2015 (3) TMI 149 - AT - Income Tax

Unaccounted purchases of gold bars and unexplained cash - AO formed the view from the excel sheets found during the course of search that the gold bars and cash shown in the blocks in the excel sheets, was the sale consideration received in exchange of jewellery sold and therefore, made additions - Held that - Additions made by the AO and by the Ld. CIT(A) forming contradictory opinion from the entries on the excel sheets are on the basis of just their assumptions and presumptions whereas the assessee has discharged its burden to explain the relevant entries. As decided in Jitendra Kumar Jain v. DCIT 2014 (1) TMI 1181 - ITAT MUMBAI such type of mere assumptions cannot be said to be having any value of evidence in the eyes of law and even the assessee cannot be called to disapprove such type of assumptions and presumptions based on mere suspicions. No doubt, in this case, the initial burden was upon the assessee to explain about the entries made in the excel sheets, however, once the assessee had explained the entries, the burden shifted upon the AO to prove that the explanation given by the assessee was wrong or that the entries made in the excel sheets were pertaining to sale transactions as alleged by the AO or the entries relating to gold bar was unaccounted purchase, as has been alleged by the Ld. CIT(A). Since both the authorities i.e. AO as well as the Ld. CIT(A) could not prove their case, hence, additions made by them on the basis of mere assumptions/presumptions and suspicions are not sustainable in the eyes of law and the same are accordingly ordered to be deleted. - Decided in favour of assessee. Deductions U/s 10A/10AA denied - CIT(A) allowed the claim - Held that - Ld. CIT(A) directed the assessee to submit the complete details of imports and Exports made through these units and the approval of the Custom and Central Excise department and also to submit the documents relating to shipment, Import and Export Clearance, Invoices of import & Export and foreign remittances in the bank accounts. The assessee submitted that all the above stated documents had already been submitted before the AO, during the assessment proceedings. The Ld. CIT(A) after thorough examination of the said documents did not note any discrepancy in the same. He further noted that even the A.O. had also not mentioned any discrepancy in the Import and Export Clearance papers submitted during the course of assessment. He further observed that it was a fact that in the SEZ units, no Import or Export could be made without the approval of the Custom and Central Excise department. All the payments and receipts were made through banking channels and no discrepancy was pointed out by the A.O. It was established that raw material was imported and the final product was exported with due approval of the Custom and Central Excise department. All the papers relating to the shipment and foreign remittances were in order and moreover the assessee had submitted that there was no Import and Export activity taken place in the search year. He therefore rightly held that the assessee was eligible for claiming deduction u/s. 10A of the I.T. Act. - Decided in favour of assessee. Allocation of Expenses from non-SEZ unit to SEZ unit - CIT(A) decided to allocate the expenses of SEZ and Non SEZ units on the basis of total turnover - Held that - The Ld. CIT(A) has allocated the expenditure of SEZ units and not SEZ units on the basis of total turnover regarding the assessment years for which he was not satisfied with the details of expenditure submitted by the assessee. However, for the assessment years for which the Ld. CIT(A) was satisfied regarding the details of expenditure submitted by the assessee he has not adopted any such criteria. We do not find any infirmity in the approach adopted by the Ld. CIT(A) in this respect. The order of the Ld. CIT(A) on this issue is therefore upheld. - Decided against assessee. Addition towards unexplained expenditure - ad hoc estimated addition of ₹ 28,00,000/- - Held that - So far as the contention of the assessee that the transactions in question were genuine transactions is concerned, we do not find any force in the same. It was found during the survey that the office address given by the said entities was that of a chawl. All these persons shown as proprietors of these concerns were men of no means. No books of accounts or any valuable stock was found in their premises. In the statements recorded during the course of survey, all these persons had admitted that books of accounts or any gold stock had not been maintained in their room and all the transactions were paper transactions made in their names on behalf of the assessee company. The above evidences on the file are sufficient to hold that the said entities were only paper entities created by the assessee to inflate turnover. The assessee has miserably failed to prove that the transactions done by the assessee with these entities were genuine transactions. So far as the addition of ₹ 28 lakh in each year on adhoc basis on account of expenditure incurred to create these paper entities is concerned, we find that there is no evidence that the assessee has incurred such an expenditure to create these entities warranting adhoc additions of ₹ 28 lakh each. It is also the case of the assessee that the net profits of these entities have also been taxed. Further, we have upheld the addition of gross profits of the said entities, hence further adhoc addition of ₹ 28 lakh for each year merely on assumptions is not warranted and the same is accordingly ordered to be deleted. - Decided partly in favour of assessee. Addition towards discrepancy in stock - Held that - The most vital fact on this issue is that the assessee has not been provided the copies of the inventories made during search at different premises of the assessee except that of one at Laxmi Premises. Even during the course of hearing, the records in this respect were called upon, but the Revenue could not furnish the copy of any other inventory. When the Revenue itself has failed to provide the copies of inventories to the assessee, how can assessee be asked to reconcile the same. Assessee has pointed out various defects in the consolidated stock inventory prepared by the AO which are apparent on the record as has failed to correctly record the figures in relation to 18kt. jewellery. The assessee, otherwise has explained that in the excel sheet, combined figures of 18 kt. and 22kt. sent on approval were made. That the gold jewellery of 18 kt. was also sent on approval, is evident from the documents/vouchers found in the survey action of department on third parties such as Royal Chains to whom appellant issued 20,215.150gms of 18kt gold on 28/8/2007 &13/9/2007. Hence the explanation given by the assessee in this respect is quite plausible. If combined figures are taken, there is over all shortage of the gold jewellery, which at the most can be treated as unaccounted sales. The addition made by the AO in respect of excess jewellery is therefore, ordered to be deleted. The AO, however, is directed to compute the Gross profits on such shortage of jewellery and make the additions accordingly. - Decided partly in favour of assessee. Excess Gold Bars - Held that - at the time of search action, the said stock of 500 gms of gold was not entered into the books of accounts of the assessee. The plea that the said gold stock was received for job work purpose or that the said P.V. Gold has given a confirmation in this respect seems to be an afterthought version of the assessee. We accordingly, reject this plea of the assessee. Therefore we direct the AO to make the addition in respect of excess stock found after considering the combined figure of 99.9 & 99.5 standard gold bars, taking the relevant standard rates of respective kinds of Gold Bars prevalent during the period concerned. - Decided against assessee. Purchase of property by cash - Held that - A perusal of the seized documents relied upon by the lower authorities reveal that there is no mention that the assessee has made the cash payment of ₹ 2 crores. What is mentioned is that the agreement value of property is ₹ 6 crore, which is then reduced by token payment of ₹ 21 Lacs and the balance is shown at ₹ 5.79 crores. Further, it is mentioned that token amount of ₹ 21 Lacs is paid on 22.7.2008; ₹ 2 crore before 7.8.2008 as cheque, if in cash, then on 01.08.2008. The assessee has explained that the deal did not materialize and was cancelled hence there was no question of payment of ₹ 2 crore in cash. It is not disputed that the property latter on was purchased by the Group company of the assessee M/s Gia Exports. When the assessee neither has purchased the property in question, nor there is any mention in the seized documents, that the assessee in fact has made the payment of ₹ 2 Crores, then the addition, merely on the basis of assumption that the assessee might have made the payments, in our view, is not sustainable in the eyes of law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 1,64,21,516/- as alleged unaccounted purchases of gold bars.
2. Addition of Rs. 17,91,780/- as alleged unexplained cash.
3. Addition of Rs. 15,67,742/- by allocating expenses from non-SEZ unit to SEZ unit.
4. Enhancement of income by CIT(A).
5. Addition towards unexplained expenditure and ad hoc estimated addition.
6. Addition towards discrepancy in stock.
7. Addition of Rs. 2 crore as payment made in cash for the purchase of property.

Detailed Analysis:

Issue 1 & 2: Addition of Rs. 1,64,21,516/- as alleged unaccounted purchases of gold bars & Addition of Rs. 17,91,780/- as alleged unexplained cash:
The assessee was engaged in the manufacturing and trading of gold jewelry. During a search operation, various documents and computer files, including Excel sheets, were seized, indicating unaccounted transactions. The AO concluded that the assessee was involved in unaccounted sales and purchases under the guise of approval transactions. The CIT(A) found that the goods sent on approval were returned and orders were booked properly, with invoices reflecting in the books. However, the CIT(A) held that the gold bars and cash entries in the Excel sheets indicated unaccounted purchases and cash, leading to additions in different assessment years. The Tribunal found that both the AO and CIT(A) made assumptions without conclusive evidence and deleted the additions, noting that the burden of proof was on the Revenue to disprove the assessee's explanations.

Issue 3: Addition of Rs. 15,67,742/- by allocating expenses from non-SEZ unit to SEZ unit:
The AO disallowed the deduction claimed under section 10A for SEZ units, alleging that no manufacturing activities were carried out. The CIT(A), after verifying the import and export documents and approvals from Customs and Central Excise, held that the assessee was eligible for the deduction. However, the CIT(A) allocated additional expenses to the SEZ units based on the total turnover, leading to additions for certain assessment years. The Tribunal upheld the CIT(A)'s decision, finding no discrepancy in the documents and noting that the department allowed the deduction in subsequent years.

Issue 4: Enhancement of income by CIT(A):
The CIT(A) enhanced the income by making additions towards unexplained purchases of gold bars and unexplained cash, which were not made by the AO. The Tribunal, having deleted the additions on account of unaccounted purchases and cash, found the additional ground of appeal by the assessee to be infructuous and dismissed it.

Issue 5: Addition towards unexplained expenditure and ad hoc estimated addition:
The AO added gross profits from alleged bogus entities and made an ad hoc addition of Rs. 28 lakh for each year, assuming expenses to create paper entities. The CIT(A) upheld these additions. The Tribunal found the entities to be paper entities but deleted the ad hoc addition of Rs. 28 lakh, noting no evidence of such expenses and avoiding double taxation since the net profits of these entities were already taxed.

Issue 6: Addition towards discrepancy in stock:
The AO found discrepancies in the stock of gold jewelry and gold bars during the search, leading to a substantial addition. The CIT(A) upheld the addition. The Tribunal noted that the assessee was not provided with inventory statements except for one premise and found errors in the consolidated inventory prepared by the AO. The Tribunal accepted the assessee's explanation regarding combined entries for different gold categories and found no evidence of excess stock. The Tribunal deleted the addition for jewelry and directed the AO to compute gross profits on the shortage of jewelry. For gold bars, the Tribunal rejected the assessee's explanation of job work and upheld the addition for the excess stock found.

Issue 7: Addition of Rs. 2 crore as payment made in cash for the purchase of property:
The AO added Rs. 2 crore based on seized documents indicating a cash payment for property purchase. The CIT(A) upheld the addition. The Tribunal found no evidence of actual payment in the seized documents and noted that the property was later purchased by a group company. The Tribunal deleted the addition, finding it unsustainable without evidence of payment.

Conclusion:
The Tribunal partly allowed the assessee's appeals, deleting several additions made on assumptions and without conclusive evidence, and dismissed the Revenue's appeals. The Tribunal emphasized the need for the Revenue to provide substantial proof before making additions based on assumptions and presumptions.