DCIT CENTRAL CIRCLE-1(1), MUMBAI, MUMBAI vs. R C GEMS, BANDRA

Before ld. CIT (A) the assessee made detailed submissions which has been incorporated in the impugned order wherein, it was stated that nothing was found from the assessee and only there were statements of couple of employees of Ratnakala Exports Private Limited who have given a general statement explaining this modus operandi and in any case none of them have specifically admitted of making cash purchases from the assessee. There are no incriminating documents found to establish the existence of cash as a result of such unrecorded sales and whatever sales assessee has made to Ratnakala Exports Private Limited has been duly incorporated in the books. Apart from that assessee has also stated that the statements cannot be relied upon without giving opportunity of cross examination. The ld. CIT (A) after analyzing the entire facts and material on record held that purchases of diamonds have not been doubted at all by the ld. AO and yet he has made the addition of entire sales made to this party in each year. He held that only a profit element may be taxed on these transactions. After referring the various judgments of Hon’ble High Court wherein it has been held that only profit element can be taxed in and others R.C.Gems such cases. He further noted one very important fact that most of the sales made to Ratnakala Group was recorded in the books of account. Thus, only unaccounted sale is to be considered for the purpose of applying GP to make the addition. Accordingly, he held that the gross profit declared by the assessee for the concerned year was to be applied.

The year wise summary of the addition made by the ld.AO on account of alleged unaccounted sales, out of which the sales which were accounted and duly recorded in the books considered by the ld. CIT(A) and GP rate applied to sustain the additions are as under:-

Alleged Sale AO Accounted Unaccounted GP Addition AY by AO Sale Sale Rate sustained considered considered applie by CIT(A) by CIT(A) by CIT(A) d on alleged Cash Sale 2019-20 86,53,491 86,53,491 - 86,53,491 8.34% 17,21,701 2020-21 1,09,18,715 1,09,18,715 41,62,097 67,56,618 5.5% 3,74,992 2022-23 1,74,90,081 1,74,90,081 1,51,92,866 22,97,215 4.42% 1,01,537

Before us ld. Counsel submitted that first of all the reopening in the case of the assessee was based on borrowed satisfaction without any enquiry or verification by the ld. AO. Secondly, Director / employees of Ratnakala Exports Private Limited have and others R.C.Gems given a general statement and not specifically identified the assessee. Thus, ld. AO could not rely upon statement and the data seized from the third party specially when Directors have already retracted the statements and no incriminating documents found was provided to the assessee. Lastly, the entries in the books of third account cannot be relied upon.

On the other hand, ld. DR submitted that the ledger entries were very specific which clearly mentioned the name of the assessee. The details of various transactions were not explained by the assessee before the ld. AO or before the ld. CIT(A). The statement only corroborated to the ledger found in the various softwares. Thus, providing cross examination was not compulsorily under these circumstances and they were other circumstantial evidences. Once it is found that there were unaccounted cash sales, therefore, the cash sale has to be added.

After considering the rival submissions and on perusal of the relevant material placed on record, we find that the entire premise of the addition made by the ld. AO was that some software were found during the search and Ratnakala Group, wherein there were some unaccounted transactions which were cash transactions. Once such account was the purchases made in cash from the assessee. Based on this information, the ld.AO has added the entire sales on the sale of patala diamond to Ratankala. First of all, it is now matter of record that out of these unaccounted sales which has been added by the ld. AO, and others R.C.Gems substantial part was accounted in the books of the assessee which has been verified and finding of fact has been given by the ld. CIT (A). Thus, entire sales could not have been added as unaccounted sales. Even if it is admitted that there are certain unaccounted sales of diamonds, then there were also purchases of diamond which has been sold in cash to Ratnakala Group. In such a scenario, the entire sales could not have been added, because purchases have not been doubted at all by the ld. AO. Without purchases, sales cannot be affected. Another important fact here is that assessee’s total turnover/sale to other parties is in hundreds of crores and sale to this party is very less and out of which most of the sales has been accounted for. Accordingly, in such a situation only the gross profit rate on alleged unaccounted sales can be applied. Here in this case most of the sales made to the same party have been accounted in the books on which assessee had disclosed certain GP rate which has not been disputed. In such a scenario, applying same GP rate is reasonable which can be applied on the sales which are alleged to be unaccounted. Accordingly, the observation and the finding of the ld. CIT (A) for applying GP rate of such sales is upheld. Accordingly, the appeal of the Revenue is dismissed.

In so far as cross objection by the assessee challenging that the balance addition sustained by the ld.CIT(A) could not have been made based on various proposition, the same are not accepted for the reason that there was a definite material found from the search of Ratnakala Group that there were certain unaccounted purchases made by them from the assessee. On and others R.C.Gems this point we agree with the order of the Ld. CIT(A). Accordingly, the cross objections raised by the assessee are dismissed.

In the result, all the appeals of the Revenue as well as Cross Objections of the assessee are dismissed.