9911796707
TMI Blog2015 (3) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing grounds of appeal: "A. Addition of Rs. 1,64,21,516/- as alleged unaccounted purchases of gold bars 1. The Learned Commissioner of Income-tax (A) erred in making addition of Rs. 1,64,21,516/- towards estimated alleged unaccounted purchases of gold bars without appreciating the fact that there are no unaccounted purchases of gold bars outside the books of account & no such addition was made by the Ld. AO & the observations made in the CIT(A) order is contrary to the factual position and hence, the addition made of Rs. 1,64,21,516/- as alleged unaccounted purchases of gold bars merely on assumption and presumptions is without any justification and liable to be deleted. 2. The Learned Commissioner of Income-tax (A) failed to appreciate that no incriminating evidence was found in the course of search action proving any unaccounted purchases of gold bars & no such huge excess quantity of gold bars were found in the course of search action and the excel sheet found in the computer related to AY 2008-09 & 2009-10 & not for AY 2005-06 and even the said excel sheet clearly proves that the gold bars were issued to the marketing staff of the appellant (duly correlated from the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - is without any justification and liable to be deleted. 7. The Ld. CIT(A) failed to appreciate that the appellant is maintaining separate books of account with respect of SEZ and non-SEZ units and that the SEZ unit was not functioning throughout the year but only when the export orders were received and hence, the allocation of the expenses merely on the basis of turnover is without any justification and liable to be deleted. 8. Without prejudice to the above and without admitting, the Ld. CIT(A) failed to appreciate that the allocation of expenses if required to be made, the same had to be directly correlated with the SEZ unit and the entire expenses incurred could not be generally allocated on the basis of turnover, which could give absurd result (reference to AY 2007-¬08) and hence, the addition made of Rs. 15,67,742/- by allocating expenses on the basis of turnover is without any justification and liable to be deleted. 9. The appellant craves leave to add, amend, alter or delete all or any of the aforesaid grounds of appeal." 3. Apart from the above grounds of appeal, assessee has also taken the additional ground of appeal which is reproduced as under: "Enhancement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for approval through its employees and received back after taking the orders. The jewellery items taken by the employees were not entered in the books of accounts but only in the Excel sheet maintained in the computer. When the jewellery items were used to be received back, a receipt entry was being made and reference number of issue entry was being mentioned in the relevant columns. Similarly, reference no. of receipt entry was mentioned in the relevant column at the issue entry. This way the cycle of the transaction started by way of issuing the jewellery and completed when the same jewellery was received back and entries being made and correlated. The A.O. noted that most of the time the quantity of gold jewellery issued to the employees exactly matched with the quantity brought back after the trip. The A.O. observed that the goods taken for approval were in fact taken for sale purposes by the travelling employees of the assessee. The consideration was being received either in cash or in the form of standard gold bars. The A.O. confronted the assessee on the entries of cash and gold bars on the Excel sheet. The A.R. of the assessee had submitted that the travelling salesmen were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of orders received the jewellery supplied to the concerned parties and invoices were prepared which were duly entered in the books of accounts. Thus all the jewellery items were sent for approval were not the sales of the assessee company. During the course of survey, books were examined of the concerned parties, but it was found that those parties had also not shown as purchases in their books of accounts in respect of jewellery received from assessee on approval basis. The statements recorded during the course of search of Shri Laxman Agre and Shri Ravindra Kaste, who were small workers in the company, had no basis and moreover, they had retracted the statements by submitting the Affidavit after the search. The assessee had also emphasized that no document was found during the course of search from the assessee's premises or other parties where survey was conducted u/s. 133A to prove that the goods were sent for approval were actually sales of the company. Regarding the statements of Shri Madan S. Kothari and Shri Suresh F. Jain whose premises were covered u/s. 133A, the assessee pleaded before the Ld. CIT(A) that the opportunity of cross-examination was not given to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso based on the recorded transactions of the assessee relating to job work." 7. The Ld. CIT(A) noticed from the Excel sheets, found and seized during the course of search, that entries of jewellery items sent on approval were received back after 3 to 4 days. There was no discrepancy in the item wise or value wise tally of these items. He observed that even in the assessment order, the A.O. had admitted this fact that the quantity of gold jewellery issued to the employees exactly matched with the quantity brought back after the trip. An exercise was also made by him during the appellate proceedings before him to know the orders booked by the employees who had taken the goods for approval to different parties. It was seen that the orders booked were duly exercised by the assessee company and goods were sold by issuing proper invoices which were reflected in the books of accounts. From the perusal of the cross-examination report of Shri Suresh F. Jain and Shri Madan S. Kothari, the Ld. CIT(A) noticed that it was clear that both the above persons had admitted that they had provided marketing support for the gold ornaments of the assessee company which were received through approval m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had purchased these gold bars which are not reflected in the books of accounts. Similarly, the entries of cash were also found on the excel sheets. He therefore held that the assessee had purchased gold bars out of books of accounts and the cash reflected on these excel sheets was also out of the books of accounts. He further observed that in the A.Y. 2008-09, the total entry of gold bars on different dates was shown at 12415.314 gms and for A.Y. 2009-10 it was shown at 14953.880 gms. Since these purchases were not shown on a single day but on different dates throughout the year, therefore he adopted the peak figure of purchases in each assessment year. He calculated the unaccounted purchases of 12415.314 grms for A.Y. 2008-09 and valued the same @ Rs. 1200/- per gram and worked out at Rs. 1,48,98,376/-. Similarly for the A.Y. 2009-10 the unaccounted purchases of gold bars was worked out at Rs. 1,79,44,656/- and the average of both the years come to Rs. 1,64,21,516/-. The average figure was adopted by him as unaccounted purchases of the assessee for A.Ys. 2005-06, 2006-07 and 2007-08. He therefore held that the assessee had made purchases of gold bars out of the books of accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sample for demonstration purposes to various authorities, therefore, the orders were procured by the employees and the same were executed and sold with proper sales invoices duly reflected in the books of account. He, however, has made an addition in respect of gold bars and cash reflected in the blocks drawn on the excel sheets on the ground that the assessee had not been trading in bullion, therefore, the gold bars and cash reflected in the excel sheets were unaccounted purchases and unaccounted cash of the assessee. 12. The assessee, however, has explained that on few occasions along with the sample gold jewellery, assessee had also sent gold bars and even sometime cash, so that in the case of some new artistic design of jewellery is identified at the place of approval/party visited, the same could be purchased either in cash or by payment by way of gold bar. However, on none of the occasions, the employees purchased jewellery either in cash or with gold bars, hence, the same gold bars and cash taken by them was received back. The entries of issue of gold bars and cash and its receipt back were duly reflected and tallied in the excel sheets in question. The Ld. AR of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereas, the assessee has successfully demonstrated that the same were forming part of the stock recorded in the books of account. Both the AO as well as Ld. CIT(A) have made additions that too assuming different set of circumstances and on different assumptions. Neither the AO could prove that the entries in the excel sheets were unaccounted sales nor the Ld. CIT(A) that the entries relating to gold bar and cash were relating to unaccounted purchases etc. On the other hand, the assessee has discharged its burden by way of giving a plausible explanation regarding the entries found in the excel sheets. So far as reliance of the AO on statements of two employees of the assessee is concerned, we find that the Ld. CIT(A) has discussed in details regarding the evidentiary value of the statement of such small time employees of the assessee company. The Ld. AR has invited our attention to the fact that during the course of search, the statement of director and some other employees including Shri Nilesh Jain was also recorded, who had not only explained the method/modus operandi adopted by the assessee, but had also categorically stated that no exchange of gold bars for purchase of jewelle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound and seized during the search and survey operation to prove that the goods were not sent on approval basis but in fact were the actual sales and purchases. The Revenue preferred appeal before the Tribunal. The coordinate bench of the Tribunal vide order dated 5-6- 2013(supra) has upheld the findings of the Ld. CIT(A) deleting the additions in case of M/s Tanisha Jewellers. It has been observed by the Tribunal that such an addition on account of labour charges constitutes a case of addition based on surmises or suspicion, which were not sustainable in the eyes of law. Once it has been held to be to the level of the Tribunal that the concerned party i.e. M/s Tanisha Jewellers had received jewellery on approval basis from the assessee, the same finding has not been reflected by any higher forum, then under such circumstances, the correlating entry on issue of jewellery to the concerned parties also as mentioned in the excel sheets found in the assessee's case are also to be held as sent on approval basis. 13. As we have observed above, 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings, no books of accounts, stock register or any record was found there. On the basis of these facts the A.O. issued a show cause notice to the assessee to explain the reason that the units were closed at the time of survey, the Plant & Machinery was rusted and non functional, there was no trace of manufacturing activity carried out. There was no permanent employee in the SEZ Unit. There was no labour employed in these SEZ units. The machinery employed showed that it was not capable of the huge production of such high value addition in the time of frame available. Power consumption was not sufficient to support the huge production shown by the assessee company. The profit margin shown by the assessee compared to the non SEZ units was much higher. In response to these allegations, the A.R. of the assessee submitted its reply before the A.O. which has been discussed by the A.O. in the assessment order at great length under the head proper claim of deduction u/s. 10A. After considering the reply of the assessee, the A.O. held that the claim of deduction u/s. 10A of the I.T. Act made by the assessee suffered from irregularities. He therefore rejected the claim of the assessee and add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the SEZ units on the basis of total turnover. The Ld. CIT(A) accordingly allocated the additional expenses of Rs. 15,67,742/- for A.Y. 2005-06, Rs. 57,38,575/- for A.Y. 2006-07 and Rs. 16,61,342/- for A.Y. 2008-09. He however did not make any addition for A.Y. 2007-08 and A.Y. 2009-10 because expenses under the SEZ units were more than the non SEZ units and there was no Import/Export in A.Y. 2009-10. He therefore, directed the A.O. to allow the deduction u/s. 10A and confirmed the addition of Rs. 15,67,742/- for A.Y. 2005-06, Rs. 57,38,575/- for A.Y. 2006-07 and Rs. 16,61,342/- for A.Y. 2008-09 on the basis of distribution of expenses proportionately. The Revenue before us has appealed against the action of the Ld. CIT(A) in holding that the assessee is eligible for 10A/10AA deductions whereas the assessee is in appeal against the allocation of the expenses from non SEZ units to SEZ unit. 17. So far as the contention of the Revenue that the assessee is not eligible for section 10A/10AA deductions is concerned, we find that, to verify the genuineness of the claim of the assessee, the Ld. CIT(A) had directed the assessee to submit the complete details of imports and Exports made thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .10A/10AA of the Act. 18. So far as the appeal of the assessee is concerned, the Ld. AR of the assessee has submitted that the claim of the expenses made by the assessee was correct. The Ld. CIT(A) however decided to allocate the expenses of SEZ and Non SEZ units on the basis of total turnover. He made the additions in respect of assessment years during which, the expenses under the SEZ units were less than the non SEZ units. However, for the assessment years, during which expenses under the SEZ units were more than the non SEZ units, he did not proportionately reduce the expenses as per turn over. The Ld. A.R. has submitted that either the Ld. CIT(A) should have accepted the claim of expenses made by the assessee or uniformly applied the method for all the assessment years. We are not convinced with the above submissions of the Ld. A.R. of the assessee. 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 expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cost to the appellant and which has already been taxed in those concerns and hence, there is neither any unexplained expenditure incurred by the appellant nor any other expenses incurred so as to make ad hoc estimated addition towards unexplained expenses and thus, the additions made of Rs. 37,31,000/- (9,31,000/- (+) 28,00,000/-) is unjustified and liable to be deleted." (This issue is involved in assessee's appeals for AY 2006-07 to AY 2009- 10): 21. These grounds relate to the additions made on account of unexplained expenditure. On the basis of seized material and statements recorded during the course of search, the A.O. noticed that the assessee had booked huge bogus purchases to suppress the profit margin. The assessee company had floated the name of present/ former employees viz. M/s. Manav Jewellers, M/s. Aruna Jewellers, M/s. Abhi Gold and M/s. Arvind Diamond & Jewels. The AO also noticed that prior to search at the assessee company, a survey was conducted on M/s. Manav Jewellers on 7.2.2008 by the department. During the survey, it was found that the office address given by M/s. Manav Jewllers was that of a chawl, the room of M/s. Manav Jewellers was just a 10 to 12 sq. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture to create paper entities and paper transactions just to increase turnover and avoid the payment of taxes. 22. In appeal before the Ld. CIT(A), the assessee submitted that the transactions made with these parties were genuine. It was also argued that these concerns were independently functioning from different places and were duly filing their Income-tax returns and also registered under the Sales tax/ VAT Act of Maharashtra. The transactions of purchase and sale were duly recorded in the books of accounts. It was also argued alternatively that even as per the stand of the Revenue, the sales made to these concerns were purchased back by the assessee and this transaction had not resulted in unexplained expenditure because the assessee had not incurred any extra cost for making the circular transaction since these were only paper transactions. It was also submitted that the proprietors of these concerns were the employees of the assessee company and were actually working for the company. Thus the A.R. of the assessee argued that the profit declared by these proprietary concerns had been properly shown in the income-tax returns and the adhoc addition made by the A.O. was not ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidences found in search so as to make additional unexplained expenditure u/s.69C. It has been further submitted that ad hoc estimated addition made of Rs. 28 lacs was not justified as no such expense had been incurred by the assessee and no such evidence of incurring such ad hoc amount of expenses had been found in the course of search action and/or survey action in the case of the said entities. On the other hand the Ld. DR has relied upon the findings of the lower authorities on this issue. 25. We have considered the rival contentions of the parties. 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s appeal relates to salary paid in cash which is dismissed being not pressed. ITA No.7259/M/2011 for A.Y. 2008-09 (Assessee's Appeal) 30. Grounds No.1 to 5 of this appeal relate to additions towards alleged unaccounted purchase of gold bars and additions towards unexplained cash whereas grounds No.6 to 8 relate to addition towards allocation of expenses from non-SEZ unit to SEZ unit. These issues have been discussed and decided by us above in assessee's appeal for A.Y. 2005-06. In view of our findings given above, these issues are decided accordingly. The additional ground relating to enhancement of income is also dismissed being rendered infructuous. 31. Grounds No.9 to 11 deal with additions towards unexplained expenses and ad hoc estimated addition whereas ground No.12 deals with salary paid in cash. In view of our findings given above, while dealing with assessee's appeal for A.Y. 2006-07. Grounds No.9 to 11 are decided accordingly whereas ground No.12 is dismissed being not pressed. ITA No.7260/M/2011 for A.Y. 2009-10 (Assessee's Appeal) 32. The assessee, in this appeal, has taken 11 grounds of appeal. Grounds No.1 to 4 relate to additions towards unaccounted purchase of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards source of income on any of the issues in dispute, the appellant be allowed telescopic benefit and thus, the addition made of Rs. 16,44,14,449/- is without any justification and liable to be deleted." 35. During the course of search operation, physical inventory of stock was prepared by the Registered Valuer, Separate inventory for 18 carats gold ornaments, 22 carats gold ornaments and standard gold bars was prepared and tallied with the books of accounts. It was noticed that there was a discrepancy in the form of shortage in the 18 carats cold ornaments and there was excess stock of 22 carats gold ornaments. Similarly there was shortage in stock of 99.5 standard gold bar and excess of 99.9 gold bar. The AO observed that the assessee had made different column in its books for entry of 18 carats, 22 carats and 99.5 standard gold bar trading and 99.9 gold bar trading. He further observed that the assessee had failed to satisfactorily explain the said discrepancy in stock. He observed that the discrepancy in stock was found at Rs. 16,44,14,449/- which the assessee could not reconcile. The A.O. therefore made the addition of Rs. 16,44,14,449/-. 36. Before the Ld. CIT(A), the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal value of jewellery inventoried in the above premises was valued at Rs. 1,19,82,399/- in which stock of 18 kt. Gold jewellery of 294.950 grams was also found. As against this, in the consolidated statement of stock inventory as per notice of AO, stock of 18 kt gold is taken at 36.95 gms only. He has invited our attention in this respect to the pages 371 to 375 (inventory) of Paper Book II [Department Appeal] and further to the consolidated stock summary on page 31 of impugned order of the Ld. CIT(A). He has further submitted that from the above it has been proved that the consolidated statement prepared by AO was not correct. Neither any document has been made available to the assessee nor has the AO mentioned anywhere in the order the basis of arriving at the consolidated quantity as physically verified during the search. Even otherwise there has not been any such huge excess /shortage of gold jewellery as worked out by AO. The Ld. AR has given the following further explanation in this respect: "In respect of Gold Ornaments: a) Appellant sends goods on approval through different marketing personnel at different locations, the details of the same are maintained separately in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge works out to 1,669.25 grams.Out of which 637 grams remained in machines installed in Mazgaon factory and could not be verified by search party. (iii) The balance shortage works out to 1,032.625grams which could be due to weight difference. f) Hence, there is no excess of gold ornaments as worked out by AO and the addition made of Rs. 15,83,15,821/-is unjustified and may be deleted. g) Without prejudice to above and without admitting, assuming the explanation given in point (e) above with respect to shortage in jewellery is not accepted for any reason, even in that case, total shortage of gold jewellery is 81,584.625 grams and since it is case of shortage, only GP addition on the same could be made and thus, the addition made towards excess of stock is unjustified and may be deleted. In respect of Standard Gold Bars: h) Excel Sheet maintained shows only one category of gold bars without any bifurcation of 99.5 or 99.9 gold bars; i) Considering the meagre difference, combined stock of gold bars is maintained and the overall picture of gold bars emerges as under- 99.5 standard gold bar as per books 12337.760 grams 99.5 standard gold bar trading as per books 892.224 grams ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made towards unexplained investment in excess stock. The only addition that could be made is in respect of GP on shortage of stock. 9. The Telescoping benefit ought to be given since neither any huge unexplained cash is found nor any other unaccounted asset is found in search action. Further, the amount remaining after giving telescoping vis-a-vis excess stock is available for getting further telescopic benefit in respect of any other issue, which may not be allowed in favour of appellant." 38. On the other hand the Ld. DR has relied upon the findings of the lower authorities and has further contended that separate columns have been made in the books of accounts regarding different kinds of gold jewellery and gold bars and that the explanation of the assessee that a combined entry was made in the excel sheet in respect of different qualities of jewellery and gold bars sans evidence, hence is liable to be rejected. 39. We have considered the rival contentions. 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 42. Ground No.12 is related to salary paid in cash which is dismissed being not pressed. Grounds No.13 to 15: Addition towards cash paid for purchase of property:-Grounds No.13 to 15 of this appeal are reproduced as under: "F. Addition of Rs. 2 Cr. as payment made in cash for purchase of property 13. The learned Commissioner of Income-tax (A) erred in confirming addition of Rs. 2 Cr. towards alleged cash payment for purchase of property at Cama Industrial Estate, Lower Parel without appreciating the fact that the said property was not purchased by the appellant & the observation made in the order is contrary to the factual position and hence, the question of making payment in cash of Rs. 2 crores does not arise and the addition therefore made is without any justification and liable to be deleted. 14. Without prejudice to the above, the Ld. CIT(A) failed to appreciate that no where in the seized papers it has been stated that cash of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 21 lacswas refunded to the assessee company. Since property not purchased by it, question of payment of Rs. 2 crore in cash does not arise &hence, the addition made in its hand is liable to be deleted. Without prejudice to above, loose papers nowhere mention that cash is paid for the said property. The loose paper was only rough calculations wherein at page 24 of seized paper, in opinion of director, the worth of property was about 9 crores and the same was negotiated for Rs. 6 crores. This is supported by loose paper marked page no. 28 wherein it is mentioned that agreement value of property is 6 crore, which is bifurcated between premises and machinery, etc. and the total value of property of Rs. 6 crore is then reduced by token payment of Rs,21 Iacs and the balance is shown at Rs. 5. 79 crore. Further, on this page it is mentioned that token amount of R.s.21 lacs is paid on 22.7.2008; Rs. 2 crore before 7.82008 as cheque if in cash then 01.08.2008. Thus, amount of Rs. 2 crore is not over and above the total negotiated price of Rs. 6 crore, It is only noted that payment of Rs. 2 crore is to be paid in cheque if paid on or before 7.8.08 and if to be paid in cash than on or bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 21 Lacs is paid on 22.7.2008; Rs. 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 Rs. 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 Rs. 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. When there is no evidence of such a payment made by the assessee, the assessee can not be called upon to prove the negative. The addition on this account is therefore, ordered to be deleted. 47. Now we take up Revenue's appeals. ITA No.8083/M/2011 for A.Y. 2005-06 (Revenue's Appeal) 48. The Revenue in its appeal has taken the following grounds of appeal: "1. Whether on the facts and the circumstances of the case and in law, the Ld. CIT (A) is justified holding that the assessee is entitled to dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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