ACIT, Trichy V. M/s. Saudha Thanga Maligai, Karaikal

ITA 1113/CHNY/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51954 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 09-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR
• Assessee Lawyers: S SRIDHAR
• Keywords: Loose papers
• Section: 133A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI [BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER] I.T.A NO. 1113/MDS/2010 (ASSESSMENT YEAR : 2007-08 ) THE ACIT CENTRAL CIRCLE II TIRUCHIRAPALLI VS M/S SAUDHA THANGA MALIGAI 66, THIRUNALLAR ROAD KARAIKAL [PAN AATFS1333H] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.E.B RENGARAJAN, JR. STANDING COUNSEL RESPONDENT BY : SHRI S.SRIDHAR, ADVOCATE DATE OF HEARING : 28-09-2011 DATE OF PRONOUNCEMENT : 13-10-2011 O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE, FOR ASSESSMENT YEAR 2007-08, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A),TIRUCH IRAPPALLI, DATED 23.3.2010. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT A SU RVEY U/S 133A OF THE ACT WAS CONDUCTED AT THE BUSINESS PREMI SES OF THE ITA 1113/10 :- 2 -: ASSESSEE ON 9.11.2006. M/S SAUDHA THANGA MALIGAI , IS A PARTNERSHIP FIRM IN WHICH SHRI A. ABDUL KHADAR AND HIS WIFE SM T. A.SITHI NAZIMA ARE PARTNERS. DURING THE COURSE OF SURVEY, INCRIMI NATING BOOKS AND DOCUMENTS WERE FOUND WHICH WERE INVENTORIZED AND IM POUNDED VIDE ORDER DATED 9.11.2006. THE ASSESSEE-FIRM HAD FILED ITS RETURN OF INCOME ON 21.11.2007 ADMITTING TOTAL INCOME OF ` 35,99,690/-. DURING THE COURSE OF SEARCH PROCEEDINGS U/S 132 OF THE ACT IN THE RESIDENTIAL PREMISES OF SHRI A.ABDUL KHADAR, A LOOSE SHEET WRIT TEN ON 8.10.2006 CONTAINING THE PURCHASE AND SALE OF GOLD JEWELLERY WAS FOUND AND SEIZED VIDE ANN/MM/LOOSE SHEET/S-1, PAGE NUMBER 15. ON THE BASIS OF EVIDENCES AND AFTER EXPLANATIONS HAVING BEEN CAL LED FROM THE ASSESSEE, FOLLOWING ADDITIONS WERE MADE IN THE HAND S OF THE ASSESSEE- FIRM: THE VALUE OF EXCESS STOCK OF GOLD JEWELLERY 1,46,7 4,786 GROSS PROFIT ON SALE OF 9654.180 GMS. OF JEWELLERY (UNACCOUNTED SALES) 6,80,330 PURCHASE VALUE OF GOLD AS DISCUSSED IN PARA UNACCOUNTED JEWELLERY (GP AT 2% ON SALE VALUE OF RS. 35,86,356/-) 35,86,356 73,190 VALUE OF EXCESS SILVER STOCK 42,998 DIFFERENCE IN VALUATION OF CLOSING STOCK 23,72,205 ADDITION ON A/C OF SEC.40A(3) OF THE I.T. ACT 32,1 36 LUMP SUM ADDITION MADE UNDER SALES PROMOTION EXPENSES 50,000 GAND TOTAL 2,15,12,001 LESS: VALUE OF EXCESS STOCK OFFERED BY THE ASSESSEE 16,07,188 TOTAL ADDITION 1,99,04,813 ITA 1113/10 :- 3 -: 3. FEELING AGGRIEVED, THE ASSESSEE PREFERRED FIRST APP EAL BEFORE THE LD. CIT(A), WHO HAS PARTLY ALLOWED RELIE F TO THE ASSESSEE. AGAINST THE RELIEF GRANTED TO THE ASSESSEE, THE REV ENUE IS AGGRIEVED. IT WAS BROUGHT TO THE NOTICE OF THE BENCH THAT ASS ESSEE HAS NOT FILED FURTHER APPEAL. THE GROUNDS RAISED BY THE REVENUE READ AS UNDER: 1.A. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ENTIRE ADDITION MADE BY THE A.O. TOWARDS EXCESS STOCK OF GOLD JEWEL LERY. 1.B THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ADDITION AMOUNTING TO ` 1,08,39,618 AS THE CIT(A) HIMSELF HAS ACCEPTED THE A.O.'S FINDINGS IN PARA 18.2 PAGE 10 O F HIS ORDER THAT THE LOSE SHEETS CONTAINED DETAILS OF ACT UAL PURCHASES AND SALES. 1.C. THE LEARNED CIT(A) HAS ERRED IN NOT TAKING INTO ACCOUNT THE ACTUAL PURCHASES AND SALES CONTAINED IN THE LOSE SHEETS AND CONFIRMED BY MR.ABDUL KHADAR IN HIS SWORN STATEMENT ON THE DATE OF SEARCH. 1.D THE LEARNED CIT(A) HAS FAILED TO NOTE THAT T HE LOSE SHEET SEIZED FROM THE RESIDENCE OF MR.ABDUL KHADAR CAPTIONED AS ANN/MM/LOOSE SHEET/S 1, CONTAINED DETA ILS OF PURCHASE AND SALES OUTSIDE THE BOOKS OF ACCOUNTS AND THAT MR.ABDUL KHADAR IN HIS SWORN STATEMENT ON THE DATE OF SEARCH IN HIS ANSWER TO QUESTION 1 TO 5 HAS CLEA RLY STATED THAT THE PURCHASES MENTIONED IN THE PAPER REPRESENTED GOLD JEWELLERY PURCHASED FROM VARIOUS P ARTIES BY CASH AND THEIR NAMES WERE WRITTEN IN ABBREVIATED FORM SERIALLY NUMBERED FROM 1 TO 28 AND THAT WHOLESALES MENTIONED IN THE SLIPS WERE NOT RECORDED IN THE BOO KS AND NO BILLS WERE ISSUED FOR THE SALES. 1.E THE LEARNED CIT(A) HAS ERRED IN COMPLETELY R ELYING ON STOCK REGISTER FOR ARRIVING AT UNACCOUNTED CLOSING STOCK SINCE THE ASSESSEE DID NOT ENTER ALL THE TRANSACTIO NS WHICH OUGHT TO HAVE BEEN IN THE STOCK REGISTER. ITA 1113/10 :- 4 -: 2.A THE LEARNED CIT(A) HAS ERRED IN RESTRICTING THE ADDITION OF UNEXPLAINED JEWELLERY TO ` 7,50,000 AS AGAINST THE ADDITION MADE BY THE A.O AT ` 36,59,546 BY ACCEPTING THE ALTERNATIVE ARGUMENT OF THE REPRESENTATIVE TO CONSI DER PEAK PURCHASES. 2.B THE LEARNED CIT(A) HAS ERRED IN RESTRICTING THE ADDITION OF UNEXPLAINED JEWELLERY TO ` 7,50,000 BY ADOPTING PEAK PURCHASES SINCE THE LEARNED CIT(A) HI MSELF HAS OBSERVED IN PARA 19.4 PAGE 12 OF THE APPELLATE ORDER THAT THE SEIZED DOCUMENT SHOWS ONLY PURCHASES AND ISSUE FOR CONVERSION AND DOES NOT CONTAIN ANY REFER ENCE TO SALES. 3. THE APPELLANT CRAVES LEAVE TO ADD TO AMEND OR A LTER THE ABOVE GROUNDS OF APPEAL AS MAY BE DEEMED NECESSARY. 4. THE FIRST ISSUE RAISED VIDE GROUND NO.1A TO 1E IS I N RELATION TO DELETION OF ENTIRE ADDITION MADE BY THE ASSESSIN G OFFICER ON ACCOUNT OF EXCESS STOCK OF GOLD JEWELLERY. THE FACTS APROP OS THIS ISSUE ARE THAT DURING SURVEY, INVENTORY OF GOLD STOCK FOUND WAS TA KEN SYSTEMATICALLY AS PER ANN/DV/GOLD STOCK/NS. A TOTAL STOCK OF GOLD FOUND WAS 54835.050 GMS. AS PER BOOKS, THE STOCK AS ON 9.11. 2006 WAS 48488.040 GMS WHICH ALSO INCLUDED THE STOCK WITH GO LDSMITH OF 164.250 GMS. BUT DURING SEARCH, WHICH WAS SIMULTAN EOUSLY CARRIED OUT ON 9.11.2006 AT THE RESIDENCE OF SHRI A.ABDUL K HADAR A LOOSE SHEET WRITTEN ON 8.10.2006 CONTAINING PURCHASE AND SALE O F GOLD JEWELLERY WAS FOUND AND SEIZED VIDE ANN/MM/LOOSE SHEET/S1 PAG E NO.15. IN THIS PAPER/LOOSE SHEET, PARTYWISE PURCHASE OF GOLD JEWELLERY TOTALING TO ITA 1113/10 :- 5 -: 18237.050 GMS FOR THE PERIOD FROM 4.9.2006 TO 7.10. 2006 WAS WRITTEN. THE NAMES OF THE PARTIES WERE ALSO WRITTEN IN THE P RINTED FORM. THERE ARE 28 PARTIES IN THE LIST. ON THE SAME PAGE OF TH IS LOOSE SHEET, THE FOLLOWING TRANSACTIONS ARE WRITTEN: OPENING STOCK 67516.700 PURCHASE 18237.050 SALES 85753.750 19332.550 DIFFERENCE 66421.200 2.360 66423.560 5. A STATEMENT OF SHRI A.ABDUL KHADAR WAS RECORDED IN SEARCH U/S 132(4) AND THIS LOOSE SHEET, PAGE NO.15 WAS SHO WN TO HIM. WHILE REPLYING TO QUESTION NOS.1 TO 5, HE HAS STATED THAT THE PURCHASES MENTIONED ON THE PAPER REPRESENTED GOLD PURCHASED F ROM VARIOUS PARTIES AND THEIR NAMES WERE WRITTEN IN THE PRINTED FORM SERIALLY NUMBERED 1 TO 28. HE HAS FURTHER MENTIONED THAT TH E SALES MENTIONED IN THE PAPER REPRESENT BOTH WHOLESALE AND RETAIL S ALES. THE RETAIL SALES WERE RECORDED IN THE BOOKS MAINTAINED AT THE SHOP AND PURCHASE FOR RETAIL SALES ARE NORMALLY SETTLED THROUGH CHEQU ES. HOWEVER, WHOLESALE SALES WERE NOT RECORDED IN THE BOOKS AND THEY ARE UNACCOUNTED SALES. AFTER ADMITTING AS ABOVE, HE FU RTHER STATED THAT THE PURCHASES FOR WHOLESALE BUSINESS WERE MADE ONLY THROUGH CASH PAYMENTS AND FOR SALES ALSO NO BILLS WERE ISSUED TO THE PURCHASERS. ITA 1113/10 :- 6 -: AFTER TAKING INTO CONSIDERATION ALL THE ABOVE POINT S, UNACCOUNTED STOCK OF M/S SAUDHA THANGA MALIGAI HAS BEEN ARRIVED AT AS UNDER: AS PER BOOK STOCK AS ON 8/11/06 48723.790 GMS. ADD: PURCHASES FROM 4/9/06 TO 7/10/06 (AS PER ANN/MM/LOOSE SHEET/S1 P.NO.15) 18237.050 GMS. 66560.840 GMS. LESS: SALES (FROM 4/9/06 TO 7/10/06) (AS PER ANN/MM/LOOSE SHEET/S1 P.NO.15) 19332.550 GMS. 47228.290 GMS. LESS: PARTY-WISE PURCHASE BALANCE AS ON 8/10/06 (AS PER ANN/MM/LOOSE SHEET/S1 P.NO.15) 9260.810 GMS. ADJUSTED BOOK STOCK 37967.480 GMS. STOCK AS PER PHYSICAL VERIFICATION AS ON 9/11/06 55835.050 GMS. EXCESS STOCK 16867.570 GMS. 6. AFTER TAKING THE RATE OF ` 870/- PER GRAM, THE ASSESSING OFFICER HAS VALUED THE EXCESS GOLD JEWELLERY AT ` 1,46,74,786/- WHICH HAS BEEN PROPOSED TO BE ADDED FOR ASSESSMENT YEAR 2 007-08. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE LD.AR OF TH E ASSESSEE FILED A LETTER AND RELEVANT POINTS OF THIS LETTER ARE REPRO DUCED IN THE ASSESSMENT ORDER AS UNDER: HE STATES THAT SAID LOOSE SHEET WAS NOT REFERABLE TO THE BUSINESS OF THE ASSESSEE. PROBABLY IT WAS LIKELY T HE SHEET WHICH WAS LEFT OUT AT THE RESIDENCE OF THE PA RTNER BY ONE OF THE DEALERS WHO WERE CUSTOMARILY VISITING TH E ITA 1113/10 :- 7 -: PARTNER AT HIS RESIDENCE. THE PARTICULARS FOUND IN THE SHEET NOT RELEVANT TO THE ASSESSEES BUSINESS COULD BE WELL ESTABLISHED AS THE SAME COULD NOT BE MATCHED W ITH THAT OF THE ASSESSEES BOOKS OF ACCOUNT. NEVERTHEL ESS, THE ASSESSEE HERE IN BELOW HAS RECONCILED THE STOCK AS PER PHYSICAL VERIFICATION AS ON 9/11/06 WITH THAT O F THE BOOK STOCK. BOOK STOCK AS ON 6/11/06 48385.470 GMS LESS: SALES ON 7 & 8 TH NOV. 2006 61.680 GMS BALANCE 48323.790 GMS ADD: PURCHASE ON 7 & 8 TH NOV. 2006 2890.120 GMS TOTAL 51213.910 GMS ADD: OLD GOLD BOOK STOCK AS ON 6/11/06 164.250 GMS OLD GOLD PURCHASE ON 7 & 8 TH NOV. 2006 9.980 GMS EXCESS STOCK OFFERED AS ON 31/3/07 1913.320 GMS STOCK AS ON 31/3/07 53301.460 GMS PHYSICAL STOCK AS ON 8/11/06 54835.050 GMS LESS: CUSTOMER REPAIR ITEM 1518.120 GMS OTHERS 15.470 GMS STOCK AS ON 31/3/07 53301.460 GMS THUS, THE ASSESSEE HAS TALLIED EXCESS STOCK FOUND I N THE BUSINESS PREMISES. HE HAS OFFERED 1913.320 GMS. AS EXCESS STOCK FOR THE A.Y. 2007-08. DURING THE COURSE OF H EARING THE ASSESSEES AUTHORIZED REPRESENTATIVE FILED A LETTER RAISING THE FOLLOWING OBJECTIONS:- 1) THE LOOSE SHEETS IS NOT REFERABLE TO THE ASSESSE ES BUSINESS 2) THE CONTENTS HAVE NO RELEVANCE AT ALL WITH THAT OF THE ASSESSEE 3) THE LOOSE SHEET SHOULD NOT BE TAKEN TO FIX THE E XCESS OR SHORTAGE OF STOCK HELD BY THE ASSESSEE. 4) THERE WERE ARITHMETICAL ERRORS IN CALCULATION, P URCHASES HAVE NOT BEEN ACCOUNTED WITHOUT CONSIDERING THE RET URNS. 5) RECONCILIATION WAS DONE BY WRONGLY TAKEN THE PUR CHASE OUTSTANDING BY REDUCING THE STOCK HELD I.E. (9260.8 10) ITA 1113/10 :- 8 -: HENCE, IT IS PRAYED THAT THE LOOSE SHEET NEED NOT B E RELIED TO FIND THE STOCK HELD BY THE ASSESSEE AND THE CLAI M IS SUPPORTED BY MANY DECISIONS OF HIGH COURTS & APEX COURT. 7. AFTER CONSIDERING THE ABOVE EXPLANATION OF THE ASSE SSEE, THE ASSESSING OFFICER HAS FINALLY CONCLUDED THAT TH ERE WAS EXCESS STOCK OF GOLD JEWELLERY OF 16867.570 GMS VALUED AT ` 870/- PER GM, THE TOTAL EXCESS STOCK COMES TO ` 1,46,74,786/-. THIS AMOUNT HAS BEEN ASSESSED IN THE HANDS OF THE FIRM M/S SAUDHA THANGA MALIGAI FOR THE ASSESSMENT YEAR 2007-08. THE ASSESSEE-FIRM HAD OFF ERED 1913.320 GMS OF EXCESS STOCK OF GOLD JEWELLERY VALUED AT ` 16,64,588/- FOR THIS YEAR. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEF ORE THE LD. CIT(A), WHO HAS FOUND THE ENTIRE GOLD STOCK EXCEPT A SMALL QUANTITY OF 15.470 GMS WHICH HAS BEEN TREATED AS NEGLIGIBLE AND HAS BE EN IGNORED BY HIM, AND THUS HE HAS DELETED THE ENTIRE ADDITION OF ` 1,46,74,786/- MADE TOWARDS EXCESS STOCK OF GOLD JEWELLERY. NOW, THE REVENUE IS AGGRIEVED. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE CAREFULLY PERUSED THE ENTIRE RECORD. WE HAVE ALSO GONE THROUGH THE STATEMENTS MADE BY THE MANAGING PARTNER, THE COPIES OF WHICH ARE PLACED IN THE PAPER BOOK OF THE ASSESSEE. IT WAS A RGUED BY THE LD.DR ITA 1113/10 :- 9 -: THAT THE LD. CIT(A) HAS ACCEPTED THE FACT THAT THE LOOSE PAPERS PERTAIN TO THE BUSINESS TRANSACTIONS AND THUS THE LOOSE SHE ET CONTAINED THE DETAILS OF ACTUAL PURCHASES AND SALES. HE HAS ARGU ED THAT WHEN THESE ACTUAL PURCHASES AND SALES ARE CONTAINED IN THIS LO OSE SHEET WHICH FACT HAS ALSO BEEN CONFIRMED BY SHRI A.ABDUL KHADAR , IN HIS SWORN STATEMENT ON THE DATE OF SEARCH, THE LD. CIT(A) SHO ULD HAVE CONFIRMED THE ADDITION AMOUNTING TO ` 1,08,39,618/- . HE HAS RELIED HEAVILY ON THIS LOOSE SHEET WHICH CONTAINS THE DETAILS OF PURC HASES AND SALES, WHICH ARE OUTSIDE THE BOOKS OF ACCOUNT. HE HAS FUR THER STATED THAT THIS VERSION IS SUPPORTED BY SWORN STATEMENT OF SH RI A.ABDUL KHADAR PARTICULARLY MADE IN REPLY TO QUESTION NOS. 1 TO 5, IN WHICH HE HAS STATED THAT THE PURCHASES MENTIONED IN THE PAPER/LO OSE SHEET REPRESENTED GOLD JEWELLERY PURCHASED FROM VARIOUS P ARTIES BY PAYING IN CASH AND THEIR NAMES WERE WRITTEN IN ABBREVIATED FO RM AND SERIALLY NUMBERED FROM 1 TO 28, AND THAT WHOLESALES MENTIONE D IN THE SLIPS WERE NOT RECORDED IN THE BOOKS AND NO BILLS WERE IS SUED FOR THE SALES. IT WAS ARGUED THAT THE LD. CIT(A) HAS COMMITTED AN ERROR IN COMPLETELY RELYING ON STOCK REGISTER FOR ARRIVING AT UNACCOUN TED CLOSING STOCK SINCE THE ASSESSEE DID NOT ENTER ALL THE TRANSACTIO NS WHICH OUGHT TO HAVE BEEN RECORDED IN THE STOCK REGISTER. PER CONT RA, THE LD.AR HAS RELIED ON THE REASONING GIVEN BY THE LD. CIT(A) FOR DELETING THE ITA 1113/10 :- 10 - : IMPUGNED ADDITION AND HAS ALSO RELIED ON THE STATEM ENT OF SHRI A.ABDUL KHADAR ON WHICH THE LD.DR HAS ALSO RELIED. OUR ATTENTION WAS INVITED TO BACKSIDE OF PAGE 3 OF THE PAPER BOOK ON WHICH IN ABBREVIATED FORM, PARTY-WISE PURCHASES ARE MENTIONE D AND ON PAGE 3, FRONT SIDE, ITEMWISE BALANCES ARE MENTIONED. 9. HAVING GIVEN OUR ANXIOUS CONSIDERATION AND AFTER AP PLYING OUR MIND TO THE LOOSE SHEET, STATEMENT OF THE MANAG ING PARTNER OF THE FIRM AND OTHER FACTS AND RIVAL CONTENTIONS, WE CANN OT UPHOLD THE FINDING OF THE LD. CIT(A). WE ARE UNABLE TO AC CEPT THE EXPLANATION OF THE ASSESSEE QUA THE FIGURES ARRIVED AT BY THE A SSESSING OFFICER AT THE QUANTITY OF STOCK OF 37967.480 GMS BY TAKING I NTO ACCOUNT THE PURCHASES AND SALES OF GOLD AS PER THE NOTINGS ON THE LOOSE SHEET. THIS LOOSE SHEET WAS FOUND DURING THE COURSE OF SEA RCH AND THE MANAGING PARTNER, SHRI A.ABDUL KHADAR, HAS CO-RELA TED THE SAME WITH THE BUSINESS OF THIS FIRM AND HAS NOT DE-LINKED THE SAME FROM THE BUSINESS OF THE FIRM. A STATEMENT RECORDED DURING SEARCH HAS TO BE TREATED AS AN EVIDENCE AND IT CAN CORROBORATE OTHER DOCUMENTARY EVIDENCE, IN CASE ANY INCRIMINATING EVIDENCE REGARD ING UNDISCLOSED INCOME IS FOUND DURING THE COURSE OF SEARCH. IN TH IS CASE, THE EVIDENCE IN THE FORM OF PAGE NO.15 HAS BEEN FOUND DURING SEARCH AND ITA 1113/10 :- 11 - : THIS PAGE WAS PUT TO THE MANAGING PARTNER OF THE AS SESSEE-FIRM AND HE HAS RELIED ON THIS PAGE AND HAS ACCEPTED IT TO BE R ELATABLE TO THE FIRMS BUSINESS ALONE OUTSIDE THE BOOKS OF ACCOUNT. THE A DDITION MADE BY THE ASSESSING OFFICER AS PER THIS LOOSE SHEET AND T HE EXPLANATION OF THE ASSESSEE REGARDING THE LOOSE SHEET CAN BE DEPICTED AS UNDER: GMS. STOCK AS ON 08.11.2006 AS PER STOCK BOOK 48,723.790 ADD : PURCHASES FROM 04.09.2006 TO 07.10.2006 AS PER LOOSE SHEET ANN/MM/A1, P.15 18,237.050 66,560.840 LESS : SALES FROM 04.09.2006 TO 07.10.2006 AS PER ABOVE LOOSE SHEET 19,332.550 LESS : PARTY WISE BALANCE AS 08.10.2006 AS PER ABOVE SHEET 9,260.810 ADJUSTED BOOK STOCK 37 ,967.480 THE ASSESSEE HAS EXPLAINED THE STOCK OF 54 835.050 GRAMS AS UNDER:- BOOK STOCK AS ON 06.11.2006 48385.470 GMS LESS : SALES ON 7 & 8 TH NOV. 2006 61.680 GMS BALANCE 48323.790 GMS ADD : PURCHASE ON 7 & 8 TH NOV. 2006 2890.120 GMS TOTAL 51213.910 GMS ADD : OLD GOLD BOOK STOCK AS ON 06.11.2006 164.250 GMS OLD GOLD PURCHASE ON 7 & 8 TH NOV. 2006 9.980 GMS EXCESS STOCK OFFERED 1913.320 GMS STOCK AS ON 08.11.2006 53301.460 GMS PHYSICAL STOCK AS ON 08.11.2006 54835.050 GMS LESS : CUSTOMER REPAIR ITEM 1518.120 GMS OTHERS 15.470 GMS STOCK AS ON 08.11.2006 53301.460 GMS ITA 1113/10 :- 12 - : 10. THE ABOVE EXPLANATION OF THE ASSESSEE CANNOT BE ACC EPTED TO BE A VALID ONE. THE EXPLANATION REGARDING PURCH ASES OF 2890.120 GMS AS ON 7.11.2006 HAVING BEEN PURCHASED FROM THE FOLLOWING PERSONS HAS TO BE TREATED AS SIMPLY AN AFTER THOUGH T: M/S V. RAJENDRA JEWELLERS, CHINNA BAZAAR, NELLORE. - 1011.100 GMS M/S SREE JEWELLERY T. NAGAR, CHENNAI - 1879.020 GMS TOTAL - 2890.120 GMS 11. THE SALES AND PURCHASES HAVE TAKEN PLACE AS PER EVI DENCE IN THE LOOSE SHEET FROM 4.10.2006 TO 7.10.2006 AND THE PARTYWISE BALANCE AS ON 8.10.2006 HAS ALSO BEEN RECORDED ON T HIS LOOSE SHEET. WE FAIL TO UNDERSTAND AS TO WHY THE PARTYWISE BALAN CE AS ON 8.10.2006 HAS NO RELEVANCE TO THE CALCULATION OF EXCESS STOCK AS ON 9.11.2006 PARTICULARLY WHEN IT HAS NOT BEEN RECORDED IN THE B OOKS OF ACCOUNT AND WAS FOUND AS A RESULT OF SEARCH ONLY. WE ARE NOT IN AGREEMENT WITH THE SUBMISSION OF THE LD.AR THAT ASSESSEES OBLIGAT ION IS LIMITED ONLY TO EXPLAINING THE DIFFERENCE OF 6449.580 GMS IN THE ST OCK AS ON 9.11.2006 [PHYSICAL STOCK FOUND OF 54835.050 GMS LESS BOOK ST OCK AS ON 6.11.2006 OF 48385.470 GMS]. THE CONTENTION OF THE LD.AR WAS NOT REFERABLE TO THE BUSINESS OF THE ASSESSEE AND THE L OOSE SHEET DOES NOT ITA 1113/10 :- 13 - : BELONG TO THE ASSESSEE IS NOT TENABLE. THE EXPLANA TION OF THE ASSESSEE THAT THIS LOOSE SHEET MIGHT HAVE BEEN LEFT AT THE R ESIDENCE BY ANY THIRD PERSONS WHO WERE USUALLY VISITING THE PARTNERS RES IDENCE IS A VERY VAGUE EXPLANATION AND CANNOT BE ACCEPTED AS CORRECT IN THE ABSENCE OF ANY PROOF THEREOF. THE ASSESSEE HAS TO ESTABLISH T HAT THIS LOOSE SHEET BELONGS TO SUCH AND SUCH PERSON, AND THAT PERSON AL SO ADMITS THIS CLAIM. AN EVIDENCE FOUND DURING SEARCH HAS TO BE EXPLAINED BY THE ASSESSEE AND IT WOULD NOT BE ABSOLVED FROM ITS DU TY OF EXPLAINING THE SAME. THE EXPLANATION THAT THE FIGURES ON THE SHEE T DO NOT MATCH WITH THAT OF THE ASSESSEES BOOKS OF ACCOUNT, THIS GOES AGAINST THE ASSESSEE BECAUSE IT WOULD CONFIRM THE BUSINESS HAV ING BEEN DONE OUTSIDE THE BOOKS. SHRI A.ABDUL KHADAR, PARTNER OF THE FIRM, IN HIS ANSWER TO QUESTION NO.2 HAS CLEARLY STATED THAT IT RELATES TO PURCHASES MADE FROM THE PARTIES. HE HAS ALSO AGREE D THAT ABBREVIATIONS MENTIONED IN SL.NO.1 TO 28 REPRESENT THE PARTY NAMES. HE HAS ALSO EXPLAINED THAT THE WORD LJ MEANS LAK SHMI JEWELLERY IN CHENNAI (SL.NO.5), ML MEANS MOHANLAL, CHENNAI ( SL.NO.6), BP' MEANS BABU AT COIMBATORE (S.NO.11) AND JCJ MEAN S JC JEWELLERS NSC BOSE ROAD, CHENNAI. HE HAS UNEQUIVOCALLY ADMIT TED THAT THE SALES FIGURES REPRESENTED BOTH RETAIL AND BULK SALE S. HE HAS CLEARLY ADMITTED THAT THE WHOLESALE/RETAIL SALES ARE NOT RE CORDED IN THE BOOKS ITA 1113/10 :- 14 - : OF ACCOUNT. THIS FACT GOES TO PROVE THAT LOOSE SHE ET BELONGS TO THE BUSINESS OF THIS FIRM. THE EXPLANATION OF THE ASSE SSEE THAT SOME THIRD PERSON MAY HAVE LEFT THE SHEET IN THE RESIDENCE OF SHRI A.ABDUL KHADAR OR ANY OTHER PARTNER WHO WOULD HAVE VISITED CUSTOMARILY AT ANY TIME IS NOT ACCEPTABLE BEING AGAINST THE FACTS. FU RTHER, THE MANNER IN WHICH HE HAS EXPLAINED THE ABBREVIATED NAMES AND TH E BUSINESS TRANSACTIONS OF JEWELLERY, THIS LOOSE SHEET AUTOMAT ICALLY GETS RELATED TO THE BUSINESS OF THE FIRM. THEREFORE, THE REPLY CON TAINED IN THE LETTER DATED 23.9.2008 OF THE ASSESSEE IS SIMPLY AN EYEWAS H AND UNACCEPTABLE EXPLANATION BEING AN AFTER THOUGHT. F URTHER IN REPLY TO QUESTION NO.5, THE PARTNER SHRI A.ABDUL KHADAR HAS CLEARLY STATED THAT PARTY-WISE BALANCES SHOWN IN THE LOOSE SHEET REPRES ENTED THE UNSOLD JEWELLERY WHICH WAS PURCHASED FROM PARTIES AS ON 8. 10.2006 AND THE SAME IS UNACCOUNTED. IN HIS ANOTHER SWORN STATEMEN T RECORDED DURING THE COURSE OF SURVEY, CONDUCTED IN THE BUSINESS PRE MISES OF THE FIRM, WHILE ANSWERING TO QUESTION NO.12, HE HAS AGAIN CON FIRMED THAT HE HAD ALREADY ADMITTED IN THE EARLIER SWORN STATEMENT RECORDED AT HIS RESIDENCE. THUS, THE TRANSACTIONS MENTIONED IN THE LOOSE SHEET GET CONNECTED WITH THE FIRM AND CONFIRMS UNACCOUNTED TR ANSACTION OF RETAIL AND WHOLESALE JEWELLERY BUSINESS. THE FACT THAT TH E TRANSACTIONS MENTIONED ON THE LOOSE SHEET PERTAIN TO M/S SAUDHA THANGA MALIGAI ITA 1113/10 :- 15 - : STANDS PROVED. THE UNACCOUNTED TRANSACTION IN WHO LESALE AS WELL AS RETAIL BUSINESS HAS TO BE ASSESSED IN THE HANDS OF THIS FIRM ONLY. MOREOVER, THE LD. CIT(A)S FINDINGS IN PARA 18.2 AT PAGE 10 OF HIS ORDER ARE CATEGORICAL AND THE ASSESSEE HAS NOT CHALLENGED THE SAME. THIS PARA READS AS UNDER: 18.2 THE CONTENTION OF THE REPRESENTATIVE THAT TH E LOOSE- PAPERS DO NOT PERTAIN TO THE BUSINESS TRANSACTIONS CAN NOT BE ACCEPTED FOR THE DETAILED REASONS DISCUSSED BY T HE ASSESSING OFFICER IN HIS ASSESSMENT ORDER. 12. REGARDING PURCHASE OF GOLD JEWELLERY FROM M/S V.RA JENDRA JEWELLERS AND M/S SREE JEWELLERY OF 873.748 GMS AND 1573.156 GMS ON 7.11.2006 AND 8.11.2006, RESPECTIVELY, THROUGH B ILL NOS.23 AND 7, THE ASSESSEES VERSION IS THAT THESE PURCHASES WERE MADE ON 7.11.2006 AND 8.11.2006 AND THE TOTAL PURCHASES OF TWO BILLS WHICH COMES TO ` 24,46,904/- CANNOT BE ADDED IN THE YEAR UNDER CONSIDERATION. BUT WE ARE NOT IN AGREEMENT WITH TH E LD.AR IN THIS REGARD BECAUSE THE SEARCH WAS CONDUCTED ON 9.11.200 6 AND IN HIS SWORN STATEMENT SHRI ABDUL KHADAR, WHO IS THE MAIN PARTNER OF THIS FIRM HAS ACCEPTED THAT PURCHASES WERE MADE BEFORE THE DATE OF SEARCH. HE HAS CONFIRMED THIS STATEMENT TWICE BY W AY OF HIS SWORN STATEMENT RECORDED FROM HIM ON TWO OCCASIONS ON 9.1 1.2006. THEREFORE, THE PURCHASES OF JEWELLERY FROM M/S V.RA JENDRA JEWELLERS ITA 1113/10 :- 16 - : AND M/S SREE JEWELLERY ARE ONLY AN AFTER THOUGHT TO EXPLAIN AWAY THE DISCREPANCY IN THE STOCK. EXCESS STOCK OF GOLD JE WELLERY OF 16867.570 GMS DOES NOT STAND EXPLAINED BY THE ASSESSEE. THE ASSESSEE HAS NOT DISPUTED THE RATE OF ` 870/- PER GM, THUS THE TOTAL ADDITION ON ACCOUNT OF EXCESS GOLD JEWELLERY WHICH COMES TO ` 1,46,76,786/- IS CONFIRMED. THIS HAS TO BE ASSESSED IN THE HANDS OF THE FIRM M/ S SAUDHA THANGA MALIGAI FOR ASSESSMENT YEAR 2007-08. THE FIRM HAS OFFERED 1913.320 GMS OF EXCESS STOCK OF GOLD JEWELLERY VALUED AT ` 16,64,588/- FOR THIS YEAR WHICH HAS TO BE GIVEN CREDIT AND THE REMAINING HAS TO BE SUSTAINED IN THE HANDS OF THE FIRM. ACCORDINGLY, W E SET ASIDE THE FINDING OF THE LD. CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICER AND THUS, ALLOW GROUND NOS.1(A) TO 1(E) OF THIS APPEAL OF THE REVENUE. 13. THE SECOND ISSUE OF THIS APPEAL, RAISED VIDE GROUND NOS.2(A) AND 2(B), RELATES TO RESTRICTION OF THE AD DITION OF UNEXPLAINED JEWELLERY FROM ` 36,59,546/- TO ` 7,50,000/-. THE FACTS OF THIS ISSUE ARE THAT DURING THE COURSE OF SEARCH AT THE RESIDEN CE OF THE PARTNER, SHRI A.ABDUL KHADAR, TWO LOOSE SHEETS (ANN/MM/LOOSE SHEETS/S-1 PAGE NO.1 AND 2) WERE FOUND AND SEIZED WHEREIN CERT AIN TRANSACTIONS WERE RECORDED. IN PAGE NO.1, ISSUE AND RECEIPT OF G OLD BARS FROM ONE STK BETWEEN 1.12.2005 AND 28.3.2006 FOUND WRITTEN I N A TABULATED ITA 1113/10 :- 17 - : FORM. AS PER THIS PAGE TOTAL GROSS AND NET WEIGH T OF GOLD ISSUED WAS 5010.090 GMS AND 4994.830 GMS, RESPECTIVELY, AND VA LUED AT ` 34,44,516 (WRITTEN AS 34445.16). THE TOTAL GROSS A ND NET WEIGHT OF GOLD RECEIVED WAS 4667.380 GMS AND 4661.440 GMS RES PECTIVELY VALUED AT ` 36,59,546 (WRITTEN AS 36595.46). PAGE NO.2 CONTAI NS THE SAME TRANSACTIONS WHICH WERE EXTENDED TO FURTHER PE RIOD UPTO 26.7.2006. AT THE END OF PAGE NO.2, IT IS MENTIONE D THAT THERE IS A BALANCE OF 3257.460 GMS AS ON 1.7.2006. ON VERIFIC ATION OF THE BOOKS OF ACCOUNT IT WAS FOUND THAT THESE TRANSACTIONS ARE NOT RECORDED THEREIN. WITH REGARD TO THESE LOOSE SHEETS, THE PA RTNER, IN HIS SWORN STATEMENT, HAS STATED THAT HE WILL EXPLAIN THE TRAN SACTIONS AFTER REFERRING THE BOOKS OF ACCOUNT. SUBSEQUENTLY, WHEN A QUESTIONNAIRE WAS ISSUED, IT WAS EXPLAINED ON BEHALF OF THE ASSES SEE THAT THE PARTICULARS STATED IN TWO LOOSE SHEETS, FOUND AND S EIZED AT THE RESIDENCE OF THE MANAGING PARTNER, HAVE NO RELEVAN CE TO THAT OF THE ASSESSEE-FIRM AND HENCE, THE SAID TRANSACTIONS HAV E NOT BEEN REFLECTED IN ITS BOOKS OF ACCOUNT. BUT IN HIS SWOR N STATEMENT, WHILE ANSWERING TO QUESTION NOS. 1 TO 5, RECORDED ON 9.11 .2006, AT HIS RESIDENCE, HE HAS CLEARLY STATED THAT THE FIRM IS I N THE BUSINESS OF BULK SALE OF JEWELLERY WHICH WAS NOT REFLECTED IN THE BO OKS OF ACCOUNT OF THE FIRM. ON THE LOOSE SHEETS AT PAGE 5, THE WORD STK IS WRITTEN. STK ITA 1113/10 :- 18 - : REPRESENTS SAUDHA THANGA KADAI. ON VERIFICATION OF THESE LOOSE SHEETS, IT WAS FOUND THAT IN SOME OF THE PLACES, IT WAS WRITTEN AS METAL ISSUED. METAL REPRESENTS PURE GOLD IN T HE FORM OF BISCUITS/BAR. THE MANAGING PARTNER, WHILE ANSWERING QUESTION NO.1 3 HAS NEVER DISOWNED THESE SLIPS BUT HE HAS STATED THAT HE WAS UNABLE TO EXPLAIN, IMMEDIATELY. THE CIRCUMSPECTION OF THIS PLEA SHOWS THAT THE ASSESSEE- FIRM HAD PURCHASED GOLD OF 4661.440 GMS AND HAS SOL D THE SAME AFTER CONVERSION, THE WORKING OF WHICH WILL COME AS UNDER : GRAMS VALUE GOLD PURCHASED 4661.440 LESS: CLOSING STOCK 333.390 GOLD SOLD 4328.050 36,59,546 LESS: GP @ 2% (ON THIS HAS BEEN TREATED AS BULK SALES) 73,190 VALUE OF GOLD PURCHASED 35,86,356 14. THUS, ON THE WHOLESALE GOLD TRANSACTIONS, ` 35,86,356/- HAS BEEN TREATED AS UNACCOUNTED PURCHASES AND ` 73,190/- HAS BEEN TAKEN AS PROFIT @ 2% AND HAS BEEN ADDED TO ASSESSEE S TOTAL INCOME. ON THE CONTRARY, THE LD. CIT(A) HAS DELETED THE ENT IRE ADDITION BY GIVING TELESCOPING EFFECT AND STATING THAT UNEXPLA INED JEWELLERY HAS TO BE TAKEN AT ` 7,50,000/- AS AGAINST TAKEN BY THE ASSESSING OFFIC ER AT ` 36,59,546/-. NOW THE REVENUE IS AGGRIEVED. ITA 1113/10 :- 19 - : 15. AFTER HEARING BOTH SIDES, WE ARE IN AGREEMENT WITH THE LD. CIT(A) THAT ONLY PURCHASES ARE DEPICTED ON THE LOOS E SHEETS AND AFTER CONVERSION IT HAS GOT NO REFERENCE TO SALES. IT IS ALSO NOT ON RECORD THAT GOLD ARTICLES WERE SOLD SEPARATELY OVER AND AB OVE 19337.750 GMS. IN ANY CASE, AFTER ASSESSING UNACCOUNTED PURCHASES, ONLY THE PEAK PURCHASES COULD BE ASSESSED AS UNEXPLAINED AND NOT THE ENTIRE PURCHASES. THUS, IN OUR VIEW, DELETION OF ADDITION OF GROSS PROFIT OF ` 73,170/- IS IN ORDER AND WE CONFIRM THE SAME. 16. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT O N 13.10.2011. SD/- SD/- (N.S. SAINI) ACCOUNTANT MEMBER (HARI OM MARATHA) JUDICIAL MEMBER DATED: 13 TH OCTOBER, 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR