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Income Tax Appellate Tribunal, JAIPUR BENCHES ‘B’ JAIPUR
Before: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 1306/JP/2019
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES ‘B’ JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 1306/JP/2019 fu/kZkj.k o"kZ@Assessment Year : 2009-10 cuke Assistant Commissioner of Income M/s Lakhi Gems, 295, 2nd floor, Hanuman Ji Vs. Tax, Central Circle-03, Jaipur ka Rasta, Johari Bazar, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAAFL5913D vihykFkhZ@Appellant izR;FkhZ@Respondent izR;k{ksi.k@C.O. No. 04/JP/2020 (Arising out of vk;dj vihy la-@ITA No. 1306/JP/2019) fu/kZkj.k o"kZ@Assessment Year 2009-10 cuke M/s Lakhi Gems Assistant Commissioner 901, 2nd Floor, Narendra Plaza Vs. of Income Tax, Ganga Mata Street, Central Circle-03, Jaipur Gopal Ji Ka Rasta, Johari Bazar, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAAFL5913D izR;k{ksid@Objector izR;FkhZ@Respondent jktLo dh vksj ls@ Revenue by : Sh. B. K. Gupta (CIT) fu/kZkfjrh dh vksj ls@ Assessee by : Sh. P. C. Parwal (CA) lquokbZ dh rkjh[k@ Date of Hearing : 24/03/2021 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 22/06/2021 vkns'k@ ORDER PER: VIKRAM SINGH YADAV, A.M.
2 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur This is an appeal filed by the Revenue against the order of ld. CIT(A)-4, Jaipur dated 25.09.2019 for A.Y 2009-10 and the cross objection filed by the assessee wherein respective grounds of appeal are as under:-
Grounds of Revenue’s appeal: “1. Whether on the facts and in the circumstances of the case & in law the ld. CIT(A) was right in deleting the addition of Rs.7,02,120/- made by the AO on account of bogus purchases from various paper companies.
2. Whether on the facts and in the circumstances of the case & in law the ld. CIT(A) was right in deleting the addition of Rs.15,19,533/- made by the AO on account of bogus purchases from or various paper companies, after confirming the rejection of books of accounts.
3. Whether on the facts and in the circumstances of the case & in law the ld. CIT(A) was right in deleting the addition of Rs.3,11,11,600/- made by the AO on account of unexplained investment in stock.
4. Whether on the facts and in the circumstances of the case & in law the ld. CIT(A) was right in deleting the addition of Rs.7,33,49,856/- made by the AO on account of unaccounted sales by ignoring the findings of AO.”
Grounds of assessee’s Cross objection:
“1. The Ld. CIT(A) has erred on facts and in law in upholding the validity of the order passed by AO u/s 147 of IT. Act, 1961.
2. The Ld. CIT(A) has erred on facts and in law in confirming the rejection of books of accounts by applying the provisions of section 145(3).
4. The Ld. CIT(A) has erred on facts and in law in confirming the addition of Rs. 3,68,592/- on the basis of various loose papers ignoring that none of these papers relate to the assessee.”
Regarding Ground No. 1 of Revenue’s appeal, briefly stated, the facts of the case are that the assessment was completed u/s 143(3) at total income of Rs.16,48,510/- after disallowing 25% of the unverifiable purchases of Rs.46,80,799/-. Before the ld CIT(A), the same was restricted to Rs.50,000/-. The Tribunal set aside the same for deciding on the basis of the decision of Rajasthan High Court in case of Anuj Varshney. In set aside assessment proceedings, the AO again made disallowance of Rs.7,02,120/- being 15% of the alleged bogus purchases of Rs.46,80,799/- by holding that assessee has not controverted that the purchases are bogus and unverifiable. On appeal, the ld CIT(A) has given a consolidated finding in respect of aforesaid additions and other trading additions of Rs 18,19,533/- and has restricted the overall additions to Rs 3,00,000/-. Against the said findings, the Revenue is in appeal before us.
The ld CIT/DR has relied on the order of the Assessing officer and our reference was drawn to the findings of the AO which are contained at para (v) and (vi) of the assessment order which reads as under:
“(v) The assessee in its reply has not contravened the fact that these purchases of Rs. 46,80,799/- are bogus and unverifiable. The issue of unverifiable purchases was upheld at both the levels, the CIT(A) and the 4 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur ITAT. As such, the decision of the Hon'ble ITAT in the case of Anuj Kumar Varshney & Others Vs. ITO is the guiding light in the present circumstances. Hence, in view of the above discussion as well as the time limitation for the finalization of this case, a disallowance @ 15% out of the bogus purchases of Rs. 46,80,799/- amounting to Rs. 7,02,120/- is being made to the total income of the assessee which represents income from unverifiable sources. Penalty u/s 271(1)(c) is being initiated for concealment of income by filing inaccurate particulars.
(vi) As pointed out above, the assessment order on this issue is subject to the outcome of the decision of the Hon'ble High Court in the case of Anuj Kumar Varshney & Others Vs. ITO (supra), and the order will be accordingly rectified to this extent as per the directions of the Hon'ble High Court in the case of Anuj Kumar Varshney & Others Vs. ITO.”
Per contra, the ld. AR submitted that the AO has wrongly mentioned that assessee has not controverted that the purchases are bogus and unverifiable. The assessee is controverting the same right from the beginning and therefore the matter went up to the tribunal. The complete details of these purchases along with other details are on record before the AO and also mentioned in the order of the CIT(A). The AO ignored these evidences and simply applied rate of disallowance of 15% which is incorrect.
It was submitted that assessee has filed all the details required to verify the genuineness of the purchases in the original assessment proceedings. Therefore even if the books of accounts are rejected, than in such cases, as held by the Tribunal in case of Habib Khan Vs. ACIT (ITA No.415/JP/2013 dated 29-08-2013), the AO should estimate the income
5 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur considering the past history of the case. The gross profit declared by the assessee for the year under consideration as compared to earlier years is as under:-
Assessment Sales Gross Profit Gross Profit (%) Year (Rs.) 2007-08 40094293 4981413 12.42% 2008-09 48242346 6412357 13.29% 2009-10 30760846 6435150 20.92% From the above table, it can be noted that the GP rate declared by the assessee is better as compared to earlier years Therefore, even considering the past history, no trading addition should be made even if section 145 is invoked. Reliance is placed on the following cases:-
• CIT vs. Allied Gems Corporation (ITA No.794/JP/11 order dt.15.12.2017) • DCIT Vs. M/s Gems Paradise (ITA No.747/JP/12 order dt. 26.12.2017) • CIT Vs. Vaibhav Gems Ltd. (2014) 112 DTR 84 dt. 21.08.2014 (Raj) • CIT Vs. Sh. Sindhuja Foods Pvt. Ltd. (2008) 16 DTR 278 dt.24.10.2008 (Raj.) (HC) • CIT Vs. Inani Marbles Pvt Ltd. 316 ITR 125 (Raj.) (HC) • Kansara Bearings P. Ltd Vs. ACIT 270 ITR 235 (Raj) • Malani Ramjivan Jagannath Vs. ACIT 207 CTR (Raj.)19: It was held that:- • CIT Vs. Gotan Lime Khaniz Udyog 256 ITR 243(Raj)
In view of the above the trading addition of Rs. 7,02,120/- made by the AO is uncalled for and has been rightly deleted by the ld CIT(A). He accordingly supported the findings of the ld CIT(A).
Regarding Ground No. 2 of the Revenue’s appeal & Ground no. 2 & 3 of assessee’s cross objection, the ld A/R submitted that during the year under consideration, the purchases made by the assessee include purchases from the following parties:-
S.No. Particulars Purchases 1 M/s Avi Exports 17,46,294/- 2 M/s Karnawat Exports 18,57,636/- 3 M/s Sun Diam 36,74,203/- Total 72,78,133/-
It was submitted that in course of assessment proceedings, the assessee vide letter dt.26-09-2016 filed the copies of the bills as well as confirmations of the parties. Thereafter vide letter dated 22.11.2016, assessee filed the details linking the purchases with the sales made by him and the profit earned on these purchases. The AO, however, rejected the same by making the following observations:-
(i) There is no proof that the goods exported were purchased from these parties only except copy of the bills which were proved as bogus on the basis of the evidences found in search of Rajendra Jain group.
7 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur (ii) Though the assessee has shown g.p. rate of 20.92% but it does not dilute the fact that the purchases claimed by the assessee from three parties never actually incurred.
(iii) No reply received from these parties u/s 133(6) till 2 months but immediately after show cause to the assessee the reply was received giving copy of the account of Lakhi Gems, ITR, Bank account and confirmation. However the desired information was not filed and the contents of all the letters are same.
(iv) The statement of Rajendra Jain describe modus operandi of their business, categorically stating that they are indulged in issuing bogus bills only against certain commission without actual trade and therefore non mentioning of the name of assessee does not tenable.
Accordingly, the AO rejected the books of accounts by applying the provisions of section 145(3) and made trading addition of Rs.18,19,533/- by applying 25% of the alleged unverifiable purchases of Rs. 72,78,133/-. On appeal, the ld CIT(A) has upheld the rejection of books of accounts and has restricted the trading addition of Rs 3 lacs. Against the said findings, both the Revenue as well as assessee are in appeal.
In the above factual background, the ld. AR submitted that the assessee is maintaining complete books of account on day-to-day basis, which are subject to audit. In respect of the purchases from M/s AVI Exports, M/s Sun Diam and M/s Karnawat Exports, the assessee has filed their confirmation and other details. The entire payment has been made by account payee cheque. The AO has not brought any evidence to prove that the purchases made are bogus and the payment made to this party has 8 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur come back to the assessee. The assessee has filed the linking chart of purchases made by the assessee with the export sales. The profit earned on sale of the stock purchased from these parties is more than the profit earned on sale of stock purchased from other parties. All the parties have filed the reply in response to the notice u/s 133(6). In these facts, the purchases made from these parties are fully verifiable.
So far as the various observations of the AO are concerned, it was submitted that the assessee has filed the linking chart of purchases from these parties with the export sales. If the AO was having any doubt that any other goods have been exported instead of goods purchased from these parties, he should have brought the material on record which has not been done. The purchases are supported by the bills and subsequent sales and therefore it is incorrect on the part of the AO to say that purchases made from these parties were never incurred. These parties have filed the reply after the show cause as assessee contacted them as to why they have not filed the reply when they sold the goods. Thereafter they filed the details. Simply because they did not filed the complete details but the details filed in the form of confirmation, bank account and the return clearly proves the fact of sales made by them to the assessee. If the AO was having any doubt, he should have made further enquiry from them. Further the AO made the disallowance simply by referring to the statement of Rajendra Jain. No specific question relating to purchases made by the assessee from him was asked. Further inspite of specific request vide letter dated 22-11-2016, no opportunity to cross examine him was allowed. Therefore the addition made by the AO without providing opportunity of cross examination is against the principle of natural justice and illegal & bad in law. Hon’ble Supreme Court decision dated 02.09.2015 in case of Andaman Timber Industries Vs. CCE 127 DTR 0241 held that denial of 9 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur opportunity to the assessee to cross-examine the witnesses whose statements were made the sole basis of the assessment is a serious flaw rendering the order a nullity in as much as it amounted to violation of principles of natural justice.
It was submitted that the purchases made by the assessee are fully verifiable. Even if the action of the AO is treated as correct than in view of the various decisions of the ITAT Jaipur Bench and other courts, disallowance of 25% of alleged unverifiable purchases is unjustified. At the most, a reasonable g.p. rate considering the past history of the assessee should be applied. For this purpose reliance is placed on the various cases relied upon in ground supra. Since the g.p. rate for the year is better as compare to the earlier years, no trading addition is required. In view of the above, the trading addition of Rs.18,19,533 /- made by the AO is uncalled for. It was further submitted that the ld CIT(A) has accepted the fact that the g.p declared by the assessee was better than the earlier year and inspite of that, has sustained the trading addition of Rs 3,00,000/- which may be deleted.
Per contra, the ld DR has relied on the findings of the Assessing officer and we refer to the concluding findings of the AO which read as under:
“(vi) In the present case, assessee claimed total purchases of Rs. 72,78,133/-, which included purchases of Rs. 17,46,294/- from M/s Avi Exports, Rs. 18,57,636/- from M/s Karnawat Impex Pvt. Ltd. and Rs. 36,74,203/- from M/s Sun Diam. It has already been categorically proved based on evidences and vividly discussed in the preceding paras, that these three concerns are paper concerns managed and controlled
10 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur by Shri Rajendra Jain Group. Since, the assessee concern has claimed to have exported the stock allegedly bought from these three concerns, hence, it is clear that the stock was purchased from some other unidentified parties, only known to the assessee. Consequently, the purchases made from M/s Avi Exports, M/s Karnawat Impex Pvt. Ltd. and M/s Sun Diam are held as bogus purchases, made for the sole purpose of deflating its actual profits and the assessee's books are therefore, rejected u/s 145(3) of the IT Act, 1961 on this ground. However, based on the above discussion as well as looking to all possibilities, 25% of the total purchases of Rs. 72,78,133/- are being disallowed, which comes out at Rs. 18,19,533/- and added back to the total income of the assessee.”
We have heard the rival contentions and purused the material available on record. We find that it is a case where the books of accounts are rejected by the AO on account of unverifiable purchases and in such a scenario, it is a consistent position taken by Jaipur Benches wherein we have held that once the books of accounts have been rejected by invoking the provisions of section 145(3) of the Act, the Assessing officer is required to make the assessment on the basis of his best judgment and a fair estimate of income has to be made instead of resorting to making the addition to the book results which already stand rejected or any alteration in the book results. In the instant case, the book results have been rightly rejected by invoking the provisions of section 145(3) of the Act on account of unverified purchases and the AO has disallowed 15% of unverified purchases of Rs 46,80,799/- in first set of transactions and in another set of transactions, has disallowed 25% of unverified purchases amounting to Rs 72,78,133/-. It is a case where the purchases from specified parties have remain unverified, however, the revenue has not disputed the fact that purchases have been made by the 11 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur assessee and there are corresponding sales. Therefore, in such circumstances, where the books have been rejected, the estimation of income is required to be made and for the purposes, past history has been held as a reliable basis. On appeal, the ld CIT(A) has rightly applied the aforesaid legal proposition as also decided consistently by the Jaipur Benches and has relied on the past history of the assessee in estimating the gross profit rate and has restricted the trading addition to Rs 3 lacs and we accordingly donot see any infirmity in the following findings of the ld CIT(A) which are contained at para 11 to 11.3 of his order and which are hereby confirmed:
“11. Ground No. 2 to 4 are inter related and therefore decided together. In Ground No. 2 the appellant challenged rejection of the books of accounts. In Ground No. 3 the appellant challenged addition of Rs. 7,02,120/- on disallowance of 15% of the alleged unverifiable purchases of Rs. 46,80,799/-. In Ground No. 4 the appellant has challenged addition of Rs. 18,19,533/- on disallowance of 25% of the alleged unverifiable purchases of Rs. 72,78,133/-.
11.2 On perusal of the overall facts it is seen that in search of Rajendra Jain group, Sh. Rajendra Jain accepted that they are providing only the accommodation bills. The purchases made from these parties are related to this group. Therefore the same can’t be said to be verifiable. Accordingly the AO rightly rejected the books of accounts by applying the provisions of section 145(3) of the Act.
In assessment proceedings, the appellant has filed the confirmation of the parties. However the fact remains the same that Shri Rajendra Jain accepted the fact of providing accommodation entries. Further it is a settled
12 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur law that once the books of accounts is rejected the profit is to be estimated by applying the G.P rate on the basis of the past history. Hon’ble Rajasthan High Court and ITAT Jaipur Bench in the various cases referred by the appellant has held that once books of accounts is rejected, the income is to be estimated considering the past history of the case. The position of the past history of the assessee is as under:-
A.Yr. Sales Gross Profit (Rs.) Gross Profit (%)
2007-08 40094293 4981413 12.42% 2008-09 48242346 6412357 13.29% 2009-10 30760846 6435150 20.92% 11.3 The G.P declared for the year under consideration is better as compared to the last year. However considering the fact that there are unverifiable purchases. I find that it would be reasonable and meet the end of justice if the trading addition is restricted to Rs. 3,00,000/-.”
In the result, the ground no. 1 and 2 of the Revenue’s appeal and Ground no. 2 & 3 of the assessee’s appeal are hereby dismissed.
Regarding Ground No. 3 of the Revenue’s appeal, briefly stated facts of the case are that in search proceedings conducted in case of Bihari Lal Hola Ram group to which the assessee belongs, a paper dated 23.08.2008 at page no. 5 of exhibit 61 was seized from the residence of Sh. Narendra Lakhi, partner of the assessee firm, situated at A-JA-14 Jawahar Nagar Jaipur and basis the said seized paper, the AO has brought to tax an amount of Rs 3,11,11,600/- u/s 69B as undisclosed investment in stock.
13 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur On appeal, the ld CIT(A) has deleted the said addition. The Revenue is in appeal before us wherein it has assailed the findings of the ld CIT(A).
During the course of hearing, the ld CIT/DR has relied primarily on the findings of the AO which reads as under:
“One page, Pg 5, Exhibit-61 of Annexure AS seized from the residence of the assessee, 4-JA-14, Jawahar Nagar, Jaipur has mention of ‘Office KG’, which as per the assessee refers to transfer of stock from Bihari Lal Halaram Showroom to Narendra Plaza Office. It is pertinent to remind, that these details pertain to unaccounted notepads, hence, it implies that stock used to be transferred from one concern to another concern without any record made in the books of accounts. Therefore, this unaccounted stock deserves to be added to the total income of M/s Lakhi Gems u/s 69B as undisclosed investment in stock. Addition of Rs. 3,11,11,600/- is made to the income of M/s Lakhi Gems on this account for AY 2009-10.”
Per contra, the ld AR submitted that the heading of this paper is ‘office KG’ and thereafter two items of ‘Panna’, qty and amount is noted as under:- Panna 61.75 ct. 5000 Panna 23.66 cr. 100 It was submitted that in search, no statement on this paper was recorded. Subsequently in assessment proceeding, Sh. Narendra lakhi stated that the paper refers to the transfer of the stock from Biharilal Hola Ram Showroom to Narendra Plaza Office. The AO observed that this paper is part of certain unaccounted notepad found in search and therefore it implies that stock
14 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur has been transferred from one concern to another concern without any record made in the books of accounts. He, therefore, assumed that the paper indicate undisclosed investment in the stock of the assessee and accordingly made addition of Rs.3,11,11,600/- u/s 69B calculated as under:- Panna 61.75 ct. @Rs.5,00,000/- per ct. = 3,08,75,000/- Panna 23.66 cr. @Rs.10,000/- per ct. = 2,36,600/- ---------------- 3,11,11,600/- 17. It was submitted that there is no basis with the AO to relate this paper with the assessee. Nowhere on the paper, the name of the assessee is mentioned. In fact, the title of this paper is ‘office KG’ which means office of Kushboo Jewellers, a proprietary concern of Chanchal Lakhi. Thus when this paper do not relate to the assessee firm, the addition made by the AO is without basis.
It was submitted that the AO at page 24 of his order has stated that in search various notepads/papers were found. Sh. NarendraLakhi has stated that the transactions recorded in these papers pertain to Biharilal Holaram/Lakhi Gems/Kushboo Jewellers/Siddhant Jewels/Royal Jewels. He therefore inferred that undisclosed income detected from these documents can be legally taxed in any one of the entities of the BiharilalHolaram Group. This finding of the AO is apparently incorrect. It is submitted that in search, Sh. Narendra Lakhi in the statement recorded on 10-2-2015 in reply to Q.No.19, has explained that these note books are related to F.Y. 2008-09 and may contain records of their old firms namely Siddhant Jewells, Royal Gems Sources and Kushboo Jewells. Thus nowhere he has referred to M/s Lakhi Gems in this statement. Further when on the paper itself there is an indication of the office of Kushboo Jewellers and there is 15 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur no reference of Lakhi Gems on this paper, no addition on the basis of this paper can be made in the hands of the assessee.
It was further submitted that Sh. Narendra Lakhi in course of assessment proceeding has stated that the noting on the paper refers to transfer of the stock from Biharilal Hola Ram Showroom to Narendra Plaza Office. It may be noted that office of M/s Kushboo Jewellers is at 901, Narendra Plaza, Near Goshala, Ganga Mata Street, GopalJiKa Rasta, Jaipur. This is also evident from VAT registration certificate of M/s Kushboo Jewellers. This conclusively proves that the paper do not relates to the assessee and therefore, no addition on the basis of this paper is called for in the hands of the assessee.
It was further submitted that otherwise also from the paper itself it is not ascertainable whether it is in respect of purchase of the goods or sale of the goods or transfer of the goods or for what purpose such noting is made. There is no indication of any payment made or received on this paper. The paper only mentions the quantity and the amount. The AO has considered this amount as rate of panna per caret. There is no basis for the same. It appears that the amount mentioned on this paper is the value of the quantity of the panna. Thus the amount noted on this paper after considering ‘00’ is Rs.5,10,000/- and not Rs.3,11,11,600/- as assumed by the AO. In view of the above, the addition made by the AO on surmises, conjectures, assumptions and presumption is uncalled for and has been rightly deleted by the ld CIT(A).
He accordingly supported the order and the findings of the ld CIT(A) which are contained at para 14.3 to 14.6 of his order which reads as under:
“14.3 My observations after seeing the loose slip and what the basic ingredients of aforesaid loose documents are as under: The addition is made on the basis of page no. 5 of exhibit 61 seized from the residence of Sh. Narendra Lakhi at A-JA-14 Jawahar Nagar Jaipur. This paper is dated 23.08.2008. The heading of this paper is ‘office KG’ and thereafter two items of ‘Panna, qty and amount is noted as under:- Panna 61.75 ct. 5000 Panna 23.66 cr. 100
14.4 On perusal of the paper it is seen that nowhere on the paper the name of the assessee is mentioned. The title of this paper is ‘office KG’ which means office of Kushboo Jewellers, a proprietary concern of Chanchal Lakhi. It is further seen that Sh. Narendra Lakhi in the statement recorded on 10.02.2015 in reply to Q. No. 19, has explained that these note books are related to F.Y 2008-09 and may contain records of their old firms namely Siddhant Jewells, Royal Gems Sources and Kushboo Jewells. Nowhere he has referred to M/s Lakhi Gems in this statement.
It is further seen that Sh. Narendra Lakhi in course of assessment proceeding has stated that the noting on the paper refers to transfer of the stock from Biharilal Hola Ram Showroom to Narendra Plaza Office. Office of M/s Kushboo Jewellers is at 901, Narendra Plaza, Near Goshala, Ganga Mata Street, Gopal Ji Ka Rasta, Jaipur. This also proves that the paper do not relates to the assessee.
17 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur 14.5 I further found that from the paper itself it is not ascertainable whether it is in respect of purchase of the goods or sale of the goods or transfer of the goods or for what purpose such noting is made. There is no indication of any payment made or received on this paper. The paper only mention the quantity and the amount. The claim of the appellant that the amount noted on this paper after considering ‘00’ is Rs. 5,10,000/- and not Rs. 3,11,11,600/- appears to be acceptable. 14.6 Considering all these facts I find that this paper nowhere relates to the assessee & is a pure dumb document. Neither this document was found in search of assessee’s premises nor any evidence was found to prove that this paper belongs to the assessee. Therefore the addition of Rs. 3,11,11,600/- made on the basis of this paper is deleted.”
We have heard the rival contentions and purused the material available on record. The undisputed position which emerges is that the impugned document dated 23.08.2008 referred to as page no. 5 of exhibit 61 was part of blue coloured note pad seized from the residence of Shri Narendra Lakhi, the partner of the assessee firm during the course of search conducted on 10.12.2015. In his statement recorded u/s 132(4) on 10.12.2015, in response to question no. 19, Shri Narendra Lakhi has stated that he has gone through note pad pages no. 61 to 101 and the same belongs to him and his family’s firms for the year 2008 and he will later on submit the explanation relating to the transactions and other details stated in the said note pad. In his subsequent statement recorded u/s 132(4) on 15.12.2015, in response to question no. 5, he has stated that the loose papers, diaries, note books which have been seized from the official premises and the residential premises relates to M/s Bhihari Lal
18 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur Hola Ram and M/s Lakhi Gems. We therefore find that though in the initial statement, he was not specific about which firms the documents pertains to and has sought time to explain the transactions, however, in the latter statement, he has categorically stated that the documents so seized pertains to two firms namely, M/s Bhihari Lal Hola Ram and M/s Lakhi Gems, the assessee firm.
Next question that arises for consideration is what is the nature of transaction recorded in the said seized paper. Both the AO as well as the ld CIT(A) have recorded a finding that the transaction relates to transfer of stock from M/s Bhihari Lal Hola Ram’s showroom to Narendra plaza showroom and thus, the fact that there has been transfer of stock remains an undisputed fact. At the same time, the contention of the assessee is that office of another group firm M/s Khusboo jewellers is at 901, Narendra Plaza, Gopalji ka Rasta and not that of the assessee firm. However, in response to question no. 3 of his second statement recorded u/s 132(4) on 15.12.2015, he has clearly stated that stock of both firms M/s Bhihari Lal Hola Ram and M/s Lakhi Gems has been kept at 901, Narendra Plaza Gopalji ka Rasta which contradicts the contention so advanced by the assessee.
The question that remains to be answered is whether the said stock transfer is interse two offices of M/s Bhihari Lal Hola Ram or there is stock transfer from M/s Bhihari Lal Hola Ram to M/s lakhi Gems. In either case, the fact remains is that there is a transfer of stock either between two offices of M/s Bhihari Lal Hola Ram or from M/s Bhihari Lal Hola Ram to M/s lakhi Gems and in absence of anything contrary brought on record which demonstrate clearly that ownership of stock lies with the assessee firm, a presumption will arise that the said stock having been originated
19 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur and transferred from the premises of M/s Bhihari Lal Hola Ram, the ownership over such stock lies with M/s Bhihari Lal Hola Ram and the said stock belongs to M/s Bhihari Lal Hola Ram and the addition towards undisclosed investment in stock u/s 69B, where so required to be made, can be made in the hands of M/s Bhihari Lal Hola Ram and not in the hands of M/s Lakhi Gems. In light of the same and in the entirety of facts and circumstances of the case and for the reasons stated above, we upheld the order of the ld CIT(A) and the ground of appeal so taken by the Revenue is hereby dismissed.
25. Regarding Ground No. 4 of Revenue’s appeal and ground no. 4 of assessee’s cross objection, briefly stated facts of the case are that in search carried out on Bihari Lal Holaram Group on 10-12-2015, various loose papers, notepads and diaries were found. Several such note pads and loose papers were found from residence of Shri Narendra lakhi. These papers indicate unaccounted cash sales made by the assessee group. Sh. Narendra Lakhi in his statement in reply to question no.19, admitted that these notepad seized from his residence pertains to F.Y. 2008-09 and relates to his concerns M/s Siddhants Jewels, M/s Royal Gems and M/s Kushboo Jewellery. These annexures were inventorised as annexure AS 32 to 101. It is also accepted that the amount written on these papers are after omitting ‘00’. Considering the various loose papers found from different premises, Shri Narendra Lakhi offered Rs. 4 cr as undisclosed income of M/s Bihari Lal Holaram.
The AO at page 24 & 25 of his order observed that from the seized material, it is not possible to ascertain as to which particular entity of the assessee group is indulged in unaccounted sales. Therefore he concluded that taxing such undisclosed income in any one of the entities of Biharilal
20 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur Holaram Group would be legal and appropriate if the addition is not made in any other entity for A.Y. 2009-10. He thereafter worked out the amount of sale on the basis of these loose papers/notepads at Rs.7,37,18,448/- (AO page 32 to 44) and made addition for the same by not accepting the various contentions raised by the assessee.
During the course of hearing, the ld CIT/DR supported the order of the AO and our reference was drawn to the findings of the AO which read as under:
“The A/R's plea that there is no indication that these papers relate to the M/s Lakhi Gems is not tenable. In this context, it is to put on record that during the course of search proceedings, when Shri Narendra Lakhi was examined on oath with regard to the entity to which the transactions in the blue notepads belong, he stated that these unaccounted transactions recorded in the seized documents pertain to M/s Bihari Lal Hola Ram / M/s Lakhi Gems / M/s Khusboo Jewellers / M/s Siddhant Jewels or M/s Royal Gems. Thus, he himself could not specify as to which particular transaction recorded in the seized documents pertains to which particular Entity of his group.
• Further, the assessee concern as well as all other concerns of the "Bihari Lal Hola Ram" group, namely M/s Bihari Lal Hola Ram/Lakhi Gems/M/s Khusboo ewellers/M/s Siddhant Jewels/M/s Royal Gems/M/s Bihari Lal Holaram Jewels Private Limited are all engaged in the same business of gemstones and operate from the same addresses. As such, it is not possible from the seized material to ascertain as to which particular entity of the assessee group has indulged in unaccounted sales. This fact is further validated by the fact that the assessee itself has made a mention of a seized document, Page 5, Exhibit 61, Annexure
21 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur AS seized from his residence at 4-JA-14, Jawahar Nagar, Jaipur, that the stock has been transferred from BH [Bihari Lal Hola Ram] to Narendra Plaza. On the aforesaid page, "Office KG" is mentioned, meaning thereby that the stock used to be transferred from one concern to another concern without any record made in the books of accounts. Thus, it is clear that as much as these unaccounted transactions pertain to M/s Bihari Lal Holaram, that much they pertain to M/s Lakhi Gems or M/s Khusboo Jewellers or M/s Siddhant Jewels or M/s Royal Gems or M/s Bihari Lal Holaram Jewels Private Limited or any other concern of the group as long as it is not accounted for in any particular concern. • Also, all the documents seized during the course of search, on which the instant addition in the case for AY 2009-10 is proposed, were seized from the residence of Shri Narendra Lakhi, partner of M/s Lakhi Gems [4-JA-14, Jawahar Nagar, Jaipur]. As per the provisions of section 132(4A), the documents belong to the assessee group. The following provisions of section 132(4A) are reproduced as under:
"(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed-
(i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person;
(ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been 22 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur signed by, or to be in the handwriting of, any particular person, are in that person' s handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.]"
Thus, taxing the undisclosed income detected from these seized documents, in any one of the entities of the "Bihari Lal Hola Ram" group, would be perfectly legal and appropriate as far as addition of this income is not made in other entities for AY 2009-10.”
“Based on the perusal of the seized documents, it is abundantly clear that the Assessee group has been indulging in unaccounted sales at a very large scale. It has been clearly established from the seized record that only sales are suppressed by the Assessee group whereas purchases are booked in the accounts. Infact, this has been discussed as well as proved as per para 3(a) and 3(b) above, that the assessee has also inflated its actual purchases in the books. This has been possible since the Assessee group has not maintained quantitative details of the stock and, as such, it is easy for the Assessee group to conceal the unaccounted sales whereas at the same time booking the inflated purchases in the accounts and adjust the same in terms of value. By following this modus operandi, the assessee group manages to suppress the real profit in his business equivalent to the quantum of sales. As such, it is not a case where only gross profit is to be taxed with regard to the unaccounted sales but the entire sale consideration would represent undisclosed and unaccounted profit of the business. In this background, the entire sale consideration deserves to be treated as unaccounted income of the Assessee group. Also, no evidence of unaccounted purchase of stock
23 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur was found during the course of search and in the seized documents whereas unaccounted sales have been meticulously recorded by the Assessee. This would also suggest that the entire purchases are booked by the assessee in the accounts and no further credit would be due to the assessee while determining taxable profit on the basis of unaccounted sales.
The total unaccounted sales of the assessee based on the evidences collected during the search proceedings on 10.12.15 for the AY 2009-10 aggregate to Rs. 7,37,18,448/-, which are tabulated from page no. 32 to page no. 44 above. Therefore, based on the above discussion, the total unaccounted sales of the assessee of Rs. 7,37,18,448/- are added back to its total income for the AY 2009-10 as unaccounted or unexplained profit. Penalty proceedings u/s 271(1)(c) are being initiated for concealment of income.”
Per contra, the ld. AR submitted that the issue to be decided in this ground is to whom these notepads relate to, what is the amount involved and whether the entire sale proceeds can be added to the income. It was submitted that the transaction in these notepads do not pertain to the assessee as is evident from the following:-
(i) The various notepad on the basis of which the above addition has been made was found from the residence of the Narendra Lakhi. (ii) Narendra Lakhi is partner in M/a Bihari Lal Holaram and also in assessee firm. (iii) There is no mention of the name of assessee firm on these papers.
24 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur (iv) In search statement of the assessee recorded on 10-2-2015 wherein in reply to Q.No.19, he explained that these note books are related to F.Y. 2008-09 and may contains records of his old firms namely Siddhant Jewells, Royal Gems Sources and Kushboo Jewells. In this reply he has nowhere referred to the assessee firm. (v) The surrender of Rs.10.58 cr. was made by Sh. Narendra Lakhi on account of loose papers (Rs.400 lacs), excess cash (64.20 lacs), excess stock (469.38 lacs) and excess jewellery (125 lacs) in respect of the undisclosed income of M/s Bihari Lal Holaram. (vi) The AO at page 24 of his order has accepted that from the seized material, it is not possible to ascertain as to which particular entity the unaccounted sales pertain to.
From the above, it can be noted that there is no basis with the AO to relate any of these notepads with the assessee firm. He has simply held that as the addition on the basis of these loose papers can’t be made in any of the entities of Bihari Lal Holaram group for A.Y. 2009-10, therefore it is appropriate and legal to make the addition in the hands of the assessee. This finding of the AO is neither appropriate nor as per law. An addition can’t be made in the hand of a person for the reason that it could not be made in the hands of other person either because of limitation of reopening or otherwise. Therefore without any evidence that these loose papers pertains to the assessee, the addition made in its hands is uncalled for and be deleted.
It was also submitted that the AO has worked out the sales on the basis of these papers at Rs.7,37,18,448/-. In doing so he has also considered various papers where no date is mentioned as pertaining to the year under consideration. Thereafter he has considered the entire sale
25 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur amount as income of the assessee by presuming that purchases in relation to such sales is already recorded in the books of accounts. This presumption is apparently incorrect as in the books of accounts the purchases recorded is only Rs.2.40 cr. and the sales recorded is 3.08 cr. Therefore on purchase of 2.40 cr., sales of 10.45 cr. (7.37 + 3.08) can’t be presumed. This would mean a g.p. rate of 77% which is a impossibility. In any case the unrecorded sales itself can’t be considered as income. At the most, the gross profit on such sales can be considered as income. For this reliance is placed on the following cases:- • Mohan Sadhani Vs. CIT 304 ITR 52 (MP) • CIT Vs. Balchand Ajit Kumar 263 ITR 610 (MP) • CIT Vs. President Industries 258 ITR 654 (Guj)
It was further submitted that in course of search, the stock found was valued at Rs. 23,69,75,523/-. After considering the book stock of M/s Bihari Lal Holaram and of the assessee firm at Rs. 18,98,37,741/-, the excess stock was determined at Rs. 4,69,37,782/-. This excess stock was offered in M/s Bihari Lal Holaram. Therefore in case any undisclosed income is determined on the basis of the notepads/loose papers in the year under consideration, direction be given to reduce the excess stock determined at the time of search and offered in M/s Bihari Lal Holaram. In view of the above, the addition of Rs.7,37,18,448/- made by the AO is grossly unjustified and the same be deleted.
It was further submitted that as submitted before the ld CIT(A), a similar note paid found for A.Y. 2010-11 to 2016-17 has been considered as belong to Bihari lal Holaram (95%) and Lakhi Gems (5%) in the petition filed before the settlement commission. On this basis, both the firm offered additional income by applying net profit rate of 10% on the sales
26 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur mentioned in then note pad before the settlement commission. The Hon’ble Settlement commission vide order dated 22-04-2019 has accepted the contention that only net profit on the sales is to be taxed and directed to tax the profit by applying net profit rate of 10% on the undisclosed sales worked out on the basis of note pad. He further directed to tax 95% of the profit in the hands of Biharilal Holaram and 5% of the profit in the hands of Lakhi Gems. If this order is considered for the year under consideration also than even though there is no mention on the papers/note pad that the same relates to lakhi Gems, the sales on the basis of note pad can be treated as 95% belonging to Bihari lal Holaram and 5% relates to Lakhi Gems. On this sales net profit rate of 10% may be applied as accepted by Settlement commission. On this basis the profit of the assessee works out to Rs.3,68,592/- computed as under:-
Total sales on the basis of note paid as per AO Rs.7,37,18,448/- Share of lakhi gems 5% Rs. 36,85,922/- The profit earned on this sales 10% of sales Rs.3,68,592/- Thus at the most, even though there is no document relating to Lakhi gems, the addition can be restricted to Rs.3,68,592/- only. It was submitted that the same was a prejudice contention raised by the assessee, however, the ld CIT(A) having decided that the documents so found and seized doesn’t belong to the assessee, has still confirmed the addition to the tune of Rs 3,68,592/- which may be directed to be deleted.
We have heard the rival contentions and perused the material available on record. The undisputed position which emerges is that the impugned documents inventorised as Annexure AS exhibit 32 to 101 were seized from the residence of Shri Narendra Lakhi, the partner of the 27 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur assessee firm during the course of search conducted on 10.12.2015. In his statement recorded u/s 132(4) on 10.12.2015, in response to question no. 19, Shri Narendra Lakhi has stated that he has gone through pages no. 32 to 101 of seized documents and the same belongs to him and his family’s firms for the year 2008 and he will later on submit the explanation relating to the transactions and other details stated in the said seized documents. In his subsequent statement recorded u/s 132(4) on 15.12.2015, in response to question no. 5, he has stated that the loose papers, diaries, note books which have been seized from the official premises and the residential premises belongs to M/s Bhihari Lal Hola Ram and M/s Lakhi Gems. We therefore find that though in the initial statement, he was not specific about which firms the documents pertains to and has sought time to explain the transactions, however, in the latter statement, he has categorically stated that the documents so seized pertains to two firms namely, M/s Bhihari Lal Hola Ram and M/s Lakhi Gems, the assessee firm. Therefore, in light of clear admission on part of the partner of the assessee firm in his statement recorded u/s 132(4), the documents so found and seized clearly belong partly to the assessee firm and partly to M/s Bhihari Lal Hola Ram. The description on these documents clearly refers to unaccounted sales/turnover. The ld CIT(A), following the decision of the settlement commission wherein similar documents found and seized pertaining to subsequent years were subject matter of examination for subsequent assessment year, has bifurcated the same in the ratio of 5:95 wherein 5% of sales have been attributed to assessee and 95% to M/s Bhihari Lal Hola Ram and has applied net profit of 10% on such sales. Though the findings of the settlement commission are not binding on this Tribunal, however, where similar facts permeate through the years under consideration and in absence of anything contrary brought on record by the Revenue, we see no justifiable basis to disturb
28 & CO No. 04/JP/2020 ACIT, Jaipur Vs. M/s Lakhi Gems, Jaipur the basis of allocation of unaccounted sales between the two firms and arriving at the net profit as so done by the ld CIT(A) following the decision of the settlement commission. In the result, ground of appeal taken by the Revenue as well as that of the assessee is hereby dismissed.
In the result, both the appeal of the Revenue and the cross objection of the assessee are dismissed in light of aforesaid directions.
Order pronounced in the open Court on 22/06/2021.