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TMI Blog2010 (2) TMI 909X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO to treat 25% of turnover of bullion transaction and 75% of turnover as jewellery transaction - reconciliation chart was prepared on the basis of loose paper found recording the transaction of sales during the course of search - reconciliation indicates 53.64% of jewellery transaction and 46.34% of bullion transactions – Held that:- Once the ascertained percentage is found in the paper seized then, there is no point not to bifurcate the transaction at the end of the AO or to bifurcate at the ratio of 25% and 75% of bullion transaction and jewellery transaction respectively at the end of the CIT(A). There was no other material before the AO or before the CIT(A) to hold that this reconciliation filed by the assessee was not correct. Accordingly AO directed to treat 54% of jewellery transaction and 46% of bullion transaction and then recalculate the profit accordingly GP profit - AO has applied 13.8% GP on the basis of GP ratio shown at Mumbai office but the CIT(A) has reduced the GP at 3% of jewellery and 0.4% of bullion on the basis of net profit rate of 3.69% shown at Mumbai office. During the search period one of the partners at the time of statement recorded has stated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Kalbadevi and Hyderabad office. The operation at Hyderabad office is fully accounted as stated by K.K. Shah, Prop. K.K. Jewellers during the course of statement. From Hyderabad office cash book was seized which records cash sales and amount remitted to Mumbai office. The cash book is maintained by omitting last 2 digits. These facts are recorded in the assessment order in para 2 at page 1. 3.1 The AO further observed in his order at para 3 that during the course of hearing it was mentioned that GP margin at Hyderabad office is 2% on jewellery and 0.5% on bullions. However, in the returns of income assessee has given GP margin at the rate of 18 to 20%, while filing its return here at Mumbai. The table of the last five years is tabulated in the assessment order showing GP rate between 10% and 24%. Accordingly, the AO did not accept the contention of the assessee that GP of 2% on jewellery and 0.5% on bullions as the assessee itself shown GP at 18 to 20% for various years i.e from AYs 1999-00 to 2003-04. Contention of the assessee that the left side of cash books indicates income and right side payment for business operations was also not accepted by the AO for the reason that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The chart of bifurcation showing jewellery sales and bullion sales separately was also filed. This chart was prepared on the basis of seized materials found during the course of search at Hyderabad office. Estimation of unexplained investment in business at Rs 24.24 lakhs added for AY 2002-03 and was also challenged along with the addition of Rs. 7 lacs made on account of cash seized and added for AY 2004-05. 4.1 It was contended that the AO has not applied his mind while passing such a high pitched order and pointed out several deficiencies to support his contention i.e.:- (a) the AO had wrongly stated in the order that return was filed on 14.1.2006 whereas it was filed on 16.1.2006; (b) the AO has wrongly stated that total receipts of Rs. 8.96 crores from 1.2.2002 to 11.8.2002 whereas in fact the receipts were from 1.1.2002 to 11.8.2002; (c) the AO had incorrectly stated in the order that on bifurcation for AY 2002-03 the total sales upto 28.2.2002 stood at Rs. 3,24,40,335/-, in fact the figures were for a period of 3 months upto 31.3.2002. 4.2 At the time hearing before the CIT(A), detailed written submissions with regard to grounds of appeal were also filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and statements given by the assessee and various persons, it was not contended that they were dealing in bullion. Therefore, the entire business deserved to be treated as of manufacturing and sale of jewellery. 5. Comments from the ld counsel of the assessee were sought by the ld CIT(A). It was submitted that the assessee was regularly maintaining the GS-11 and GS-12 registers as required by the Gold Control Act and the registers were verified by the search party and there was no excess stock found. With regard to the AO's observation that no detail of DDs were furnished by the assessee, it was submitted that the AO' observation was not correct as the assessee had submitted all the details vide letter dated 24.9.2007 and a copy of the letter was furnished before the CIT(A). The contention of the AO that the assessee had never contended that he had dealt in bullion was also objected. It was stated that in the statement recorded on 21.12.2003 in reply to question no.13 and question no.17, the assessee had stated that it was dealing in bullion as well as jewellery. It was submitted that the AO has drafted the order in haste and there was some mistakes in the order of the AO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot justified in travelling beyond the seized material while conducting the assessment proceedings under the special provision of block assessment. Reliance was placed on the decision of the Supreme Court in the case of Umacharan Shaw reported in 37 ITR 271(SC) and in the case of C.J. Shah and others in 246 ITR 671. 6.1 After considering the submissions and perusing the relevant material on record, the CIT(A) was not satisfied with the explanation of the assessee as in his view, the decision relied upon by the assessee does not help to the case of the assessee. Reliance was placed on the decision of the Supreme Court in the case of CST vs H.M. Esufali, H.M. Abdulali reported in 96 ITR 271 wherein the Supreme Court held that on the basis of unrecorded turnover for few days, the turnover can be estimated for the remaining period. Accordingly, the CIT(A) confirmed the estimation of turnover of Rs. 1 crore for both years i.e. AY 2002-03 and 2003-04. 6.2 Regarding the estimation for AY 2004-05, the CIT(A) found that due to inadvertently, the AO could not add back the estimation of Rs. 12 crores for that year; accordingly, the CIT(A) enhanced the turnover for AY 2004-05 at Rs. 12 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to bullion and jewellery. Detailed written submissions were filed and it was submitted that from the paper found from the possession of the Manager of the assessee company clearly indicates the sale of jewellery and bullion. It was explained that the turnover of the bullion to the total turnover of 44%. Attention of the Bench was drawn on page 18 to 26 of the paper book claiming bifurcation of jewellery and bullion as made by the AO. Reliance was placed on the decision of the Hon'ble Bombay High Court in the case of C J Shah andCo reported in 246 ITR 671. 7.1 After considering the submissions and perusing the material on record, the CIT(A) noted that the AO has observed in para 5 of the assessment order that during the course of statement, the assessee had stated that 25% to 30% of sales of Rs 8.95 crores related to the sale of gold and the balance was for the sale of jewellery and making charges but this was not clear from the seized records and therefore, the sale could not be bifurcated between bullion and jewellery. Attention of the CIT(A) was drawn on the copy of the statement recorded u/s 131 on 21.10.2003 where it was stated that at Hyderabad, the assessee was doing bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A). Accordingly, it was submitted that the AO's observation that the assessee itself has stated that on jewellery there is 2% profit and on bullion business there is 0.5% profit was not correct. It was explained that in Mumbai office business consists of retail sales and in case of retail sales, there is always high margin. Therefore, the AO was not correct in taking into consideration the average ratio declared by the assessee at Mumbai office. Reliance was placed on the decision in the case of Balchand Ajit Kumar reported in 263 ITR 610(MP) and in the case of President Industries reported in 258 ITR 654(Guj). 7.3 The CIT(A), after taking into consideration the submissions and the decisions of the Hon'ble High Courts relied before him, was of the view that the GP ratio applied by the AO was on higher side. He took into consideration the GP ratio shown on account of wholesale jewellery by different concerns which were ranges between 2.4% to 6%. The CIT(A), after taking into consideration that the assessee had shown net profit rate of 3.69% in its business of jewellery at Mumbai which consisted of retail as well as wholesale directed the AO to adopt 3% net profit rate on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.1.2002 and after 11.8.2002 the estimation of the turnover is totally unjustified. 9.2 Regarding the bifurcation, attention of the Bench was drawn on pages 43 to 47 where details of bifurcation of sale of jewellery and bullion is placed which is prepared on the basis of seized material only. It was explained that there is no basis of estimating the turnover at 25% and 75% of bullion and jewellery because from the paper found during the course of search, it is ascertainable itself. This turnover is of 53.64% of jewellery and 46.34% is of bullion. Accordingly, it was submitted that the estimation of bifurcation is also not justified by the CIT(A) at 75% and 25% respectively of jewellery and bullion. 9.3 Regarding the ratio of profit, again it was submitted that in the case of wholesale business of jewellery, the profit margin is of 1% and in the case of bullion; the profit margin is of 0.2%. It was further submitted that the AO has not applied his mind at all as his order for AY 2003-04 and 2004-05 is on the basis of cut and paste of the findings given for AY 2002-03. It was also submitted that even the AO has not made any addition on account of estimated turnover for AY 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t material on which our attention was drawn. After taking into consideration all the relevant material and submissions, we noted that there are 4 issues of disputes involved in the appeals of the assessee and the department. 10.1 The first issue relates to period of extrapolation, second issue is of turnover; third issue is of bifurcation of transaction of jewellery and bullion and the last issues pertain to GP ratio. 11. First we will take the first two issues i.e. extrapolation and estimation of turnover. 11.1 The AO and the CIT(A) have drawn an inference that since unrecorded transactions were recorded from 1.1.2002 to 11,.8.2002; therefore, there is a presumption that there must be some transactions before 1.1.2002 and after 11.8.2002. Reliance has been placed on the decision of the Supreme Court in the case of H.M. Esufali (supra) and accordingly, it has been held that there is a transaction before 1.1.2002 and after 11.8.2002. 12. After taking into consideration the findings of the AO and the CIT(A), we find that there was no justification of extrapolation in this case. In this case, search was conducted. It has been held by various High Courts that in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains at Rs. 5,72,58,161/- (Rs.8,96,98,496/ - Rs. 3,24,40,335/). Therefore, this turnover has to be taken from 1.4.2002 to 11.8.2002 related to previous year relevant to AY 2003-04. Accordingly, we hold that there is no question of estimating the turnover further because the turnover itself has been noted in the loose paper found during the course of search at Hyderabad office. Accordingly, we direct the AO to take the turnover at Rs. 5,72,58,161/- for AY 2003-04. 13.3 There is no details found for the sale after 11.8.2002; therefore, there is no question of estimating the turnover beyond this date. Accordingly, we direct the AO to take nil turnover for AY 2004-05. We order accordingly. 14. Now, we will take the issue in respect to bifurcation of transaction of jewellery and bullion. 14.1 The AO has not allowed any bifurcation as the total turnover estimated by him was treated as of jewellery transaction. However, the CIT(A) found that there is evidence showing sale of jewellery and bullion; therefore, he directed the AO to treat 25% of turnover of bullion transaction and 75% of turnover as jewellery transaction. The reconciliation chart was prepared on the basis of loos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of material found and in the material found the opening balance is shown at Rs. 4,43,793/-. Accordingly, this amount has to be treated as investment from undisclosed sources. 17. There was an amount of 7 lacs, which was seized from the employee of the assessee, who was carrying the same to Mumbai. As per the paper found during the course of search, there was much more amount available at Hyderabad office; therefore, it can be easily presumed that this amount pertains to the amount remained at Hyderabad office out of sale transactions. From the paper seized an amount of Rs. 8.96 crores was receivable on account of sales. Out of the amount of Rs. 8.96 crores a sum of Rs.8.31 crores only was remitted to Mumbai office as per the paper found. From this fact it is clear that much amount was available at Hyderabad office. Accordingly, we hold that there was no need to make a separate addition of Rs. 7 lacs for AY 2004-05 as it can easily be said that this amount was out of the remaining amount available at Hyderabad office. 18. In the result, the appeals of the department are dismissed and the appeals of the assessee for AY 2002-03 and 2003-04 are allowed in part and the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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