Harshwardhan Gems Pvt. Ltd., Kolkata V. ITO, Ward - 12(3), Kolkata, Kolkata

ITA 1070/KOL/2010

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3123 (ITAT-KOLKATA)
• Duration Of Justice: 5 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 12-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 24-05-2010
• Court: TRIBUNAL
• Department Lawyers: P B PRAMANIK
• Assessee Lawyers: S M SURANA
• Keywords: Unexplained cash credit; Gift; Income from undisclosed sources; Question of law; Onus to prove
• Section: 143(3); 133A; 133(6); 194C; 131; 68; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KO LKATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI M. BALAGANES H, AM] I.T.A NO. 1070/KOL/2010 ASSESSMENT YEAR: 2005-06 HARSHWARDHAN GEMS PVT. LTD. VS. INCOME-TAX OFFICE R, WD-12(3), KOLKATA (PAN: AABCH2778Q) ( APPELLANT ) ( RESPONDENT ) & I.T.A NO. 1337/KOL/2010 ASSESSMENT YEAR: 2005-06 INCOME-TAX OFFICER, WD-12(3), KOLKATA VS. HARSHWAR DHAN GEMS PVT. LTD. (APPELLANT) (RESPONDENT) DATE OF HEARING: 23.12.2015 DATE OF PRONOUNCEMENT: 03.02.2016 FOR THE ASSESSEE: SHRI S. M. SURANA, ADVOCATE FOR THE REVENUE: SHRI P. B. PRAMANIK, JCIT, SR. DR ORDER PER SHRI MAHAVIR SINGH, JM: BOTH THESE CROSS APPEALS BY ASSESSEE AND REVENUE AR E ARISING OUT OF ORDER OF CIT(A)-XXXII, KOLKATA IN APPEAL NO. 29/CIT(A)-XXXII /08-09/WD-12(3)/R&T/KOL DATED 21.01.2010. ASSESSMENT WAS FRAMED BY ITO, WD -12(3), KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS T HE ACT) FOR AY 2005-06 VIDE ITS ORDER DATED 31.12.2007. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN DELETING THE ADDITION OF SHARE CAPITAL MADE BY AO U/S. 68 OF THE ACT. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.1: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.65,50,000/- U/S. 68, ON ACCOUNT OF INCREASE IN SHARE CAPITAL, WHILE THE ASSESSEE HAS FAILED TO ESTABLISH THE GENU INENESS OF THE TRANSACTIONS. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A MANUFACTURER AND DEALER IN GOLD ORNAMENTS, JEWELLERIES, DIAMONDS, CUT AND POLISHED STONES. A SURVEY U/S. 133A OF THE ACT WAS CONDUCTED ON THE BUSINESS PREMISES OF THE ASSES SEE ON 05.11.2004. DURING THE COURSE OF SURVEY, THE BOOKS OF ACCOUNT AND DOCUMENT S WERE FOUND AND WERE IMPOUNDED, INVENTORISED AND MARKED AS HG-1 TO HG-33. THE AO D URING THE COURSE OF ASSESSMENT PROCEEDINGS ON GOING THROUGH THE RETURN OF INCOME N OTICED THAT THE ASSESSEE HAS INCREASED SHARE CAPITAL TO THE EXTENT OF RS.65.50 LACS DURING THE YEAR UNDER CONSIDERATION. THE AO 2 ITA NO. 1070 & 1337/KOL/2010 HARSHWARDHAN GEMS PVT. LTD., AY 2005-06 ALSO OBSERVED THAT THE ASSESSEE HAS ISSUED SHARES A T THE FACE VALUE OF RS.100/- AND PREMIUM OF RS.100/- DURING THE YEAR. THE AO REQUIRE D THE ASSESSEE TO FURNISH THE COMPLETE DETAILS OF SHARE-HOLDING STATING NAMES, AD DRESSES, NO. OF SHARES ALLOTTED AND FACE VALUE/PREMIUM THEREON. THE ASSESSEE FILED COMPLETE DETAILS INCLUDING NAMES AND ADDRESSES, PAN OF SHAREHOLDERS, FACE VALUE OF SHARE S AND PREMIUM CHARGED ON SHARES. THE RELEVANT DETAILS ARE REPRODUCED BY THE AO IN HI S ASSESSMENT ORDER AT PAGE 2. THE AO ISSUED NOTICE U/S. 133(6) OF THE ACT TO THESE PARTI ES AND ASKED THE ASSESSEE TO PRODUCE ALL THE SHAREHOLDERS. THE ASSESSEE COULD PRODUCE ONLY FOUR PARTIES OUT OF TWELVE PARTIES AND STATEMENTS WERE RECORDED. THE ASSESSEE BEFORE THE A O CLAIMED THAT THREE SHAREHOLDERS ARE SENIOR CITIZENS AND HENCE, THEY ARE NOT IN A POSITI ON TO APPEAR BEFORE HIM. BALANCE EIGHT PARTIES DID NOT ATTEND PERSONALLY BUT FILED THE DET AILS OF CONFIRMATION. THE AO EXAMINED SM. ANITA MUKIM, REENA BUCHA, DIPTI SINGHI, KAUSHIK SETHIA AND AFTER RECORDING THEIR STATEMENT THE AO REACHED TO CONCLUSION THAT THE CRE DITWORTHINESS OF THESE SHAREHOLDERS IS NOT ESTABLISHED. HENCE, HE ADDED THE ENTIRE AMOUNT OF RS.65.50 LACS BEING SHARE CAPITAL AND PREMIUM AS UNDISCLOSED CASH CREDIT U/S. 68 OF T HE ACT. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A) WHO DELETED THE ADDITION BY FO LLOWING THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DIVINE LEAS ING & FINANCE LTD. 299 ITR 268, THE RELEVANT FINDING OF CIT(A) IN PARA 3.7, 3.8, 3.9 AN D 3.10 READS AS UNDER: 3.7 I .HAVE CAREFULLY CONSIDERED THE REASONING OF THE A.O. IN MAKING THE ADDITION AND THE SUBMISSION OF THE A/R IN THIS REGARD. FROM THE PERU SAL OF THE ASSESSMENT ORDER IT IS OBSERVED THAT THE A.O. WAS NOT SATISFIED ABOUT THE CHARGING OF PREMIUM OF RS.100/- PER SHARE BY THE ASSESSEE, THEREFORE, HE HAD DOUBT ABOU T THE GENUINENESS OF THE SHARE SUBSCRIPTION AND SHARE PREMIUM MONEY RECEIVED BY TH E ASSESSEE DURING THE RELEVANT YEAR. THE A.O. SUSPECTED THE PREMIUM CHARGED ON THE PRICE OF SHARES FOR THE REASON THAT SUCH A PREMIUM WAS NOT JUSTIFIED CONSIDERING THE BOOK VALU E OF THE SHARES. 3.8 THE A.O. HAS TREATED THE ENTIRE AMOUNT OF RS.65 ,50,000/-, RECEIVED BY THE ASSESSEE ON ACCOUNT OF SHARE SUBSCRIPTION AND SHARE PREMIUM, AS ASSESSEE'S UNDISCLOSED CASH CREDIT ULS.68 OF THE ACT. NOW, IT NEEDS TO BE EXAMINED WHE THER SUCH AMOUNT IS ASSESSABLE AND TAXABLE UNDER THE PROVISIONS OF SECTION 68 OF THE A CT. 3.9 APPLICABILITY OF PROVISIONS OF SECTION 68 TO TH E SHARE SUBSCRIPTION MONEY RECEIVED BY A COMPANY HAS BEEN DEALT WITH IN A CATENA CASES BY VA RIOUS COURTS INCLUDING THE HON'BLE APEX COURT. MORE RECENTLY, SIMILAR ISSUE CAME UP FO R CONSIDERATION IN THE CASE OF CIT V. DIVINE LEASING & FINANCE LTD. 299 ITR 268 (DELHI) B EFORE THE DELHI HIGH COURT WHEREIN THE HON'BLE COURT DISCUSSED THE ISSUE UNDER CONSIDE RATION AT LENGTH. AFTER ANALYZING THE JUDGMENTS OF VARIOUS HIGH COURT AND HON'BLE SUPREME COURT ON THE ISSUE, THE HON'BLE COURT OBSERVED THAT A DISTILLATION OF THE PRECEDENT S YIELDS THE FOLLOWING PROPOSITION OF LAW IN CONTEXT OF APPLICABILITY OF PROVISIONS OF SECTIO N 68 OF THE ACT IN CASE OF ISSUE OF SHARE CAPITAL. THE ASSESSEE HAS TO PRIMA FACIE PROVE (1) THE IDENTITY OF THE CREDITORS/SUBSCRIBER; (2) THE GENUINENESS OF TRANSACTION, NAMELY, WHETHER IT HAS BEEN TRANSMITTED THROUGH BANKING OR OTHER INDISPUTABLE CHANNELS; (3) THE CRE DITWORTHINESS OR FINANCIAL STRENGTH OF THE CREDITOR/SUBSCRIBER; (4) IF RELEVANT DETAILS OF THE ADDRESS OR PAN IDENTITY OF THE 3 ITA NO. 1070 & 1337/KOL/2010 HARSHWARDHAN GEMS PVT. LTD., AY 2005-06 CREDITORS/SUBSCRIBER ARE FURNISHED TO THE DEPARTMEN T IT WOULD CONSTITUTE ACCEPTABLE PROOF OR ACCEPTABLE EXPLANATION BY THE ASSESSEE. (5) THE DEPARTMENT WOULD NOT BE JUSTIFIED IN DRAWING AN ADVERSE INFERENCE ONLY BECAUSE THE CREDI TOR/SUBSCRIBER FAILS OR NEGLECTS TO RESPOND TO ITS NOTICES; (6) THE ONUS WOULD NOT STAN D DISCHARGED IF THE CREDITOR/SUBSCRIBER DENIES OR REPUDIATES THE TRANSACTION SET UP BY THE ASSESSEE NOR SHOULD THE ASSESSING OFFICER TAKE SUCH REPUDIATION AT FACE VALUE AND CONSTRUE IT , WITHOUT MORE, AGAINST THE ASSESSEE; AND (7) THE ASSESSING OFFICER IS DUTY BOUND TO INVESTIG ATE THE CREDITWORTHINESS OF THE CREDITOR/SUBSCRIBER, THE GENUINENESS OF THE TRANSAC TION AND THE VERACITY OF THE REPUDIATION. THE DEPARTMENT'S SLP AGAINST THE SAID JUDGMENT HAS BEEN DISMISSED BY THE HON'BLE SUPREME COURT AS REPORTED IN 216 CTR (SC) 195. 3.10 IN THE LIGHT OF THE PROPOSITION OF LAW AS ENUN CIATED BY THE HON'BLE DELHI HIGH COURT AS ABOVE, IN RESPECT OF THE ISSUE OF EXAMINING THE GENUINENESS OF SUBSCRIPTION TO THE SHARE CAPITAL OF A COMPANY, VIS-A-VIS, SECTION 68 OF THE ACT, LET ME EXAMINE THE FACTS OF THE CASE BEFORE ME. IN THE PRESENT CASE, THE FACTS WHICH EMA NATE FROM THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE A/R ARE THAT: A) THE ASSESSEE HAD SUBMITTED THE COPIES SHARE APPL ICATION AND MONEY RECEIPTS IN RESPECT OF THE SUBSCRIBERS TO ITS SHARE CAPITAL, AN D THE SUBSCRIBERS, IN RESPONSE TO A.O.'S NOTICES U/S.133(6) OF THE ACT ISSUED TO THEM , SUBMITTED THEIR ADDRESSES, THEIR P.A.NO.S AND THEIR RESPECTIVE BALANCE SHEETS CONFIR MING SUBSCRIPTION BY THEM TO THE SHARE CAPITAL OF THE ASSESSEE; B) NONE OF THE SUBSCRIBERS DENIED SUBSCRIBING TO SH ARE CAPITAL OF THE ASSESSEE; C) THE SUBSCRIPTION MONEY WAS RECEIVED BY THE ASSES SEE THROUGH BANKING CHANNEL BY WAY OF CHEQUES; D) FOUR OF THE SUBSCRIBERS APPEARED BEFORE THE AO A ND CONFIRMED THE TRANSACTION; E) THREE OF THE SUBSCRIBERS COMMUNICATE THEIR INABI LITY TO APPEAR BEFORE THE AO FOR THE REASON THAT THEY ARE SENIOR CITIZENS OR THEY WE RE DISABLED BECAUSE OF THEIR ILLNESS. IN THE LIGHT OF THE ABOVE FACTS OF THE CASE THE EXP LANATION AND PROOF FURNISHED BEFORE THE AO CONSTITUTE ACCEPTABLE PROOF AND ACCEPTABLE EXPLA NATION AS HELD BY THE HONBLE COURT IN CIT V. DIVINE LEASING & FINANCE LTD. (SUPRA). T HEREFORE, IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN TREATING THE AMOUNT OF SHARE SUBSCRIPT ION MONEY AND OF SHARE PREMIUM TO BE ASSESSEES UNEXPLAINED CASH CREDIT U/S. 68 OF THE A CT. ACCORDINGLY, THE ADDITION OF RS.65,50,000/- MADE BY THE AO IS DELETED. AGGRIEVED, NOW REVENUE IS IN SECOND APPEAL BEFORE T RIBUNAL. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. ADMITTEDLY, THE ASSESSEE HAS INCREASED SHARE APPLICATION MONEY ALONG WITH PREMIUM ON THE SHARES TO THE EXTENT OF RS.65.50 LAC S DURING THE YEAR FROM TWELVE PARTIES. THE ASSESSEE HAS FILED COMPLETE NAMES AND ADDRESSES AND PAN OF SHAREHOLDERS ALONG WITH THEIR APPLICATION MONEY AND SHARE PREMIUM CHAR GED ON THE SAME. THE RELEVANT DETAILS AS REPRODUCED IN THE ASSESSMENT ORDER READS AS UNDER: SL. NO. NAME & ADDRESS & PAN OF SHARE HOLDERS RS.10 0/- PER SHARE FACE VALUE RS. 100/- PER SHARE PREMIUM 1 CHOUDHURY MANAGEMENT P. LTD., P- 41, PRINCEP GHAT, KOLKATA-72 AABCC1163G 250000 250000 2 SHREEVAR OVERSEAS LTD., 2, JOGENDRA KABIRAJ ROAD, KOL-7, AADCS5853R 500000 500000 4 ITA NO. 1070 & 1337/KOL/2010 HARSHWARDHAN GEMS PVT. LTD., AY 2005-06 3 DARS BUSINESS FINANCE P. LTD., 45/2, RAFI AHMED KIDWAI ROAD, KOL- 16, AAACD9635P 200000 200000 4 AKSHAT DEVELOPERS PVT. LTD. 225C, AJC BOSE ROAD, KOL-20, AAECA5920C 1000000 1000000 5 BINOY KUMARI DEVI, 34/1W, BALLYGUNGE CIRCULAR ROAD, KOL-20, ADRPD5795R 1000000 1000000 6 RANJEET SINGH BAID, 27, EKDALIA PLACE, KOL-19, AECPB2347B 50000 50000 7 ANITA MOOKIM, 60/10, GOURI BARI LANE, KOL-4, AFAPM3187K 50000 50000 8. TILAK DEVI DUGAR, SHYAM APARTMENT, BC- 76, KESTOPUR, SAMARPALLY, KOL ACSPD7243G 50000 50000 9. ANJU DUGAR, SHYAM APARTMENT, BC- 76, KESTOPUR, SAMARPALLY, KOL ADWPD0469R 50000 50000 10. RINA BUCHA, 118/B, C.R. AVENUE, KOL- 48, AEIPB8310C 50000 50000 11 DIPTI SINGHI162, DAKSHIN DARI ROAD, KOL- 48, ARBPS6174M 50000 50000 12 KOUSHIKA SETHIA, MAHADEVI APARTMENT, RABIN PALLY BAZAR, KESTOPUR, KOL- 101, ARKPS6758G 25000 25000 FROM THE RECORDS WE HAVE SEEN THAT ALL THE APPLICAN TS WHO HAVE SUBSCRIBED THE FRESH SHARE CAPITAL ISSUED BY THE ASSESSEE DURING THE RELEVANT YEAR UNDER CONSIDERATION ARE ASSESSED TO INCOME TAX AND PAYMENTS ARE MADE THROUGH BANKING CH ANNEL BY WAY OF ISSUANCE OF CHEQUES. THE ASSESSEE HAS FURNISHED COMPLETE DETAI LS OF SUCH SHAREHOLDERS LIKE COMPLETE NAME, ADDRESS, PAN, INCOME TAX DETAILS AND BANK PAR TICULARS ALONG WITH COPIES OF ACKNOWLEDGEMENT OF RETURNS OF INCOME FILED BY THEM WITH THE DEPARTMENT ALONG WITH BALANCE SHEETS. IN THE BALANCE SHEETS OF ALL THESE SHAREHOLDERS, THE INVESTMENT MADE IN THIS ENTITY I.E. THE ASSESSEE IS DISCLOSED AND IS D EPICTED. THE ASSESSEE HAS PRODUCED FOUR SHAREHOLDERS ON TEST CHECK BASIS. THE STATEMENT OF ANITA MOOKIN WHO HAS CONTRIBUTED SHARE CAPITAL OF RS.50000 AND SHARE PREMIUM OF RS.5 0000 CAN BE TAKEN INTO CONSIDERATION. THE AO HAS REPRODUCED THE RELEVANT PORTION OF THE STATEMENT RECORDED ON BEHALF OF SMT. ANITA MOOKIN AND SHE ADMITTED HAVING GIVEN CHEQUE IN LIEU OF ISSUANCE OF SHARE AND SHARE PREMIUM. VIDE QUESTION NO. 20 THE AO ASKED THE RELEVANT QUESTION NO. 20 AND ASSESSEE EXPLAINED AS UNDER: AS PER YOUR BALANCE SHEET AS ON 31.03.05, YOUR CAP ITAL IS RS.465184/- OUT OF THERE YOU HAVE INVESTED RS.340000/- TO THE EQUITY SHARES OF M /S. HARSHVARDHAN GEMS PVT. LTD. AS YOU HAVE CLAIMED NOT TO HAVE RECEIVED ANY DIVIDEND FROM THOSE INVESTMENT AND A LOAN OF RS.104183/- GIVEN TO THE SAME COMPANY. JUSTIFY THE INVESTMENT? JUST I EXPECTED DIVIDEND IN FUTURE SO I AM ENABLE T O JUSTIFY THE STATEMENT. 5 ITA NO. 1070 & 1337/KOL/2010 HARSHWARDHAN GEMS PVT. LTD., AY 2005-06 IT MEANS THAT SHE IS HAVING CAPITAL OF RS.4,65,184/ - AS ON 31.03.2005 OUT OF WHICH A SUM OF RS.3,40,000/- WAS INVESTED TO ACQUIRE EQUITY SHA RES OF THE ASSESSEE COMPANY. THE AO JUST PRESUMED THAT SHARE APPLICANT ANITA MOOKIN DOE S NOT HAVE SOURCE OF INCOME BUT WE FIND THAT THE IMMEDIATE SOURCE OF INVESTMENT IS CLE ARLY REFLECTED IN THE BALANCE SHEET OF THE SHAREHOLDER WHICH IS VERY MUCH NOTED BY THE AO DURING EXAMINATION OF THE SHARE APPLICANT. SIMILAR IS THE POSITION IN REGARD TO OT HER THREE SHAREHOLDERS WHOSE STATEMENTS WERE RECORDED. WE FIND THAT THE ASSESSEE HAS PRODU CED COMPLETE DETAILS IN RESPECT TO THESE TWELVE SHAREHOLDERS OUT OF WHICH FOUR WERE LI MITED COMPANIES, EIGHT WERE INDIVIDUALS, WHO WERE FAMILY MEMBERS OR RELATIVES O F THE DIRECTORS. WE ALSO FIND THAT THE AO ISSUED NOTICES U/S. 133(6) OF THE ACT TO ALL THE SHAREHOLDERS AND ALL OF WHOM FILED THEIR REPLIES AND CONFIRMED THEIR INVESTMENT MADE A LONG WITH ALL THE DETAILS REQUIRED BY THE AO. THE AO COULD NOT POINT OUT ANY DEFECT OR A NY DEFICIENCY IN THESE REPLIES BUT STRAIGHTWAY ISSUED NOTICES U/S. 131 OF THE ACT AND OUT OF TWELVE, FOUR PERSONS CAME FORWARD AND THEIR STATEMENTS WERE RECORDED WHO PROV ED THAT THEY HAVE IMMEDIATE SOURCE FOR INVESTMENT OUT OF THEIR CAPITAL. ALL THESE SHA REHOLDERS ARE REGULARLY ASSESSED TO INCOME TAX FILING THEIR INCOME TAX RETURNS ALONG WI TH BALANCE SHEET. WE FIND THAT THE ONLY PREMISE FOR MAKING THIS ADDITION BY THE AO WAS THAT THE CREDITWORTHINESS OF THESE SHAREHOLDERS WAS NOT PROVED. THE CIT(A), ON THE OT HER HAND, RELYING ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF DIVINE LEAS ING & FINANCE LTD., SUPRA HAS DELETED THE ADDITION . 5. HONBLE DELHI HIGH COURT IN THE CASE OF DIVINE LEASING & FINANCE LTD., SUPRA HAS DISCUSSED THE FACTS AND LEGAL POSITION AND FINALLY HELD AS UNDER:- 11. BEFORE APPLYING THE LAW TO THE FACTS OF THE PRE SENT CASE, WE SHOULD REFLECT ON THE MANNER IN WHICH THE DIVISION BENCH DEALT WITH THE FACTUAL MATRIX IN DOLPHIN CANPACK. IT OBSERVED THAT WHERE A CREDIT ENTRY RELATES TO THE ISSUE OF S HARE CAPITAL, THE ITO IS ALSO ENTITLED TO EXAMINE WHETHER THE ALLEGED SHAREHOLDERS DO IN FACT EXIST OR NOT. SUCH AN INQUIRY WAS CONDUCTED BY THE AO IN THE PRESENT CASE. IN THE COU RSE OF THE SAID INQUIRY, THE ASSESSED HAD DISCLOSED TO THE AO NOT ONLY THE NAMES AND THE PART ICULARS OF THE SUBSCRIBERS OF THE SHARES BUT ALSO THEIR BANK ACCOUNTS AND THE PAN ISSUED BY THE IT DEPARTMENT. SUPER ADDED TO ALL THIS WAS THE FACT THAT THE AMOUNT RECEIVED BY THE COMPAN Y WAS ALL BY WAY OF CHEQUES. THIS MATERIAL WAS, IN THE OPINION OF THE TRIBUNAL, SUFFI CIENT TO DISCHARGE THE ONUS THAT LAY UPON THE ASSESSED. THIS IS EVIDENT FROM THE PASSAGE EXTR ACTED FROM THE ORDER PASSED BY THE TRIBUNAL EARLIER. IN THE ABSENCE OF ANY PERVERSITY IN THE VIEW TAKEN BY THE TRIBUNAL OR ANYTHING TO ESTABLISH CONCLUSIVELY THAT THE FINDING REGARDING THE GENUINENESS OF THE SUBSCRIBERS AND THE TRANSACTIONS SUFFERS FROM ANY I RRATIONALITY, WE SEE NO SUBSTANTIAL QUESTION OF LAW ARISING FOR OUR CONSIDERATION IN TH IS APPEAL TO WARRANT INTERFERENCE. THIS 6 ITA NO. 1070 & 1337/KOL/2010 HARSHWARDHAN GEMS PVT. LTD., AY 2005-06 APPEAL ACCORDINGLY FAILS AND IS HEREBY DISMISSED. I T SEEMS CLEAR TO US THAT WHERE MONEYS HAVE BEEN RECEIVED IN CASH OR EVEN DEMAND DRAFTS, T HE STANDARD OF PROOF WOULD BE MUCH MORE RIGOROUS AND STRINGENT THAN WHERE THE TRANSACT ION IS BY CHEQUE WHERE THE DATE AND SOURCE OF THE INVESTMENT CANNOT BE MANIPULATED. 12. THE CALCUTTA HIGH COURT HAS HELD IN CIT V. PRECISION FINANCE PVT. LTD . THAT IT IS NOT SUFFICIENT FOR AN ASSESSED TO DISCLOSE THAT CREDITS IN THEIR BOOKS HAD BEEN RECEIVED THROUGH BANKING CHANNELS; THE IDENTITY AS WELL AS THE CREDI TWORTHINESS OF THE CREDITOR MUST NEVERTHELESS BE PROVED. IN SAJAN DAS AND SONS V. COMMISSIONER OF INCOME-TAX (2003) 264 ITR 435 (DEL) THE DIVISION BENCH WAS NOT CONVINCED THAT MERELY BECAUSE MONEYS COULD BE IDENTIFIED AND TRACED THROUGH BANKING CHANNELS THE GENUINENESS OF THE GIFT IN QUESTION STOOD ESTABLISHED. THIS IS OBVIOUSLY BECAUSE AN ASSESSED CAN SCARCELY BE HEARD TO SAY THAT HE DOES NOT KNOW ALL PARTICULARS PERTAINING TO THE DONOR. T HEREAFTER, THE SAME DIALECTIC LEAD THE BENCH TO ARRIVE AT THE OPPOSITE CONCLUSION IN COMMISSIONER OF INCOME-TAX V. R.S. SIBAL (2003) 269 ITR 429 (DEL). IN C.I.T. V. MAKHANI & TYAGI (P) LTD . THIS COURT HAS NOT GIVEN ITS IMPRIMATUR TO THE INACTION OF THE AO IN DOING N OTHING FURTHER AFTER THE ISSUANCE OF SUMMONS UNDER SECTION 131 OF THE INCOME-TAX ACT. IT DID NOT CONDONE THE AO, FAILING TO ISSUE COERCIVE PROCESS, AND IN THIS MANNER ATTEMPTING INC ORRECTLY TO SHIFT THE BURDEN ON THE ASSESSED TO ESTABLISH THE LIGITIMACY OF THE TRANSAC TION. IN COMMISSIONER OF INCOME-TAX V. ANTARCTICA INVESTMENT PVT. LTD . (2002) 262 ITR 493 (DEL) THE COURT WAS SATISFIED THAT NO INTERFERENCE WAS JUSTIFIED SINCE THE ASSESSED HAD P RODUCED THE SHARE APPLICATION FORMS ALONG WITH CONFIRMATION LETTERS AND COPIES OF THEIR ACCOU NTS, COPIES OF THEIR BANK ACCOUNTS OF CHEQUE PAYMENTS AND THEIR AUDITOR'S REPORT. THE ASS ESSING OFFICER'S CONCLUSION THAT THE GENUINENESS OF THE TRANSACTION HAD NOT BEEN MADE GO OD WAS NOT UPHELD. THIS CONCLUSION WAS REACHED DESPITE THE FACT THAT NOTICES RECEIVED BY O NE OF THE COMMON DIRECTORS OF THE TWO SUBSCRIBING COMPANIES HAD BEEN IGNORED AND NO INFOR MATION WAS FORTHCOMING FROM THE LATTER. HOWEVER, THE UNDER SECRETARY (LAND REVENUE, GOVERNMENT OF SIKKIM, GANGTOK) HAD STATED THAT BOTH THE SUBSCRIBING COMPANIES WERE INC ORPORATED IN SIKKIM AND THEIR ADDRESSES WERE DISCLOSED IN THE RETURN OF ALLOTMENTS; THE SUB SCRIBERS THUS STOOD IDENTIFIED. THEIR FINANCIAL STANDING OR CAPACITY WAS NOT INVESTIGATED BY THE COURT. THE DECISION IN COMMISSIONER OF INCOME-TAX V. ACHAL INVESTMENT LTD . (2004) 268 ITR 211 (DEL) IS ALSO ON THE SAME LINES. 13. THERE CANNOT BE TWO OPINIONS ON THE ASPECT THAT THE PERNICIOUS PRACTICE OF CONVERSION OF UNACCOUNTED MONEY THROUGH THE MASQUERADE OR CHANNEL OF INVESTMENT IN THE SHARE CAPITAL OF A COMPANY MUST BE FIRMLY EXCORIATED BY THE REVENUE. EQUALLY, WHERE THE PREPONDERANCE OF EVIDENCE INDICATES ABSENCE OF CULPABILITY AND COMPL EXITY OF THE ASSESSED IT SHOULD NOT BE HARASSED BY THE REVENUES INSISTENCE THAT IT SHOULD PROVE THE NEGATIVE. IN THE CASE OF A PUBLIC ISSUE, THE COMPANY CONCERNED CANNOT BE EXPECTED TO KNOW EVERY DETAIL PERTAINING TO THE IDENTITY AS WELL AS FINANCIAL WORTH OF EACH OF ITS SUBSCRIBERS. THE COMPANY MUST, HOWEVER, MAINTAIN AND MAKE AVAILABLE TO THE AO FOR HIS PERUS AL, ALL THE INFORMATION CONTAINED IN THE STATUTORY SHARE APPLICATION DOCUMENTS. IN THE CASE OF PRIVATE PLACEMENT THE LEGAL REGIME WOULD NOT BE THE SAME. A DELICATE BALANCE MUST BE M AINTAINED WHILE WALKING THE TIGHTROPE OF SECTION 68 AND 69 OF THE IT ACT. THE BURDEN OF PROOF CAN SELDOM BE D ISCHARGED TO THE HILT BY THE ASSESSED; IF THE AO HARBOURS DOUBTS OF THE L EGITIMACY OF ANY SUBSCRIPTION HE IS EMPOWERED, NAY DUTY-BOUND, TO CARRY OUT THOROUGH IN VESTIGATIONS. BUT IF THE AO FAILS TO UNEARTH ANY WRONG OR ILLEGAL DEALINGS, HE CANNOT OB DURATELY ADHERE TO HIS SUSPICIONS AND TREAT THE SUBSCRIBED CAPITAL AS THE UNDISCLOSED INC OME OF THE COMPANY. 7 ITA NO. 1070 & 1337/KOL/2010 HARSHWARDHAN GEMS PVT. LTD., AY 2005-06 14. IN COMMISSIONER OF INCOME-TAX V. S. KAMARAJA PANDIA N , THE MADRAS HIGH COURT TOOK THE VIEW THAT IT IS FOR THE ASSESSED TO INITIALLY P ROVE THE GENUINENESS OF THE LOAN, AND THAT THE ONUS SHIFTS TO THE DEPARTMENT ONLY AFTER THE ASSESS ED HAS PRIMA FACIE SUBSTANTIATED THIS FACT. IN THAT CASE ONE OF THE CREDITORS HAD DENIED THE TR ANSACTION. THE PATNA HIGH COURT IN ADDITIONAL COMMISSIONER OF INCOME-TAX, BIHAR V. HAN UMAN AGARWAL WAS FACED WITH THE AVAILABILITY OF A CONFIRMATORY LETTER FILED BY THE ASSESSED IN WHOSE BOOKS OF ACCOUNT A CREDIT WAS FOUND. GIR NUMBER OF THE CREDITOR WAS SUPPLIED, AND IT APPEARS THAT HE HAD CONFESSED THAT THIS TRANSACTION WAS NOT GENUINE. THE HIGH COU RT DID NOT ACT ON THE CONFESSION SINCE IT HAD NOT BEEN MADE AVAILABLE TO THE ASSESSED. THE BE NCH OBSERVED THAT SINCE THE CORRECT NAME AND ADDRESS, AND THE GIR NUMBER OF THE CREDITOR HAD BEEN SUPPLIED BY THE ASSESSED THE INITIAL ONUS UNDER SECTION 68 OF THE INCOME TAX ACT HAD BEEN COMPLETELY DISCHARGE D BY THE ASSESSED. IT WOULD NOT BE SANGUINE TO CONCEIVE OF A POSSIBILI TY OF A GENUINE CONTRIBUTOR ABANDONING HIS INVESTMENT FOR DIVERSE REASONS. THAT WOULD NOT LEAD TO THE CONCLUSION THAT THE ASSESSED IS AUTOMATICALLY GUILTY OF ATTEMPT OF CONVERTING ITS I NCOME INTO CAPITAL. 15. IN BHARATI PVT. LTD. V. COMMISSIONER OF INCOME- TAX, WEST BENGAL-I, CALCUTTA WHERE NOTICES TO THESE ALLEGED CREDITORS HAD COME BACK UN SERVED, THE DIVISION BENCH AFFIRMED THAT THE MERE FILING OF CONFIRMATORY LETTERS BY THE ASSE SSED DID NOT DISCHARGE THE ONUS THAT LAY ON THE ASSESSED. DIFFERENT DIVISION BENCHES OF THE SAM E HIGH COURT HAVE OPINED THAT THE ASSESSED MUST PROVE (A) THE IDENTITY, (B) THE CAPAC ITY OF THE CREDITORS TO ADVANCE MONEY, (C) THE GENUINENESS OF THE TRANSACTION. ( SEE SHANKAR INDUSTRIES V. COMMISSIONER OF INCOME-TA X , CENTRAL, CALCUTTA C.KANT & CO. V. COMMISSIONER OF I NCOME-TAX, WEST BENGAL-III AND COMMISSIONER OF INCOME-TAX V. UNITED COMMERCIAL AND INDUSTRIAL CO. LTD . . IN C.I.T. V. KORLAY TRADING CO. LTD . , CERTAIN SHARES PURCHASED THROUGH A BROKER WERE LOST. THE ASSESSED FURNISHED THE NAME OF THE BROKER, AS ALSO THE DATE OF THE SALE, AMOUNT OF PURCHASE MONEY AND SALE MONEY. THE BROKER WAS FOUND NOT TO HAVE MAINTA INED REGULAR ACCOUNTS. HOWEVER, THE COURT REFUSED TO DRAW AN INFERENCE ADVERSE TO THE A SSESSEDS INTERESTS. INSTEAD THE CALCUTTA HIGH COURT OBSERVED THAT THE ITO OUGHT TO HAVE INVE STIGATED THE MATTER MORE THOROUGHLY TO CONTROVERT THE CLAIM OF THE ASSESSED, AND CONCURRED WITH THE CONCLUSION OF THE TRIBUNAL THAT THE LATTER HAD DISCHARGED THE INITIAL BURDEN THAT L AY ON IT. THE HIGH COURT SET ASIDE THE DECISION OF THE TRIBUNAL WHICH HAD REVERSED THE FIN DINGS OF THE ITO AS WELL AS THE CIT (APPEALS) SINCE THE ASSESSED HAD SUPPLIED THE INCOM E TAX FILE NUMBER OF THE CREDITOR BEFORE IT. THE HIGH COURT NOTED THAT THE MERE FILING OF THE IN COME TAX NUMBER WAS NOT SUFFICIENT TO ESTABLISH THE IDENTITY AND CREDITWORTHINESS OF THE CREDITOR AND GENUINENESS OF THE TRANSACTION. ALTHOUGH ORISSA CORPORATION WAS REFERRED TO THE DEC ISION OF THE FULL BENCH OF THIS COURT IN SOPHIA FINANCE WAS NOT EVEN CITED. KORLAY TRADING A S WELL AS SOPHIA FINANCE WAS APPLIED BY THE SAME DIVISION BENCH OF THE CALCUTTA HIGH COURT IN FOUR DECISIONS DELIVERED IN MARCH 2003. IN HINDUSTHAN TEA TRADING CO. LTD. V. C.I.T . , THE BENCH OPINED THAT IN THE CASE OF A SUBSCRIPTION TO THE SHARE CAPITAL OF A COMPANY, IF SECTION 68 OF THE INCOME TAX ACT IS TO BE RESORTED TO, IT IS NECESSARY FOR THE ASSESSED TO PR OVE AND ESTABLISH THE IDENTITY OF THE SUBSCRIBER, THEIR CREDITWORTHINESS AND THE GENUINEN ESS OF THE `TRANSACTION. ONCE MATERIAL TO PROVE THESE INGREDIENTS ARE PRODUCED IT IS FOR THE AO TO FIND OUT AS TO WHETHER, ON THESE MATERIALS, THE ASSESSED HAS SUCCEEDED IN ESTABLISHI NG THE INGREDIENTS MENTIONED ABOVE. THE AO CAN `LIFT THE VEIL AND ENQUIRE INTO THE REAL NAT URE OF THE TRANSACTION. C.I.T. V. RUBY TRADERS AND EXPORTERS LTD. , C.I.T. V. NIVEDAN VANIJYA NIYOJAN LTD . AND C.I.T. V. KUNDAN INVESTMENT LTD . ARE THE OTHER THREE. 8 ITA NO. 1070 & 1337/KOL/2010 HARSHWARDHAN GEMS PVT. LTD., AY 2005-06 16. IN THIS ANALYSIS, A DISTILLATION OF THE PRECEDE NTS YIELDS THE FOLLOWING PROPOSITIONS OF LAW IN THE CONTEXT OF SECTION 68 OF THE IT ACT. THE ASSESSED HAS TO PRIMA FACIE PRO VE (1) THE IDENTITY OF THE CREDITOR/SUBSCRIBER; (2) THE GENUINENESS OF THE TRANSACTION, NAMELY, WHETHER IT HAS BEEN TRANSMITTED THROUGH BANKING OR OTHER INDISPUTA BLE CHANNELS; (3) THE CREDITWORTHINESS OR FINANCIAL STRENGTH OF THE CREDITOR/SUBSCRIBER. ( 4) IF RELEVANT DETAILS OF THE ADDRESS OR PAN IDENTITY OF THE CREDITOR/SUBSCRIBER ARE FURNISHED T O THE DEPARTMENT ALONG WITH COPIES OF THE SHAREHOLDERS REGISTER, SHARED APPLICATION FORMS, SH ARE TRANSFER REGISTER ETC. IT WOULD CONSTITUTE ACCEPTABLE PROOF OR ACCEPTABLE EXPLANATI ON BY THE ASSESSED. (5) THE DEPARTMENT WOULD NOT BE JUSTIFIED IN DRAWING AN ADVERSE INFERE NCE ONLY BECAUSE THE CREDITOR/SUBSCRIBER FAILS OR NEGLECTS TO RESPOND TO ITS NOTICES; (6) TH E ONUS WOULD NOT STAND DISCHARGED IF THE CREDITOR/SUBSCRIBER DENIES OR REPUDIATES THE TRANSA CTION SET UP BY THE ASSESSED NOR SHOULD THE AO TAKE SUCH REPUDIATION AT FACE VALUE AND CONSTRUE IT, WITHOUT MORE, AGAINST THE ASSESSED. (7) THE ASSESSING OFFICER IS DUTY-BOUND TO INVESTIG ATE THE CREDITWORTHINESS OF THE CREDITOR/SUBSCRIBER THE GENUINENESS OF THE TRANSACT ION AND THE VERACITY OF THE REPUDIATION. 17. FOR A COMPLETE UNDERSTANDING OF THE CONCEPT OF `BURDEN OF PROOF ATTENTION SHOULD BE DRAWN TO DECISIONS DELIVERED IN THE CONTEXT OF PENA LTY PROCEEDING UNDER SECTION 271 OF THE INCOME TAX ACT. CIT, WEST BENGAL V. ANWAR ALI [1970] 76 ITR 697 WAS DECIDED BY THE APEX COURT HOLDING THAT, IF THERE IS NO EVIDENCE ON RECO RD EXCEPT THE EXPLANATION OF THE ASSESSED, WHICH EXPLANATION HAS BEEN FOUND TO BE FALSE, IT ST ILL DOES NOT FOLLOW THAT THE RECEIPT CONSTITUTES TAXABLE INCOME. THIS DECISION WAS FOLLO WED BY THE APEX COURT IN ANANTHARAM VEERASINGHAIAH & CO. V. COMMISSIONER OF INCOME-TAX, A.P . OPINING THAT THE MERE FALSITY OF THE EXPLANATION GIVEN BY THE ASSESSED IS INSUFFICIE NT WITHOUT THERE BEING, IN ADDITION, COGENT MATERIAL OR EVIDENCE FROM WHICH THE NECESSARY CONCL USION ATTRACTING A PENALTY CAN BE DRAWN. HOWEVER, AS HAS BEEN NOTED IN CIT V. JEEVAN LAL SAH 1995 SUPP (4) SCC 247 AMENDMENTS WERE INCORPORATED BY FINANCE ACT , 1964, INTO SECTION 271 WHICH HAD DELETED THE WORD DELIBERATELY IN ITS SUB- SECTION 1(C) , THEREBY SHIFTING THE ONUS OF PROOF ONTO THE ASSES SED, RENDERING ANWAR ALI INEFFECTUAL. NEVERTHELESS, IN CIT V. MUSSADILAL RAM BHAROSE IT HAS BEEN ENUNCIATED BY THE SUPREME COURT THAT THOUGH THE EXP LANATION SHIFTS THE BURDEN TO THE ASSESSED TO SHOW ABSENCE OF FRAUD, THIS ONUS IS A R EBUTTABLE ONE. THE BURDEN IS NOT DISCHARGED BY THE ASSESSED TENDERING AN INCREDIBLE OR FANTASTI C EXPLANATION; AND EVERY EXPLANATION DOES NOT HAVE TO BE ACCEPTED. IN OUR OPINION, IT IS FOR PARLIAMENT TO INTRODUCE LEGISLATION IF THE DUTY PRESENTLY RESTING ON THE DEPARTMENT IS THOUGHT TO B E TOO ONEROUS. WE OUGHT NOT TO TWIST THE LANGUAGE OF A STATUTE TO REMOVE THE BURDEN OF PROOF ALTOGETHER FROM THE DEPARTMENT EVEN THOUGH IT HAS THE NECESSARY WHEREWITHAL TO DISCHARG E IT. THE MALAISE CAN ALSO BE ARRESTED IF UNCLAIMED SHARE SUBSCRIPTIONS ARE TAKEN OVER BY THE STATE AND/OR IF THE ASSESSED CONCERNED IS PRECLUDED FROM DISTRIBUTING DIVIDENDS, BONUS SHARES ETC. AGAINST SUCH SHARE SUBSCRIPTIONS UNLESS THEY ARE DULY CLAIMED BY THE ORIGINAL SUBSCR IBERS WITHIN A PRESCRIBED PERIOD, PERHAPS NOT EXCEEDINGS THREE YEARS. THEREAFTER THE SHARES C OULD AUTOMATICALLY STAND TRANSFERRED TO THE STATE ON THE PRINCIPLE OF ESCHEAT. FOR THESE EV ENTS TO HAPPEN, REQUISITE AMENDMENTS TO THE IT ACT MAY BE REQUIRED. 18. WE SHALL NOW TURN OUR ATTENTION TO THE FACTS AN D DETAILS OF THE PRESENT APPEALS. THE APPEAL OF THE REVENUE IN RESPECT OF ASSESSMENT YEAR S 1984-1985 AND 1986-87 WAS REJECTED ON 4-9-2003 BY THE ITAT BENCH COMPRISING SHRI R.M.MEHT A AND SHRI RAM BAHADUR. WITH REGARD TO THE IN BETWEEN ASSESSMENT YEAR 1985-1986 ANOTHER BENCH COMPRISING SHRI H.L.KARWA AND SHRI B.R.JAIN DISMISSED THE REVENUE'S APPEAL ON 12.8.2005. 9 ITA NO. 1070 & 1337/KOL/2010 HARSHWARDHAN GEMS PVT. LTD., AY 2005-06 19. AS WOULD BE EVIDENT FROM A PERUSAL OF THE TABLE (SUPRA) FOR THE ASSESSMENT YEAR 1984-85 THE ASSESSED HAD FILED A RETURN DECLARING A LOSS OF RS.25,090/- AND CONSEQUENT UPON THE ADDITION OF RS.9,53,500/- MADE UNDER SECTION 68 THE ASSESSMENT WAS MADE ON THIS SUM. THE ITAT NOTED THAT THE ASSESSED WAS A PUBLIC LIMITED C OMPANY WHICH HAD RECEIVED SUBSCRIPTIONS TO THE PUBLIC ISSUE THROUGH BANKING C HANNELS AND THE SHARES WERE ALLOTTED IN CONSONANCE WITH THE PROVISIONS OF THE SECURITIES CONTRACT REGULATION ACT , 1956 AS ALSO THE RULES & REGULATIONS OF THE DELHI STOCK EXCHANGE. CO MPLETE DETAILS APPEAR TO HAVE BEEN FURNISHED. THE ITAT HAS FURTHER RECORDED THAT THE A O HAD NOT BROUGHT ANY POSITIVE MATERIAL OR EVIDENCE WHICH WOULD INDICATE THAT THE SHAREHOLD ERS WERE (A) BENAMIDARS OR (B) FICTITIOUS PERSONS OR (C) THAT ANY PART OF THE SHARE CAPITAL R EPRESENTED THE COMPANY'S OWN INCOME FROM UNDISCLOSED SOURCES. BY THE SAME ORDERS DATED 4.9.2 003 THE ADDITION OF RS.76,51,650/- FOR THE ASSESSMENT YEAR 1986-87 DELETED BY THE CIT (A), WAS UPHELD. 20. IN CONNECTION WITH ASSESSMENT YEAR 1985-86 THE ITAT HAS EXTRACTED PORTIONS OF THE ORDERS OF THE CIT (A) AND WE MUST ASSUME THAT IT DI D SO TO ADOPT THAT REASONING. THE ITAT HAS NOT ARTICULATED ITS OWN REASONING IN RESPECT OF GROUND NO1 BEFORE IT VIZ. DELETION OF THE ADDITION OF RS.13,05,450/- ON ACCOUNT OF UNEXPLAINE D SHARES SUBSCRIPTION; WHILST IT HAS DONE SO WITH REGARD TO THE OTHER GROUND VIZ. DELETION OF ADDITION OF RS.9,95,000/- MADE ON ACCOUNT OF UNEXPLAINED LOANS. THE ITAT HAS CATEGORICALLY HE LD THAT THE ASSESSED HAS DISCHARGED ITS ONUS OF PROVING THE IDENTITY OF THE SHARE SUBSCRIBE RS. HAD ANY SUSPICION STILL REMAINED IN THE MIND OF THE AO HE COULD HAVE INITIATED 'COERCIVE PR OCESS' BUT THIS COURSE OF ACTION HAS NOT BEEN ADOPTED. IN VIEW OF THE CONCURRENT FINDING PERTAINI NG TO THE FACTUAL MATRIX WE FIND NO MERIT IN THESE APPEALS WHICH WE ACCORDINGLY DISMISS. 6. IN THE INSTANT CASE ALSO FACTS AND CIRCUMSTANCES ARE IDENTICAL AS THE ASSESSED HAS PRIMA FACIE PROVED THE IDENTITY OF THE SHARE SU BSCRIBER, THE GENUINENESS OF THE TRANSACTION, NAMELY, WHETHER IT HAS BEEN TRANSMITTE D THROUGH BANKING OR OTHER INDISPUTABLE CHANNELS, THE CREDITWORTHINESS OR FINA NCIAL STRENGTH OF THE SHARE SUBSCRIBER. THE RELEVANT DETAILS OF THE ADDRESS OR PAN IDENTITY OF THE SHARE SUBSCRIBER ARE FURNISHED TO THE AO ALONG WITH COPIES OF THE SH AREHOLDERS REGISTER, SHARED APPLICATION FORMS, SHARE TRANSFER REGISTER ETC. IT WOULD CONSTITUTE ACCEPTABLE PROOF OR ACCEPTABLE EXPLANATION BY THE ASSESSEE. THE REVE NUE WOULD NOT BE JUSTIFIED IN DRAWING AN ADVERSE INFERENCE ONLY BECAUSE THE SHARE APPLICANT FAILED TO RESPOND TO NOTICES. AS HELD BY HONBLE DELHI HIGH COURT AO IS DUTY-BOUND TO INVESTIGATE THE CREDITWORTHINESS OF THE SHARE APPLICANT AND THE GEN UINENESS OF THE TRANSACTION. FURTHER, THE AO THE ASSESSED HAS DISCHARGED ITS ONU S OF PROVING THE IDENTITY OF THE SHARE APPLICANTS. IN THE GIVEN FACTS THE AO HAD NOT BROUGHT ANY MATERIAL OR EVIDENCE WHICH WOULD INDICATE THAT THE SHARE APPLICANTS WERE (A) BENAMIDARS OR (B) FICTITIOUS PERSONS OR (C) THAT ANY PART OF THE SHARE CAPITAL R EPRESENTED THE COMPANY'S OWN INCOME FROM UNDISCLOSED SOURCES. IN VIEW OF THE FAC TS AND PRECEDENT BEFORE US, WE 10 ITA NO. 1070 & 1337/KOL/2010 HARSHWARDHAN GEMS PVT. LTD., AY 2005-06 ARE OF THE VIEW THAT CIT(A) HAS RIGHTLY DELETED THE ADDITION AND WE CONFIRM THE ORDER OF CIT(A) ON THIS ISSUE. 7. THE NEXT COMMON ISSUE IN THESE CROSS APPEALS IS AS REGARDS TO THE ORDER OF CIT(A) IN DELETING THE ADDITION OF UNACCOUNTED PURCHASE TR ANSACTIONS AND RESTRICTING THE PROFIT ELEMENT TO THE EXTENT OF 13.39%. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NOS. 2, 3 AND 4 AND ASSESSEE HAS RAISED FOLLOWING GROUND NO. 1 TO 3: REVENUES GROUNDS: 2. THE LD. CIT(A) WENT WRONG IN DIRECTING THE AO TO ASSESS ONLY THE PROFIT ARISING OUT OF THE UNACCOUNTED TRANSACTIONS RECORDED IN THE IMPOUN DED DOCUMENTS HG-4, HG-30 AND HG-31. 3. THE LD. CIT(A) OUGHT TO HAVE REALIZED THAT ASSES SING ONLY THE PROFIT ELEMENT OF THE UNACCOUNTED TRANSACTIONS WOULD MEAN THAT THE PURCHA SES OF THOSE ITEMS SOLD WERE ACCOUNTED IN THE BOOKS WHICH IN TURN WOULD LOGICALL Y FOLLOW THAT THE ENTIRE SALES SHOULD BE TREATED AS THE PROFIT OF THE ASSESSEE. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) HAS ERRED IN HOLDING THAT ONLY THE PROFIT ELEMENT IN THE SALE OF THE STOCK FOUND SHORT SHOULD BE ASSESSED AS INCOME. AS THE PURCHASES HAVE BEEN DEBITED TO T HE PROFIT AND LOSS ACCOUNT, THE UNACCOUNTED SALES SHOULD BE CREDITED TO THE PROFIT AND LOSS ACCOUNT AND NOT MERELY THE PROFIT. ASSESSEES GROUNDS: 1. FOR THAT THE LD. CIT (APPEALS) ERRED IN LAW AS W ELL AS ON FACTS IN HOLDING THAT THE NOTINGS IN THE IMPOUNDED DOCUMENT MARKED HG/9 WERE RELATING TO ACTUAL BUSINESS TRANSACTIONS OF THE ASSESSEE AND THAT THE INCOME AR ISING FROM SUCH TRANSACTIONS WAS NOT RECORDED IN THE REGULAR BOOKS OF ACCOUNTS. 2. FOR THAT THE LD. CIT(APPEALS) ERRED IN LAW AS WE LL AS ON FACTS IN HOLDING THAT NOTINGS RECORDED IN HG/30 AND HG/31 RELATED TO BUSINESS TRA NSACTIONS OF THE APPELLANT (PARA- 4.10) AND THAT THE INCOME ARISING FROM SUCH TRANSAC TIONS ESTIMATED @ 13.39% WAS NOT DISCLOSED BY THE APPELLANT (PARA-4.12). 3. FOR THAT ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(APPEALS) ERRED IN HOLDING THAT THE NOTINGS IN THE IMPOUNDED DOCUMENTS MARKED AS HG/9, HG/30 AND HG/31 REPRESENTED ACCOMPLISHED BUSINESS TRANSACTIONS OF T HE ASSESSEE AND THAT SUCH TRANSACTIONS WERE NOT RECORDED IN THE REGULAR BOOKS OF ACCOUNTS. HE FURTHER ERRED IN SUSTAINING ADDITION IN RESPECT OF THE SAID IMPOUNDED DOCUMENTS TO THE E XTENT OF 13.39% OF THE VALUE OF THE PURPORTED TRANSACTIONS NOTED IN THESE DOCUMENTS. B) WITHOUT PREJUDICE TO THE FOREGOING GROUND, ASSUM ING BUT NOT ADMITTING THAT ON PHYSICAL VERIFICATION STOCK FOUND WAS SHORT, THEN ALSO NO AD DITION COULD BE MADE BECAUSE THE ALLEGED EXCESS STOCK AS PER ACCOUNTS WAS DULY TAKEN INTO ACCOUNT IN THE P&L A/C FOR THE YEAR. 8. BRIEFLY STATED FACTS RELATING TO THIS ISSUE ARE THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURE AND TRADING IN GOLD ORNAMENTS, JEWELLER IES, DIAMONDS, CUT AND POLISHED STONES. A SURVEY U/S. 133A OF THE ACT WAS CONDUCTE D ON THE BUSINESS PREMISE OF THE ASSESSEE ON 05.11.2004. DURING THE COURSE OF SURVE Y, BOOKS OF ACCOUNTS AND OTHER DOCUMENTS WERE FOUND, IMPOUNDED AND INVETORISED AND MARKED AS HG-1 TO HG-33. THE 11 ITA NO. 1070 & 1337/KOL/2010 HARSHWARDHAN GEMS PVT. LTD., AY 2005-06 AO AFTER GOING THROUGH THE DIARIES FOUND AND MARKED AS HG-9, HG-30 AND HG-31, WHICH WERE FOUND AND IMPOUNDED FROM THE PREMISES OF THE A SSESSEE DURING THE COURSE OF SURVEY, WHEN CONFRONTED, THE ASSESSEE CLAIMED FIRST OF ALL THAT THIS BELONGS TO SHRI UTTAM RAY AND CHINU RAY. WHEN THESE TWO PERSONS WERE CON FRONTED THEY CATEGORICALLY DENIED MAINTAINING THESE DIARIES. SHRI UTTAM RAY AND CHIN U RAY ARE GOLDSMITHS TAKING ORDER FROM VARIOUS GOLD SHOP OWNERS AND MAKING JEWELLERY FOR THEM INCLUDING THE ASSESSEE. THE AO HAS ATTACHED ANNEXURE A TO THE ASSESSMENT ORDER CONSISTING OF PAGES 1 TO 7, WHICH CONTAINS, ACCORDING TO AO, THE UNACCOUNTED PU RCHASES TO THE TUNE OF RS.99,14,006/-. THE AO AFTER CONSIDERING THESE DIA RIES AND TABULATING THE SAME VALUED THE UNACCOUNTED PURCHASE AT RS.99,14,006/- AND MADE ADDITION OF THE SAME. THE AO ALSO APPLIED G.P. RATE AT 13.39% ON THE ABOVE UNACCOUNTE D PURCHASE AND TREATED THE SAME AS SALES AND UNDISCLOSED PROFIT TO THE TUNE OF RS.13,2 7,485/- WAS ASSESSED. FOR THIS, THE AO OBSERVED AS UNDER: IN THE COURSE OF SURVEY OPERATION CONDUCTED IN TH E BUSINESS PREMISES OF THE ASSESSEE COMPANY ON 5.11.04 AMONGST OTHERS THE FOLLOWING REG ISTERS WERE IMPOUNDED AND MARKED AS UNDER: SL. NO. IDENTIFICATION MARK DESCRIPTION 9 HG-9 REGISTER 30 HG-30 RED POCKET DIARY 31 HG-31 -DO- ON PERUSAL OF THE ABOVE REGISTERS/DIARIES, IT IS SE EN THAT THEY PERTAIN TO TRANSACTION OF GOLD (18 AND 22K) AND DIAMONDS. ON TOTALING OF VARIOUS ENTRIES CONTAINED IN THE SAID REGISTERS/DIARIES THE FOLLOWING QUANTITY OF GOLD/DI AMOND IS FOUND (AS PER ATTACHED SHEET VIDE ANNEXURE A BEING A PART OF ASSESSMENT ORDER) . GOLD 22K 274.98 GRM -DO- 18K 551.19 GRM DIAMOND 1075.50 C DURING THE COURSE OF SURVEY, THE ASSESSEE COMPANY CLAIMED THAT THE DIARIES SO FOUND BELONGED TO SRI UTTAM RAY AND CHINU RAY RESPECTIVEL Y AND SAID PARTIES WERE SUMMONED U/S. 131 AND THEIR STATEMENT WERE RECORDED. IT IS STATED BY THEM THAT THEY HAVE NO KNOWLEDGE OF THESE DIARIES. THUS, THE ASSESSEES E ARLIER CLAIM IS FOUND INCORRECT, THE OWNERSHIP OF THE SAID DIARIES CONSIDERED TO BE THAT OF THE ASSESSEE. SINCE, BOTH PURCHASES AND SALES OF ITEMS CONTAINED IN THESE DIARIES IS NO T RECORDED, THE GROSS PROFIT OF THE ASSESSEE I.E. 13.39% (AS PER TAR) IS APPLIED TO THE MARKET VALUE OF GOLD AND DIAMOND AS PER VALUE ARRIVED ABOVE IN COMPUTATION OF UNDISCLOS ED SALES. APPLYING THE ABOVE METHOD, THE FOLLOWING OUT OF BOOKS SALE IS DETERMINED. ITEM GRMS. WEIGHT RATE (RS.) VALUE (RS.) GROSS PROFIT(RS.) GOLD 22 274/98 570 PER GRM 1,56,738 20,987 GOLD 18 551/19 466 PER GRM 2,57,054 34,420 DIAMOND(CT) 1072/501 8858 95,00,214 12,72,078 9914,006 13,27,485 12 ITA NO. 1070 & 1337/KOL/2010 HARSHWARDHAN GEMS PVT. LTD., AY 2005-06 TOTAL PURCHASE VALUE OF (GOLD + DIAMOND)= 99.14 ( GP@13.39% ON 99.17 = 13,27,485) IN VIEW OF THE ABOVE, A SUM OF RS.13,27,485/- IS DE TERMINED AS UNDISCLOSED PROFIT AN AMOUNT OF BOOKS SALE AND ADDED BACK. SINCE, THE AS SESSEE COMPANY CANCELLED THE PARTICULARS OF INCOME, PENALTY PROCEEDINGS 271(1)(C ) HAS BEEN INITIATED SEPARATELY. THE RATE WHICH IS APPLIED TO THE QUANTITY THE RATE WHICH IS SUBMITTED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS IS AVERAGE RAT E. HENCE AN ADDITION OF RS.95+2.57+1.57=99.14 (LAC) IS ADDED AN UNDISCLOSED PURCHASES OF THE ASSESSEE COMPANY. IN VIEW OF THE ABOVE, A SUM OF RS.99.14 LACS IS DET ERMINED AS UNDISCLOSED PURCHASE OF THE ASSESSEE AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. SINCE, PENALTY PROCEEDINGS U/S. 271(1)(C) HAS BEEN INITIATED SEPARATELY. SINCE THESE PURCHASES ARE NOT ACCOUNTED IN THE BOOK S OF ACCOUNTS OR THESE TRANSACTIONS ARE OUTSIDE THE REGULAR BOOKS OF ACCOUNTS WERE SALE THI S PURCHASES AS WELL IN WHICH IT WILL BE EARNING GROSS PROFIT. THE GP RATE OF THE ASSESSEE COMPANY THAT ARBITRARY IS 13.39%. HENCE, THE SAME THAT TAKEN WORK OUT INCLUDED PROFIT WHICH THE ASSESSEE COMPANY WOULD EARN WHILE SELLING THIS UNACCOUNTED PROFIT 13,27,48 5 CALCULATED BY TAKING GP RATE ON 13.39 GP TOTAL UNDISCLOSED PURCHASE IN THE COMPUTATION OF INCOME AND UNDISCLOSED UNACCOUNTED PROFIT OF THIS TRANSACTIONS. 9. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT( A). THE CIT(A) BY TAKING PRESUMPTION IN FAVOUR OF REVENUE IN VIEW OF PROVISI ON OF SECTION 292C OF THE ACT TREATED THE DIARIES FOUND AS BELONGING TO ASSESSEE AND RECOMPUTED THE UNACCOUNTED PURCHASES AFTER TAKING REMAND REPORT FROM THE AO AT RS.6,76,562/- AND ALSO TREATED THE SAME AS SALES AND THEREBY WORKED OUT PROFIT RAT E @ 13.39% AND ESTIMATED THE PROFIT AT RS.90,591/- BY OBSERVING IN PARA 4.10, 4. 11, 4.12 AND PARA 5 AS UNDER: 4.10 HAVING HELD AS ABOVE, THAT THE NOTINGS RECORD ED IN THE SAID DOCUMENTS HG-9, HG/30 & HG/31 RELATE TO THE BUSINESS OF THE ASSESSEE, THE QUESTION ARISES ABOUT THE QUANTUM OF THE TRANSACTIONS RECORDED THEREIN. THE A.O., IN THE ASSESSMENT ORDER, HAD DETERMINED THE VALUE OF SUCH UNDISCLOSED TRANSACTIONS OF THE ASSES SEE AT RS.99,14,006/-. HOWEVER, DURING THE APPELLATE PROCEEDINGS THE A.R. OF THE ASSESSEE POINTED OUT CERTAIN DISCREPANCIES IN THE CALCULATIONS MADE BY THE A.O., THEREFORE, THE MATTE R WAS REMANDED TO THE A.O. VIDE THIS OFFICE LETTER NO. CIT(A)-XXXII/09-10/KOLL17 DATED 1 7.04.2009. IN HIS REMAND REPORT SUBMITTED VIDE LETTER NO. ITO,W-12(3)/KOL/REMAND RE PORT/09-10/L25 DATED 01.06.2009, THE A.O. ADMITTED THAT CERTAIN DISCREPANCIES HAD IN FAC T CREPT IN THE CALCULATION OF UNACCOUNTED INCOME OF THE ASSESSEE ON THE BASIS OF THE IMPOUNDED MATERIAL HG-9, HG/30 & HG/31WHILE COMPLETING THE ASSESSMENT. AS PER THE SAID REMAND REPORT THE QUANTITY OF UNACCOUNTED STOCK OF DIAMONDS, AS RECORDED IN THE D OCUMENT HG-9, WAS TAKEN IN THE ASSESSMENT ORDER TO BE AT 966.661 CTS. WHEREAS, THE CORRECT QUANTITY OF SUCH UNACCOUNTED ITEMS HAS BEEN WORKED OUT BY THE A.O. IN THE REMAND REPORT AS FOLLOWS: ROUNDS STICKS FANCY COLOUR STONES TOTAL 234.54 85.69 60.10 717.86 1096.19 AS REGARDS THE ADDITION MADE IN THE ASSESSMENT ORDE R ON THE BASIS OF THE DOCUMENTS HG/30 & HG/31 THE A.O. SUBMITTED IN HIS REMAND REPORT THA T IN THE ASSESSMENT ORDER THE ENTIRE 13 ITA NO. 1070 & 1337/KOL/2010 HARSHWARDHAN GEMS PVT. LTD., AY 2005-06 NOTINGS IN THE SAID DOCUMENTS HG/30 & HG/31 WERE TA KEN INTO CONSIDERATION AS GOLD AND DIAMONDS WHILE ON VERIFICATION THE CORRECT WEIGHT O F DIFFERENT ITEMS RECORDED THEREIN IS AS FOLLOWS: HG30 HG 31 GOLD (18K) 289.080 GMS. 430.205 GMS. DIAMONDS 02.15 CTS. 44.43 CTS. STICK (SEMI PRECIOUS STONES) 0.00 CTS. 1 0.79 CTS. FANCY 0.00 CTS. 02.85CTS. COLOUR STONE 66.00 CTS. 48.99 CTS. 4.11 THE REMAND REPORT OF THE A. O. WAS CONFRONTED TO THE ASSESSEE THROUGH ITS A.R., WHO VIDE THEIR LETTER DATED 17.06.2009 REITERATED WHAT HE HAD STATED IN HIS EARLIER SUBMISSIONS. IN THE REJOINDER TO THE REMAND REPORT THE APPELLANT -COMPANY GAVE CALCULATION OF THE VALUE OF THE REVISED CORRECT QUANTITIES AS INTIMATE D BY THE A.O. IN THE REMAND REPORT. THIS HAS BEEN WORKED OUT TO RS.6,76,562/- (HG/30 - RS.1, 47,475/- + HG/31-RS.5,29,087/-). IT WAS CONTENDED THAT EVEN IF THE ENTIRE NOTINGS IN TH ESE TWO DIARIES WERE TREATED AS RELATING TO THE TRANSACTIONS OF THE APPELLANT THEN ALSO THE TOTAL VALUE OF THE GOLD, DIAMOND, STONES ETC. NOTED IN THESE DIARIES WORKED OUT TO RS.6,76,5 62/- ONLY. IF THE ENTIRE QUANTITY IS TREATED AS UNDISCLOSED TRANSACTION OF THE APPELLANT THEN AL SO THE PROFIT ARISING FROM SUCH TRANSACTIONS @ 13.39% WILL WORK OUT TO RS.90,591/- ONLY AND THE ADDITION ON THE BASIS OF THESE TWO DIARIES COULD NOT EXCEED THE SUM OF RS.90 ,591/- UNDER ANY CIRCUMSTANCES. 4.12 IN THE LIGHT OF THE ABOVE DISCUSSION I HOLD TH AT THE TRANSACTIONS OF THE ITEMS NOTED IN HG-9, HG-30 AND HG-31, DETAILS OF WHICH ARE GIVEN I N PARA 4.6 ABOVE, ARE NOT RECORDED IN THE REGULAR BOOKS OF ACCOUNTS. IT IS PERTINENT T O MENTION HERE THAT THE TOTAL VALUE OF THE UNRECORDED TRANSACTIONS CANNOT BE THE INCOME OF THE APPELLANT. THE SETTLED POSITION OF LAW AS LAID DOWN BY THE HIGH COURT DECISIONS - REFERRED TO IN PARA 4.5 (SUPRA) IS THAT THE TOTAL VALUE OF THE UNRECORDED TRANSACTIONS CANNOT BE TREA TED AS INCOME OF THE ASSESSEE; ONLY THE PROFIT EARNED FROM SUCH TRANSACTIONS CAN BE ADDED A S INCOME OF THE ASSESSEE. THE A.O. HAS NOT WORKED OUT THE VALUE OF THE UNACCOUNTED TRANSAC TIONS IN HIS REMAND REPORT. HE IS THEREFORE DIRECTED TO ASCERTAIN THE VALUE OF THE UN ACCOUNTED TRANSACTIONS AND WORK OUT THE PROFIT ARISING FROM SUCH TRANSACTIONS @ 13.39% OF T HE VALUE (BEING THE G.P. % SHOWN BY THE ASSESSEE IN REGULAR ACCOUNTS) AND REDUCE THE AD DITION MADE IN RESPECT OF THREE DOCUMENTS - HG-9, HG-30 AND HG-31 TO THE EXTENT OF THE PROFIT SO WORKED OUT. THE ADDITION TO THAT EXTENT IS CONFIRMED. 5. GROUNDS NO.10 TO 12 OF THE APPELLANT ARE AGAINST THE ADDITION OF RS.13,27,485/- AS ESTIMATED PROFIT @ 13.39 % ON THE ALLEGED UNDISCLOS ED PURCHASES. IN VIEW OF MY FINDING IN THE PRECEDING PARAGRAPH-4.12 NO SEPARATE ADDITION I S CALLED FOR THE ESTIMATED PROFIT ON THE UNDISCLOSED TRANSACTIONS. THE SEPARATE ADDITION OF RS.13,27,485/- HAS ALREADY BEEN CONSIDERED BY ME IN THE SAID PRECEDING PARAGRAPH. T HE ADDITION OF RS.13,27,485/- IS THEREFORE DELETED. THESE GROUNDS ARE DISPOSED AS AB OVE. AGGRIEVED, AGAINST RECALCULATION OF UNDISCLOSED PUR CHASES AND ESTIMATION OF PROFIT RATE, THE REVENUE CAME IN APPEAL AGAINST DELETION OF ADDI TION AND ASSESSEE CAME IN APPEAL AGAINST THE SUSTENANCE OF BALANCE ADDITION. 10. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE ADMITTED THAT THESE DIARIES BELONG TO ASSESSEE AND NOT TO THE KARIGARS BUT HE MADE A STAT EMENT THAT THIS RECORDING OF PURCHASE OF JEWELLERY IS ON BEHALF OF THESE TWO KARIGARS. W E FIND THAT THE ASSESSEE BEFORE CIT(A) 14 ITA NO. 1070 & 1337/KOL/2010 HARSHWARDHAN GEMS PVT. LTD., AY 2005-06 HAS CONTESTED THE ADDITION OF UNDISCLOSED PURCHASES BY REITERATING THAT SEIZED DIARIES HG- 30 AND HG-31 AND HG-9 BELONGS TO THESE KARIGARS NAM ELY, UTTAM RAY AND CHINU RAY, WHO WAS WORKING AS CRAFTSMEN FOR MANUFACTURING OF J EWELLERY OF THE ASSESSEE I.E. THE KARIGARS. THE ASSESSEE GAVE HIS OWN COMPUTATION AN D STATED THAT THE FIGURES TAKEN BY AO FROM THE DIARIES WERE INACCURATE AND EXORBITANT FIGURES WERE TAKEN. THE CIT(A) REMANDED THE ISSUE TO THE AO, WHO GAVE HIS REMAND R EPORT. DURING THE COURSE OF REMAND PROCEEDINGS, THE AO ISSUED SUMMONS U/S. 131 TO UTTAM RAY AND CHINU RAY, WHO DENIED THE DIARIES BELONGED TO THEM BUT ACCEPTE D THAT THE CONTENTS OF DETAILS OF JOB WORK WERE UNDERTAKEN BY THEM AND THESE DIARIES ARE MAINTAINED BY ASSESSEE COMPANY ON THEIR BEHALF. WE FIND THAT IN THE REMAND REPORT DA TED 01.06.2009 VIDE NO. ITO,W- 12(3)/KOL/REMAND REPORT/09-10/25 DATED 01.06.2009 H AS VERIFIED THE CORRECT WEIGHT OF GOLD AND DIAMOND IN HG-30 AND HG-31 THE TOTAL QUANT ITY IS MENTIONED AS UNDER: REGARDING QUANTITY OF GOLD/DIAMOND AND OTHER ARTIC LES NOTED IN THE IMPOUNDED DIARIES MARKED AS HG-30 AND HG-31: AFTER GOING THROUGH THE SUBMISSIONS MADE BY THE ASSESSEE COMPANY BEFORE YOUR HONOUR, AND ALSO FURTHER DEPOSI TION RECORDED, AS DIRECTED OF S/SHRI UTTAM RAY AND CHUNI RAY STATED TO BE THE KARIGORS A ND ASSOCIATED IN THE ASSESSEE COMPANY, THE FIGURES AND QUANTITY OF GOLD/DIAMOND A ND OTHER RELATED ARTICLES ARE STATED HEREUNDER. HOWEVER, IN THE ASSESSMENT ORDER ENTIRE NOTINGS IN THE SAID DIARY OF SRI UTTAM RAY/CHUNI RAY WERE TAKEN INTO CONSIDERATION AS GOLD AND DIAMOND WHILE THE ASSESSEE COMPANY DURING REMAND PROCEEDINGS STATED THAT THE E NTIRE FIGURES AS NOTED IN THE SAID DIARY SHOULD NOT BE GOLD/DIAMOND BUT SOME OTHER ART ICLES STICK/FANCY/COLOUR STONE. AFTER VERIFICATION OF THE DIARIES OF SRI UTTAM RAY /CHUNI RAY THE CORRECT WEIGHT OF GOLD/DIAMOND ETC. ARE UNDER: HG 30 HG 31 QUANTITY QUANTITY GOLD (18K) 289.080 GMS 430.205 GMS DIAMOND 02.15 CTS 44.43 CTS. STICK (SEMI PRECISIONS STONES) 0.00 CTS 10.79 C TS. FANCY 0.00 CTS. 02.85 CTS COLOUR STONE 66.00 CTS. 48.99 CTS. DURING THE DEPOSITIONS OF THE ABOVE TWO PERSONS, TH EY DEPOSED THAT ALL THE NOTINGS IN THEIR DIARIES WERE NOT RELATED TO M/S. HARSHABARDHAN (THE ASSESSEE COMPANY) BUT SOME OTHER PARTIES ALSO. HOWEVER, BOTH OF THEM COULD NOT SPEC IFY AND/OR IDENTITY WHICH ENTRIES BELONGED TO ASSESSEE COMPANY AND OTHERS. 11. FURTHER, IN REGARD TO HG-9 THE QUANTITY MENTION ED IN RESPECT TO ROUND STICK, FANCY, COLOUR STONE ETC. WAS AT 1098.19. IN VIEW OF THE A BOVE, REVISED CORRECT QUANTITY OF GOLD, DIAMOND AND COLOUR OF SEMI PRECIOUS STONE RECEIVED BY THESE THE KARIGARS FROM CUSTOMERS FOR THE PURPOSE OF MAKING JEWELLERY AND/O R DESIGN IS GIVEN AND THE TOTAL QUANTITY RECEIVED WAS REVISED BY THE AO DURING REMA ND PROCEEDINGS (AS GIVEN ABOVE). SIMILARLY, IN RESPECT TO HG-9, THE AO HAS ADMITTED THE MISTAKE IN CALCULATING THE QUANTITY OF DIAMOND AND STONES AND ALSO TREATING OT HER FANCY COLOURED AND SEMI PRECIOUS 15 ITA NO. 1070 & 1337/KOL/2010 HARSHWARDHAN GEMS PVT. LTD., AY 2005-06 STONE AS DIAMOND BUT NOW HE HAS FURNISHED THE CORRE CT QUANTITY AS PER THE NOTING IN TWO DIARIES. IN THE REVISED WORKING THE AO HAS INTIMAT ED THAT THE DIAMOND QUANTITY IS OF 234.54 CT. ONLY IN PLACE OF 986.661 CT. WORKED OUT BY HIM ORIGINALLY. THE REST OF THE QUANTITIES RELATES TO FANCY COLOURED OR SEMI PRECIO US STONES WHICH HAVE VERY LITTLE VALUE. WE FIND THAT THE CIT(A) AFTER TAKING THE WORKING FR OM THE AO IN REMAND PROCEEDINGS AS WORKED OUT THE TOTAL VALUE OF REVISED CORRECT QUANT ITIES AT RS.6,76,562/- IN RESPECT TO THE DIARIES HG-30, HG-31 AND ALSO HG-9. THE CIT(A) HAS ALSO WORKED OUT THE PROFIT ON THE ABOVE PURCHASES BY APPLYING THE GP RATE AT 13.39% A ND ESTIMATED THE NET PROFIT AT RS.90,591/- AND CONFIRMED THIS ADDITION. IN VIEW O F THE ABOVE AND FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT(A) H AS ACTED ON THE REMAND REPORT OF THE AO AND RE-WORKED THE UNACCOUNTED PURCHASE AND TREAT ING THE SAME RESTRICTED THE ADDITION BY APPLYING PROFIT RATE. WE FIND NO INFIR MITY IN THE ORDER OF CIT(A) AND HENCE, THE SAME IS CONFIRMED. THIS ISSUE OF ASSESSEE AS W ELL AS REVENUE IS DISMISSED. 12. THE NEXT COMMON ISSUE IN THESE CROSS APPEALS IS AS REGARDS TO THE ORDER OF CIT(A) TREATING THE SHORTAGE OF STOCK FOUND AS SALE AND RE STRICTING THE ADDITION TO THE EXTENT OF PROFIT ELEMENT ONLY. FOR THIS, REVENUE IS IN APPEA L VIDE GROUND NO.4 AS UNDER: 4.THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS ERRED IN HOLDING THAT ONLY THE PROFIT ELEMENT IN THE SALE OF THE STOCK FOUND SHORT SHOULD BE ASSESSED AS INCOME. AS THE PURCHASES HAVE BEEN DEBITED TO T HE PROFIT AND LOSS ACCOUNT, THE UNACCOUNTED SALES SHOULD BE CREDITED TO THE PROFIT AND LOSS ACCOUNT AND NOT MERELY THE PROFIT. THE ASSESSEE HAS ALSO CHALLENGED THE RESTRICTION OF ADDITION OF PROFIT VIDE GROUND NO. 4(A) AS UNDER: 4. A) FOR THAT THE LD. CIT(APPEALS) ERRED IN SUSTAI NING ADDITION OF RS.3,14.033/- IN RESPECT OF THE ALLEGED SHORT-STOCK FOUND OF THE VAL UE OF RS.23,45,278/- DURING THE SURVEY ON 05.11.2004. THE LD. CIT (APPEALS) FAILED TO CONSIDE R THE EXPLANATION OF THE APPELLANT IN THE LETTERS DATED 17.12.2004, 15.11.2007 AND 20.12.2007 IN RESPECT OF DEFECT IN THE INVENTORY PREPARED AT THE TIME OF SURVEY. THE APPELLANT DENIE S THAT THERE WAS SHORTNESS OF STOCK AS CONCEIVED BY THE SURVEY TEAM. THE ADDITION MADE ON THIS SCORE IS WHOLLY WRONG AND MISCONCEIVED AND LIABLE TO BE DELETED. 13. BRIEFLY STATED FACTS ARE THAT DURING THE COURSE OF SURVEY AND ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THERE WAS A SHORT ST OCK OF GOLD OF 447 GMS. AND DIAMOND 236 CTS. AS DECLARED IN THE BOOKS OF ACCOUNT AND, T HEREFORE, HE VALUED 62 ITEMS AT RS.23,45,278/- AS UNDER: GOLD 447 GMS. @ RS.570 RS. 2,54,790/- DIAMOND 236 CTS. @ RS.8,858/- RS.20,90, 485/- RS.23,45,278/- 16 ITA NO. 1070 & 1337/KOL/2010 HARSHWARDHAN GEMS PVT. LTD., AY 2005-06 THE AO ACCORDINGLY MADE ADDITION TREATING THE SAME AS SALE. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO RESTRICTED THE ADDITION OF GROSS PROFIT RATE BY APPLYING THE GP AT 13.39% ON THE ABOVE SALE WHICH W AS FOUND AS SHORT STOCK AND ESTIMATED THE PROFIT AT RS.3,14,033/- AND PARTLY AL LOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED AGAINST THE ACTION OF CIT(A) BOTH REVENUE AS WELL AS ASSESSEE IS IN APPEAL BEFORE US. 14. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THERE IS DISCREPANCY FOUND IN T HE PHYSICAL STOCK VIS--VIS THE STOCK IN THE BOOKS OF ACCOUNT OF 447 GMS OF GOLD AND 236 CTS OF DIAMOND. THE AO PRESUMED THE SHORTAGE OF STOCK AS SALES OF DIAMOND THE SALE PRIC E AT RS.23,45,278/-. THE CIT(A) DELETED THE ADDITION THAT NO SEPARATE ADDITION WAS CALLED FOR WHEN ADDITION OF UNACCOUNTED PURCHASE AND PROFIT WAS BEING MADE ON U NDISCLOSED PURCHASE IN THE EARLIER ISSUE AND HE RETAINED THE ADDITION OF PROFIT ONLY A ND ESTIMATED THE PROFIT AT RS.3,14,033/-. WE FIND NO INFIRMITY IN THE FINDINGS OF CIT(A) AND HENCE, THE SAME IS CONFIRMED. THIS ISSUE OF BOTH THE APPEALS IS DISMISSED. 15. THE NEXT ISSUE IN REVENUES APPEAL IS AGAINST T HE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE OF JOB CHARGES PAID TO KARIGARS FOR NO N-DEDUCTION OF TDS BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. BEFORE CIT(A) IT WAS ARGUED THAT NONE OF THE PAYMENTS OF JOB CHARGES WAS MORE THAN RS.20,000/- A ND TOTAL PAYMENT TO ANY OF THE KARIGARS DURING THE YEAR WAS LESS THAN RS.50,000/-, WHICH IS EVIDENT FROM THE COPIES OF LEDGER ACCOUNT AND ACCORDINGLY, THE ASSESSEE IS NOT LIABLE TO DEDUCT TDS IN TERM OF SECTION 194C OF THE ACT. THE CIT(A) ONLY ON THIS P REMISE DELETED THE ADDITION BY OBSERVING AS UNDER: AFTER CAREFULLY CONSIDERING THE SUBMISSION OF THE APPELLANT AND THE FACTS AS STATED BY THE AO IN THE ASSESSMENT ORDER, THE CONTENTION OF THE A R IS FOUND TO BE CORRECT THAT THE PROVISIONS OF SEC. 40(A)(IA) ARE NOT ATTRACTED TO T HIS CASE SINCE EACH INDIVIDUAL PAYMENT, AS MENTIONED BY THE AO IN THE ASSESSMENT ORDER ITSELF, IS LESS THAN A SUM OF RS.50,000/-, WHICH IS THE THRESHOLD LIMIT FOR ATTRACTING THE PROVISION S OF SECTION 194C OF THE ACT. THEREFORE, THE DISALLOWANCE MADE BY THE AO IS HELD TO BE MISCO NCEIVED AND DESERVES TO BE DELETED. ACCORDINGLY, THE DISALLOWANCE OF A SUM OF RS.2,74,0 00/- IS DELETED. 16. WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) AS THE ASSESSEE MADE PAYMENT ON ACCOUNT OF JOB CHARGES ON A SINGLE OCCASION LESS TH AN RS.20,000/- AND TOTAL PAYMENT DURING THE YEAR RS.50,000/- IN EACH OF THE KARIGAR S CASE. IN SUCH SITUATION, THE PROVISION OF SECTION 194C OF THE ACT WILL NOT APPLY IN THE CA SE OF THE ASSESSEE AND, THEREFORE, THE 17 ITA NO. 1070 & 1337/KOL/2010 HARSHWARDHAN GEMS PVT. LTD., AY 2005-06 DISALLOWANCE MADE BY AO BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT IS WITHOUT ANY BASIS. HENCE, WE CONFIRM THE ORDER OF CIT(A) AND THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 17. IN THE RESULT, BOTH THE APPEALS OF REVENUE AND THAT OF ASSESSEE ARE DISMISSED. 18. ORDER IS PRONOUNCED IN THE OPEN COURT ON 03.02. 2016 SD/- SD/- (M. BALAGANESH) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 3RD FEBRUARY, 2016 JD. SR. P.S COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT HARSHWARDHAN GEMS PVT. LTD. 227, A.J.C. BOSE ROAD, KOLKATA-700020. 2 RESPONDENT ITO, WD-12(3), KOLKATA. 3 . THE CIT(A), KOLKATA 4. 5. CIT KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .