incorrect and that it was actually 12.16%, for which working was also provided by the assessee. 22.2 The assessee further submitted that there was no wastage loss separately claimed in the books of accounts and that the value of the old gold ornaments so converted was equivalently assigned to the fine gold and thus there was no separate debit or deduction claimed in the accounts. According to the assessee therefore, in absence of any claim of wastage, there was no question of any such disallowance. The assessee also contended that the search action didn't reveal any discrepancy in the stock of gold ornaments or fine gold and therefore, according to the assessee, if the wastage shown in the books were excessive then higher quantities of stock would have been physically found at the time of the search, which was not the case. 22.3 The AO is noted to have rejected the submissions furnished by the assessee. According to the AO, the narration of the entries found in tally was 'new gold ornaments' transferred to old gold and thus rejected the assessee's plea that ....
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....ation of the facts and circumstances of the case, we find that the impugned finding of the lower authorities is not emanating from any incriminating material unearthed in the course of search or any unaccounted asset found in the search. Rather, the impugned disallowance is based on the own subjective opinion of the AO. According to us, an addition cannot be made on the basis of surmises and conjectures. A suspicion however strong it may be, has to be supported by relevant material. We however find that no material leave alone any evidence to substantiate their basis for alleging that excessive wastage loss upon conversion had been claimed by the assessee. We particularly take note of the fact that, even during the course of the search, no discrepancy with regard to the stock of fine gold and gold jewellery was found. Besides, none of the purchases or sales have been doubted by the lower authorities. The books of accounts have been audited with complete quantitative tally for purchase and sale of gold and gold jewellery and no defects were found by the Revenue. The Ld. AR has taken us through the complete quantitative and value details of the inventory movement throughout these yea....
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....ed from refining of old gold depends on the quality (purity) of the old gold received from the customers. The % of fine gold obtained out of old gold is less whenever the quality (purity) of old gold received is low. The value of old gold is also done according to the purity of the old gold received." 22.8 It is also observed that, even the Ld. CIT(A) has tacitly acknowledged this fact at Para 7.4 of his impugned appellate order where he also observed that the AO had erred on facts by proceeding on a rigid presumption of BIS-certified purity at 91.6% across all categories of gold ornaments. The Ld. CIT(A) is also noted to have rightly rejected such a generalized approach of the AO by overlooking critical variables such as the actual purity of individual items, the presence of intricate design features, and the existence of embedded non-metallic elements, including precious and semi-precious stones. The Ld. CIT(A) is also noted to have accepted that the extent of melting loss is not uniform but varies with the nature and type of ornaments subjected to conversion. Notwithstanding this clear recognition of the factual and technical nuances involved, the Ld. CIT(A) is found to have ....
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....s high as 13% in the sample size of Marathahalli branch. Having considered these relevant facts, we find merit in contention put forth by the assessee. 22.11 We find that the assessee has also corroborated their above contention by bringing on record sample purchase and sale invoices pertaining to stone-studded gold jewellery, whose copies are found placed at Pages 982 to 1316 of the Paper Book. Perusal of these invoices reveal that the presence of non-metallic components, particularly stones and embellishments, constitutes a substantial portion of the gross weight of such jewellery, which on average is found to be 6%. These contemporaneous data is found to contradict the findings of the lower authorities that the proportion of stone weight in jewelleries would only be 1%. 22.12 Overall therefore, we find that, the assessee has sufficiently demonstrated before us that, the conversion loss of 9.5% estimated by the Ld. CIT(A) was unjustified and based only on surmises. The assessee, on the other hand, has placed before us verifiable records to show that, it had not exaggerated the quantum of melting loss. Further, as noted above, the intrusive search action also didn't reve....
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...., except variation in figures, the reasoning adopted both by the AO & Ld. CIT(A) to justify this addition is verbatim same as in AY 2016-17.Following our reasons given while deciding Ground Nos. 4 to 8 of assessee's appeal in A.Y. 2016-17, we hold that the addition of Rs. 1,95,31,356/- is untenable on facts and in law. We therefore direct the AO to delete the impugned addition made in AY 2020- 21. These grounds are accordingly allowed. 27. Ground Nos. 9 to 14 raised in the appeal are against the addition of Rs.19,51,00,000/- made by way of unaccounted repayment of cash loans to Shri Anbu u/s 68 of the Act. It is observed that, except variation in figures, the reasoning adopted both by the AO & Ld. CIT(A) to justify this addition was the same as earlier AY 2017-18. Even the arguments put forth by the both parties were common. Thus, following our reasons and conclusions recorded while deciding Ground Nos. 9 to 13 of assessee's appeal in A.Y. 2017-18, we hold that the impugned addition on account of alleged repayment of cash loans was unsustainable and is therefore directed to be deleted. These grounds are thus allowed. 28. Ground Nos. 15 to 19 are noted to be relating t....
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....ut the year-wise summary of wastage as per the email attachment, which is noted to be as under: Period Rec Wt. Stock Gross Stone Mlt. Loss Nt. Wt. Pure Gold Wastage (Gross to Pure) FY 18-19 73,68,938 1,02,836 72,66,102 25,872 20,557 72,19,673 63,62,349 12% FY 19-20 68,49,438 1,11,086 67,38,352 36,526 17,111 66,83,285 59,03,808 12% 29.1 The AO observed that, the actual wastage as per email attachment for FYs 2019-20 & 2020-21 was only 12% whereas the assessee had claimed wastage of 13.36% and 15.17% in the books for FYs 2019-20 & 2020-21 respectively. The AO accordingly is noted to have worked out the excess wastage claimed as per accounts at Rs. 62,99,36,957/-. When asked to explain the same, the assessee is noted to have furnished a detailed response, which the AO has extensively extracted at Pages 7 to 14 of the assessment order. The objections raised by the assessee inter alia were that, the inference was being drawn by comparing partial data of some branches and therefore without the complete purchase and melting data, the allegation of excess wastage was unjustified. The assessee showed that, i....
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..... The total old gold purchased from customers is sent for melting, wherein such old gold contains some physical impurities, apart from weight of semi-precious stones. The loss on such stone weight was considered at 1% while determining the new gold conversion damage loss, in para 7 above. Apart from this, the purity loss from 22ct to 24ct was obvious at 8.4%. Since the gold is old and is not manufactured by the appellant and was purchased from customers, particularly from new branches established during the year in moffusil stations, another rate of 2% damage loss on purity is allowed. As a whole, the percentage of damage loss appearing in the Stanely Sheet at 12.38% is close to the reasonable standard of damage loss (8.4% on purity + 1% on stone weight loss + another 2% on old gold purchases from customers, totalling to 11.4%), against the claim made by the appellant at 15.36%. When the damage loss claimed is apparently high, the claim of the appellant that only a portion of the seized material was adopted for making the addition, is not tenable. Therefore, no interference is made with the addition made by the AO on this count and the excess damage loss of 2.98% disallowed by the ....
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....ared under my supervision. Smt. Lakshmi is assisting me in preparing these sheets. In the excel sheets, there will be separate work sheets for all the branches of M/s. Lalithaa Jewellery Mart Private Limited. In these sheets, the date wise details of old gold received from branches are entered. The date shown in the sheets are the dates on which the branches received the old gold. The column computer weight and the value column are entered as per the computer print outs given by Shri. Somu. In the column "stock", the details of ornaments which were not melted are entered and reduced from the gross weight. The details of stone weight, melting loss, Net weight of the ornaments, purity and the pure gold weight are also recorded in these sheets. The purity is entered as per the details of testing report received and the weight of pure gold is worked out as per the purity sheets." 29.4 Though the Ld. CIT, DR has placed reliance on the above statement to support the order of the lower authorities, but on careful reading of his answer, we find that there is nothing incriminating contained therein which would suggest that the assessee had claimed excessive wastage loss in the books of a....
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....ities of old gold ornaments processed under the supervision of Mr. Stanley and the total quantity of old gold ornaments processed as per the books of accounts were materially different. It is observed that, the total quantity of old gold processed as per the books was much higher than the quantity of gold being supervised by Mr. Stanley, as is evident from the table above. We thus find force in the submission of the assessee that this excel sheet was incomplete and thus could not have been taken as a justifiable basis to undertake valid comparison with the wastage shown in the books of accounts. This particular contemporaneous fact also lends credence to the assessee's submissions that the AO had acted under the wrong assumption that processing of the entire old gold ornaments was being solely supervised by Mr. Stanley. The Ld. AR Shri Anand also took us through the details of the new showrooms which were opened by the assessee during the impugned AYs 2020-21 & 2021-22 and it is observed that these new showrooms were located in mofussil areas. It was explained to us that, transporting the old gold ornaments exchanged at these showrooms at all times to the corporate office was n....
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....hat, these new showrooms being in mofussil areas, the quality of old gold ornaments exchanged by customers was comparatively lower than the quality of old gold ornaments exchanged at the showrooms located in metro cities. The Ld. AR further submitted that, due to the COVID-19 scenario, which prevailed during this period, it was found to be practical to get the old gold ornaments processed locally rather than moving them inter-state or inter towns / cities. However, the assessee was required to make do with the lower quality of processing undertaken by local goldsmiths, which yielded higher wastage loss. To further corroborate his submission that the higher wastage loss in the impugned AYs had genuinely occurred, the Ld. AR also brought to our notice that, the search action which was conducted across all the showrooms of the assessee as well as their corporate office, did not result in unearthing of any excess stock of gold or any discrepancy in the inventory as per books vis-à-vis the physical stock. The Revenue also was unable to unearth any instance of suppressed sales made by the assessee. This material fact, according to the Ld. AR, supported the assessee's case that....
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....was an outstanding loan of Rs. 210.66 crores received by the assessee from various parties as on 31- 05-2019. Against these loans, rates of interest was mentioned. The AO accordingly worked out the interest paid on such loans in FYs 2019-20 & 2020-21, at Rs.13,52,07,096/- and Rs. 45,74,07,096/- and proposed to add the same by way of unexplained expenditure u/s 69C of the Act in his show cause notice issued for AYs 2020-21 & 2021-22 respectively. The assessee, in response is noted to have submitted that, the AO was under the mistaken impression that the impugned sheet was a trial balance and instead it was data extracted from a corrupted software in which the loans taken by other persons of the assessee group had been mixed up and was being erroneously reflected in the name of the assessee, which led the AO to erroneously believe that these are unaccounted loans of the assessee. The assessee then pointed out that, there was no details of any interest paid during FYs 2019-20 & 2020-21 found in these sheets and instead the AO had acted on an assumption that because interest rates are mentioned against these loans, the interest would have actually been paid by the assessee. The assesse....
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....s are noted to be names of parties with percentages mentioned against it and corresponding balances. Hence, if this sheet is considered on stand-alone basis, there are only several names of parties and amounts mentioned corresponding to it, but there is no indication that these reflect any unaccounted loan transactions of the assessee. 31.4 It is noticed that, the AO first assumed that, these account balances reflected loans availed by the assessee. The second assumption drawn by the AO was that, the percentages mentioned therein were rates of interests on these loans. The third assumption was that, all these loans were unaccounted for and the fourth assumption was that, these loans would have continued through the next two years and that, the assessee had actually paid the interest on the same, at the rates mentioned beside the names of the account(s). With these assumptions, the AO is noted to have made the impugned addition. We find that, the Ld. CIT(A) is noted to have acknowledged these assumptions made by the AO for making the impugned addition, which according to the Ld. CIT(A), was the only possible conclusion, without anything contrary being brought on record by the ass....
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.... but is rebuttable. As already noted earlier, the contents of the sheet did not per se suggest that these entries were unaccounted for. Rather, this was an assumption made by the AO. We find that the assessee has rebutted this assumption with ample evidence. The assessee is noted to have shown that, many of these parties were those who had advanced monies to Shri Kiran Kumar/Managing Director in his individual capacity and not the assessee. The assessee also showed that, majority of these account(s) was reflected in the books of accounts of other assessees belonging to the Lalitha Group. 31.7 The Ld. AR first brought to our notice that the single largest account value related to 'Anbu' account, which, for the reasons already discussed, while deciding Ground No. 9 to 13 in Paras 8.14 to 8.28 above, has been held to be unreliable. We have already taken note of the fact that the loans which was obtained from Anbu was through banking channel and duly recorded in the books of accounts and that there was no element of cash loans involved. This was also corroborated by the order of the IBS passed in the matters of Anbu, which we have already elaborately discussed in the precedi....
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....t make any attempt to reconcile the facts or summon the assessee and enquire regarding the exact nature & source of these loan(s) or identify the unaccounted loans. 31.10 It is also material to mention at this juncture that, the search action also did not reveal any such unaccounted cash or asset or investment which would justify such huge quantum of unaccounted loans in excess of Rs.200 crores as alleged to have been availed by the assessee. There is also no source identified out of which the assessee could have possibly paid unexplained interest running into crores each year. According to us therefore, in absence of there being any corroborative material to show that these account entries represented unexplained loan transactions of the assessee, this particular assumption made by the AO holding so, is held to be unjustified. 31.11 We agree with the Ld. AR Shri Anand that, if the AO was of the opinion that, these accounts represented unaccounted borrowings, then the AO was required to bring on record the details of the lender(s) from whom these unaccounted cash loans were availed or to whom was the impugned interest paid. In any loan transaction, there is a lender and a bor....
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.... averment of the assessee is found to be further corroborated by the fact that, no addition on account of unexplained interest payment was made in the AY 2019-20 to which one of the sheet(s) dated 31-03-2019 pertained to. Moreover, it has been acknowledged by the lower authorities that there is no direct evidence of cash interest payment for FYs 2019-20 & 2020-21 and that the same has been assumed from the entries in these sheets dated 31-05-2019 & 31- 03-2019. 31.14 In view of the above, we thus note that, when the purported trial balance(s) dated 31-03-2019 relied upon by the AO itself did not contain any details of interest paid for the relevant year-ending for which they related to, and there was also no indication or evidence that the assessee had paid interest in subsequent years, then it was unsafe to assume that the assessee had actually paid interest in cash to the lenders in the subsequent years to justify the impugned addition. 31.15 It is well settled that the Revenue authorities cannot base its findings on suspicions, conjunctures or surmises nor should it act on no evidence at all or on vague considerations partly on evidence and partly on suspicion, conjectures....
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.... extrapolated to AY 2022-23 and so on as well. Not only that, if such assumption is held to be tenable, then additions could also be made in the years prior to this trial balance. According to us, such extrapolation exercise cannot be validated as the same is far-fetched, unreasonable and without any sanction of law. 31.17 In this regard, we refer to the decision of the Hon'ble Apex Court in Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 laying down principles regarding estimation that while making assessment under Section 23(3) of the Income Tax Act 1922. The Hon'ble Apex Court held that, the ITO is not fettered by technical rules of evidence and pleadings, and he is entitled to act on material which may not be accepted as evidence in a Court of law, but at the same time, he is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support assessment under section 23(3) of the 1922 Act. The Hon'ble Apex Court on facts of the case held that both ITO and Tribunal in estimating the GP rate on sales of the assessee didn't act on any material but act....
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.... of such amount is 22,40,000/- . The first presumption by the Assessing Officer is that it is not 22,40,000/- but 22,40,00,000/-. The second presumption is that the noting is relating to loan taken by the assessee. The third presumption is that the loan was repaid during the accounting year relevant to the assessment year under consideration. The fourth presumption is that the repayment of the loan was along with interest at the rate of 20%. On these series of presumptions, he not only made huge additions running into crores of Rupees but also levied penalties under Sections 271D & 271E. His finding is neither based upon the noting on the loose papers nor any corroborative evidence brought on record during the course of assessment proceedings. On the other hand, material available on record is contrary, i.e., (i) the papers were found from Shri Yogesh Gupta and not the assessee, (ii) statement of Shri Yogesh Gupta was recorded in which he stated that these were unaccounted transactions, (iii) he surrendered the income from such unaccounted transactions in his hands as well as in the hands of group concern, (iv) the income from unaccounted transactions as surrendered by Shri Yogesh ....
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....nsactions in cash and interest was paid in cash was merely an assumption. Even on the quantum, the addition made was on mere assumption. 8. The Tribunal in the impugned order has referred to the order passed by this Court in CIT v. Home Developers (P.) Ltd. [IT Appeal Nos. 301, 304 and 305 of 2012, dated 23-5-2012]. The said order records that substantial surrender was made during the course of search. Reference was made to the statement of Yogesh Gupta wherein he had accepted that there were unaccounted for transactions in cash, but no question was put to him about the details of the writer or the recipient i.e. the details of the person, who had received the said amounts. At that time, the officers were duly satisfied with the investigation and the surrender. It is further recorded that the allegation that loans/deposits must have been taken in cash was a mere suspicion, which could have been a cause for further verification and investigation, but mere suspicion cannot be a ground to hold that loan/deposits were received in cash. The findings of the Tribunal were not perverse. 9. We also notice that the Revenue has not filed before us any document or material to....
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....erial seized to justify any figure to be included for a period earlier to the said period of three months. In the circumstances, the Tribunal has recorded a finding of fact and has held that the addition of Rs. 3.40 crores was totally unjustified. The entire finding of the Tribunal is based on the facts. No substantial question of law arises. Hence, the appeal is dismissed." 31.22 We also refer to the decision of the coordinate bench of this Tribunal at Ahemdabad in the case of Savaliya Buildcon v. DCIT (ITA No. 401 & 3188/Ahd/2014) dated 30-4-2019 wherein the issue was whether the AO was justified in making extrapolation exercise estimating on-monies on receipt of sale of all the flats on the basis of statements of two purchases admitting to payment of on-monies. Answering the question in favour of the assessee, the Tribunal held that it was a misplaced suspicion based only on surmises without any proof and thus deleted the extrapolated addition, by observing as under :- "8.2 The statement of two purchasers is the bedrock for additions in controversy. It is an admitted position that the statements of two purchasers allegedly claiming to have paid cash money of Rs. 14.1....
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....pparently lead to miscarriage of justice. Therefore, we find total justification in the action of the CIT (A) in directing the AO to delete the estimated additions towards unaccounted receipt in respect of flats sold on the basis of some unverified and bald statement. Once such statements of the purchasers are taken out of reckoning, the edifice of estimated additions towards sale of residential flats would crumble down. 8.3 Besides, estimated cash receipts on-money of sale of all flats merely on the basis of statement of two purchasers without any tangible corroboration clearly falls in the realm of conjunctures and surmises. It is obvious that driven by misplaced suspicion, the AO has presumed the presence of on-money in respect of each of the residential flat sold. The action of the AO is a mere ipse dixit which is not objectively justifiable by some inculpatory evidence. It is only elementary to say that estimation of unaccounted money cannot be made only on the basis of contemplation. The order of the AO in making additions of Rs. 3.28 Crores is thus clearly arbitrary and unsustainable in law. It is well settled that the Revenue authorities cannot base its findings on....
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....hown in the books of the assessee to have been issued to AJMPL for FY 2020-21. The total mismatch found for the two financial years is tabulated as under: F.Y Issued as per assessee's tally Receipt as per Anicalans software of AJMPL Difference 2019-20 5473001.128 gms 9456869.000 gms (-) 3983868.872 gms 2020-21 5170588.071 gms 3692429.808 gms 1478158.263 gms 32.1 Based on the above mismatch, the AO inferred that AJMPL had actually manufactured lesser weight of gold ornaments for the assessee as opposed to the metal shown to have been issued by the assessee and therefore the assessee had paid excess manufacturing charges to AJMPL. The AO accordingly worked out the excess payments made to AJMPL for AYs 2020-21 & 2021-22 at Rs.2,39,03,214/- [3983868.872 X Rs.6/gm] & Rs. 1,69,39,693/- [1478158.263 X Rs.6/gm] respectively which he added u/s 69C of the Act. The AO thereafter assumed that, the assessee would have actually got this remaining gold, which was not actually issued to AJMPL, manufactured from other labour/karigars to whom making charges would have been paid separately outside the books. The AO is noted to have worked out the average ....
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....ngs for the adoption of rate of Rs. 6/- is furnished herein below) 10.4) As discussed in the show-cause notice the assessee has received gold ornaments from Karigars/vendors other than M/s Asita Jewellery Manufacturing Private Limited and showed them as having been received from M/s Asita Jewellery Manufacturing Private Limited. It is therefore that the element of payments embedded in respect of the transaction to the other vendors/karigars for getting the new gold ornaments required to be worked out. The same is being by reckoning the average manufacturing cost of new gold ornaments charged by other manufacturers and apply the same on the above excess weights and treating the cost as unexplained expenditure by the assessee. The details brought on record in this regard show that the Average rate works out to Rs.35. Adopting the same, the unexplained expenditure under section 69C of the Act works out to Rs. 13,94,35,411/- (i.e. 3983868.872 x Rs.35 - The workings for the adoption of rate of Rs. 35/- which is as below). ..... 10.5) Since the submissions of the assessee are found to be not substantiated and corroborated with credible acceptable evidences, the....
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....de necessary corroborative evidence to prove their claim that labour charges paid to AJMPL was excessive. He further submitted that, the search action conducted upon the assessee also did not reveal any discrepancy in the stock movement register, inventory register etc. or any unaccounted payment of labour charges. The assessee thus contended that the reliance on unverified internal software (Anigalan) data, without corroboration or cross-examination, violates the principles of natural justice and cannot be the basis for addition. 32.5 Shri Anand further submitted that the disallowance of charges paid to AJMPL u/s 69C of the Act was also legally untenable. He pointed out that, the expenses were duly recorded in the books of accounts, paid through banking channel after deducting TDS and payment of GST. He also showed that AJMPL had paid taxes at the normal rates on such income. He accordingly argued that, there was no element of unexplained expenditure which was not found recorded in the books of accounts to invoke rigors of Section 69C of the Act. According to him, the alleged excess payment could not therefore have been legally disallowed u/s 69C of the Act. With regard to the ....
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....sessee for completed and delivered job work which the assessee company duly records in its books of account through its Profit & Loss Account. Once the invoices are recorded in books, the expense and liability entries get captured by the system which is followed by payment to the job worker as and when due. The assessee is found to have paid the job-work charges through banking channel after deducting applicable TDS. AJMPL is noted to have charged GST on all their invoices which was also duly discharged by the assessee. 32.8 We therefore observe that the job-work charges paid to AJMPL is duly supported by material evidences, as discussed above. It is also not the Revenue's case that AJMPL is a bogus or shell entity or that it is not actually carrying out job work for the assessee. The dispute in the present case relates to the quantum of job carried out by AJMPL for the assessee. According to the Revenue, though the books of assessee shows that 5473001.128 gms. & 5170588.071 gms. quantity of gold was issued to AJMPL for processing in FYs 2019-20 & 2020-21, but the entries found in Anicalans (Jiliba software) of AJMPL shows that 9456869.000 gms & 3692429.808 gms. quantity of ....
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....hich would show that the assessee was actually getting the gold processed outside the books from some other jeweller / karigar. It is also not the case of the Revenue that the alleged gold which was being processed outside the books, and not from AJMPL, was out of any unaccounted purchases. Hence, as per the AO's logic, the gold lying in regular stock of the assessee, which though shown to have been issued to AJMPL in their books, was actually not issued to AJMPL but processed through other karigars. This allegation, according to us, is not supported by any direct evidence and is rather dispelled by the inventory movement, delivery challans etc. maintained by the assessee. 32.11 The next question which begs an answer is, was there any rationale for the assessee to get its regular gold surreptitiously processed outside the books, as admittedly the inventory of gold so issued for processing formed part of their books. At the cost of repetition, it is not the Revenue's case that the mismatched entries represented unaccounted gold of the assessee. The Revenue has not disputed the stock register, inventory movement etc. of the assessee nor any addition on account of unexplain....
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....peal to any prudent person. Hence, in our considered opinion, the allegation of the Revenue that, the assessee paid excess labour charges to AJMPL is found to be against human probabilities, having no rationale basis. 32.15 It is also not clear to us as to why would AJMPL, in the first place, agree to receive higher labour charges from the assessee and pay equivalent amount back in cash. It is not in dispute that, the assessee and AJMPL are independent entities and further, AJMPL is noted to be a reputed and full-fledged company engaged in the business of manufacture of gold jewellery items. Hence, by receiving higher labour charges than what is actually due to it, AJMPL is essentially paying higher PF/ESI for their labour, and also additional income-tax on such higher receipts etc. According to us therefore, there is no benefit for AJMPL for assisting the assessee in doing so. Hence, this aspect also reinforces the case of the assessee that the assumption drawn by the AO to make the impugned addition on account of unexplained labour charges was fraught with infirmities. 32.16 Further, the non-application of mind by the AO and his misplaced suspicion is also found to be corro....
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....vocally denied the contents of their Anicalans software. It is observed from the details of expenses incurred by AJMPL that this software was installed during the relevant FY 2019-20 and by the end of the year, there was onset of COVID-19 and that this software was in trial stage. It was further explained that, this software was maintained in respect of certain sections of job-work performed within their premises and not the entire manufacturing process and hence, it could not be used for statutory and financial reporting purposes. We have already taken note of the fact that, AJMPL was maintaining the quantity movement of receipt & issue of gold in their tally system as well, which was also seized in the course of search and the same reconciles with the books of the assessee. There is therefore force in the submission of the assessee that, the Revenue has not brought on record any material to show as to why the entries found in tally during the course of search at AJMPL's premises was to be rejected, in contrast to the entries found in Anicalans software. Moreover, the impugned entries being third party material, the onus lay on the Revenue to corroborate the same with some ind....
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....y the AO & Ld. CIT(A) to justify this addition is verbatim same as in AY 2016-17.Following our reasons and conclusions recorded while deciding Ground Nos. 4 to 8 of assessee's appeal in A.Y. 2016-17, we hold that the addition of Rs.87,66,675/-is untenable on facts and in law. We therefore direct the AO to delete the impugned addition made in AY 2021-22. These grounds are accordingly allowed. 36. Ground Nos. 9 to 13 are found to be against the addition made on account of excess wastage of gold of Rs.27,58,29,025/- upon conversion of existing gold ornaments into fine gold. After going through the orders of the lower authorities and considering the rival submissions, it is observed that the issue involved in this ground is same as Ground No. 19 to 23 of assessee's appeal for AY 2019-20. Following our conclusions drawn therein, we direct the AO to delete the impugned addition and allow this ground of the assessee. 37. Ground Nos. 14 to 20 relate to the addition made on account of excess wastage loss of Rs.42,18,19,429/- upon conversion of old gold ornaments purchases from customers into fine gold based on the excel sheet(s) downloaded from the email of Mr. Stanley. After ....
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....ted out the factual defects and infirmities in the method of valuation adopted by the AO in the show cause. The assessee also demonstrated that, the stock transfers between the branches were at the weighted average cost and that there was no distortion in the value of transfers whatsoever. The assessee also showed that, the weighted average cost of the closing inventory as per books was higher than the value of opening stock & purchases value and therefore the initial premise stated by the AO for doubting the correctness of valuation was also incorrect. The assessee further is noted to have submitted that, the closing inventory was valued at the weighted average cost or Net Realizable Value, whichever is lower, in accordance with Accounting Standard-2, issued by the Institute of Chartered Accountants of India and also the ICDS - II notified by the CBDT. It is noticed that the assessee had placed on record, the details of NRV ascertained as on 31- 03-2021 which was lower than the weighted average cost. The assessee accordingly submitted that, the closing stock as on 31-03-2021 had been valued at NRV and in that view of the matter, there was no defect in the valuation of closing stoc....
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....tems of the gold as under :- Item of gold Qty NRV Rate adopted in Financials Value as per Financials Value as per NRV Difference Gold Ornament 3921271 4162 4150 16273274650 16320329902 4,70,55,252 Stock with Goldsmith 933319 4162 4110 3835941090 3884473678 4,85,32,588 Bullion 37401 4521 4440 166060440 169089921 30,29,481 Old gold 109237 4162 4110 448964070 454644394 56,80,324 20724240250 20828537895 10,42,97,645 38.4 In light of the above calculation, the Ld. CIT(A) upheld the addition on account of valuation of closing stock to the extent of Rs.10,42,97,645/- and deleted the balance addition made by the AO in this regard. It is noted that, the Revenue has not disputed the above action of the Ld. CIT(A) to the extent of the addition deleted by him. The assessee however, being aggrieved by the addition retained by the Ld. CIT(A), is in appeal before us. 38.5 Heard both the parties. It is settled that, the recognized method adopted for valuation of inventory is the lower of Cost or Net Realizable Value. We find that the ....
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....ealizable value, which is as under: - "Net Realisable Value 19. Inventories shall be written down to net realisable value on an item- by-item basis. Where 'items of inventory' relating to the same product line having similar purposes or end uses and are produced and marketed in the same geographical area and cannot be practicably evaluated separately from other items in that product line, such inventories shall be grouped together and written down to net realisable value on an aggregate basis. 20. Net realisable value shall be based on the most reliable evidence available at the time of valuation. The estimates of net realisable value shall also take into consideration the purpose for which the inventory is held. The estimates shall take into consideration fluctuations of price or cost directly relating to events occurring after the end of previous year to the extent that such events confirm the conditions existing on the last day of the previous year. 38.9 From the above, it is observed that, the NRV has been based on the most reliable evidence available at the time of valuation and that such estimation should be taken into account the purpose....
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....the NRV per gm works out to Rs. 4419/-. Having regard to the aforesaid value, we are of the considered view that, the rate of Rs. 4,440/- estimated by the assessee to be NRV of their gold bullion was conservative and commensurate with the official government rate. Hence, we hold that the valuation of the closing inventory of gold bullion as undertaken by the assessee being reasonable did not warrant any interference and that the Ld. CIT(A) had in fact overstated the inventory valuation and in that view of the matter, the impugned addition made in relation thereto, is held to be unsustainable. 38.12 At this juncture, it is also relevant to take note of the findings rendered by the Hon'ble Apex Court in the case of Chainrup Sampatram v. CIT (24 ITR 481) wherein it was held that, the valuation of closing stock should not be treated as a source of profits. The Court observed that the valuation of closing stock is based on the 'principle of balancing' merely to cancel the charge of the goods unsold during the year. The Hon'ble Supreme Court in its judgment opined that "it is a misconception to think that any profit that "arises out of the valuation of the closing stoc....
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.....58,63,415/- on account of the unmatched transactions with MJPL. It is noted that, except variation in figures, the reasoning adopted both by the AO & Ld. CIT(A) to justify this addition is verbatim same as in AY 2017-18. Both the parties also argued this impugned issue which is involved across AYs 2017-18 to 2021-22 together. Following our reasons and conclusions recorded in while deciding Ground Nos. 21 to 27 of assessee's appeal in A.Y. 2017-18, we are of the considered view that, the entries found in the material seized from the premises was unreliable and therefore the impugned addition of gross profit made on account of unmatched entries between the assessee's books and the data seized from the premises of MJPL is unsustainable We therefore allow these grounds and direct the AO to delete the impugned addition made in AY 2021-22. 40. Ground Nos. 36 to 38 raised in this appeal are found to be against the addition of Rs. 45,74,07,096/- on account of unaccounted interest payments made to various parties. It is observed that, identical impugned issue was involved in the preceding AY 2020-21 and that the findings rendered by the lower authorities was verbatim same. Even ....