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TMI Blog2014 (3) TMI 651X X X X Extracts X X X X X X X X Extracts X X X X ..... t Promotion Council and the receipts from the artisans ?" 2. In Question No. 1 referred to above, though the figure is Rs. 21,31,418/-, counsel for both the sides pointed out that the correct figure is Rs. 28,31,418/-. We would, therefore, refer to such correct figure in consideration of the said question. 3. Briefly stated, the facts are that the appellantassessee was in the business of manufacturing and export of gold ornaments. For the A.Y 198990, return filed by the assessee came up for scrutiny before the Assessing Officer. The Assessing Officer noticed discrepancy in the weight of gold consumed by the assessee in preparation of the gold ornaments as compared to the weight of gold recorded at the time of export of such ornaments. In the nutshell, it appeared that the assessee was manufacturing and exporting gold ornaments of 22 Carat purity. In the documents recording manufacture of such ornaments, after they were received from karighars, the percentage or fineness of the gold recorded was 93.37%. In the export documents as well as in the certificate by the Customs authorities, the ornaments were shown to be carrying gold purity less than the said percentage and in many case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ineness by the Government of India through the SBI 9978.593 [v] Additional replenishment in view of the Government's Export Import Policy @ 2% in terms of fineness of 0.999 fineness 199.571 [vi] Additional replenishment of 199.571 when converted into fineness of 0.917 217.170 [vii] % of gold exported [9978.593/10870x100] 91.79% [viii] % of gold content in the finished product as per entries passed in the assessee's books [100/107.100x 100] 93.37% [ix] Replenishment by the Government 91.79% [x] % of additional replenishment @ 2% of the original but treated as purchase vide Export invoice 2.00% 4.2 The details of export of 18 carat purity ornaments are also examined as under : For ornaments of 18 carat purity Weight in Grams as shown in the assessee's books i] Weight of ornaments exported 16.700 ii] Fineness of items exported 0.750 iii] Fineness on conversion into 0.999 fineness 12.537 iv] Replenishment of gold in terms of 0.999 fineness by the Government of India 12.537 through the SBI. v] Additional replenishment in view of the Government's ExportImport policy @ 10% in terms of fineness of 0.999 1.253 vi] % of gold exported 75.07% [12.537/16.700 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact, the excess consumption of standard gold is counter balanced by showing proportionately low consumption ratio of alloys. 17. Further, it is also apparently clear that the assessee has not suffered any manufacturing loss or wastage of gold in the process of manufacture. Had it been so the composition of gold and alloy would not have been 100 : 7.100 in 22 carat purity account. As per the assessee's contention, the issue of gold with every 7.100 grams of alloy is 100 grams for manufacture of 22 carat ornaments. As per the assessee, the weight of the finished product in 22 Carat is 107.100 grams. Had there been any manufacturing loss, the weight of finished product would have been less than 107.100 grams say 106.100 grams or so. This phenomenon is not observed even in the manufacture of ornaments with the purity of 20 carat, 18 carat and 14 carat. In the 20 carat, 18 carat and 14 carat accounts the assessee shows production of 118.500 grams, 125 grams and 160 grams on every 100 grams of consumption of standard gold. Had there been any loss or wastage, the weight of the finished product would have been lesser than what is actually shown. This proves that there is no wastage or lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoice and Customs Certification, it is 91.7% only. In other words, it is even admitted by the appellant firm that the gold content in reality is more than shown in the export invoice. The reason given for such difference is that the appellant firm being an exporter has to meet stringent quality standard of foreign countries to which it is exporting its ornaments. In order to avoid the risk of goods being rejected on account of not being according to the prescribed hallmark, it is making its ornaments of a slightly higher purity than required. It is also contended that loss on account of such extra gold put in is made up by charging higher labour charges. It is also argued that the appellant is maintaining regular books of account and also statutory registers under the Gold Control Act meticulously and the Assessing Officer has not found any defect in the same. Now, so far as the argument of keeping the books of account and statutory registers is concerned, it cannot be of much help to the appellant firm because the accounts can always be written in a fashion which suits the purpose of an assessee. The mathematical accuracy of accounts cannot lead to the conclusion that income sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is again mentioned at 0.9167. Thus, there is not a single document in which appellant has mentioned the fineness or purity of gold in accordance with the books of account. If the percentage of purity of gold in the ornaments exported was higher than the one required under the international standard, the appellantfirm would have lost nothing by mentioning the correct percentage of purity because in so far as the purity was above 91.67%, it has nothing to worry about. On the other hand, by showing higher content of gold, it would have benefited by becoming entitled for importing more gold. I am, therefore, inclined to agree with the finding of the Assessing Officer that excessive consumption of gold has been shown in the books of account and such excess consumption of gold has been utilized for making unaccounted sales of gold. Therefore, the addition made on account of excessive consumption of gold deserve to be sustained. Now coming to the quantum of addition, it is seen that while the I.T.O has worked out the difference at 12910.199 grams as per the reworking of the appellant firm, it is 8974.581 grams only. The difference is on account of percentage of purity of gold bars purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns is on the assessee to show how the excess consumption of gold has taken place. The difference is so substantial that it cannot be claimed as wastage in the manufacturing process. In view of the fact that the assessee has received the gold ornaments of the prescribed quality from the Karigars and such final product has been exported as per the export documents. We are of the view that the cast on the assessee by the finding of the Assessing Officer has not been discharged. The only inference is that the excess gold shown as consumed in the manufacturing has been sold locally by the assessee outside its books of account. This is because as far as the export sales are concerned, the quantity and purity of the gold ornaments exported have been certified by the Customs authorities and subjudiced to the hallmarking in the importing countries. It is pertinent to observe in this connection that neither the Assessing Officer not the CIT (A) has doubted the genuineness of the export as certified in the export documents and subjudiced to the Hall marking in the imported countries. The only disputes here centers around the discrepancy in the purity shown in the books of account of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t matter any other carats would not have precise purity and would have a range of fineness of gold. He drew our attention to the specifications laid down by the Bureau of Standards, which provides as under: " 1. 22.3 Carat gold : It shall be of fineness not less than 970. 2. 22 Carat gold : It shall be of fineness not less than 916.6. 3. 21 Carat gold : It shall be of fineness not less than 875. 4. 18 Carat gold : It shall be of fineness not less than 750. 5. 14 Carat gold : It shall be of fineness not less than 583.3. 6. 12 Carat gold : It shall be of fineness not less than 500. 7. 9 Carat gold : It shall be of fineness not less than 375." 7.1 Counsel therefore urged that the gold ornaments manufactured and exported by the assessee retained the same purity of 22 Carat [or other specifications as the case may be] irrespective of whether it had purity standard of 93.37% or 91.66%. 7.2 Counsel contended that as per the importers' requirements, the assessee would export ornaments of 22, 20, 18 or 14 carats and charge the importers according to the agreed percentage of gold for such ornaments. However, in order not to breach the stringent requirement of international standard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of documents pertaining to the same set of gold ornaments is undeniable. The assessee owed an explanation and had a duty to reconcile this discrepancy. The authorities found that the assessee failed in doing so. This was on the premise that the assessee's explanation was found unacceptable and inadequate. The assessee's only explanation was that the ornaments actually carried purity of 93.37% but were reflected in the export documents having purity of 91.66%. This according to the assessee was done because the importers had desired such level of purity whereas the assessee to err on safer side, used more gold so that the stringent international standards were not even unintentionally breached, which would incur liability of rejection of the consignment. 8.2 Such explanation of the assessee was rejected by the three authorities below. We are also unable to fathum why an exporter would declare lesser purity of gold than what was being actually exported. As rightly observed by the CIT [A], if the gold ornaments were carrying greater purity value, and therefore, greater content of gold, the assessee had no reason to make a misdeclaration. In either case, assessee was meeting with the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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