9911796707
TMI Blog2024 (1) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions relating to Making Charges and Wastage claims in all the years under consideration. Addition on account of profit on unrecorded sales - quantity of gold shown in the Excel sheet was found to be lower than the quantity of gold disclosed in the books of accounts of the assessee. The AO treated the shortage in the gold stock as sale outside the books of accounts and accordingly estimated the profit on unrecorded sales @ 2% and added the same - HELD THAT:- In the case of Saurav Jewellers Private Limited (supra), the co-ordinate bench has accepted the contentions of the assessee that the Excel Sheets cannot be considered as parallel books of account and they are merely controlling sheets maintained by employees for computation of jewellery after giving credit or deduction for standard quota of wastage (paragraph 3.11). We notice that the Ld CIT(A) has also noticed many discrepancies in the Excel Sheet. One of the main discrepancies is that the manufacture and sale of medallions and coins were not recorded in the Excel Sheets, which would make huge difference. Besides the above, the search officials did not find any discrepancy between book stock and physical stock. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds fault with those documents. We notice that the AO did not find any deficiency or fault with the evidences produced by the assessee. With furnishing of all these documents, in our view, the assessee has discharged initial burden placed upon it under section 68 of the Act by furnishing above said documents. Hence the source as well as the source of source also stands proved by the subscribers. Thus we hold that the additions made by the Assessing Officer under section 68 of the Act in all the years, in the facts and circumstances of the case, were not justified. Disallowance u/s 14A - Hon ble Madras High Court has held in the case of M/s Marg Limited [ 2020 (10) TMI 102 - MADRAS HIGH COURT] has held that the disallowance u/s 14A cannot exceed exempt income. We notice the decision rendered by Ld CIT(A) finds support from the above said decision of Hon ble Madras High Court. Accordingly, we do not find any infirmity in the decision so rendered by Ld CIT(A) on this issue. Assessee appeal allowed. - SHRI B.R. BASKARAN (AM) SHRI RAHUL CHAUDHARY (JM) For the Appellant : Shri Mani Jain For the Respondent : Dr. Mahesh Akhade ORDER PER BENCH:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d wastage claim have been recorded in excess in the books of account. Accordingly, the AO made addition towards jewellery making charges and jewellery wastage claim. The details of additions made by the AO in the years under consideration are tabulated below:- Asst. Year Making charges Wastage claim 2010-11 2,44,75,166 --- 2012-13 1,32,19,297 2014-15 3,36,32,783 7,48,76,082 2015-16 4,19,21,459 11,15,08,938 5. The Ld CIT(A) confirmed the addition relating to jewellery making charges and gave partial relief relating to wastage claim. Hence the assessee is challenging the decision of Ld CIT(A) in confirming the addition relating to making charges. With regard to wastage claim, the Ld CIT(A) confirmed the additions to the extent of Rs. 1.37 crores and Rs. 1.67 crores respectively in AY 2014-15 and 2015-16 and deleted the remaining additions. The revenue is challenging the relief granted and the assessee is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee herein), SEG Exports Pvt. Ltd., and M/s. Soorajmal Gauti, proprietary concern of Shri Sumati chand Gauti. Such data was maintained in MS Excel sheets. Year wise MS Excel sheets were prepared on the basis of issue and receipt vouchers handled by Shri Kirti Kumar Gauti with karigar working for the said entities of the group. The ld. AO concluded that data contained in such MS Excel Sheets reveal that the group had been indulging in claiming excess amount of making charges and wastage in regular books of accounts of the said four entities of the group. Admittedly, the said excel sheets contained the data of raw gold received from various banks, the gold issued to the Karigars - Shri Lob Ghorai and Shri Golok Patra, among other karigars, jewellery received from them after the job work and the closing balance of gold lying with Karigar. 3.2. The search operations were also conducted in the premises of Karigars Shri Lob Ghorai and Shri Golok Patra on 09/03/2015. The seized papers impounded from residential premises of Shri Lob Ghorai on 09/03/2015 was marked as LKG/03. Similarly papers were seized from the residential premises of Shri Golok Patra during the course of search on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gar, the group entities also have a dedicated manufacturing unit in SEZ i.e. Mani Kanchan at Kolkata. These entities import gold duty free. d) Receipt of Finished Jewellery:- After the jewellery is manufactured, the same is received from Karigar and issued receipt vouchers and the corresponding entry is made in the stock register. e) Export of finished jewellery. 3.4. The ld. AO observed that from 30-35 Kargiars working for the group entities which manufacture jewellery items and give it back to the group entities for which they charged certain rate/amount of making charges and/or wastage. 3.5. The statement of Karigars i.e. Shri Lob Ghorai and Shri Golok Patra were recorded during the course of search wherein they had stated that actual making charges received by them is Rs. 2/- per gram whereas cheque they had received was for Rs. 13/- to 18/- per gram and difference is given back in cash to the assessee. Shri Kirit Gauti incharge of Kolkata operations of the group, in his statement recorded during the course of search proceedings accepted to that actual making charges paid of Rs. 3/- per gram. The excel sheets termed as alleged parallel books seized from the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Bengali. This fact is evident from page 65 of the paper book containing the statement from Shri Lob Ghorai dated 09/03/2015. However, this is not the case with Shri Golok Patra in English. We find that Shri Golok Patra in his statement recorded on 09/03/2015 had replied vide reply to Question No.6 while explaining the modus operandi of the business, wherein he had stated that he would receive 24 carat gold bars from Gauti group, then he will mix alloy to make it 22 or 21 carat, thereafter, those gold bars along with alloy would be handed over by him to different karigars. During this process, little wastage would be incurred. After making jewellery, he would hand over the manufactured jewellery to Gauti group. The ld. AR submitted that this answer goes to prove that the making charges are to be paid to Mr. Golok Patra (karigar) and to other sub-karigars. Admittedly all those sub-karigars are engaged by the main karigar. The assessee is no way connected with the sub-karigars. The same is with the case of another Karigar Shri Lob Ghorai. The ld. AR submitted that statement given to Shri Lob Ghorai and Shri Golok Patra is that only Rs. 2/- to 3/- per gram has been charged as makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i and Shri Golok Patra will withdraw the cash i.e. Rs. 10/- to Rs. 11/- per gram and make payment to the sub-karigars engaged by them. (d) Shri Lob Ghorai had engaged 10 karigars and Shri Golok Patra had engaged 40 karigars. (e) No small sub-karigars would work without getting payment for their labour charges. 3.7. We find 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. It is not in dispute that the assessee while making payments to karigars had deducted tax on the entire payment of Rs. 12/- to Rs. 13/- per gram towards making charges. The main karigars i.e. Shri Lob Ghorai and Shri Golok Patra had duly accounted the same as their income in their books and had offered the net profit earned by them in their respective tax returns. In this regard, for A.Y.2014-15, we find from the audited financial statement of Shri Lob Kumar Ghorai, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014-15 58,03,158/- 7,10,400/- 3.8. 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. 3.9. 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. 3.10. Now what remains to be addressed is the corresponding statement given by Shri Kirit Kumar Gauti, the key person of the group. The ld. AO in his assessment order had stated that the statements of karigars were confronted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y a quantitative tally meant for control purpose prepared by some employee of the assessee company to meet the track of flow of stock of gold/jewellery. The said excel sheet can never be construed as the books of the accounts or the parallel books of account. The ld. AR submitted that the standard wastage and standard making charges had been mentioned by the employee who had maintained this quantitative data. This is recorded by the employee just to have a control as to the quantity of jewellery received back from the karigar after reducing standard wastage thereon. In fact, in para 16.11 of the order of the ld. CIT(A), it has been categorically mentioned by ld. CIT(A) that the said excel sheets reveal entries concerning issue and receipt of gold to the karigars along with necessary weight of said issues / receipts. The ld. CIT(A) observed that however, the completeness of the data in the excel sheets are indeed in doubt as far as overall picture of gold quantity is concerned. The ld. CIT(A) further observed that although in the top of the sheet, making charges rate @Rs.3/- per gram was mentioned, karigar wise computations are not made in the said excel sheets. The ld. CIT(A) also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the form of cash. Hence, reliance placed on those diaries as corroborative evidence is grossly incorrect. Moreover, we also find that the notings found in those diaries were relating to cash transactions for a limited period of time. The ld. AO in the instant case had extrapolated the same for the remaining period and disallowed the entire making charges debited over and above Rs. 2/- per gram. 3.12. 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. 3.13. To sum-up, the disallowance made by the Revenue on account of excess making charges deserve to be deleted due to- (a) Statements of karigars Shri Lob Ghorai and Shri Golok Patra containing various factual inconsistencies; (b) S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that there is an excess reflected in the books and accordingly, proceeded to disallow the excess wastage for various assessment years as under:- Particulars AY 2013-14 AY 2014-15 AY 2015-16 Total wastage as per actual books (In Kgs.) 81.17 149.10 145.59 Total Wastage as per excel sheet (In Kgs.) 60.23 89.63 52.52 Difference (In Kgs.) 20.94 59.47 93.07 Proportionate addition in assessee Nil* 82,42,155 98,81,191 * No business in assessee company in A.Y. 2013-14. 4.2. The ld. CIT(A) estimated the wastage at 3% to be reasonable on finished jewellery. Further, the ld. CIT(A) allowed wastage on semi-finished jewellery and coins on the ground that data contained in excel sheet had glaring omissions like non-computation of wastage of semi-finished jewellery and gold coins. Accordingly, the ld. CIT(A) granted relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... data maintained by an employee cannot be used by the Revenue for arriving at the acceptable wastage and disallowing the remaining portion as excess. From the perusal of the excel sheet maintained by the employee, forming part of the seized document, we find that the balance figure of gold lying with smith i.e. karigar is also derived figure and not actual figure. This itself proves the fact that excel sheet has been prepared purely for control purposes and not for recording the actual wastage. The ld. CIT(A) had already taken cognizance of various discrepancies that had crept in in the excel sheets maintained by the employee for which suitable credit has already been given to the assessee. Hence, the excel sheet data, in our considered opinion, is unreliable. Moreover, we find that the ld. AO had disallowed the wastage expenses as excess only for A.Y.2013-14, 2014- 15 and 2015-16 by placing reliance on the excel sheet as sacrosanct. Whereas the same excel sheets contains data from A.Y.2010-11 onwards which was also seized during the course of search. For A.Yrs.2010-11, 2011-12 and 2012-13, the wastage reflected in excel sheet was much higher than the wastage reflected by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. AO in the sum of Rs. 140,89,130/- towards unaccounted stock, the same was deleted by the ld. CIT(A), on the ground that the said addition has been made completely relying on the excel sheet seized during the course of search ignoring the factual deficiencies in those excel sheets. Against this deletion, the revenue had not preferred any appeal before us. 4.6. We find that Gems and Jewellery Council of Government of India had also accepted the normal standard wastage in respect of gold at 3.5%. The evidence in this regard was placed by the ld. AR in page 253 of the paper book. 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% ; SremonJewellers, Kolkata at 6% ; SremonJewellers 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s by the AO and accordingly made additions. The quantity of gold shown in the Excel sheet was found to be lower than the quantity of gold disclosed in the books of accounts of the assessee. The AO treated the shortage in the gold stock as sale outside the books of accounts and accordingly estimated the profit on unrecorded sales @ 2% and added the same. 9. Before Ld CIT(A), the assessee demonstrated various discrepancies in the data recorded in the Excel Sheets and accordingly contended that the Excel Sheets cannot be taken as the correct one. The Ld CIT(A) was convinced with the contentions of the assessee and accordingly deleted this addition in various years in the hands of all group concerns. The decision rendered by Ld CIT(A) on this issue is extracted below:- 7.5 The main submission of the appellant is that the ledger of receipt and issue of gold maintained in the excel sheet do not represent complete books of account but merely an account of the gold received from banks and the subsequent ledger of gold issued to the karigars for manufacturing and the subsequent receipt of jewellery from them. It is claimed that such ledger does not contain the entire transactions rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sco which has not been exported but has been received from the karigars. The regular books do not reveal the fact that all the gold forming a part of closing stock is lying with karigars. Hence, the total quantity of gold lying with the karigars at any point of time does not reflect the stock of gold lying with the assessee. ii. As seen from manufacturing of medallions and coins, part of the manufacturing process is outside the excel sheet and needs to be incorporated to arrive at the final stock position. iii. The physical stock position of the assessee as computed by the Department at the time of search and seizure action did not detect any variation between the physical stock position and the stock as per books of account. Also, the stock taken by the Department reveals that the gold stock was not only with the Karigars but part of the gold was also lying with the assessee itself. iv. Evidence of sale of gold items outside the books has not been found from any of the premises during the search proceedings including the secret premises. v. While dealing with the issue of wastage/payment of making charges, it has been held that the excel sheets are not sacr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cel Sheets, which would make huge difference. Besides the above, the search officials did not find any discrepancy between book stock and physical stock. Accordingly, we are of the view that the order passed by ld CIT(A) in deleting this addition is a well reasoned order and the same does not call for any interference. Accordingly, we uphold the order passed by Ld CIT(A) on this issue. 11. The next issue relates to the addition made u/s 68 of the Act. The details of addition made and decision of Ld CIT(A) are tabulated below:- Asst. Year Addition made by AO Confirmed by Ld CIT(A) Deleted by Ld CIT(A) 2010-11 3,65,00,000 1,65,00,000 2,00,00,000 2012-13 9,95,00,000 9,95,00,000 2014-15 15,00,000 15,00,000 2015-16 41,00,000 41,00,000 12.1 In assessment year 2010-11, the assessee has received share capital of Rs. 2.00 crores from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed commission to respective assessing officers of Kolkatta and the inspectors report furnished by them revealed that the officers of certain companies have been closed. The AO also noticed that these paper companies are reporting loss or meager profits in various years. The AO also issued notices to various subscriber companies, but most of them were either not responded or returned unserved. In respect of replies received, the AO noticed that they were not able to substantiate the quantum of share premium paid by them. He further noticed that most of the share subscribers are having common addresses or common directors and auditors. He also noticed that these subscriber companies have not received any dividend. Their bank balances were also found to be low. They had received funds from some source before transferring the same to the assessee companies herein. Accordingly, the AO came to the conclusion that these subscriber companies lack credit worthiness. The AO also referred to the statements taken from directors of some of the companies, wherein they had admitted that they are only directors name sake and the operations of the company are being managed by some other person. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to the date of search and hence he could not have given any statement in respect of assessee group. It was submitted that he had also made admission only for want of relevant details. It was further submitted that both of them have retracted their statement. Accordingly, it was contended that the statements given both the persons should not be relied upon. The assessee also relied upon various case laws to support its contention that the statement given under duress should not be relied upon. Accordingly, it was contended that the addition could not have been made u/s 68 of the Act, as the assessee has discharged the onus placed upon it. 19. The Ld CIT(A) held that the AO has not made the addition solely on the basis of Statement given by Shri Sumati Chand Gouti and Shri Sanjay Dugar. He also held that the retraction made by them is bald in nature and it did not elaborate as to how the earlier statement was false or contrary to the documents found. The Ld CIT(A) further observed that all the subscribers are unrelated to the assessee and the filed inquiries have revealed that those companies are not available at their respective addresses. All of them have not responded to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C for allotment of shares. g) Valuation report of shares From the details submitted it can be seen that the identities of share subscribers stand proved. Since they have made payments from their bank accounts through account payee cheques, these transactions cannot be treated as bogus. Since the payments have been made from of funds available with them, the credit worthiness would also stand proved. We notice that the AO has observed that these subscribers are either showing loss or meager profits and such meager profits are not commensurate with the investments made by them. However, there is no bar under the law that a person could not make investments out of borrowed funds. In the instant case, it is not the case of the AO that the applicants did not have funds available with them for making investments in the assessee company. In fact, the said investments have been routed through the bank accounts of the assessee as well as the subscribers. Further, these investments are duly reflected in their books of account. 23. We notice that the tax authorities have first relied upon the surrender made by Shri Sumati Chand Gouti and Shri Sanjay Dugar in the statement taken u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made addition under section 68 of the Act by relying upon report of investigation wing or the statement given by the alleged accommodation entry providers. It is apposite to refer to the decision rendered by the Coordinate Bench in the case of M/s. Moraj Realty Pvt. Ltd. (ITA No.708 709/Mum/2019 dated 08-12-2020), wherein the decision was rendered by following the decisions rendered by Hon ble Bombay High Court. It was held as under :- 17. Moreover, except for relying on the statement of VVB the Assessing Officer has not done any inquiry himself except for referring to a notice issued under section 133(6) in A.Y. 2009-10 only. The learned counsel of the assessee has challenged the very veracity of this observation. He has submitted that assessee has asked for the copy of the said notice issued under RTI Act. In response it was replied that copies thereof are not available. Hence, this shows that even the so called inquiry by the Assessing Officer was done in case of only one party for A.Y. 2009-10 and the veracity of which is itself in doubt. 18. We find ourselves in agreement with the submissions of the assessee s counsel. We note that except for the statement of the entr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee s income as unexplained cash credit. 20. Similarly Hon'ble Bombay High Court in the case of CIT Vs. Apeak Infotech (397 ITR 148) has held as under :- Amendment to Section 68 of the Act by the addition of proviso thereto took place with effect from 1st April, 2013. Therefore, it was not applicable for the subject Assessment year 2012-13, So for as the pre-amended Section 68 of the Act was concerned, the same cannot be invoked in this case, as evidence was led by the Respondents- Assessee before the Assessing Officer with regard to identity, capacity of the investor as well as the genuineness of the investment Therefore, admittedly, the Assessing Officer did not invoke Section 68 of the Act to bring the share premium to tax. Similarly, the CIT(A),on consideration of facts, found that Section 68 of the Act cannot be invoked, in view of the above, it was likely that the Revenue may have taken an informed decision not urge the issue of Section 68 of the Act before the Tribunal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act has held that the proviso to Section 68 of the Act introduced with effect from 1 April 2013 will not have retrospective effect and would be effective only from Assessment year 2013-14. In view of the above, Question No .B as proposed also does not give rise any substantial question of law as it is an issue concluded by the decision of High Court in M/s Vodafone India Services Pvt. Ltd. (Supra) and in the Apex Court in M/s G.S. Homes Hotels P. Ltd. (supra). Thus not entertained. 21. Accordingly in the background of aforesaid discussion and precedent in our considered opinion assessee has given all the necessary details required for establishment of identity creditworthiness and genuineness under extant provisions of section 68 of the IT Act. The onus cast upon the assessee stands discharged. The addition by invoking amended provisions of section 68 of the Act which are not applicable for the assessment year is not sustainable. 27. The Hon ble Bombay High Court has held in the case of CIT vs. Orchid Industries (P) Ltd (397 ITR 136)(Bom) that the addition u/s 68 could not be made once the assessee had produced the documents to prove the cash credits. It was fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount by way of RTGS. (k) Banks certificate certifying the receipt of the amount through Banking channels. 6. On going through the documents which have been produced which are basically from the public offices, which maintain the records of the Companies. The documents also include assessment Orders for last three preceding years of such Companies. 7. The Appellants have failed to explain as to how such Companies have been assessed though according to them such Companies are not existing and are fictitious companies. Besides the documents also included the registration of the Company which discloses the registered address of such Companies. There is no material on record produced by the Appellants which could rebut the documents produced by the Respondents herein. In such circumstances, the finding of fact arrived at by the authorities below which are based on documentary evidence on record cannot be said to be perverse. Learned Counsel appearing for the Appellants was unable to point out that any of such findings arrived at by the authorities below were on the basis of misleading of evidence or failure to examine any materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondents cannot be discarded merely on the basis of two individuals who have given their statements contrary to such public documents. 10. We find no infirmity in the findings arrived at by the ITAT as well as CIT Appeals on the contentions raised by the Appellants-Revenue in the present case and, as such, the question of interference by this Court in the present proceedings under Section 260A of the Income Tax Act would not at all be justified. 28. In our view, the above said decisions rendered by the jurisdictional Hon ble High Court and the co-ordinate bench supports the case of the assessee. Accordingly, following the above said decision, we hold that the additions made by the Assessing Officer under section 68 of the Act in all the years, in the facts and circumstances of the case, were not justified. Accordingly, we confirm the relief of Rs. 2.00 crores granted by Ld CIT(A) in AY 2010-11 for the reasons discussed above and set aside the decisions rendered by the learned CIT(A) in confirming the additions in all the years under consideration. Accordingly, we direct the AO to delete the additions made under section 68 of the Act in all the years under consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
