Appeal Details
Counselvise Citation
[2024] 130 COUNSELVISE.COM (IT) 4204 (ITAT-JAIPUR)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 month(s) 26 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
28-02-2024
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
A
Next Hearing Date
08-01-2024
Assessment Year
2013-2014
Appeal Filed On
02-10-2023
Judgement Text
vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, vk;dj vihy la-@ITA No. 610/JP/2023 fu/kZkj.k o"kZ@Assessment Years : 2013-14 Sandeep Kherada, P-13, Anandpuri, Moti Doongri Road, Jaipur cuke Vs. The Income Tax Officer, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AYYPK 0895 M vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Tarun Mittal (CA) jktLo dh vksj ls@ Revenue by : MS Alka Gautam (CIT)(V.H) lquokbZ dh rkjh[k@ Date of Hearing : 09/01/2024 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 29/02/2024 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal filed by assessee is arising out of the order of the Commissioner of Income Tax (Appeals)-4, Jaipur dated 01/09/2023 [here in after ld. CIT(A) ] for assessment year 2013-14 which in turn arise from the order dated 14.03.2015 passed under section 144 r.w.s 153B(1)(b) of the Income Tax Act, by ITO, Ward-5(2), Jaipur. 2. In this appeal, the assessee has raised following grounds: - 2 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO 1. On the facts and in the circumstances of the case and in law, Id.CIT(A) has grossly erred in not accepting the plea of assessee regarding purchases made by him from M/s Om Sales Corpn. And M/s Laxmi Arts, arbitrarily. 1.1. That, ld.CIT(A) has further erred in rejecting the purchases made by assessee from M/s Om Sales Corpn. And M/s Laxmi Arts despite the fact that assessee duly discharged his onus by furnishing invoices, bank statements, confirmations from the parties and relevant books of accounts in support of purchases made from the two parties, wherein no discrepancy whatsoever was pointed out either by Id.AO in remand report or by ld.CIT(A). 1.2. That, ld.CIT(A) has further erred in doubting the purchases made by assessee from M/s Om Sales Corpn. And from M/s Laxmi Arts by brushing aside the fact that Id.AO himself in remand report dated 29.1.2016 as well as in report dated 12.3.2018 had admitted that purchases made by assessee from M/s Om Sales Corpn, was found verifiable. Appellant prays that Id.AO has changed his stand in remand report dated 14.10.2016 without any cogent reason and therefore the same cannot be solely relied upon for confirming the addition. 1.3. That, Id.CIT(A) has further erred in not accepting the purchases made from M / s Om Sales Corpn and M/s Laxmi Arts by relying principle of preponderance of probabilities. Appellant prays that it is a settled principle of law that suspicion howsoever strong cannot be the sole basis to make addition and has to be supported by material evidences to draw any inference. 1.4. That, ld.CIT(A) has erred in not considering the submission of assessee regarding entire transactions being recorded in books of accounts solely on the basis of statements of assessee recorded during search. Appellant prays that statements were recorded in charged atmosphere and assessee was in the state of shock, therefore such staternents could not be solely relied upon more particularly when no discrepancy was found in books of accounts furnished by assessee, either by Id AO or by ld.CIT(A). 2. On the facts and in the circumstances of the case and in law, ld.CIT(A) has grossly erred in confirming the addition of Rs.20,55,000/- on account of jewellery weighing 850 gms found from his possession, stated to have been taken on approval from M/s Om Impex, arbitrarily. 2.1 That, Id. CIT(A) has further erred in not accepting the explanation of assessee regarding goods taken by him on approval, despite the fact that, in response to notice issued u/s 131, M/s Om Impex submitted his Return of Income etc. and confirmed giving goods to assessee on approval basis and Id.AO in remand report after verifying the transaction was stated that transaction may be treated as explained. 2.2 That, Id.CIT(A) has further erred in drawing adverse inference regarding goods on approval, on the basis of statements recorded during search, where assessee stated having taken goods on approval from two parties instead of one 3 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO (as submitted during assessment proceedings). Appellant prays that at the time of recording of statements, due to sudden proceedings by the department, assessee was confused and was in panic, thus such small factual variation in statements cannot be the basis to disbelieve the claim of assessee, more particularly when proprietor of M/s Om Impex himself confirmed the facts in favour of assessee (i.e. admitted giving goods to assessee on approval) and no contrary evidence has been brought on record. 3. On the facts and in the circumstances of the case and in law, Id.CIT(A) has erred in rejecting the claim of assessee regarding part of the jewellery found from him weighing 1271.950 gm (other than on approval), being manufactured with the gold bar purchased and duly recorded in books of accounts more particularly when such purchases were never doubted. 3.1 That, Id.CIT(A) has further erred in not accepting stock register, quantitative details wherein, were duly matching with the jewellery found from assessee, solely for the reason that this fact was not mentioned by assessee in statements recorded. Appellant prays that it is settled position of law that statements recorded cannot be solely relied upon to draw any adverse inference against the assessee, unless backed by supporting documentary evidences. In the instant case, in fact assessee has been able to substantiate his claim with Stock register, entries of which remained undoubted, thus claim of assessee deserves to be accepted. 4. On the facts and in the circumstances of the case and in law, ld.CIT(A) has grossly erred in confirming the part of the trading addition as made by ld.AO arbitrarily and without considering the submission made by assessee and evidences adduced. 5. On the facts and in the circumstances of the case and in law, ld.CIT(A) has grossly erred in confirming the addition of Rs.4,00,000/- made by ld.AO on account of unexplained gift received by assessee from his father Sh. Lal Chand Kherda, arbitrarily. 6. That the appellant craves the leave to amend / alter all or any of the grounds of this appeal on or before the hearing of the matter.” 3. Succinctly, the fact as culled out from the records is that the assessee filed his return of income on 26.09.2013 declaring total income of Rs. 71,010/-. The case was selected for scrutiny manually and notice u/s 143(2) was issued on 11.04.2014 which was duly served upon the 4 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO assessee through speed post A/D. Thereafter, notice u/s 142(1) issued on 05.05.2014 and 11.08.2014 which were duly served upon the assessee. In compliance to notices u/s 143(2)/142(1) necessary details on the various queries were submitted by the assessee. The assessee derives income from manufacturing and trading in gold jewellery and gems stones in the name & style of M/s Yash Gems & Jewels. Subsequently, the letter / show cause/notice u/s 142(1) issued on 30.01.2015 and 16.02.2015 and duly served upon the assessee through speed post A/D but the assessee did not comply with above statutory notices and since due to this the ld. AO has no alternate left but to complete the assessment ex-parte u/s. 144 on merits based on material available on record. 3.1 In this case a search and seizure operation was carried out by Air Intelligence unit, Banglore on 18.09.2012. Information was received from the Air Intelligence unit, Jaipur that the assessee was travelling by Indigo Flight No. 6E 442 was carrying gold jewellery of 2094.510 gms (net weight - 1514.660 grams) in his possession. The assessee was intercepted at the Bangalore International Airport by the Air Intelligence Unit, Bangalore. The assessee was examined regarding the purpose of carrying the gold jewellery and whether the same was disclosed in his books of accounts. 5 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO The assessee was asked by Directorate, Banglore to state the fact as to where abouts of his books of accounts/documents that would explain the jewellery that was found in his possession. The assessee stated that he had no books of accounts / documents that would explain the jewellery found in his possession. The assessee further stated that out of jewellery that was in his possession, about 850 grams are procured through purchase and the balance has been obtained from two different parties based at Jaipur for approval purpose. Verification of the assessee's claim was carried out by Jaipur Directorate at the office premise of the assessee. Only two purchase bills for 280 grams and 235 grams totaling 515 grams of jewellery were found at the office premises of the assessee. During the course of verification by Directorate, Banglore, in the case of M / s Navratan Jewellers Pvt. Ltd., it was found that all the jewellery that the assessee has purchased for his business has been consumed / sold to above party. The assessee has sold 1895.980 grams of gold jewellery to M/s Navarathan Jewellers Pvt. Ltd. on 31.08.2012 against the purchases of 515 grams represented by the purchase bills found at the office premises of the assessee. In the absence of the very purchase bills that could explain such acquisition, the jewellery in possession of the assessee could not be meant for sale or was part of the stock. It was ascertained by the 6 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO Directorate, Banglore that the assessee had not satisfactory explanation for the jewellery he was carrying and hence, the same was treated as undisclosed for the purpose of Income-tax. A warrant to seize the jewellery was issued u/s 132 of the IT. Act and the jewellery weighing 2094.510 (gross weight) and 1514.660 grams (net weight) valuing Rs. 48,45,446/- was seized from the possession of the assessee. The assessee had no material evidence i.e. stock register and purchase bill to prove that the jewellery found in his possession at Banglore Airport. Therefore, the jewellery was not treated as business stock also. The assessee was not able to provide any explanation regarding the intended buyers/clients for the jewellery carried. In view of the above facts, the jewellery found and seized of 1514.660 grams (net) valuing Rs. 48,45,446/- treated as unexplained assets out of undisclosed income of the assessee for the period under consideration and added to the total income of the assessee. 3.2 Addition on a/c of ingenuine purchases: During the period under consideration, the assessee has sold jewellery of Rs. 61,01,935/-. The assessee has claimed following purchases from parties for the period under consideration:- i) Shri Laxmi Arts Rs. 1,00,000 7 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO ii) M / s Gold Fin Chem Rs. 22,89,090 iii) Om Sale Corporation Rs. 34,70,698 iv) M / s Clasic Gems International Rs. 31,40,610 To verify genuineness of purchases, notices u/s 133(6) were issued to above parties. Only one party M / s Gold Fin Chem has confirmed the purchases made by the assessee. But purchases made from remaining three parties could not be verified due to notices u/s 133(6) were received back from postal authorities of parties mentioned at S.No. (i) & (ii) and reply not received from party mentioned at S.No. (iv). The assessee did not produce books of accounts, documents, day-to- day stock register and vouchers for verification. The payment by cheque does not make the transaction genuine. In view of the above facts & circumstances of the case and ld. AO treated the purchases made (as claimed) from M/s Om Sales Corporation, M/s Shree Laxmi Arts and M/s Classic Gems International amounting to Rs. 67,11,308/- is treated as ingenuine and added to the total income of the assessee. 3.3 During the period under consideration, the assessee sold jewellery to only to party M/s Navratan Jewellers Pvt. Ltd. amounting to Rs. 61,61,935/- on 31.08.2012. The assessee did not produce books of accounts, documents, stock register and vouchers for verification. Therefore, in the 8 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO absence of books of accounts and vouchers, the profit from business is determined as under:- Sale to M/s. Navratan Jewellers Pvt. Ltd. Rs. 61,01,935 Less: Cost prices of gold jewellery Rs. 56,36,749 Direct/Indirect expenses Rs. 1,15,098 Rs. 57,51,847 Profit of business Rs. 3,50,088 As the assessee has declared profit of business of Rs. 40,983/- in his return of income, therefore, balance of Rs. 3,09,105/- is added to the total income of the assessee. 3.4 During the assessment proceedings, the assessee stated that he had taken gift of Rs. 4 ,00,000/ from his father Shri Lal Chand Kherda and filed an affidavit. As the assessee did not produce his father for examination, therefore, genuineness of transaction and creditworthiness of donor is remained unexplained, therefore, above gifts of Rs. 4,00,000/- in cash as claimed is treated unexplained and added to the total income of the assessee. 9 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO 3.5 On perusal of bank book of Dena Bank, it was revealed that the assessee has issued cheque of Rs. 8,20,000/- for agriculture land. In this regard, vide show cause/notices u/s 142(1) dated 30.01.2015 and 16.02.2015, the assessee was asked to furnish copy of sale deed (for purchase) of agriculture land alongwith all source of investment in it. The ld. AO estimated investment in agriculture land of Rs. 20,00,000/-. As the assessee has issued cheque of Rs. 8,20,000/- from bank a/c. Therefore, balance of Rs. 11,80,000/- is treated as unexplained investment in agriculture land and added to the total income of the assessee. 3.6 The assessee was asked to explain source of cash deposit of Rs. 1,15,000/- in ICICI Bank a/c on 16.07.20212 but the assessee did not furnish any explain. Therefore, cash deposit of Rs. 1,15,000/- as unexplained and added to the total income of the assessee. 3.7 On perusal of Dena Bank account, it was revealed that a cheque of Rs. 85,000/- credited received from Magestic Gems. The assessee did not furnish his submission. Therefore, in the absence of any clarification from assessee side, the ld. AO considered it as unexplained income and added to the total income of the assessee. 10 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO Based on the above observation against the returned income of Rs. 71,010/- the income of the assessee was finally assessed at Rs. 1,37,16,870/-. 4. Aggrieved from the order of the assessment, assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below: “7.3 I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order, the remand report and the rejoinder submitted by the appellant. The contentions/submissions of the appellant are being discussed and decided as under:- (i) The fact remains that the source of the receipt is not substantiated by transfer of funds from one bank account to other bank account. The bank account of the alleged source has also not been placed on record to show the withdrawal from bank account. The appellant has relied upon the letter from gram panchayat regarding income of his father. The certificate states the income of the father of the appellant is Rs. 2,10,000 from agriculture and all other sources combined. The source of this information is not mentioned on the certificate which assumes significance as gram panchayat is not the statutory authority to keep record of income of a person from all his sources. Hence the same is not reliable. As per certificate the annual income is Rs. 2,10,000 whereas the gift claimed to be received by appellant is Rs. 4,00,000. The bank account of the alleged source has also not been placed on record to show the withdrawal from bank account. In view of this the certificate is of not much help to the appellant. Further, it is noted that the assessing officer to verify genuineness of transaction and creditworthiness of donor, vide note sheet entry dated 05.09.2014 and thereafter vide show cause/notice u/s 142(1) dated 30.01.2015 and 16.02.2015, had asked the assessee to produce his father Sh. Lalchand Kherda for examination, who had given gift of Rs. 4,00,000/-in cash to him in F.Y. 2012-13 relevant to the assessment year 2013-14 alongwith documents such as land holding, girdhawari report, sale/purchase, expenses vouchers pertained to 11 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO agriculture income, copy of bank a/c of his father, I.T. return, computation of income and PAN but assessee did not produce his father for examination and the required documents. Even during the remand proceedings or appeal proceedings such documents have not been produced. (ii)The onus is on the assesse to prove that the funds deposited in his bank account are from the sources claimed by the assessee. All these transactions has to be linked and proved. The onus in this regard is on the assesse which has not been discharged. Judgement in the case of Durai Murugan Kathir Anand v. Additional Commissioner of Income-tax [2022] 136 taxmann.com 70 (Madras)/[2022] 443 ITR 423 (Madras)[25-02-2022] Extract from headnotes Section 69A, read with sections 144A and 153A, of the Income-tax Act, 1961 - Unexplained moneys (Cash) - Assessment year 2019-20 - Pursuant to cash seized at premises of employee of a trust where assessee was a trustee, a show cause notice was issued to assessee for addition of seized cash to assessee's total income as undisclosed income - Cash had been recovered on packet with markings of municipal ward from where assessee was contesting elections - Assessee filed an application seeking that directions be issued for completion of assessment under section 153A considering that cash recovered did not belong to assessee and a party worker 'S' had given a voluntary statement that cash belonged to him and had filed an application before ITSC for settlement and addition would result in double taxation in hands of assessee and person who claimed ownership of seized cash - However, said application was rejected and order under section 153A was passed making addition to assessee's total income under section 69A- It was found that one 'S' had given statement that cash belonged to him for distribution to voters, however, statement of `S' did not satisfy test of preponderance of probability, as, 'S' had not produced any records to substantiate that cash belonged to him and also, he was a man of insufficient means - Further, show cause notice also indicated that 'S' had not filed any income tax returns to justify his version - Moreover, documents pertaining to college/trust of assessee found along with seized cash indicated that cash belonged to assessee which was not disclosed by assessee in his regular return - Whether therefore, since preponderance of probabilities indicated that seized cash was undisclosed income of assessee, additions under section 69A to assessee's income were justified - Held, yes [Paras 49 to 54] Relevant paras are extracted below:- "49. The statement of Mr.S.Srinivasan claiming that the cash belonged to him does not satisfy the test of preponderance of probability that the cash indeed belongs to him. Mr.S.Srinivasan has not produced any records to substantiate 12 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO that the cash belonged to him. The show cause notice also indicates that Mr. S.Sriniva.san has not filed any income tax returns to justify his version. Mr.Srinivasan has also not given any satisfactory explanation to substantiate his claim. On the other hand, there is a preponderance of probability that the cash belonged to the petitioner. 50. Since preponderance of probability indicate that the seized cash was an undisclosed income of the petitioner and was kept at the residence of Mr.Da.modaran and Mrs. Vimala Damodaran by the petitioner. These facts suggest that Mr.S.Srinivasan, Mr.Damodaran and Mrs. Vimala Damodaran are trusted person of the petitioner. 51. Merely, because Mr.S.Srinivasan came forward and gave a sworn statement claiming ownership over seized money does not mean that the liability which can be fastened on the petitioner under the IT Act, 1961 can be shifted on Mr.S.Srinivasan. Merely, because Mr.S.Srinivasan has filed application to settle case before the the Settlement Commission, by declaring the seized cash to his cash is of no relevance. 52. The subsequent engineering of an application of settling the dispute before the settlement commission by Mr.S.Srinivasan appears to be a mere ploy, ruse to divert attention. It was filed to detract the assessment proceedings. The application under section 144A of the IT Act itself appears to be an afterthought. Instead of giving attention to the show cause notice and participating in the adjudication, the petitioner appears to have been ill-advised to venture out in filing the above application. 53. Further, the cash was not found under the control and the possession of the said Mr.S.Srinivasan. It was found in the residence of Mr.Damodaran and Mrs. Vimala Damodaran with packet markings as Alangayam, Pallikonda etc. with the marking of the Municipal Wards, falling under the Vellore Parliamentary Constituency from where the petitioner was contesting. The presumption under sections 132(4A) and 292C of the IT Act though. a rebuttable presumption, is to be presumed against the petitioner. 54. Mere voluntary sworn statement on the same day by Mr.S.Srinivasan claiming that the seized cash were his, is not sufficient. Mr.S.Srinivasan has not shown himself to be a man of substantial means. On the other hand, the fact that the documents pertaining to the College/ Trust of the Petitioner were found along with the seized cash as indicated above show that cash belonged to the petitioner which was not disclosed by the petitioner in his regular return." In the above case a third person made a sworn statement and owned up the cash found in the premises of petitioner. Such third person also filed an application before the Settlement Commission. However such sworn statement was rejected by the Hon'ble High Court. The matter was decided as per Preponderance of Probability. Some of the factors which weighed in deciding the matter are as under:- 13 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO • Such third person did not produce records to substantiate that cash belonged to him • Such third person has not filed Income Tax Return • Such third person has not shown himself to be a man of substantial means. • Such third person has not given any satisfactory explanation to substantiate his claim. • The cash was not found under the control and the possession of such third person. • The presumption under sections 132(4A) and 292C of the IT Act though a rebuttable presumption, is to be presumed against the petitioner The legal principles enumerated in the above referred judgements in the case of Durai Murugan Kathir Anand v. Additional Commissioner of Income-tax [2022] 136 taxrnann.com 70 (Madras)/[2022] 443 ITR 423 (Madras)[25-02-2022] and in the case of Vivek N. Jajodia v. Income-tax Officer, 16(2)(2), Mumbai [2011] 10 ITR(T) 581 (Mumbai)/[2010] 123 ITD 136 (Mumbai)/[2010] 134 TTJ 806 (Mumbai)[23-01-2009] are applicable to the present appeal. The onus is on the assesse to prove that the funds deposited in his bank account are from the source from which it is being claimed. All these source transactions has to be linked and proved. The onus in this regard is on the assessee which has not been discharged. The appellant has not shown and not discharged the onus of showing the genuineness of the transaction and identity of the transaction. (iii) The Assessing Officer is not required to show the source of the money deposited in the bank account. There can be several possibilities. Such details are only in the possession of the assesse and onus lies on her. Where the assessee has failed to prove satisfactorily the source and nature of a credit entry in his books, and it is held that the relevant amount is the income of the assesse, it is not necessary for the department to locate its exact source — CIT v. M.Ganapathi Mudaliar [1964] 53 ITR 623 (SC), A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC). A party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals.[Hon'ble Supreme Court in CIT v. Durga Prasad More [1971] 82 ITR 540] If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. .[Honble Supreme Court in CIT v. Durga Prasad More [1971] 82 ITR 540] The Hon'ble Supreme Court held that in cases where the explanation offered by the assessee about the nature and source of the sums found credited in his books is not satisfactory, there is prima facie evidence against the assessee, viz., the receipt of money and that the burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assessee that it was 14 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO receipt of an income nature. The Hon'ble Court further observed: 'May be the money came by way of bank cheques and was paid through the process of banking transaction but that itself is of no consequence'. [CIT v. P. Mohankala [2007] 291 ITR 278 1 (SC)] (iv) In view of the above the addition on the issue is upheld and the ground of appeal is dismissed.” 7.3 I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order, the remand report and the rejoinder submitted by the appellant. (i) As noted in the assessment order, on perusal of bank book of Dena Bank, it was revealed that the assessee has issued cheque of Rs. 8,20,000/- for agriculture land In this regard, vide show cause/notices u/s 142(1) dated 30.01.2015 and 16.02.2015, the assessee was asked to furnish copy of sale deed (for purchase) of agriculture land alongwith all source of investment in it. But the assessee did not comply with above show cause/notices. As the assessee did not comply with notices u/s 142(1) dated 30.01.2015 and 16.02.2015, the assessing officer estimated the investment in agriculture land at Rs. 20,00,000/-. As the assessee has issued cheque of Rs. 8,20,000/- from bank a/c. Therefore, balance of Rs. 11,80,000/- was treated as unexplained investment in agriculture land and added to the total income of the assessee. (ii) The addition was done on estimate basis in view of the limited facts available on record and in the remand report the assessing officer has found the same to be sufficiently explained with documents already in existence before the date of search. The issue is essentially a factual one and the same stands explained with the property deed and bank transaction details. The assessing officer is directed to delete this addition. In view of the same the appeal on this ground is allowed. 9.3 I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order, the remand report and the rejoinder submitted by the appellant. (i) The fact remains that the funds of Rs. 8,50,000 have been received from M/s Megistic Gems & Jewels, Jaipur. There is no dispute regarding that. At the same time the assessing officer has not doubted the credit worthiness of M/s Megistic Gems 86 Jewels, Jaipur as there are no adverse comments in the assessment order. The addition was primarily done due to non furninshing of explanation/reply by appellant. During assessmet proceedings, on perusal of Dena Bank a/c, it was revealed that a cheque of Rs.85,000/- (correct amount Rs. 8,50,000) credited received from Magestic Gems. During the course of assessment proceedings, vide show cause notice/notice u/s 142(1) dated 30.01.2015 and 16.02.2015, the assessee was asked to explain nature or receipt 15 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO with documentary proof/confirmation. The assessee did not furnish his submissions and addition was made. (ii) The appellant has submitted that the said loan was taken in his individual capacity against the purchases of the agriculture land and the land is so purchased is also not appearing in the said balance sheet it is also a matter of fact that the loan taken was utilized for the purchases of the agriculture land. Since the loan was taken in the individual capacity and its utilization in the purchase of agriculture land is duly appearing in the bank account submitted before the AO. These submissions have not been controverted by the assessing officer in his subsequent remand reports. (iii) The fact remains that the funds of Rs. 8,50,000 have been received from M/s Megistic Gems & Jewels, Jaipur and there is no dispute regarding that. The dispute is regarding the fact that the same is not disclosed in the balance sheet of the proprietary business entity. At the same time the assessing officer has not doubted the credit worthiness of M/s Megistic Gems 86 Jewels, Jaipur as there are no adverse comments in the assessment order or in remand report. Considering the totality of the circumstances, the explanation regarding nature and source of the money is treated as explained and the assessing officer is directed to delete the addition. Accordingly, this ground of appeal is allowed.” 5. As the appeal of the assessee was partly allowed the assessee filed the present appeal against the finding of the ld. CIT(A) on the ground as reproduced hereinabove. To support the various grounds so raised by the ld. AR of the assessee, has filed the written submissions and the same is reproduced herein below. “Brief facts of the case are that the assessee is proprietor of M/s Yash Gems & Jewels, which is engaged in jewellery business and having principal place of Business at 2290, Dangayach Bhawan, Ramlala Ji Ka Rasta, Johari Bazar, Jaipur. The said firm was duly registered with the Rajasthan Sales Tax Authorities, vide registration certificate dated 10.05.2012 and TIN 08792257987 (APB-56) was allotted. The proprietorship firm is engaged in manufacturing and trading of Gold jewellery for which the gold bar is purchased from the registered dealers dealing in bullion and jewellery is manufactured with the help of local labour and all the transactions are duly recorded in the books of maintained in regular course of business. Similarly, the sales are also supported by the respective bills. Return of Income for the year under consideration was filed by assessee on 26.09.2013 declaring total income at Rs,71,010/-. 16 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO A search action was conducted in the case of assessee by Income Tax Department on 18.09.2012 pursuant to the information shared by Air Intelligence Unit, Banglore that assessee was carrying gold jewellery having gross weight 2094.510 gms (net weight 1514.660 gms). During the course of search, statement of the assessee were recorded and entire jewellery found in possessing of the assessee was seized by the Investigation Wing, Banglore. Also search was carried out at the business premises of the assessee at Jaipur however, no seizure was made at Jaipur. Various details and information as sought by ld. AO during assessment proceedings were provided and assessment was completed vide order dated 14.03.2014 passed u/s 144 r.w.s.153B(1)(b) of the Income Tax Act after making various additions/disallowances. Assessee preferred appeal before ld. CIT(A), which was partly allowed. Summary of additions made by Ld.AO and sustained by Ld. CIT(A) is tabulated below for the sake of ready reference: Sl. No. Nature of Addition/Disallowance Amount Decision of CIT(A) 1. Addition on account of Unexplained Assets 48,45,446/- Adjudicated together allowing part relief 2. In-genuine purchases 67,11,308/- 3. Profit earned in business 3,09,105/- Part relief 4. Unexplained Gift 4,00,000/- Confirmed 5. Unexplained investment in agriculture land 11,80,000/- Deleted 6. Unexplained cash deposit 1,15,000/- Deleted 7. Unexplained Credit entry in bank account 85,000/- Deleted Present appeal has been filed by assessee against the additions so sustained by ld. CIT(A). With this background, groundwise submission is made as under: Grounds of Appeal No. 1 to 3: In these grounds of appeal, assessee has challenged the action of Ld. CIT(A) in confirming part addition out of total additions made by Ld.AO on account of Unexplained stock, alleged unverifiable purchases and trading additions. Since all these grounds of appeals are interconnected, same are canvassed together for sake of convenience. Facts pertaining to these grounds of appeal as stated above are that assessee was intercepted by the Investigation Wing at Banglore Airport on 18.09.2012 and 17 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO total stock of Rs. 2094.510 gms. gold jewellery available with the assessee was seized by alleging the same as unexplained. During the course of investigation at Airport, due to sudden action by the department, assessee come into panic and when he was asked to explain the whereabouts of books of accounts/documents and the source of jewellery that was found in his possession, he stated that he had no books of accounts/documents that would explain the jewellery found in his possession. Also, assessee further stated that, about 850 gms of jewellery belonged to him and balance was carried by him on behalf of other parties on approval basis. Thereafter, verification was carried out by Jaipur Directorate at office premises of assessee at Jaipur, where they found two bills for purchase of 280 gms and 235 gms aggregating 515 gms of jewellery. Basically, out of confusion and stress due to sudden action, assessee could not understand the implication of his statement and gave the answers on dotted lines. In fact, assessee was maintaining regular books of accounts on computer system and having made regular purchases however, failed to state this fact to the Authorized officers in thr statements recorded during the course of search. It is also a matter of fact that in some cases part payment of purchases were already made prior to search and all these facts remained uninformed to the search authorities. After completion of the year assessee got his accounts audited and filed the return income where the goods found and seized at the airport was fully explained being manufactured by assessee out of the pure gold purchases and also filed the details of the goods taken on approved menu. During the course of assessment proceedings, copy of Balance Sheet, Profit & Loss account, stock register and supporting annexures for the period from 01.04.2012 to 17.09.2012 i.e. up to the date of search were submitted, from perusal of which the stock of jewellery as found with the appellant at the airport on 17.09.2012 is equal to the closing stock as on 17.09.2012 as per the regular books of accounts and duly supported by necessary bills/papers. (APB 21-66) The entire jewellery seized was forming part of inventory maintained in regular course of business as found recorded in the stock registered maintained by the assessee on day to day basis. However, ld. AO without appreciating the same arbitrarily alleged that assessee had no stock records at the time of search to explain jewellery found in his possession and thus did not treat the jewellery as Business Stock and made addition worth Rs.48,45,446/- on account of jewellery found from his possession, i.e. 2094.510 gms (net weight 1514.660 gms). Besides this ld. AO further made addition of Rs. 67,11,308/- by alleging the purchases made by assessee from three parties as unverifiable and bogus without making any enquiry during the course of assessment proceedings. Ld. AO further without invoking the provisions of section 145(3), made trading additions of Rs.3,09,105/-. To simplify the matter, it is submitted that basically there were three types of additions made by ld.AO on account of same issue, i.e. : 18 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO 1. Addition of Rs.48,45,446/- on account of jewellery found with him by treating the same as unexplained Assets and not treating the same as Business Stock; 2. Addition of Rs.67,11,308/- on the allegation that purchases made by assessee from three parties remained unverifiable; 3. Addition of Rs.3,09,105/- on account of Profit earned in business. During the course of appellate proceeding before CIT(A) in order to establish the purchases as genuine and further to establish the source of jewellery seized from his possession being part of the stock available out of such purchases assessee furnished certain additional evidences which inter alia include confirmation of the respective parties, copies of the bank statements in support of the payments made prior to the date of search and also filed the paper book containing the copies of day to day stock register. Ld. CIT(A) send such evidences to the Ld. AO for obtaining remand report. In remand proceedings, Ld.AO conducted independent enquiries by issuing summons u/s 133(6) and after receiving the replies from the parties had furnished his report dated 29.01.2016 wherein he accepted that the purchases from two parties namely M/s Om Sales Corporation Rs. 34,70,698.00 and M/s Shree Laxmi Arts Rs. 1,00,000 were found genuine. Dissatisfied from such report ld. CIT(A) again sought fresh report. Ld. AO again filed remand report dated 21.09.2016 wherein he again furnished Remand Report reconfirming the issue of purchases and also made report on other issues also. Thereafter again ld.CIT(A) sought remand report after the expiry of more than five years of transactions. Ld. CIT(A) filed his report on 12.03.2018 wherein he changed his stand regarding purchases. After considering such evidences / Remand Reports, ld. CIT(A) allowed part relief. In this regard, at the outset it is submitted that neither ld.AO nor ld.CIT(A) has given any adverse remarks regarding stock register. In fact, ld. CIT(A) at page 22 of his order, has mentioned that “Further in the remand reports the assessing officer has accepted the purchase bills, bank statements and other records submitted by the appellant subject to his verification remarks in the remand reports.” Thus, basically ld. CIT(A) has relied upon the finding given by the ld.AO in the remand reports wherein he has accepted the purchases from some parties as genuine. It is submitted that there were 4 remand reports furnished by ld.AO, of which reports dated 21.09.2016 (APB 103-104) and dated 12.03.2018 (APB 115- 117) contained the observations about books of accounts. In remand report dated 21.09.2016, ld.AO objected the admission of additional evidences on the ground that assessee could not furnish such documents and books of accounts during assessment proceedings. However, in remand report dated 12.03.2018, ld.AO has observed as under: (APB 115-117 ) “In the assessee proceedings, assessee filed Trading account as under: 19 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO Particulars (Dr.) Amount Particulars (Cr.) Amount Opening Stock Nil Sales 61,61,935.00 Purchases 1,11,59,967.49 Closing Stock 52,60,212.68 Labour charges 91,010.00 Gross Profit 1,71,170.19 Total 1,14,22,147.68 1,14,22,147.68 Thus, the purchases of Rs.1,11,59,967.49 represent the sales and closing stock which also includes the seized stock of Rs.48,45,446/-. The purchases have been shown from the following parties: S.No. Name of the Party Amount 1. M/s Shri Laxmi Arts 1,43,100/- 2. M/s Gold Finchem 22,89,090/- 3. M/s Om Sales Corporation 34,70, 698/- 4. M/s Classic Gems International 31,40,609/- 5. On approval from M.s Om Impex 20,55,000/- 6. Cash & URD Purchases 61,470/- Total Purchases 1,11,59,967/- From perusal of above, it is clear that ld.AO himself in remand report has accepted the trading account furnished by the assessee, according to which the assessee had sufficient stock of finished goods manufactured out of the pure gold purchases, part of which was found from his possession during the course of search at the airport. In support of this, assessee submitted the copy of the stock register (APB 39-66), which contained the precise details of goods manufactured and stock available with the assessee as on 18.09.2012, which were also not doubted. Thus, there is no reason for not to treat the jewellery found in possession of the assessee as Business Stock more particularly when it is the first year of business and there is no evidence that assessee is having any undisclosed income for which addition could be made. It is further submitted that out of 5 parties as tabulated in remand report dated 12.03.2018 (APB 115-117 ) and reproduced above (from whom purchases was made by assessee), purchases from M/s Gold Finchem and from M/s Classic Gems Corporation was held as genuine by both Ld. AO as well as Ld.CIT(A). 20 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO Apart from this, ld.AO in the remand report dated 12.03.2018 also accepted the contention of assessee regarding goods received on approval from M/s Om Impex worth Rs. 20,55,000/- after conducting independent enquiry by issuing summons u/s 131, in response to which the other party accepted giving goods of approval and even furnished his Return of Income. However, ld. CIT(A) disagreed with the same for the reason that M/s Om Impex was filing Return of Income u/s 44AD and was not maintaining regular books of accounts (though he was not required to maintain books) and that assessee had not stated the name of this party during the course of search in statements recorded and further relying upon certain case laws on human probabilities. In this regard, it is submitted that assessee could not state name of party spontaneously as he was in the state of shock due to sudden action by the department however, it is an admitted fact that assessee did mention that except 850 gms jewellery, which was purchased, balance jewellery was taken by him on approval. In the scenario, there was no reason to reject the submission of assessee. In this regard it is submitted that suspicion, howsoever strong cannot override the documentary evidences which in the present case remained uncontroverted. In this regard, reliance is placed on decision of Hon’ble Special bench of Mumbai ITAT in the case of ITO Vs. M/s. GTC Industries Limited Tobacco House, where the Hon’ble Special Bench of ITAT after considering all the aspects of “preponderance of human probabilities” and other issues has held that: “46. ......It is quite a trite law that suspicion how so ever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of ‘preponderance of probability’ is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigation have been carried out, then nothing can be implicated against the assessee.” With this background, it is submitted that out of the total goods of 2094.510 gms. found with the assessee, 822.560 gms. was carried by him as received from M/s Om Impex on approval basis for which the necessary copy of the approval memo and other relative documents were submitted (APB-38) which stood verified by ld. AO in remand proceedings and in the remand report dated 12.03.2018 it has been specifically mentioned in para 6.1 of the remand report that the transaction of goods received by the assessee from M/s Om Impex may be treated as explained (APB 116). It is therefore humbly prayed that addition made towards the goods to the extent of Rs.20,55,000/- [Gross weight 822.560 gms. item No. 1 of inventory of jewellery seized vide annexure J / SK / 1 dated 18.09.2012, APB 57] deserves to be deleted. 21 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO With regard to the remaining goods of 1271.570 gms. having value of Rs.29,42,534/-, it is submitted as under: That as per the stock summary filed (APB 39) the total goods of 1271.570 gms. consisted of the following items:- S.No. Description Quantity (In gms.) Paper book reference 1. Bangle pair gold jewellery 86.000 39 & 40 2. Laxmi Set gold jewellery 188.740 39 & 48 3. Laxmi Set mango gold jewellery 147.750 39 & 49 4. Mango mala diamond ruby gold jewellery 290.200 39 & 50 5. Mango mala ruby gold jewellery 192.650 39 & 51 6. Mix plain gold jewellery 366.500 39 & 52 Total 1271.840 There is a slight difference of 0.090 gms. [1271.840 – 1271.750] in the stock physically quantified at the time of inspection by the department and as per stock register which is very minor and due to weight difference and deserves to be ignored. With regard to the item No. 1, i.e. Bangle gold pair jewellery, it is submitted that the same item was manufactured by the assessee out of the gold bar purchased from M/s Gold Fin Camp and the stock register of Gold bar is at paper book page 44 from where on 24.08.2012 the stock was transferred to Kundan (gold) (APB- 46) for manufacturing and after manufacturing the finished goods from the Kundan (gold) has been transferred to the finished product i.e. bangle (pair) gold jewellery (APB-40) having gross weight of 86 gms. including wax and other mixing to the pure gold of 17.10 gms. Since the purchases from M/s Gold Fin Camp has not been doubted after due verification, therefore it is requested that the goods to be extent of 86 gms. of bangle pair gold jewellery deserve to be held as explained. With regard to the item No. 2, i.e. Laxmi Set gold jewellery, it is submitted that the said items were manufactured from Ghat (Gold jewellery) (APB-43) which was taken from gold bar and ultimate finished product i.e. Laxmi Set Gold Jewellery was received after manufacturing having gross weight 188.740 gms. (APB-48). Since the purchases from M/s Gold Fin Camp has not been doubted after due verification, therefore it is requested that the goods to the extent of 188.740 gms. of Laxmi Set gold jewellery deserve to be held as explained. 22 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO With regard to the item No. 3, i.e. Laxmi Set mango gold jewellery, it is submitted that the said items were manufactured from Ghat (Gold jewellery) (APB-43) which was taken from gold bar and ultimate finished product i.e. Laxmi Set mango Gold Jewellery has been received after manufacturing having gross weight 147.750 gms. (APB-49). Since the purchases from M/s Gold Fin Camp has not been doubted after due verification, therefore it is requested that the goods to the extent of 147.750 gms. of Laxmi Set mango gold jewellery deserve to be held as explained. With regard to the item No. 4, i.e. Mango Mala Diamond Ruby gold jewellery, it is submitted that the said items were manufactured from Ghat (Gold jewellery) (APB-43) which was taken from gold bar and ultimate finished product i.e. Laxmi Set Gold Jewellery has been received after manufacturing having gross weight 290.200 gms. (APB-50). Since the purchases of gold bar from M/s Gold Fin Camp has not been doubted after due verification, therefore it is requested that the goods to the extent of 290.200 gms. of mango mala diamond ruby gold jewellery deserves to be held as explained. With regard to the item No. 5, i.e. Mango Mala Ruby gold jewellery, it is submitted that the said items were manufactured from Ghat (Gold jewellery) (APB-43) which was taken from gold bar and ultimate finished product i.e. Laxmi Set Gold Jewellery has been received after manufacturing having gross weight 192.650 gms. (APB-51). Since the purchases of gold bar from M/s Gold Fin Camp has not been doubted after due verification, therefore it is requested that the goods to the extent of 192.650 gms. of mango mala ruby gold jewellery deserves to be hold as explained. With regard to the item No. 6, i.e. Mix Plain gold jewellery, it is submitted that the assessee besides manufacturing from gold bar had traded the goods after purchases from two parties i.e. Om Sales Corporation and Classic Gems International. The Ld. AO, in the assessment order had treated the purchases from both these parties as in-genuine however, in the remand report dated 29.01.2016 (APB 99-100), ld. AO after making verification by issuing summons u/s 133(6) to these parties has observed that the purchases are genuine and actual. Further, vide remand report dated 12.03.2018 (APB 115-117), ld. AO again accepted and verified the purchases from M/s Classic Gems International to the extent of Rs.22,89,090/- thus no addition is required to be made with regard to the purchases from this party. It is further submitted that from the perusal of paper book page 52 i.e. the stock ledger of mix plain gold jewellery, it is found that out of total 366.000 gms. jewellery available with the assessee as on the date of search comprises of the purchases of 203.000 gms. jewellery from Classic Gems International and 163.500 gms. jewellery manufactured out of gold bar and since the purchases of gold bar from M/s Gold Fin Camp and purchases from Classic Gems International has not been doubted after due verification, therefore it is humbly prayed that the goods to be extent of 366.500 gms. of mix plain gold jewellery deserves to be hold as explained. 23 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO It is further submitted that despite of verification by ld. AO in the first remand report dated 29.01.2016 (APB 99-100), ld. CIT(A) hold that purchases from M/s Om Sales Corporation and M/s Laxmi Arts as unverifiable. With regard to purchases from M/s Shri Laxmi Arts it is submitted that in the assessment order was treated as in-genuine for the reason that the same could not be verified however, in remand proceedings ld. AO in the remand report submitted dated 29.01.2016 after due verification found the same in order (APB 99-100). However, in the remand report dated 12.03.2018, it is observed by ld. AO that the notice issued u/s 133(6) was not served and returned received back unserved. In the first remand report dated 29.01.2016 the Ld. AO had made verification after service of notice through notice server and found this purchases as being genuine and after the expiry of two years, during the second remand proceedings, the ld. AO stated that notice could not be served which could be for the reason that may be that party had left the premises during the period of two years. Assessee also made efforts during the remand proceedings however, for the reasons that the assessee has no business relationship at present with this party, he could not be able to contact with it. In the circumstances it is submitted that once the AO in first remand report after due verification had categorically stated that the purchases made from this party is genuine, the same deserves to be accepted (APB 115-117). The necessary copy of confirmation is at APB 73 and the reply as submitted by the said party to the office of ld. AO in first remand proceedings is at APB 118-140 With regard to the purchase from M/s Om Sale Corporation, it is submitted that in first remand report dated 29.01.2016 the purchases were found genuine after making verification by issuing summons u/s 133(6) however, in the remand report dated 12.03.2018 the Ld. AO in para 6.2 of the report has observed that the notice u/s 133(6) could not be served now however, the notice server has reported that it was informed by the landlord that this party was tenant in past, thus the availability of the party could not be doubted. We are filing the copies of the replies submitted by the party M/s Om Sales Corporation in response to the notice u/s 133(6) to the Ld. AO during the first remand proceedings containing the fresh confirmation alongwith the certified copy of the bill issued for your kind verification. In the circumstances it is humbly requested that the purchase made from M/s Om Sales Corporation, M/s Laxmi Arts and goods taken on approval from M.s Om Impex deserves to be held as genuine and deserves to be accepted and the addition made may kindly be deleted. With the above submission, it is submitted that when the assessee with all the plausible evidences has been able to verify the goods available with him at the time of search at Airport and also established the purchases made from various parties as genuine, thus the additions made on both the counts deserves to be deleted. Ground of Appeal No. 4: 24 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO In this ground of appeal, assessee has challenged the action of ld. CIT(A) in confirming part of the Trading Addition confirmed by ld.CIT(A). In this regard, at the outset, it is submitted that besides treating stock available with assessee as on the date of search as unexplained and further treating the purchases to the extent of Rs.67,11,308/- as in-genuine, ld. AO further made trading additions of Rs. 3,09,105/-. In appeal, ld. CIT(A) restricted the deduction on account of Direct and Indirect Expenses at 50%. At this juncture, kind attention of the hon’ble bench is invited to audited Trading and Profit & loss account which are submitted at APB-17, according to which details of expenses are as under: S. No. Nature of Expenses Amount 1. Labour Charges 91,010/- 2. Conveyance Expenses 7,560/- 3. Composition fees 15,500/- 4. Electricity Charges 5,500/- 5. Interest on Loan 35,000/- 6. Legal Expenses 1,500/- 7. Travelling Expenses 17,386/- 8. Office Rent 40,300/- 9. Telephone Expenses 7,440/- TOTAL 2,21,196/- Ld. CIT(A) has confirmed the disallowance @ 50% out of the abovementioned expenses without considering the fact that assessee has claimed Labour expenses of Rs.91,010/- which are very reasonable looking to the goods manufacture and turnover of Rs.61,61,935/-. The expenses at serial no. 3,4,5, 6 & 8 are either payment to Government department or in the nature of Composition fees, Electricity expenses, Legal Expenses, Interest on Loan, office rent where there is no scope of personal use and which itself constitutes 97,800/- and disallowance out of these is not correct. Apart from this, assessee has claimed Conveyance expenses of Rs.7560/- and Telephone expenses of Rs.7440/-, which are very nominal. It is, therefore, submitted that disallowance confirmed by ld. CIT(A) without pointing out any single discrepancy, more particularly when books of account were audited without any adverse remarks deserve to be deleted. 25 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO Ground of Appeal No.5 In this ground of appeal, assessee has challenged the action of ld. CIT(A) in confirming the addition of Rs.4,00,000/- made by ld.AO on account of unexplained gift received from his father. In this regard, it is submitted that during the year under consideration, assessee has received a gift of Rs. 4.00 lacs from his father, in respect of which the affidavit was submitted before the ld. AO (APB 69). To further verify the genuineness of the transaction, ld.AO asked for examination assessee’s father who could not be produced as he was not keeping well, therefore ld. AO made the addition. During the course of appellate proceedings before ld.CIT(A), the appellant submitted the documents (APB 81-84) in support of the income earned by his father and was the immediate of gift to the assessee. Since such source in the hands of assessee’s father is not doubted, the gift made by the father of the assessee cannot be treated as ingenuine. In the circumstances, it is submitted that since the identity, genuineness and creditworthiness of the person giving the gift has been established beyond doubt, addition of Rs. 4.00 lacs so made deserves to be deleted. 6. To support the contention so raised in the written submission reliance was also placed on the following evidence / records / decisions: S. No. PARTICULARS PAGE NOS. 1. Copy of submission filed before Assessing Officer dated 21.05.2014 along with ITR, Computation of Income, Audit Report and Balance Sheet 1-20 2. Copy of submission filed before Assessing Officer consisting purchase bills and stock register. 21-66 3. Copy of submission filed before Assessing Officer consisting of documents related to infusion of capital and party wise payment details of creditors. 67-72 4. Confirmation of M/s Om Sales Corporation 73 5. Confirmation of M/s Shree Laxmi Arts 74 6. Confirmation of Classic Gems International with affidavit and other documents 75-80 26 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO S. No. PARTICULARS PAGE NOS. 7. Land holding record and Income justification of Father of the appellant Sh. Lal Chand Kherda 81-84 8. Documents of Agriculture Land purchased by the appellant 85-87 9. Confirmation of M/s Magestic Gems & Jewels. 88 10. Copy of Written Submission along with Application u/r 46A filed before the ld. CIT(A), Jaipur – II dated 23.12.2015 89-98 11. Copy of Remand Report by ld. AO dated 29.01.2016 99-100 12. Copy of reply dated 27.08.2016 filed before ld. CIT(A), Jaipur – II in response to Remand Report dated 29.01.2016. 101-102 13. Copy of Remand Report by ld. AO dated 21.09.2016 103-104 14. Copy of reply dated 28.09.2016 filed before ld. CIT(A), Jaipur – II in response to Remand Report dated 21.09.2016. 105-106 15. Copy of Remand Report by ld. AO dated 14.10.2016 107-109 16. Copy of reply dated 27.10.2016 filed before ld. CIT(A), Jaipur – II in response to Remand Report dated 14.10.2016. 110-114 17. Copy of Remand Report by ld. AO dated 12.03.2018 115-117 18. Copy of reply dated 15.03.2018 filed before ld. CIT(A), Jaipur – II in response to Remand Report dated 12.03.2018. 118-140 19. Copy of letter dated 24.01.2022 filed to ld. CIT(A), post migration to Faceless Appeal System. 141 20. Copy of Response submission file d before the Commissioner of Income Tax (Appeals) dated 31.08.2023 142-143 7. The ld. AR of the assessee in addition submitted that the ground no. 1 to 3 challenges the action of the lower authorities in making total addition on account of unexplained stock, alleged unverifiable purchases and trading addition. The assessee out of confusion and stress due to sudden action, he could not understand the implication of his statement recorded at the 27 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO time of search undertaken at the airport. In fact, the assessee maintained the books of accounts on computer and have regular purchases but he failed to state this fact to the authorized officer in the statement recorded at the time search. He also could not brought on record that in some of the purchases even the payment has been made in part before the search conducted. When the assessee got the books completed and got it audited he found that the goods found and seized at the airport was fully explained out of the pure gold purchases and also goods taken on approval basis and this resulted the goods manufactured and found in his possession. In the assessment proceeding balance sheet, profit and loss account, stock register and supporting annexures till the date of search were submitted and from that it is very well clear that the jewelry found were the closing stock of goods as per the regular books of the assessee and ld. AO without appreciation has made the addition worth Rs. 48,45,446/-. Beside this ld.AO also made addition of Rs. 67,11,308/- as unverifiable purchases without making any enquiry he has also made addition of Rs. 3,09,105/- as trading addition without rejecting the books and thereby without following the provisions of section 145(3) of the Act. In support of the grounds for all three addition he has relied upon the detailed finding given in the written submission filed. The action of the ld. AO making the addition of 28 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO unverifiable purchases he has also made separate trading addition is not justifiable. Ld. CIT(A) has restricted the addition for 50 % without considering the fact that the labour expenses are very reasonable looking to the goods manufactured by the assessee and other electricity expenses, legal expenses, interest on loan, office rent cannot be considered to the extent 50 % disallowable. The assessee as regards the gift received from the father has already submitted the affidavit and ld. AO made the addition merely he could not be produced before the ld. AO and he has done the addition without appreciation of the fact his father was not well. 8. The ld. DR is heard who has relied on the findings of the lower authorities. The ld. DR vehemently argued that the assessee could not explain the source and details of the persons from goods were received on approval. Since, the assessee at the time of search could not explain the position of stock with the books of account the finding of the lower authority is based on the statement and material found at the time of search. The ld. CIT(A) has already given the relief to the assessee. As regards the gift the assessee has merely filed the affidavit and has not proved the gift with other evidence such as bank statement, source of gift etc. Affidavit is merely a self serving document. 29 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO 9. We have heard the rival contentions and perused the material placed on record. Since the assessee has disputed the various addition in their respective ground, we are taking the grounds raised by the assessee and our finding on it is discussed here in below paras. Grounds of Appeal No. 1 to 3: 9.1 We have considered the rival contentions, perused the material available on record and gone through findings of the lower authorities recorded in their respective orders as well as gone through the various judicial rulings placed before us to drive home to their contentions. 9.2 Brief facts pertaining to the issue are that the assessee is proprietor of M/s Yash Gems & Jewels and is engaged in jewellery business including manufacturing and trading of gold jewellery for which gold bar is purchased from registered dealer and jewellery is manufactured with the help of local karigars and all these transactions are recorded in the regular books of accounts including the stock register. In the case of the assessee a search action was conducted at Bangalore Airport and it was found that assessee was carrying gold jewellery weighing 2094.510 gms., having net weight of 1514.660 gms., which was seized. 30 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO 9.3 Search was also carried out at the business premises of the assessee at Jaipur, however no seizure was made. Out of jewellery seized, the ld. AO did not accept the explanation of the assessee about 822.560 gms. of jewellery being received on approval from M/s Om Impex and explanation of remaining jewellery was also not accepted for an amount of Rs. 48,45,446/- being the value of jewellery seized, was added as income of the assessee in the year under consideration. In the first appeal the ld. CIT(A) did not find merit in the arguments of the assessee and rejected the contention of the assessee that 822.560 gms. of jewellery were received from M/s Om Impex on approval. This denial was made by the ld. CIT(A), despite the facts that in the remand report dated 12.03.2018 called for by the ld. CIT(A), it has been specially mentioned at para 6.1 that transaction of goods received by assessee from M/s Om Impex may be treated as explained though the assessee did not receive any favour from the ld. CIT(A). 9.4 The bench noted that in the remand proceedings before the ld. AO, the party attended in response to summon u/s 131 and stated confirming the fact that goods have been given by him on approval basis to the 31 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO assessee. Moreover, M/s Om Impex submitted copies of ITRs for A.Y. 2012-13 & 2013-14 and stated that the returns are filed for the above assessment year u/s 44AD and because of that no stock register is maintained by them. The ld. CIT(A) was of view that during the statement of assessee recorded at the time of search, the assessee has stated that he was carrying on-approval jewellery from two parties whereas in the assessment proceedings on-approval jewellery has been claimed only from one party namely M/s Om Impex and moreover the assessee has not able to justify its claim through M/s Om Impex stock reconciliation. The ld. AR of the assessee has strongly argued that it is a matter of fact that the assessee did state in his statement recorded during the search that he was carrying jewellery on-approval also. It was because of sudden shock of search that he could not be very specific on this issue but nevertheless he did mention about part jewellery carried by him on-approval basis. As regards stock reconciliation of M/s Om Impex is concerned, the ld. AR has rightly pointed out that since M/s Om Impex has filed the return u/s 44AD, there is no requirement for him to keep the stock register and accordingly verification from his stock register cannot be a base to sustain the addition. As it is very much clear that the party M/s Om Impex did confirm the 822.560 gms. jewellery being given on-approval to the assessee before the 32 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO ld. AO in the remand proceedings. Considering these facts clearly evident from the confirmation of the third party that they have given the goods to the assessee on approval basis and this fact being not disproved by the revenue before us by bringing anything contrary we see no reason to disbelieve the arguments of the assessee for 822.560 gms. of jewellery being received on-approval. Thus, merely on the basis of suspicion, as against the confirmation on oath before the ld. AO by the party during remand proceedings addition is not sustainable. Now for remaining jewellery found at the time of search weighing 1271.750 gms. having value of Rs. 29,42,534/- is concerned, it was submitted by the ld. AR that same is part of the stock as per books of accounts available with the assessee as on 17.09.2012. The stock consists of following items:- S.No. Description Quantity (In gms.) Paper book reference 1. Bangle pair gold jewellery 86.000 39 & 40 2. Laxmi Set gold jewellery 188.740 39 & 48 3. Laxmi Set mango gold jewellery 147.750 39 & 49 4. Mango mala diamond ruby gold 290.200 39 & 50 33 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO jewellery 5. Mango mala ruby gold jewellery 192.650 39 & 51 6. Mix plain gold jewellery 366.500 39 & 52 Total 1271.840 On the other hand as per the physical inventory prepared by the search party total jewellery excluding the jewellery on-approval from M/s Om Impex [which is at Sl. No. 1 of the inventory], is 1271.750 gms. [Sl. No. 2 of the inventory]. The ld. AR stated that there is slight difference of 0.090 gms. [i.e. 90 miligram] which is very negligible and is due to slight difference in the weighment at the time of seach conducted and recording the weight by the search team. The ld. AR has given item-wise details of stock as to how the particular item of stock register has been acquired including the details of purchase of gold bar required as raw material which is reflected in the stock register and entry of finished goods / jewellery being reflected in the stock register. With regard to item No. 1 namely Bangle gold pair jewellery, it was submitted by ld. AR that same was manufactured out of gold bar purchased from M/s Gold Fin Chem and the stock register of the gold bar is at APB 44 from where on 24.08.2012, the stock was transferred to Kundan (Gold) [APB 46] for manufacturing and after manufacturing finished goods 34 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO from Kundan (Gold) has been transferred to finished product i.e. Bangle (pair) gold jewellery as evident from APB 40 having gross weight of 86 gms. including wax and other metal and items added to the pure gold. Similarly, with regard to item No. 2 namely Laxmi Set Gold Jewellery, it was submitted by ld. AR that said item was manufactured from Ghat (gold jewellery) (APB 43) which was made from gold bar and ultimate finished product i.e. Laxmi set gold jewellery received after manufacturing is reflected on APB 48 weighing 188.740 gms. Coming to the last item i.e. item No. 6 being mix plain gold jewellery, it is submitted that assessee has also made purchases of jewellery from M/s Om Sales Corporation and M/s Classic Gems International. These purchases, though initially by the ld. AO in the assessment order, has been treated to be non-verifiable, however, in the remand report dated 29.01.2016 the then ld. AO, after making verification by issue of notices u/s 133(6) of the I.T. Act, 1961, has observed the purchases from these parties to be genuine. Considering these facts coupled with others facts, purchases from Classic Gems International has been treated as genuine by the ld. CIT(A). It was explained by the ld. AR that on perusal of APB 52 containing stock ledger of mix plain gold jewellery, it is found that out of total 366.500 gms. of mix plain gold jewellery available with the assessee as on the date of the 35 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO search, 203.000 gms. of jewellery was out of purchase from M/s Classic Gems International and 163.500 gms. jewellery was manufactured out of gold bar from M/s Gold Fin Chem. Since purchases from both the above parties has not been doubted finally after due verification, accordingly jewellery to the extent of 366.500 gms. of mix plain gold jewellery is fully explained. Similar details were submitted by the ld. AR in its written submission in relation to item No. 3 to 5 also. On the other hand ld. departmental representative relied upon the order of the ld. AO and of CIT(A). However, it was noticed that no defects has been pointed out by the ld. DR on the details and submissions given by ld. AR on the facts presented therein. 9.5 We have perused the written submission along with the relevant paper book pages and found that items shown at Sl. No. 1 to 6 are reflected in the stock detail of the assessee. Moreover, we find force in the argument of the ld. AR of the assessee that since purchases from M/s Gold Fin Chem has not been doubted after due verification by the ld. AO in the remand proceedings and ld. CIT(A) has also accepted the purchase from M/s Gold Fin Chem to be genuine and also from M/s Classic Gems 36 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO International, these items have been manufactured out of gold purchased from M/s Gold Fin Chem after adding other metal and wax and partly out of purchase from M/s Classic Gems International which has also been accepted as genuine, the jewellery available in the stock with the appellant cannot be doubted. As regards, purchases from M/s Om Sales Corporation of Rs. 34,70,698/- and from M/s Laxmi Arts of Rs. 1,43,100/- is concerned, it was pointed out that that in the remand proceedings the ld. AO in the remand report dated 29.01.2016 has mentioned that after due verification u/s 133(6) of the I.T. Act, 1961 purchases from these parties are found to be in order. All these facts were submitted before the ld. CIT(A) in the appellate proceedings. However, it was seen that ld. CIT(A) after further gap of about 2 years again sought the remand report from the ld. AO and ld. AO in the second report dated 12.03.2018 stated that notice issued u/s 133(6) could not be served and on this basis the ld. CIT(A) did not accept these purchases as genuine. It was argued by the ld. AR of the assessee that before sending the first remand report dated 29.01.2016, the ld. AO has sent notices u/s 133(6) to these parties which were served and reply was also received and on the basis of enquiries made by him at that time, he has [ ld. AO] mentioned in his report about purchases from these parties being genuine. Now after a gap of two years the party namely M/s Om 37 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO Sales Corporation could have changed his address and making the U turn of the facts already on record is not correct and against the principles of natural justice. The assessee was not able to contact the party as the assessee had no business relationship presently with the said party but in fact in the first remand report the same were replied is not appreciated by the lower authority. However, once the ld. AO after due verification has categorically stated in his remand report that the purchases made from this party is genuine, the same deserves to be accepted as no one has right to change the opinion which has already been taken based on the set of facts available at that time. The ld. AR has also submitted the copy of the confirmation of account of M/s Om Sales Corporation [APB 73] as well as reply of the said party to the office of AO in the first remand proceedings [APB 118-140]. We have considered the facts on the issue under consideration and gone through the records. It is seen that ld. CIT(A) has not accepted the purchase from M/s Om Sales Corporation and M/s Laxmi Arts considering that in the second remand report dated 12.03.2018, the AO has mentioned about non-serving of notice to the parties at the given address. Whereas it is evident that in the remand report dated 29.01.2016, the then ld. AO made enquiries by issue of notice u/s 133(6) to the above two parties and he did receive the reply from the parties and after 38 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO considering the reply and other facts, he has observed about purchase made by assessee from these parties to be genuine. It is seen that the case pertains to F.Y. 2012-13 for which first enquiry was made in January, 2016 by earlier AO wherein the party was existing at given address and has also replied to the notice issued by the ld. AO. Now, after a gap of two years, from the earlier notice and a gap of about more than five years from the relevant financial year, there may be chances of party shifting its business premises. In fact ld. AR has mentioned that the notice server reported that it was informed by landlord that party M/s Om Sales Corporation was tenant in the past and had left. This itself also reflects that availability of the party cannot be doubted. Moreover, in the first remand report the AO has duly verified the details and came to the conclusion about the purchase from these two parties being genuine. In view of these facts and circumstances the purchase from M/s Om Sales Corporation and M/s Laxmi Arts are considered genuine. Thus, in brief, Ground of appeal No. 1 to 3 are allowed and addition of Rs. 48,45,446/- so made by the ld. AO considering the stock of jewellery found as unexplained by the ld. AO, is hereby directed to be deleted. Moreover, purchase from M/s Om Sales Corporations and M/s Laxmi Arts are held to be not doubtful and accordingly addition if any on this issue is also deleted. 39 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO Grounds of appeal No. 4: 9.6 Ground no. 4 challenges the confirming disallowance of 50% of direct and indirect expenses as against the trading addition of Rs. 3,09,105/- made by ld. AO. The ld. AR has given the details of these expenses and has submitted that ld. CIT(A) has not appreciated that these expenses include labour expenses of Rs. 91,010/- which is quite reasonable looking to the goods manufactured and turnover of Rs. 61,61,935/-. Other expenses are either payment to the government department or in the nature of composition fees, electricity expenses, legal expenses, interest on loan and office rent etc. where there is no scope of personal use and which itself totals to Rs. 97,800/- and disallowance out of that expenditure is not correct. The ld. AR argued before us that the other expenses namely traveling expenses Rs. 17,386/-, conveyance expenses Rs. 7,560/- and telephone expenses Rs. 7,440/- are very nominal and does not require any disallowance in the absence of any finding that the same is not for the purpose of the business of the assessee. 9.7 We have considered the submission of the ld. AR of the assessee. Labour expenses of Rs. 91,010/- seems reasonable, however considering same to be partly vouched, disallowance of Rs. 14,000/- (being about 15%) 40 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO would meet the end of justice. Moreover, other expenses are either fixed payments or payments to the government and thereby having no scope of personal use. Accordingly, disallowance out of these expenses is directed to be deleted. However, 25% disallowance out of traveling, conveyance and telephone expenses totaling to Rs. 32,386/-, which comes to Rs. 8,097/- is hereby confirmed. Thus, total disallowance of Rs. 22,097/- is hereby confirmed. Based on these observations Ground of Appeal No. 4 of assessee is partly allowed. Grounds of appeal No. 5: 9.8 In this ground of appeal the assessee has challenged the action of ld. CIT(A) in confirming the addition of Rs. 4,00,000/- made by ld. AO considering the gift received from his father as unexplained. It was submitted by ld. AR that in support of the gift, affidavit of his father was submitted before the ld. AO. The ld. AO asked for cross examination of assessee’s father, but he could not be produced being of quite old age of his father and he was not keeping well. Considering non-availability of evidence regarding income of father of assessee, the ld. AO did not consider the gift amount as explained. In the appeal proceedings before ld. CIT(A), appellant submitted evidence of land holding of father of assessee 41 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO and certificate from the Sarpanch certifying the annual income of father of assessee at approx. Rs. 2,10,000/-. Ld. CIT(A) was of the view that the Sarpanch is not the statutory authority in respect of income certificate and there is no immediate source of withdrawal from the bank for making cash gift to the assessee and accordingly ld. CIT(A) confirmed the addition. 9.9 Before us, ld. AR has argued that in villages it is usually the Sarpanch or Tehsildar who are in knowledge about the income of the villager and since most of these incomes are agriculture income, no return of income is filed by the villagers and accordingly there is no alternative way of getting any income certificate from any other authority. It was also submitted that father being of old age has not kept the money in any bank and accordingly since the money was not deposited in bank, there is no occasion of any withdrawal from bank. Moreover, the amount given includes not only saving of present year but also of the various earlier years. We have considered the argument of the ld. AR and perused the relevant records. Considering the certificate of Sarpanch which is also signed by the Patwari of the Tehsil and the details of land holding of father of the assessee, annual income of Rs. 2,10,000/- cannot be doubted and consequently source of gift of Rs. 4,00,000/- given by father of assessee out of savings of current year and earlier years is considered to be genuine supported by the sworn affidavit. 42 ITA No. 610/JP/2023 Sandeep Kherada vs. ITO Accordingly, addition of Rs. 4,00,000/- is hereby deleted. Ground of Appeal No. 5 of assessee is allowed. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 29/02/2024. Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judcial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 29/02/2024 *Ganesh Kumar, PS vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant- Shri Sandeep Kherada, Jaipur 2. izR;FkhZ@ The Respondent- ITO, Jaipur 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZ QkbZy@ Guard File (ITA No. 610/JP/2023) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar
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