2022 (11) TMI 124 - AT - Income Tax

Disallowance of making charges - addition on account of excess making charges - primary basis of making the addition is the excel sheets found and seized during the course of search - HELD THAT - There are certain factual inconsistencies in the statements recorded from both the karigars as detailed supra. In any event, it is a fact that both the karigars had duly retracted from their respective statements vide retraction affidavit already placed on record. Hence, no statements of the karigar could be relied upon for the purpose of making addition in the hands of the assessee. As find from the audited financial statement of Shri Lob Kumar Ghorai, he had received total making charges of Rs. 48,15,373/- from Gauti group which includes assessee also and had inturn made making charges to Rs.33,08,138/- to sub-karigars. Thereafter, total net profit from business declared by Shri Lob Ghorai for A.Y.2014-15 is Rs.4,76,716/-. If the contention of the Revenue that only Rs.3/- per gram should be accepted as making charges, then these karigars i.e. Shri Lob Ghorai and Shri Golok Patra could not have reported the net profits as they are reflected in their respective income tax returns. If the making charges rate as determined by the Revenue at Rs.3/- per gram has to be considered, the aforesaid karigar s net profit declared by them from the business in their respective tax returns would be higher than the gross receipts of making charges at Rs.3/- per gram. This itself goes to prove that the making charges cannot be at Rs.3/- per gram. These facts and figures are staring on us to conclude that making charges paid by the assessee ranging from Rs.12/- to Rs.13/- per gram is acceptable and correspondingly the making charges determined by the ld. AO @Rs.3/- per gram is devoid of merits and baseless. Hence, from the above facts and figures, it could be safely concluded that the disallowance of making charges made by the ld. AO by placing reliance on the statements recorded from two karigars is totally baseless. Corresponding statement given by Shri Kirit Kumar Gauti, the key person of the group - We find that Shri Kirit Kumar Gauti had also retracted from his statement given on 09/03/2015 vide his retraction affidavit dated 18/03/2015 which is immediately after the search wherein he had affirmed that he was mentally put under pressure by the Income Tax authorities and he had lost his mental balance and accordingly, he had signed the statement without understanding the contents recorded thereon. He had also stated that under the threat from the department, he had no option but to agree on the dictated statement of the authority and signed on the said pre-written statement of the authority. It is pertinent to note that the said retraction affidavit was duly filed by the assessee before the Investigation Wing as well as before the ld. AO - promoter of the assessee group M/s. Sumatichand Gauti Jewellers had also categorically denied making payment of any excess making charges during the course of his statement on 12/03/2015 vide reply to Question No.62. Hence, the disallowance made based on statement from Shri Kirit Kumar Gauti also falls flat and deserved to be dismissed. We find that the assessee had submitted the comparable price from the market with various parties which goes to prove that the making charges prevailing in the market are ranging from Rs.13 Rs.18/- per gram. The gold receipt vouchers issued by P C Chandra Jewellers, Kolkata show making charges @Rs.18/- per gram. Even going by this comparable data, the making charges debited by the assessee is much lesser than the market price. Hence, there cannot be any disallowance of making charges on the ground that it is paid in excess by the assessee. Accordingly, the ground Nos.2 3 raised by the assessee are allowed. Disallowance made on account of wastage charges - assessee had claimed wastage charges on an average ranging from 3-3.5% - AO by placing reliance on the statements recorded from karigars Shri Lob Ghorai and Shri Golok Patra and statement of Shri Kirti Kumar Gauti and excel sheets containing standard wastage percentage, arrived at the allowable wastage to be at 2.5% - HELD THAT - The wastage claimed by the assessee in the present case ranges from 3-3.5% which is in consonance with the Government approved standard of 3.5%. Moreover, the assessee had indeed given comparable cases of wastage from P C Chandra Jewellers, Kolkata wherein wastage is mentioned at 3.75%; Deys Guinea House, Kolkata at 4% ; Sremon Jewellers, Kolkata at 6% ; Sremon Jewellers at 5.5% on yet another date etc. This goes to prove that the wastage claimed by the assessee is much less than both the Government approved standard as well as the wastage claimed by the comparable cases. It is also pertinent to note that the aforesaid Government of India norms of allowing wastage at 3.5% has been followed and accepted in the case of Anjali Jewellers Pvt. Ltd., 2016 (3) TMI 1445 - ITAT KOLKATA - In view of the aforesaid observations and respectfully following judicial precedents relied upon hereinabove, we hold that there is absolutely no case made out by the Revenue to disallow the wastage expenses on the ground that it is excess. AO is hereby directed to delete the entire disallowance made on account of wastage. Accordingly, the ground Nos. 5 6 raised by the assessee are allowed and ground Nos. 1-5 raised by the Revenue are also hereby dismissed. Addition made on account of share application money u/s.68 - HELD THAT - We are unable to understand as to what grievance the Revenue could have in the instant case in as much as the ld. CIT(A) had deleted the protective addition in the hands of the assessee after duly confirming the addition in the hands of M/S. Starpoint Dealers Pvt. Ltd., on substantive basis. Moreover, we see from the ground of the Revenue that addition needs to be sustained in the hands of the assessee on the ground that M/s. Starpoint Dealers Pvt. Ltd., did not have sufficient creditworthiness. When the very same addition has already been made in the hands of M/s. Starpoint Dealers Pvt. Ltd., on substantive basis, AO itself proves the creditworthiness of M/s. Starpoint Dealers Pvt. Ltd. the income tax assessment order of M/s. Starpoint Dealers Pvt. Ltd itself proves the source and creditworthiness of the said party to advance share application money to the assessee company. The assessee need not to prove anything beyond in this regard. In any case, when the substantive addition has already been confirmed by the CIT(A), we do not find any infirmity in the order of the ld. CIT(A) deleting the protective addition made in the hands of the assessee. Accordingly, the ground raised by the Revenue are hereby dismissed.

Summary

Issues Involved:
1. Disallowance of making charges.
2. Disallowance of wastage charges.
3. Addition on account of share application money under Section 68 of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Making Charges:

The assessee challenged the disallowance of making charges amounting to Rs. 49,83,491/- for A.Y. 2014-15. The assessee, engaged in the business of manufacturing and trading gold jewellery, was subjected to a search and seizure operation, revealing alleged concealment of income by inflating making charges. The AO concluded that making charges were overstated based on statements from karigars and seized excel sheets, which were considered parallel books of accounts. However, the karigars retracted their statements, claiming they were made under pressure. The Tribunal found inconsistencies in the statements and noted that the retraction affidavits filed by the karigars were credible. The Tribunal also observed that the excel sheets were merely for control purposes and not actual books of accounts. Comparable market prices indicated that the making charges paid by the assessee were reasonable. Consequently, the disallowance of making charges was directed to be deleted.

2. Disallowance of Wastage Charges:

The assessee claimed wastage charges ranging from 3-3.5%, which the AO reduced to 2.5% based on seized excel sheets and statements from karigars. The Tribunal noted that the excel sheets were not actual books but control records maintained by an employee. The Tribunal also observed that the wastage claimed by the assessee was in line with Government-approved standards and comparable market data. The Tribunal rejected the AO's reliance on the excel sheets and statements, directing the deletion of the entire disallowance of wastage charges.

3. Addition on Account of Share Application Money under Section 68:

The AO treated the share application money of Rs. 3.10 crores received by the assessee from its group concern as unexplained cash credit and added it under Section 68 on a protective basis. The CIT(A) deleted the addition in the assessee's hands, confirming the substantive addition in the hands of the group concern. The Tribunal upheld the CIT(A)'s decision, noting that the substantive addition confirmed the source and creditworthiness of the group concern. Therefore, the protective addition in the assessee's hands was rightly deleted.

Conclusion:

The appeals for A.Y. 2014-15 and 2015-16 were partly allowed for the assessee, and the appeal for A.Y. 2014-15 was dismissed for the Revenue. The Tribunal directed the deletion of disallowances related to making charges and wastage charges and upheld the deletion of the protective addition of share application money.