SHRI JITENDRA KUMAR AGARWAL,JAIPUR vs. DCIT, CENTRAL CIRCLE-2, JAIPUR

PER BENCH:

These are the Nine appeals, six filed by the assessee and three by the revenue relates to the same assessee for different assessment year

2 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT and all are directed against the order of the ld. Commissioner of Income

Tax (Appeals)-4, Jaipur [hereinafter referred to as (ld. CIT(A)] dated

08.11.2019 for the Assessment Years 2011-12 to 2016-17, which in turn

arise out of an order passed by DCIT, Central Circle-2, Jaipur passed u/s.

143 (3) r.w.s. 153A of the Income Tax Act, 1961 [ here in after referred to

act “Act”] dated 26.12.2018.

appeal for all the years are almost identical and are almost common, in

grounds raised, except the difference in figure of additions disputed in each

assessment year. Therefore, all these appeals of revenue as well as of the

assessee were heard together with the consent of both the parties and are

being disposed off by this consolidated order.

Jitendra Kumar Agarwal in ITA no. 106/JPR/2020 to 111/JPR/2020 are also

most common and matter pertaining to ITA NO. 106/JPR/2020 may be

taken as a lead case for discussions as the issues involved in the lead case

are common and inextricably interlinked or in fact interwoven and the facts

and circumstances of other cases are identical except the difference in the

3 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT amount in other assessment year. The ld. DR did not raise any specific

objection against taking that case as a lead case but he also submitted that

out of the above six appeals of the assessee revenue has also preferred an

appeal in ITA No. 178/JPR/2020, 179/JPR/2020 and 180/JPR/2020 for A.

Y. 13-14, 15-16 & 16-17 respectively where in revenue contented the

various grounds which are connected to these group of appeal related to

the assessee. Based on these facts for the purpose of the present

discussions, the case of ITA No. 106/JPR/2020 is taken as a lead case.

Based on the above arguments we have also seen that for all these

appeals facts are similar, and arguments were similar and therefore, were

heard together and are disposed by taking lead case facts, grounds and

arguments from the folder in ITA No. 106/JPR/2020 to deal the appeal of

the assessee.

that the assessee has assailed these appeals in;

ITA No. 106/JPR/2020 on the following grounds; “1. On the facts and the circumstances of the case and in law, the ld. CIT(A) has erred in sustaining the rejection of books of accounts under section 145(3) of the Act. 2. On the facts and the circumstances of the case and in law, the ld. CIT(A) has erred in ignoring the fact that there were various discrepancies in the analysis of the seized papers made by the ld. AO, leading to addition made by the ld. AO

4 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT either on presumptions or on incorrect appreciation of facts. Under the circumstances, the additions made u/s 143(3) r.w.s. 153A deserves to be deleted.

4.1 On the facts and the circumstances of the case and in law, the ld. CIT(A) has grossly erred in concurring with the findings of the AO that various seized papers reflected undisclosed sales made by the assessee amounting to Rs. 18,83,130/- by ignoring the facts that the analysis of the ld. AO suffered from various discrepancies and were flawed.

4.2 That the ld. CIT(A) has further erred in estimating the income earned on such alleged undisclosed sales of Rs. 18,83,130/- by erroneously applying the estimated GP rate as against the NP rate declared by the assessee, as various expenditures would obviously be required for earning such alleged income, and admittedly some of which were also found noted in the seized documents being unrecorded. Therefore, the addition of Rs.2,84,164/- is bad in law and deserves to be deleted.

4.3 That the ld. CIT(A) has further erred in ignoring the fact that estimation of income is to be made by applying NP rate and not GP rate. The addition of Rs.2,84,164/ on the basis of GP rate therefore is bad in law and deserves to be deleted.

ITA No. 107/JP/2020 for A.Y 2012-13 on the following grounds;

“1. On the facts and the circumstances of the case and in law, the ld. CIT(A) has erred in sustaining the rejection of books of accounts under section 145(3) of the Act.

5 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT 2. On the facts and the circumstances of the case and in law, the ld. CIT(A) has erred in ignoring the fact that there were various discrepancies in the analysis of the seized papers made by the ld. AO, leading to addition made by the ld. AO either on presumptions or on incorrect appreciation of facts. Under the circumstances, the additions made u/s 143(3) r.w.s. 153A deserves to be deleted.

4.1 On the facts and the circumstances of the case and in law, the ld. CIT(A) has grossly erred in concurring with the findings of the AO that various seized papers reflected undisclosed sales made by the assessee amounting to Rs.60,67,378/- by ignoring the facts that the analysis of the ld. AO suffered from various discrepancies and were flawed.

4.2 That the ld. CIT(A) has further erred in estimating the income earned on such alleged undisclosed sales of Rs. 60,67,378/- by erroneously applying the estimated GP rate as against the NP rate declared by the assessee, as various expenditures would obviously be required for earning such alleged income, and admittedly some of which were also found noted in the seized documents being unrecorded. Therefore, the addition of Rs.15,46,575/- is bad in law and deserves to be deleted.

4.3 That the ld. CIT(A) has further erred in ignoring the fact that estimation of income is to be made by applying NP rate and not GP rate. The addition of Rs.15,46,575/ on the basis of GP rate therefore is bad in law and deserves to be deleted.

6 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT “1. On the facts and the circumstances of the case and in law, the ld. CIT(A) has erred in sustaining the rejection of books of accounts under section 145(3) of the Act.

4.1 On the facts and the circumstances of the case and in law, the ld. CIT(A) has grossly erred in concurring with the findings of the AO that various seized papers reflected undisclosed sales made by the assessee amounting to Rs. 3,15,22,665/- by ignoring the facts that the analysis of the ld. AO suffered from various discrepancies and were flawed.

4.2 That the ld. CIT(A) has further erred in estimating the income earned on such alleged undisclosed sales of Rs. 3,15,22,665/- by erroneously applying the estimated GP rate as against the NP rate declared by the assessee, as various expenditures would obviously be required for earning such alleged income, and admittedly some of which were also found noted in the seized documents being unrecorded. Therefore, the addition on account of gross profit on such alleged sales is bad in law and deserves to be deleted.

4.3 That the ld. CIT(A) has further erred in ignoring the fact that estimation of income is to be made by applying NP rate and not GP rate. The addition on the basis of average GP rate of past five years is bad in law and deserves to be deleted.

7 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT ITA No. 109/JP/2020 for A.Y 2014-15 on the following grounds;

“1. On the facts and the circumstances of the case and in law, the ld. CIT(A) has erred in sustaining the rejection of books of accounts under section 145(3) of the Act.

4.1 On the facts and the circumstances of the case and in law, the ld. CIT(A) has grossly erred in concurring with the findings of the AO that various seized papers reflected undisclosed sales made by the assessee amounting to Rs.34,04,456/- by ignoring the facts that the analysis of the ld. AO suffered from various discrepancies and were flawed.

4.2 That the ld. CIT(A) has further erred in estimating the income earned on such alleged undisclosed sales of Rs. 34,04,456/- by erroneously applying the estimated GP rate as against the NP rate declared by the assessee, as various expenditures would obviously be required for earning such alleged income, and admittedly some of which were also found noted in the seized documents being unrecorded. Therefore, the addition of Rs.2,70,654/- is bad in law and deserves to be deleted.

4.3 That the ld. CIT(A) has further erred in ignoring the fact that estimation of income is to be made by applying NP rate and not GP rate. The addition of Rs.2,70,654/ on the basis of GP rate therefore is bad in law and deserves to be deleted.

8 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT 5. The appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing the appeal.”

ITA No. 110/JP/2020 for A.Y 2015-16 on the following grounds;

“1. On the facts and the circumstances of the case and in law, the ld. CIT(A) has erred in sustaining the rejection of books of accounts under section 145(3) of the Act.

5.1 On the facts and the circumstances of the case and in law, the ld. CIT(A) has grossly erred in concurring with the findings of the AO that various seized papers reflected undisclosed sales made by the assessee amounting to Rs. 12,20,00,078/- by ignoring the facts that the analysis of the ld. AO suffered from various discrepancies and were flawed.

5.2 That the ld. CIT(A) has further erred in estimating the income earned on such alleged undisclosed sales of Rs. 12,20,00,078/- by erroneously applying the estimated GP rate as against the NP rate declared by the assessee (though no separate addition is made), as various expenditures would obviously be required

9 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT for earning such alleged income, and admittedly some of which were also found noted in the seized documents being unrecorded.

5.3 That the ld. CIT(A) has further erred in ignoring the fact that estimation of income is to be made by applying NP rate and not GP rate. The addition of Rs.1,57,13,610/ on the basis of GP rate (though no separate addition is made) therefore is bad in law and deserves to be deleted.

ITA No. 111/JP/2020 for A.Y 2016-17 on the following grounds;

“1. On the facts and the circumstances of the case and in law, the ld. CIT(A) has erred in sustaining the rejection of books of accounts under section 145(3) of the Act.

10 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT 20,18,43,551/- by ignoring the facts that the analysis of the ld. AO suffered from various discrepancies and were flawed. 6.1 That the ld. CIT(A) has further erred in estimating the income earned on such alleged undisclosed sales of Rs. 20,18,43,551/- by erroneously applying the estimated GP rate as against the NP rate declared by the assessee, as various expenditures would obviously be required for earning such alleged income, and admittedly some of which were also found noted in the seized documents being unrecorded. Therefore, the addition of Rs.2,31,11,086/- is bad in law and deserves to be deleted. 6.2 That the ld. CIT(A) has further erred in ignoring the fact that estimation of income is to be made by applying NP rate and not GP rate. The addition of Rs.2,31,11,086/ on the basis of GP rate therefore is bad in law and deserves to be deleted. 7. The appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing the appeal.”

4.1 Whereas revenue has assailed the appeals in the case of the

assessee for three assessment year and the grounds so raised by the

revenue in these appeals are reiterated here in below:

ITA No. 178/JP/2020 for A.Y 2013-14

“1.The Ld CIT(A) has erred in law and on facts (independently &severally) in granting relief to the assessee"

11 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT been tabulated at Para No. 9.4 of page 36 of the assessment order u/s 143(3) rws 153A completed on 26.12.2018 for the year under consideration"

12 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT 8.On the facts and the in circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 3,15,22,665/- made u/s 68 of the Act in spite of the fact that during the course of assessment proceedings assessee has refused the ownership of seized papers /documents. However, the ownership was duly established at Para No. 9.3 of assessment order. Since the assessee did not owned up the papers and failed to explain the transaction noted on the same and the ld. AO has rightly added Rs. 3,15,22,665/- u/s 68 of the Income Tax Act, 1961"

11.That the Appellant craves to add, amend, alter or forgo any ground(s) of appeal either before or at the time hearing of the appeal".

ITA No. 179/JP/2020 for A.Y 2015-16

“1.The Ld CIT(A) has erred in law and on facts (independently &severally) in granting relief to the assessee".

3.On the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the trading addition of Rs. 39,33,053/- without appreciating the fact the assessment for AY 2009-10 & 2010-11 have been reached finality as no proceedings was pending during the course of assessment proceeding. Accordingly, average GP was estimated at 20% for AY 2011-12 & AY 2012-13. However, when GP for AY 2012-13 was estimated on the basis of history of assessee's own case at 20% but the same was found less than the GP declared by the assessee himself at 25.49% in the audit report. Accordingly, the GP could not be estimated at the rate lower than the GP declared by the assessee himself. Further various documents found and seized in search reveling unaccounted sales

13 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT and purchases made by the assessee. Thus, the GP rate was rightly estimated @ 30% by AO?

4.On the facts and the in circumstances of the case and in law the Ld. CITIA) has erred in deleting the addition of Rs. 12,29,38,805/- made u/s 68 of the Act without appreciating the fact that that during the course of assessment proceedings assessee has refused the ownership of seized papers /documents. However, the ownership was duly established at Para No. 8.3 of assessment order. Since the assessee did not own up the papers during assessment proceedings and he failed to explain the transaction noted on the same. Accordingly, the Id. AO has rightly added Rs. 12,29,38,805/- u/s 68 of the Income Tax Act. 1961"

14 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

ITA No. 180/JP/2020 for A.Y 2016-17

“1.The Ld CIT(A) has erred in law and on facts (independently &severally) in granting relief to the assessee ".

4.On the facts and the in circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 28,89,98,467/- made u/s 68 of the Act without appreciating the fact that during the course of assessment proceedings assessee has refused the ownership of seized papers /documents. However, the ownership was duly established at Para No. 8.3 of assessment order. Since the assessee did not own up the papers during assessment proceedings and he failed to explain the

15 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT transaction noted on the same. Accordingly, the Id. AO has rightly added Rs. 28.89.98,467/-u/s 68 of the Income Tax Act. 1961.

action u/s 132 of the Income Tax Act, 1961 (“the Act”) and/or survey action

u/s 133A of the Act was carried out by the Income Tax Department on the

members of Chandra Prakash Agarwal Group on 28.07.2016 of which the

16 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT assessee is one of the members covered u/s 132. The jurisdiction over the

case was assigned to Central Circle-02, Jaipur by the Commissioner of

Income Tax, Jaipur-01. Notice under section 153A of the Act dated

06.03.2017 was issued and served upon the assessee on 09.03.2017

requiring assessee to file a true and correct return of income as prescribed

under rule 12 of the Income Tax Rules, 1962 within 15 days of the service

of the said notice. In response to the said notice, a return declaring an

income of Rs. 19,65,330/- was filed by the assessee on 06.04.2017. In the

return of income originally filed by the Assessee u/s 139(1) of the Act on

08.09.2011 an income of Rs. 19,65,330/- was declared. However, in the

return of income filed in response to notice u/s 153A of the Act no

undisclosed income pertaining to the relevant assessment year declared by

the assessee. The assessee primarily derives income from business.

of the Act, was objected by the assessee vide letter dated 11.08.2018

stating that in the course of search action neither any incriminating

documents or undisclosed income was found nor any surrender was made

for the aforesaid period and assessment is completed assessment and as

no proceeding are pending action of making the addition is in this case was

17 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT contended as outside the scope of section 153A of the Act. Therefore, there

is no need of assessment to be framed u/s. 153A deserved to be quashed.

The ld. AO duly considered the objections raised by the assessee against

the initiation of proceeding u/s. 153A of the Act but are of the view that the

same is not found tenable.

6.1 In the assessment proceeding various defects in the books of account

of the assessee were found for A. Y. 2011-12 to 2017-18. The assessing

officer has recorded his finding on the aspect of the inventory register,

valuation method adopted, maintaining the mix stock of 22 kt, 20 kt and 18

kt, records related to alloys, records related to goods sent on approval for

which the ld. AO has made his observation in detailed in para 8.1 to 8.6. In

para 8.6.1 the ld. AO also noted that several other defects were noticed in

books of the assessee, such as the assessee has not submitted any

documents w.r.t. the movement of goods from his place to the job workers

place, neither did he submitted any invoice raised by the job worker not did

he provided any details as to how the job work charges was calculated to

corresponding jewellery item. The ld. AO also noted that on perusal of the

inventory register of 2010-11 titles as “GOLD 24 CT” it appears that until

30.09.2010 assessee issued voucher no. I-02, I-03, I-05 and I-06 but while

18 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT receiving back assessee received R-02, R-03, R-04, R-05 and R-06. Thus,

it appears that the assessee has received back additionally gold vide

voucher no. R-04 which was not sent as per records, so the assessee

received the gold additionally which remained unexplained and unverified.

Based on such errors observed by the assessing officer he noted that the

inventory registers casted by the assessee are full of errors, without any

basis and thus cannot be relied upon. Further the common discrepancies

discussed in forgoing paras and out of books purchase, sale and

expenditure revealed from the documents seized during search

proceedings, it was held that the books of accounts maintained by the

assessee for A. Y. 2011-12 do not reveal the true income of the assessee.

Therefore, the books of accounts rejected u/s. 145(3) of the Act for A. Y.

2011-12.

6.1.1 Since the books of accounts are rejected for AY 2011-12 and the

result of closing stock of this year cannot be true but same will be bearing

on next year due to reason that the closing stock of AY 2011-12 will be

opening stock of 2012-13. Hence the books for AY 2012-13 are also cannot

be relied upon. Further, considering the common discrepancies as

discussed above and unaccounted sale, purchase and expenditure of AY

19 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT 2012-13 revealed in the documents seized, it is held that books of accounts

maintained by the assessee for AY 2012-13 do not reveal the true income

of the assessee. Therefore, the books of accounts are being rejected u/s

145(3) of the act for AY 2012-13.

6.1.2 In addition to above reasons discussed for rejection of books of

accounts for A. Y. 2011-12 and 2012-13 the following reasons are liable to

reject the books of accounts for A.Y. 2013-14 to A. Y. 2017-18.

The assessment for AY 2013-14 was completed u/s 143(3) of the act on 22.03.2016 wherein the AD made findings that the 24CT gold weighing to 8538.46 gm was not included in valuation of closing stock and made addition of Rs. 24997878/ on account of unexplained investment of 24 ct gold weighing 8538.46 8.6.4.1 Being aggrieved, the assessee preferred appeal before CIT (A) wherein CITIA) vide deciding the appeal no. 636/2015-16 dated 30-03-2017 observed that 24ct gold weighing to 8538.60 has been recorded in stock register but the value of the same was not taken to books of accounts while valuing its closing stock. Accordingly, the CIT(A) held that books of accounts maintained by the assessee do not reveal true income of the assessee and rejected u/s 145(3) of the IT act and restricted the addition to Rs. 2,49,97,878/-The CIT(A) also made observation that closing stock of this year will be opening stock of next year which will be bearing on closing stock of next year as well and subsequent year's opening stock and so on. 8.6.4.2 The assessee further appeal to Hon'ble ITAT and Hon'ble ITAT vide its order ITA no.322/IP/2017 dated 28.03.2018 up held the rejection of books of accounts by CIT(A) u/s 145(3) of the act and set aside the case to AD for determination of avg. G.P. of last five years which has attained finality and compare it with declared G.P. 8.6.4.3 In view of the above it is evident that the books of accounts of the assessee for AY 2013-14 was rejected by CIT (A) u/s 145(3) after finding that books do not reveals true income of the assessee. which was upheld by Hon'ble ITAT Jaipur. Now when books of accounts for AY 2013-14 has been rejected then this will also effect trading result of subsequent years as closing stock of this year will be opening stock of next year and will be bearing on closing stock of that

20 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

year. The closing stock of next year will be bearing on closing stock of that as well and subsequent year's opening stock and so on. Therefore the books of accounts for AY 2014-15 to 2017-18 is also liable to be rejected as they do not reveal true income of the assessee in these years also.

The ld. AO further noted that for A. Y. 2017-18 many other discrepancies

have been found in addition to what has been discussed above, such as

a) Abnormal wastage shown in gold jewellery business

b) Variation in stock of Gold, Silver, Diamonds and Stones / Beads

found during search/survey and books

Based on these observations, as the books of accounts for A. Y. 2013-14

has already rejected by CIT(A) u/s. 145(3), the books of accounts for A. Y.

2014-15 to 2017-18 also rejected u/s. 145(3) of the Act. In the year 2013-14

the ITAT directed to apply the GP after determination of Average GP of last

5 years in the light of the ratio of Hon’ble Rajasthan High Court that the best

guide in case of fair estimation is past history of the assessee. Based on

these finding the ld. AO has finally estimated GP ratio as tabulated here in

below:

s.no AY GP declared by the Estimated GP% Turnover Trading assessee declared in ITR addition D-C*E A B C D E F 1 2011-12 15.09% 20.00% 50912321 2499795 2 2012-13 25.49% 30.00% 23536310 1061488 3 2013-14 7.92% 22.50% 50713609 7394044 4 2014-15 7.95% 22.50% 55211608 8033289 5 2015-16 7.98% 23.95% 24627761 3933053 6 2016-17 7.93% 23.79% 36691565 5819282 7 2017-18 7.44% 23.54% 23158533* 3728523

21 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT Based on these facts trading addition of Rs. 24,99,795/- made applying GP

rate as mentioned in the above table.

6.2 In the search conducted/ survey action on various premises of the

assessee on 28.07.2016 huge number of incriminating details and

documents were found / inventoried / seized / impunded. Based on that

record the assessee was asked to explain the details and documents so

found vide show cause notice dated 11.09.2018. The assessee filed a

detailed reply dated 26.11.2018. After considering the reply of the assessee

the assessing officer noted that the assessee mainly declined the content of

the seized material stating that “these papers are not found from our

premises. This document was also not in our handwriting. We have also

stated in the statement recorded u/s. 132(4) of the Act that these papers re

not related to us.” The assessee also submitted that these pages also

contain description of goods sent on approval and does not represent real

sales. It was further explained that transaction related to investment in

property are shown by the respective person who owns the property. The

ld. AO discussed the seized material in the order and hold that the

assessee ‘s contention cannot be accepted based on the reasons

discussed in the order of the assessment in para 9.3. The ld. AO also noted

22 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

that the reply of the assessee was considered but not found tenable due the

reason that assessee has not furnish any documentary evidence

suggesting that these transactions are not undisclosed sales and approval

memo noting w.r.t. the date of receiving back such goods sent on approval

was found in the search. The AO also noted that assessee failed to

establish nexus between the unaccounted purchase and sales found

recorded in the seized material. Based on these discussion the ld. AO

noted that since the assessee’s ownership and co-relation of documents is

proved and thus the transaction noted on seized pages contain details of

unaccounted sales, un accounted purchase, undisclosed expenditure of job

work etc., undisclosed investment in properties, Loan and advance or

interest income earned which are required to be taxed in the hands of the

assessee in respective assessment years in relevant sections of the Act,

computed as under :

Unaccounted sales u/s. 68

SCN No. 2014-15 2015-16 2016-17 2017-18 Total 9 4,15,500 3,53,826 40,17,875 46,62,778 94,49,979 10 - - 18,20,662 - 18,20,662 11 - - 63,74,778 1,02,64,869 1,66,39,647 12 - 6,81,913 52,29,717 36,21,108 95,32,738 13 - - - 34,37,759 34,37,759 Total 4,15,500 10,35,739 1,74,43,032 2,19,86,514 4,08,80,785

Un accounted expenditure on job work and purchase of gold u/s 69C

23 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

SCN No. 2016-17 2017-18 Total 9 5,95,800 88,214 6,84,014 11 1,81,294 41,40,563 43,21,857 Total 7,77,094 42,28,777 50,05,871

6.2.1 As the found to be indulged in out of books sale as well as purchase

and other expenditure including job work etc., the assessee has not come

up with the documentary evidence to establish nexus between unaccounted

purchase and sales. Therefore, the benefit of the peak cannot be allowed to

the assessee and he found it justifiable to consider the whole unaccounted

sale as his cash credit u/s. 68 of the Act and accordingly an addition of Rs.

18,83,130/- was made to the returned income of the assessee.

24 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT 6.3 Thus, against the returned income of Rs. 19,65,330/- made by the

assessee the assessing officer has finally assessed the income of the

assessee at Rs. 63,48,255/-. The summary of the additions made by the

assessing officer is reiterated here in below:

S. No. Nature of Additions/ disallowance Amount (in Rs.) 1. Trading addition by applying the GP rate of 20.00% 24,99,795/- 2. Undisclosed sales 18,83130/- Total Additions 63,48,255/-

preferred an appeal before the Commissioner of Income Tax, Appeals-4,

Jaipur. As the appeal of the assessee was partly allowed Assessee

preferred appeal against additions sustained by ld. CIT(A), whereas

department is in appeal in respect of relief granted by ld. CIT(A). The

finding of the ld. CIT(A) is dealt with while dealing with the grounds of both

revenue and assessee. Before us while hearing both the learned DR and

the AR vehemently supported the order of the authorities below as

favorable to them.

with the grounds of the appeal of the revenue the ld. AR appearing on

25 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

behalf of the assessee has placed his combined written submission which

is extracted in below;

“Brief facts of the case are that the assessee is an individual, running a sole proprietary business of manufacturing and trading in gold/silver/diamond and studded jewellery from 222, Johri Bazar, Jaipur and residing at 1756, Telipada, SMS Highway, Jaipur. A search and seizure action u/s 132 of the Income Tax Act, 1961 (herein after referred to as the act) was carried out by the Income Tax department at the business and residential premises of the appellant and also at the business premises of all its sister concerns and his business associates on 28/07/2016. During the course of search various loose papers/ documents were seized besides the seizure of cash, valuables etc. Also the statements of the appellant, his family members, business associates and employees were recorded. Subsequent to the search, in response to notices u/s 153A returns of income for the six assessment years falling immediately preceding the year of search were filed declaring Total Income as under: Sl. Assessment Date of filing Return Total Income APB No. Year of Income 1. 2011-12 06.04.2017 19,65,330/- 4-7 2. 2012-13 06.04.2017 8,07,470/- 4-6 3. 2013-14 06.04.2017 23,68,950/- 4-6 4. 2014-15 06.04.2017 27,61,050/- 5-9 5. 2015-16 06.04.2017 3,34,04,840/- 4-8 6. 2016-17 06.04.2017 6,56,990/- 4-7

The ld. Assessing Officer (herein after referred to as the “ld. AO”) completed the assessments u/s 143(3) r.w.s. 153A of the Act by making additions in various assessment years as under: Sl. Assessment Trading addition by GP Rate Undisclosed cash 115BBE No. Year applying the GP Rate sales u/s 68 invoked 1. 2011-12 24,99,795/- 20% 18,83,130/- - 2. 2012-13 10,61,488/- 30% 60,67,378/- - √ 3. 2013-14 73,94,044/- 22.50% 3,15,22,665/- √ 4. 2014-15 80,33,289/- 22.50% 34,04,456/- √ 5. 2015-16 39,33,053/- 23.95% 12,29,38,805/- √ 6. 2016-17 58,19,282/- 23.79% 28,89,98,467/-

Aggrieved of the additions made, assessee filed appeal before ld.CIT(A), which was decided as under: Sl. A.Y. Trading Deleted by Undisclosed GP rate applied Amount 115BBE No. addition by ld.CIT(A) cash sales by ld. CIT(A) on Confirmed by applying the alleged CIT(A) GP Rate undisclosed cash sales

26 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

Aggrieved of the additions confirmed by ld. CIT(A), assessee has preferred appeal, whereas department has filed appeal on the issues decided in favour of assessee.

To begin with Departmental Ground of Appeal No. 2 to 6 for A.Y. 2013-14 have been dealt with as the same have been raised challenging the order of ld.CIT(A), whereby trading addition of Rs. 73,94,044/- has been allowed on legal ground that since no assessment proceedings were pending for A.Y. 2013-14 and time limit for issuance of notice u/s 143(2) had already expired, assessment proceedings and consequent additions could only be made which are based on and emanating from the was incriminating documents, if any found during the course of search. Since, in the instant case trading addition so made by ld.AO was not based on any such incriminating documents found as a result of search, ld. CIT(A) deleted the trading addition. In ground of appeal no. 2 to 6 raised by the department such action of ld. CIT(A) has been challenged. Detailed submission by the assessee in this respect is made as under:

Your goodself would appreciate that the trading additions made by ld.AO was not based on any loose paper / material found / seized as the result of search from the possession of the assessee for any of the previous year relevant to Assessment Years under present appeal, rather on the other hand and contrary to law, based on assumptions and surmises of the ld. AO and also based on the conclusions drawn in the subsequent assessment years.

Ld. CIT(A) after considering this fact and also verifying the same form the assessment orders and also by appreciating that no proceedings whatsoever, were pending for these assessment years, has quashed the orders so passed. While making observation, ld. CIT(A) followed the decision of the jurisdictional high court in the case of Jai Steel

27 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT reported in 259 CTR 281 and also of the Hon’ble Supreme Court in the case of Meeta Gutgutia reported in 405 ITR (St.) 28 (SC).

It is humbly submitted that, the impugned assessment orders of Ld. AO suffers from serious error in-as-much-as, it is not based on a single loose paper found / seized as the result of search conducted in the case of assessee; on the other hand and contrary to the law, this order is clearly in the nature of regular assessment order and therefore, could not have been made under the garb of section 153A particularly when the returned income was accepted by department and the case of assessee was not picked up for scrutiny and time to issue notice u/s 143(2) has also expired before the date of search and thus assessment for the year under appeal in the case of assessee was not pending before the Ld. AO, as on the date of search. Thus, when no assessment proceedings pertaining to the assessment years under appeal were pending before the Ld. AO, no proceedings could have abated due to the search and therefore, cannot be considered as merged into the assessment u/s 153A. It may kindly be noted that, the returned income was processed and accepted by the department and the case was not picked for scrutiny in any of the assessment years, and thus the assessments in the case of assessee for the years under appeal stood already finalized. No proceedings relating to the assessment with respect to assessment years 2011-12 to 2013-14 were pending before the Ld. AO as on the date of search, and therefore, the Ld. AO’s jurisdiction was merely limited to the material found during the course of search and he could not have completed the assessment u/s 153A without referring to any material found / seized during the course of search. Therefore, it was not permissible for the Ld. AO to make regular scrutiny assessments under the garb of assessment u/s 153A in view of the fact that the returned income was accepted and the cases were not selected for scrutiny.

It is further submitted that, it is settled proposition of law based on numerous judgments of Hon’ble High Courts (including Jurisdictional High Court) and a plethora of ITAT decisions that no additions could be made in the assessment u/s 153A for a particular assessment year on the issues for which no incriminating material was found as a result of search. Thus, it is submitted that the trading additions made vide impugned assessment without referring to any incriminating documents found during search could not have been made at all in assessment made u/s 153A on income which already stood accepted especially when no incriminating material in this regard was found as a result of search.

In this regard, reliance is placed on:

Jai Steel India v. ACIT reported in 259 CTR 281(Rajasthan HC) In a case where nothing incriminating is found though s. 153A would be triggered and assessment or reassessment to ascertain the total income is required to be done, the same would not result in any addition and the assessments made earlier may have to be reiterated. Argument of the counsel that the AO is free to disturb the income, expenditure or deduction dehorns any incriminating material while making the assessment u/s 153A is not borne out from the scheme of the said provision. Provisions of ss. 153A to 153C cannot be interpreted to be further innings for the AO and / or the

28 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT assessee beyond the provisions of ss. 139, 147 and 263A harmonious construction of the entire provisions of s. 153A would lead to an irresistible conclusion that the word ‘assess’ has been used the context of abated proceedings and ‘reassess’ has been used for completed assessment proceedings which do not abate as they are not pending on the date of initiation of the search or making of requisition and can be tinkered only on the basis of incriminating material found during the course of search or requisition of documents, therefore, it is not open to the assessee to seek deduction or claim relief not claimed by it in the original assessment which already stands completed in an assessment u/s 153A made in pursuance of a search or requisition.”

CIT Vs. Kabul Chawla reported in 380 ITR 573 (Delhi High Court) The legal position that emerges on a perusal of section 153A and section 132 of the Income-tax Act, 1961, is as under : (i) Once a search takes place under section 132 of the Act, notice under section 153A(1) will have to be mandatorily issued to the person in respect of whom search was conducted requiring him to file returns for six assessment years immediately preceding the previous year relevant to the assessment year in which the search takes place. (ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such assessment years will have to be computed by the Assessing Officers as a fresh exercise. (iii) The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. The Assessing Officer has the power to assess and reassess the “total income” of the six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six assessment years in which both the disclosed and the undisclosed income would be brought to tax. (iv) Although section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the Assessing Officer which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this section only on the basis of the seized material.

Hon’ble Delhi High Court in the case of Pr. CIT vs Meeta Gutgutia vide order dated 25.05.2017 reported in 405 ITR (St.) 28 (SC), after discussing decisions of various courts on the issue, decided the appeal in favour of assessee by holding that invocation of provisions of section 153A is unjustified in respect of years for which no incriminating documents were found and also no assessment was pending on the date of search. This decision of the Hon’ble Delhi High Courth has become final as the SLP has been dismissed by the Supreme court.

In this case in para 63, it is further observed by Hon’ble Court that in case of Kurle Papers Mills Pvt. Ltd., (which was decided by Hon’ble Delhi High Court in favour of assessee), Hon’ble Supreme Court has dismissed the revenue’s SLP on 07.12.2015.

Reliance is also placed on:

- Dr. Ratan Kumar Sharma vs ACIT (ITAT Jaipur) ITA No.797-798/JP/14

29 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT - Dr. Vikram Goyal vs DCIT (ITAT Jaipur) ITA No.174/JP/17 - All Cargo Global Logistics Ltd. v. DCIT (2012) 18 ITR (Trib) 106 (Mumbai) (SB) – Later on upheld by Bombay High Court. - Gurinder Singh Bawa v. DCIT (2012) 28 Taxmann.com 328 (Mum Trib), - Kusum Gupta v. DCIT, ITA Nos. 4873/Del/2009, (2005-06)2510 (A.Y. 2003-04), 3312(A.Y. 2004-05) 2833/Del/2011(A.Y. 2006-07) - MGF Automobiles Ltd. V. ACIT, ITA No’s 4212 & 4213/Del/2011 - Tarannum Zafar Khan Vs. ACIT, ITA Nos. 5888 to5890/Mum/2009 - Vee Gee Industrial Enterprises vs. ACIT, ITA No. 1/Del/2011& ITA No.2/Del/2011 - ACIT Vs. Shri Manoj Narain Aggarwal, ITA Nos. 5518 to 5524/Del/2012 (ITAT- Delhi) - Mir Mazharuddin ITA Nos. 1153 to 1159/Hyd/2012 - Asha Kataria, I.T.A. Nos. 3105, 3106 & 3107/Del/2011 - M/s Jadau JewellersVs. ACIT ITA Nos. 686/JP/2014 - Damodar Das Agarwal Vs. ACIT in ITA Nos. 152 to 155/JP/2015 - Nirmal Kumar Agarwal Vs. ACIT in ITA Nos. 156 & 157/JP/2015

Therefore, in these facts and circumstances and in view of the well-established law in this regard, it is submitted that ld.CIT(A) has rightly deleted the trading addition by granting relief on legal ground. It is thus requested that such order passed by ld.CIT(A) deserve to be upheld.

Assessee’s Grounds of Appeal No. 1 for A.Y.2011-12 to 2016-17 and Ground No. 2 for A.Y. 2015-16 & 2016-17 and Departmental Ground of Apepal No.7 for A.Y. 2013-14 and Ground of Appeal No. 2-3 for A.Y. 2015-16 and 2016-17 In ground of appeal no. 1, assessee has challenged the action of ld. CIT(A) in confirming the rejection of books of accounts under section 145(3) of the Act whereas in ground of appeal no.2, part of the trading addition sustained by ld.CIT(A) has been challenged.

Brief facts in respect of this ground of appeal are that, during the course of search conducted by the Income Tax Department at the business premises of the appellant on 28/07/2016 various loose papers/ documents were seized by the department. Relying upon the entries found noted in such seized papers, ld. AO alleged that the trading results declared by the appellant are not verifiable and thus he rejected the books of accounts by invoking the provisions of section 145(3) of the Act. After rejection, the income was estimated by applying the GP rate and Trading Additions were made as tabulated above.

At the outset, it is submitted that no incriminating documents whatsoever were found for any of the previous years relevant to A.Y. 2011-12 to 2014-15, which could lead to invocation of provisions of section 145(3). However ld.AO in the assessment completed u/s 153A for these 4 years, i.e.2011-12 to 2014-15 also, supported its finding of rejection of books of accounts u/s 145(3) by referring to the seized documents or entries for other years, i.e. AY 2015-16, 2016-17 and 2017-18 which were presumed by ld. AO as incriminating. Whereas in those years the allegation were based on the entries found noted in the loose papers seized during the course of search.

30 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

It is further submitted that the basis for rejection of books of accounts maintained by the appellant in regular course of business were not at all borne out from the seized material, rather ld. AO on his whims and fancies had invoked the provisions of section 145(3) and has further made trading additions.

During the course of appellate proceedings, it was submitted before ld. CIT(A) that so far as A.Y. 2011-12 to 2014-15 are concerned, no discrepancy whatsoever was pointed out by ld.AO in books of accounts by referring to seized material relevant to these years. It was further submitted that the limit for issuance of notices u/s 143(2) for these years had already expired prior to the date of search, i.e. 28.07.2016. Ld.CIT(A), by considering the submission made by assessee and following judgement of jurisdictional High Court in the case of M/s Jai Steel and various other judgments, held that in these 4 years, scope of additions made would be restricted to entries found noted in seized papers. Accordingly, in the scenario that there was no reference of seized material for rejecting books of accounts, invocation of provisions of section 145(3) was rightly held by ld. CIT(A) as not in accordance with law and consequent trading addition has been rightly deleted by ld. CIT(A). Hon’ble bench is requested to confirm the finding of ld. CIT(A) in favour of assessee and reject the appeal of department for A.Y. 2011-12 to A.Y. 2014-15.

However, for A.Y. 2015-16 & 2016-17, action of ld.AO in invoking provisions of section 145(3) was upheld by ld. CIT(A).

At this juncture, reasons given by the ld. AO for rejection of books of accounts maintained by the appellant are summarised: 1. Inventory registers submitted during the course of assessment proceedings are tailored documents prepared for the sake of assessment proceedings; 2. Inconsistency in the method of valuation of stock mentioned in the Tax Audit Report as compared to the submission made during the course of assessment proceedings; 3. Stock registers are not maintained on the basis of purity of gold i.e. quantity was not stated in carats thus its further classification in purity wise stock register is not verifiable; 4. The inventory registers were not reliable as the same did not contain the details of alloys used in manufacturing of gold jewellery; 5. Goods sent on approval were unverifiable/ not properly recorded; 6. Rejection of books of accounts was firstly made in AY 2011-12 and in subsequent years the books were rejected for the sole reason that as he (ld. AO) invoked the provisions of section 145(3) in AY 2011-12; 7. Loss reported due to wastage was abnormal; 8. Variation in stock found during search/survey and books.

In respect of the above allegations made by the ld. AO, it is submitted that: 1. The appellant regularly maintains stock registers on computer and such records were available at the time of search and as per the knowledge of the appellant, the same was part of the seized records. Therefore, the observations of the ld. AO that

31 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT the stock registers were prepared afterwards only for the purpose of assessment proceedings is without any basis and it seems that such observations were made without referring to the seized material thus such observations deserves to be ignored and excluded. During the course of assessment proceedings the relevant extracts of the computerized stock registers for various Assessment Years, maintained by the appellant were submitted before the ld. AO and ld. AO based on the same has alleged that they were prepared solely for the submission before him. Thus, the ld. AO’s allegation that the stock registers of the appellant firm are tailored documents casted for the sake of assessment is wholly based on conjectures and surmises and not on facts and hence deserves to be ignored.

32 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT (iii) During the assessment proceedings the appellant had been asked to submit the method of valuation of stock adopted by it, along with relevant documents in support of the valuation under query no. 14 of the letter dated 13.07.2018. In reply assessee submitted the same as weighted average method which was for the purpose of weighing the goods and as in the case of the assessee being a manufacturer/trader in jewellery also neither FIFO nor LIFO method could be adopted thus the weighted average method is taken as basis however, for determining the cost thereon, the cost or market price whichever is less is applied to work out the value as on the end of the year, which is an accepted method.

It is therefore, submitted that the method of valuation of stock adopted by the appellant during the year under appeal was “lower of cost or NRV”, wherein the cost of the goods was calculated by adopting the weighted average method. Therefore, the observation of the ld.AO that contrary stand is taken by the appellant in the assessment proceedings as compared to the method of valuation mentioned in the Return of income and the Tax Audit Report, is totally misplaced and without proper appreciation of facts available on record. It is submitted that these observations are not tenable and deserve to be ignored and excluded and therefore findings of the ld.AO of rejection of books of accounts needs to be reversed.

The appellant submits that the ld. AO’s observation in para 7.1 and para 7.3 are self- contradictory, as on the one hand he has altogether rejected the stock register by alleging that the same was prepared during the course of assessment proceedings and on the other hand he had tried to make frivolous allegations in respect of the entries contained therein. In this manner, the ld. AO has created unnecessary confusion in respect of the stock registers which is maintained by the assessee on consistent basis in the regular course of business. The fact that the assessee is maintaining the stock register is also fortified from the observations of the search team that there were differences in the stock as per physical verification and as per stock register maintained and finally certain additions have also been made by the ld. AO in the hands of the appellant as per para 12 of the assessment order for AY 2017-18 for which separate ground has been taken in that year. This

33 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT clearly shows that the stock registers were very much in existence even on the day of search. It was only on comparison of physical stock taken by the department during the search with the stock reflected by the appellant in its books of accounts (i.e. stock register) it was concluded that the appellant was in possession of excess stock.

The appellant therefore, submits that this allegation of the ld. AO also deserves to be ignored and excluded.

As explained above, the goods sent on approval are noted down on slips to keep a record of the goods sent on approval which stood cancelled when the goods have been returned. In case goods are not returned, necessary control / stock is tallied on the basis of these approval memos. Actual sales bills are raised and sale has been recorded in the books of accounts only once the goods are approved by the customers. The appellant had devised a simple methodology/system of stock keeping, by recording the goods sent on approval on the “approval slips” and recording only the final sales in the stock registers. Such a methodology/ system was adopted in order to distinguish actual sales from the goods sent on approval basis and is an accepted method of accounting which was never doubted by the department in earlier years also where the assessment stood completed u/s 143(3) as a consequence to the survey carried out at the business premises of the

34 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT assessee u/s 133A where such practice was also noticed earlier during survey by the department.

The ld. AO has further observed that the appellant should have recorded the goods sent on approval basis in respective stock items as inward and outward, otherwise the availability of that particular stock item remained unverified. In this regards, the appellant reiterates that the appellant did keep a record of the inward and outward movement of the stock items sent on approval basis by issuing approval slips. Therefore, on any given day the actual stock of the appellant firm can easily be determined by reducing stock items for which approval slips had been issued from the stock available in the books. Further it is settled proposition of law that AO cannot walk into the shoe of the businessman and it is the businessman right to do his business in the manner which is convenient to him and from which the proper income could be deduced. AO cannot direct the businessman to act in a particular manner when the Act does not have any such kind of provisions. This contention of the appellant is supported by the following judicial pronouncements: SA Builders 288 ITR 1(SC): Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case.

This clearly shows that the observation of the ld. AO is mechanical and without application of mind. Moreover, the ld. AO has failed to pin point any specific incident or day wherein verification of stock was not possible.

In view of the above, the appellant submits that the above observation of the ld. AO is merely based on assumption and is unwarranted and may please be ignored and excluded.

35 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

With the above submission it is clear beyond doubt that the ld. AO has rejected books of accounts very casually and by ignoring the material available on record and by making unreal presumption and assumptions based on conjectures and surmises. Under these circumstances it is humbly prayed that invocation of the provisions of section 145(3) and consequent rejection of books of accounts is against the principles of natural justice and the additions made deserve to be deleted for A.Y. 2015-16 & A.Y. 2016-17 also. It is submitted before the Hon’ble bench to modify the order of ld. CIT(A) and delete the additions for A.Y. 2015-16 & 2016-17.

With regards to ground of appeal no.2 for A,Y. 2015-16 & 2016-17, challenging trading addition made by ld.AO, it is submitted that after rejecting books of accounts, ld.AO had applied highly unrealistic GP rates i.e. 23.95%, i.e. average of average GP rate of AY 2010-11 to AY2014-15 (as against 7.98%) and 23.79%, i.e. average of average GP rate of AY 2011-12 to AY 2015-16 (as against 7.93%) for A.Y. 2015-16 and 2016-17 respectively. On appeal, ld. CIT(A) reduced the rate applied for trading addition to 12.88% (average GP rate for 5 years including 2015-16) and 11.45% for A.Y.2015-16 and 2016-17 (average GP rate for 5 years including 2016-17) respectively.

In this regard, it is submitted that it is not necessary that in all cases where the books of 3accounts of the assessee are rejected, an addition to the returned income has to be made. In this regard, jurisdictional High Court in the case of CIT vs. Gotam Lime Khanij Udhyog 256 ITR 243 (Raj) held that Section 145 of the Income-tax Act, 1961, only provides the basis on which computation of income is to be made for the purpose of determining the amount of tax. The provision by itself does not deal with addition or deletion to the income. Therefore, mere rejection of, or some deficiency in, the books of account would not mean that it must necessarily lead to additions to the returned income.

It is further submitted that as regards availability of some documents reflecting alleged unaccounted sale on the basis of which books for A.Y. 2015-16 & 2016-17 have been rejected, it is submitted that separate addition of profit on those sales have been made and sustained by ld. CIT(A) and therefore, further trading additions so sustained by ld. CIT(A) is not warranted.

In the circumstances, it is humbly prayed that the trading results declared by the assesse deserve to be accepted as such and trading additions sustained by ld.CIT(A) deserves to be deleted.

36 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

Assessee’s Grounds of Appeal No. 2 to 4.3 for A.Y. 2011-12 to 2014-15 and 3 to 5.3 for A.Y. 2015-16 & 3 to 6.2 for 2016-17 and Departmental Ground of Appeal No. 8-9 for A.Y. 2013-14, 4-7 for A.Y. 2015-16 & 2016- 17 In these grounds of appeal raised by assessee, assessee has challenged the action of ld.CIT(A) in ignoring the fact that there were various discrepancies in the analysis of seized papers made by ld.AO, which led to huge additions on allegation of unaccounted sales (by invoking provisions of section 68) solely on assumptions and presumptions. Assessee has challenged the additions sustained by ld.CIT(A) by applying gross profit rate (instead of NP rate) on such alleged unaccounted sales, by grossly ignoring the submission of assessee that various expenditures would obviously be required for earning such alleged income, some of which were admittedly found noted in seized papers itself.

Brief facts leading to this ground of appeal are that, during the course of search carried out u/s 132 on 28.07.2016 various loose papers and other documents were seized from the appellant’s business premises i.e. M/s Garg Jewellers located at 222, Johri Bazar, Jaipur and his residential premises located at 1756, Telipada, SMS Highway, Choura Rasta Jaipur. The papers seized from M/s Garg Jewellers were inventorized as Exhibit D1 to D12 and the papers seized from the appellant’s residence were inventorized as Exhibit B1 to B41. The ld. AO after going through the entries found noted in the loose papers and documents at his end issued a detailed show cause notice dated 11/09/2018 (Compilation of papers Part II pages 248 to 259) wherein he summarized the seized papers exhibit-wise and presumed the noted entries as unaccounted sales, purchases, expenses and investments made by the appellant (ld. AO has not made any attempt to exclude duplicate and even triplicate entries and there were many other discrepancies also). Based on this show cause the ld. AO proceeded to presume all of them separately as alleged unaccounted sales and then further proceeded to make additions of such gross amount of sales instead of adding the profit element earned on these alleged sale which is also summarized at para 10, page No. 39 of the assessment order. The same is reproduced as under for your honour’s ready reference: SCN Assessment Years Total 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 1 1883130 6067378 31522665 2988956 121903066 154250723 22442000 341057918 4 - - - - - 24565322 947318 25512640 5 - - - - - 3863989 117119 3981108 6 - - - - - 85130004 - 85130004 7 - - - - - 3745397 5503192 9248589 9 - - -- 415500 353826 4017875 4662778 9449979 10 - - - - - 1820662 - 1820662 11 - - - - - 6374778 10264869 16639647 12 - - - - 681913 5229717 3621108 9532738 13 - - - - - - 3437759 3437759

37 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

14 - - - - - - 23608719 23608719 Total 1883130 6067378 31522665 3404456 122938805 288998467 74604862 529419763

At the outset it is submitted that exorbitant additions as tabulated above were made by the ld. AO u/s 68, by alleging unaccounted sales made during the respective years. Moreover, such additions in respect of alleged unaccounted sales were made u/s 68 of the Income Tax Act, 1961.

Ld. CIT(A), sustained the addition equivalent to gross profit rates for respective Assessment Years as against addition of entire alleged unaccounted sales. Assessee has challenged the application of GP rate and requests that NP rate be applied on such alleged unaccounted sales whereas the department has challenged the part addition deleted by ld.CIT(A) as well as action of ld.CIT(A) in holding applicability of section 68 not in accordance with law. All the grounds of appeal being interrelated have been dealt with together for the sake of convenience.

With this background, at the outset, Section 68 of the Income Tax Act, 1961 is reproduced herewith for your honours ready reference: “68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year :

Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:

Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB)of section 10.”

From the perusal of the provisions of the law, it is evident that the Act has laid down two fundamental criteria for considering an income as cash credits u/s 68 : a. There has to be a credit entry in the books of accounts of the assessee,

38 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT b. The credit entry remains unexplained on the part of the assessee or the explanation offered by the assessee is not up to the satisfaction of the AO.

In the instant case, addition on account of alleged unaccounted sales were made, based on the entries found noted on the loose papers seized during the course of search. In other words, additions were not made on the basis of any sum credited/ disclosed in the books of accounts of the appellant.

Under the circumstances, the addition made by the ld. AO u/s 68, fails the very first criteria of there being a credit entry in the books of accounts laid down under the Act. Accordingly, exorbitant additions made on account of unaccounted sales by invoking provision of 68 of the Act is legally defective and contrary to the settled legal position by the courts that addition u/s 68 can only be made when there is a credit entry in the books of accounts and the assessee fails to explain that credit entry. It is thus submitted that any addition of the amount not being a credit entry in the books of accounts cannot be made u/s 68 and ld.CIT(A) has rightly held such action of ld.AO not in accordance with law.

Without Prejudice to the above and on merits the appellant submits the following:

The appellant submits that the necessary explanations with reference to the above mentioned seized papers was submitted by the assessee during the course of assessment proceedings itself however, the Ld. AO without appreciating the same or without verifying the same proceeded in arbitrary manner and made additions of entire alleged sales amounts alleging the same as undisclosed cash sales for various years without appreciating that the entire cash sales cannot be added as the income, and doing so is against the principles of accountancy and even not in accordance with the law. It was the net profit so earned on account of alleged unaccounted cash sales, which should have been considered by the AO for making the additions. The ld. AO’s observation in this regard is reproduced herewith for your honour’s ready reference: “In view of the above discussion and fact brought on record it is evident the assessee has been found to be indulged in out of books sale as well as purchase and other expenditure including job work etc. Since the assessee has not come up with the documentary evidence to establish nexus between unaccounted purchase and unaccounted sale. Therefore, the benefit of peak cannot be allowed to the assessee. In these circumstances it will be justifiable to consider the whole unaccounted sale as his cash credit u/s 68 of the I.T. Act. As the sale amount also includes the cost component i.e. purchase and other expenses, therefore no separate addition on account of unaccounted purchase and expenditure is require to be made. Accordingly, addition of Rs.28,89,98,467/- on account of undisclosed cash sale is hereby made to the total

39 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT income of the assessee u/s 68 of the I.T. Act and taxed @ 30% as per provision of section 115BBE of the I.T. Act.”

Moreover, it is seen from the seized records that, alleged unaccounted purchases were also recorded therein and the ld. AO has himself admitted the same. It is further submitted that the seized records itself provides the link to alleged unaccounted sales and unaccounted purchases as well. Moreover, it is not a case where these alleged unaccounted sales could have been made from recorded purchases as recorded purchases and sales are reflected in the stock register and quantitative tally is maintained. Hence, the action of ld. AO in making addition of entire sale amount is totally flimsy and untenable.

Further, it is submitted that the entire additions have been made by ld.AO on the basis of entries found noted in the seized documents found as a result of search from the business premises of the assessee firm and also from the residential premises of its partners by alleging the same as undisclosed sale which actually were basically the rough notings. The notings as appearing in the loose papers are of the following nature: (i) Rough noting of the transactions/ events occurring during the whole day. (ii) Rough noting of the transactions party-wise.

The ld. AO failed to properly co-relate, link the entries found noted in various annexures with each other which are repetitive / duplicate / triplicate or in some case no final transaction took place and has made additions in casual manner by mechanically adopting a straight jacket formula/ methodology.

The ld. AO failed to closely analyse the papers seized during the course of search and to co-relate them with each other. There are duplications in respect of additions made by the ld. AO wherein the additions in respect of a single transaction noted in different papers has been made twice/ thrice without appreciating the fact that some pages containing same entries were seized in two different exhibits and actually denote/relate to a single transaction.

The appellant therefore, submits that the addition of entire amount of alleged unaccounted sales without appreciating the real nature of the papers seized during the course of search is bad in law. It is therefore prayed before your honour that ld. CIT(A) has rightly held that entire amount of sales cannot be added to the total income and it is only income component therein, which could be added, however ld. CIT(A) has applied GP rate on such alleged unaccounted sales. It is submitted that if any addition on account of alleged unaccounted sale is to be made, then it could have been of net profit earned on account of these sales. It is mentioned here that the seized records itself contain the alleged unaccounted purchases and also expenses which are not recorded

40 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

in the books of accounts. These are the part of the same papers/documents and it is settled law that papers/documents should be read as a whole.

The ld. AO has himself in the show cause notice dated 11/09/2018 pointed out the details of unaccounted expenses discovered from the loose papers seized during the course of search. In this regard the appellant submits that various expenses relating to the unrecorded sales had also remained unrecorded in the books of accounts. The details of some of the expenses are available as a part of Exhibit- 10 seized from 1756 (Compilation of papers Part-I, pages 57-74), Telipada. And Exhibit-1 seized from 222, Johri Bazar (Compilation of papers Part I pages 106-138).

The appellant reiterates that Income tax is the tax on income and not a tax on sales and the real income of the appellant can be determined only after reducing the related expenses from the amount of sales.

The appellant therefore submits that, under the circumstances, the net profit ratio is the best available measure to determine the income earned from the alleged sales. The appellant therefore, prays your honours to kindly restrict the addition in respect of alleged unaccounted sales to the extent of net profit that could have been earned on such alleged sales.

In furtherance to the above, the appellant reiterates that the ld. AO has erroneously quantified the amount of alleged unaccounted sales without closely analyzing the papers seized during the course of search. There are various discrepancies’ and duplications in the amount estimated by the ld.AO.

The detailed and exhibit wise/ issue wise explanation of the discrepancies observed by the appellant in the amount calculated by the ld.AO on account of alleged unaccounted sales from the seized papers is herewith submitted before your honours for your kind consideration:

Issue: Double additions in respect of replicate pages inventorized under different exhibits It is submitted that, the loose papers and other documents seized and inventoried by the search officials consist of replica of various pages. The ld. AO without co-relating these pages has made duplicate additions in respect of the replicate pages also.

The detailed working in this respect as submitted before ld.CIT(A) is submitted at:

A.Y. APB Amount 2015-16 59-60 3,53,826/-

41 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

2016-17 59-60 1,84,14,307/-

It is submitted that ld. CIT(A) after thorough analysis of such working has granted relief on this issue, appellant prays such action of ld.CIT(A) deserves to be upheld.

Issue: Purchases considered as unaccounted sales: It is submitted that the ld. AO while interpreting the seized papers has erred in considering the goods received on approvals/purchases by the appellant as unaccounted sales. From the papers in respect of which such additions have been made, which are approval memos or the memorandum ledger accounts, it is clearly evident that that the same do not relate to any goods sent on approval/ sales made by the appellant as the party name mentioned in the memos and ledgers is that of the appellant. Further, the additions have been duplicated to the extent that, additions both in respect of the approval memos and the memorandum ledger accounts which include the details of the approval memos has been made by the ld. AO.

The detailed working in this respect as submitted before ld.CIT(A) is submitted at APB 61-62 of paper book for A.Y. 2016-17, according to which total of such entries of goods received on approval which has been erroneously considered as unaccounted sales by ld. AO comes to Rs.44,26,768/-. It is submitted that ld.CIT(A) after thorough analysis of such working has granted relief on this issue, appellant prays such action of ld.CIT(A) deserves to be upheld.

Issue: Additions in respect of duplicate entries It is submitted that the appellant has a practice of noting down the events occurring during a day in form of rough notings. Further, he also notes down the same events party wise in respect of parties with whom regular business is done. In view of the above, the same events gets noted down twice and in some cases even thrice. The ld. AO without co-relating the seized papers and documents has made additions in respect of all such events multiple time due to the multiplicity in making the rough notings.

The detailed working in this respect as submitted before ld. CIT(A) is submitted at:

A.Y. APB Amount 2015-16 61-62 5,84,901/- 2016-17 63-64 1,80,39,604/-

It is submitted that ld. CIT(A) after thorough analysis of such working has granted relief on this issue, appellant prays such action of ld. CIT(A) deserves to be upheld.

42 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

Issue: Additions made on the basis of loose papers and documents in respect of which additions have also been made in the case of appellant’s father, Shri Chandra Prakash Agarwal: It is submitted that various additions made by the ld. AO in reference to the loose papers and other documents seized during the course of search from the appellant’s shop and his residence have been made both in the appellant’s case as well as in the case of his father, Shri Chandra Prakash Agrawal. As a result, addition in respect of the same pages have been duplicated and added to the income of both the father and the son. It is submitted, the pages in respect of such additions belong to Shri Chandra Prakash Agrawal, and this fact had been brought to the notice of the ld. AO during the course of assessment proceedings, however was not considered.

The detailed working in this respect as submitted before ld. CIT(A) is submitted at page 65 of paper book for A.Y. 2016-17, according to which sum of such entries comes to Rs.4,62,74,237/-.

It is submitted that ld. CIT(A) after thorough analysis of such working has granted relief on this issue, appellant prays such action of ld. CIT(A) deserves to be upheld.

The summary of all the discrepancies on yearly basis have been summarized and presented as under: Particulars 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 APB Double additions on - - - - 3,53,826/- 1,84,14,307/- 59-60 account of replicate A.Y. 17-18 pages Incorrect addition on - - - - - 44,26,768/- 61-62 account of goods A.Y. 17-18 received on approval considered as sales Additions in respect of - - - - 5,84,901/- 18,03,9604/- 63-64 duplicate entries A.Y. 17-18 Additions that have - - - - - 4,62,74,237/- 65 also been made in A.Y. 17-18 case of Shri Chandra Prakash Agrawal Total 9,38,727/- 8,71,54,916/-

The entire submissions made in with regard to alleged unaccounted sales could be summarized as under: 1. That necessary credit for the replicate pages deserve to be allowed. 2. That the goods received on approval and considered as unaccounted sale should be treated as receipt of goods. 3. That necessary credit for the duplicate/ multiple entries deserve to be allowed. 4. That the credit of additions that have also been made in the case of Shri Chandra Prakash Agrawal (appellant’s father) should be allowed.

43 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

In the circumstances, it is humbly submitted that additions made by ld.AO on arbitrary basis without appreciating the actual nature of the transaction pertaining to entry contained in the loose papers so referred and also without appreciating the fact that there are duplication/ multiplication of the entries made deserves to be deleted.

Attention of your honours is invited to a very crucial fact which was not at all considered by the ld. AO is that during the course of search proceedings two papers were found and seized by the department which are as under : a) Page 1 of Exhibit B-10 seized from the residence of the assessee; b) Page 19 & 21of Exhibit A-11seized from the residence of one of the partner of one of the sister concern M/s Royal Jewellers.

The loose papers seized during the course of search and alleged as a parallel balance sheet of M/s Royal Jewellers was in fact a memorandum statement of the position of the all the firms of the Chandra Prakash Agrawal group i.e. M/s Garg Jewellers, M/s Royal Jewellers and M/s Shrinath Corporation. The same is clearly evident from the plain reading of these loose papers itself where the rough estimate of the profits has been divided between the two families running the firms, namely Garg Jewellers (GJ) and Manoj Khandelwal (MJ). Further, the bank balances noted on these papers are not only that of M/s Royal Jewellers but also included bank balances of M/s Shrinath Corporation. Also the stock transfer of 145.95 kgs of silver within the group i.e. from Garg Jewellers to Royal Jewellers has been mentioned on these papers. It is therefore submitted that that these seized loose papers have been incorrectly been assumed to be a parallel balance sheet of the appellant’s sister concern (i.e. M/s Royal Jewellers) by the ld. AO.

As stated above these papers are memorandum statement of assets held by the entire group at a particular date which the ld. AO alleged as the parallel Balance Sheet of only one concern namely M/s Royal Jewellers and made the additions in the case of M/s Royal Jewellers, in three Assessment years i.e. 2014-15 to AY 2016-17 assuming alleged undisclosed profits of this firm stated to be reflected in these papers. Asstt. Year Amount (In Rs.) 2014-15 4,75,61,276/- 2015-16 3,09,42,496/- 2016-17 2,72,61,475/- TOTAL 10,57,65,247/-

It was contended during first appeal proceedings in the case of Royal jewellers that these papers contained the entries of entire group and are obviously inclusive of the profits declared in regular books of accounts of all the concerns of the group thus the credit for the same be allowed besides the credit for undisclosed profits so added by the

44 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT ld. AO and finally sustained in various concerns of the group. Further the credit of additions, on account of alleged undisclosed sales based on the loose papers found and seized during the course of search and sustained by your honour if any may also be allowed.

In view of the above, it is submitted that in the case of the appellant, certain entries have been treated as undisclosed sales and addition towards the profit from such sales have been made by the ld. AO which tantamount to double addition for AY 2014-15 to 2016-17 in the hands of the assessee as additions towards the net profits as found noted in the so called alleged Balance Sheet has already been made in the case of group / sister concern as the said papers related to the activities of the entire group including the appellant himself also. It is thus submitted that the addition, if any, finally sustained by your goodself on account of profit from the alleged undisclosed sale, it would obviously be included in the profit reflected in the alleged balance sheet of the entire group. It is submitted that addition on account of profit as reflected in group’s alleged balance sheet over and above what is recorded in the books of account of the group concerns, has been sustained by ld. CIT(A) in the case of M/s Royal Jewellers in absence of bifurcation of profit into each concern. Accordingly, necessary credit of the additions already made in the hands of M/s Royal Jewellers be allowed in the case of appellant or additions in M/s Royal Jewellers may be ordered to be reduced to this extent.

Besides the above, it was also submitted before ld.CIT(A) that a survey action u/s 133A of the act was also carried out by the department on 09/12/2014 at the business premises of the assessee and other sister concerns stated above. As a result of the survey action the appellant had surrendered a sum of Rs.3,38,35,315/- towards the excess stock, cash found , and advance for land found during the course of survey and assessee had offered the same to tax during AY 2015-16. Further, the amounts surrendered and offered to tax by the appellant’s sister concerns on account of excess stock and other as a result of survey action are as under: M/s Royal Jewellers: Rs.3,16,10,463/- M/s Shrinath Corporation: Rs.3,94,67,426/-

It was further submitted that the accumulation of the excess stock, cash found and advance for land is the result of the income earned from the so called undisclosed sales made by various concerns of the assessee group in the year under appeal and also in preceding assessment years and relevant entries of the same were found noted in the loose papers found during the course of search from the possession of the assessee / his family members. Since the assessee has already paid the due taxes on the excess stock found during the course of survey any further addition towards the profit from the alleged undisclosed sale would tantamount to double addition.

45 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

It was further submitted that: (i) Any amount alleged as undisclosed sale made by the appellant prior to AY 2016-17 (i.e. upto A.Y.2015-16) already stands included in the amount surrendered during the survey action on which the due tax has already been paid by the appellant. Any addition on this count for the years AY 2011-12 to AY 2015-16 would lead to double addition, which is bad in law.

(ii) Alleged parallel balance sheet consists of the details of all the three firms. Hence if any addition on account of these pages is to be made, the credit of declared profits of each of the three firms is to be given. (Detailed submission in this regard has been made in the case of M/s Royal Jewellers) Moreover separate additions of alleged undisclosed profits from undisclosed transactions is not warranted to the extent of balance addition on account of alleged parallel balance sheet of the group, otherwise it would tantamount to double additions.

After considering submission of assesse, ld.CIT(A), computed final addition as under:

Assessment Particulars Amount Year 2015-16 Addition on account of Unaccounted Sales 12,29,38,805.00 Less: Addition on account of duplicate entries/entries 9,38,727/- on multiple pages/ already added in the hands of Sh. C.P. Agrawal 12,20,00,078.00 GP rate applied 12.88% Addition confirmed 1,57,13,610/- Less: Relief on account of surrender made during 1,57,13,610/- survey (as surrendered income was Rs. 3,38,35,315.00)

Addition finally sustained NIL 2016-17 Addition on account of Unaccounted Sales 28,89,98,467.00

Less: Addition on account of duplicate entries/entries 8,71,54,916.00 on multiple pages/ already added in the hands of Sh. C.P. Agrawal 20,18,43,551/- GP rate applied 11.45% Addition confirmed 2,31,11,086.59

In view of above, appellant submits that though no addition on account of undisclosed sales is warranted in the appellant’s case, addition if any sustained by your honours

46 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT should be restricted to the amount of net profit (and not the gross profit) that could have been earned on account of such alleged unaccounted sales and telescoping of the same be allowed out of balance addition, if any sustained on account of the excess stock.

It is further submitted that it has long been the settled principle of law that the estimations should be fair and honest and should be based on some scientific method. Further all the receipts found noted in the loose papers cannot be held as the income more specially in the peculiar facts and circumstances of the case where the expenses against such income are also found recorded in the loose papers, therefore most reasonable and logical profit should be estimated.

Such method of computation of income is an accepted method as the papers found as a result of search should be read as a whole and the entries of expenses as well as receipts cannot be considered in isolation rather it has to be worked out by giving full coherence for working of the additional income based on such papers / documents.

Reliance is placed on following case laws:

253 ITR 454 (Guj.) Glass Lines Equipments Co. Ltd. V/s CIT: Interpretation of documents - Documents must be read as a whole. It is a well settled canon of interpretation that a document has to be read as a whole" it is not permissible to accept a part and ignore the rest of the document.

22 TW 684 Hissaria Brothers V/s ACIT (Jpr.): Held that the seized document has to be read in its entirety and the parties are not allowed to read only that part which is suitable to it.

21 Tax World 213 Lal Chand Agarwal V/s ACIT (Jpr): In no case AO can be allowed to consider a part of a particular document as true being favorable revenue and other part of the very document as false since that is favorable to assessee - Duality of the approach of AO is not fair.

Your honour may kindly appreciate that no income can be earned without incurrence of the reasonable and genuine expenditure and therefore Income Tax Act itself contains various provisions for allowing expenses incurred for earning income. In fact even under presumptive taxation regime, only a percentage of turnover (fixed on the basis of normal profit rate that a businessman can make under normal circumstances) and not the entire turnover is taxed. Such scheme is absolutely logical in view of the fact that the payments made for resources utilized for earning income, whether in the form of purchases or other services would be income of the recipients and thus would be

47 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT taxable in their hands. Therefore, if an assessee is taxed in respect of such alleged unaccounted sales, the same would be illegal under the Income Tax Act, 1961 and it is only the real income which can be taxed not the gross receipts.

In view of above, it is requested that only net profit after allowing deduction on account of expenses incurred for earning the unrecorded sales deserves to be taxed and not the entire receipts, therefore the addition sustained by ld.CIT(A) at gross profit rate should be substituted by a reasonable and logical net profit rate as per the past history of the appellant. It is reiterated that various credits and telescoping as mentioned in earlier paras may be given on this net profit so estimated.

In this regard reliance is placed on the decision of the Hon’ble ITAT, Jaipur bench in the case of M/s M/s Vikas Timber Products (P) Ltd. wherein in ITSSA No. 53/JP/06, Hon’ble bench has held that in the case of unaccounted sales income is to be estimated by applying a reasonable Net profit rate.

Also reliance is placed on the following judicial pronouncements:

CIT Vs. President Industries 225 ITR 47 (SC): Entire sales cannot be taxed only profits could be added.

ITO Vs Somsons & Co. 148 TAXMAN 21(Asr., ITAT): Estimation of profit – AO cannot estimate income which do not bear any relationship with the past history of the case.

ITO, Ward 45(3), Kolkata Vs. ManiklalDey ITA No. 2436 /Kol/2016 (ITAT-Kol): Turnover includes cost or purchases and gross profit. Only gross profit can be termed as the income of the appellant. The action of the AO for adding entire turnover is baseless.

Without prejudice to above, if in the case of appellant addition towards alleged undisclosed sales is sustained, then it is submitted that additions towards the net profits as found noted in the so called alleged Balance Sheet has been made in the case of M/s Royal Jewellers considering the fact that alleged Balance sheet did not have the separate concern wise profit (accounted as well as unaccounted both) details of the group. It is submitted that any unaccounted profit due to alleged unaccounted sale would obviously be reflected in the total memorandum working of the profit of the group and accordingly the separate addition due to unaccounted profit on unaccounted sale, if made in any of the three concerns, would tantamount to double addition.

48 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT Accordingly profit so sustained on these alleged unaccounted sales in the case of appellant would obviously be required to be included while determining addition on the basis of alleged balance sheet which has been made in the case of M/s Royal Jewellers and set off of this amount so sustained if any, may be ordered to be given, either in the case of appellant or in the case of M/s Royal Jewellers, otherwise it would tantamount to double addition for AY 2014-15 to 2016-17 in the hands of the assessee or M/s Royal Jewellers. It is therefore, submitted that the addition, if any, finally sustained by your goodself towards these alleged parallel Balance Sheets, necessary credit of the additions already made in the hands of other group concerns on account of profits from undisclosed sales be allowed.

The ld.CIT(A) has considered this aspect of the submission made by us in the case of M/s Royal Jewellers and after considering the facts has rightly directed to give set off of the additions on account of alleged unaccounted sales in the case of other concerns of the group from the addition on account of parallel balance sheet made in the case of M/s Royal Jewellers. Relevant extracts of decision of ld.CIT(A) as given in the case of Royal Jewellers for A.Y. 2016-17 as noted on page 42-43 para 15.2 is as follows:

“I have carefully considered the argument of the Ld. AR. It is seen that in the earlier paras, I had held that the profit so reflected in those seized two pages is actually the profit of the group concerns and these cannot be regarded as rough or memorandum notings having no value, as tried to be contended by the Ld. AR. However, as these are held to reflect the total actual profit of the group, any addition so made on the basis of other stray seized documents found during the course of search in respect of the profit would obviously tantamount to double addition. Similar is the position in relation to the trading addition so sustained by me in this appeal order. Accordingly both the aforesaid additions are held to be merged with the addition in relation to the profits of the group reflected in those two seized papers. AO is accordingly directed to give proper effect. Moreover, similar additions made in two sister concerns of the appellant group are held to be merged in the aforesaid addition related to group profit and therefore required to be deducted out of the above.”

It is requested before Hon’ble bench that order of ld.CIT(A) in this regard may kindly be upheld in respect of the group concerns of the assessee group and inter se set off between the group concerns of the assessee group may kindly be allowed.

Departmental Ground of Appeal No.10 for A.Y. 13-14. Ground of Appeal No. 8 for A.Y. 15-16 and ground of appeal no. 7 for A.Y. 16-17 In all these grounds of appeal, department has challenged the action of ld.CIT(A) in holding that provisions of section 115BBE are not applicable on the addition made by ld.AO on account pf alleged unaccounted cash sales.

49 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

Brief facts pertaining to these grounds of appeal are that ld. AO has invoked the provisions of section 115BBE of the act for the purpose of taxing the additions made to the returned income of the appellant on account of alleged unaccounted sales, and thereby taxed such alleged additions @ 30%.

At this juncture, provisions of section 115BBE of the act are reproduced hereunder for your honour’s ready reference: “Tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D. 115BBE. [(1) Where the total income of an assessee,— (a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or (b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a), the income-tax payable shall be the aggregate of— (i) the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent; and (ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).] (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) [and clause (b)] of sub-section (1).”

It is evident from the plain reading of heading of section 115BBE itself that the provisions of this section are applicable only to incomes referred to in section 68, 69, 69A, 69B, 69C or 69D, and as submitted supra, the additions made by the ld.AO are on account of alleged undisclosed income on which the provisions of section 68 or 69C itself are not at all applicable.

Consequently, when the income itself fails to fall under the relevant sections as prescribed by the Act (i.e. section 68, 69, 69A, 69B, 69C or 69D), its taxability cannot be determined in terms of section 115BBE.

It is thus submitted that ld.CIT(A) has rightly held that addition on account of unaccounted cash sales is not covered by provisions of section 68 and accordingly

50 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT consequent invocation of provisions of section 115BBE is not in accordance with law, it is request that such order passed by ld. CIT(A) deserves to be upheld.”

8.1. The ld. AR of the assessee heavily relied upon the written submission

and submitted that while calculating the profit the average of 5 years taken

by the ld. AO based on the decision of the ITAT which was for a particular

year in the case of the assessee and shall not apply in the subsequent year

in lock, stock, and barrel. As regards the addition of undisclosed sales in

the year under consideration the ld. CIT(A) has rightly considered the

contention that the considering the fact of the case only GP can be added

and for applying the rate of profit the assessee is in appeal on the ground

raised before the tribunal. So far as the issue of making addition u/s. 153a

de hors the incriminating material he relied upon the binding decision of the

jurisdictional High Court as detailed in the written submission. As regards

the ground for rejection of books of account he heavily relied upon the

written submission. As regards the unaccounted sales based on the seized

material and estimation of the GP/NP he has relied up the detailed finding

of the ld. CIT(A) and his written submission where the ld. CIT(A) has not

given favour to the assessee. The ld. AR of the assessee submitted that the

considering the peculiar set of facts in this case since the addition is not

51 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT related to the entries found in the books of account invoking of provision of

section 115BBE not warranted.

and of the ld. CIT(A) as favorable to the revenue. The ld. DR submitted that

the book of accounts were rightly rejected by the ld. AO and has also

confirmed by the ld. CIT(A) and since there is not controverting evidence

and/or submission advanced by the assessee he relied the finding of the

lower authorities. The ld. DR appearing on the behalf of the revenue

contended that the ld. CIT(A) has not granted an opportunity of being heard

to confront the submission made by the assessee so far as it related to the

figure arrived for unrecorded sales and estimation of profit in the first round

of appeal. So, the contentions raised by the assessee are not verifiable at

the end of the ld. AO and therefore, the issue needs examination again for

the various contentions of duplicate entry of sales contended by the

assessee. So far as the trading addition is concerned, he has relied upon

the detailed finding of the ld. AO. As regards the seized paper containing

the consolidated balance sheet, of the group he has relied upon the findings

of the ld. AO. The ld. AR of the assessee heavily relied upon the following

written submission

52 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

9.1 Further, in this appeal the ld. DR of the revenue submitted synopsis of

additions made in the case of Sh. Jitendra Agarwal which is reiterated as

under:-

AY Additions by AO Amount Decision of ld. CIT(A)

2011-12 1. Trading addition 24,99,795 (GP rate 20%) 1. Trading addition deleted citing legal pronouncements that there is no incriminating material for rejection of books of account.

2012-13 1. Trading addition 10,61,488 1. Trading addition deleted (30% GP rate) following legal pronouncements that there is no incriminating material for rejection of books of account. 2. Undisclosed sales 60,67,378 2. GP rate of 25.49% u/s 68 applied (as shown by Appellant) on 60,67,378 and addition of Rs. 15,46,575 confirmed.

2013-14 1. Trading addition 73,94,044 1. Trading addition made by (22.50% GP rate) AO deleted on the same

53 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

analogy, but trading

addition as per the order

of Hon’ble ITAT is to be

made. Nothing quantified.

ITAT to be applied on Rs.

3,15,22,565

2014-15 1. Trading addition 80,33,289 (22.50% G.P 1. Deleted on the same

rate) analogy.

on 34,04,456 and

addition of Rs. 2,70,654

Undisclosed sales u/s 34,04,456 sustained.

68/115BBE

2015-16 1. Trading addition 39, 33,053 (GP rate 30%) 1. Confirmed addition of

Rs. 12,06,248 by taking

ave. GP rate of 5 years

including A.Y 2015-16

(GP rate 12.88%)

u/s 68/ 115BBE undisclosed sales of Rs.

12,29,38,805 giving rise to gross

profits of Rs. 1,57,13,610.

However, the CIT(A) did not

54 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

confirm any addition and gave set off against income of Rs. 3,38,35,575 surrendered during survey, so entire addition was deleted. 2016-17 1. Trading Addition 58,19,282 (GP rate 1. Addition of Rs. 42,01,184 23.79%) confirmed applying ave. GP rate of 5 years including A.Y 2016-17 at 11.45% 2. Undisclosed sales 28,89,98,467 2. GP rate of 11.45% u/s 68/115BBE applied on 28,89,98,467 giving rise to confirmation of addition of Rs. 2,31,11,086.

Note: The written submissions on findings of the ld. CIT(A) on above issues have been given separately in the lead case of the group ‘Royal Jewellers’ , therefore, the same have not been submitted here, as the issues are identical. However, the written submission in this case for A.Y 2017-18 has been given separately.”

9.2 In addition ld. DR representing the revenue submitted compilation of

case law(s) in support of the contentions so raised, which is reproduced as

under:-

S. No. Description of the case Page No. 1 [1963] 49 ITR 112 (SC) Sreelekh Banerjee vs. CIT 1-10 2 [2012] 25 taxmann.com 552 (SC) Zaveri Diamonds vs. CIT 11-12 3 [2016] 69 taxmann.com 219 (SC) Sudhir Kumar Sharma (HUF) 13-14 4 [2020] 118 taxmann.com 166 (Delhi) Ravinder Kumar vs. ITO 15-20 5 [2013] 36 taxmann.com 513 (Delhi) Commissioner of Income-tax vs. Ajay 21-29

55 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

Kapoor 6 [2019] 106 taxmann.com 128 (SC) Bannalal Jat Constructions (P.) Ltd,. vs. 30-40 Assistant Commissioner of Income-tax 7 Ravi Mathur & Others (D.S. Appeal No. 67/2002 & others) 13.05.2016 41-56 8 PCIT vs. Shri Roshan Lal Sanchti, D.B. ITA No. 47/2018 dated 30.10.2018 57-74 Rajasthan High Court. 9 [2017] 82 taxmann.com 315 (Mumbai- Trib.) Ms. Chhaya P. Gangar vs. Deputy 75-95 Commissioner of Income-tax 10 [2017] 88 taxmann.com 700 (Patna) Dr. Gauri Shankar Prasad vs. Income-tax 96-102 Appellate Tribunal, Patna

Based on the findings recorded by the assessing officer, he supported the

order of the assessing officer and order of the ld. CIT(A) to the extent it

support the revenue.

available on record and gone through findings of the lower authorities

recorded in their orders as well as gone through the various judicial rulings

placed before us by both the parties to drive home their contentions.

10.1 Brief facts of the case are that appellant is an individual running sole

proprietary business of manufacturing and trading of jewellery including

studded jewellery from 222, Johari Bazar, Jaipur and residing at 1756,

Telipada, SMS Highway, Jaipur. A search and seizure action u/s 132 of I.T.

Act was carried out on 28.07.2016 by Income Tax Department on C.P.

Garg Group, of which appellant is one of the constituent and business

premises as well as residential premises of the appellant were also

56 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT searched. During the course of search cash, valuables and various loose

papers / documents related to the group persons / concerns were found

and seized. In response to the notice u/s 153A, the appellant filed its return

of income and assessment was completed u/s 143(3) r.w.s. 153A by ld. AO

by making additions after invoking provisions of section 145(3) and

applying the GP rate and by making other additions, the details of which

are as below:-

Sl. Assessment Trading addition GP Undisclosed 115BBE No. Year by applying the Rate cash sales u/s invoked GP Rate 68 1. 2011-12 24,99,795/- 20% 18,83,130/- - 2. 2012-13 10,61,488/- 30% 60,67,378/- - √ 3. 2013-14 73,94,044/- 22.50% 3,15,22,665/- √ 4. 2014-15 80,33,289/- 22.50% 34,04,456/- √ 5. 2015-16 39,33,053/- 23.95% 12,29,38,805/- √ 6. 2016-17 58,19,282/- 23.79% 28,89,98,467/-

appeal before ld. CIT(A) who deleted / partly deleted the various additions

so made u/s 153A, the summarily of the addition deleted / sustained is as

under:

Sl. A.Y. Trading Deleted by Undisclosed GP rate applied Amount 115BBE No. addition by ld.CIT(A) cash sales by ld. CIT(A) on Confirmed by applying the alleged

57 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

GP Rate undisclosed CIT(A) cash sales

In brief, for A.Y. 2011-12, 2012-13 and 2014-15, there is no cross appeal of

the revenue granting relief to the assessee.

for AY 2013-14. The revenue has challenged the order of ld. CIT(A)

whereby trading addition of Rs. 73,94,044/- was allowed on legal ground

that since assessment proceedings were not pending and time limit for

58 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT issuance of notice u/s 143(2) had already expired, assessment

proceedings and consequent additions could only be made which are

based on and emanating from the seized incriminating documents found

during the course of search. Since in the instant case, trading addition so

made by ld. AO was not based on any such incriminating documents found

as a result of search, ld. CIT(A) deleted the trading addition. As the ld. CIT

DR and ld. AR of the assessee submitted their respective submissions

common for all the grounds. Accordingly, these grounds are discussed and

decided together.

case of CIT Vs. Saint Francis Clay Décor Tiles (supra), E.N. Gopakumar

Vs. CIT (supra) and CIT Vs. Dr. P. Sasikumar (supra) as well as decision of

Allahabad High Court in the case of CIT Vs. Rajkumar Arora (supra) and

other decisions cited in the submission. On the other hand, ld. AR of the

assessee cited the binding decisions of Rajasthan High Court in the case of

Jai Steel India Vs. ACIT reported in 259 CTR 281 and decision of Delhi

High Court in the case of CIT Vs. Kabul Chawla 380 ITR 573 and Kurele

Paper Mills Pvt. Ltd. as well as the subsequent decision of Delhi High Court

in the case of Pr. CIT Vs. Meeta Gutgutia decided on 25.07.2017, reported

in 395 ITR 526 and Vikas Gutgutia reported in 396 ITR 691. It was further

59 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT submitted by ld. AR of the appellant that in the case of Kurele Paper Mills

Pvt. Ltd. reported in 380 ITR 571, Hon’ble Supreme Court has dismissed

the SLP of the department on 07.12.2015. Thereafter and in a separate

matter of Meeta Gutgutia also, the SLP of the department has also been

dismissed by the Hon’ble Supreme Court. It was also submitted by the ld.

AR that in the case of PCIT Vs. Meeta Gutgutia Hon’ble Delhi High Court

has considered the various decisions available at the time in favour of

assessee as well as in favour of department and finally after elaborate

discussion has held that invocation of provisions of section 153A is

unjustified in respective years for which no incriminating documents were

found and also no assessment was pending as on the date of search.

Obviously, an assessment has to be made under section 153A only on the

basis of seized material.

contentions raised before us. It is undisputed that while making trading

addition and rejecting books of accounts u/s 145(3) the ld. AO has not

referred to any of the seized document found during the course of search

relevant to AY 2013-14. Accordingly, now the issue before us is as to

whether additions can be made while making the assessment order u/s

153A, without referring to any incriminating material found during the

60 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT course of search. One of the important decision on the issue under

consideration is of Hon’ble Delhi High Court in the case of CIT Vs. Kabul

Chawla reported in 380 ITR 573 (Delhi). In this decision, the various issues

related to addition in the order u/s 153A based on incriminating documents

or otherwise and related case laws available till then were discussed and

finally at para 37 & 38, the Hon’ble Court has observed as under:

"37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYS immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYS will have to be computed by the AOS as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. I other words there will be only one assessment order in respect of each of the six AYS "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings.

61 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made. separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. Conclusion 38. The present appeals concern AYS, 2002-03, 2005-06 and 2006-07.On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed."

the absence of any incriminating material, the completed assessment can

be reiterated and the abated assessment or reassessment can be made.

The Hon'ble High Court has also referred the term used in section 153A as

"assess" which is relatable to abated proceedings and the word "reassess"

related to completed assessment proceedings. Therefore, the completed

assessments can be interfered with by the AO while making the

assessment under section 153A only based on some incriminating material

unearthed during the course of search or requisition of document or

undisclosed income or property discovered in the course of search which

were not produced or not already disclosed or made known in the course of

62 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT original assessment. Further the Hon'ble Delhi High Court has reiterated its

view in another case namely Principal CIT vs. Kurele Paper Mills (supra) in

para 1 to 3 as under:

"1. The Revenue has filed the appeal against an order dated 14.11.2014 passed by the Income Tax Appellate Tribunal (ITAT) in 3761/Del/2011 pertaining to the Assessment Year 2002-03. The question was whether the learned CIT (Appeals) had erred in law and on the facts in deleting the addition of Rs. 89 lacs made by the Assessing Officer under Section 68 of the Income Tax Act, 1961 ('ACT) on bogus share capital. But, the issae was whether there was any Incriminating material whatsoever found during the search to justify initiation of proceedings under Section 153A of the Act. 2. The Court finds that the order of the CIT(Appeals) reveals that there is a factual finding that "no incriminating evidence related to share capital issued was found during the course of search as is manifest from the order of the AO." Consequently, it was held that the AO was not justified in invoking Section 68 of the Act for the purposes of making additions on account of share capital. 3. As far as the above facts are concerned, there is nothing shown to the court to persuade and hold that the above factual determination is perverse. Consequently, after considering all the facts and circumstances of the case, the Court is of the opinion that no substantial question of law arises in the impugned order of the ITAT which requires examination."

decision of Kurele Paper Mills of Hon'ble Delhi High Court was dismissed

by the Hon'ble Supreme Court vide order dated 7th December, 2015. In a

subsequent decision, the Hon'ble Delhi High Court in the case of Principal

CIT vs. Meeta Gutgutia has again analyzed this issue and considered the

decision in the case of Anil Kumar Bhatia and Chetan Das Laxman Das

referred on behalf of revenue. The Hon’ble Court at para 55 to 58 has

mentioned about these cases and has referred to the decision in the case

63 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT of Kabul Chawla where these cases have been discussed and

distinguished and the relevant para is reiterated here in below:

"55. On the legal aspect of invocation of Section 153A in relation to AYS 2000 01 to 2003-04, the central plank of the Revenue's submission is the decision of this Court in Smt. Dayawanti Gupta (supra). Before beginning to examine the said decision, it is necessary to revisit the legal landscape in light of the elaborate arguments advanced by the Revenue. 56. Section 153A of the Act is titled "Assessment in case of search or requisition". It is connected to Section 132 which deals with 'search and seizure'. Both these provisions, therefore, have to be read together. Section 153A is indeed an extremely potent power which enables the Revenue to re open at least six years of assessments earlier to the year of search. It is not to be exercised lightly. It is only if during the course of search under Section 132 incriminating material justifying the re-opening of the assessments for six previous years is found that the invocation of Section 153A qua each of the AYS would be justified. 57. The question whether unearthing of incriminating material relating to any one of the AYS could justify the re-opening of the assessment for all the earlier AYS was considered both in Anil Kumar Bhatia (supra) and Chetan Das Lachman Das (supra). Incidentally, both these decisions were discussed threadbare in the decision of this Court in Kabul Chawla supra). As far as Anil Kumar Bhatia (supra) was concerned, the Court in paragraph 24 of that decision noted that "we are not concerned with a case where no incriminating material was found during the search conducted under Section 132 of the Act. We therefore express no opinion as to whether Section 153A can be invoked even under such situation". That question was, therefore, left open. As far as Chetan Das Lachman Das (supra) is concerned, in para 11 of the decision it was observed: "11. Section 153A (1) (b) provides for the assessment or reassessment of the total income of the six assessment years immediately preceding the assessment year relevant to the previous year in which the search took place. To repeat, there is no condition in this Section that additions should be strictly made on the basis of evidence found in the course of the search or other post-search material or Information available with the Assessing Officer which can be related to the evidence found. This, however, does not mean that the assessment under Section 153A can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." 58. In Kabul Chawla (supra), the Court discussed the decision in Filatex India Ltd. (supra) as well as the above two decisions and observed as under: "31. What distinguishes the decisions both in CITV. Chetan Das Lachman Das (supra), and Filatex India Ltd. v. CIT-IV (supra) in their application to the

64 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT present case is that in both the said cases there was some material unearthed during the search, whereas in the present case there admittedly was none. Secondly, it is plain from a careful reading of the said two. decisions that they do not hold that additions can be validly made to income forming the subject matter of completed assessments prior to the search even if no incriminating material whatsoever was unearthed during the search. 32. Recently by its order dated 6th July 2015 in ITA No. 369 of 2015 (Pr. Commissioner of Income Tax v. Kurele Paper Mills P. Ltd.), this Court declined to frame a question of law in a case where, in the absence of any incriminating materia being found during the search under Section 132 of the Act, the Revenue sought to justify initiation of proceedings under Section 153A of the Act and make an addition under Section 68 of the Act on bogus share capital gain. The order of the CIT (A), affirmed by the ITAT, deleting the addition, was not interfered with."

High Court in the case of Jai Steel (India) Vs. ACIT (2013) 36

Taxmann.com 523 / 219 Taxman 223 has also occasion to discuss the

issue of addition u/s 153A and has held that addition could be made u/s

153A based on incriminating material found during the course of search or

requisition of documents. Hon’ble Delhi High Court in the case of Kabul

Chawla as well as in the case of Kurele Paper Mills has usefully referred to

the decision of Rajasthan High Court in the case of Jai Steel (India).

Moreover, at para 59 of the decision in the case of Meeta Gutgutia, the

Hon’ble Court has observed about decision of Rajasthan High Court in Jai

Steel (India) being referred and followed in Kabul Chawla, which is as

under:

65 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT 59. In Kabul Chawla (supra), the Court referred to the decision of the Rajasthan High Court in Jai Steel (India) v. Asstt. CIT[2013] 36 taxmann.com 523/219 Taxman 223. The said part of the decision in Kabul Chawla (supra) in paras 33 and 34 reads as under: '33. The decision of the Rajasthan High Court in Jai Steel (India), Jodhpur v. ACIT (supra) involved a case where certain books of accounts and other documents that had not been produced in the course of original assessment were found in the course of search. It was held where undisclosed income or undisclosed property has been found as a consequence of the search, the same would also be taken into consideration while computing the total income under Section 153A of the Act. The Court then explained as under: "22. In the firm opinion of this Court from a plain reading of the provision along with the purpose and purport of the said provision, which is intricately linked with search and requisition under Sections 132 and 132A of the Act, it is apparent that: (a) the assessments or reassessments, which stand abated in terms of II proviso to Section 153A of the Act, the AO acts under his original jurisdiction, for which, assessments have to be made; (b) regarding other cases, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material; and (c) in absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made."

66 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents."

Court in the case of Kabul Chawla, while deciding the case of Saumya

Construction Pvt. Ltd. In this case, Hon’ble ITAT deleted the addition on the

ground that same was not based on any incriminating material found during

search in respect of assessment year under consideration. The Hon’ble

Gujarat High Court referred to the decision in Kabul Chawla and also

referred to the decision of Jurisdictional Rajasthan High Court in Jai Steel

(India) and earlier decision of Gujarat High Court itself and has explained in

para 15 & 16 of its order as under:-

'15. On a plain reading of section 153A of the Act, it is evident that the trigger point for exercise of powers thereunder is a search under section 132 or a requisition under section 132A of the Act. Once a search or requisition is made, a mandate is cast upon the Assessing Officer to issue notice under section 153A of the Act to the person, requiring him to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and assess or reassess the same. Since the assessment under section 153A of the Act is linked with search and requisition under sections 132 and 132A of the Act, it is evident that the object of the section is to bring to tax the undisclosed income which is found during the course of or pursuant to the search or requisition. However, instead of the earlier regime of block assessment whereby, it was only the undisclosed income of the block period that was assessed, section 153A of the Act seeks to assess the total income for the assessment year, which is clear from the first proviso thereto which provides that the Assessing Officer shall assess or reassess the total income in respect of each

67 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT assessment year falling within such six assessment years. The second proviso makes the intention of the Legislature clear as the same provides that assessment or reassessment, if any, relating to the six assessment years referred to in the sub- section pending on the date of initiation of search under section 132 or requisition under section 132A, as the case may be, shall abate. Sub-section (2) of section 153A of the Act provides that if any proceeding or any order of assessment or reassessment made under sub-section (1) is annulled in appeal or any other legal provision, then the assessment or reassessment relating to any assessment year which had abated under the second proviso would stand revived. The proviso thereto says that such revival shall cease to have effect if such order of annulment is set aside. Thus, any proceeding of assessment or reassessment falling within the six assessment years prior to the search or requisition stands abated and the total income of the assessee is required to be determined under section 153A of the Act. Similarly, sub-section (2) provides for revival of any assessment or reassessment which stood abated, if any proceeding or any order of assessment or reassessment made under section 153A of the Act is annulled in appeal or any other proceeding. 16. Section 153A bears the heading "Assessment in case of search or requisition". It is "well settled as held by the Supreme Court in a catena of decisions that the heading or the Section Can be regarded as a key to the interpretation of the operative portion of the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used in the section strengthens that meaning. From the heading of section 153. the intention of the Legislature is clear, viz., to provide for assessment in case of search and requisition. When the very purpose of the provision is to make assessment In case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition, in other words, the assessment should connected With something round during the search or requisition viz., incriminating material which reveals undisclosed income. Thus, while in view of the mandate of sub-section (1) of section 153A of the Act, in every czea where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition' or disallowance can be made only on the basis of material collected during the search or requisition, in case no incriminating material is found, as held by the Rajasthan High Court in the case of Jal Steel (India) v. Asst. CIT(supra), the earlier assessment would have to be reiterated, in case where pending assessments have abated, the Assessing Officer can pass assessment orders for each of the six years determining the total income of the assessee which would include income declared in the returns, if any, furnished by the assessee as well as undisclosed income, if any, unearthed during the search or requisition. In case where a pending reassessment under section 147 of the Act has abated, needless to state that the scope and ambit of the assessment would include any order which the Assessing Officer could have passed under section 147 of the Act as well as under section 153A of the Act.

68 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT 19. Subsequently, in Devangi alias Rupa (supra), another Bench of the

Gujarat High Court reiterated the above legal position following its earlier

decision in Saumya Construction (P.) Ltd. (supra) and of Delhi High Court

decision in Kabul Chawla (supra). It is seen that CIT DR has referred to

the case of Canara Housing Development Co. Vs. DCIT (2014) 49

taxmann.com 98 of Karnataka High Court. This case was decided vide order dated 25th July, 2014. However, subsequently the Karnataka High

Court in the case of IBC Knowledge Park (P.) Ltd. (2016) 385 ITR 346

followed the decision of Delhi High Court in Kabul Chawla (supra) and held

that there had to be incriminating material qua each of the AYS in which

additions were sought to be made pursuant to search and seizure

operation. The Calcutta High Court in Salasar Stock Broking Ltd. (supra),

too, followed the decision of Delhi High Court in Kabul Chawla (supra). In

Gurinder Singh Bawa (supra), the Bombay High Court held that:

"6. . . . . . once an assessment has attained finality for a particular year, i.e., it is not pending then the same cannot be subject to tax in proceedings under section 153A of the Act. This of course would not apply if incriminating materials are gathered in the course of search or during proceedings under section 153A of the Act which are contrary to and/or not disclosed during the regular assessment proceedings." 20. The Hon’ble Delhi High Court in its subsequent decisions in the case

of Mahesh Kumar Gupta (supra) and Ram Avtar Verma (supra) has

followed the decision in Kabul Chawla (supra). The decision of in the case

69 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT of Kurele Paper Mills (P.) Ltd. (supra) which was referred to in Kabul

Chawla (supra) has been affirmed by the Supreme Court by the dismissal

of the Revenue's SLP on 7th December, 2015. It is mentioned that the

case of Dayawanti Gupta was referred on behalf of assessee while arguing

the case of Meeta Gutgutia. Hon’ble Delhi High Court after going through

the facts has distinguished the case of Dayawanti Gupta and has observed

as under in para 70 & 71 in the case of Meeta Gutgutia (supra):-

Rajasthan High Court have decided the issue in favour of assessee holding

that addition u/s 153A can be made only based on incriminating material

found during the course of search. The ld. CIT DR has referred the cases

of Kerala High Court in the case of Saint Francis Clay Décor Tiles; Dr. P.

Sasikumar as well as E.N. Gopkumar. On perusal of these cases, it is seen

that in the first case, the issue before the Hon’ble High Court was as to

whether notice u/s 153A can be issued or not in absence of any

70 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT incriminating material found during the course of search; for which the

Hon’ble Court has held in favour of revenue in respect of issue of notice u/s

153A only and there was no decision so given by the Hon’ble Court on the

issue of addition to be made or not to be made in such cases. In the case

of Dr. P. Sasikumar cited by ld. CIT DR, the Hon’ble Kerala High Court has

decided the issue of issue of notice u/s 153A only in absence of any

incriminating document, in favour of revenue. The Hon’ble Court has further

held in affirmative as to whether abatement of assessment or

reassessment pending on the date of search within period of six

assessment years will also not absolve the assessee from his liability to

submit return as provided u/s 153A(1)(a). There was no categorical

decision that even in absence of incriminating material, the addition can be

made u/s 153A. Without prejudice to above, it is seen that this decision of

Kerala High Court is of July, 2016. Similarly, another decision of Kerala

High Court in the case of E.N. Gopkumar cited by the CIT DR was decided

in 2016 and subsequent to these decisions of Kerala High Court there have

been various decisions of other High Courts in favour of assessee as has

been discussed herein above. Similarly, case of CIT Vs. Rajkumar Arora

referred by the CIT DR was decided in 2014 and there have been ample

decisions of various high courts after the above decisions in favour of

71 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT assessee. It is further seen that the SLP in the case of Kabul Chawla was

dismissed by the Hon’ble Supreme Court. Moreover, SLP in the case of

Meeta Gutgutia was also dismissed by the Hon’ble Supreme Court. The ld.

CIT DR mentioned about SLP being admitted in the case of Continental

Warehousing and Best Infrastructure. In this regard we are of the view that

no final order has been passed so far by Hon’ble Supreme Court in the

judgments cited by ld. DR. Therefore, the principle of “Ratio decendi” is not

applicable with regard to aforementioned cases. Considering the above, we

are of the firm opinion that in absence of any order of Hon’ble Supreme

Court, the decision of Hon’ble Jurisdictional High Court in the case of Jai

Steel (India) ; PCIT Vs. Smt. Daksha Jain DBIT No. 125/2017 and other

cases are binding on us. Moreover, these decisions are also supported by

decisions of various other high courts on the aforesaid issue as mentioned

above. It is also noted that ITAT Jaipur ‘A’ Bench itself in the case of Silver

Stone Commodities Pvt. Ltd. and others in ITA No. 86/JP/2022 in its order

dated 30.06.2022 has elaborately discussed the issue under consideration

and after considering and perusing the various decisions of the various

high courts including Jurisdictional Rajasthan High Court, has held in

favour of assessee to the fact that addition made by AO while passing

order u/s 153A without referring to any incriminating document relevant to

72 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT the assessment year under consideration are not sustainable and are

accordingly deleted. Subsequently, ITAT Jaipur ‘A’ Bench in the case of

ACIT Vs. Ramesh Kumar Mantri in ITA No. 164 & 165 and others in its

decision dated 26.09.2022 has again decided the issue in favour of

assessee after considering various decisions so cited by the ld. CIT DR

and ld. AR as broadly cited in the present appeals also.

now recently even the apex court in the case of Principal Commissioner of

Income Tax, Central-3 Versus Abhisar Buildwell P. Ltd. has also decided

the issue in favour of the assessee, the relevant finding of the apex court is

as under :

73 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT 23. In view of the legal position as discussed herein above, it is held that

trading additions so made in A.Y. 2013-14 under appeal without any

reference to the incriminating material are not sustainable and hereby

deleted. Accordingly, grounds of appeal No. 1 to 6 of the revenue for A.Y.

2013-14 are dismissed.

Assessee’s ground No. 1 for AY 2011-12 to 2016-17 & ground No. 2 for

AY 2015-16 & 2016-17 and departmental ground No. 7 for AY 2013-14

& ground No. 2 & 3 for AY 2015-16 & 2016-17:

appeal No. 2 for AY 2015-16 & 2016-17 of the appellant are in relation to

rejection of books of accounts u/s 145(3) and estimation of GP rate and

consequently making trading addition. As regards, AY 2011-12, 2012-13

are concerned, appellant has effectively no grievance as the ld. CIT(A) has

deleted the trading addition. As regards, AY 2013-14 is concerned, the ld.

CIT(A) has followed the order of Hon’ble ITAT passed in the regular appeal

of the assessee wherein the Hon’ble ITAT upheld the rejection of books of

accounts. Considering the decision of Hon’ble ITAT in appellant’s own case

in AY 2013-14, we see no reason to re-visit the issue and accordingly

ground so taken by the appellant is hereby rejected.

74 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT 25. Coming to AY 2015-16 & 2016-17, brief facts are that during search

carried out by Income Tax Department at business and residential

premises of the group inter-alia including appellant various loose papers

and documents were seized. The ld. AO in its order has mentioned various

issues mainly emanating from regular books of accounts treated by him to

be the defects in the books of accounts and ld. AO has also mentioned that

during search entries in the various loose papers were found reflecting

unaccounted sales of the appellant and accordingly books of accounts

were rejected by applying provision of section 145(3).

called defects mentioned by ld. AO in its order are not actually any defect,

as explained in detail in the written submission and accordingly rejection of

books of accounts so done by ld. AO is not justified. On the other hand, ld.

CIT DR relied upon the order of ld. AO and of ld. CIT(A) on this issue.

consideration. It will be better to reproduce the operating part of the order

of ld. CIT(A) who has also considered the contents of AO’s order as well as

the submissions of ld. AR. It is seen that ld. CIT(A) has discussed this issue

in detail in the appeal order for A.Y. 2017-18 in the case of appellant and

75 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT also in 2015-16 & 2016-17. The relevant operating part of the order of Ld.

CIT(A) for A.Y. 2017-18 is as under:

76 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT method is followed for valuation. It was submitted that the assessee being trader in jewellery, neither FIFO nor LIFO method could be adopted and thereby weighted average method is taken as basis for determining cost of finished goods and thereafter "cost or market price whichever is less", is applied to finally work out the value of closing stock. Thus there is no contradiction in the details so given regarding valuation of stock at various places. Ld. AO has further observed that goods sent on approval are not recorded in the stock register and only approval slips are prepared and thus goods sent on approval are not fully verifiable on a given day. The Ld. AR has explained in his submission that it’s a common practice in the jewellery trade that goods are given on approval on many a times and the appellant prepares the approval slips for the same to keep a record of the goods sent on approval. When the goods are returned, the approval slip is crossed or if the goods are finally sold, then same is entered in the stock register. Thus at any given day the details of stock as well as details of goods sent on approval is clearly identifiable and ascertainable. At para 6.3 of the assessment order, the AO has given table related to the gold jewellery received which are entered in the stock register and tried to contend that the appellant is recording different purity of the gold ornament on the same page and thus these jewellery form part of common stock item from which it is not possible to ascertain the quantity of jewellery of different purity. The Ld. AR has explained that the table so reproduced by the Ld. AR is in relation to keeping control over the gold ornament given to the karigars and their corresponding quantity received back from them of particular purity. It is only for this control that against voucher for receipt No., the weight of 20 ct. gold so given to the karigar is mentioned and afterward the jewellery received from the karigar with its weight and purity is mentioned, so that the proper check-in control can be maintained because the gold jewellery of different purity will obviously have different weight even in respect of same quantity of 24 ct. gold given to the karigar. The Ld. AR further explained that observation of Ld. AO that from this record it is not possible to identify the quantity of gold jewellery of different purity, is misplaced since for every lot received from the karigar, the gold weight alongwith it's purity is mentioned in the stock register and thus total weight of gold jewellery of particular purity can be very well deduced from the stock register.

5.3 On perusal of the above observations of the AO, their explanation given by the Ld. AR as above cannot to be said to be not acceptable. However the other observation of the Ld. AO that appellant has been involved in purchase and sales outside books of accounts which was evident from the various loose papers seized during the course of search, has no convincing explanation from the side of Ld. AR. It is seen by me from perusal of the assessment order that the AO has found out various instances of unaccounted sales and also the purchases for which there is no convincing explanation from the side of Ld. AR. Considering these facts, I am of the view

77 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT that finding of the AO of rejection of books of accounts and invocation of the provision of section 145(3) is justified and same is upheld.

submissions made by both the parties and we see no reasons do deviate

from the reasoned finding of the ld. CIT(A) that as regards so called defects

noticed by ld. AO, the explanation given by ld. AR not acceptable. The

bench noted that the assessee involved in purchase and sales outside

books of accounts which is evident from the various loose papers seized

during search, the rejection of books of accounts so made by the AO and

so upheld by the ld. CIT(A) is found to be reasoned one and no

interference is called for. Thus, grounds so taken by the ld. AR on this

issue for these years are rejected.

supported the order of ld. AO wherein he has estimated the GP of 23.95%,

23.79% and 24.54% respectively for AY 2015-16, 2016-17 & 2017-18 by

apparently taking the average GP rate of last five years. On the other hand,

the ld. AR has submitted that GP so estimated by ld. AO is totally based on

incorrect appreciation of facts and accordingly no cognizance can be given

to the same and further submitted that the ld. CIT(A) though appreciated

the submission made by us but only partly by estimating the GP rate and

78 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT thereby ld. AR submitted to accept the trading results shown by the

appellant.

also perused the relevant record. It will be worth to peruse the relevant

operative part of the order of ld. CIT(A) for AY 2017-18 wherein he has

discussed the issue of estimation of GP rate in detail not only for AY 2017-

18 but also for AY 2015-16 & 2017-18 therefore, the same is reiterated

here in below:

79 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT rate of AY 2015-16 and 2016-17 is also estimated by taking the average GP of five years which comes to 12.88% and 11.45% respectively.

arguments advanced by the ld. AR that the ld. AO has first estimated the

GP rate for AY 2012-13 by taking the average of last three years, which

comes to 20% and then instead of taking this 20% same has been

increased to 30% without any basis and without advancing any reasons for

doing so. As the appellant has on its own declared GP @ 25.49% and the

average of last three years GP has come only 20% then estimating the GP

@ 30% is totally unjustifiable and without any basis. Same GP of 30% for

AY 2012-13 has been considered in subsequent years while arriving at the

average GP of earlier five years and thereby estimation of GP rate for

these years under appeal by the AO suffers from serious defect. The ld.

CIT(A) has also taken cognizance of this fact. It is seen that ld. CIT(A) has

given the finding for estimating the GP rate for AY 2017-18 by taking the

average GP rate of five years including current year which comes to 7.84%.

On the same basis the ld. CIT(A) has estimated the GP for AY 2015-16 and

2016-17 also. We are of the opinion that the order of ld. CIT(A) is reasoned

one and does not require any substitution of the GP rate by us as there is

no reasoning was advanced by the revenue so as to differ from the

80 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT reasoned and detailed finding of the ld. CIT(A) on this issue. Accordingly,

on the issue of estimation of GP rate arguments of revenue and also of the

appellant are rejected and order of ld. CIT(A) is not interfered with.

Assessee’s ground No. 2 to 4.3 for AY 2011-12 to 2014-15 & Ground No. 3 to 5.3 for AY 2015-16 & Ground No. 3 to 6.2 for AY 2016-17 and

Departmental ground No. 8 & 9 for AY 2013-14, ground No. 4 to 7 for AY 2015-16 & 2016-17:

CIT(A) in ignoring the fact that there were various discrepancies in the

analysis of seized papers made by the AO and applying the GP rate on

alleged unaccounted sales instead of NP rate, by ignoring the submission

of appellant that various expenditure would obviously be required for

earning such alleged income. Other ground taken by ld. AR is that ld. AO

has made the addition of unaccounted sales u/s 68 of IT Act which is

legally defective and contrary to the settled legal position that addition u/s

68 can only be made in respect of credit entry in the books of accounts

which assessee fails to explain. Thereby it was submitted by ld. AR that

entire addition made as profit on alleged unaccounted sales be deleted. On

the other hand, ld. CIT DR has submitted that written submissions have

been filed on these issues in the lead case of the group namely M/s Royal

81 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT Jewellers and as the issues are identical, same may be considered in this

case also.

order of both the lower authorities as well as relevant material placed on

record on the issue under consideration. The main argument of the CIT DR

in the lead case of this group namely M/s Royal Jewellers was that ld. AR

has submitted explanatory sheets for the first time before ld. CIT(A) and

accordingly these are to be treated as additional evidence and thereby

opportunity to the AO should have been allowed. The issue has been

discussed in detailed by us while dealing the appeal order of M/s Royal

Jewellers in AY 2017-18 and also common order for AY 2014-15 to 2016-

of the order of ld. CIT(A) it is seen that ld. AR has submitted the working or

summary of the various noting’s as found noted in the seized document

which has been already on record of AO and these very noting’s have been

used by the ld. AO in its show cause notice and thereafter while making

addition in the assessment order. It is only that these different noting’s on

different seized pages have been compared with each other or perused

carefully as against the mechanical way in which the ld. AO has just taken

all these noting’s from the Show Cause Notice (SCN) together and grossed

82 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT them up. These comparisons or putting the noting’s in proper prospective

have been made by ld. AR and same was furnished before the ld. CIT(A)

by way of explanatory sheets. Accordingly, these sheets cannot be said to

be the additional evidences in its strict sense. The bench noted that ld.

CIT(A) at many places, has explicitly mentioned the details given in the

working sheet as well as the corresponding relevant details of the show

cause notice of the AO. Similar is the position in relation to explanatory

sheets furnished by way of annexure in the case of Jitendra Kumar

Agarwal also. The ld. CIT(A) has mentioned as to how the entries given on

various pages of show cause notice of the AO have been taken in the

working sheet furnished as annexure by the ld. AR. For the sake of clarity,

para 9 to 9.5 of ld. CIT(A)’s order for AY 2015-16 as reproduced below:-

83 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT partner himself at the end of the day which will obviously include entries made by the employee. The Ld. AO has added entries on both these pages separately, leading to double addition. At some of the pages rough estimates of the selling price of jewellery are mentioned to appraise the prospective customer about the final amount of the jewellery intending to be purchased by him and such rough estimates have also been added. There are few pages which have been seized twice and these are exact photocopies of each other. Further there are other pages in various exhibits which are having common / duplicate entries. Similarly various goods have been received on approval as mentioned on the approval slips and these have not been converted into final purchases. Without prejudice it is quite evident that these cannot be held to be sale and at the worst to the appellant these can be treated as purchases and therefore, has to be excluded from the sales. These have also been added by the Ld. AO.

9.2 In the written submission, the appellant has given the details of such additions which are straightaway required to be excluded. The AR of the appellant has furnished Annexures 2 and 3 showing such details, which are enclosed as part of the written submission. On the basis of these charts in the form of Annexure, the appellant has summarized the discrepancies and furnished the summary of the additions required to be deleted, which is as below:

Particulars Amount Double additions on account of replicate pages 3,53,826/- Additions in respect of duplicate entries 5,84,901/- Total 9,38,727/-

9.3 At the outset, it was submitted that Annexure 2 & 3 in the written submission for AY 2015-16 are exactly similar to Annexure 2 & 4 respectively of the written submission of AR for AY 2016-17. I have gone through the details given in Annexure 2 and 3 of the AY 2015-16 and found them to be exactly same with that of Annexure 2 and 4 of AY 2016-17 respectively. Further Annexure 2 of AY 2015-16 is also same as annexure 3 of AY 2017-18. It is seen that in the appeal order for AY 2017-18, after going through the details as per the chart given as Annexure and perusing the relevant seized documents, I have already held that amount has deleted on account of replicate pages (as per annexure 3 of AY 2017-18 / Annexure 2 of AY 2015-16) for AY 2015-16 comes to Rs. 3,53,826/-. 9.4 Similarly in the appeal order for AY 2016-17, the amount reflected as entries which are mentioned on multiple pages have been mentioned in Annexure 4 of AY 2016-17 and in the appeal order for AY 2016-17, I have held that such duplicate or multiple entries related to AY 2015-16 comes to Rs. 5,84,901/- and therefore same is required to be excluded. Thus in brief, sales to be extent Rs. 9,38,727/- are held to be deductible out of the total sales estimated by the Ld.

84 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT AO. The balance sales comes to Rs. 12,20,00,078/- on which profit required to be considered as income. 9.5 The Ld. AR has argued that only the net profit embedded in it can be considered as income. The argument and submissions are same as given in A.Y. 2017-18. However, I have held in appeal order in AY 2017-18 that it will be reasonable and proper to apply the GP rate on such unaccounted sales instead of NP rate. The GP rate of 12.88% has been held to be reasonable by me in the earlier paragraphs of this order. Taking the same GP rate the gross profit on these additional sales come to Rs.15713,610/-.

appeal for it has been heard together with these appeals for AY 2011-12 to

2016-17. It is seen that ld. CIT(A) has reproduced the annexure furnished

by the ld. AR and has also mentioned about the figures / amount taken in

the show cause notice and thereafter in the assessment by the ld. AO,

being also taken in these annexures and it is noted the same is rearranged

only to clarify the duplication etc. Thus as decided by us in the case of M/s

Royal Jewellers and here in above also that these annexures / explanatory

sheets cannot be considered to be additional evidence. Without prejudice

to that ld. AR has correctly pointed out that ld. AO through ld. CIT DR has

not been able to pin point so as to how and why the reasoning given by the

ld. CIT(A) is incorrect and needs again examination of the ld. AO for the

amount of sale which might have been incorrectly reduced by ld. CIT(A),

though sufficient enough time was available before the ld. AO as the order

of the ld. CIT(A) was received by him long back. Accordingly, argument of

the CIT DR of this issue has no merit.

85 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT

profit on unaccounted sale incorrectly made u/s 68 and thereby required to

be deleted. On this issue we are of the view that though the unaccounted

sale are not entered in the books of accounts by its very nature being out of

books and thus legally speaking provisions of section 68 could not have

been invoked for making the such addition, as section 68 can be invoked in

respect of any credit entry in the books of accounts which assessee fails to

explain. However, undisputedly these are unaccounted sales based on the

various defects and loose papers on which unaccounted profit has been

earned by the appellant and obviously same is required to be added while

determining the total undisclosed income of the appellant. Thus, merely on

a highly technical issue of undisclosed profit not covered u/s 68, the

argument of the ld. AR of the assessee is not accepted for fully deleting the

addition disputed before us.

applying the GP rate on unaccounted sales. It was submitted that various

expenses have to be incurred by the appellant for conducting these

unaccounted transactions also and some noting’s related to expenses were

also found in the seized documents and accordingly the net profit be

86 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT ordered to be considered as income instead of gross profit considered as

income by ld. CIT(A). Based on the submission and on perusal of the

records we are not inclined to accept the argument of the ld. AR that net

profit rate should be considered as income, as it is the general trade

practice that the establishment expenses and other expenses are booked

by the assessee in their normal business in its books of accounts fully.

Moreover, the ld. AR of the appellant has brought out very miniscule details

of expenses under only one or two head which could be found noticed by

him in the seized document, for which also ld. AR has not exactly specified

that these are not recorded in the books of account maintained by the

assessee to support its argument and to counter the normal trade practice.

Accordingly, argument of the appellant rejected so as to considered only

the net profit rate.

pages ii) by way of duplicate / double entries, iii) purchases / approvals

considered as sales and iv) additions made in the case of appellant and

also in the case of appellant’s father Shri Chandra Prakash Agarwal. The

explanatory sheets in the form of annexure were submitted before the ld.

CIT(A) and also submitted in the paper book before us, the details of which

are at APB 59-60 & 61-62 in the paper book for AY 2015-16 and APB 59-

87 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT 60, 61-62, 63-64 & 65 in the paper book for AY 2016-17, submitted before

us. On this issue the ld. CIT(A) has given relief by reducing the sales by

Rs. 9,38,727/- for AY 2015-16 out of total sales of Rs. 12,29,38,805/- and

reducing the sales by Rs. 8,71,54,916/- for AY 2016-17 out of total sales of

Rs. 28,89,98,467/-, the specific details of which is extracted based on the

records and is reiterated for the sake of understanding the issue on hand:-

Particulars AY 2015-16 AY 2016-17 Double additions on account of replicate 3,53,826/- 1,84,14,307/- pages Incorrect addition on account of goods - 44,26,768/- received on approval considered as sales Additions in respect of duplicate entries 5,84,901/- 1,80,39,604/- Additions that have also been made in - 4,62,74,237/- case of Shri Chandra Prakash Agrawal Total 9,38,727/- 8,71,54,916/-

ld. CIT(A) on this issue revenue has not pointed out any instance, pointing

out the defect or error while making the calculations and in reducing the

unaccounted sales of the appellant based on such factual aspects placed

on record argued by the assessee. The order of ld. CIT(A) in the years

under appeal including appeal for A.Y. 2017-18 is elaborate wherein

various entries required to be excluded has been discussed carefully after

recording the reasons for that finding. Even except the general and

88 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT technical ground revenue has not demonstrated that there is an apparent

error on the part of the ld. CIT(A) while granting the relief to the assessee.

Therefore, we are of the view that order of ld. CIT(A) does not require any

disturbance on these issues.

We have already discussed this issue in the earlier para wherein we hold

that estimation of GP rate so made by ld. CIT(A) does not require any

substitution in the absence of any contrary submission supported with the

evidence from the revenue and accordingly we hold that the ld. CIT(A) has

after considering the contentions of the AO as well as the submission of the

assessee on facts applied those GP rates of the relevant years on the

unaccounted sales for working out the profit, same is found to be quite

reasonable by us and not interfered with. Grounds so taken by the revenue

and also by the appellant on these issues are rejected.

Royal Jewellers was regarding alleged parallel balance sheet which was

considered as memorandum statement of position of all the three firms of

this C.P. Agarwal broader group having two sub-group / families namely

Garg Jeweller Family & Shri Manoj Khandelwal Family. In the case of M/s

Royal Jewellers, it has been held by us that these pages 19 and 21 of

89 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT Exhibit A-1 seized from the residence of one of the partners of the sister

concern M/s Royal Jewellers represent the position of the entire group

having three concerns and not only of M/s Royal Jewellers and obviously

reflect summary of total business activity including accounted and

unaccounted both items. In absence of exact bifurcation of the profit among

the three firms, the ld. CIT(A) confirmed the addition in the case of M/s

Royal Jewellers but has reduced the profit of three concerns and has also

considered the telescoping of the addition of profit on account of

unaccounted sales with the addition of total profit of the group of the

relevant years so as to deal with these two pages seized and recovered in

the search. Same way it was also considered that these pages do reflect

the summary of business activity position of the group which includes the

profit reflected by way of these stray sales documents seized during

search. In the absence of any contra submission made by the revenue to

counter the factual aspect of the case we see no reasons to deviate from

the detailed finding of ld. CIT(A) in the case of M/s Royal Jewellers

considering the finding to be reasoned one. For the sake of easy reference,

the finding given by us in the case of Royal Jewellers in common appeal

order for A.Y. 2014-15 to 2016-17 is reproduced below:-

18.2 To counter the finding of the ld. CIT(A), ld. CIT DR submitted that these pages belong to the appellant firm only and not to the entire group and has

90 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT referred to the statement of Shri Manoj Kumar Khandelwal, the partner of the appellant firm which has been concurred by another partner Smt. Pooja Agarwal. Against it, ld. AR has submitted that partnership firm of the appellant is having two partners Shri Manoj Kumar Khandelwal and Smt. Pooja Agarwal having 50% : 50% partnership. In these two pages neither the name of Pooja Agarwal is finding place nor the profit has been divided on 50% : 50% basis. Moreover, on one hand AO has taken support from the bank account of the appellant firm mentioned in these two pages but is ignoring the fact that two more bank accounts are also mentioned and have been included namely ICICI Bank and BOB. These bank accounts are undisputedly of M/s. Shreenath Corporation. Moreover, the profit has been divided in the ratio of 58% : 42% between ‘GJ’ and ‘MJ’. The word ‘GJ’ refers to M/s Garg Jewellers. Thus, business activities of M/s Shreenath Corporation and Garg Jewellers are also included in these pages.

18.3 We have considered the rival arguments and perused the relevant loose papers along with the finding of the lower authorities on the issue raised before us. The bench noted that name of Pooja Agarwal is not mentioned in these pages. Moreover, the profit sharing is not 50% : 50% as in the case of appellant firm. Further, bank account of M/s. Shreenath Corporation have also been mentioned and included in these pages. Profit sharing has been shown between ‘GJ’ and ‘MJ’, wherein word ‘GJ’ refers to ‘Garg Jewellers’. Accordingly, notings on these pages would have to be given more credence vis-à-vis a statement as the contents of statement are not matching with the notings on these pages. Thus, based on these analysis of facts agree with the finding of ld. CIT(A) that these pages reflect the profit details of entire group (i.e. of three concerns) and not only of appellant firm. Another argument of CIT DR regarding net profit and not the gross profit reflected on these pages is concerned, ld. CIT(A) has given finding that on these pages neither details of expenses nor details of sundry creditors, sundry debtors or loan creditors are mentioned thus obviously profit shown here would not be the net profit and therefore it is reasonable to hold that these pages reflect gross profit of the group. On perusal of these documents and going through the argument of both the sides, we see that the finding so given by ld. CIT(A) is based on the analysis of the loose material and other material already on record and thus we see that the finding of the ld. CIT(A) is reasoned one. Before us both the party did not demonstrate as to why the said detailed finding of the ld. CIT(A) is incorrect and also not find any faults on the facts noted by the ld. CIT(A).Thus, we see no reasons to deviate from the finding of the ld. CIT(A) which is based on the facts and after considering the noting’s on the seized records. The ld. CIT DR has also objected to the deduction of recorded profit of three firms of the group from the profit shown in these pages in AY 2014- 15 u/s 154 of the IT Act, 1961 by the ld. CIT(A). Attention was drawn by ld. AR that ld. CIT(A) has discussed this issue also in A.Y. 2014-15 (though main discussion is in the appeal order for A.Y. 2016-17) and has given its categorical finding that deduction of recorded profit of the group firms is to be given. However, inadvertently in the last line the ld. CIT(A) mentioned the entire addition as sustained. Accordingly, on being pointed out by the AR of the appellant, the ld. CIT(A) passed order u/s 154 rectifying the above apparent mistake. Though

91 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT this issue of 154 by CIT(A) is not subject matter of present appeal, but since the CIT DR has raised it and the issue is interlinked, we thought it fit to peruse the records more particularly order of ld. CIT(A) under appeal and found the argument of the ld. AR as correct on this issue and accordingly argument of CIT DR is rejected on this issue.

u/s 133A of the Act was carried out by the department on 09.12.2014 at the

business premises of the appellant and two sister concerns. As a result of

survey, the appellant has surrendered a sum of Rs. 3,38,35,315/- towards

excess stock, cash found and advances for land and this excess income

was surrendered in the period relevant to AY 2015-16. Besides above, the

amount surrendered by two sister concerns is as below:-

M/s Royal Jewellers : Rs. 3,16,10,463/- M/s Shrinath Corporation : Rs. 3,94,67,426/-

It was submitted that accumulation of excess stock, cash found and

advances for land was the result of income earned from undisclosed sales

made by various concerns of the assessee group in the year under appeal

and in preceding years, and summary of which were found noted in the

loose papers seized during search by way of memorandum statement of

business position of group. Accordingly, in the instant case of Shri Jitendra

Kumar Agarwal, we concur the finding of the ld. CIT(A) that the addition of

92 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT Rs. 1,57,13,610/- so determined by taking GP rate of 12.88% on

unaccounted sales of Rs. 12,20,00,078/- rightly held to be included in the

surrender made during survey in the case of assessee amounting to Rs.

3,38,35,315/- and we see no infirmity in the finding of the ld. CIT(A) that the

separate addition required to be deleted. In the case of AY 2016-17, the

unaccounted sales have been reduced by Rs. 8,71,54,916/- by the ld.

CIT(A) leaving the sales at Rs. 20,18,43,551/- for which we have already

concurred the finding of the ld. CIT(A). The ld. CIT(A) has applied GP rate

of 11.45% and consequently has sustained the addition of profit of Rs.

2,31,11,086/- which does not require any interference, in the absence of

any contra reasoned submission from the revenue we see that the finding

of the ld. CIT(A) is justified, fair and reasoned. As regards the prayer for

taking the NP rate but the argument so taken by him has been considered

and rejected by us, as was done by the ld. CIT(A). Accordingly, we find no

infirmity in the order of ld. CIT(A) on this issue and ground so taken by

revenue as well as appellant, both are dismissed.

Departmental ground No. 10 for AY 2013-14, ground No. 8 for AY 2015-16 & ground No. 7 for AY 2016-17:

provision of section 115BBE on addition of undisclosed sales so made by

93 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT him in different years. After considering the submissions and arguments of

ld. AR, the ld. CIT(A) has decided the issue in favour of the assessee. The

department is in appeal on this issue. The ld. CIT DR has submitted that ld.

AO has invoked the provisions of section 68 on the addition on account of

undisclosed cash sale and thereby invoked the provisions of section

115BBE. The finding of the ld. CIT(A) is that addition of profit on

unaccounted sales are not based on any credit entry found in the books of

accounts and in this case only GP additions were sustained considering it

as business income and accordingly provisions of section 68 so invoked by

ld. AO for making these additions is not justified and consequently

provisions of section 115BBE so invoked by the ld. AO is not justified. It

has been submitted by the ld. AR before the ld. CIT(A) and before us that

provisions of section 68 are quite clear and unambiguous in this regard and

thus the provision reads as:

Section 68 starts with phrase “where any sum is found credited in the books of an assessee maintained for any previous year, and assessee offers no explanation ….”.

should be found credited in the books of accounts of an assessee so

maintained and the other condition is that assessee offers no explanation

94 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT or explanation is found not satisfactory. There have been ample number of

decisions of various High Courts and the Apex Court on this issue. It is a

settled legal position wherein the courts have held that for any addition to

be made u/s 68 of I.T. Act, 1961, the essential prerequisite is that ‘there

should be any sum found credited in the books of accounts of the

assessee’. Since undisclosed cash sale is not recorded in the books of

accounts which is not disputed facts in the present case, therefore

provisions of section 68 cannot be invoked while making the additions

made on account the profit so earned on those unaccounted sales.

Accordingly, it was submitted by the ld. AR that decision of ld. CIT(A) may

be accepted and appeal of the revenue may be rejected. On this issue the

ld. CIT DR cited the decision in the case of Hazi Nazeer Hussain (Delhi

Bench third member decision). The bench noted that as rightly pointed out

by the ld. AR of the assessee in that case cited by ld. CIT DR are on

different facts in as much as that in that case money so received has been

entered in the cash book but it has not been entered in the ledger account

of the respective persons crediting the ledger account, thus the facts of this

case and that case law relied upon are different. Based on the discussion

so recorded here in above, we hold that failure on the part of the assessee

to make credit entry in the respective accounts would not entitle the

95 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT assessee to claim that no account is credited. Thus ratio-decendi of above

cited case is not applicable in the instant case of appellant. Alternatively,

the ld. AR of the assessee as argued before us that in any case addition in

respect of cash sale has been reduced by ld. CIT(A) and for remaining

additions appeal is pending before the Hon’ble Bench which will hopefully

reduce to NIL in normal course or even as prayed by the assessee that

even if the telescoping benefit is given then in that case there will not be

any occasion for invocation of provision of section 115BBE on any

substantial amount of addition and if at all any additions remain, those will

not be substantial.

on this issue we note that the addition on account of unaccounted cash

sales have been reduced by ld. CIT(A) for which we have concurred the

finding of the ld. CIT(A) the preceding paras and has also considered the

plea of allowing telescoping of the addition as provided by ld. CIT(A) in

various assessment years as per earlier paras of our findings. Accordingly,

we are also of the considered view that in fact there is no addition

remaining out of the additions so made by ld. AO as per provision of

section 68 except of unrecorded sale and GP of that amount and therefore

invocation of provisions of section 115BBE does not subsists in peculiar set

96 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT of facts in the present case as the addition of unrecorded sales so made

by him are not complied with the strict provision of section 68 of I.T. Act,

1961 as discussed by us in the other ground taken by the ld. AR against

the addition of profit on unaccounted sale so. Accordingly, Departmental

Ground of appeal upon invoking provision of section 115BBE is rejected.

the appeal of the assessee and that of the revenue stands dismissed.

However, to have better clarity on the various grounds so raised by both

the party the summary of the grounds decided is reiterated.

In the light of these observations herein above all the grounds in

cross appeal are dismissed.

Order pronounced in the open court on 07/06/2023. Sd/- Sd/- ¼ lanhi xkslkbZ ½ ¼ jkBkSM deys’k t;arHkkbZ ½ (Sandeep Gosain) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 07/06/2023 *Ganesh Kumar आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Shri Jitendra Kumar Agarwal, Jaipur

97 ITA Nos. 106 to 111 & others/JP/2020 Shri Jitendra Kumar Agarwal vs. DCIT 2. izR;FkhZ@ The Respondent- DCIT, Central Circle-02, Jaipur 3. vk;dj vk;qDr@ The ld CIT vk;dj vk;qDr¼vihy½@The ld CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA Nos. 106 to 111 & 178 to 180/JP/2020) 6. vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत