PER DIVA SINGH,JM The Revenue as well as the Assessee respectively challenge the correctness of the order dated 23/11/2016 of CIT(A)5 Ludhiana pertaining to 201314 assessment year on the following grounds: (Revenues Grounds of appeal : ITA No. 247/CHD/2017) 1 . That the Ld.CIT(A),Ludhiana has erred in deleting the addition of Rs.2,50,37,428/- made on account of excess stock found during search without appreciating that the surrender of Rs.2,64,12,058/- was an account of surrender in respect of unaccounted purchases mentioned in Annexure A-l, A-19 and A-18 seized from the resident R-l and Annexure A- 4, A-14 seized from the business premises which was not recorded in the books ignoring the fact that the assessee has failed to prove the nexus of the unaccounted purchases with the excess stock found.
2. That the Ld.CIT(A), Ludhiana has erred in deleting the addition of Rs.46,99,812/- made on account of profit earned on unaccounted sales of Rs.6,31,69,524/- ignoring the fact that the assessee has failed to prove the nexus with the surrendered cash / surrendered income. ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 2 of 45
3. That the Ld.CIT(A), Ludhiana has erred in deleting the addition of Rs.94,75,428/- made on account of unaccounted investment @15% of unaccounted sales of Rs.6,31,69,524/- ignoring the fact that the assessee has failed to prove the nexus with the surrendered cash / surrendered income. (Assessees Grounds of appeal : ITA No.187/CHD/2017)
1. That the Ld. CIT(A) has grossly erred on facts in sustaining addition of Rs. 4,01,69,168/- without appreciating that there was no difference in stocks as valued by the Approved Valuer during the course of search under section 132 vis-a-vis stocks as reflected in Pen drive given the nomenclature of Stock Management System Summary
2. That both the Ld. CIT(A) and the Ld Assessing Officer while sustaining and making addition of Rs. 4,01,69,168/- wrongly arrogated to themselves the role of the qualified Valuer for conversion of jewellery weighing differently ignoring the Valuation Report.
3. That while sustaining addition of Rs. 4,01,69,168/- as being excess stock as recorded in Stock Management System Summary other than the total stock found and valued by the Approved Valuer the Ld. CIT(A) erroneously upheld the CONVERSION of 22gms & 18/14gms into 24 gms by the Ld. Assessing Officer.
4. That while sustaining addition of Rs. 4,01,69,168/- the Ld. CIT(A) further did not appreciate that as per item wise details of jewellery/diamonds in the Valuation Report by the Approved Valuer the net quantity of gold weighed was exactly the same as recorded in Pen Drive at 43,581.660
5. That the Ld. Assessing Officer and the Ld. CIT(A) further did not appreciate that after thorough search both the Business and Residential premises there could be not even a gram of gold/diamond left out as could be assumed hypothetically and taken to be concealed/hidden elsewhere as a corollary.
6. That while sustaining addition of Rs. 4,01,69,168/- as representing excess stock other than found and valued the Ld. CIT(A) ignored deductions as allowable and allowed by the Approved Valuer for conversion of jewellery of the sizes of 22,18 & 14 grams to 24 grams inter-alia diamonds of diamonds found on search.
7. That the appellant reserves the right to add , alter or take fresh ground either before or during the course of hearing.
2. The appeals were heard on various dates and in the course of finalizing the proposed draft order the appeals were re-fixed for clarification requiring the parties to address the issues of reconciling the contents of the pen drive with the stock found and the seized documents etc which are subject matter of consideration in the appeal of the assessee. These submissions shall be addressed subsequently when we consider the issues raised by the assessee in the present appeal. Before adverting to those submissions, it would be appropriate to first address the relevant facts. The assessees business premises and residence of its Director in the facts of the present case was subjected to search under Section 132 of the Income Tax Act,1961 alongwith M/s Palace Jewellers group of cases, Ludhiana on 31/10/2012. The assessee e-filed its return on 30/09/2013 declaring an income of Rs.69,92,010/-. In response to notices under section 142 (1) the assessee again filed the return on 22.01.2014 and thereafter further revised it wherein also again same income was declared. In justification of revising the return the assessee explained that an amount of Rs. 17 lakh odd which was required to be paid as self assessment tax had not been paid at the time of filing of the original return. Consequently taking the revised return into consideration, the assessment proceedings were started.
2.1 The assessing officer taking note of the fact that assessee company is engaged in ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 3 of 45 the business of trading in manufacturing of diamond, gold, silver/jewellery and other precious metals/stones required the assessee to justify the excess stock of 7973.72 gms found in the course of the search of the business premises of the assessee. Specific para 5 page 2 of the assessment order makes a mention of this. The assessees explanation and alternate arguments were rejected leading to the addition of Rs.2,50,37,481.
2.2 Apart from this, the assessing officer considering the contents of a pen drive the contents of which have been titled as Stock management Summary (Annexure A-22) seized from the residence of the Director required the assessee to justify why the contents thereof should not be added to the income of the assessee. Considering the explanation the AO rejected the same and made an addition of Rs. 4,01,69,168.
2.3 The assessing officer referring to Annexure A 5 seized from the residence of its Director described as party R1 made an addition of Rs. 46,99,812/- as unaccounted sales. The assessees explanation that it was covered in the surrender made by the assessee was rejected.
2.4 The assessing officer thereafter proceeded to also estimate the probable investments for carrying out the unaccounted sales. Accordingly after requiring the assessee to justify why the said addition should not be made he rejected the explanation and proceeded to make an addition of Rs.94,75,428 in the hands of the assessee.
3. These additions were challenged in appeal before the CIT(A) who proceeded to give part relief to the assessee. Aggrieved by the order both the parties are in appeal before theAT raising the aforementioned grounds in their respective appeals.
4. The Ld.CIT-DR addressing ground No. 1 raised by the Revenue in the present proceedings invited attention to the assessment order. Carrying us through the findings arrived at in Paras 5 to 8 of his order, it was his submission that in the face of the facts available on record, the CIT(A) was not justified to delete the addition in para-3.2 of his order. For ready reference para-5 to 8 of the assessment order heavily relied upon by the Revenue in the present proceedings is reproduced hereunder :
5. Excess stock found in the course of search at the business premises of the assessee company : With respect to the excess stock weighing 7973.72 gms. found at the time of search in the business premises of the assessee company valued at Rs. 3,28,50,313/-, assessee has in its reply received in the office of the A.O. on 11.02.2015 submitted that there was 3671655 gms. of pure gold/bullion as per booksj4wcH has not been considered at the time of search. Further, according to assessee, excess stock weighing 7973.72 gms. found at the time of search in the business premises of the assessee has wrongly been valued at Rs.3,28,50,313/-. According to assessee, value of the above excess stock comes to Rs.2,50,37,481/- (7973.72 @ Rs.3,140/-). Assessee has also submitted ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 4 of 45 that 6869.70 gms. of jewellery out of the total jewellery of 11082.79 gms. belonging to the directors as per their wealth-tax returns was also lying at the business premises, credit of which has not been given.
6. In view of the above, assessee has tried to explain the excess jewellery // weighing
7973.72 gms. found at the time of search at the business premises of the assessee and has finally admitted that there was difference of only 1617.01 gms. valued at Rs.50,77,400/- ( @ Rs.3,140/- per gm.) which is covered in the disclosure of Rs. 4 crore. Without prejudice to the above, assessee has also submitted that even if entire difference of 7973.72 gms. is considered which according to assessee, is valued at Rs.2,50,37,481/-, same is out of the supplies made by the suppliers but since assessee admittedly is not in a position to give identification of the same, the aforesaid amount is also claimed by the assessee to be covered in the disclosure of Rs. 4 crore. Aforesaid arguments of the assessee company have been carefully considered but are not acceptable for the reasons discussed below :-
7. As far as assessees argument of 367.655 gms. of pure gold/bullion as per books of accounts which according to assessee, has not been considered is concerned same is not acceptable for want of evidence. No such explanation was furnished by the assessee at the time of search. As regards incorrect v a l u a t i o n of excess stock of 7973.72 gms. which has been valued at Rs. 3,28,50,313/- instead of Rs.2,50,37,481/-, same is correct, hence acceptable. Assessees further argument that 6869.70 gms. of jewellery belonging to the directors was also lying at the business premises is also not acceptable because same is not evident from the records/books of accounts." In fact, stock found at the time of search in the business premises of the assessee company was meticulously prepared and listed. Moreover, stock found at the time of search at the business premises of the assessee company was duly tagged. The assessees argument that 6869.70 gms. of jewellery belonging to the directors was also lying at the business premises is not supported by any evidence, as discussed above. Even during the course of search, the assessee was specifically asked to identify the jewellery belonging to the directors and their family members but the assessee failed. For the reasons discussed above, various arguments of the assessee except with regard to incorrect valuation of stock are rejected. In view of the above discussion, excess stock of Rs.2,50,37,481/- is held to be an unexplained stock, investment in which has not been explained by the assessee.
8. The assessees alternative argument that aforesaid amount of Rs.2,50,37,481/- is covered in the disclosure of Rs.4 crore is also not tenable as assessee has failed to explain and reconcile as to how the excess stock of Rs.2,50,37,481/- is covered in the disclosure of Rs. 4 crore. In fact, as per assessees reply received in the office of A/O. on 11.02.2015, disclosure of Rs. 4 crore has been made on account of transactions recorded in Annexure A- 16, A-19, A-18 seized from the residence premises R-I (residence of Sh. Rakesh Jain) and A-4 & A-14 seized from the business premises. The excess stock of Rs.2,50,37,481/- is not found covered in the disclosure of Rs. 4 crore as explained by the assessee in its reply filed before the A.O. on 11.02.2015. In view of the above discussion, it is held that assessee has failed to explain the source of investment of Rs.2,50,37,481/- in the excess stock of 7973.72 gms. found at the business premises of the assessee and accordingly addition of Rs.2,50,37,481/- is made on this account. Since, the assessee had concealed the income by furnishing the inaccurate particulars, as discussed above, the penalty proceedings u/s 271AAB of the I.T.Act,1961 are initiated separately on the above issue. (Addition of Rs.2,50,37,481/-)
4.1 Carrying us through the relief granted by the CIT(A) challenged by the Revenue, the order was assailed on the grounds of ignoring the speaking order of the AO. The specific conclusion set out in para-3.2 at pages 13 to 17 of the impugned order for the sake of completeness is accordingly reproduced hereunder:
3.2 Ground of Appeal No.2 pertains to addition of Rs. 2,50,37,481/- on account of excess stock found at the business premises of the appellant during the course of search. The AO mentioned that the excess stock weighing 7973.72 gms. was found at the time of search at the business ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 5 of 45 premises of the assessee company and valued it at Rs. 3,28,50,313/-. To the query by the AO, the assessee in its reply submitted that there was 367.655gms of pure as per books which has not been considered at the time of search. The assessee further submitted that excess stock found weighing 7973.73 gms has wrongly been valued at Rs. 3 ; 28,50,313/-. According to the assessee value of the above excess stock comes to Rs. 2,50,37,481/- (7973.72gms @ 3140/-). Assessee had also submitted that 6869.70 grms. of jewellery, out of the total jewellery found, belonged to the Directors as per their Wealth-Tax returns which was lying at the business premises but no credit of the same has been given. The assessee has tried to explain the excess jewellery weighing 7973.72 gms found at the time of search and finally admitted that there was difference of only 1617.01gms. valued at Rs. 50,77,400/- (@ Rs.3140/-per gms) which is covered in the disclosure of Rs. 4 crore. The assessee also submitted that, without prejudice to the above, even if entire difference of 7973.72gms is considered which is valued at Rs. 2,50,37,481/-, the same is covered in the disclosure of Rs. 4 crore. The arguments of the assessee were not found acceptable by the AO for the reasons that there is no evidence provided regarding availability of about
367.655 gms. of pure gold/bullions found at the time of search as per books of accounts and also that no such explanation was furnished by the assessee at the time of search. As regards incorrect valuation of excess stock of 7973.72 gms. which has been valued at Rs.3,28,50,313/- instead of Rs. 2,50,37,481/- ; same is found correct and hence accepted by the AO. Assessees further argument that 6869.70 gms. of jewellery belonging to the Directors was also lying at the business premises was also not acceptable because as per AO same is not evident from the records/books of accounts. Even during the course of search, the assessee was specifically asked to identify the jewellery belonging to the Directors and their family members but the assessee failed to do so. The AO mentions that in view of the above reasons, the various arguments of the assessee except with regard to incorrect valuation of stock, were not found acceptable and hence rejected. Further, the assessees alternative argument that aforesaid amount of Rs. 2,50,37,481/-was covered in the disclosure of Rs.4 crore was also not found tenable by the AO as assessee had failed to explain and reconcile as to how the excess stock of Rs. 2,50,37,481/- was covered in the disclosure of Rs. 4 crore. The AO mentioned that as per assessees reply received in the office of A.O. on 11.02.2015, disclosure of Rs.4 crore has been made on account of transactions recorded in Annexure A-16, A-19, A-18 seized from the residence premises R-l (residence of Sh. Rakesh Jain) and A-4 & A-14 seized from the business premises and the excess stock of Rs. 2,50,37,481/- is not found covered in the disclosure of Rs. 4 crore as explained by the assessee in its reply filed before the A.O. on 11.02.2015. Accordingly the excess stock of Rs. 2,50,37,481/- was held by the AO to be an unexplained stock, investment in which has not been explained by the assessee. The AO therefore made the addition of Rs. 2,50,37,481/- equivalent to value of the excess stock of 7973.72gms. found at the business premises of the assessee. The facts of the case, the basis of additions made by the A.O. and the arguments of the AR during the appellate proceedings have been considered. The AR has repeated the argument that there was no excess stock and the stock disclosed in the W.T. returns and as per books was more than the stock found at the time of search. It has also been argued that the stock of jewellery weighing 7973.72gms. valued at Rs. 2,50,37,4817- (at the rate of Rs. 3140 per gms.) is truly covered by the surrender of the additional income of Rs. 4 crores made for the assessment year 2013-14 at the time of search. The AR filed the details of surrender made on the account of excess stock as under: As regards the observations of the AO relating to the surrender with the documents found at the time of search, the AR refer to the statement of Sh. Rakesh Jain, the Director of the assessee Company, recorded on 02.11.2012 where the details of the excess stock found and surrender on account of the same has been recorded along with the relation to the entry in the documents seized at Annexure A-16, A-19, A-18 seized from the Residence and A-4, A-14 seized from the SI No. Description of good Quantity Rate (Rs.) Per Amount(Rs.) 1 Gold Ornaments 4,914.750 gms 2,876.00 GMS 1,41,34,820.00 2 Ornaments 14KT 3,712.500gms 1,837.00 GMS 68,19,862.00 3 Diamond in Ornaments 675.000CT 8,085 CT 54,57,375.00 Total 2,64,12,057.00 ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 6 of 45 Business premises. The relevant part (question and answer) of the final statement dated
2.11.2012 recorded at the time of search is as under:- "0.6 I am showing you a diary marked as Annexure A-20 seized from your residence R-l. Please explain the nature of entry in this Annexure A6. Sir, this diary contains the receivables on account of sales of jewellery. Some of these sales are outside the regular books of accounts and is out of the purchases as reflected in diaries mentioned above i.e. A-16, A-18 & A-19 seized from R-l and A-4 & A-14 seized from B-l. I have voluntarily disclosed I an amount of 3.61 crores as unaccounted income in M/s Palace Jewellers (P), Limited for the F.Y. 2012-13 pertaining to all these transactions over and above the normal business income for the year. I would also like to state that the discrepancy in stock is on account/of some of these purchases lying m the stock Q. 11 Physical stock was taken at your shop and it was found that excess stock found was as follows: Gold Ornaments (Converted- - 7973.72 gms valued at Rs. 2,50,37,481/- Into 24 carat pure gold weight) Diamonds in Ornaments - 935 carats valued at Rs. 75,59,635/- Colour Stone - Valued at Rs. 1,26,692/- Gold Images - Valued at Rs. 1,15,115/- Loose Diamonds -14.5 carats valued at Rs. 1,13,901/- Total Value - Rs. 3,28,50,313/- The total excess stock found at the business premises is valued at Rs. 3,28,50,313/- Please explain the excess stock A.11 The excess stock as per the valuers report contains some jewellery belonging to the family which was placed in the strong room of the shop, since we do not have the need of any lockers. The jewellery here is the old jewellery which is not worn by the ladies regularly and is therefore, kept in the strong room for security purposes. This jewellery was identified by my son Gourav on the date of the search. The difference in stock found at the shop is on account of the unaccounted purchases as mentioned above by me, lying unsold in the stock. I have voluntarily disclosed an amount of Rs. 3.61 crores in M/s Palace Jewellers (P) Limited on account of such unexplained investment in jewellery purchased and the discrepancy in stock, if any also stands covered within the said disclosure." The surrender amount was later revised to Rs. 4 crores (Rs. 2,64,12,057 on account of stock and Rs. 1,35,87,943/- on account of cash). The revaluation of the excess stock found at the time of search which was. originally valued at Rs.3,28,50,313/- has been accepted by the AO at Rs. 2,50,37,481/- on the basis of rates prevailing on the date of search. Therefore the value of the excess stock has been taken at Rs. 2,50,37,481/- (7973.72gms @ Rs 3,140/-). From the perusal of the final statement of Sh. Rakesh Jain recorded on 02.11.2012 it is clear that annexure A-l, A-19, A-18 seized from the residence R-1 and Annexures A-4 and A-14 seized from the business premises B-l relates to purchase of jewellery which was outside regular books of accounts and the difference in stock found at the shop was on account of these unaccounted I purchases made by the assessee for which surrender of Rs. 3.61 crores was offered (which was later revised to Rs. 2,64,12,057/-). In view of the above facts there is merit in the arguments of the AR that the addition of Rs. 2,50,37,441/- made by the AO on account of excess stock found at the time of search is covered by the surrender amount of Rs. 2,64,12,058/- made by the assessee under the stock surrender because the surrender is on account of the unrecorded purchases mentioned in annexure A-l, A-19, A-18 seized from e residence R-1 and Annexures A-4 and A- 14 seized from the business premises B-l which were not recorded in the books. The unrecorded purchases will naturally result in creation of unaccounted stock. The observations of the AO that surrender is on account of annexure A-l, A-19, A-18 seized from the residence R-1 and Annexures A-4 and A-14 seized from the business premises B-l and not on account of the excess stock is therefore flawed on the facts of this case. Under the facts and circumstances of the case and on the basis of the details submitted by the AR, his arguments are found acceptable that the surrender amount on account of stock duly covers the excess stock physically found at the time of search. In view of the above, the addition of Rs. 2,50,37,428/- made by the AO, separately on account of excess stock found, over and above the surrender of Rs. 2,64,12,058/- made by the assessee on account of the stock, is not found sustainable enhance deleted. Accordingly this ground of Appeal is allowed.
4.1.1 Assailing the same, it was his submission that the addition made by the AO may be sustained. The Ld. CIT DR on the basis of the above facts and submissions contended that the claim of the assessee that the total declaration of Rupees 4 Crore would cover the said stock has been considered by the AO and the explanation offered by the assessee has been considered and discarded after giving cogent and detailed reasons set out in theA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 7 of 45 assessment order. Since heavy reliance it was submitted is being placed by the Revenue on the same the casual way in which the conclusion has been drawn by the CIT-A, it was submitted is contrary to the speaking findings of the assessing officer
4.2. The Ld. AR on the other hand heavily relying upon the order of the CIT-A submitted that it is not a cryptic order as is sought to be made out by the Ld. CIT-DR and infact it is a speaking order even though the assessees grievance still persists on the other issues. Inviting attention to the record it was his submission that the surrender has been made specifically in terms of the all documents found in the course of search . Initially the surrender was made of Rupees 3.61 crore as per letter dated 02/11/2012 and ultimately on going through the records and documents, the surrender was increased to Rupees 4 crore in terms of the letter dated 11/01/2013 . Copy of this letter it was submitted has been placed at paper book page 51 of the second set of documents/paper book. It was his submission that it was a consolidated disclosure. Referring to the record, it was submitted, that the reply dated 11/02/2015 has been partly accepted by the AO and all the details were all along available before the assessing officer. Statement of the assessee available at paper book page 43 to 49 of the paper book made by the Director Sh. Rakesh Jain recorded on 02/11/2012 was heavily relied upon. Specific emphasis was laid on page 45. Accordingly it was his submission that surrender was made for all the documents seized or found. In the circumstances it was his prayer that the departmental ground may be dismissed.
4.3 We have heard the rival submissions and perused the material available on record. It is seen that the CIT DR in the course of his arguments has heavily relied upon the reasoning and conclusion of the assessing officer stating that the explanation offered by the assessee has been discarded. Heavy reliance is placed by the Revenue on this reasoning. We find on going through this explanation found recorded in the assessment order it is seen that the assessee explained that the excess stock found in the course of the search included the assessees family jewellery which was stored in the strongroom of the business premises. The availability of jewellery in the hands of the family members is supported by declaration made in the wealth tax returns of the family members. The consolidate statement details are available at paper book page 52. These stand unassailed on record. We have gone through the statements of the family members recorded in the course of the search available in the Paper Book wherein while providing the details of the specific bank accounts of the family members that it is stated categorically that no locker has been taken in any of the Banks by the family members. The family jewellery, it is consistently stated has been stored in the state-of-the-art strongroom at the business premises. We find that the said explanation was not accepted by the assessing officer on ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 8 of 45 the reasoning that the said explanation was not offered at the time of the search to the Investigation Wing. We are unable to agree with the aforesaid reasoning. It is seen that apart from this stand alone reason there is no other fact or evidence available on record to upset the consistent explanation. The facts remains that apart from this reason, the AO has not cared to upset the consistent stand of the assessee that the family members do not own any lockers. This observation becomes important in view of the fact that the business premises of the assessee and the residences of the Directors of the assessee company have been searched and there is nothing on record to upset this consistent stand. Even in the present appeal no evidence of rebutting this fact is placed on record by the Revenue. The Ld. CITDR merely relies on the reasoning of the AO. It is further seen that as per the statements recorded of the Directors it is an undisputed fact that the assessee was indulging in disclosed sales and undisclosed sales on account of which fact initially an amount of Rupees 3.61 Crores was offered in the hands of the assessee. Subsequently it was revised to an amount of Rupees 4 Crore. Conclusion drawn by the CIT(A) becomes further fortified by the fact that the assessee in the course of his arguments qua ground No. 3 in the Revenues appeal which we propose to discuss in greater detail later in the order while dealing with the specific ground raised in assessees appeal, however, for the sake of completeness, we deem it appropriate to note that ample evidence has been led to show that in the specific nature of assessees business the jewellery was not normally purchased as it was received on credit from various jewellers etc. and it has been claimed that periodically as and when it was sold the amounts were returned back to the jewellers over a period of time for the jewellery pieces sold. This assertion we note has been supported on the basis of the Journal entries made in the specific ledgers of the specific jewellers where payments have been made by cheques mentioning the specific bank and the specific account numbers. The cheque number and the amount remitted on specific dates. These references, arguments and supporting documents have all been placed on record by the assessee and are also available in the Paper Book. We find on considering the arguments of the parties when considered in the light of the evidences on record that it is imperative in order to consider the facts and evidences in a holistic manner and not in a piece meal manner as has been attempted by the Tax Authorities. As such an approach will lead to coming to incorrect conclusions. On going through the arguments advanced, material available on record and the findings recorded in the respective orders we are of the view that the lingering dispute qua the assessee and the Department in the peculiar facts and circumstances of the present case is qua the issue on account of the reluctance and adamancy of the Revenue in taking a narrow view as opposed to considering the issue in a comprehensive holistic manner. On going through the material on record theA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 9 of 45 submissions of the parties we hold that in the face of the facts as they stand the arguments of the assessee as addressed before the assessing officer and the CIT-A part of which have been extracted in the orders and available in the paper books when considered alongwith the documents available on record which contains copies of the seized documents alongwith submissions of the assessee before the AO the CIT-A we find that the arguments of the assessee that it was a consolidated disclosure deserves to be accepted. Accordingly, considering the documents available on record which contains copies of the seized documents and the explanations of the assessee on record before the tax authorities and the reasoning of the respective tax authorities we find no good reason to vary the conclusion drawn by the CIT(A). Holding the ground to be devoid of merit for the reasons set out hereinabove, ground No. 1 of the Revenue is dismissed.
5. Addressing the next issue raised by the Revenue in the present proceedings wherein the CIT-A has deleted the additions made on the basis of average of pre-search and post-search GP. the Ld. CITDR relies on the reasoning of the assessing officer which has been elaborated by the AO in the assessment order. It is seen that the facts are found discussed in Paras 14 to 16 at pages 12 to 15 of the assessment order. Since heavy reliance is placed by the Revenue thereon the same is reproduced for ready reference:
14. "Q. 1. Unaccounted Turnover Your Honour have mentioned that during the course of search operations, certain loose papers were found from the residence ofSh. Rakesh Jain, one of the Directors of the assessee company as Annexure A-5 of R-l along with other diaries A-16, A18, and A 19 and A-4 and A-14 from the business premises (B-l) in which certain entries were found which appear to be unaccounted. Your Honour have also calculated the amount of total sales as per Annexure A-5 and has been worked out at Rs. 20,27,60,951/- . However, in the statement given by Sh. Rakesh Jain on 02.11.2012 during the course of search on confronting the same annexure stated that the total turnover of the assessee company as per these papers should be around Rs.13 to Rs. 14 crores while the sales as books must be around Rs. 10 crores. Your Honour have asked us to show cause as to why appropriate addition on account of unaccounted sales may not be made. In reply, it is respectfully submitted that the pages in Annexure A-5, are date-wise summary of total entries/ cash transactions/sales made by the assessee company. As such these include sales both accounted and unaccounted. Your Honour will appreciate that in the case of assessee companys line of trade normally customers do not want to have any sale bill. Rather they used to purchase items in cash. But the assessee company has to show sales. Therefore, the assessee company used to issue bills either of the same amount or of a different amount in cash or in the name as per desire of the customer. As such, the sales which Your Honour have considered as per Annexure A-5 includes sales which have already been accounted for by the assessee company in its books of accounts. Further, it is submitted that there are some mistakes in calculating the sales by Your Honour which has been worked out at Rs. 20,27,60,951/-, such as the opening cash in hand of the day is included in the total sales for the day, the amount withdrawn from chest (ooper se) or like other mistakes. The assessee company has drawn a chart showing total sales as per these papers (Annexure A-
5) which has been worked out at Rs. 16,47,31,990/-, details of which has already been submitted while replying to Annexure- 5 Separately. As mentioned earlier, this includes both accounted and unaccounted sales as the entire working of the day has been given on these papers (date-wise) only. If the amount of sales up to the date of search i.e. 31.10.2012 amounting to Rs. 10,15,62,4661- is reduced from the total sales as per Annexure A-5 as worked out by the assessee company, the unaccounted sales comes to Rs. 6,31,69,5241-. ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 10 of 45 The gross profit margin of the assessee company was 2.76 % for the ending 30.10.2012. If this rate of gross profit is applied, the profit element comes to Rs. 17,43,480/- on the amount of unaccounted sales, -which stands covered by the amount of additional income of Rs. 4 Crores already surrendered while making a statement u/s 132 (4) of the. No separate addition is called for in such circumstances.
15. Aforesaid arguments of the assessee company have carefully been considered. As per assessee s argument sales made outside the books of accounts, as noted in Annexure A-5 seized from premises R-I i.e. residence of Sh. Rakesh Jain; one of the directors of the assessee company admittedly are of Rs. 16,47,31,990/- as against sales of Rs.10,15, 62,466/- recorded in the books of accounts at the time of search dated 31.10.2012. Assessee has tried to explain the excess sales of Rs.6,31,69,524/- (16,47,31,990 - 10,15,62,466) by stating that profit on the basis of G.P. margin on above sales at 2.76%" comes to Rs.17,43 ,480/- which stands covered in the additional income of Rs.4 crore surrendered while making a statement u/s 132(4) of the and no separate addition is called for on this account. Aforesaid arguments of the assessee have been considered but are not acceptable.
16. As per seized documents, assessee has made sales outside the book of accounts and, therefore, appropriate addition on account of profit on such sales and investment made to effect such unaccounted sales of Rs.6,31,69,524/- is also required to be made. As far as profit element is concerned, it is seen that assessee has shown G.P. of 2.76% on the sales made between the period 01.04.2012 to 31.10.2012 i.e. upto the date of search in the F.Y. 2012-13 and G.P. of 12.13% on the sales made form
01.11.2012 to 31.03.2013 i.e. remaining part of the F.Y. 2012-13. In other words, there is a / jump of almost 10% in the G.P. rate from the pre-search period to the post-/ search period which is surprising. Taking into account facts discussed above, gross profit is estimated at 7.44% (average of G.P. of 2.76% shown in the pre-search period and of 12.13% shown in the post-search period) on the unaccounted sales of Rs.6,31,69,5247- which comes to Rs.46,99,812/- instead of Rs. 17,43,4807-. Accordingly, addition of Rs.46,99,812/- is made on account of profit earned on the unaccounted sales of Rs.6,31,69,524/-, as the same can not be said to be covered in the disclosure of Rs. 4 crores, as the assessee has failed to reconcile me same. Since, the assessee had concealed the income by furnishing the inaccurate particulars, as discussed above, the penalty proceedings u/s 271AAB of the I.T. Act, 1961 are initiated separately on the above issue. (Addition of Rs.46,99,812/-)
5.1 The issue was carried in appeal before the CIT-A who has addressed the same in para-3.4 at pages 24 and 25 of his order. Carrying us through the same the relief granted by the Ld. CIT(A) was assailed by the Ld. CIT DR. Relevant findings under challenge by the Revenue are reproduced hereunder for ready reference :
3.4 Ground of Appeal No. 4 pertains to addition of Rs. 46,99,812/- on account of estimated profit on unaccounted turnover noticed during the course of search. The AO mentioned that during the search a bunch of date-wise loose paper containing daily sales of the assessee was seized which showed that the total sale of the assessee company till date of search (i.e 31.10.2012) was Rs. 20,27,60,951/-.The Director Sh. Rakesh Jain replied on the query about this unrecorded sales in his statement dated 02-11-2012 at the time of search as under: "Q.3 I am showing you annexure A-5 seized from your residence i.e. 11-12, Ram Bagh, adjoining Aggar Nagar-A Ludhiana (Premise Code R-l) Please explain the nature of entries in this annexure A.3 This is a date wise account of all the transactions in M/s. Palace Jewellerrs (P) Limited from the date of opening of the concern i.e. 14.04-2012 till 29.10-2012. This contains both the accounted and unaccounted transaction of the concern. The total turnover of the concern as per these papers should be around Rs. 13 to Rs. 14 crores, ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 11 of 45 while. that as per books must be around Rs. 10 crores. I shall have to go through these papers carefully to determine the same." As per AO, during the assessment on 25.02.2015 the assessee was confronted with the total sales of Rs. 20,27,60,951/- and was given a show cause why appropriate addition on account of unaccounted sales may not be made accordingly. The assessee company filed reply dated 02.03.2015 explaining that in the statement given by Sh. Rakesh Jain on 02.11.2012 during Tie course of search, on confronting the same annexure, stated that the total turnover of the assessee company as per these papers should be around Rs. 13 to Rs.14 crores while the sales as books must be around Rs. 10 crores. Regarding the addition on account of unrecorded sale the assessee submitted that the pages in Annexure A-5, are date wise summary of total entries/ cash transactions/ sales made by the assessee company. As such these include both accounted and unaccounted sales. Further, it was submitted that there are some mistakes in calculating the sales which has been worked out at Rs 20, 27,60, 951/- such as the opening cash in hand of the day is included in the total sales for the day, the amount withdrawn from chest (ooper se) has also been included apart from such other mistakes. The assessee company has drawn a chart showing total sales as per these papers (Annexure A-5) which includes both accounted and unaccounted sales as the entire working of the day has been given on these papers (date-wise). As per the assessee if the amount of sales recorded up to the date of search i.e. 31.10.2012 amounting to Rs. 10,15,62,466/- is reduced from the total sales as per Annexure A-5 as worked out by the assessee company, the unaccounted sales comes to Rs. 6,31,69,524/-. The gross profit margin of the assessee company was 2.76% for the period ending 30.10.2012 and if this rate of gross profit is applied, the profit element on the amount of unaccounted sales comes to Rs. 17,43,480/-" which stands covered by the amount of additional income of Rs. 4 crore already surrendered while fm along a statement u/s 132(4) of the. As per the assessee no separate addition is called for in such circumstances. These arguments of the assessee company were considered but not found acceptable by the A.O. As per the A.O. the assessee has accepted sales of Rs. 6,31,69,524/-outside the books of accounts, therefore appropriate addition on account of profit on such sales and investment made to effect these unaccounted sales is also required to be made. The A.O. took the average of pre- search period GP rate ( 2.76% ) and post search period GP rate ( 12.13%) for calculating the profit and applied the GP rate of 7.44 % on unaccounted sales and calculated the undisclosed profit earned as Rs. 46,99,812/-(6,31,69,524 X 7.44%). Hence addition of Rs 46,99, 812/- was made on account of profit earned on the unaccounted sale of Rs. 6,31,69,524/- by observing that the same cannot be said to be covered in the disclosure of Rs. 4 crore, as the assessee had failed to reconcile the same. The facts of the case, the basis of additions made by the A.O. and the arguments of the AR during the appellate proceedings have been considered. The AR argued that the unaccounted sales relates to pre-search period only and therefore the gross profit rate of 2.76 % as per the book result on 31.10.2012 should be applied and not the average profit rate of pre search I period and the post search period. As per submission, by applying this rate the gross profit come to Rs. 17,43, 480/- which is more than adequately stands covered in the surrender amount of Rs. 4 crores made by the assessee under Section 132(4). The AR argued that no separate addition is called for. The AR has filed the copy of the final statement of Sh. Rakesh Jain, Director recorded on oath on 02.11.2012 at the time of concluding the search and Q.5 is relevant for the purpose of the unrecorded sales. The same is reproduced below:
Q5. Are these entries reflected in the books of accounts A5. No sir, these soles are made outside regular books of accounts. In order to cover up my unexplained investment for the purchase of this jewellery and the profit earned thereon, I hereby voluntarily disclose an amount of Rs. 3.61 crores as unaccounted income in M/s Palace Jewellery (P) Ltd. for the F.Y. 2012-13 over and above the normal business income for the year." The surrender amount has later been revised as 4 crore vide letter dated 11.01.2013 and the heads of the surrender, as already mentioned, were Stock Rs. 2,64,12,057/- and Additional Income Rs. 1,35,87,943/-. Under these facts and circumstances of the case the arguments of the AR are found acceptable that the income earned on unaccounted sales and the investment made therein stands duly covered by the surrender amount of ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 12 of 45 Rs. 4 crore which has been offered for the assessment year 2013-14 and accepted by the A.O. The final statement recorded at time of search on 02.11.2012 clarifies the position that the surrender was made on account of both, the unaccounted investment in stock as well as the income earned on the same. A sum of Rs. 1,35,87,943 has been surrendered exclusively on account of income earned out of the unaccounted sales. Since no inadequacy/irregularity in this regards (in the surrender made) has been pointed out by the A.O., the addition made by the A.O. on account of profit earned on unaccounted sales over and above the disclosure of Rs. 4 crore is not found sustainable and hence deleted. According this ground of appeal is allowed.
5.2 The Ld. CIT DR heavily relying upon the assessment order submitted that the assessing officer has passed a speaking order bringing out the rationale for applying the average GP of the assessee itself of the pre-search and post search and the CIT-A in the facts and circumstances of the present case has drawn a conclusion without addressing the reasons. Reading from the order assailed it was submitted that the CIT(A) has blindly accepted the submissions advanced on behalf of the assessee and has held that it is covered in the surrender made. The reasoning of the CIT-A it was submitted is heavily questioned by the Department the addition made by the assessing officer, it was requested be restored.
5.3 The Ld. AR on the other hand heavily relying upon the impugned order submitted that in the surrender made by the assessee initially of Rs. 3.61 crores which was revised to Rs. 4 crores the GP rate on the sale of undisclosed transactions had already been factored in. The surrender it was submitted is not made in air and is made based on the seized documents and thus to thereafter consider making the said addition in the peculiar facts it was submitted would not only be most unfair and incorrect, it would also amount to double addition as it has already been factored in the surrender. The reasoning and rationale of the assessing officer it was submitted on the other hand was contrary to facts on record and was most unfair and incorrect in the peculiar facts and circumstances of the present case. The ground it was submitted may be dismissed.
5.4 We have heard the rival submissions and perused the material available on record. We find that in the facts of the present case the assessing officer has made the GP addition OF Rs. 46,99,812/- applying the estimated average GP rate of the pre-search and post search period on the unaccounted sales of Rs. 6,31,69,524/- . The amount of 6 Crore odd has been calculated on the basis of certain loose papers found from the residence of Sh. Rakesh Jain one of the Directors of the assessee company. The statement of Sh. Rakesh Jain has been relied upon who has accepted the fact that there were certain unaccounted sales. A perusal of the assessment order shows that the assessee was confronted with the seized documents described as Annexure A5 on the basis of which the Director was required to explain the same. The assessing officer has taken note of the fact that the total sales as per ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 13 of 45 this document works out to Rs.20,27,60,951/-. The assessee in its explanation dated 02/11/2012 recorded in the assessment order itself is known to have stated that as per the papers the total turnover should be Rs. 13 to Rs. 14 crores. The assessing officer takes note of the fact that the sales as per the books were around Rs. 10 crores. Confronted with the fact that the documents described as Annexure A5 infact records total sales of Rs. 20,27,60,951/- the assessee is known to have stated in reply as recorded in the assessment order that,
the Pages in Annexure A5, are date wise summary of total entries/cash transactions/sales made by the assessee company. As such these include sales both accounted and unaccounted. Your honour will appreciate that in the case of assessee companys line of trade normally customers do not want to have any sale bill. Rather they used to purchase items in cash. But the assessee company has to show sales. Therefore, the assessee company used to issue bills either of the same amount or of a different amount in cash or in the name as per desire of the customer. As such, the sales which your honour have considered as per Annexure A 5 include sales which have already been accounted for by the assessee company in its books of accounts. Further, it is submitted that there are some mistakes in calculating the sales by your honour.On a reading of the order, it is seen that the calculation mistakes were accepted by the assessing officer who finally computed that there was Unaccounted sales of Rs. 6,31,69,524/-. The assessees submissions recorded in the assessment order itself, it is seen brought to the notice of the AO that the GP rate for the year ending 30/10/2012 is of 2.76% and it has been stated that it has been applied to the unaccounted sales. The assessee submitted at the first instance itself that the resultant profit thereon worked out would be Rs.17,43,480/- and it stands covered in the additional income of Rs. 4 crores surrendered. A perusal of the assessment order shows that the assessing officer considering the fact that the assessee has shown a GP rate of 2.76 upto the date of search and a GP rate of 12.13% on the sales made from 01/11/2012 to 31/03/2013 applied the average GP rate of pre-and post search which worked out to 7.44% and applied the same to make the addition under challenge. The said order was upset by the CIT-A and the said decision has been assailed by the Revenue. A perusal of the impugned order which has also been extracted in the earlier part of this order shows that the deletion has been made on the grounds that the assessee referring to the material available on record submitted that the undisclosed sales pertained to the pre-search period and therefore the gross profit rate of 2.76% as per books result as on 31/10/2012 assailed by the department should be applied. Attention has been invited to the final statement of Sh. Rakesh Jain, Director recorded on oath on 02/11/2012 at the time of conclusion of the search wherein on being confronted with the specific document he was required to address the same in question ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 14 of 45 No. 5 recorded by the Investigation Wing. The question put forth by the Revenue was that are these entries reflected in the books of accounts In response to this question No. 5 the assessee as per the paper books available on record and the relevant extract available in the impugned order has stated,
No Sir, these sales are made outside regular books of accounts. In order to cover up and any unexpected investment for the purchase of this jewellery and the profit earned thereon, I hereby voluntarily disclose an amount of Rs. 3.61 crores as unaccounted income in M/s Palace jewellery (P) Ltd for the year FY 2012 13 over and above the normal business income for the yearIt is seen that the submission of the assessee have been considered and found supported by statements recorded at the time of the search and material available on record. The CIT-A takes note of the fact that the surrendered amount was later revised to Rupees 4 Crore vide letter dated 11/01/2013. Thus, it is seen that the conclusion has been arrived at after considering the facts and evidences whereupon the CIT-A held that the submissions of the assessee to be acceptable and held that the surrender was made on account of unaccounted investment in stock as well as income earned out of the unaccounted sales. In the absence of any contrary fact or evidence considering the material available on record we find no infirmity arrived at by the CIT-A in the impugned order. Accordingly being satisfied by the reasoning and the conclusion the departmental ground is dismissed.
6. The last issue agitated by the Revenue in the present proceedings it was submitted by the Ld. CIT DR is discussed in paragraph 17 at page 15 to 17 of the assessment order. Relying on the same it was his submission that the deletion of the addition in the face of the reasoned speaking order of the AO it was submitted was contrary to facts. Carrying us through the reasons set out in the assessment order which had been deleted by the CIT-A, the order passed by the Appellate Authority was assailed. For the sake of completeness the relevant findings of the assessing officer heavily relied upon by the Revenue are reproduced hereunder:
17. As regards investment made to effect the unaccounted sales of unaccounted sales of Rs.6,31,69,524/-, same will also have to be estimated in the absence of specific details given by the assessee in this regard. For the purpose of making investment to effect the unaccounted sales of Rs.6,31,69,524/-, one can reasonably rely upon the funds used to effect the turnover as recorded in the regular books of accounts. The Extracts of the Balance Sheet for the year ended 31.03.2013 filed by the assessee during the course of assessment proceedings is as under: SrNo. Particulars Amount (in Rs.) as on 31.03.2013 as on Equity & Liabilities 1 Share Capital 8402000 2 Reserve & Surplus 34221647 ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 15 of 45 3 Long Term Borrowings 41075689 4 Deferred tax Liabilities 577837 5 Short Term Borrowings 98258145 6 Trade Payables 4133255 7 Other Current Liabilities 4274101 8 Short Term Provisions 9429600 Total 200372275 Assets 1 Tangible Assets 26839935 2 Other Non Current assets 25336 3 Long Term Loans & advances 38350 4 Inventories 168443664 5 Trade Receivable 333891 6 Cash & Cash Equivalent 886585 7 Short Term Loan & advances 3804514 Total 200372275 It is noticed from balance-sheet and profit & loss account of the assessee company for the year relevant to the current A.Y. i.e. A.Y. 2013-14, as noted in this order that the total liabilities of Rs. 20 crores have been shown to effect the turnover of Rs.21.68 crores. However, the liabilities of Rs. 20 crores have also been invested inter-alia; in the fixed assets of Rs. 2.68 crores and inventories of Rs. 16.84 crores. In view of the above, it is difficult to identify the actual investment made to effect the turnover of Rs. 21.68 crores out of the total available funds of Rs. 20 crores. Taking into account all the facts and circumstances of the case, it would be reasonable and justified to estimate the investment in unaccounted sales of Rs.6,31,69,524/- at 15% of the total such turnover which comes to Rs.94,75,428/-. Accordingly, addition of Rs.94,75,428/- is made on this account. It is clarified here that the aforesaid sales recorded in Annexure A-5 seized from premises R-I based on which unaccounted sales of Rs.6,31,69,524/- are worked out, have not been taken into account by the assessee while working peak of the disclosure made on the basis of document No. A-16, A-19, A-18 seized from the premises R-I (residence of Sh, Rakesh Jain) A-4 and A-14 seized from the premises B-I i.e. business premises. In view of the above, separate addition of Rs.94,75,428/- is made on account of investment made to effect the unaccounted sales of Rs.6,31,69,524/-. Since, the assessee had concealed the income by furnishing the inaccurate particulars, as discussed above, the penalty proceedings u/s 271AAB of the l.T.Act,1961 are initiated separately on the above issue. (Addition of Rs.94,75,428/-)
6.1 The Ld. CIT DR carrying us through the specific paras of the impugned order wherein relief has been granted by the CIT-A challenged by the Revenue in the present proceeding assailed the finding stating that relief has been granted on the basis of presumptions . The relevant finding in para-3.5 at pages 26 to 27 of the CITs order is reproduced hereunder for the sake of completeness:
3.5 Ground of Appeal No. 5 pertains to addition of Rs. 94,75,428/- on account of alleged estimated investment required for the purpose of effecting the unaccounted turnover of Rs. 6,31,69,524/-. The A.O. noticed that from the balance sheet and profit & loss account of the assessee company for the year relevant to the A.Y. 2013-14, the total liabilities of Rs 20 crore have been shown to effect theA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 16 of 45 turnover Rs. 21.68 crore. However the liabilities of Rs. 20 crore have also been invested inter-alia in the fixed asset of Rs. 2.86 crore and inventory of Rs. 16.84 crore. In view of the above, as per AO it was difficult to identify the actual investment made to affect the turnover of Rs. 21.68 crore, out of the total available funds of Rs. 20 crore. The A.O. mentioned that taking into account all the facts and circumstances of the case, it would be reasonable and justified to estimate the investment in unaccounted sales of Rs. 6,31,69,524/- at 15% of the such total turnover, which comes to Rs. 94,75,428/-. Hence addition of Rs. 94,75,428/- was made by the A.O. on account of investment made to effect the unaccounted sales of Rs. 6,31,69,524/- . The facts of the case, the basis of additions made by the A.O. and the arguments of the AR during the appellate proceedings have been considered. The AR argued that no separate investment was required as the gold ornaments were being taken/bought on credit varying from three to five months and in support, the AR filed copy of accounts of the parties from whom the jewellery was bought. It was further argued that though no new investment was made, alternatively same would stand adequately covered in the amount surrendered. The assessee has surrendered Rs. 4 crore and as already mentioned it was on account of Stock Rs. 2,64,12,057/- and surrender Income as cash Rs. 1,35,87,943/-. It is also to be noted that the investment has been estimated at 15% of the turnover and the A.O. has no basis for this percentage. Under these facts and circumstances of the case the arguments of the AR are found acceptable that the unaccounted sale, if any, were made out of the unrecorded stocks only. Since the additional stocks has already been surrendered by the assessee and accepted by the A.O., no further addition on account of investment was required. The rate adopted by the A.O. at 15 % of the unaccounted sales is also without any basis and therefore the same is not found sustainable and hence deleted. According this ground of appeal is allowed.
6.2 Heavily relying upon the assessment order it was submitted by the Ld. CIT-DR that the assessing officer in the facts of the present case has elaborately discussed and most fairly and reasonably considered that cost of investment to the extent of only 15% of unaccounted sales should be added. The said exercise it was submitted has not been casually carried out by the AO as he has attempted to consider the availability of the funds with the assessee. Accordingly in the peculiar facts and circumstances the deletion of the said addition by the CIT-A without addressing these facts was heavily assailed on grounds of being contrary to facts and record.
6.3 The Ld. AR on the other hand inviting attention to page 97 of the paper book wherein the assessee has carried out a reconciliation of valuation of stock as on 31/03/2013 after considering pages 95 to 97 read along with the DVOs report which is available at paper book page 23 to 31 invited specific attention to paper book page 32 wherein the sum total of the entire calculations of the DVO have been totalled at the end. It was submitted that when these are read alongwith the assessees reply dated 10/2/2016 available before the assessing officer from pages 130 to 138 of the paper book, a portion of this has been extracted in the assessment order also, it would be seen that the specific total of all the gold (ornaments, coins etc) diamonds, loose stones etc. whether found from the business premises of the assessee or the residential premises of the Directors have all ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 17 of 45 been addressed both gross weight-wise and the net weigh-wise of gold jewellery with/without stones, diamonds etc. in the reconciliation placed on record by the assessee before the assessing officer itself. Attention was invited to paper book pages 95, 96 and 97 available on record. Referring to the Report of the Valuation Officer of the Department as well as the reconciliation of the assessee and the consistent explanation available on record it was submitted that not only the gross and net weight of gold converted into 24 K. had been addressed but also the weight of the loose diamonds; diamonds in jewellery; the weight of the stones whether loose or in the jewellery from the respective places has been fully addressed by the assessee which the AO proceeds to ignore for unstated reasons. It was submitted that once the reconciliation of the assessee and the DVOs Report are seen when read along with the surrendered amounts for stock and profits etc. it would be seen that it is identical to what has been totalled by the Departmental Valuation Officer. Referring to the said letter addressed by the assessee to the AO, it was his submission that it expresses the assessees extreme shock and surprise where despite the fact that the assessee has made a disclosure of Rs. 4 Crores in good faith, the Department despite this chooses to consider this to be not adequate and proposes to randomly estimate the probable expenditure on investment fully aware of the business realities. Not only ignoring the basic fact that the funds were available on rotation with the assessee which have been utilised by the assessee as it was not the case of Department that any investments have been. The unfairness of the department, it was submitted, would be evident as the AO also proceeds to separately address the contents of a pen drive which contained the references to these very sales etc some of which constituted disclosed sales and some unrecorded/undisclosed sales. It was his submission that admittedly the assessees premises have been searched and the entire stock available has been found to be less than what was available in the books . At the cost of reiteration it was submitted that the jewellery available partly consisted of jewellery of the family members. Inviting attention to letter dated 10.02.2016 addressed to the assessing officer copy placed at paper book page 130 it was submitted that the business premises as per the said letter itself
boasted installation of the best strongroom for storage and safe custody of jewelleryReferring to page 131 of the paper book it was submitted that physical inventory both at the business premises as well as the residential premises of the Directors had been carried out by the Department alongwith a Report of the Valuation Officer Sh. Arun Talwar and Sh. Anand Prakash Sekhri (referring to page 131 of the paper book) the assessee it was submitted right at the outset pleaded that difference is on account of valuation that is rate and not on account of quantity, attention was invited to paper book page 132 of the paper book; referring to page 134 it was submitted that the assessee heavily relies upon theA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 18 of 45 submissions before the AO. Specific attention was invited to the following extract thereof wherein assessees own words before the AO, it is pleaded
after having searched extensively there was and could not be any item of jewellery or even a grain of the same as could be said to emerge from nowhere during the course of examination of records or at the stage of assessment The Department officials finding no adverse as above impounded and seized documents from both the premises and pressurised the company and its officials for declaration of additional income.. under the scare of search and to avoid any litigation and consequent loss of peace with its resultant effect on business, the applicant voluntarily offered Rs. 4,00,00,000 (Rs. 4 crore) under section 132 (4) read with section 271 AAB of the income tax act, 1961 on account of any item of jewellery/cash and/or any addition as may be liable to be made on account of profits earned/investment made in some unrecorded transactions as may be later adjudged, opined, considered to be in excess of what already stood recorded in the books regularly maintained as had been shown in the wealth tax return is being regularly filed by the directorsIn these circumstances it was submitted the random additions proposed by the assessing officer some of which have been deleted by the CIT-A apart from the addition which has been sustained qua which the assessee is in appeal before theA T in the said background it was his submission that no addition in the face of the surrender of the assessee was required. Inviting attention to paper book page 95, 96 and 97 again it was submitted that complete reconciliation with what was found in the course of the search and what has been extracted in the A 22 which is the extract of the pen drive described by the Department as Stock Management Summary which would be addressed in the assessees appeal in greater length and also the loose documents found from the Directors residence wherein it has been explained that bills etc were made at the request of the parties mentioning the amounts as per their requirements and at times the parties did not want a bill and purchases were made in cash in all these eventualities the assessee in its own interests necessarily wanted to maintain a check on what was sold as recorded and what was sold where the clientele either did not want a bill or wanted that a different amount be recorded. The loose documents and also the Stock management Summary i.e. the pen drive contained the description of the very same transactions i.e. recorded and unrecorded sales and that too haphazardly and it is for this specific reason and these facts which had been covered in the surrender of Rs. 4 Crore in order to buy peace. Thus, separate additions on different counts, it was submitted, was contrary to facts and law as there was nothing available on record to justify the additions. For ready reference we reproduce pages 95; 96 and 97 heavily relied upon by the Ld. AR. ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 19 of 45 ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 20 of 45 ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 21 of 45
6.3.1 Reading these alongwith the DVOs Report it was submitted, no additions on facts were warranted. Referring to the record it was his submission that the present case is not a case where the assessee in the course of the search proceedings offers to surrender a certain amount and thereafter resiles from the position on considering the facts and the documents available. The assessee in the facts of the present case has fully abided with the disclosure made. It was also his submission that it needs be borne in mind that the year under consideration was the first year of assessees business. Referring to the submissions of the assessee before the assessing officer available on record it was his submission that despite the fact that the assessee repeatedly maintaining more than a few times in his written submissions before the assessing officer that infact surrender was not warranted ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 22 of 45 he has in good faith not only increased the surrendered amount from Rs. 3.6 Crore to Rs. 4 Crore but has also abided by the surrender made by paying all taxes etc. thereon. The additions made in the manner proposed it was his submission tantamounts to double addition. Reverting to the issue under consideration reference was made to various pages in the paper book available before the assessing officer and the CIT-A on the basis of which it was his submission that the material available on record demonstrates that infact there was no investment for stock by the assessee. The accepted and prevalent trade practice, it was submitted, is that ornaments and jewellery are taken on credit and as and when sale occurs the payments are made. As an illustration attention was invited to paper book page number page 159 which is a letter addressed to the assessing officer. Specific page 161 was also referred to. Attention was again invited to as an illustration to paper book pages 123 to 125 which would show that jewellery is taken on credit from Satyam Jewellery House of Amritsar. Pages 123 to 125, it was submitted, is a copy of the Ledger account of the said jeweller which would show that jewellery is taken on credit from the specific jewellery shop and payments are made in a periodic manner on different dates repaying back as and when sales of their jewellery was made . The Journal entries, it was submitted, would show that not only the specific bank account has been named but even the specific bank account number to which money has been remitted is mentioned along with the amounts remitted by cheques wherein the specific cheque numbers have also been mentioned. Similarly addressing paper book pages 126 to 128 which is a copy of the Ledger account of a jeweller Royal Jewellery India Private Limited of Ludhiana where again it is evident that jewellery is taken on credit and payment by way of specific cheques mentioning the bank; naming the specific account number and the cheque numbers on different dates remitting payments for the jewellery as and when sold. Accordingly it was his submission that the additions on facts has been correctly deleted by the CIT (A).
6.4 We have heard the rival submissions and perused the material available on record. The relevant documents to which our attention has been invited by the parties have all been taken into consideration before arriving at a conclusion. A perusal of the record shows that the assessing officer considering the fact that the assessee had admitted making unaccounted sales made additions estimating the cost of investments for effecting those sales. Considering the balance sheet of the assessee he noticed that the total liabilities of the assessee were 20 crores to effect the turnover of Rs. 21.68 crores. He further noticed that the liabilities of Rs. 20 crores to the extent of Rs. 2.68 crores had been invested in fixed assets. Apart from that he noticed that the assessee also had inventory is of Rs. 16.84 crores . In the circumstances he was of the view that it would be reasonable ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 23 of 45 and justified to estimate the investment for effecting the unaccounted sales of Rs. 6,31,69,524 at 15%. Accordingly, the estimated addition was made to address the investment made to effect the unaccounted sales. The said addition on challenge before the CIT-(A) in appeal was deleted. The said decision of the CIT(A) is under challenge in the present proceedings. A perusal of the impugned order which has been extracted in the earlier part of this order shows that the CIT-A has taken note of the arguments advanced on behalf of the assessee which is in effect reiteration of the submissions made before the assessing officer namely that in the peculiar facts and circumstances of the present case no separate addition for investing in stock was infact required to be made. It has been referred to on behalf of the assessee and the arguments considering the facts have been accepted by the CIT-A namely that in the business of sale of gold ornaments, the jewellery is not necessarily outrightly purchased. Normally, the jewellery is taken on credit for a period of 3 to 5 months which arrangement varies from time to time with the different parties. It is a matter of record that copies of accounts of the parties from whom the jewellery was taken on credit were relied upon and have been considered. We note that in the facts of the present case the assessee has put up before the tax authorities the primary contention that in the facts and circumstances of the present case no investment was made to carry out the unaccounted sales. It is further seen from the record that the assessee has also contended that the money after effecting the accounted and unaccounted sales is anyway also available on rotation thus on this ground also addition made by the assessing officer by way of estimates in the peculiar facts and circumstances of present case was not warranted. Apart from these submissions/contentions it has also been submitted on behalf of the assessee alternately that even otherwise it would stand adequately covered by the amount surrendered by the assessee. A perusal of the impugned order shows that the CIT-A proceeded to delete the addition on the reasoning that the rate adopted by the assessing officer at 15% had no basis further the same could be held to be covered under the additional stocks surrendered. Accordingly on going through the entire facts circumstances and submissions of the parties before the Bench alongwith the documents to which our attention has been invited we find that in the peculiar facts and circumstances of the present case nothing has been placed before us by the Revenue to assail the consistent argument that as per general trade practices the jewellery was taken on credit from the respective parties whose Ledger accounts have been placed before the tax authorities on the basis of which it has been argued that the jewellery was obtained on credit and as and when sales were affected the amounts were remitted to the said jeweller as such no investments was required. Further we notice that the CIT-A has taken cognizance of the fact that even otherwise there is a surrender for ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 24 of 45 unaccounted stock accordingly in the peculiar facts and circumstances of the present case we find ourselves unable to accede to the submissions of the Ld. CIT-DR. The order of the CIT(A) is upheld in the absence of any contrary material. Accordingly, the ground of the Revenue is dismissed
7. The sole issue agitated by the assessee in the present appeal pertains to the addition made by the AO and sustained by the CIT(A) on the basis of Annexure A-22 which is an extract from the pen drive found in the course of the search from the residence of Director of the assessee described as Stock Management System. The relevant facts are found addressed by the assessing officer at pages at pages 5 to 11 of his order and for the sake of completeness are extracted hereunder: 9. Excess stock as per
Stock Management System Summary: Vide this office letter dated 23.03.2015 in para 3 the assessee was show caused as under :- " Please refer to party R-l, Annexure A-22 which is a pendrive seized from your residence, according to which your stock as per stock Management System, summary, gold ornaments, Net weight is shown as 35928.216 gms, diamond studded jewellery is shown at 34358.526 gms., D.weight 5742.460 gms. The copy of the pendrive was given to you on 10.02.2015. Since, stock in your books of accounts of M/s Palace Jewellers Pvt. Ltd. has been shown at much less weight /, value, why the excess may not be added in your income as per this sheet. " In response vide reply filed on 27.03.2015, the assessee has stated as under:- "Vlde the next show cause, Your Honour have asked as to why the stock as per stock management system (as per Annexure A--22, Party Rl) a summary of gold ornament weighing 35928.216 grams, diamond studded jewellery weighing 34358.526 grams and the diamond weighing 5742.46 grams was provided which is as per the stocks of your books of accounts of M/s Palace Jewellers (P) Ltd. and whereas the stock has been shown much less weight / value, why the excess may not be added in your income In reply, it is respectfully submitted that as per the stock summary provided by Your Honour which appears to be of some date i.e. likely to be of
28.10.2012 since the entries in this stock details also includes various dates and also of
28.10.2012. Moreover, net weight of gold jewellery as well as the diamond studded jewellery is of 22 karat gold and 14 karat gold only. A search operation has been carried out at the business premises of the assessee company i.e. M/s Palace Jewellers (P) Ltd. on 31.10.2012. Stock summary has been drawn as per physical as well as per books of accounts. Whatever stocks were found have duly been explained during the course of assessment proceedings. As per the physical verification stock weighing 43,581.66 grams of 24 Karat was found. In addition to this, stock weighing 5,093.735 grams of 24 Karat was also lying with labour, who took material from the assessee company and return after converting the same into ornaments/ sent to them for repairs/ alteration etc. The total stock weighing 48,675.395 grams ( 24 karat) was found which has been duly mentioned in the reply to the show cause notice. In addition to this diamond 4,809.14 carat was also found. Whatever difference was there in the stocks as per books of accounts and physical verification, has duly been explained vide reply to Your Honours show cause notice dated 24.12.2014. In the detailed reply with respect to the nature of business and system of working as well as accounting were also submitted. It has never been denied that the assessee company has not been indulged in purchase / sales without recording the same into the books of accounts. Therefore, the shortage / excess of stock has been covered by the purchases / sales made by the assessee company without recording into the books of accounts. Finally as on the date of search i.e. on 31.10.2012, when the entire stock has been physically verified by the Learned Authorised Officers and whatever difference was there has duly been explained and adequate surrender of additional income was also offered on account of difference both in the stock as well as on account of the purchases & sales made out of ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 25 of 45 books of accounts and profit element thereon. Nothing is left for consideration in respect of this stock summary. Further, this is a summary which is in between date of start of the year as well as the date of search and duly covered by the stock physically verified and as per books. In view of the j submission made, no adverse inference is drawable on this count. "
11. Assessees aforesaid arguments have been considered as discussed hereinafter. Assessees main argument is that the aforesaid excess stock shown in the stock summary statement has been explained and is otherwise also covered in the excess stock found at the time of search in the business premises of the assessee. Moreover, the same is also covered in the disclosure/additional income offered on account of difference both in the stock as well as on account of purchases and sales made out of books of accounts and profit element thereon. Aforesaid arguments of the assessee have carefully been considered but are not acceptable. As discussed in the preceding paragraphs of this order, excess stock weighing 7973.72 gms. valued at Rs.2,50,37,481/- found at the business premises of the assessee at the time of search has been held unexplained and consequently addition of Rs.2,50,37,481/- has been made on this account. It has also been observed in the preceding paragraphs that value of excess stock of Rs.2,50,37,481/- is not covered in the disclosure of Rs. 4 crore. However, assesssees arguments that excess stock shown in the stock summary dated 28.10.2012 is a precursor to the stock/excess stock found at the time of search in the business premises of the assessee on 31.10.2012 i.e. just two days before the date of search seems correct. In other words, stock/excess stock shown in the stock summary dated 28.10.2010 can reasonably and justifiably be said to be a part and parcel of the stock found at the time of search. In view, therefore, of above discussion adjustment of the stock shown in the stock summary dated 28.10.2012 vis-avis stock found at the time of search on 31.10.2012 is required to be made.
12. During the course of physical verification, in search proceeding, the gold (converted into 24 Ct.) was found at 43581.66 gms whereas as per books of the assessee the stock of gold stood at 35607.94 gms (converted into 24 ct.) thereby excess 24 ct. gold found was 7973.72 gms However, as per copy of print taken out of stock management system, from the pen-drive i.e. Annexure A-20 of R-l i.e. seized from the residence of Sh. Rakesh Jain and his son Sh. Gourav Jain who is director in the assessee company, the stock of the assessee has been shown at (i) 35928.216 gms of ornaments jewellery (ii) Jewellery in which diamonds are studded is 34358.526 gms and (iii) diamond weight has been shown at 5742.460.
7.1 It is seen that the AO after scanning the item wise summary of Stock Management System values the same as under and adds it to the income of the assessee : The above stock is converted into 24 ct gold/as below : (a) Ornament jewellery at 35928.216 gms (22 ct) = 32934.198 gms (b) Diamond studded jewellery at 34358.526 Assuming that it is 14 ct and 18 ct, therefore taking ^iti Average at 16 ct converted into 24 ct = 22905.683 gms Total of converted to 24 ct gold = 55848.882 gms Less stock found during search = 43581.66 gms Balance excess 24 ct gold found = 12258.222 gms Value of 12258.222 gms gold @ 3140 per gms i.e. the rate applied during search = 3,84,90,817/- Diamonds as per stock management system = 5742.460 Less diamonds found during the search = 5517.64 ct Excess diamonds as per stock management system = 224.82 ct. The value of excess diamonds as per SMS, @7465.311 = 16,78,351/- Therefore, total excess stock found as per Annexure A-22 comes out to be Rs.4,01,69,168/-.
13. In explanation furnished vide its reply as reproduced above, the assessee has stated that whatever was the excess stock, same has been taken care of during the course of search proceedings on 31.10.2012. However, it is seen, as already discussed in the preceding paragraphs of this order, the stock in Stock Management System Summary contains ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 26 of 45 entries of 28.10.2012 three days prior to the date of search. The explanation of the assessee that same is covered in the additional income offered is not acceptable, as at no point of time the above stock has been shown to have existed in the books of accounts and the stock of ; Rs.4,01,69,168/- is over and above the value of stock found during the search. In other words whatever stock was found in the course of search has been taken care of and reduced from the stock shown in the Stock Management System Summary referred to above. Secondly, the argument that stock of 5093.735 gms of 24 ct was lying with labour, same is also not acceptable, as the stock of jewellery in the Stock Management System Summary consist of 22 ct, 14/18 ct gold and/: diamonds only and not bullion of 24 ct which is alleged to be sent to labour for manufacturing of ornaments. The third argument that it has never been denied that the assessee company has not been indulging in purchase/sale without recording the same in to the books of accounts, it does not come to the rescue of the assessee rather strengthens the cause of the department that assessee has indulged in unaccounted sales/purchases and as such substantiates the excess stock found from the Stock Management System Summary of the assessee printed from the pen-drive which was seized from the residence of the director during the search. Without prejudice the above, even if assessees arguments that 5093.735 gms. of 24 carat gold was lying with the labour at the time of search, which was not taken into account though not admitted for want of evidence but supposed to be correct, still same does not help the assessee. In that case, assessee is required to explain the stock of 5093.735 gms. of 24 carat gold which according to assessee, was lying 1 with the labour at the time of search and which was not taken into account, which he has not explained. In other words, as already discussed above in the preceding paragraphs of the order, further addition equal to the value of 5093.735 gms. of 24 carat gold that was claimed to be lying with the labour at the time of search will| also have to be made besides addition of Rs.2,50,37,481/- being a value of 7973.72 gms. of excess jewellery found at the time of search. In any case, since aforesaid arguments have not been accepted, no separate addition is made on this account and same is held to be covered in the addition of Rs.4,01,69,168/- as mentioned in the preceding lines. In view of above discussion the contentions of the assessee are rejected and excess stock found as per item wise Stock Management System Summary valuing at Rs.4,01,69,168/- is added to the income of the assessee. Since, the assessee had concealed the income by furnishing the inaccurate particulars, as discussed above particularly as per data of stock management system taken out from the pen-drive seized from the residence of the director, the penalty proceedings u/s 271AAB of the I.T.Act,1961 are initiated separately on the above issue. (Addition of Rs.4,01,69,168/-)
7.2 The assessee carried the issue in appeal before the CIT(A). The assessees ground was dismissed by the CIT-A. The said conclusion assailed by the assessee in the present proceedings is found addressed at pages 17 to 24 of the impugned order wherein vide para-3.3 the assessees submission were dismissed. The same is also reproduced hereunder for the sake of completeness:
3.3 Ground of Appeal No. 3 pertains to addition of Rs. 4,01,69,168/- on account of excess stock found from pen drive as-per Stock Management System Summary. The AO mentions that during the assessment preceding the assessed was given a show cause stating that a pen drive was seized from his residence according to which the stock as per Stock Management System Summary was - Gold Ornaments net weight at
35928.216 gms, Diamond studded Jewellery at 34358.526 gms, Diamonds weight 5742.460gms, -whereas stock in the books of account of M/s. Palace Jewellers Pvt. Ltd has been shown at much less weight/value. In response, the assessee gave a reply stating that the Stock Summary provided by the AO appears to be most likely of
28.10.2012 and the entries in this stock details include various date and also stock of
28.10.2012. Moreover, as per the assessee, the net weight of Gold Jewellery as well as the Diamonds studded Jewellery is of 22 karat and 14 karat only. It was also submitted that during the search on 31.10.2012 Stock summary has been drawn as per physical ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 27 of 45 as well as per books of accounts and whatever stocks were found have duly been explained during the course of assessment proceedings. The assessee submitted that as per the physical verifications, stock (converted to 24 Karat gold) weighing 43,581.66 grams was found. In addition to this, stock weighing 5,093.735 grams of 24 karat was also lying with labour, who took material from the assessee company and return after converting the same into ornaments/ sent to them for repairs/ alteration . etc. Thus as per assessee the total stock (equivalent to 24 karat gold) weighing 48,675.395 grams was found, in addition to this diamond 4,809.14 carat was also found. As per the assessee whatever difference was there in the stocks as per books of accounts and physical verification, the same has duly been explained vide reply to show cause notice dated 24.12.2014. In the detailed reply the nature of business and system of working as well as accounting were also submitted. The assessee admitted that it has never been denied that the assessee company has not indulged in purchase/ sales without recording the same in the books of accounts. Therefore, the shortage/excess of stock has been covered by the purchases/sales made by the assessee company without recording it into the books of accounts. Finally on the date of search i.e. on
31.10.2012 the entire stock has been physically verified by the Authorised Officers and whatever difference was there, has duly been explained and adequate surrender of additional income was also offered on account of difference both in the stock as well as on account of the purchases & sales made outside the books of accounts and profit element thereon. As per the assessee nothing was left for consideration in respect of this stock summary. The assessee argued that this is a summary which is in between date of start of the year as well as the date of search and duly covered by the stock physically verified and as per books and in view of the submission made, no adverse inference is drawable in this count. The Assessees aforesaid arguments were considered by the AO and the AO observed that the assessees main argument was that the aforesaid excess stock shown in the Stock Management System Summary has been explained and is otherwise also covered in the excess stock found at the time of search in the business premises of the assessee. As per AO the other argument of the assessee was that moreover, the same is also covered in the disclosure/additional income offered on account of difference both in the stock as well as on account of purchases and sales made out of books of accounts and profit element thereon. All these arguments of the assessee have been considered by the AO. The AO mentions that as discussed, excess stock weighing 7973.72 gms. valued, at Rs 2,50,37,481/- found at the business premises of the assessee at the time of search, has been held unexplained and consequently addition of Rs. 2,50,37,481/- has been made on this account. Therefore the addition is on account of excess stock found on physical stock taking and not on account of excess as per stock mentioned in Stock Management System Summary. However, assessees arguments that excess stock shown in the stock summary dated 28.10.2012 is a precursor to the stock/excess stock found at the time of search in the business premises of the .assessee on
31.10.2012 i.e. just two days before the date of search seems correct. In other words, stock/excess stock shown in the stock summary dated 28.10-.2012 can reasonably and justifiably be said to be a part and parcel of the stock found at the time of search. As per AO, in view of above, adjustment of the stock shown in the stock summary dated 28.10.2012 vis-a-vis stock found at the time of search on
31.10.2012 is required to be made. During the course of physical verification, at the time of search proceeding, the gold (converted into 24 Ct.) found was 43581.66 gms. However, as per copy of print taken from Stock Management System Summary in the pen drive i.e. Annexure A-20 of R-l (i.e. seized from the residence of Director of the assessee company Sh. Rakesh Jain) the stock of the assessee has been shown at (i) 35928.216 gms of Ornaments/Gold Jewellery (ii) Jewellery in which Diamonds are studded is 34358.526 gms which on conversion to.24 karat Gold gives the total amount of Gold (24 karat) of 55848.882 gms as under: Ornaments jewellery 35928.216 gms (22 ct) = 32934. 198 gms (24 ct) Diamond studded jewellery 34358.526 gms ( average 16ct) = 22905.683 gms (24ct) ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 28 of 45 Therefore, the AO calculated the value of excess stock of Gold and Diamonds as per Stock Management System Summary over and above the stock found and valued during search as Rs. 4,01,69,168/- and confronted the assessee with this figure. In its reply the assessee has stated that whatever was .the excess stock, same has been taken care of during the course of search proceedings on 31.10.2012. The AO however, observed that as already discussed in the assessment order, the stock in Stock Management System Summary contains entries of 28.10.2012 i.e three days prior to the date of search. The explanation of the assessee that same is covered in the additional income offered is not acceptable, as at no point of time the above stock has been shown to have entered in the books of accounts and the stock of Rs 4,01,69,168/- is over and above the value of stock found during the search. In other words whatever stock was found in the course of search has been taken care of and reduced from the stock shown in the "Stock Management System Summary referred to above to calculate the excess stock. The argument of the assessee that stock of
5093.735 gms of 24 ct was lying with labour, was also not accepted by the AO, because as per AO the stock of jewellery in the Stock Management System Summary consist of 22 ct, 14/18 ct Gold Jewallery and Diamonds only and not Bullion of 24 ct which is alleged to be sent to labour for manufacturing of ornaments. As per AO the third argument of the assessee that it has never been denied that the assessee company has not been indulging in purchase/sale without recording the same in to the books of accounts, also does not come to the rescue of the assessee, rather it strengthens the case of the department that assessee has indulged in unaccounted sales/purchase and as such substantiates the excess stock found from the Stock Management System Summary of the assessee printed from the pen drive which was seized from the residence of the Director during the search. As per AO without prejudice to the above, even if assessees arguments that 5093.735 gms. of 24 carat Gold was lying with the labour at the time of search, which was not taken into account (though not admitted for want of evidence but supposed to be correct) does not help the assessee because in that case, assessee is required to explain the stock of 5093.735 gms. of 24 carat Gold also which according to assessee. was lying with the labour at the time of search and which was not taken into account in the physical inventory prepared at the time of search and which the assessee has not explained. As per AO, in other words, further addition equal to the value of 5093.735 gms. of 24 carat Gold, that was claimed to be lying with the labour at the time of search, will also have to be made besides addition of Rs. 2,50,37,481/- being the value of
7973.72 gms. of excess jewellery found at the time of search. In any case, as per AO, since aforesaid argument has not been accepted, no separate addition is made on this account and same is held to be covered in the proposed addition of Rs 4,01,69,168/-. In view of above observations, the contentions of the assessee were rejected by the A.O. and excess stock found as per item wise Stock Management System Summary (over and above the value of the stock inventoried at the time of search), valuing at Rs. 4,01,69,168/- is added to the income of the assessee . Total converted to 24 ct gold = 55848.882 gms Less stock found during search converted to 24ct. gold = 43581. 222 gms Balance/Excess (in 24 ct Gold ) = 12258. 222 gms Value @ 3140 per gms Gold = Rs 3,84,90,817/- Diamonds as per stock management system = 5742.46 ct Less diamonds found during search = 5517. 64 ct Excess diamonds as per stock management system = 224.82ct. Value @ 7465.311 Diamond = Rs 16,78,351/- Total of excess Gold and Diamonds (3,84,90,817 + 16,78,351) = Rs. 4,01,69,168/-. ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 29 of 45 The facts of the case, the basis of additions made by the A.O. and the arguments of the AR during the appellate proceedings have been considered. The AR has repeated the arguments that the stocks mentioned in the Stock Management System Summary is the precursor of the stock found at the time of search and the same has been considered in the surrender made at the time of search, it is argued that the total stock as per Stock Management System Summary is 70287 gms and the stock on physical verification and valued item wise at that time of search was 74849 gms which is in excess by 4562 gms which could be on account of day to day transaction of sale and purchase. The AR argued that the addition made by the AO amounts to adding the same stock twice. It is also submitted that the assessee surrendered an amount of Rs. 4 crore and the discrepancy, if any, is duly covered in the surrender. The AR argued that, therefore no further addition on account of stock mentioned in the Stock Management System Summary is required to be made. To fully appreciate the stocks position it is relevant to go through the stock on the date of search as per the Books of the Accounts, the stocks valued by the Registered Valuer at the time of search and the stock found recorded in "the Stock Management System Summary. As per the paper book filed by the AR, the stock position as per the Books of the Account of the assessee on the date of search was as under: Stock Summary Ol-Apr-2012 to 27-Oct-2012 Closing balance Particulars Quantity Rate Value (Rs.) Colour Stone 3,465.093 gms 93.91 3,25,408.27 Diamond in ornaments 3,874.698 CT 8,090.42 3,13,47,930.78 God Images 5 PCS 12,790.60 63,953.651 Gold Bullion 24KT 367.655gms 2,711.48 9,96,890.07 Gold Ornaments 28,658.950 gms 2,513.90 7,20,45,783.13 Happy 1 pcs 1.00 1.00 Loose Diamonds 694.000 CT 7,855.30 54,51,577.80 Making 7,79542.36 7,79,542.36, Manoranjan Gold 81.020 Gms 0.25 Ornaments 18 Kt 1,454.4.45 Gms 3,527.70 51,30,852.74 Ornaments 14 Kt 14,136.689 gms 1,932.73 2,73,22,452.83 Pankaj 1PCS 1.00 1.00 Sanjeev (-)1.00 Grand Total 14,34,64,392.23 (emphasis supplied) The stock summary as per the Valuation Report prepared at the time of search and the copy enclosed in paper book, was as under: Gross Net weight Weight in Value of Weight Value of Weight of Value o Total Value weight (Gms) 24 ct. Gold Metal (Rs.) of Diamond Stones Stones (Rs.) (Gms) (Gms) Diamon (Rs) (Gms) (Rs.) Aprox. (Cts.) 74,849.260 59,688.740 43581.660 136,846,412 5517.64 41,190,90C 14057.000 452,10 0 178,489,412 Stock summary as per Stock Management System Summary (details given in the assessment order) is as under: ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 30 of 45 Net weight in Gms (Gold Jewellery ) Gross weight in Gms (Diamond Jewellery) PCS Diamond Weight ND pcs ED pcs No.D (ND+ ED) Tags
35928.216 34358.526 5340 5742.460 9110 16129 25239 3123 From the above data and figures it is seen that although the assessee is "showing Bullions in its Books of Accounts but the same dose not find mention in the Stock Management System Summary maintained by the Director in the pen derive which was seized at the time of search. The quantity of stock/items mentioned in the Stock Management System Summary relates only to the Gold Jewellery and Diamond Jewellery/Diamond pieces studded in the Jewellery. It does not include loose Diamonds or the Gold Bullion of 24kt. It also does not mention the Gold or Jewellery given to the labour for making the ornaments or for repairs /alteration etc. Therefore the quantity of jewellery mentioned in the Stock Management System Summary does not represent the whole of the stock of the assessee (it is the summery in respect of Gold Jewellery and Diamond studded Jewellery only). Therefore Jewellery mentioned there in (viz in the Stock Management System Summary) can be set-off only against the Gold Jewellery and Diamond studded Jewellery found at the time of search. This exercise has been done by the AO and before comparing the quantities as per the Valuation Report and as mentioned in the Stock Management System Summary the AO has duly converted the weights of Jewellery in equivalent of 24 kt. Gold. By this conversion the quantity of Jewellery found at the time of search gives a weight equal to 24 kt. Gold as 43581.660 gms, whereas the equivalent weight in 24 kt. Gold of the jewellery mentioned in the Stock Management System Summary comes to 55848.882 gms (including the gold in Gold Jewellery and gold in Diamond studded Jewellery). Accordingly the AO was justified in arriving at the excess Jewellery (converted to 24kt.Gold) mentioned in the Stock Management System Summary over and above the Jewellery found (converted to 24kt. Gold) at 12258.222 Gms. Similarly the excess Diamonds mentioned in the Stock Management System Summary over and above the Diamonds found at the time of search comes to 224.82 ct. The fact that no Bullion was found at the time of search negates the arguments of the assessee that the whole of the stocks belonging to the assessee company was found and valued by the Registered Valuer at the time of search. This fact is further strengthened by the submission of the assessee that the Gold/Jewellery lying with the labour was not accounted for and taken into consideration while working out the excess stock at the time of search. In other words this gives further strength to the fact that the excess stock mentioned in the Stock Management System Summary but not found at the time of search may be lying with the labour for which the assessee has also pleaded that
5093.735 gms of 24ct. Gold was lying with the labour at the time of search. It is a fact that the Jewellery/Bullion with the labour has not been included in the Valuation Report prepared at the time of search. There is no mention of any Bullion item in the Valuation Report. From the discussions and the facts mentioned above it finally emerges that the Stock Management System Summary maintained by the assessee (which was seized at the time of search in the Pen Drive) consist of all the items of. Gold and Diamond Jewellery. A part of these items of Jewellery was found and valued at the time of search. However, in the Books of Accounts of the assessee the value of items recorded (as stock of Gold and Diamond Jewellary) was less than this and in fact it was even lesser than the items found and valued at the time of search. The difference between the stock found at the time of search and the stock as per books was surrendered by the assessee in the statement recorded on 2.11.2012. At that time the existence of this Stock Management System Summary was not known to the Department (the Authorised Officer) neither the same was revealed or disclosed by the assessee. Therefore, the stock mentioned in the Stock Management Summary System was never considered for deciding the surrender amount u/s132(4). Hence, the argument of theA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 31 of 45 AR that the excess stock mentioned as per Stock Management Summary System is duly covered by the surrender amount is not found tenable. When the pen drive or its contents were not considered at the time of surrender then how the stock mentioned therein can form part of the disclosure. Had the assessee revealed the existence of this Stock Management Summary System and taken into account the stock mentioned therein also to arrive at the disclosure amount at the time of search, then this argument could have been validly applicable and convincing. But this is not so and the Stock Management Summary System came to the notice of the AO at the time of assessment when the Pen Drive seized from Residence R-l (at annexure A-22) was examined and copy given to the assessee on 10.02.2015. Accordingly, there is no merit in this argument of the AR since the fact of stock as per Stock Management Summary System was not considered at the time of search for arriving at the disclosure amount. As already mentioned the excess stock of Jewellery is to be calculated as the difference between the stock of Jewellery as per Stock Management Summary System and the Jewellery mentioned in the Books of Accounts. However, since the assessee has already surrendered the difference between the stock found at the time of search and the stock as per Books of Accounts, therefore, only the difference between the stock as per Stock Management Summary System and the stock found during the search remained to be added. This is precisely what has been done by the AO in this case. The argument of the AR that if there was excess stock as per Stock Management Summary System, the same should have been found with the assessee at the time of search, is countered by the submission of the assessee itself that the stock lying with the labour was not taken into account at the time of search. Thus the answer to the question as to where the excess stock as per Stock Management Summary System may be lying has been provided by the assessee itself that a part of its stock was lying with the labour (which was not accounted for, for arriving at the value of the Stock found with the assessee at the time of search). Under the facts and circumstances of the case and on the basis of the details as mentioned and for the reasons given above, the action of the AO in making of addition of Rs. 4,01,69,1687- on account of the excess Gold & Diamond Jewellery mentioned in the Stock Management System Summary over and above the Jewellery found at the time of search, is found sustainable and hence confirmed. Accordingly this ground of appeal is dismissed.
7.3 The Ld. AR referring to the record relying on the submissions advanced before the assessing officer and the CIT-A contended that infact no addition on this count also should have been made by the AO or sustained in appeal by the CIT(A). Referring to the material available on record which had been copiously addressed before the tax authorities it was his submission that the contents of the pen Drive i.e. the Stock Management Summary in effect records the transactions which have been included in the seized documents from the Directors residence and the details mentioned herein are referring to only those very instances of disclosed and undisclosed sale transactions. It was his submission that the assessee has argued and demonstrated that there were times when due to the specific need of its customers, the purchases at times were made in cash where the parties did not want the full and correct amount to be mentioned on the bill or at time did not want the bill itself at all however in order to maintain a record of what has been sold and at what price the assessee necessarily had to maintain some level of control on the business fund application on account of which fact the details were maintained. It was his submission that in view of these known facts and on being confronted with the material available on record the assessee made a surrender initially of Rs. 3.61 Crore. It was submitted that at ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 32 of 45 the cost of reiteration the said surrender was revised to Rs. 4 Crore. It was his submission that again at the cost of reiteration with utmost humility the assessee would like to point out that the assessee had honoured and abided by the surrender made and even if in various written submissions before the Assessing Officer the assessee on going through the record and on receiving the advise of its Accountants etc. it was noticed that infact surrender was not warranted however the surrender having been made in good faith has not been resiled with. In these peculiar facts and circumstances once the assessee admittedly as per record has made a surrender on the stated ground of unexplained investments and undisclosed profit in these circumstances the insistence of the tax authorities to insist that separate addition on the basis of the contents of the pen drive, it was submitted, was most unfair and amounts to double addition. The correctness of the said conclusion of the AO having been challenged before the CIT-A, it was his submission, the said authority on appreciation of facts should have upset the AOs finding. It was also his submission, the said authority ignoring the peculiar facts and circumstances of the present case where admittedly the entire business premises and the residential premises of the Directors have been searched all the jewellery available with the assessee has been found. It was his submission that there is no suspicion that there was any other place where the assessee was storing its jewellery infact even the family jewellery of the Directors of the assessee was being maintained in the strong room at the business premises. Thus to presume that there was jewellery over and above that without finding any such jewellery the addition was in gross violation of law. Inviting attention to the paper book page 23 to 32 of the paper book it was submitted that the said pages contain a copy of the report of the DVO. Inviting attention to the assessment order it was his submission that the assessing officer admittedly was not an expert on valuing jewellery and despite this, he presumed to make estimate and convert the jewellery of different carrotage i.e. 14k, 16k, 18k 22k etc. as per her/his whims to 24K jewellery. It was his submission that at the primary level the said action of the assessing officer was contrary to accepted judicial principles. The assessing officer not being an expert in jewellery valuation should have referred the estimation even for the purposes of conversion of the gold ornaments mentioned in the pen Drive to the valuation officer as had been done by the Search Wing/Investigation Wing for the stock found at the business premises and the residential premises of the Directors. No such exercise was done. The action was assailed before the CIT(A) by arguing that the AO could not arbitrarily attempt conversion as he was not an Expert who completely ignored the objections of the assessee. Even otherwise, it was his submission that if the gross weights of the jewellery mentioned in the Stock Management Summary i.e. the pen Drive is considered it would be seen that the same is more or less ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 33 of 45 equal to what has been mentioned in the loose documents found from the residence of the Director and when the details of these are considered it would be seen that once the jewellery belonging to the family members of the directors is excluded supported by Wealth Tax Returns of the family members of the Directors then the resultant difference from the actual jewellery found at the time of the search is very minor and though maintaining that infact on facts surrender was not warranted at all the fact on record remains that for the differences if any a surrender of Rs. 4 crore is more than adequate to cover the discrepancies if any. Inviting attention to the copy of the valuation report of the jewellery found from the residence of the Directors attention was invited to paper book page 35 to 37. Attention was also invited to DVOs Report qua the business jewellery found from the premises of the assessee which is available at pages 23 to 31. The contents of the stock summary from 01/04/2012 to 31 st of October 2012 it was submitted is available at pages 38 and 39. The contents of the Stock Summary as per pen Drive mentioned at pages 8 and 9 of the assessment order by the AO it was submitted is at page 40 and 41 the chart showing difference in valuation of stocks it was submitted is available at page 42 the contents of which read as under; PALACE JEWELLERS (p) lTD. B-XIX-546, GOVT. COLLEGE ROAD, CIVIL LINES, LUDHIANA CHART SHOWING DIFFERENCE IN VALUATION OF STOCKS Stock as per Valuation Report 43581.660 Gms. Stock as per Stock Summary as on 31.10.2012 35607.940 Gms. Difference 7973.72 Gms
7.3.1 Inviting attention to paper book page 43 to 49 it was submitted that it contains a copy of the final statement recorded on 2 nd November 2012 of Sh. Rakesh Jain Director, carrying us through the said statement which has been referred to, it was submitted while arguing the departmental appeal attention was invited to the Department question number 11 which could show that as per the Departments version that there was excess stock found from the business premises which when converted into 24 K weighed 7973.72 gms. Referring to question No. 13 to 17 it was his submission that various diaries loose papers etc were confronted and addressed ultimately in response to question No. 28 the assessee finally offered to surrender an amount of Rs. 3.61 crore. The said surrender of Rs.
3.61 crore in the hands of the assessee was cemented by a specific letter dated 02/11/2012 available at page 50 and ultimately on 11 th January, 2013, it was submitted that it was revised to Rs. 4 Crore. The said surrender it was submitted has been abided by the assessee in good faith. Since the arguments heavily relying upon the final statement of Sh. Rakesh ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 34 of 45 Jain recorded on 02/11/2012 is relied upon, the same is reproduced hereunder for ready reference : Final statement of Sh. Rakesh Jain s/o Sh.Amrit Lai Jain resident of 11-12, Ram Bagh, Adj. Aggar Nagar-A, Ludhiana recorded on oath on 02/11/2012. Oath: I do solemnly affirm/swear in the name of God that I shall speak the truth and nothing but the truth. Oath Administered Oath Taken Sd/- (Aditya Shukla) (Rakesh Jain) -Q1. Please identify yourself : A1. I am Rakesh Jain .s/o Sh.Amrit Lai Jain resident of 11-12, Ram Bagh, Adj. Aggar Nagar-A, Ludhiana. Q2. A cashof Rs. 21 Lacs was found at your residence during, the course of search on 01-11- 2012 and your family members present there could not furnish any explanation of the same. Please explain the source of this cash of Rs. 21 Lacs A.2 Out of the cash found at home, Rs. 15 Lacs belong to M/s Palace Jewellers (P) Limited which had been brought by my son to our home for getting it deposited into the bank on the next day. This sum has been duly reflected in the cash book of M/s Palace Jewellers (P) Limited. I cannot offer any explanation regarding the remaining cash of Rs. 6 Lacs. This was on account of unaccounted receipts in M/s Palace Jewellers (P) Limited. I hereby voluntarily disclose an amount of Rs. 6 Lacs as unaccounted income in the hands of M/s Palace Jewellers (P) Limited over and above the normal business income of this concern for the F.Y. 2012-13. Q.3 I am showing you Annexure A-5 seized from your residence i.e. 11-12, Ram Bagh Adjoining Aggar Nagar -A, Ludhiana (Premise Code R-1). Please explain the nature of entries in this annexure A.3 This is an date wise account of all the transactions in M/s Palace Jewellers (P) Limited from the date of opening of the concern i.e. 14-04-2012 till 29-10-2012. This contains both the accounted and unaccounted transactions of the concern. The total turnover of the concern as per these papers should be around Rs. 13.to Rs. 14 crores, while that as per books must be around Rs. 10 crores. i shall have to go through these papers carefully to determine the same. Q.4 I am showing you three diaries marked as Annexure A-16, A-18 & A-19 seized from your residence i.e. 11-12, Ram Bagh, Adjoining Aggar Nagar-A, Ludhiana (Premise Code R-1) i am also showing you two diaries marked as Annexure A-4 and A-14 seized from the business premises of M/s Palace Jewellers (P) Limited, College Road, Ludhiana (Premise Code B-1). Please explain the nature of entries in these annexures A.4 Sir, as far as diaries A-16, A-18 & A-19 seized from the residence are concerned, these are entries pertaining to certain dealers in the open market from whom we purchase jewellery. The jewellery is then sold in the market. If some jewellery remains unsold, it is returned back to those dealers. As far as diaries A and A-14 seized from business premise are concerned, these pertain to the unaaccounted purchases of diamonds along with some repair entries. I also wish to state that some of these persons like Naseem as on page 3 in A-18, Dharminder on page 6 in A-16 are labourers to whom material is given for making ornaments and cash payment is made for their labour. I would also like to state that the discrepancy in stock is on account of some of these purchases lying in the stock. Q5. Are these entries reflected in the books of accounts A5. No sir, these sales are made outside regular books of accounts. In order to cover up my unexplained investment for purchase of This lewellery and the profit earned thereon, I hereby voluntarily disclose an amount of Rs. 3 crores as unaccounted income in ; M/s Palace ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 35 of 45 Jewellers (P) Limited for the F.Y.2012-13 over and above the normal business income for the year. Q.6 I am showing you a diary marked -as Annexure A-20 seized from your residence R-1. Please explain the nature of entry in this Annexure A6. Sir, this diary contains the receivables OP account of sales of jewellery. Some of these sales are outside the regular books of accounts and is out of the purchases as reflected in diaries mentioned above i.e. A-16, A-18 & A-19 seized from R-1 and A-4 & A-14 seized from B-1.I have voluntarily disclosed an amount of Rs.3.61 crores as unaccounted income in M/s Palace Jewellers (P) Limited for the F.Y.2012-13 pertaining to all these transactions over and above the normal business income for the year. I would also like to state that the discrepancy in stock is on account of some of these purchases lying in the stock. Q.7 I am showing page No.8 of Annexure A-3 seized from Residence R-1. Please explain the nature of entries on this page A.7 This page is a total stack summary, prepared by us at some point in time. If some stock f items are not accounted for, they are covered by the unaccounted purchases made by the company as mentioned above. Q.8 I am showing you diaries marked as Annexure A-11, A-12 & A-13 seized from your residence R-1 and diaries marked as Annexure A-2 & A-5 seized from B-1. Please explain the nature of entries in these diaries A 8 These diaries are in the- nature of rough control registers for our strong room and shop. These basically contains the details of jewellery and sets being counted than brought out from the Strong Room, Sold or taken back into the strong room on daily basis. Q.9 I am showing you diary marked as Annexure A-14 seized .from your residence R-1. Please explain the nature of entries in this diary A.9 This diary was prepared by my son Sh. Gaurav Jain prior to the starting of our shop M/s Palace Jewellers (P) Limited. This contains estimates of the various qualities of jewellery that were required to be purchased/brought at the time of the starting of the showroom. This was prepared in consultation with certain experts from the field of Jewellery sale. Q.10 I am showing you diary marked as Annexure A-15 & A-16 seized from your business premise B-1. Please explain the nature of entries A. 10 Sir, these are our control diaries which contain detail of jewellery pieces given to certain workers for repair. The jewellery is given to us by the customers for repair which we get done from our labour. Q.11 Physical stock was taken at your shop and it was found that excess stock found was as follows:- The total excess stock found at the business premises is valued at Rs. 3,28,50,3137-. Please explain the excess stock Gold Ornaments (Converted into 24 Carat pure gold weight)
7973.72 gms valued at Rs. 25037481/- Diamonds in Ornaments 935 Carats valued at Rs. 7559635/- Color Stone Valued at Rs. 126692/- Gold Images Valued at Rs. 115115/- Loose Diamonds 14.5 carats valued at Rs. 113901/- Total Value Rs. 3,28,50,313/- ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 36 of 45 A. 11 The excess Stock. as per the valuers report contains some jewellery belonging to the family which was placed in the strong room of the shop, since we do not have the need of any lockers. The jewellery here is the old jewellery which is not worn by the ladies regularly and is therefore, kept in the strong room for security purposes. This jewellery was identified by my son Gourav on the date of the search.The difference in stock found at the shop is on account of the unaccounted purchases as mentioned above by me, lying unsold in the stock. I have voluntary disclosed an amount of Rs. 3.61 crores in M/s Palace Jewellers (P) Limited on account of such unexplained investment in jewellery purchased and the discrepancy in stock, if any also stands covered within the said disclosure., Q12. As per the statement of Sh.Gourav Jain, this jewellery is 1800 cts of gold. Is this the- jewellery that you claim to be the family jewellery A12. Yes sir, its breakup is around 1300gm of pure gold and 260 cts diamonds. Q13. I am showing you diaries marked A-10, A-21 seized from your residence and A-11 seized from the business premises (B-1). Please explain the entries in this diary. A13. These are diaries pertaining to M/s. Palace Jewellers(old concern).These are the amounts which had to be received from customers but they are not expected to pay them. The shop is already closed and the customers who come to us do not repay the old balances. A-11 , B-1 shows the details of receivables as divided by me and Sh.Pardeep Mittal when we parted ways as partners. I also wish to state that most these entries are also maintained separately by Sh. Pardeep Mittal which might have been recovered from his home/office during search as well. Q14. I am showing you loose papers marked as P. 98-120, Annexure A-9, seized from your residence. Please explain these entries. A14. Pages 117,118 and 120 is the list of the same receivables as I told you in my previous reply. The receivables as per these pages are Rs.23,52,785 by Sh.Pardeep Mittal, Rs.18,68,129 by me and Rs.66,06,9097- in the common account. But as stated by me previously, it is not possible for us now to recover these advances. Some of the pages also reflect the daily transactions in M/s. Palace Jewellers (old). Q15. I am showing you diary marked A-17,seized from your residence. Please explain the entries in this diary. A15. This diary has details of some workers accounts to whom material was issued in the old Palace Jewellers. Since the entries have been cut, all accounts have been squared off and nothing is pending. Q16. I am showing you loose papers marked as P. 15-16, Annexure A-1, impounded from the shop of M/s. Palace Jewellers(old) . Please explain these entries. A16. These are again the list of receivables for the old concern. Q17 Are these receivables as mentioned for M/s. Palace Jewellers reflected in the regular books of accounts. A17. I shall have to verify from the books and I shall tell later. Q18. I am showing you loose documents seized as Annexure A-1, page 1, 3 & 4 seized from the house of your brother Sh. Ajay Jain. It is seen that Page No. 1 and Page No. 4 have certain entries with regard to plot Nos. and figures written in front of them. Please explain these entries A18. These papers pertain to the Jagraon Project of M/s Palace Infratech (P) Limited. The figures written in front of the plots means the following:- The first column has the plot number, the second column is the tentative plot size and the tentative sale rate that the company planned to charge from the customers for sale. The third column, wherever figure is written, is the product of the plot size and the tentative sale rate The fourth column contains details of the advances received by the company from some dealers/brokers who sought to book the plots for certain customers. ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 37 of 45 Q19. Are these advances booked as either income or advance received in the books of accounts of the company A19. No, these advances have not been accounted for in the regular books of-accounts. The advances on page No. 1 & Page No. 4 are overlapping in the case of certain plots. Page No. 4 was written earlier and page No. 1 has been written later. In the case of amounts for the same plot number, the figure on page No. 1 is the final figure for-the amount received against the booking of the said plot. The total unaccounted advances received in M/s Palace Infratech (P) Limited is around Rs. 1.90 crores. I therefore, voluntarily disclose unaccounted income of Rs. 1.90 erores in the hands of M/s Palace Infratech (P) Limited for the F.Y. 2012-13 over and above the normal business income of the said concern for the said year. Q20. Please give the detailed addresses of the people from whom these advances have been received A20. These advances were-received from Market commission agents/brokers who wanted to book the plots for final customers . We have not made any bianas for the sale of these plots and we just gave a receipt regarding cash received to these brokers, asking them to produce the same at the time of the biana when they bring the actual customer with them. We therefore, have no contact details of these brokers, as it now the broker who has to come to the company to get the biana done. Q21. I am showing you page no. 62 of Annexure A-3 seized from your residence (R-1). Please explain the nature of entries on this paper. A21. The entries on the top of the page are deposits in Indian Overseas Bank, which are reflected in the books of accounts. The entries in the lower half are the same advances received against plots totaling around 1.90 crores as mentioned plot wise above. These are received with the name of the commission agent/broker written alongwith, who made lumpsum advance booking for some plots. Therefore, here a total of the advance received commission agent wise was made by us for reference purposes. Q22. Please provide address of these agents. A22. Sir, as told earlier, we do not take their addresses. We just give them receipts of cash received. Q23. I am showing you page no. 3 of the same annexure A-1 seized from the residence of your brother. Please explain the nature of entries on this paper A23. This paper contains the detail of expenses incurred on the Jagraon Project, some of which have not been accounted for in the regular books of accounts. These expenses have been incurred from the advances received as mentioned above. These expenses stands covered within the disclosure of Rs. 1.90 crores as made by me above. Q24. 1 am showing you this paper again. The first eight entries totaling Rs. 5,30,0007- have been incurred in the F.Y.. 2011 -12. Please explain A24 I shall have to verify whether these expenses have been booked in the books of accounts or not of the concern M/s Palace Infratech (P) Limited for the F.Y. 2011-12. I cannot answer it right now. Q25. I am showing you page nos. 1-129 of Annexure A-7 seized from your residence (R-1). These are certain receipts. Please explain the nature of transactions on these papers and whether they are accounted for in the books of accounts. A25.These are slips of expenses incurred on sites of M/s. Palace Infratech Pvt.Ltd. Some of these expenses have been booked in the books of accounts. The unaccounted expenses have been incurred from the unaccounted receipts mentioned above and stand covered within the disclosure of Rs. 1.90 crores as made by me. Q26. I am also showing you a note pad marked as Annexure 2 impounded from the site office of M/s Palace Infratech (P) Limited, Raghunath Enclave, Ludhiana. Please explain the entries in this pad ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 38 of 45 A26. This note pad have been prepared by some employee at that site and contains the details of daily petty cash expenses incurred at the site. I shall have to verify whether all these expenses have been booked in the books of accounts of the company. I wish to submit that if there are certain unaccounted expenses, they have been made out of the unaccounted advances received at the Jagraon site and stand covered within the disclosure of Rs 1.90 crores as made by me. Q27. Now I am showing you page No. 2 of the same annexure A-1 seized from the residence of yo.ur brother. Please explain the nature of entries on this paper A27. This paper has been written and left at the office of M/s Palace Infratrech (P) Limited by some agent. This paper is actually a paper bearing estimates of prices of certain land. I have asked my son Sorav who has told me that this agent was trying to tell him the rates of certain plots in Ludhiana for which these figures were written. These are only estimates and no actual transactions have taken place. Q28. Do-you wish to state anything else. As per the provisions of Section 132(4) of the Income Tax Act. A28. I wish to say that on account of the various discrepancies as confronted to me, I hereby voluntarily disclose unaccounted income totaling Rs.8 crores as additional income over and above the normal business income for the financial year 2012-13 relevant to the A. Y.2013-14 as per the following details: I wish to clarify that the entity wise and head wise breakup of the disclosure is tentative and subject to revision. This is so because though most of the seized documents have been confronted to me, it has not been possible for me to comprehend and co relate all of them. The above disclosure is being made voluntarily as per the provisions of section 132(4) of the Income Tax Act, 1961 and subject to no penalty and prosecution. A disclosure letter is being submitted alongwith and I .undertake to pay the taxes due on this undisclosed income. The above statement has been given true to the best of my knowledge and without any threat, coercion or fear.
7.3.2 In the said background, the ld. AR inviting attention to chronological chart of sequence of events, pre and post search u/s 132 available at Paper Book page 2 submitted that seizure of loose documents and one pen-drive was made at the time of the search. Inviting attention to Paper Book page 1, it was submitted that Shri Rakesh Kumar Jain who made the final statement on 02.11.2012 was the father of Saurabh Jain and Gaurav Jain and the father and the two sons were also Directors in the said company. Thus, the father definitely knew in what background the surrender was made. The copy of the Valuation Report found at the business premises as on
31.10.2012 is available at pages 23 to 32 of the Paper Book indexed as Sr.No. 8. Copy Palace Jewellers Pvt. Ltd. 3,61,00,000/- (including Rs. 6,00,000 out of seized cash) Palace Infratech Pvt. Ltd. 1,90,00,000/- Miscellaneous including renovation of residence 10,00,000/- Others 39,00,000/- Ajar Amar Steels 30,00,000/- Sorav Jain 85,00,000/- Ajay Jain 85,00,000/- Total 8,00,00,000/- ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 39 of 45 of the Valuation Report of the jewellery found from the residence of the Directors who were all living together in the same house, it was submitted is at pages 35 to 37. The copy of the Stock Summary from 01.04.2012 to 31.10.2012 is available at pages 38 and
39. Stock Management Summary i.e. the extract from the pen-drive, the print out of which has been extracted at page 8-9 of the assessment order is available at pages 40- 41 of the Paper Book. When these are read alongwith the chart as per the Valuation Report of the Valuer vis--vis the stocks as recorded on 31.10.2012, it was submitted that the position has been addressed at Paper Book page 42 and the position is also emanating from the assessment order and well accepted by the AO that actual physical stock found was in excess to the extent of 7973.72 gms. ( when converted to 24K) vis-- vis the Stock Summary as on 31.10.2012.
7.3.3 This amount of 7973.72 grams, it was submitted, has also been considered by the AO and is an admitted fact on which there is no conflict amongst the parties. To recapitulate, it was submitted that some of it consists of jewellery owned by the Directors family members and the ownership is supported by Wealth Tax Returns filed by the family members which have been compiled and totaled and are available at pages 50 to 52 and these have been made available to the Tax Authorities consistently and have not been faulted with. The surrender made by the Director of Rs. 3.61 Cr finally revised to Rs. 4 Crores on 11.01.2013, copies are available at pages 50 and 51 and when these are read alongwith the final statement recorded of Shri Rakesh Jain, the Director on 02.11.2012 available at pages 43-49, it was submitted, that when these are read alongwith the Reconciliation Chart vis--vis the amounts surrendered at Paper Book page 92 which is Computation Chart of assessable income read alongwith the reply dated 28.02.2015 addressed to the AO during the assessment proceedings qua the questionnaire dated 25.02.2015 (available at pages 98 to 105) it was his submission that the reconciliation statement of stock as per Stock Management Summary vis-- vis stock as valued by the approved Valuer on the date of the search as per the Valuation Report, would show that when this is read alongwith page 9 of the assessment order and page 39 of the Paper Book, it would be evident that infact no addition on facts was warranted and even if there are minor differences, then the same can be said to be well addressed by the surrender made.
7.4 The ld. CIT-DR heavily relied upon the consistent findings of the Tax Authorities submitted that in the facts of the present case, the present addition deserves to be confirmed. It was his submission that it is an accepted position that the assessee was indulging in recorded and unrecorded sales. It was also his submission that theA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 40 of 45 surrender has been made vis--vis specific questions put to the assessee and at no point of time, the assessee was required to address the contents of the pen-drive found from the Director of the assessee company described as Stock Management Summary. It was his submission that admittedly the assessee has also accepted that by way of entries recorded in this pen-drive, assessee was attempting to keep a level of control and management of his business which consisted of disclosed and undisclosed income. Thus, in these circumstances, the argument that addition on the basis of this pen-drive was not warranted, has to be outrightly rejected. It was also his submission that the attempts of the assessee to argue that re-conciliation addresses this aspect, cannot be accepted. The surrender is made on the basis of what was confronted to the assessee i.e. loose papers also recording undeclared transactions.
7.4.1 Inviting attention to the record, it was his submission that copy of the pen- drive was given to the assessee on 10.02.2015 whereas the search took place on
31.10.2012 and the last statement recorded on which heavy reliance has been placed by the assessee was on 02.11.2012. It was submitted that the contents of the Pen Drive thereafter by show cause notice were confronted on 23.03.2015. Accordingly, to argue that the surrender made on 11.01.2013 addresses the contents of the pen-drive by which the assessee revised the surrender from Rs. 3.61 Cr to Rs. 4 Cr, cannot be accepted. In support of the additions made, it was his further submission that all along, the assessee has been saying that vis--vis the physical stock found when compared to the books of account there was a shortage not only on the so called argument of jewellery of family members lying in the Strong Room which would further go down to deplete the available stock but also that it was lying with the labour. It was his submission that presumably the Stock Management Summary was qua the jewellery which was with the labour. It was also his submission that for the labour to make new jewellery, assessees record should have shown bullion of 24 carat whereas in the facts of the present case, there is almost no bullion of 24 carat. Accordingly it was his submission that the addition was warranted. Qua the argument that the valuation has been attempted by the AO who was not an expert, he placed reliance upon the orders of the authorities below.
7.5 The ld. AR in reply submitted that he would not reiterate the submissions once again. The fact remains that physical stock of the jewellery was found less than the recorded jewellery in the books of account of the assessee. The reason for not addressing the correct amounts qua the jewellery sold, it was submitted, has been addressed as being largely dictated by the needs of its customers. The stock available ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 41 of 45 with the assessee consisted of jewellery on credit taken from jewellers out station or in-station and the final statement of Shri Rakesh Jain, the Director knowing his business in and out on 02.11.2012 in the various questions asked to him has stated that the surrender is made on account of loose documents etc. and stock as well as profit from sale of jewellery not recorded. Thus since the loose papers confronted to the assessee which were being maintained to ensure a level of control on the business were also digitally recorded by way of such an attempt, surrender having been made did not deserve a separate addition as it would be double addition for want of a better word. Thus, addition on the basis of the very same facts cannot be made. Addressing the arguments of the ld. CIT DR that there was no bullion found, it was his submission that the assessee as per the DVOs report qua the stock found in the course of the search at the business premises records that there were coins as well as images which were in 24 K and the assessees work with the labour largely consisted of repairs etc. as this was the first year of assessees business and the record would demonstrate that the assessee was not in designing jewellery and was taking jewellery on credit from different jewellers. The coins, God images etc. it was submitted, being in 24K are recorded as bullion at times and even if the Department wants to insist that there was jewellery with the labour, then the discrepancies, if any, without conceding can be said to be covered by the surrender. The surrender made in good faith on the basis of the entire factual position would more than sufficiently address the short-comings in the assessees accounts. Accordingly, it was his prayer that no further addition on facts was warranted.
7.6 We have heard the rival submissions and perused the material available on record. The addition under challenge by the assessee in the present appeal has been made by the assessing officer on the basis of the contents of the pen drive found in the course of the search from the residence of the Director described as R 1. The content of this pen drive have been extracted and are described as Annexure A 22 and further described as Stock Management Systems Summary. Admittedly the contents of the pen drive were confronted by the assessing officer in the course of the assessment proceedings wherein the assessing officer required the assessee to explain why on the basis of the contents thereof, separate addition on the basis of the same should not be made in the hands of the assessee. The assessing officer took note of the fact that as per the books of accounts of the assessee the stock was much less in weight when compared with what has been recorded in the Stock Management Summary. The assessee as per replies on record is found to have stated that no additions on the basis of the pen drive on facts was ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 42 of 45 warranted. The relevant extract from the reply of the assessee dated 27/03/2015 extracted in the assessment order shows that the assessee apart from other submissions pleaded that
a search operation has been carried out at the business premises of the assessee that company i.e. M/s Palace jewellers (P) Ltd on 31/10/2012. Stock summary has been drawn as per physical as well as per books of accounts. Whatever stocks were found have duly been explained during the course of assessment proceedings. .It has been argued before the AO that admittedly physical stock found at the time of the search was weighing 43,581.66 grams and when converted to 24K and thus it was much more than what is mentioned in the Stock Management Summery System. The assessee has referred before the AO to the DVOs Report at Paper Book page 32 and argued for deletion of the addition. We note that it had also been argued that some of the stock was also lying with the labour who took ornaments for repairs etc. or had been sent to them for minor alterations etc. Apart from this diamonds were also found which have also been weighed and valued by the DVO . The difference has been explained to the assessing officer in response to show cause notice dated 23/03/2015 that even though the assessee is not denying that there were sales which were not recorded, however, the surrender made and honoured, it has been argued, fully addressed the discrepancies, if any. A perusal of this reply dated 27/03/2015 recorded in the assessment order itself would show that the assessee has also argued,
whatever difference was there in the stocks as per books of accounts and physical verification, has duly been explained vide reply to Your Honour show cause notice dated 24/12/2014 in the detailed reply with respect to the nature of business and system of working as well as accounting were also submitted. It has never been denied that the assessee company has not been indulged in purchase/sales without recording the same in the books of accounts. Therefore, the shortage/excess of stock has been covered by the purchases/sales made by the assessee company without recording into the books of accounts. Finally as on the date of the search that is on 31/10/2012, when the entire stock has been physically verified by the Ld. assessing officers and whatever difference was there has duly been explained and adequate surrender of additional income was also offered on account of difference both in the stock as well as on account of purchases and sales made out of books of accounts and profit element thereon. Nothing is left for consideration in respect of the stock summary. Further, this is a summary which is in between date of start of the year as well as the date of search and duly covered by the stock physically verified and as per books. In view of the submission made, no adverse inference is drawn able on this count. We find that the assessing officer having extracted the submissions summed it up as in the following words..
Assessees aforesaid arguments have been considered as discussed hereinafter. Assessees main argument is that the aforesaid excess stock shown in the stock summary statement ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 43 of 45 has been explained and is otherwise also covered in the excess stock found at the time of search in the business premises of the assessee. Moreover the same is also covered in the disclosure/additional income offered on account of difference of both in the stock as well as on account of purchases and sales made out of books of accounts and profit element thereon. Aforesaid arguments of the assessee have carefully been considered but not acceptable. These arguments of the assessee have not been accepted by the CIT(A) also. The relevant extract of the CIT(A)s finding has already been reproduced by us in the earlier part of this order. The CIT(A) it is seen in the first Table captured at page 21 of his order addressed the position as per stock summary position as on 01/04/2012 to 27/10/2012 wherein though in one column he seeks to address the quantity, however, in quite a few of the instances, he fails to mention either the weight of the articles in grams and/or the caratage. Further, it is also unclear whether some of the items are articles or persons mentioned. As an illustration, it may be seen that at unnumbered Sl. No 3 he mentions pieces of God images and their quantity is mentioned as 5 pieces, however, their weight and even caratage is left unaddressed. There is no mention either of their total or individual weight, nothing has been mentioned. Similarly, he describes at unnumbered Sl No. 6 an article or a person as Happy and in the quantity, he mentions 1 piece and fails to assign any weight of corresponding gold let along whether it was 24K or 18K or 12K qua the description of Happy. Thus, it is not known whether one piece was handed over to a person called Happy for repairs or alteration or whether one article Happy was available for sale of unknown weight and carat. Thus, the discarding of assessees explanation by picking up some extract from somewhere on record without caring to establish how either it bolsters the case of the Revenue or demolishes the case of the assessee the conclusion of the CIT(A) becomes a meaningless exercise left completely unaddressed by the Revenue . Same is the position for the articles or persons mentioned at unnumbered Sl No. 9, 12 and 13 of Table-1 at page 21 of the CIT(A)s order where the respective description is Manoranjan gold Pankaj and Sanjeev respectively. It is not known whether these are names of people to whom gold has been handed over and what is the weight handed over or received. Curiously, the value of Rs. 1.00 only has been ascribed to Pankaj, how and for what purpose, it is left unexplained and unaddressed in the order. We find on going through the same that it cannot be upheld as after summing up the reasoning of the AO, reference is made to God images ; Happy ; Manoranjan Gold; Pankaj; Sanjeev etc. in what context is not understood. Accordingly, the case was re-fixed for clarification and the parties were required to address the issues. The ld. CIT-DR was also unable to address the reference made to Happy; Pankaj; Sanjeev etc. and stated that it appears no value has been assigned to these. For God images, it was noticed, no weight is given but value is assigned. ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 44 of 45 However, the relevance of the finding for rejecting the claim could not be elaborated. In the circumstances, the ld. AR in the course of the hearing vehemently contended that this was the first year of the assessees business and whatever was confronted to the assessee was considered and a surrender has been made and in the facts of the present case, the surrender has been abided by the assessee. It was his submission that the contents of the pen-drive were more or less updated on every second or third day except for the last updation. The assessee being new in this line of business, it was submitted, attempted also to maintain a record in the pen-drive of the availability of stock so as to keep control of what was available with the assessee in its stock. It was his submission that the contents of the pen-drive more or less reflect what was found in the course of the search and having carried out search, merely because there was a repetition in the pen-drive by itself cannot be a ground for a separate addition all together since admittedly there were no lockers maintained by the family members and the family jewellery was also maintained in the business premises strong-room. It was emphasized that the premises have been searched, articles found and owned up thus it was argued that nothing further remains. However, we are of the view that in order to accept the assessees submissions, there should be a semblance of matching the articles. No doubt general arguments are also made that the AO was no expert at valuation, the exercise was arbitrary. We have noted that the CIT(A) has failed to address the argument and accepted that the assessing officer is justified and correct. However what was the basis for concluding that the AO was justified, has been completely left unaddressed in the order. Apart from that it is noticed it had also been argued that the overall total weight of gold ornaments actually found and found recorded in the books/pen-drive etc. when considered alongwith the surrender, no addition would be warranted. However since before us the ld. AR also advanced without prejudice argument that the contents of the Pen Drive were a digital record of the actual stock position, we find that in order to consider the said argument that the contents of the pen- drive match with the articles found at the time of the search and noticed in the Valuers Report, a reasonable attempt to match the same first needs to be demonstrated. Since the ld. CIT-DR also could not show how the issue can be said to have been considered on facts by the CIT(A), the parties were required to elaborate and address the re-conciliation for which purposes the appeals were re-fixed. The ld. AR sought permission to explain the re- conciliation with the help of the assessee concerns Managing Director/Director stating that he was fully conversant with the facts and was in a better position to demonstrate an item to item match with the items found and noticed in the DVOs report available at Paper Book pages 23 to 32 with the contents of the pen-drive extracted in pages 8 & 9 of the assessment order for which purposes the ld. AR filed
RECONCILIATION STATEMENT OF STOCKS ITA 247/CHD/2017 & 187/CHD/2017 A.Y. 2013-14 Page 45 of 45 AS FOUND AND VALUED BY THE APPROVED VALUER AS PER VALUER REPORT DATE 31 OCTOBER , 2012-13 ( on the date of search) AT THE BUSINESS PREMISES. VIS-A-VIS STOCKS AS PER PENDRIVE AT PAGES 40-41 OF THE PAPER BOOK/ AS REFERED TO IN THE ASSESSMENT ORDER.( AT PARA 9 PAGE 5 TO 8 AND 9). Time was given to the CIT-DR to go through the same. The ld. AR on the next date elaborating the said Chart with the help of the M.D./Director of assessee concern submitted that as per the Valuers Report, the total rings found were numbering 409 noticed at Sr.No. 33; 34; 35; 60; 102; 103 and 112 and in the pen-drive the total number of rings noticed were 429. It was submitted that as per the gross weight noticed by the Valuer, it was 1692.870 and as per the pen-drive it was 1772.890. Similar was the position for ear-rings; bracelets, pendants, diamond bracelet, diamond rings, diamond tops, diamond set etc. As an illustration, attention was invited to total chains noticed in the Valuers Report as being 226 in number and in the pen-drive 228. The gross weight was 2153.180 and 1966.580 respectively. Similarly for the diamond bracelets, it was submitted that they were 316 and in the pen-drive, they were 320. The gross weight was 9629.240 and 9913.420 respectively. It was his submission that there was a minor difference in dates on which the final recording was made in the pen-drive and these minor discrepancies, if any, can be addressed in the Remand. The ld. CIT-DR was heard. It was his submission that though he would place reliance upon the order, however, it was fairly conceded that the assessee may have a case but since the re-conciliation has not been considered by the AO, it was submitted, it may be set aside to the AO for examination as at this stage he would not be in a position to address the same. The said submission was not opposed by the ld. AR who agreed that he was in a position to demonstrate that re-conciliation statement addressed the claim. In the light of the submissions of the parties before the Bench without addressing the other issues, we deem it appropriate to set aside the assessees ground back to the file of the AO with a direction to consider the re-conciliation statement placed by the assessee on record and pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard.
8. In the result, the appeal of the assessee is allowed for statistical purposes.
9. In the result, appeal of the Revenue is dismissed and appeal of the assessee is allowed for statistical purposes. Order pronounced in the Open Court on 04.09.2018. Sd/- Sd/- (ANNAPURNA GUPTA) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Poonam/AG/Poonam Copy to:
1. The Appellant 2.The Respondent 3.The CIT 4.The CIT(A)5.The DR Asstt. Registrar
