M/S. ROYAL JEWELLERS,JAIPUR vs. DCIT, CENTRAL CIRCLE, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBkSM+ deys'k t;arHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 116 /JP/2020 fu/kZkj.k o"kZ@Assessment Year 2017-18 cuke M/s Royal Jewellers, The Dy. Commissioner of Vs. 1756, Telipara, Chaura Rasta, Income-tax, Jaipur Central Circle-02, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAEFR 6642 P vihykFkhZ@Appellant izR;FkhZ@Respondent vk;dj vihy la-@ITA No. 177 /JP/2020 fu/kZkj.k o"kZ@Assessment Year 2017-18 cuke The Dy. Commissioner of Income- M/s Royal Jewellers, tax, Vs. 1756, Telipara, Chaura Central Circle-02, Jaipur Rasta, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAEFR 6642 P vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Manish Agarwal (CA) jktLo dh vksj ls@ Revenue by : Sh. Sanjay Dhariwal (CIT) & Smt. Runi Pal (Addl.CIT) lquokbZ dh rkjh[k@ Date of Hearing : 14/03/2023 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 07/06/2023 vkns'k@ ORDER

2 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT PER BENCH:

These are two appeals filed by the assessee and revenue and are

directed against the order of the ld. Commissioner of Income Tax

(Appeals)-4, Jaipur [hereinafter referred to as (ld. CIT(A)] dated 8.11.2019

for the Assessment Years 2017-18, 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”] on

26.12.2018.

assessment year filed by the revenue and assessee on the separate

grounds raised by them in their appeal, we have heard both the cases

together and passing the order together as the issues involved are

interconnected having the same assessment year. The grounds of taken by

the assessee M/s Royal Jewellers in ITA No. 116/JP/2020 for A.Y 2017-18

are as under:

“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 arbitrarily estimating Gross Profit Rate of 9.06% on the declared turnover of the assesee as against the Gross profit Rate of 7.86% declared by the

3 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT assessee as per the audited books of account and thus the consequent addition of Rs.9,99,016/- upheld, deserves to be deleted.

5.1 That the ld. CIT(A) has further erred in presuming that the aforesaid approval memos seized during the course of search that were clearly marked as either “ APPROVAL” or “Rough Estimate” amounting to Rs.18,67,67,651/- reflect undisclosed sales made by the assessee by ignoring the facts of the case and the submission made by the assessee. 6. That the ld. CIT(A) has further erred in concurring with the finding of the ld. AO that various seized paper reflected undisclosed sales made by the assessee amounting to Rs.12,52,40,295/- by ignoring the fact that the analysis of the ld. AO suffered from various discrepancies and were flawed.

7.1 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

4 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT Rs.1,69,21,149/- and Rs.1,13,46,770/- on the basis of GP rate therefore is bad in law and deserves to be deleted.

No. 177/JP/2020 for assessment year 2017-18 reads as follows:

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

2 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. 1,11,42,797/- 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 and the GP of these year is considerable to estimate the GP for the period AY 2011-12 to 2017-18 and the GP rate was rightly estimated @ 24.14% by AO for the year AY 2017-18"

5 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

6 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT unexplained cash credit u/s 68 of the I.T. Act and the assessee is not dealing in bullion as well as the Ld. CIT(A) allowed assessee's version of reply without calling for remand report " 11. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,51,18,854/- made on account of excess stock of gold and silver jewellery by giving telescoping credit of profit an unaccounted sale with unaccounted income of Rs. 28267919/- through unaccounted sales and confirmed by him in spite of the fact the assessee falled to furnish any evidence of purchase of gold and silver jewellery and in absence of the same it cannot be determined whether the unaccounted income generated through unaccounted sale was available to utilized the same for purchase of excess stock of silver and gold jewellery?" 12. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not upholding the invocation of provisions of section 115BBE of the Income Tax Act.1961 in respect of various additions as the assessee failed to explain various transaction and documents seized during search." 13. 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".

seizure 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 Assessee is one of the members covered u/s 132. The

jurisdiction over the case was assigned to Central Circle - 2, Jaipur by the

Commissioner of Income Tax, Jaipur-1, Jaipur by means of an Order u/s

127 of the Act circulated vide CIT-I/ITO(Hqrs)/JPR/u/s127/2016-17/2328

dated 01-12-2016. The assessee filed a return of income for Previous Year

7 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT 2016-17 relevant to Assessment Year 2017-18 declaring an income of Rs.

17,18,740/- on 30.09.2017. Notice under section 143(2) of the Act dated 30-

01-2018 was issued and served upon the Assessee on 31-01-2018.

Information and details pertaining to the case of the assessee relevant to

assessment of its income were called for u/s 142(1) of the Act by means of

a questionnaire and/or Order Sheet Entries wherever deemed fit. In

response to the above referred notice(s) attended the hearings fixed in the

case and furnished information and/or details called for. The information so

furnished was examined on a test-check basis and placed on record. The

issues pertaining to assessment of income were discussed with him and the

AR was heard. The assessee is a partnership firm engaged in the business

of manufacturing and trading of gold jewellery.

4.1 During the course of 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 6(i) to 6(v). The ld. AO also noted that during the course of search

8 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT some documents found and seized which has been inventorized as

Annexure-AS, Exhibit-11, page 19,208 21. The copy of page 19 was also

found form residence of another partner Smt Pooja Agarwal, at 1756,

Telepada, SMS Highway, Jaipur which has been seized and inventorized

as page no. 1 of Annexure-A, Exhibit-10. These page contain details of

handwritten balance sheet for FY 2013-14 and FY 2015-16. These pages

also contains details of opening of FY 2014-15. On perusal of these it is

found that it is a parallel balance sheet of the firm which is maintained in

form of metal Le. 24 CT gold. On these paper name of both the partner has

been written in cord word i.e. 'GJ' & 'MI. The abbreviation of these are

Gargleweller and ManojKhandelwal respectively. The Garg Jeweller is the

prop. Concern of Shri Jitendra Kumar Agarwal who is a husband of 2nd

partner of the firm Smt. Pooja Agarwal. These pages also contain details of

net profit, distribution of profit between the partners, rate of the gold on the

date of preparation of balance sheet, opening balance of partners, cash in

hand and cash in bank etc. all these details have been found mentioned in

these pages in 24CTgold. For example at page no. 19 cash amounting to

Rs 320816/- has been converted in to 112.570 gm of 24 CT GOLD by

dividing Rs. 2850 which is the rate of 24 CT gold as on 30.03.2016. Further,

one of the partner Shri Manoj Kumar Khandelwal was confronted with these

9 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT paper during the course of recording of statement wherein he

acknowledged these paper as stock valuation of M/s Royal Jewellers as on

31-03-2014 or 31-03-2016. These pages contain details of net profit,

distribution of profit between the partners, rate of the gold on the date of

preparation of balance sheet, opening balance of partners, cash in hand

and cash in bank etc. all these details have been found mentioned in these

pages in 24CTgold. For example at page no. 19 cash amounting to Rs

320816/- has been converted in to 112.570 gm of 24 CT GOLD by dividing

Rs. 2850 which is the rate of 24 CT gold as on 30.03.2016.As it is evident

that these pages contain details of unaccounted net profit of the assessee

firm which has been recorded in metal i.e. 34CT gold. Accordingly, the

assessee was asked to furnish explanation on these documents vide note

sheet entry 03.12.2018. In compliance of the same the assessee furnished

his written submission on 08.12.2018

4.2 In view of the discussion in the assessment order the ld. AO based on

the various discrepancies, a parallel undisclosed balance sheet maintained

by the assessee and out of books purchase, sale and expenditure revealed

from the documents seized during the course of search proceeding, it is

held that books of accounts maintained by the assessee do not reveal the

10 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT true income of the assessee. Although the parallel undisclosed balance

sheet is for F. Y. 2013-14 2015-16 but from the details of the opening stock

of partner GJ (Garg Jewelers) and MK ( Manojkumar Khandelwal ) at

91280.140 and 23096.120 gm 24 CT gold in the parallel balance sheet was

also exist prior to FY 2013-14 as well which includes AY 2011-12 to 2013-

stock of AY 2017-18 and was in exist under preparation but could not be

completed due to search action on 28.07.2016. In view of these discussion

assessing officer hold that books of accounts maintained by the assessee

do not reveal true income of the assessee for AY 2011-12 to 2017-18.

Therefore, the books of accounts of the assessee for AY 2011-12 to 2017-

18 rejected u/s. 145(3) of the Act.

4.3 Since, in the instance case books of accounts are rejected as

discussed above, therefore keeping in view various jurisprudences holing

that part history is the best guiding factor to determining taxable profit in

cases where books of accounts are rejected. Accordingly, the assessee

was asked vide note sheet entry dated 10-12-2018 to furnish G.P. rate of 5

previous years prior to AY 2011-12 which has been attained finality. But the

assessee furnished the G.P. for AY 2011-12 to AY 2017-18 reasons best

11 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

known to the assessee. In these circumstances to find out the G.P. prior to

the AY 2011-12 to 2017-18 an effort was made and on perusal of working

copy of hard disk found and seized at 1756, Telipada SMS Highway,

Choura Rasta, Jaipur and inventoried as Annexure-AS, Exhibit-24 it is

gathered that G.P. for the AY 2010-11 and AY 2009-10 was 21.11% and

27.17% respectively. However, G.P. for AY prior to AY 2009-10 could not

be gathered. In the given circumstances there is no other alternatives

available but to considered the G.P. for AY 2009-10 and AY 2010-11 for

determination of G.P for AY 2011-12 and onwards. Therefore, the average

GP for AY 2009-10 & AY 2010-11 is come to 24.14% which is applied to AY

2011-12 to 2017-18. Accordingly, trading addition for AY 2011-12 to 2017-

18 is computed as under:

s.no AY GP Estimated GP% Turnover Trading addition (D- declared in ITR C)*E A B C D E F 1 2011-12 11.51% 24.14% 28269535 3570442 2 2012-13 9.08% 24.14% 38096579 5737344 3 2013-14 9.21% 24.14% 47425310 7080598 4 2014-15 9.60% 24.14% 47860076 6958855 24.14% 5 2015-16 9.64% 53522361 7760742 6 2016-17 7.93% 24.14% 72126335 11691678 7 2017-18 7.86% 24.14% 74581156 12141812

*However, looking to the fact during AY 2017-18 assessee has induced his

undisclosed income in books under the grab of cash sale, as discussed in

Para 7, out of the total turnover of Rs. 8,15,83,283/- the bogus turnover to

12 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

the extent of Rs. 70,02,127/- is deducted and on balance turnover of Rs.

7,45,81,156/- GP rate of 24.14% is applied, resulting in trading addition of

Rs. 1,21,41,812/-.

4.4 The assessing officer has observed that the assessee has deposited

cash aggregating to Rs. 1,16,00,000/- in his bank account in demonetized

currency notes during the demonetization period. In order to verify the

source of cash so deposited, assessee was asked to explain the source

along with documentary evidences, in response assessee contended that

the cash has been deposited out of the sale made by the assessee during

the pre-demonetization period. Assessee submitted sales ledger in support

of the contention. The details of cash of source as shown by the assessee

is as under:

Date Invoice No. Total Cash Invoice issued Amount in INR 01.11.2016 Cash in hand - 4340533 02.11.2016 2 53000 03.11.2016 1 11400 04.11.2016 1 17885 05.11.2016 3 50250 07.11.2016 1 11890 08.11.2016 412-451 40* 7020127 Total 48 11505085

The reply filed by the assessee along with the relied upon documents were

considered however the same not found accepted by the ld. AO on the

following reasons:

13 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT a. Assessee claimed cash sales aggregating to Rs. 70,02,127/- were

made by him in single day in the month of November 2016 viz., on

08.11.2016 issuing total 40 invoices.

b. From the above table it appeals that, out of total sales of Rs.

8,15,83,283/- made during 365 days sales, aggregating to Rs. 70,02,127/-

were made in just one day thus only sales Rs. 7,45,81,156/- were made by

him in 364 days. This shows the irregular sales pattern during 1 day just

before demonetization has started.

c. The cash sales pattern of the assessee of immediately 2 preceding

years is also compared which shows that even percentage of month wise

cash sales made and total cash sales are compared even for three years

the sales made by the assessee in just 1 day of November 2016 seems

highly lopsided, viz. in the month of November assessee usually made cash

sales of 13% as it appeared in the year 2014-15 & 2015-16 but suddenly in

the year 2016-17 the cash sale in November rose to 42.05%.

d. Even the total sales made by the in the year under consideration and

particularly in the month of November 2016 is highly asymmetrical, viz. in

the month of November assessee usually made sales below 10% as it

appeared in the year 2014-15 & 2015-16 but suddenly in the year 2016-17

14 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT the sale in November rose to 31.53% and in month of January it again

reached to below 10%.

e. Further, on examination of the sales bills it is found that prior to

demonetization the bills were issued with complete details of the sold

jewelry items as well as customers. The issued bills contains details of the

purity of gold in CT along with weight and full description of the item sold

like chain, Sat, Topas etc. The bills were issued full name and address of

the person along with mobile numbers. Even on the date of declaration of

demonetization i.e. 08.11.2016 bill no was issued to khusbuji showing full

address as 40-A Gorband Nagar West Jalpur. it appears this bills was

issued before declaration of demonetization. However, the bills issued

thereafter on 08.11.2018 do not contains such details of the purchaser and

only cash has been mentioned. The change in issuance of sales bills is

clearly shows that transactions are dubious and details mentioned on the

same cannot be verified.

On being asked vide note sheet entry dated 26.11.2018 to furnished full

name and address of the person to whom cash sale was made during the

period of demonetarization period, the assessee simply submitted that it

15 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT was not required as sale was under 2 lacs and there was no such

requirement under law. The claim of the assessee is also found to be

contrary since the bills issued prior to demonetization contains full details

including mobile number even these sale was also below 2 lacs.

f. That out of total 40 cash sale invoices issued on 08.11.2016 invoices as

much as 36 were ranged between 1,50,000-1,99,800/-. Further, neither a

single invoice exceeded Rs. 2 lacs during 01.11.2016 to 08.11.2016.

Based on the records produced assessing officer noted that the

unreasonableness and filmsy manner in which the assessee claimed that

the cash so deposited represent cash sales of assessee unacceptable. He

further observed that the cash so deposited is nothing but the undisclosed

income of the assessee earned from undisclosed sources and shown by

the assessee under the grab of cash sales by tailoring sales invoices to

make an eye wash. Therefore, the undisclosed income of the assessee

which he induced in books under the grab of cash sales during pre-

demonetization period is added as unexplained cash credit u/s. 68 of the

Act and resultantly addition of Rs. 70,02,127/- made to the income of the

16 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT assessee and taxed at the rate of 60 % as per provision of section 115BBE

of the Act.

4.5 The ld. AO stated that on 28.07.2018 a search and seizure action was

conducted on various premises of the assessee where in huge number of

incriminating details and documents were found / inventoried / seized /

impounded. Therefore, assessee vide show cause notice dated 01.10.2008

asked to explain the details and documents so found / inventoried / seized /

impounded. In response the assessee filed written submission on

19.10.2018. The ld. AO noted that the reply of the assessee is not

acceptable on account of the following reasons:

“a) The reply of the assessee is vague and general in nature no evidences

have been furnished by the assessee in support of his claim.

b) On the sized / impounded documents, as summarized above, complete

details with respect to the unaccounted sale made by the assessee is

mentioned, viz., date of sale, name of buyer, description of items sold,

gross weight and even in some cases the making charges etc. is clearly

appearing.

c In jewellery business the rates of a particular item cannot be fixed, since

the item involved in precious metal rate of which is governed though the

17 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT international markets. Therefore, the claim of assessee that these are

estimates only is baseless.

d) Further, the claim of the assessee that these pages signifies only the

amount of advance is to be received in case of order is placed by a

customer seems misplaced due to the reason that in the seized/impounded

documents name of over 1000 parties is mentioned and it cannot be

believed that all such parties are known to assessee (otherwise he would

not sell goods on advance payment only to an unknown party) and all of

them will pay only advance to assessee and non of the party will make

complete payment.

e) Even if the contention is believed it cannot be understood as to what has

stopped he assessee from producing such parties before the undersigned

for verification.

f) Further, in respect of query no. 5 of show cause based on page no. 1 to

13, Exhibit-6, Annexure-AS is found and seized from 1756, Telepada SMS

Highway, Chaura Rasta, Jaipur, which reveals that assessee has issued

gold for making ornament to various parties. The assessee furnished that

gold was issued out of stock available and labor payment to Karigars was

18 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT made by account payee cheques. However, gold issued to Shri Jadish

Prasad Kamal Kumar Soni and M/s Ganpati Ornaments weighing at

1081.520 gram and 1184.730 gram respectively were not found in stock

register of gold ornaments maintained by the assessee. However, it is

found that the payment to labor amounting to Rs. 86521/- and Rs. 94778/-

was paid and TDS was deducted.

As the stock issued to above persons is not found recorded in the books of

accounts, hence, it is evident that the stock of gold ornaments weighing to

2266.25 gram is unaccounted sale of the assessee which is computes at

Rs. 2900/-. In view of the above, the entries noted on these pages reflect

the unaccounted transaction of assessee which are not recorded by the

assessee in its regular books of accounts. Based on these 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

component i.e. purchase and other expenses, therefore no separate

addition on account of unaccounted purchase and expenditure is require to

made. Accordingly, addition of Rs. 60,12,17,723/- on account of

undisclosed cash sale added to the total income of the assessee u/s 68 of

19 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

the I.T. Act and taxed at @ 60% as per provision of section 115BBE of the

I.T. Act.

Difference in Stock

4.6 During the course of search proceeding at showroom of M/s Royal

Jewellers and M/s Shri Nath Corporation at Shop. 1756, Telepada, SMS

Highway, Jaipur physical verification of the stock of was taken on 30-07-

2016 by registered valuer and the stock summary of the same is as under:

S. No. Metal Description Gross weight As per books Difference in Difference in as per of the weight Rs. physical assessee verification 1 Gold Annexure- 98424.510 93756.609 4667.901 14027042 JF-1 gram gram gram Silver Annexure- 32.350 kg - 32.350 Kg 1091812 JF-3

From the above table is evident that stock of gold items and silver items

were found excess by 4667.901 gram and 32.350 kg respectively.

Accordingly, assessee was asked to furnish explanation on the stock found

and valued by the approved valuer. The assessee has also contended that

excess stock by 4081.481-gram was due to receipt of gold item on approval

basis from M/s Garg Jewellers which is sister concern of one of the partner

Smt. Pooja Agarwal. However, the argument put forward by the assessee

also not found acceptable as the assessee has not furnished any evidence

20 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT that gold item were receipt on approval basis from M/s Garg Jeweller and

were liying in the showroom of the assessee on the date of search.

However, contrary to the claim of the assessee Shri Manoj Kumar

Khandelwal admitted that that excess stock of gold item weighing 4667.901

gram is undisclosed investment in M/s Royal Jewellers and same was

offered for taxation as the undisclosed investment of the firm for FY 2016-

evident that excess stock weighing to 4667.901 gram on account of gold

item valued at Rs. 1402742/- is undisclosed stock of the firm. Further, in

respect of the silver item weighing 32.350 Kg valued at Rs. 1091812/-, the

assessee has claimed that these items were kept in the showroom of the

assessee for remaking purpose which are ancestral assets of the partners.

However, the assessee's claim not found convincing as M/s Royal

Jewellers does not have in-house manufacturing facility and the firm sent

gold for manufacturing to (various karigar Therefore, there was no reason to

kept the silver item having huge. weight of 32 kg at showroom of the

assessee. Further, the assesee failed to furnish any detail in respect of

quantity of ancestral asset in the hands of the partners namely Shri Manoj

Khandewal and Smt. Pooja Agarwal and question arised without the

quantification of the silver how the same were divided between the partners

21 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT after the remaking as claimed by the assessee. Therefore, the claim of the

assessee is an afterthought and does not have any substance. Thus, the

silver of 32.350 kg valued at Rs. 1091812/- is also held as unexplained

purchase of the assessee firm. Therefore, a sum of Rs. 2494554/- (Rs.

1402742/- plus 1091812/-) is added back to the total income of the

assessee u/s 69C of the I.T. Act and taxed as per provision of section

115BBE of the 1.1. Act and taxed at @ 60% as per provision of section

115BBE of the I.T. Act

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

Jaipur. As 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 in addition

to the written submission filed, they have also supplied emphasize on the

judicial precedent to support the contentions raised in the written

submissions.

22 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

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

behalf of the assessee has placed his combined written submission which

is extracted in below;

“Brief facts of the case are that the appellant is a partnership firm engaged in the business of manufacturing and trading of jewellery having its principal place of business at 1756, Telipada, SMS Highway, Jaipur. The place of business of the appellant firm is commonly used by the appellant’s sister concern “M/s Shrinath Corporation” which is solely engaged in wholesale trading of bullions. Admittedly, as submitted above, though both the concerns are sharing common place for their business activities but the nature of business is all-together different.

A search and seizure action u/s 132 of the Income Tax Act, 1961 (herein after referred to as the act) was carried out on 28/07/2016 by the Income Tax department on CP Garg group, of which the assessee is one of the member and as a result its business premises and residential premises of its partners were also searched. During the course of search various loose papers/ documents were seized besides the seizure of cash, valuables etc. from various places including from the business premises of the appellant. Besides the statements of the partners of the assessee firm, their family members and employees were also recorded. Subsequent to the search, Return of income was filed on 30.09.2017 declaring total income at Rs. 17,18,740/- (APB 1-4).

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 following additions: 1) Trading Addition after invoking 145(3) : Rs. 1,21,41,812/- 2) Cash Sales during demonetization Rs.70,02,127/- 3) Addition on allegation of cash sales on the basis of loose papers Rs.60,12,17,723/- 4) Difference in Stock Rs. 1,51,18,854/-

Aggrieved of the additions made by ld. AO, assessee preferred appeal before ld. CIT(A), which was partly allowed. Assessee preferred appeal against the additions sustained by ld. CIT(A) and department is in appeal against the relief granted by ld. CIT(A), the summary of the same is enclosed as Annexure “1” to the written submission.

23 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

The submission on the ground taken by assessee as well as by department is as under:

Assessee’s Ground of Appeal No.1 & 2 and Departmental Ground of Appeal No. 2 to 4: Under these grounds of appeal, assessee has challenged the action of ld.CIT(A) in confirming the action of ld.AO in rejecting books of accounts and part of trading addition confirmed by ld.CIT(A),whereas department has challenged the part of trading addition deleted by ld.CIT(A).

Facts in respect of these grounds of appeal are that, as submitted above, 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 of 24.14% arbitrarily as against 7.86% declared by the appellant and consequently huge trading additions to the tune of Rs.1,21,41,813/-were made. Ld. CIT(A), after considering the submission made by assessee restricted to Trading Addition to Rs.9,99,016/- by applying GP rate of 9.06%

In this regard it is submitted that following reasons were given by the ld. AO for rejection of books of accounts maintained by the appellant in regular course:

The point wise explanation to the reasons so recorded before applying the provisions of section 145(3) is rendered herewith:

24 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT records. As regards stock register for the period after the date of search is concerned, it was maintained in regular course and was available with assesee firm. Therefore, the observations of the ld. AO that 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 deserve to be ignored and excluded. During the course of assessment proceedings the relevant extracts of the computerized stock registers maintained by the appellant were submitted before the ld. AO. 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.

(ii) Clause 4 of schedule Other Information of the ITR, allows the assessee to only select one method of valuation of stock out of the predefined methods. The three predefined method provided in the ITR form are: i. Cost or market rates whichever is less, ii) cost & iii) market rate. The appellant had therefore, selected and submitted its method of valuation of stock as cost or market rate whichever is less, it being the most relevant to the method actually followed by the appellant. The relevant portion of the ITR is reproduced herewith for your ready reference:

25 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

(iii) During the assessment proceedings for Ay 2017-18 the appellant was asked to submit the method of valuation of stock adopted by it. 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 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.

26 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT that the appellant did maintain stock registers as per the purity of gold, but the same were not maintained properly.

The appellant submits that the ld. AO’s observation 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 9 of the assessment order of A.Y.2017- 18. This clearly shows that the stock registers were very much in existence even as 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.

27 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT as a consequence to the survey carried out at the business premises of the assessee u/s 133A where such practice was also noticed earlier during survey by the department.

The above practice was also elaborately explained by Shri Manoj Khandelwal (Partner) to the search officials in his statements recorded u/s 132(4) during the course of search. The same is available as a part of statement of Shri Manoj Khandelwal recorded at his residence in Sundar Nagar on 31/07/2016 (Answer to question No.29)(APB 66-73).

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.

28 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT papers relied upon by the ld. AO was not a parallel Balance Sheet but the rough details of stock and other estimates noted down by the partner of the appellant firm. These details, after corrections ultimately stand included in the regular books of accounts of appellant firm.

The appellant submits that rejection of books of accounts on the basis of some rough estimates made for the administrative purpose of the partners is unjustified. Further, holding such rough estimates as a parallel unaccounted balance sheet is merely based on presumption.

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.

With regard to the application of 24.14% GP rate applied for the year under consideration, which was reduced by Ld. CIT(A) substantially, it is submitted that the ld. AO had applied the average gross profit rate of 24.14% (i.e. average of A.Y. 2009-10 and 2010-11 when the gold prices were very less) as against the declared GP rates declared by assessee, by ignoring the fact that such GP was not at all comparable nor based on the audited books of accounts of those years. As is evident from the observations of ld. AO in Assessment order, he has taken the figures of GP of A.Y 2009-10 & 2010-11 from the data found in computer hard disc seized during the course of search.

That AO applied highly unrealistic the GP rate of 24.14% (i.e. average GP rate for A.Y. 2009-10 & 2010-11) and thereby made trading addition of Rs.1,21,41,812/- That ld. AO applied the gross profit rate of 24.14% as against the declared GP rate of 7.86% and such an exorbitant GP rate was applied by taking the average GP rate of AY 2009-10 and 2010-11 by ignoring the fact that such GP was at all not comparable nor based on the audited books of accounts of those years. As is evident from the observations of ld. AO at page 12 in para (viii) of the order, he has taken the figures of GP of A.Y 2009-10 & 2010-11 from the data found in computer hard disc seized during the course of search.

In this regard at the outset it is submitted that the AO has applied average GP rate of A.Y. 2009-10 & 2010-11 in A.Y. 2014-15 and onwards which is after the expiry of more than 4 years and such approach is not at all appropriate and looking to the facts of the case is contrary to the settle proposition of law. The results of A.Y.2009-10 (8 years old) and 2010-11(7 years old) are not comparable as the volume of sales in these years was very low as compared with the turnover of subsequent years. Moreover, the market

29 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT conditions in those years were altogether different and certain other major factors which existed at that point of time have substantially been changed with the passage of time. By considering all these various factors, it has been held by various courts including the jurisdiction High Court that for estimating the income, past two or three years profit history is to considered only. Further, the economic and other circumstances affecting the volume of sales and the profits earned during the A.Y.2009-10 and 2010-11 widely vary from the circumstances prevailing during the year under appeal such as the price of commodity i.e. gold and market demand which are most effecting factor in this regard.

Reliance is placed on the following decisions:

316 ITR 125 (2009) CIT Vs. Inani Marbles Pvt. Ltd. (Raj.) Accounting – Rejection of accounts – Application of gross profit rate – Tribunal justified in applying gross profit rate of prior year – Income Tax Act, 1961, s. 145.

For the assessment year 2000-01, the Assessing Officer rejected the assessee’s books of account for valid reasons and invoked the provisions of section 145 of the Income-tax Act, 1961, and made assessment by applying the gross profit rate of 15 per cent. on the sales disclosed by the assessee. The Tribunal held that in the absence of any change in the factual position normally the profit rate declared and accepted in the preceding year, constitutes a good basis for working out the gross profit. Accordingly, since in the earlier year the gross profit rate declared and accepted was 2.51 per cent. the same rate would be applicable for the year in question. On appeal to the High Court”

It is further submitted that asseessee’s turnover has increased in these years whereas the gross profit has not reduced substantially. This is due to the fact that the appellant had been emphasizing on increasing its turnover and increasing its customer base. The gross profit rate in A.Y.2015-16 with a turnover of 5.35crores was 9.64%. The gross profit rate in A.Y.2016-17 was 7.93 % due to increase in turnover to around 7.21crores. Despite of increase in turnover in A.Y. 2017-18 at Rs.8.15 crores, GP rate was reduced only marginally, i.e. to 7.86%. Accordingly, the GP rate shown in A.Y. 2017-18 is fully reasonable and justified and does not require any further increase.

From the above it is clear beyond doubt that the financial results of the appellant firm have a constant trend of increasing turnover and thereby a slight reduction in the GP rate over the years. Therefore, the results declared by the appellant are more than reliable and the observation of the ld.AO is contrary to the evident facts. The assessee therefore, request your honours that books of accounts maintained by the appellant

30 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT reflect the true profit on recorded sales assessee and therefore trading results declared deserve to be accepted as such.

Further it is a fact that in Jewellery business rate of gold is decided by open market and moreover the same is known to all the customers. Thus no one can charge the price of gold more than the market price and margin comes from the price escalation and making charges which in no case could be as high as applied by ld.AO at 24.14%. It is settled proposition of law that once the books are rejected, only recourse available with an AO is to estimate the income. In that situation it is the duty of AO that such estimations should be fair and honest and should not be arbitrary as has been done in our case where the ld. AO in very casual manner applied the GP rate pertaining to the year which is as old as 8 years. In this regard reliance is placed on the following.

5 ITR 170 (PC) CIT V/s Laxminarain Badridas: The officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee’s circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guesswork in the matter, it must be honest guesswork. In that sense, too, the assessment must be, to some extent, arbitrary.

60 ITR 239 (SC) State of Kerala V/s Velukutty: The limits of the power are implicit in the expression ‘best of his judgment’. Judgment is a faculty to decide matters with wisdom truly and legally. Judgement does not depend upon the arbitrary caprice of a judge, but on settled and invariable principles of justice. Though there is an element of guesswork in a ‘best judgement assessment’, it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case.

115 ITR 524 (SC) Brij Bhushan Lal Parduman Kumar, etc. V/s CIT, Haryana, Himachal Pradesh and New Delhi-III: That the authority making a best judgement assessment must make an honest and fair estimate of the income of the assessee and though arbitrariness cannot be avoided in such estimate the same must not be capricious but should have a reasonable nexus to the available material and the circumstances of the case.

31 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

126 ITR 48 Yadu Hari Dalmia V/s CIT, Delhi (Central): Income from undisclosed sources – Expenditure not accounted for – Can be estimated and treated as income from undisclosed sources – Correctness of estimate is question of fact and degree – Absence of direct evidence does not preclude assessment by inference and estimate – Duty of ITO to make exhaustive enquiries and gather some material as basis – Estimate without details may note be accepted Income Tax Act, 1961, ss. 68, 68, 69A, 69B, 69C.

94 ITR 644 J.S. Parkar V/s V.B. Palekar (Bom.): So far as section 68 is concerned, the works used are “where any sum is found credited in the books of the assessee ……” Section 69 speaks of “whether the assessee has made investment ….” Section 69A postulates “whether in any financial year the assessee is found to be owner of any money, bullion, jewellery or other valuable article. ….” In my view, the phraseology used in the three sections goes to show that before the provisions of either of these three sections can be invoked, the condition precedent as to a credit entry, an investment having been factually made and the assessee having been found to be the owner of any money, bullion, etc. must be conclusively established on evidence.

In the instant case it must be inquired as to whether there is evidence on the basis of which the taxing authorities could hold that the petitioner had either made the investment in gold or was the owner of the contraband gold. If there is no evidence and such a finding is based only on surmises and conjectures, then the imposition of tax would be without the authority of law and liable to be set aside.

In the circumstances, it is humbly prayed that the trading results declared by the assessee should be upheld and entire trading additions deserve to be deleted.

Without prejudice to the submission that book results shown may be accepted and no trading addition may be made (as submitted herein above), however appellant submits that if at all, trading additions are sustained then trading results of preceding two years and current year may be made the base for estimating the profits for A.Y. 2017-18 and then suitable factoring may be applied on this average GP rate of 8.47%, for increase in turnover. The trading results declared for these years is tabulated as under: A.Y. Turnover GP ratio declared 2017-18 8,15,83,283/- 7.86% 2016-17 7,21,26,335/- 7.93% 2015-16 5,35,22,361/- 9.64% Average GP rate 8.47%

32 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT Assessee’s grounds of Appeal No. 3 to 7.1 and Departmental grounds of Appeal No. 8 to 10 These grounds of appeal relate to addition of Rs. 60,12,17,723/- made by ld.AO on allegation of unaccounted cash sales made on the various loose papers found during the course of search. During the course of first appeal, detailed submissions were made before ld.CIT(A) explaining the discrepancies in the additions made, after considering the same, ld. CIT(A) restricted such sales amount to Rs.31,20,07,946/- and applied GP rate of 9.06% [i.e. estimated by ld.CIT(A) while deciding trading addition]declared by assessee) and thus has restricted the addition to Rs. 2,82,67,919/-.

Assessee has challenged the action of ld. CIT(A) in confirming the addition to the tune of GP whereas the department has challenged relief granted by ld.CIT(A).

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 firm’s business premises and residences of its partners. The papers so seized from the business place at 1756, Telipada, SMS Highway, Choura Rasta were inventoried as Annexure-AS Exhibit 1 to 24 and the papers seized from the residence of Shri Manoj Khandelwal (partner) at 14, Sunder Nagar, Malviya Nagar, Jaipur were inventoried as Annexure-AS, Exhibit 1 to 15. The ld. AO after going through the entries found noted in the loose papers and documents at his end made sketchy summary in para 8 at page nos. 16 & 17 of the Assessment order wherein he has presumed unaccounted sales and purchases and also quantified the details of alleged unaccounted sales and purchases. The same is enclosed as Annexure 2 of this submission for your honour’s ready reference.

At the outset it is submitted that exorbitant addition of Rs. 60,12,17,723/- made by the ld.AO u/s 68, by alleging unaccounted sales made during the year under appeal, is unrealistic and illogical. The same have been made in casual and mechanical manner and are absolutely contrary to the fact on record.

Taking the legal aspect of the addition, it is submitted that as evident from the AO’s order, the additions in respect of alleged unaccounted sales have been made u/s 68 of the Income Tax Act, 1961.

Section 68 of the Income Tax Act, 1961 is reproduced herewith for 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,

33 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT 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, 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 appellant’s case the addition of Rs.60,12,17,723/-has been made by alleging the same as undisclosed cash sale made during the year under appeal which was based on the entries found noted on the loose papers seized during the course of search. Therefore, the ld.AO himself is of the view that the alleged amounts have not been 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.

In view of the above, the exorbitant addition of Rs.60,12,17,723/- made u/s 68 of the Act is legally defective and thus bad in law. The appellant therefore, humbly prays that such illogical and mechanical additions of alleged unaccounted sales made by the ld. AO is bad in law 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 and thus any addition of the amount not being a credit entry in the books of accounts deserves to be deleted. Therefore this addition of alleged unaccounted sales so made by the ld. AO u/s 68 deserves to be deleted.

34 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

The appellant therefore prays your honours to out rightly delete the addition of Rs.60,12,17,723/- made u/s 68 of the Act on this legal ground without even going into the merits of the addition.

Without prejudice to the above, the appellant submits that the necessary explanations with reference to the above mentioned seized papers were submitted by the assessee during the course of assessment proceedings however, the Ld. AO without appreciating the same or without verifying the same proceeded in arbitrary manner. Resultantly, an addition of Rs.60,12,17,723/- was made alleging the same as undisclosed cash sales for A.Y.2017-18 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 is the net profit 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 made. Accordingly, addition of Rs.60,12,17,723/- on account of undisclosed cash sale is hereby made to the total income of the assessee u/s 68 of the I.T.Act and taxed @ 60% as per provision of section 115BBE of the I.T.Act.”

Moreover, it is seen from the seized records that, alleged unaccounted purchases are also recorded therein and the ld. AO has himself admitted the same. It is further submitted that the seized records itself provide the link to alleged unaccounted sales and unaccounted purchases. 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 plea taken by the ld. AO for 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

35 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT business premises of the assessee firm and also from the residential premises of its partners by alleging the same as undisclosed sale which were basically the rough notings. The notings as appearing in the loose papers are of the following nature:

i. Certain loose papers contained the summary of daily stock position taken by the partner (Shri Manoj Khandelwal) or in his absence by any employee at the end of the day. ii. Rough noting of the transactions/ events occurring during the whole day by one of the employee in absence of the partner. iii. Rough noting of the transactions/ events occurring during the whole day by the partner himself at the end of the day which also include the entries stated in (ii) above. iv. Noting of trades booked and trades executed in respect of bullion trading of Shrinath Corporation, a sister concern having same place of business. v. Approval slips issued for goods sent out on approval basis. vi. Rough estimates of the selling price of articles of jewellery made to quote the selling price to the customers who walk in to the store.

The ld. AO has 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.

Thus, there are duplications/triplications 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 Rs.60,12,17,723/- made on account 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 the addition so made by the ld.AO be deleted in its entirety.

Alternatively and without prejudice to the above submission of the appellant, it is further submitted as under: It is submitted 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.

36 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

With the above background, exhibit wise/ issue wise submission is made as under:

Before discussing entries in the various loose papers, it is submitted that the loose papers and documents were seized from business premises and also from residence of partners and these have been inventorized as Annexure AS of the respective place of search. In order to avoid confusion between the exhibit seized from one place vis-à-vis exhibit seized from other place having same number, exhibit seized from the business premises of the appellant firm namely 1756, Telipada, Chaura Rasta Jaipur have been named exhibit C-1 to C-24 for the sake of clarity. Similarly, documents seized from residence of partner of assessee firm have been named as Exhibit A-1,A-2 and so on.

Exibit 8 and 15 (C-8 and 15, seized from 1756, Telipada) Issue: Entries in Exibit C- 8 stand incorporated in Exibit C- 15 The ld. AO has worked out the unaccounted sales/cash advance of Rs.19,46,02,422/- on the basis of Exibit-8 (PB Volume I Part I 102-136). Further, as per Exibit-15 (PB Volume I Part I 274-317) total unaccounted sales has been calculated at Rs.6,10,34,865/-.

At the outset it is submitted that the entries in both, Exibit-8 and 15 are rough noting of the events taken place on a particular day.

This issue is explained in following manner: All the events taking place during a particular day are noted by the employee as and when the same take place. Thereafter at the end of that particular working day all such transactions are compiled and thereby again noted and reconciled by the partner. Therefore, the transactions occurring on a particular day are recorded twice in two different documents/ pages, both of which have been seized during the course of search and additions have been made by the ld. AO on the basis entries in both the pages/ documents. A close observation of the following pages reveals that these pages relate to the same day and the transactions recorded on these pages are almost the same with minor differences.

Reference of page no. in Compilation of Reference of page no. in Compilation of Papers Exhibit C-8 Papers Volume I Exhibit C-15 Volume I Part I APB Part I APB Page no. 21 (27-Jul) 134 Page no. 21 (27-Jul) 299 Page no. 16 (21-Jul) 126 Page no. 18 (21-Jul) 302 Page no. 15 (20-Jul) 124 Page no. 15 (20-Jul) 305 Page no. 17 (22-Jul) 127 Page no. 10 (22-Jul) 310 Page no. 13 121 Page no. 9 (18-Jul) 311

37 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

Page no. 18 (23-Jul) 129 Page no. 6 (23-Jul) 314 Page no. 14 (19-Jul) 123 Page no. 1 (19-Jul) 317

From the above table it is evident that the pages seized as a part of Exhibit C-8 and exhibit C-15 relate to the same day.

In this regard, a chart as per Annexure 4 was submitted before ld. CIT(A) reflecting pagewise summary of double addition which is enclosed at APB 75. Also, said chart with revised paper book references of seized papers is enclosed as Annexure 4 of this submission.

Further, elaborate working sheet for each of the above pages of exhibit C 8 vis a vis C 15 was also submitted as sheet 4A to 4G which are enclosed at APB 75-84, and is also enclosed as Annexure 4A to 4G (with revised page references) of this submission.

The final working is as under: Jewellery Bullion Total 18,29,840 3,21,65,083 3,40,04,923

From the details submitted at Annexure 1 & 1A to 1G, it is amply clear that additions to the extent of Rs.3,40,04,923/- made under Exhibit C-8 stand included in Exhibit C-15 and therefore have been duplicated. These additions relate to the same entries for the same day in two different note books/loose papers bunch.

These facts were verified by ld.CIT(A) in detail and were found correct by him which have been discussed at para 11,12 & 13 of the ld.CIT(A) order (page 34 to page 46) and he finally held the working submitted by appellant to be correct. The appellant therefore, prays that addition to the extent of Rs.3,40,04,923/- made on account of unaccounted sales has been rightly deleted by ld.CIT(A) which order of ld.CIT(A) may kindly be upheld.

Exhibit15 (C- 15, seized from 1756, Telipada) Issue: Entries in Exhibit 15 duplicated The appellant submits that pages inventoried as per Exhibit-15 contain two types of pages: a. Pages containing rough daily cash book b. Pages containing details of all the transactions occurred during the day Dates Page Nos. that are APB Page Nos. that contain APB rough cash books details of all transactions 18-Jul 8 312 9 311 22-Jul 11 309 10 310

38 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

18-Jul 14 306 15 315 23-Jul 17 303 18 302 19-Jul 20 300 21 301

The appellant submits that the transaction in respect of which cash was either received or paid have been noted twice, i.e. once on the page when the transaction is noted and secondly on the page wherein cash inflow-outflow is noted.

In respect of pages that contain the cash inflow-outflow, the ld.AO had simply picked up the sum total of the payment side and the closing cash balance and made an addition under the head of unaccounted sale.

The appellant submits that, in respect of pages containing the details of cash flow, two errors have been made by the ld. AO: i. The ld. AO has added the total of cash received on a particular day as cash sales or advance for cash sales, plus the opening balance of the day. This practice has been repeated for all these type of pages. Thus, opening cash balance of all the various days have been cumulatively added multiple times (i.e. for the various days available in loose papers) particularly page no. 2,14,17,11,5 & 20 of Exhibit C 15 (i.e. Exhibit 15 seized from Telipada). Same was furnished before ld.CIT(A) as Annexure 5 of written submission (enclosed at APB 85-93). Same is enclosed as Annexure 5 of this written submission (with revised paper book references of seized papers). The total addition made on account of such entries comes to Rs. 1,34,23,481/-, which is unjustified. The addition made by the ld.AO for the entries appearing on each page which comprises of the total cash payments plus the closing cash balance. Therefore, the carried forward cash balance of each day has cumulatively been added by the ld. AO multiple times resulting into multifold addition of cash balance. ii. The transactions representing cash inflow and outflows i.e. sales and purchases in the same exhibit have already been included on different pages wherein the transactions are noted, which fact was ignored by ld. AO. Same was furnished before ld.CIT(A) as 2nd chart of Annexure 5, (enclosed at APB 85-93), which is also enclosed as Annexure 5 of this submission (with revised paper book references of seized papers). This has resulted into double addition of Rs. 1,46,82,451/-; iii. Further ld. AO has considered certain items of purchases as sales which are tabulated at APB 85-93. This has resulted into addition of Rs. 83,04,167/-; was furnished before ld.CIT(A) as 3rd chart of Annexure 5, (enclosed at APB 85-93), which is also enclosed as Annexure 5 of this written submission (with revised paper book references for seized papers).

39 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

Ld. CIT(A) has verified these details very closely and discussed this issue at page 46 to page 62 of his order and found the claim of appellant as correct.

The above fact mentioned by the appellant is explained at APB 85-93 and the final working is tabulated as under: Particulars Amount (Rs.) 1. Opening cash balances considered as sales 1,34,23,481 2. Common entries of unaccounted sales 1,46,82,451 3. Purchases, wrongly considered as unaccounted sales 83,04,167 Total 3,64,10,099

From the perusal of the table above and chart at APB 85-93, it is amply clear that additions to the extent of Rs.3,64,10,099/- have been made twice for the entries appearing in loose papers at two or more places or where purchases have been considered as sales. These also include additions related to the same entries in the day book and in the cash book.

The appellant therefore, prays your honours to confirm the order of ld.CIT(A) on this issue and reject the appeal of the department.

Exhibit 8 and 15 (C-8 and 15, seized from 1756, Telipada) Issue: Entries in respect of bullions in Exhibit 8 stand incorporated in Exhibit 15 The appellant further submits that there are further more double additions on the basis of Exhibit-8 and Exhibit-15, which are discussed as under:

The appellant reiterates that the papers seized as a part of Exhibit-8 & 15 are loose papers which basically contain rough notings of various parties from whom the M/s Shrinath Corporation, sister concern used to purchase and sale bullion (gold), and not the appellant firm. On various dates there are notings when deals were struck for both purchase and sale and weights of such deals was noted on the loose papers of Exhibit- 8.

Further, various other pages of Exhibit-8 itself and on some pages of Exhibit-15, contain notings where payments were made against deals of purchase or payment was received against deals of sales or advance payments were received against the orders of bullion. The appellant further submits that the ld. AO has erroneously made additions in respect of alleged unaccounted sales without giving the benefit of alleged unaccounted purchases and unaccounted expenses.

40 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT The ld. AO has erroneously made additions on account of unaccounted sales firstly on the basis of rough entries of the weights noted while booking the deals and again on the basis of payments made or received for such notings. The party wise details of such duplicate entries and corresponding additions made by the ld. AO were submitted before ld.CIT(A) as Annexure 6 of written submission(enclosed at APB 94-100) , which are enclosed as Annexure 6 of this written submission. The total of such deals worked out at Rs. 5,35,69,840/-. In addition to this amount, further addition was also made for the deals finally settled at Rs. 5,07,72,315/-. It was submitted before ld.CIT(A) that if at all any unaccounted sales is to be considered, the same may be in relation to the deals which stood finalized at Rs. 5,07,72,315/- and further addition of Rs. 5,35,69,840/- towards proposal should be deleted.

Ld. CIT(A) very carefully perused the entries and details as given in the chart and discussed the issue threadbare at page 65 to 73 of this order and held the argument and claim of appellant to be correct and deleted the addition. Hon’ble bench is requested to confirm the order of ld. CIT(A) and reject the appeal of department on this issue.

Exhibit C-15 and C-10, C-11 & C-12 (seized from 1756, Telipada) Issue: Exhibit C-10,C-11 and C-12 consists of rough estimate slips in respect of transactions noted in Exhibit C-15:

Exhibit A-1 and Exhibit A-8, A-9 and A-10 (seized from 14, Sundarnagar) Issue: Exhibit A-8, A-9 and A-10 consists of rough estimate slips in respect of transactions noted in Exhibit A-1:

The appellant makes receipts titled “ROUGH ESTIMATE” for calculating the rough sale price (on estimate basis) of any article when any customer walks in into the store and asks for the estimated price of a piece of jewellery. These receipts have been found during the course of search from premises of the appellant as well as the residence of Partner, Shri Manoj Khandelwal and seized in Exhibits C-10,11,12, & 13 and A-8,9 & 10 respectively.

The receipts of rough estimates when crystallizes into actual sales gets noted by the employee/ partner in the day books maintained by them entries of which were found noted in Exhibits C-15 seized from at the business premises and A-1 seized at the residence of partner.

The ld. AO has made additions on account of unaccounted sales both on the basis of slips of “ROUGH ESTIMATES” and also on the basis of the notings in Exhibit C-15 and

41 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

A-1.The complete details of these notings and the receipts to which they relate are enclosed at APB 101-123 and summary is tabulated as under: Duplication within the exhibits Amount of Annexure to duplication WS (Rs.) Receipts in Exhibit C10 noted in Exhibit C15 5,59,061/- 7A Receipts in Exhibit C11 noted in Exhibit C15 9,22,471/- 7B Receipts in Exhibit C12 noted in Exhibit C15 3,13,789/- 7C Receipts in Exhibit C13 noted in Exhibit C15 2,13,665/- 7D Receipts in Exhibit A1 noted in Exhibit A8 18,81,781/- 7E Receipts in Exhibit A1 noted in Exhibit A9 81,73,621/- 7F Receipts in Exhibit A1 noted in Exhibit A10 8,87,719/- 7E TOTAL 1,29,52,107/-

From the above enclosed Annexure it is evident that the additions made by the ld. AO to the extent of Rs.1,29,52,107/- has erroneously been doubly made .

Ld. CIT(A) after going through the seized records and relevant working sheet and the summary chart Ann. 7 & sheet 7A to 7E (enclosed at APB 101-123), which is also enclosed as Annexure 7 of this written submission) found the claim of appellant to be correct and deleted the addition. Same is discussed by him at page 73 to 73 of his order.

The appellant therefore, prays your honours to kindly confirm the decision of ld.CIT(A) in deleting the addition of Rs.1,29,52,107/-, which was made by the ld.AO twice.

Exhibit C13, C17, C18 & C19 (seized from 1756 Telipada) and A8, A9 & A10 (Seized from 14, Sundarnagar) Issue: Receipts marked “APPROVAL” are not sales effected by the appellant: It is reiterated that the appellant firm is engaged in trading of gold jewellery, and in jewellery business it is a common practice to send and receive goods on approval basis.

Moreover assessee is doing business on wholesale basis also where goods have been sent to and are also received from the other retailers for approvals and these goods are also returnable. Under such circumstances, the goods sent on approval or received on approval are noted down on slips to keep a record of the goods sent on approval which stand cancelled when the goods are 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 sales is recorded in the books of accounts only after 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

42 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

recording only the actual sale of goods in the stock registers. Similarly, purchase bills are taken from the parties when it is finally decided to purchase the goods and approvals memo is cancelled.

The ld.AO in the assessment order has failed to understand the proper nature of these approval memos and in arbitrary manner has assumed the same to be sales made by the appellant which has resulted into the an addition of Rs. 18,67,67,651/- being unaccounted sales.

The Exhibit wise details of approval slips assumed/alleged to be unaccounted sales by the ld.AO is at APB 124-178 (also at Annexure 8 of this submission) according to which the total amount of addition made by ld. AO towards alleged unaccounted sales is of Rs. 18,67,67,651/-.

It is reiterated that many approval slips are for goods received on approval from the retailers. Moreover, there are many slips of goods received on approval from karigars. These goods are received from retailers and karigars on sample basis. Some pages of only one Exhibit namely Exhibit-9 are mentioned below wherein name of karigar and goods received on approval is clearly represented. Exibit No. Page No. Name of Party Title of receipt Amount APB A9 1 Ajit APPROVAL 1,80,177/- 586 (Volume I Part II) A9 1 Vishwajeet APPROVAL 2,04,571/- 586 (Volume I Part II) A9 6 Ajit APPROVAL 1,71,086/- 580(Volume I Part II) A9 9 Vishwajeet APPROVAL 49,344/- 576(Volume I Part II) A9 88 JagannathKarigar APPROVAL 45,229/- 498(Volume I Part II) A8 62 Sushant Karigar APPROVAL 2,369/- 1236(Volume II Part II) A8 46 Arun Karigar APPROVAL 88,785/- 1252(Volume II Part II) A8 21 Ajit Karigar APPROVAL 48,931/- 1277(Volume II Part II) (Not an exhaustive list)

It is submitted that such a methodology/ system was adopted in order to distinguish actual sales/purchases from the goods sent/received 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

43 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT survey carried out at the business premises of the assessee u/s 133A where such practice was also noticed by the department.

During the course of proceedings before ld. CIT(A), detailed submission was made before ld.CIT(A) in this regard, however the same was not accepted.

It is submitted before your honours that in Exhibit C-13 itself there are not only slips of 'approval' but there are other slips on which 'rough estimate' is mentioned. It was further submitted that in other exhibits namely C-17, C-18, C-19, etc. and also in exhibit A-8, A- 9 and A-10, there are various slips on which 'rough estimate' is mentioned and moreover there are still other slips. It was submitted that the other slips on which nothing at the top is mentioned, has not been disputed or agitated in absence of any concrete and foolproof evidence with the appellant. Similarly the appellant is also not very seriously agitating the slips on the top of which 'rough estimate' is mentioned, though as the name suggest these are only rough estimates. However as it is difficult to furnish positive evidence regarding these not being sale, the issue is agitated on the basis of written submission only. However as regards approval slips are concerned, it is very much clear that these are not unaccounted sales and these may be excluded from sale. Moreover many of these slips are related to goods received on approval. It is therefore requested before your honours that these can by no stretch of imagination be the sales and that additions of Rs.18,67,67,651/- on the basis of these approval slips so made by treating them as unaccounted sales deserves to be deleted.

Moreover, it is further submitted that as regards additions based on approval memos is concerned, during the appellate proceedings, 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 was submitted before the ld CIT(A). The ld. CIT(A) after making in-dept verification of each individual entry from the seized records has deleted the duplicate/ triplicate/ multiple entries and upheld the gross profit on such alleged remaining undisclosed sales though the same was on “Approval Memos”. While doing so, ld. CIT(A) has failed to appreciate the fact the such entries also with regard to the goods sent on approval memos which have been treated as sales by the ld. AO. The assessee explained the nature of such transactions and further explained the circumstances under which the goods has to be sent on approval and in all such cases, sales have been recognized as and when the same is confirmed by the customer, therefore, the amount of goods send on approval cannot be treated as the unaccounted sales of the appellant. However, ld.CIT(A) has failed to appreciate the submission and applied the GP rate on such amount of good send on approval by holding the same as sales.

44 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT Exhibit C-16 (seized from 1756, Telipada) and Exhibit A2 (seized from 14, Sunder Nagar) Issue: Goods received on approval/ purchases erroneously considered as unaccounted sales:

It is submitted that the receipts found, seized and inventoried as a part of Exhibit C16 consist of receipts in respect of goods on approval basis/ purchases of the appellant firm. From the perusal of the papers (APB 877-934 Volume II Part I) it is evident that the same were issued in the name of “Royal”, “M/s Royal”, “Royal Jewellers” as party name thus they in no case be considered as issued by the appellant. Total of such slips as per Exhibit C16 comes to Rs. 1,11,44,666/- The ld. AO without appreciating the fact the name of the party mentioned in these receipts is that of the appellant has erroneously assumed the same as unaccounted sale made by the appellant.

Similarly additions to the extent of Rs.28,77,504/- on the basis of Exhibit A-2 (APB- 1116-1124 Volume II Part II) relate to goods on approval basis/ purchase of the appellant firm.

In this regard, it is requested before your honours that this total amount of Rs. 1,40,22,170/- (i.e. Rs.1,11,44,666/- plus Rs. 28,77,504/-) is basically the goods received on approval by the appellant firm / group and cannot at all be considered as unaccounted sale. The appellant therefore, prays your honours to kindly delete the total addition of Rs. 1,40,22,170/- which is inclusive of addition of Rs.1,11,44,666/- made on account of alleged unaccounted sale based on the entries found noted in seized papers via Exhibit C-16 and of Rs.28,77,504/- based on entries found noted in seized papers via Exhibit-A-2.

Ld. CIT(A) closely perused the relevant seized papers and after being satisfied, excluded such sum of Rs.1,40,22,170/- from sales and the same was treated as purchases. Accordingly, it is submitted that decision of ld.CIT(A) on this issue may be upheld.

Exibit C-22 (Seized from 1756, Telipada) Issue: Fully accounted The ld. AO has made an addition of Rs.4,85,255/- by alleging the same as unaccounted sales based on the entries found noted in the loose papers found during the course of search and inventorised as Exhibit C-22. The appellant submits that the invoices that have been alleged as unaccounted sale by the ld. AO are fully accounted for in the regular books of accounts maintained by the appellant. The ld. AO has failed to

45 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

reconcile the sale invoices with the books of accounts of the appellant and erroneously presumed the same to be unaccounted.

The complete details of the invoices and their reconciliation with the regular books of accounts of the appellant is enclosed at APB 179 (also at Annexure 9 of this submission). In the said chart a reference of the seized paper is made to the sale as per books of accounts as appearing in the regular books of accounts of assessee.

In view of the above, it is humbly prayed before your honour that the addition of Rs.4,85,255/- may please be directed to be deleted.

With the above submission on various discrepancies in the order of ld. AO on account of duplication/ multiplication of addition or by non-considering the entries found noted in the seized papers in their true sense, it is submitted that ld.CIT(A) after considering the submission of assessee on seized papers with specific charts, deleted the addition to the tune of Rs. 15,14,34,394/-, details of which are as under (APB 183-184): S. No. Particulars/ nature of addition Amount 1. Addition for duplicate entries of alleged unaccounted sales of 1,65,38,922.00 jewellery 2. Addition for duplicate entries of alleged unaccounted sales of 9,86,60,399.00 Bullions 3. Addition of by taking opening balance every time 1,34,23,481.00 4. Addition for recorded sales 4,85,255.00 5. Purchases considered as sales 2,23,26,337.00 Total 15,14,34,394.00 Appellant prays that decision of ld.CIT(A) to the extent of deletions made of Rs. 15,14,34,394/- deserves to be upheld and departmental appeal on these issues be rejected. It is further submitted that our submission on addition based on approval memo may kindly be considered and amount of Rs.18,67,67,651/- treated by ld.CIT(A) as Sales be ignored as these are actually not the sales but the goods given only on approval.

Exhibit C-14 (seized from 1756, Telipada) Issue: Stock taken on various days considered as unaccounted purchases for the day:

The ld. AO has made a total addition of Rs. 36,96,73,788/- on account of unaccounted purchases from the papers seized and inventorized as a part of Exibit-C14. The appellant submits that the such notings have been alleged as purchase transactions by the ld. AO are in fact the rough stock sheets of the appellant firm. As submitted above, the appellant firm had a practice of reconciling all the transactions and the closing stock at the end of every working day. The detailed explanation of each paper considered as

46 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT alleged unaccounted purchases by the ld.AO as furnished in Annexure 10 of written submission before ld.CIT(A) is enclosed at APB 180-182 , which is also being furnished as Annexure 10 of this submission. From perusal of the said chart it is amply clear that the ld. AO has made multiple mistakes while treating them as unaccounted purchases of the appellant firm.

Kind attention of your honours is invited to page No. 15 dt. 15/07 (APB 255 Common PB Vo. I Part I), page No. 17 dt. 18/07 (APB 253 Common Paper Book Volume I Part I), page 20 dt. 19/07 (APB 247 Common Paper Book Volume I Part I), page 31 dt. 20/07 (APB 229 Common Paper Book Volume I Part I), page 9A dt. 21/07 (APB 265 Common Paper Book Volume I Part I), page 41 dt. 22/07 (APB 211 Common Paper Book Volume I Part I), page 40 dt. 25/07 (APB 213 Common Paper Book Volume I Part I), page 55 dt. 27/07 (APB 186 Common Paper Book Volume I Part I) and page 57 (APB 182 Common Paper Book Volume I Part I). It is submitted that the bare perusal of these pages together at one go clearly reveals that the entries so mentioned therein which have gross weight and net weight of various items, are obviously related to some memorandum stock taking.

It is submitted that the Ld. AO has considered the details mentioned on each page as unaccounted purchase without realizing that details mentioned on one page is exactly tallying with the details available on second page for example on page 15 and 17 of C- 14 (except slight difference of about 3 gms. in the last item named as IR' in its gross weight and also in net weight). Similarly all items of page 17 match with page 20 except difference of about 9-34 ms. in gross weight and net weight against one entry 'Bali' and even in the total gross and net weight there is just difference of 0.36 gms. between these two pages. Similar in the position vis-a-vis other pages where only slight decrease or increase in one of the item is reflected and accordingly the total memorandum stock position of certain items on that particular day is found slightly varying by about 1 to 10 gms. Moreover, ld.AO has mas acted so casually that he has considered gross weight of memorandum stock on particular date as purchase and again the net weight of the memorandum stock on that day itself has also been considered as purchase. These papers relate to 9 different dates and after adding the gross weight and net weight of memorandum stock and applying the rate of gold, the Ld. AO has presumed the purchase of around 4 crore and odd for each day and thereby considered the total unaccounted purchases to be Rs. 36,23,07,788/-. Similarly some further entries were found noted on these pages which were actually related to number of bangles, however the Ld. AO has considered them also to be purchase and accordingly he has further added Rs. 73.66 lakhs. As seen from the details these entries are also related to the stock of number of bangle on different dates.

47 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT After considering such submission made by assessee and perusing the working sheets furnished as well as the relevant seized papers, ld.CIT(A) deleted the addition of Rs. 36,96,73,788/- made on this account. It is requested that decision of ld. CIT(A) on this issue may please be confirmed.

Departmental grounds of Appeal No. 5 to 7: Under this ground of appeal, the department has challenged the action of the ld.CIT(A) in deleting the addition made by ld.AO on account of cash sales of Rs.70,02,127/-, made during the pre-demonetization period as unexplained cash credit under section 68 of the Act.

Brief facts pertaining to this ground of appeal are that the appellant had deposited cash amounting to Rs.1,16,00,000/- in its bank account No. 660520110000367 with Bank of India during the demonetization period in SBN of Rs.1000/- and 500/- rupee notes. The immediate source of such cash was explained as the cash available in the cash book maintained in the regular course of business wherein it was the accumulation of daily cash sales made by the appellant firm. Out of the total amount so deposited a sum of Rs. 70,20,127/- was cash sales made on 08.11.2016 i.e. the day on which demonetization was announced by the Prime Minister.

The appellant submits that, with the announcement of the Hon’ble Prime Minister in respect of demonetization of currency notes of denomination Rs.500/- and Rs.1000/-, there was frenzy amongst people who wanted to convert their SBN into gold. The jewellery stores had remained opened till midnight on 8th of November 2016, in order to tap the high demand from customers The appellant too had met with the high demand of the customers and had made sales amounting to Rs.70,02,127/- on 08/11/2016 after the PM’s announcement. Since the demonetization was ordered to be effective from the mid night of 8.11.2016 i.e. from 24.00 hrs. thus accepting SBN upto midnight was not against the law.

The Ld. AO has failed to appreciate this abnormal fact and alleged that the amount of cash sales made during the month of November 2016 is asymmetrical and is not comparable with cash sales made in the month of November in the preceding two years. Demonetization, itself was an historical event which had led to such a high demand of the goods like gold in order to convert the SBN during the intervening period of 8.00 Pm (when declaration was made by the Hon’ble (PM) upto the midnight i.e. 24.00 hrs of 8thNovember 2016). It is a very well known fact that people had flocked to the shops of jewellers to spend soon-to-be scrapped currency notes with bags full of cash.

48 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

The above contention of the appellant is supported by the news article of “The Economic Times” dated 08/12/2016, wherein the Secretary of the India Bullion & Jewellers Association mentioned that the Jewellers had sold 15 tonnes of Gold ornaments and bars worth around Rs.5000 crores on the intervening night of November 8 and 9, 2016 after the government demonetized the Rs.500 and Rs.1000 currency notes. (APB 74), which was also unprecedented and historically very high amount.

The sale of ornaments had subsequently for the rest of the month of November and December 2016 had seen a dry spell as the people had purchased jewellery in demonetized currency during the closing hours of 8th November itself not only for the wedding in immediate vicinity but also for weddings and functions in late November or December and also even otherwise for future use. Month Cash sales (Rs.) Cash sales (Rs.) Cash sales (Rs.) (2014) (2015) (2016) November 40,54,336/- 38,02,974/- 71,66,362/- December 21,51,055/- 33,09,027/- 1,70,482/- 62,05,391/- 71,12,001/- 73,36,844/-

From the above table, it is evident that the sales made by the appellant during the wedding and festive months of November and December of 2016 was in parity with the sales made in these two months in preceding years and there is usual increase which is due to overall increase in business/ turnover of the firm during the year.

At this juncture attention of your honours is invited to the comparison of cash sales as percentage of total turnover of November,2016 with such percentage for the month of November of earlier years, which is tabulated as under: Particulars November 2014 November 2015 November 2016 Cash turnover 40,54,336/- 38,02,974/- 71,66,362/- Total turnover for F.Y 5,35,22,361/- 7,21,26,335/- 8,15,83,283/- %age 7.57% 5.27% 8.78%

From the perusal of above, it is seen that there is no increase of cash sales, whatever increase is there, it is because of unprecedented announcement of demonetization.

Besides the earlier submission it is further submitted that the month of November and December being the festive and wedding season, sales/cash sales are usually higher than other months. Accordingly, cash sales during the month of November 2016 is higher than other months. Moreover, cash sales figures of November and December for these years are tabulated below to reflect that cash sales during festive and wedding season months of November and December in 2016 is not exceptionally high vis-à-vis earlier two years.

49 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

Particulars November& November & November& December 2014 December 2015 December 2016 Cash turnover 62,05,391/- 71,12,001/- 73,36,844/- Total turnover for F.Y 5,35,22,361/- 7,21,26,335/- 8,15,83,283/- %age 11.59% 9.86% 8.99%

From the above table it is evident that there was a marginal increase in cash sales as compared with the sales made in earlier years in the month of November and December. The major reason for this being, the panic and haste amongst the people who intended to off-load the soon-to-be demonetized currency notes (SBN) which was acceptable currency till mid night by purchasing gold ornaments. The appellant had received multiple calls from people who were immediately wanting to purchase ornaments soon after the PM’s announcement. Under the circumstances, treating high volume of cash sales made by the appellant during the last few hours of 08/11/2016 as unreasonable or flimsy, is not justified more particularly when all the sales are backed by sale invoices and assessee had sufficient stock as per the stock register maintained by him and produced before authorities.

With regard to non-mentioning the name etc. on the invoices raised during the intervening period on 8.11.2016, it is submitted that the rush during the last hours of 08/11/2016 was so high that noting the personal details of every customer and also filling the complete description of goods sold while preparing the bills was practically not possible. Therefore, the bills issued by the appellant on 08/11/2016 does not bear the complete details of the customers and precise details of the item sold. Moreover, prior to demonetization the customers were not hesitant in disclosing their names, addresses, contact details, PAN etc. at the time of billing. But after demonetization, the customers were reluctant to disclose their personal particulars at the time of billing unless their purchases crossed the maximum allowable threshold beyond which he is necessarily required to give PAN etc.

The appellant further submits that the after announcement of demonetization on 08.11.2016, people had rushed to spend the SBN available with them to purchases gold and other useful items. The ld. AO has also not brought any material on record to establish that the sale vouchers are bogus nor any evidence indicating that such sales was bogus was found in the entire search and seizure operation conducted not only at the business premises but also residential premises of the partners of the appellant firm. The sales made by the appellant was duly recorded in the books of accounts and was fully vouched and verified and audited by a reputed firm of Chartered Accountants. Further, this sales is duly backed by corresponding purchases and as a result of sales, the stock of the appellant stood reduced. Ld. AO on presumption and assumption basis

50 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT has disbelieved the genuine sale made by the appellant and treated the same as unexplained cash.

The appellant further submits that, assuming the genuine sales made during the year as unexplained cash credit is bad in law. In the foregoing paras, the appellant has established beyond doubt that the cash sales of Rs.70,02,127/- was made in normal course of business during the closing hours of 08/11/2016 and exceptional sales during such a short period is solely due to the announcement of demonetization made by the Hon’ble PM.

Under the circumstances, assumption of the ld. AO that the sales forming part of the appellant’s turnover is unexplained cash credit is without any merit and contrary to the material on record and completely vague.

In view of the above, the appellant firm humbly prays that addition of Rs.70,02,127/- made by the AO by presuming cash sales during pre-demonetization period as undisclosed cash of the assessee which is totally contrary to the facts and the evidence on record and ld.CIT(A) has rightly deleted the addition and such deserve to be upheld.

Departmental Ground of Appeal No. 11; In this ground of appeal, department has challenged the action of ld. CIT(A) in deleting the addition of Rs.1,51,18,854/- made by ld.AO on account of excess stock of gold and silver jewellery by giving telescoping credit of profit on unaccounted sales with unaccounted income of Rs.2,82,67,919/- through unaccounted sales and confirmed by him.

Brief facts in respect of this ground of appeal are that, physical stock verification was carried out by the departmental officers during the course of search operation. Excess stock of gold to the extent of 4667.901 gms. and excess stock of silver to the extent of 32.35Kgs was alleged during such examination/ verification.

It was submitted before ld. CIT(A) that the difference in stock observed by the search officials was due to the errors in calculating the gross and the net weights of the items of jewellery by the valuation officer. Further, some of the jewellery found at the premises of the appellant was not the property of the appellant as the same related to goods received on approval basis. (Detailed explanation are submitted in the following paras)

Further, the silver articles found during the course of search were the ancestral property of the partners of the appellant firm and had been in their families for generation.

51 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT Neither the appellant firm nor its partners had incurred any expenditure for acquisition of these silver articles.

From the above, it is established beyond doubt that the stock alleged as being found in excess during the course of search does not relate to any expenditure incurred by the appellant.

Without prejudice to the above, it was submitted that such alleged excess stock found during the course of search, was indeed not the property of the appellant. These goods were actually received from “M/s Garg Jewellers” [a concern wherein the husband of one of the partner (Smt. Pooja Agarwal) is the proprietor], on approval basis. As submitted in the foregoing paras, in jewellery business it is a common practice to send and receive goods on approval basis. Under these situation, the inward and outward movement of goods is recorded on rough slips and such movement of goods is not entered into the stock registers. Actual sale or purchase is booked only once the goods are approved by the customer.

It was on account of the above practice that the goods received on approval from M/s Garg Jewellers were not recorded/ entered into the regular books of accounts. These goods though in physical possession of the appellant, did not form a part of its stock as the actual purchase in this respect had not taken place. This fact was also submitted during the course of assessment proceedings also which was not accepted by the ld. AO by observing that the same is as afterthought. While observing so ld. AO has failed to appreciate the fact that in the case of Garg Jewellers, there was shortage of stock.

Therefore, the stock of gold ornaments to the extent of 4667.901gms found during the course of search, cannot be at any stretch be considered as a part of appellant’s excess stock.

In the circumstances, it was submitted that the addition to the extent of Rs.1,40,27,042/- made by alleging excessive stock of 4667.901 gms gold Jewellery deserves to be deleted as in the case of M/s Garg Jewellers the same has been treated as the unaccounted sale and thus double additions have been made for the same.

With regard to alleged excess stock of silver of 32.35kgs found during the course of search, it is submitted that the same were the ancestral property of the partners of the appellant firm. This had been explained to the search officials during the course of search by Shri Manoj Khandelwal in his statements recorded during the course of search and was also submitted during the course of assessment proceedings.

52 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT Without prejudice to the above, it was submitted that the physical stock valuation carried out by the departmental officers was erroneous and done without considering the minute details that are to be borne in mind while taking the stock of gold jewellery and other gold articles.

The registered valuer while valuing the physical stock has failed to correctly bifurcate the gross and the net weights of the gold jewellery. It is submitted that gold jewellery and other articles contains various studded stones, kundan, chapdi, beads and cotton threads whose weights are to be reduced from the gross weight of the jewellery and articles. This fact was even explained by Shri Manoj Khandelwal to the departmental officers during the course of search operation. Further, the value of each article is to be determined based on the purity of gold i.e. 22ct, 20ct, 18ct etc. Also the making charges for each article differs from each other on the basis of the intricacy of the work involved in making a particular article of jewellery. The valuation done by the registered valuer does not bear consideration to these facts.

Further, the registered valuer has valued the alleged excessive stock on the basis of the market price of gold prevailing as on the date of search. As submitted in the foregoing paras of this submission, the method of valuation of stock consistently followed by the appellant was “Lower of Cost or NRV”, where the cost is determined on weighted average basis. Under the circumstances, valuing the items of stock at market value is bad in law.

Ld. CIT(A) agreed with the submission of assessee partly, however deleted the addition by allowing telescoping credit of profit on unaccounted sales vis a vis the addition on account of excess stock.

In view of above, it is submitted that the ld. CIT(A) has rightly allowed the telescoping benefit, which deserve to be upheld.

Departmental Ground of Appeal No. 12: Under this ground of appeal the department has challenged the action of the ld. CIT(A) in not upholding the invocation of the provisions of section 115BBE of the Act in respect of various additions.

Brief facts leading to this ground of appeal are that ld. AO has invoked the provisions of section 115BBE of the act for the purpose f taxing the following additions made to the returned income of the appellant, and thereby taxed such alleged additions @ 60%.

Alleged undisclosed cash sales Rs. 60,12,17,723/-

53 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT Alleged undisclosed income induced under the grab of cash sales during pre-demonetization period Rs. 70,02,127/- Alleged difference in stock Rs. 24,94,554/-

At the outset it is submitted that invocation of the provisions of section 115BBE in the appellant’s case is bad in law, and therefore the ld. AO’s observation is this regard needs to be ignored.

The 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.

54 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT Under the circumstances, the appellant prays that ld.CIT(A) has rightly deleted the invocation of provisions of section 115BBE.”

submission against the assessee appeal and also to support the grounds of

appeal raised by the revenue, the same is reiterated here in below:-

“1. During the course of assessment proceedings, various discrepancies were noticed by the AO in the records maintained by the assessee, which has been discussed in detail in the assessment order. The AO has also observed that various documents seized during the course of search revealed large scale unrecorded transaction of sales as well purchases. Consequently, the AO has rejected the books of accounts u/s 145(3) of the Act. Further, the AO has reduced the turnover to the extent of Rs. 70.02 lakh declared by the assessee by treating sales made on the night of 08.11.2016 Le, the day on which demonetization of high currency notes of Rs 500 and Rs 1000 was declared by the Hon'ble Prime Minister at 8 PM as bogus sale. The assessee has deposited corresponding amount in cash in old demonetized currency notes in its bank accounts. The AO has estimated the GP rate for the year under consideration by taking the average of available determined GP rates for AY 2009-10 and 2010-11. Consequently, the AO has applied average GP rate of 24.14% on the reduced turnover of Rs. 7.45 Crore and made trading addition of Rs. 1.21 Crore thereof.

1.1 In the impugned appellate order, the Id. CIT(A) has upheld the rejection of books of accounts of the assessee u/s 145(3) of the Act. However, the ld. CIT(A) has taken the turnover as declared by the assessee in its ROI as he has held that sale treated as bogus by the AO was genuine sale. The ld. CIT(A) has deleted the addition made by the AO on account of bogus sales (to be discussed in detail in another ground of appeal). Further, the ld. CIT(A) has taken the average GP rate of 9.06% as average of GP rates declared by the assesssee for AY 2014-15, 2015-16 and 2016-17 and accordingly, by applying the same, has reduced the trading addition to Rs. 9.99 lakh only.

1.2 It is humbly submitted that this estimation of GP rate is against the direction of the Hon'ble Tribunal in the case of the Shri Jitendra Kumar Agarwal, Jaipur Vs ACIT, Jaipur in ITA No. 322/JP/2017, (a key member of the group) for AY 2013-14, wherein, it has been directed by the Hon'ble Tribunal to take average GP rate of finally determined GP rate of previous 5 years and not the declared GP rate. It would be appropriate to reproduce hereunder the findings of the Hon'ble Tribunal as under:

55 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

"10. Now, when the books of accounts have been rejected, then a fair estimate of income is required to be made in the instant case. It is a settled legal proposition that in a best judgment assessment, there is always a certain degree of guess work involved and though arbitrariness cannot be avoided in such estimates, the same must not be capricious but should have a reasonable nexus to the available material and the circumstances of the case. It is with reference to these principles that the question raised before us will have to be considered and looking at it from that point of view, the real question is what should be reasonable rate of profit which assessee would have earned on the total turnover declared turnover of Rs 5.07.13.609 as well as unaccounted turnover as represented by 8538.46 gm of 24 ct gold valued at Rs 2,49,97,878- The Hon'ble Rajasthan High Court in similar cases have held that the best guide in case of fair estimation is past history of the assessee and directed to apply last five years average for the purposes of determination of fair estimation of profits. Applying the same in the instant case, average of last five years GP rate and which has attained finality, being indicative of the manufacturing results, should be considered for determining the average G.P rate. The matter is accordingly set-aside to the file of the AO for the limited purposes of determination of average G.P of last five years, compare it with declared G.P and determine the adjustment taking into consideration the above discussions.

1.3 Thus, in view of the above order of Hon'ble Tribunal, which is binding on Id. CIT(A), it is humbly submitted that the average of finally determined GP rate is to be taken and not the average GP rate as taken by the Id. CIT(A).

Undisclosed income introduced in books under the garb of cash sale during demonetization period

2 The assessee had deposited cash aggregating to Rs. 1.16 Crore in the demonetized currency notes. The assessee was required to explain the source of such cash deposit. It was noted by the AO that the assessee had declared cash sale of Rs. 70.02 lakh on 08.11.2016. The AO has treated the alleged sale of Rs. 70.02 lakh on 08.11.2016 as bogus sale. The issue has been discussed and analysed in detail by the AO in the assessment order/P 13-16), wherein it has been stated that as many as 40 invoices (422 invoices issued in the case of Jitendra Kumar Agarwal) were issued in the limited time available on the night of 08.11.2016 after announcement of demonetisation of Rs 500 and Rs. 1000 currency notes by the Hon'ble Prime Minister at 8 PM. He has also stated that the details of the purchasers as well as jewellery sold were not stated on these invoices, whereas prior to 08.11.2016, such details were mentioned in the invoices

56 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT issued by the assessee. He has also compared the cash sale pattern of the year under consideration with earlier years. The Id. CIT(A) has deleted the addition IP 16-19 of CIT(A) order] by relying upon the books of accounts of the assessee, by ignoring his own order about upholding of rejection of books of accounts of the assessee u/s 145(3) of the Act in the same appellate order. Besides, the books of accounts and sale invoices issued by the assessee, which are solely under the control and management of the assessee, no other independent evidence has been filed by the assesssce to establish genuineness of huge sale of jewellery on the night of 08.11.2016.

2.1 On page 18 of the impugned order, it has been stated by the ld. CIT(A) that "Moreover in the entire search and seizure operation conducted not only at business premises of the group but also at the residential premises of the partners, no any evidence was found reflecting or indicating that such cash sales were bogus." This finding of the ld. CIT(A) is perverse as it is not based on correct facts. It may be mentioned that the search was conducted on 28.07.2016 i.c. prior to the date of demonetization and thus, where was no question of unearthing such evidences during the course of search on 28.07.2016.

2.2 In the case of Sreelekha Banerjee Vs CIT [1963] 49 ITR 112 (SC), the issue before the Hon'ble Apex Court was the addition made by the AO on account of conversion of high denomination notes, wherein it has been observed by the Hon'ble Court that:

"It seems to us that the correct approach to questions of this kind in this. If there is an entry in the account books of the assessee which shows the receipt of a sum on conversion of high denomination notes tendered for conversion by the assessee himself, it is necessary for the assessee to establish, if asked, what the source of that money is and to prove that it does not bear the nature of income. The department is not at this stage required to prove anything. It can ask the assessee to bring any books of account or other documents or evidence pertinent to the explanation if one is furnished, and examine the evidence and the explanation. If the explanation shows that the receipt was not of an income nature, the department cannot act unreasonably and reject that explanation to hold that it was income. If, however, the explanation is unconvincing and one which deserves to be rejected, the department can reject it and draw the inference that the amount represents income either from the sources already disclosed by the assessee or from some undisclosed source. The department does not then proceed on no evidence, because the fact that there was receipt of money is itself evidence against the assessee. There is thus, prima facie, evidence against the assessee which he fails to rebut, and being unrebutted, that evidence can be used against him by holding that it was a receipt of an income

57 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT nature. The very words "an undisclosed source" show that the disclosure must come from the assessee and not from the department. In cases of high denomination notes, where the business and the state of accounts and dealings of the assessee justify a reasonable inference that he might have for convenience kept the whole or a part of a particular sum in high denomination notes, the assessee prima facie discharges his initial burden when he proves the balance, and that it might reasonably have been kept in high denomination notes. Before the department rejects such evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence which it has in its possession. The department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof. It is within the range of these principles that such cases have to be decided. We do not think that the Allahabad view puts no burden upon the assessee and throws the entire burden on the department. The case itself does not bear this out. If it does, then, it is not the right view.”

2.3 It has been mentioned earlier that neither the names of the buyers nor the details of jewellery were mentioned in the sale invoice issued by the assessee. It may be mentioned that in the case of Zaveri Diamonds v. CIT (2012) 25 taxmann.com 552 (SC), the Hon'ble Apex Court has dismissed the SLP filed by the assessee after hearing the case and affirmed the findings of Hon'ble High Court of Punjab & Haryana wherein it has been held that the assessee firm had not disclosed names of persons to whom jewellery had been sold and also no evidence had been finished by assessee to establish that cash deposited in its bank account was in lieu of sales made of Jewellery, addition made to assessee's income on account of unverifiable sales was justified.

2.4 In the case of Sudhir Kumar Sharma (HUF) CIT [2016] 69 taxmann.com 219 (SC), Hon'ble Apex Court has dismissed SLP filed by the assessee against High Court's ruling that where assessee had failed to give list of persons who advanced cash to him along with their confirmation in respect of huge amount of cash deposited in its bank account, Assessing Officer was justified in adding said amoant to assessee's taxable income under section 68

2.5 In the case of Ravinder Kumar v. ITO (2020) 118 taxmann.com 166 (Delhi), it has been held by the Hon'ble High Court of Delhi that where assessee had failed to produce any material to authenticate his contention that cash deposits in his account were on account of sales being made by him from Kirana business, tax authorities were justified in making addition of unexplained cash entries in hank account in hands of assessee.

58 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT 2.6 It is humbly submitted that neither the assessee has controverted the analysis and findings of the AO, relating to sale of jewellery by the assessee on the night of 08.11.2016, as stated in the assessment order nor the ld. CIT(A) has stated a word against these findings of the AO and thus, these findings of the AO remain uncontroverted. It is pertinent to mention that the assessee and its sister concern M's Garg Jewellers also claimed to make huge cash sales on 08.11.2016. Another group concern of the assessee namely, M's Shreenath Corporation, which deals in bullion, share the common premises and both the entities have claimed to make sale of jewellery/bullion in cash on that night of 08.11.2016. The ld. CIT(A) has totally ignored whether the said premise was large enough to accommodate so many customers of both the firms on that night. It would not be out of place to mention here that these invoices were below Rs. 2 lac. Further, it is evident from the sale register of M/s Shreenath Corporation that bullion was shown to be sold in quantities of approximately 60 grams or so in a number of cases. Since M/s Shreenath Corporation was dealing in bullion, the moot point is that whether it was having so many pieces of bullion of approximately 60 grams or so on the said date or whether, these pieces were cut from the gold bars, which requires time (which was not available).

2.7 It is humbly submitted that the order of Id. CIT(A) is perverse as he has ignored all the relevant facts, reliance is placed on the judgement in the case of CIT vs Ajay Kapoor [2013] 36 taxmann.com 513 (Delhi), which is reproduced as under

“28. If a finding of fact is arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then the finding is rendered infirm in the eye of the law. If the findings of the Court are based on no evidence or evidence which is thoroughly unreliable or evidence that suffers from the vice of procedural irregularity or the findings are such that no reasonable

59 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT person would have arrived at those findings, then the findings may be said to be perverse. Further if the findings are either ipse dixit of the Court or based on conjecture and surmises, the judgment suffers from the additional infirmity of non- application of mind and thus, stands vitiated (Vide Bharatha Matha v. R. Vijaya Renganathan [2010] 11 SCC 483: AIR 2010 SC 2685)"

If the Court of fact, whose decision on a question of fact is final, arrives at this decision by considering material which is irrelevant to the enquiry, or by considering material which is partly relevant and partly irrelevant, or bases its decision partly on conjectures, surmises and suspicions, and partly on evidence, then in such a situation clearly an issue of lane arise...

….It is well established that when a Court of fact acts on material, partly relevant and partly irrelevant, it is impossible to say to what extent the mind of the Court was affected by the irrelevant material used by it in arriving at its finding. Such a finding is vitiated because of the use of inadmissible material and thereby an issue of law arises."

60 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT 2.8 In view of the above and looking to the facts and circumstances of the case, it is humbly submitted that the Id. CIT(A) was not justified in deleting the addition made by the AO on account of cash deposit in old demonetised notes claiming the same to be received on account of cash sale of jewellery on the night of 08.11.2016.

Addition on account of unrecorded sales of Rs. 60.12 Crore on the basis of seized material made by the AO, which has been restricted to GP addition on reduced quantum of unrecorded sales by Ld. CIT(A)

"The detailed mentioned in Query No. 7, 8 to 28 is rough noting, estimates and the amount of advance is to be received in case of order is placed by a customer. These noting are only estimates and noting else. In some figures rates are quoted." Assessee also submitted that "to avoid litigation and purchase peace of mind we offer of NP rate application on estimates sales of Rs. 45,00,00,000/- for bullion trading On this amount we are ready to pay tax. The NPGP rate in bullion trade of gold is not more than 25% in any case. So we are ready to pay the due tax accordingly in the hands of the firm" 3.1 Thus, it is evident from the above reply that the assesce did not explain even a single entry recorded on any of these seized documents and has thus prevented the AO for making deep probe in the matter. The issue has been discussed in detail from page 16 to 20 of the assessment onder. In the absence of any explanation from the assessee about these entries on the seized material, the AO has worked out the unrecorded sales at Rs. 60.12 Crore and unrecorded purchases at Rs. 43.94 Crore on the basis of the seized material. The AO did not allow the benefit of peak credit theory as nexus between purchases and sales were not proved by the assessee. Further, the AO has made addition of Rs. 60.12 Crore on account of unrecorded sales u's 68 of the Act. The AO has not made any separate addition for purchases as the sale amount includes cost component also.

3.2 However, during the appellate proceedings, as could be seen from the impugned appellate order, assessee has explained various entries written on these seized documents through a number of explanatory sheets (additional evidences) which were filed for the first time before the ld. CTT(A) These explanatory sheets have been admitted by the ld. CIT(A) and consequently, the ld. CIT(A) has significantly reduced the

61 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT amount of unrecorded sales to Rs. 44.97 Crore. The Id. CIT(A) has also held that since sale to the extent of Rs. 13.77 Crore was on account of bullion, therefore, same is to be considered in the case of M/s Shreenath Corporation, a group concern of the assessee. Thus, finally, the ld. CIT(A) determined unrecorded sales of jewellery at Rs. 31.20 Crore and after applying the GP rate of 9.06%, addition to the tune of Rs. 2.82 Crore was sustained.

3.3 It is humbly submitted that the ld. CIT(A) has neither sought comments of the AO nor had given any opportunity of being heard to the AO, which is against the principle of natural justice. This action of the Id. CIT(A) is in complete violation of Rule 46A of the IT Rules for admission of additional evidences

3.4 Further, it appears that number of sheets explaining entries recorded on the seized material have been filed before the Id. CIT(A) and the ld. CIT(A) has verified only some of them on test check basis and accepted all the entries on the relevant seized material without verifying himself or without getting the same verified by the AO. This approach of Id. CIT(A) is not acceptable as in a search cases, each and every entry recorded on the seized documents has to be verified. It is, therefore, humbly submitted that the ld. CIT(A) was not justified in reducing the quantum of unrecorded sales as recorded on the seized documents

3.5 In the assessment order, the AO has made addition of total amount of undisclosed sales, as recorded in the seized documents. However, the ld, CIT(A) has not only reduced the quantum of such sales but also applied average of declared GP rate of the 3 years immediately preceding the year under consideration. This estimation of GP rate is not acceptable as it is against the direction of the Hon'ble Tribunal as stated earlier.

4 Without prejudice to the above, it may be mentioned that the powers of CIT(A) and AO are co- terminus i.e. the CIT(A) can do what the AO can do. It is humbly submitted that in its written submissions before the ld. CIT(A) as appearing at last para on page no. 22 of the impugned order, it has been submitted by the assessee before ld. CIT(A)that:

"Moreover, it is seen from the seized records that allegedly unaccounted purchases are recorded therein and the ld. AO has himself admitted the same. It is further submitted that the seized records itself provide the link to the alleged unaccounted sales and unaccounted purchases. Moreover, it is not a case where these alleged unaccounted sales would have been made from recorded purchases as recorded purchase and sales are reflected in the stock register and quantitative tally is maintained. Hence, plea taken by the ld AO for making addition of entire sale amount is totally flimsy and untenable"

62 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

4.1 It is humbly submitted that the ld. CIT(A) has totally ignored about investment in purchase of jewellery for making unrecorded sales as some investment is required even for doing unaccounted business especially looking to the specific admission of the assessee that unrecorded sales were not made out of the recorded stock. Further, it may be mentioned that as per the seized documents, unrecorded purchases to the tune of Rs. 43.94 Crore were also made by the assessee and the AO has not made any separate addition for these uneroded purchases. Therefore, the amount of unrecorded purchases should have been added by the ld. CIT(A) while applying the GP rate. Further, it may be mentioned that no nexus has been proved by the assessee between the unrecorded purchases and unrecorded sales and thus benefit of peak theory should not be allowed to the assessee.

4.2 It may be mentioned that in the case of CIT vs Ajay Kapoor [2013] 36 taxmann.com 513 (Delhi), documents seized from the premises of the assessee disclosed unaccounted sale of Rs. 9.73 Crore and unaccounted purchases of Rs. 4.5 Crore. On the basis of these documents, the AO has made addition of Rs. 4.50 Crore for undisclosed purchases and profit of Rs. 5.23 Crore as profit on these unrecorded sales, being the difference between figures of unrecorded sale and unrecorded purchases. On appeal, the ld. CIT(A) reduced the addition on account of undisclosed sales by taking G.P. and has deleted the addition for investment in unaccounted purchases. The Tribunal confirmed the order of the ld. CIT(A). The order of Id. CIT(A) was upheld by Hon'ble Tribunal. On revenue appeal, it has been held by the Hon'ble High Court of Delhi as under:

"However, on the next issue whether any addition should have been made on account of unaccounted investment, the reasoning and logic given by the Tribunal cannot be comprehended. It was recorded that the assessee did not maintain day-to-day stock record/register and, therefore, it cannot be said that unrecorded sales could not have been of accounted stock, which was later on replenished from the sale proceeds of unrecorded sales. Thus, the assessee had not made any investment for the unrecorded transactions. It is held that no evidence of unaccounted investment was found at the time of search. Once the stock register was not there as recorded by the Tribunal in its order, the said finding itself apparently is contradictory." [Para !!]

"The finding that no incriminating document regarding investment was found is contradictory because the Tribunal has accepted and admitted that the assessee had himself confirmed that he had made sales outside the books of account, which were unaccounted sales. Thereafter, it was for the assessee to explain and

63 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT state the source/funds for conducting and entering into the said transaction. Plea of the assessee that existing or available investment in the books was sufficient, has to be made good with material and proof by the assessee. The assessee had to explain that purchases recorded in the books were sufficient after adjustment of the recorded sales. In cases of unaccounted sales and purchases, all documents may not be available and certain amount of guess work is always required as noticed earlier, but a realistic and common sense approach is required "[Para 111

"The finding recorded by the Tribunal that proof of unaccounted purchases did not prima facie indicate or show that unaccounted investment was made, as there was other apparent evidence to the contrary is also not acceptable. Onus, in such cases, is on the assessee to show that unaccounted investment was made out of accounted stock. There cannot be any assumption or presumption that unaccounted sales must be from accounted purchases. Unaccounted sales may result and can contribute towards the investment, but there has to be initial investment. Profits and income earned are also used for personal needs and are taken out of business" [Para 11] "The Tribunal did not deal with the second issue in right perspective by placing the onus on the revenue to explain the source of investment made by the assessee though there were unaccounted sale transactions. It has ignored relevant and material facts and has gone on a tangent without examining the real issue and the controversy, Le., whether the assessee explained the source of funds required for making investment to have such turnover as the unaccounted sales. Therefore, this part of the order is perverse and cannot be accepted." [Para 13]

4.3 Thus, the facts of the instant case under consideration are better than the case of Ajay Kapoor as in the instant case, the assessee itself admitted that the unrecorded sales were not made out of the disclosed stock, as entered into its books of accounts, which has been totally ignored by the ld. CIT(A) while applying the GP rate and also overlooking the fact that no separate addition was not made by the AO on account of unrecorded purchases.

4.4 In view of the above, it is humbly submitted that the decision of Id. CIT(A) on this issue may be set aside and the order of the AO i.e. addition of entire amount of unrecorded sales made by AO may be restored.

Excess stock:

64 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT 5 During the course of search at the business premises of Royal Jewellers, excess stock of gold of 4667 grams valued at Rs. 1.40 Crore and silver of 32 kgs valued at Rs. 10.91 lakh was found. In his statement recorded on oath u/s 132(4) of the Act, Shri Manoj Kumar Khandelwal, partner of the assessee firm, as reproduced on page 22 of the assessment order, declared the above excess stock of gold and silver as undisclosed stock and has offered the same as undisclosed investment of the firm. The same was also concurred by the other partner Smt Pooja Agrawal, in her statement recorded u/s 132(4) of the Act. It may be mentioned that these statements recorded u/s 132(4) have not been retracted by the partners or by the firm M/s Royal Jewellers. However, in the ROI, the assessee has not declared the income on account of investment in unexplained excess stock of gold and silver found during the course of search.

5.1 During the assessment proceedings, it has been stated by the assessee that excess stock of gold jewellery found during the course of search, was received by it from its sister concern M/s Garg Jewellers (wherein shortage of stock was found) on approval basis. The said explanation has not been accepted by the AO, in the absence of any documentary evidence and in view of the statements of the partners recorded on oath u/s 132(4) of the Act, which have not been retracted either by them or by the firm. However, in the impugned appellate order, the ld. CIT(A) has accepted the said contention of the assessee that the excess gold jewellery found during the search was received by it from its group concern M/s Garg Jewellers on approval basis without any documentary evidence to support such findings. The ld. CIT(A) has totally ignored statements of partners recorded on oath u/s 132(4) of the Act, which have strong evidentiary value and cannot be brushed aside in a casual manner. In fact, the ld. CIT(A) has not stated why the statements of partners of assessee firm, recorded on oath u/s 132(4), could not be relied upon for making such addition. There is nothing on record which may indicate that the said disclosure was obtained by the departmental officer by exerting any force or undue pressure or coercion. Further, the ld. AR has not brought on record any documentary evidence seized during the course of search from the various business or residential premises of the assessee or its group concerns including that of M/s Garg Jewellers, which can substantiate its claim that the excess stock of gold jewellery was received by it on approval from M/s Garg Jewellers. It appears that the ld. CIT(A) has based his order on the presumption that shortage of stock in one firm explains the excess stock of another firm, which is based on surmises and conjectures. The Id. CIT(A) has totally ignored the presumption against the assessee u/s 132(4A) of the Act i.e. in a search case, the assessee is presumed to be the owner of such excess gold and silver jewellery and onus is upon the assessee to rebut that presumption with supporting documentary evidences, which the assessee has failed miserably in the instant case under consideration before the Hon'ble Tribunal.

65 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

5.2 The Hon'ble Rajasthan High Court vide its order dated 13-5-2016 in the case of Ravi Mathur & Others (D.B Appeal No. 67/2002 & others) has laid down the following proposition in law in respect of retraction of statement recorded under section 132 (4) of the Act

"15. In our view, the statements recorded under Section 132 (4) have great evidentiary value and it cannot be discarded at in the instant case by the Tribunal in a summary or in a cryptic manner. Statements recorded under Section 132 (4) cannot be discarded by simply observing that the assessee retracted the statements. One has to come to a definite finding as to the manner in which retraction takes place. On perusal of the facts noticed hereinbefore, we have noticed that while the statements were recorded at the time of search on 9-11- 1995 and onwards but retraction is almost after an year and that too when the assessment proceedings were being taken up in November 1996 We may observe that retraction should be made as soon as possible and immediately after such a statement has been recorded, either by filing a complaint to the higher officials or otherwise brought to the notice of the higher officials, either by way of a duly sworn affidavit or statements supported by convincing evidence through which an assessee could demonstrate that the statements initially recorded were under pressure/coercion and factually incorrect. In our view, retraction after a sufficient long gap or point of time, as in the instant case, loses its significance and is an afterthought. Once statements have been recorded on oath, duly signed, it has a great evidentiary value and it is normally presumed that whatever stated at the time of recording of statements under Section 132 (4), are true and correct and brings out the correct picture, as by that time the assessee is uninfluenced by external agencies Thus, whenever an assessee pleads that the statements have been obtained forcefully by coercion/undue influence without material/contrary to the material, then it should be supported by strong evidence which we have observed hereinbefore. Once a statement is recorded under Section 132 (4), such a statement can be used as a strong evidence against the assessee in assessing the income, the burden lies on the assessee to establish that the admission made in the statements are incorrect/wrong and that burden has to be discharged by an assessee at the earliest point of time."

5.2.1 In the above referred judgement in para 15.2, it has been observed by the Hon'ble High Court that in the case of Raj Kumar Sodhani v. The CIT (D.BITA No. 15/2015 decided on 28-4-2016), it has taken this very view that retraction after a sufficient long gap loses its sanctity.

66 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT 5.3 It may be mentioned that in D.B. ITA No.140/2018 in the case of M/s Bannalal Jat Constructions Pvt. Ltd. Vs ACIT, the Hon'ble High Court of Rajasthan vide its judgement dated 31.08.2018 has held that The reliability, importance and sanctity of admission made during search could be refuted only by cogent and convincing evidence. It was further held that there is no gainsay the fact that admission made during the search can be disputed by the assessee and at the same time however it is equally well settled that the statement made voluntarily by the assessee could form the basis of assessment. Mere fact that the assessee retracted the statement at later point of time could not make the statement unacceptable. The burden lay on the assessee to show that the admission made by him in the statement earlier at the time of survey was wrong. Such retraction, however, should be supported by a strong evidence stating that the earlier statement was recorded under duress and coercion, and this has to have certain definite evidence to come to the conclusion that indicating that there was an element of compulsion for assessee to make such statement. However, a bald assertion to this effect at much belated stage cannot be accepted. The assessee indulged in maintaining transaction on diaries and loose papers which was not permissible in any of the method of accounting. The assessee, while filing the return of income, has not disclosed any undisclosed income and hence, retracted from the admission made by him during the course of search Subsequent retraction from the surrender without having evidence or proof of retraction is not permissible in the eyes of los. The statement recorded during the course of search action which was in presence of independent witnesses has overriding effect over the subsequent retraction

5.4 It may be mentioned that the SLP filed by the assessee in the above case has been dismissed by the Hon'ble Apex Court as reported in Bannalal Jat Constructions (P) Ltd. Vs CIT [2019] 106 taxmann.com 128 (SC).

5.5 In the case of PCIT Vs Shri Roshan Lal Sancheti, in D. B. ITA No. 47/2018 vide its judgement dated 30.10.2018, the Hon'ble Rajasthan High Court has affirmed its above referred earlier judgement in the case of Banna Lal Jat and held as under

"In view of the law discussed above, it must be held that statement recorded under Section 132(4) of the Act and later confirmed in statement recorded under Section 131 of the Act, cannot be discarded simply by observing that the assessee has retracted the same because such retraction ought to have been generally made within reasonable time or by filing complaint to superior authorities or otherwise brought to notice of the higher officials by filing duly sworn affidavit or statement supported by convincing evidence. Such a statement

67 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT when recorded at two stages cannot be discarded summarily in cryptic manner byobserving that the assessee in a belatedly filed affidavit has retracted from his statement. Such retraction is required to bemade as soon as possible or immediately after the statement of the assessee was recorded. Duration of time when such retraction is made assumes significance and in the present case retraction has been made by the assessee after almost eight months to be precise, 237 days.

In view of above discussion, we are persuaded to allow the appeal of the revenue which is accordingly allowed. The substantial question of law formulated by this Court vide order dated 10.04.2018 is answered in favour of the revenue and against the assessee in the aforesaid terms."

5.6 Reliance is also placed on the following judicial pronouncements:

5.7 It is therefore, in view of the above judicial pronouncements and looking to the facts of the case, humbly submitted that the addition made by the AO on account of excess stock found during the course of search, as deleted by the ld. CIT(A), may kindly be restored as the facts and circumstances of the case do not warrant such deletion. Telescoping

68 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT Section 69 of the Income-tax Act, 1961 Unexplained investments (Telescoping of transactions) - Assessment year 2007-08- Where assessee was not able to establish any nexus between commission income and amount earlier offered to tax, benefit of telescoping could not be given [In favour of revenue](head note)

6.1 In the case of Dr. Gauri Shankar Prasad v. ITAT [2017] 88 taxmann.com 700 (Patna), it has been held by Hon'ble Patna High Court that:

Section 69 of the Income-tax Act, 1961 Unexplained investments (Purchases) - Where assessee had been unable to show before authorities that a particular amount from a particular bank account had been used for purchase of specific property, movable and immovable, there could be no question of any telescoping being permitted [In favour of revenue](head note) It is therefore, humbly submitted that the benefit of telescoping should not been allowed by the Id. CIT(A) in a casual and cursory manner without establishing the nexus.

The finding of the Id. CIT(A) is too technical, overlooking the substance of the transactions. In fact, the co-ordinate benches have held that addition u/s 68 can be made on the basis of seized papers. In the case of Haji Nazir Hussain v ITO, 91 ITD 42 ITAT, Delhi Bench (THIRD MEMBER), it was held that section 68 can be applied in case of impounded papers and the benefit cannot be given to the assessee to take undue advantage of its own lapses citing the reason that sum was not credited in books of account. The hon'ble third member held that-

“…8. After considering the rival submissions I am not inclined to accept the arguments of Mr. Sharma. There is no dispute that the provisions of section 68 are applicable only when any sum is found credited in the books of an assessee maintained by him. However, books of account do not mean cash book only. It would mean complete record which a businessman is required to maintain to record his day to day

69 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT transactions. According to the well settled principles of accountancy, each transaction is required to be treated under two heads-under one head, debit entry is made while under the other hand, credit entry is to be made. For example, if money is received from 'K' then cash account is to be debited and account of 'K' is to be credited by the same amount For the same reason if any sum is introduced in the books by the assessee from his own sources then cash account is debited while assessee's own account has to be credited Cash book is nothing but the cash account which is debited if money is received and is credited if money is spent or invested by the assessee. In such cases, corresponding credit or debit entries are to be made by assessee in respect accounts. If such entries are not made, the accounts of assessee would not tally. Therefore, failure on the part of assessee to make credit entry in the respective account would not entitle the assessee to claim that no account is credited (sic). The assessee cannot be allowed to take undue advantage of his own lapsemistakes. Therefore in my humble opinion whenever any money is received by assessee and is entered in cash book it can be said that incredited in the books of assessee even though corresponding credit entry in the ledger account may be made subsequently If the contention of assessee is accepted then it would amount to circumvent the provision of sectio would further amount to allow the dishonest assesses to bring the accounted money in the books without paying any tax. Such construction of the provisions, in my considered opinion, is not permitted"

Further, the Hon'ble Jodhpur Bench in the case of Jas Raj Dhoka v ITO, 29 SOT 66 has held that

"19. In the appellant's case, it has been admitted that amounts recorded in the names of these person are loan which have been utilized for repaying business loans of the assessee without recording the same in the regular books of account, it, therefore, follows that the appellant had an intention to keep a record of loans so taken by him where he made entries thereof in the diary found and impounded from his business premises. Such a diary having account of assessee's transactions shall be his "books" for the purpose of section 68 of the Act We therefore, do not subscribe to the view camassed by the appellant and having confirmed the conclus reached by learned CIT(A) in that regard find no merit in the ground in appeal raised by the appellant on that count as well. The credit so raised from seven such person, therefore, has rightly been deemed as appellant's income. The ground in appeal, therefore, stands partly allowed for statistical purposes only.

It has been again held by the Hon'ble Jodhpur Bench in the case of Anil Kumar Tantia v ITO, 48 taxmann.com 333 that-

70 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

“4.3 We have gone through the assessment records, order of the CIT(A) as well as the written submission First of all, we have to look into the definition of books of account as per 2(124) of the Act introduced of It Jun 2001. It means ledger, day book, cash books and other books which are kept in the written form or as printout of data stored in floppy disc etc. In the common parlance the definition of books of account is the place where all the final information relating to a person or business are collected. The legul meaning as per Oxford Advanced Learner Dictionary, the books of accounts means the written records of final affairs of a firm. The (loose paper seized and compiled by the assessee is definitely a books of account therefore, it cannot be said that the compilation of business affair's prepared from the seized documents is not books of account, although not maintained in regular course of business"

It is clear from the above judicial pronouncements that seized papers can be considered as books of account, if these papers reflect the business transactions of the assessee. If assessee does not make entries in regular books of account and makes entries in certain diaries/loose papers to evade the taxes, then the assessee cannot take the argument that section 68 cannot be invoked, as no credit entry has been made in the books of account. Acceptance of such an interpretation will defeat the intention of the Legislature and will promote the cause of tax-evaders at the expense of the honest taxpayers. Hence, the ld. CIT(A) has overlooked the pith and substance of the provisions of section 68 and has adopted a hyper technical approach against the intentions of the Legislature, negating the purposive interpretation Therefore, the view taken by the Id. CIT(A) may kindly be set-aside and the addition made by the A.O u/s 68 and 69C may kindly be restored.”

7.1 The ld. DR also relied upon the following judicial precedent to support

the contentions so raised in his arguments the compilation of case law(s)

relied upon are 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 Kapoor 6 [2019] 106 taxmann.com 128 (SC) Bannalal Jat Constructions (P.) Ltd,. vs. 30-40 Assistant Commissioner of Income-tax

71 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

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. 75-95 Deputy Commissioner of Income-tax 10 [2017] 88 taxmann.com 700 (Patna) Dr. Gauri Shankar Prasad vs. Income- 96-102 tax Appellate Tribunal, Patna

7.2 In support of the arguments ld. DR also filed an another submission

and case laws relied upon the same is listed here in below:-

S. No. Description of the case Page No. 1 Synopsis and written submission 1-12 2 Haji Nazir Hussain v. Income-tax Officer 13-40 [2004] 91 ITD 42 (Delhi) (TM) 3 Jas Raj Dhoka v. Income-tax officer 41-51 [2009] 29 SOT 66 (Jodhpur) (URO) 4 Anil Kumar Tantia v. Income-tax Officer 52-97 [2013] 40 taxmann.com 333 (Jodhpur-Trib.)

7.3 Further, in this appeal the ld. DR representing the revenue submitted

synopsis of additions deleted/sustained in the case of Royal Jewellers in

A.Y 2017-18 which is reiterated as under:-

AY Additions by A.O Amount Decision of ld. CIT(A) 2017-18 1. Trading addition 1,21,41,812 1. Upheld the rejection of books of account and restricted the trading addition to Rs. 9,99,016 applying G.P rate of 9.06%

72 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

but restricted the addition by applying GP rate of 9.06% on this amount. Thus, addition of Rs. 2,82,67,919 was confirmed. (Further, quantum of undisclosed sales of Rs. 13,17,75,384 was confirmed in the case of the assessee. G.P rate of 0.5% was applied and addition of Rs. 6,88,876/- was directed to be made in the case of Shantinath Corporation), Applicability of section 68/115BBE was not upheld. 1,51,18,854 4. Addition was deleted. 4. Undisclosed stock u/s 69C

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. Brief

facts pertaining to the case are that appellant is a partnership firm engaged

in the business of manufacturing and trading of jewellery having its

principal place of business at 1756, Telipada, SMS Highway, Jaipur. This

place of business of the appellant firm is also used by appellant’s sister

concern namely “M/s Shrinath Corporation”, which is solely engaged in

73 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

wholesale trading of bullion and thus though both the concerns are sharing

common place for their business activity but nature of business is

altogether different. 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 its partners were also 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

various additions. Aggrieved with the additions made by ld. AO, the

assessee preferred appeal before ld. CIT(A) who deleted various additions

and sustained some of the additions. The decision of the ld. CIT(A) on

various issues is summarized as under:-

S. Particulars Addition made Relief allowed Addition sustained No. 1. Rejection of books of 145(3) NIL - accounts confirmed 2. Trading Addition 1,21,41,812/- 1,11,42,796/- 9,99,016/- (confirmed by applying 9.06% as against 24.14%) 3. Cash Sales during 70,02,127/- 70,02,127/- NIL demonetization 4. Addition on allegation of 60,12,17,723/- Sales reduced to 2,82,67,919/- (i.e. cash sales on the basis of 31,20,07,946/- 9.06% of loose papers 31,20,07,946/-) 5. Difference in Stock 1,51,18,854/- 1,51,18,854/- (on account NIL of telescoping from addition at serial no.4 above

74 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

Thus, assessee has preferred present appeals in respect of additions

sustained by ld. CIT(A), whereas department has preferred appeals against

the relief granted by ld. CIT(A). With these summarized facts and

background now, we proceed to deal with the grounds of appeal so taken

by both the parties.

Assessee’s Ground of Appeal No. 1 & 2 and Departmental Grounds of Appeal No. 2 to 4:

action of ld. CIT(A) in confirming the application of provisions of section

145(3) and part of the trading addition confirmed by ld. CIT(A) whereas the

department has challenged the part of trading addition deleted by ld.

CIT(A). Since, all these grounds of appeal are interrelated of both the

parties and therefore, same are dealt with together for the sake of

convenience. Brief facts related to issue of rejection of books of accounts

and trading addition are that during the course of search carried out by

Income Tax Department at business and residential premises of the group

inter-alia including assessee, various loose papers and documents were

found and seized. The ld. AO in its order has mentioned various issues,

mainly emanating from regular books of accounts, treated by him to be the

75 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT defects in the books of accounts and ld. AO has also mentioned that during

the course of 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). The ld. AO

then applied the GP rate of 24.14% in AY 2017-18 and also in various

earlier assessment years, considering the GP rate of as back as the A.Y.

2009-10 & 2010-11. The ld. AR mainly argued before the ld. CIT(A) and

also before us that so called defects mentioned by ld. AO in its order are

not actually any defects, 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, the ld. CIT DR relied upon the order of ld. AO

and of ld. CIT(A) on this issue. As regards applying the G.P. rate of 24.14%

by ld. AO, the ld. AR has vehemently submitted that the ld. AO has taken

the average GP of A.Y. 2009-10 & 2010-11 while estimating the GP rate for

A.Y. 2017-18 which rates are about 7 – 8 years back. The action of ld. AO

is totally unjustified. The ld. AR has submitted that ld. CIT(A) after

considering the factual position and the legal position on the issue under

consideration has applied the GP rate in A.Y. 2017-18 by taking the

average GP rate of last three years which comes to 9.06%. On the other

hand, the CIT DR submitted that ld. CIT(A) has upheld the rejection of

76 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT books of accounts and accordingly trading addition made by AO should

have been confirmed by ld. CIT(A). It was also submitted that in the case of

Shri Jitendra Kumar Agarwal Vs. ACIT, the Hon’ble Tribunal in AY 2013-14

has directed to take average of finally determined GP of last five years and

accordingly GP rate so estimated by ld. CIT(A) is not correct.

9.1 We have perused the material on record on the issue under

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. The relevant operating part of the order of Ld.

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

77 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT in respect of invocation of provision of sec. 145(3). The Ld. AO has mentioned that the stock register was prepared afterward by the appellant only for the purpose of assessment proceedings. The Ld. AR has, among other, stated that the stock register was very much available at the time of search itself, as the search team, after going through the stock register, has determined the excess stock after comparing it with the physical stock found during the course of search. The other point mentioned by the Ld. AO is that the appellant has taken contradictory stand regarding method of valuation of stock in tax audit report vis-à-vis in the return of income (ITR). The Ld. AR has very elaborately and specifically explained in its written submission that the information so given at these two places about the valuation was not contradictory but was in fact complimentary to each other. In Faun 3CD the method of valuation of closing stock has been mentioned as “finished goods cost or NRV, whichever is lower". It was explained by the Ld. AR that in clause iv of schedule of other information in the ITR regarding method of valuation of stock, there are drop-down menu which specifies i) cost or market rate whichever is less, ii) cost and iii) market rate. So the assessee has choice to fill-up or to specify only one out of the aforesaid three. The appellant has selected its method of valuation of stock as i) cost or market rate whichever is less, which being the most relevant method actually followed by the appellant. The Ld. AO has also observed about different answer given by the appellant during assessment proceedings regarding method of valuation of stock. The Ld. AR has explained that in the reply during assessment proceedings it was submitted that weighted average 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. 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

78 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT 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 that finding of the AO of rejection of books of accounts and invocation of the provision of sec. 145(3) is justified and same is upheld.

9.2 As regards, GP rate so estimated by CIT(A) is concerned, the finding

of CIT(A) is as below, as per para 5.3 of CIT(A)’s order for A.Y. 2017-18:-

5.3 Now, coming to the estimation of the GP, it is seen that Ld. AO has estimated the GP rate at 24.10% as against the GP rate of 7.86% declared by the appellant. The Ld. AO has taken the average GP rate of AY 2009-10 & 2010- 11 and has applied it to AY 2017-18. The Ld. AR has strongly objected to application of GP rate of more than 7 — 8 years back on the ground that business methodology, nature of customers, choice of customers etc. had gone a sea-change from 7 — 8 years back to the time relevant to AY 2017- 18. Moreover during that period the turnover of the business was very meagre and concentration was for better profit margin. Over the years, the assessee has changed his focus and had been emphasizing on increasing its turnover and the customer base even at the cost of reduction in profit margin. It was submitted by the Ld. AR that if at all, if it is required to estimate the profit, then results of past three years may be taken as a guiding factor for estimation of the profit with suitable reduction in GP rate due to increase in turnover over the period. I have considered the argument of Ld. AR and perused the relevant part of the assessment order. It is seen that Ld. AO has applied the average GP of AY 2009-10 and 2010-11 in the assessment year 2017-18. It is also correct that the turnover at that time was comparatively quite less and moreover the facts and circumstances including the nature of business and other factors would obviously get changed over a period of as much as 7 — 8 years. Hence the AO was not justified in applying the GP rate of AY 2009-10 & 2010-11 in the year under consideration. I feel it proper to apply the average GP rate of preceding three years in the year under consideration and then factoring it suitably for increase in turnover. It is also justified as the turnover in AY 2017-18 is comparable to the preceding three years, obviously with an increasing trend. It is seen that in preceding three years i.e. AY 2016-17, 2015-16 and 2014-15, the GP rate was 7.93%, 9.64% and 9.60%. Average of the three aforesaid years comes to 9.06% and accordingly G.P. rate of 9.06% is directed to be applied in AY 2017-18 on total recorded turnover of the assessee. The gross profit shown in the books is Rs. 63,92,429/- and the gross profit on applying GP rate of 9.06% comes to Rs. 73,91,445/-. Therefore the trading addition is restricted to Rs. 9,99,016/- and balance addition is hereby deleted.

79 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT 9.3 As regards, rejection of books of accounts is concerned, we agree

with the finding of ld. AO/CIT(A) that considering many instances of defects

pointed out in the assessment order, a parallel undisclosed balance sheet

maintained by the assessee and out of books purchase, sales and

expenditure revealed from the documents seized during the course of

search which is not disputed and accordingly we see no reason to differ

with the decision of CIT(A) on this issue for the year under consideration.

Accordingly appeal of the assessee on this issue is rejected.

9.4 As regards, application of GP rate is concerned, we agree with the

view of ld. CIT(A) that applying the GP rate of A.Y. 2009-10 & 2010-11 in

A.Y. 2017-18 is not prudent considering that there would naturally be vast

difference in the facts and circumstances in the span of 7 – 8 years or so

and moreover it is undisputedly seen that turnover in those years (i.e. AY

2009-10 & 2010-11) were less. Hon’ble High Courts including Jurisdictional

High Court and other courts in ample number of cases have held it

appropriate to estimate the GP rate by taking GP rate of last three years or

two years. The ld. CIT(A) in the instant case has taken the GP rate of last

three years for estimating the GP rate of AY 2017-18 and therefore, we are

of the view that the order of ld. CIT(A) on this issue is reasoned one and

80 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT does not require any interference. The decision in the case of Shri Jitendra

Kumar Agarwal so referred is on peculiar facts and circumstances of that

particular case that too particularly for AY 2013-14 and accordingly same is

distinguishable. As regards, argument of ld. CIT DR is concerned, that

since books have been rejected trading addition made by AO should be

confirmed, it is useful to refer to the decision of Hon’ble Rajasthan High

Court in the case of Gotan Lime Khanij Udyog 256 ITR 243 (Raj.) wherein

Hon’ble Court has held that it is not necessary that in every case of

rejection of books of accounts, trading addition has to be necessarily made.

Trading addition has to be made on reasoned and rational basis

considering the facts and, in the circumstances, as well as past history of

the case. Thus, as discussed above estimation of GP rate so made by AO

was found to be not reasonable and not acceptable as per reasons given

above. Thus, argument of ld. CIT DR is not accepted on this issue.

Moreover the argument of ld. AR of deleting the addition partly confirmed

by ld. CIT(A) in A.Y. 2017-18 is also devoid of any merit and accordingly

same is also rejected.

9.5 Considering overall facts and circumstances, we notice that finding of

ld. CIT(A) on the issue of GP rate is fair, reasonable and we see no reason

81 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT to interfere with such finding. In brief, Ground of appeal No. 1 & 2 of the

assessee are rejected. Similarly, Ground of appeal No. 2 to 4 of

department are also rejected.

Assessee’s Ground of appeal No. 3 to 7.1 and Departmental Ground of appeal No. 8 to 10 :

made by ld. AO on the allegation of unaccounted cash sale noticed in the

various loose papers found during the course of search. After considering

the explanation and submission of ld. AR and also after going through the

content of the order of ld. AO, ld. CIT(A) restricted such cash sales to Rs.

44,97,83,330/-. Out of it, ld. CIT(A) held that sales to the tune of Rs.

13,77,75,384/- are of bullion and as the business of the bullion is done by

M/s Shreenath Corporation, another group concern, same was directed to

be considered in the hands of M/s Shreenath Corporation. Thus, the ld.

CIT(A) estimated the GP rate of 9.06% and applying it on the undisclosed

sale of Rs. 31,20,07,946/-, the addition was restricted to Rs. 2,82,67,919/-.

10.1 The assessee has challenged the action of ld. CIT(A) in confirming

the addition to the tune of GP on these sales which have been still on the

82 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT higher side and as per assessee’s contention same need to be reduced,

whereas the department has challenged relief granted by ld. CIT(A).

10.2 Brief facts related to these grounds of appeal are that ld. AO noted

the details from various seized documents and presumed them to be

unaccounted sales and thereby made the addition of the entire amount of

unaccounted sale. The ld. AR has given elaborate submissions before the

ld. CIT(A) and has submitted that there are multiple noting’s made about

same transaction, some of the noting’s are rough noting’s, some noting’s of

purchases have been considered by the ld. AO as sales, some of the

noting’s / transactions are recorded in the books which have also been

considered by ld. AO as unaccounted, approval slips and rough estimate

slips considered as sales and ld. AO has not at all correlated or linked the

entries found noted in various annexures with each other, which are

repetitive / duplicate or even triplicate and ld. AO has made addition in

casual manner by mechanically taking all the entries and grossing them up.

The ld. CIT(A) has perused and verified various entries wherever ld. AR

has pointed out duplication, triplication or entries being recorded in the

books or entries pertaining to appellant’s sister concerns (of bullion, which

business is handled by M/s Shreenath Corporation) by way of charts. The

83 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT ld. CIT(A) after closely perusing the details given its reasoned and detailed

finding based on the issue raised in the show cause notice and accepted

the argument of the ld. AR that wherever these were acceptable to him,

excluded the transactions of bullion in the appellant’s case and

simultaneously ordered it to be added in the case of M/s Shreenath

Corporation and actually added therein. All these finding has given by ld.

CIT(A) with all discussion in his order and after recording proper

satisfaction of doing so.

10.3 The ld. CIT DR in its submission has not been able to pin point any

entry or any transaction which have been incorrectly considered by ld.

CIT(A). The ld. CIT DR has mainly argued that assessee has explained

various entries of these seized documents through explanatory sheets and

these should have been considered by ld. CIT(A) as additional evidence

and thereby opportunity to the ld. AO should have been given to rebut the

same.

10.4 We have considered the rival submissions as well as perused

relevant part of order of AO and of ld. CIT(A). As is noticed the

unaccounted sale so estimated by ld. AO for AY 2017-18 Rs.

60,12,17,723/- and ld. AO has added the gross amount of unaccounted

84 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT sale itself as the unaccounted income, which is quite unjustified as per the

settled law on this issue. Now coming to the other issues on merits, it is

better to reproduce the operative part of the CIT(A) order of A.Y. 2017-18

from para 11 to 20 which is as below:-

85 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT In the written submission, the appellant has given the details of such additions which are straightaway required to be excluded, which may be due to duplication or may be due to opening balances also considered as part of the sale of that day and some purchases wrongly considered as sales. The AR of the appellant has furnished various annexures showing such details. These are discussed as below:-

11.4 As already mentioned the loose papers and documents were seized from business premises and also from residence of partners and these have been inventorized in Annexure AS of the respective place of search. In order to avoid confusion between the exhibit seized from one place vis-à-vis exhibit seized from other place having same number, the Ld. AR has specified the various exhibit seized from the business premises of the appellant firm namely 1756, Telipada, Chaura Rasta, Jaipur as exhibit C-1 to C-24 for the sake of clarity.

Comparison of exhibit C-8 & C-15 The AR of the appellant has first compared entries in exhibit C-8 with entries in exhibit C-15 (both seized from Telipada and marked as Annexure AS, exhibit 8 and exhibit 15). Ld. AR has given the table in its written submission indicating that entries in 7 pages of exhibit C-8 are matching with the entries in 7 other pages of exhibit C-15. For the sake of ready reference the chart is reproduced below:-

Another chart has been given by Ld. AR as Annexure 4 reflecting page-wise summary of double addition, which is as below;

86 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

12.2 From perusal of the details given in Annexure 4, it is seen that as per the Ld. AR total double addition as appearing in C-8 and C-15 comes to Rs. 3,40,04,923/-. For this purpose, the AR has submitted 7 working sheets named as Annexure 4A to Annexure 4G. It is verified by me that out of these 7 working sheets, the Annexure 4E has the highest amount of double addition namely Rs. 1,01,99,026/-. In this working sheet entries found page No. 13 of Exhibit C-8 has been compared with page No. 9 of Exhibit C-15. Entries related to page 13 of Exhibit C-8 are mentioned at page 12 of show cause notice (SCN). Similarly entries related to page 9 of Exhibit C-15 are mentioned at page 27 of SCN. For ready reference and clarity of the issue concerned, the scanned copy of the relevant portion of page 12 of SCN has been juxtaposed with page 27 and upper portion of page 28 of the SCN as below:-

87 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

12.3 From perusal of above scanned image of relevant portion of SCN, it is seen that on left hand side relevant portion of page 12 of SCN has been taken wherein entries related to page 13 of Exhibit C-8 are mentioned starting with first name Tarun, then Anil Sodhi, then Jitendra etc. These are ending with Pradeep PVJ. On the right half portion page No. 27 of SCN have been reproduced wherein entries on page 9 (mentioned on the top left of this right half scanned image) have been mentioned. The date is also mentioned as 18.7 (i.e. 18.07.2016). On Page 13 of Exhibit C-8, there are total 18 entries and on page 9 of Exhibit C-15 there are 20 entries. On perusal of corresponding entries it is seen that entry related to Tarun, Anil Sodhi, Chiranjeev Soni, Jugnu Soni, CA old, CMP, CA Old, DAJ, CMS, Jagannath Ji, Varsha appearing on page 13 of Exhibit C-8 are again appearing on page 9 of Exhibit C-15 as is clear from the scanned image of relevant portion of aforesaid pages of the exhibit. The Ld. AR has submitted that as many as 14 entries of page No. 13 of Exhibit C-8 are repeating in page 9 of Exhibit C-15 and Ld. AO has added both the entries separately whereas actually these are same. I have gone through these entries as above in the scanned image also and found the claim of the Ld. AR to be correct in respect of 12 entries of page 13 of Ex. C-

88 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT 8. On being enquired by me, that 8th entry being unnamed on page 13 of C-8 is having amount as 2,76,764/- whereas in page 9 of C-15, this amount is shown is Rs. 2,65,785/- related to gold purchased from Varsha and are thus not exactly same. Similar is the case with 15th entry on page 13 of C-8 in the name of Samar (taken from SCN) which is also having slight difference in the amount. The Ld. AR has submitted and drawn my attention to the relevant page of the seized document i.e. page 13 of C-8 and page 9 of C-15 and has stated that in fact on page 13 of C-8 after the entry in the name of CA old, there is entry whose name was not legible to the Ld AO and that is why in the SCN name has been left blank. It was further explained that against this entry only weight of gold and its purity is mentioned i.e. "91.650 x 99.5" and in fact there is no mention of any amount. The Ld. AO after assuming the rate of pure gold as Rs. 3035/- per gm. has worked out the amount as 276760/-related to this entry of page 13 of C-8. Ld AR has explained that the name is written against this entry and if one closely peruse the entry then the name `Varsha' can be read. Similarly entry of 'gold purchase from Varsha' as per SCN page 27 related to page 9 of C-15 it is seen by me on being pointed out by the Ld. AR that against this entry also only weight of gold and purity of gold as mentioned i.e. "91.650 x 99.5" and actually no any amount is mentioned. However, Ld. AO on page 27 of SCN related to this entry of page 9 of Exhibit C-15 has taken weight as 91.65 gm. and here Ld. AO has taken the rate of gold as Rs. 2900 per gm. Thus slight difference in the amount is only because the slight different rate of the gold taken by the Ld. AO while determining the amount related to this transaction. Ongoing through the particular details as mentioned above, I am fully satisfied that these two entries are also same with only weight and purity of gold mentioned which are exactly same and with same name and the slight difference in the amount is only due to different rates of Gold taken by AO. The Ld. AR has further drawn my attention to the another entry namely of Samar where again in both the loose papers namely page 13 of C-8 and page 9 of C-15 only weight and purity of the gold is mentioned which is "221.010 x 99.5" and in fact the amount has been calculated by the Ld. AO by taking two different rates at two respective places. I agree with the explanation of Ld. AR. Thus it is clear that there is duplication of entries to the extent of Rs. 1,01,99,026/- as per working sheet Annx. 4E furnished by the Ld. AR.

12.4 It is to mention here that in the working sheet so submitted the Ld. AR has taken those entries which are exactly duplicating leading to double addition. The Ld. AR has further submitted that few remaining entries may also be matched with some other entries in some other exhibit either directly or by implication but same may require some more time and hence not attempted in order to avoid prolonged litigation.

For the sake of clarity the working sheet Annexure 4E submitted by the Ld. AR is reproduced here:-

89 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

12.5 It has been explained by the Ld. AR that in all the working sheets as in working sheet 4E, only those entries have been taken which are matching in two different pages of exhibits and these are reflecting straightaway double addition and those entries which are not directly matching or require some interpretation has been left with. For the sake of clarity and easy reference other working sheets marked as annexure 4A, 4B, 4C, 4D, 4F and 4G are reproduced below:-

90 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

91 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

92 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

93 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

94 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

13.2 The Ld. AR has simultaneously also submitted as per these chart itself that most of the entries are related to transaction of bullion and this is emanating from the perusal of the description of entry itself. Coming back to same Exhibit 4E for the purpose of example, it is very much clear that entry related to Tarun on page 13 of C-8 for Rs. 18,50,000/- is in respect of Bullion. Similarly next entry of Anil Sodhi of Rs. 42,50,000/- is also of Bullion. Similarly entry of Varsha Soni of weight 91.650 gm. with 99.5% purity is also of bullion, as can be understood easily. Accordingly in these working sheets the entries have also been segregated between bullion and jewellery. It was submitted that as the appellant was doing business of jewellery only, the addition related to transactions of jewellery that too only of the net profit earned out of these transactions, may only be considered.

Reconciliation of annexure A-5

95 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT The Ld. AR has furnished another annexure namely A-5, wherein following three types of entries have been identified:

i) While estimating the sale the Ld. AO has taken the gross total of the entries in respect of cash inflow on various pages which included the opening balance of the cash of that day and thus excessive amount has been taken by the Ld. AO. These few pages are page 2, page 5, page 8, page 11, page 14, page 17 and page 20 of exhibit C-15 (i.e. exhibit 15 of Annx. AS seized from Telipada). The Ld. AR has explained that these pages are basically memorandum pages of cash inflow and outflow during the day, also depicting the opening and the closing cash balances. Thus AR argued that at the maximum only the cash inflow can be considered as sale, though in some cases it may also be the loan received for some business purpose which needs to be returned and as such same will not be part of sale. The AR has submitted the summary of these pages as per first chart / table of Annexure 5 and has mentioned that total of such addition which has been taken by even including the opening cash balance of the day comes to Rs. 1,34,23,481/-. The relevant first chart of annexure 5 is reproduced below;

13.3 The Ld. AR has also furnished working sheet in respect of each of these pages named as Annexure 5A to 5G. The Ld. AR has drawn my attention to the relevant seized pages as per paper book page No. APB 293, 296, 299, 302, 305, 308, 312 and has submitted that the very nature of entries on these pages clearly reflect that the opening balance is also mentioned on the top and below it specific details of cash inflow has been mentioned and in the end total has been done. Thereafter on right side details of cash outflow and the closing balance of the day is also mentioned. On perusal of these pages, the contention of the Ld. AR is found to be correct. However it is seen that on some pages the opening balance is not very clearly visible and only last three digits or last four digits are visible at some places. The Ld. AR has submitted that the photocopy of the seized document so submitted before me as APB was out of the photocopy provided by the department and at some places all figures of the opening balance may not be visible but at least last four or five digits are visible. Accordingly the Ld. AR has furnished the detailed cash flow seized of these pages as reflected from the

96 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT seized pages itself by way of working sheet named as 5A to 5G and from these sheets total of the cash inflow has been arrived, which only need to be considered and if the same is deducted out of the gross total (taken by the AO as addition), the balance figure is matching with opening cash balance as mentioned on these pages. Another important factor pointed out by Ld. AR was that this opening cash balance so mentioned on the page which is arrived at from the cash flow working is also tallying with a closing balance so shown on another page related to preceding day. For sake of easy reference and clarity working sheets namely 5A to 5G are reproduced below:-

97 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

98 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

99 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

100 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

101 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

102 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

103 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

104 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

105 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

106 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

107 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

108 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

109 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

However on close scrutiny of these pages it was noticed by the undersigned that on page 8 of Exhibit C-15 the opening balance of 18th July is having last six digit as '110380' as per APB 305 whereas in the chart the last six digits are '388030'. The Ld. AR has considered this point. It was also pointed out to him that there is no page related to the entries on 17th July so that the opening balance of 18th July as claimed by the Ld. AR cannot be verified from closing balance of 17th July. However, Ld. AR explained that on going through the entries on seized page 8 of Exhibit C-15, it is seen that in the working sheet 5A, one entry which has been scored off amounting to Rs. 9,600/- has not been taken rightly but inadvertently another entry of Rs. 22,350/- scored off has been included, which has resulted into the aforesaid minor difference in the figure. After excluding entry of Rs. 22,350/- from cash inflow during the day, the total cash receipts will get reduced by this amount and correspondingly as the gross total amount of Rs. 63,41,276/- shown on the page is very legible and confirmed, thereby the opening cash balance will be increased by Rs. 22,350/- and it will actually be Rs. 24,10,380/-. The Ld. AR has pointed out that the last five digits so visible on page 8 are clearly '10380' and thus these are exactly matching with the above actual figure of opening balance of Rs. 24,10,380/-. The explanation so given by the Ld. AR is found to be correct. In brief it is held that Ld. AO has not only taken cash inflow of particular day as sale but also included the opening balances also as sales, which need to be excluded out of the addition. Such total amount comes to Rs. 1,34,23,481/- and same is hereby deleted.

ii) The Ld. AR has submitted second chart in Annexure 5 itself which reflected entries which are common within the pages of Exhibit C-15 itself. For easy reference second chart is reproduced below;

110 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

14.2 It was explained that page 8 and 9 of Exhibit C-15 both relate to same date i.e. 18th July. Page 8, of C-15, as already discussed herein above contained details of cash inflow and cash outflow during the day. It is seen that the Ld. AO had added these entries and on page 9 of C-15 various entries of page 8 are written in narrative form and probably in some other handwriting by some other person. Such entries which are taken on from page 8 and also from page 9, both belonging to 18th July itself, comes to Rs. 37,17,231/- as mentioned in the above chart. The Ld. AR has also given the entry-wise working of this summary chart showing duplication / double addition in the working sheet namely Annx. 5A to 5G, which have been reproduced above. From perusal of the working sheet, it is seen that Ld. AR has made a column of reference No. on the left half of the sheet containing details / entries of one page and also on the right half of the sheet containing details / entries of other page and has put same reference No. on the left half and right half portion of working sheet against the entries which are matching. As seen from the working sheet, it is clear that the two pages given in the same working sheet are of same date. For example, working sheet named as Annex. 5A is having details of page 8 and page 90 of C-15 and these both pages are for the same day i.e. 18th July. It has been noticed by me that reference No. 1, 3, 4, 5, 10, 11 & 13 mentioned by the Ld. AR on working sheet Annex. 5A relates to common entries on page 8 and page 9, as can also be seen in the working sheet as reproduced above. These seven entries totals upto Rs. 37,17,231/-. In Annex. 5C reference No. 1, 6, 7, 9 & 10 denotes the common entries found on page 14 vis-à-vis page 15 of Exhibit C-15, which totals upto Rs. 38,77,040/-. Similarly in annexure 5D entries having reference No. 3, 4, 5, 6 & 7 are the common entries on page 17 and 18 and total of the same comes to Rs. 44,72,250/-. I have found the similar position in relation to other working sheets, which have also been reproduced above. Thus it is quite clear that there is duplication of the addition on various pages within Exhibit C-15 totaling to Rs. 1,46,82,451/- and same is hereby held to be deleted / excluded from the total addition.

iii) In third chart of Annexure 5, the Ld. AR has submitted the summary of entries on different pages of Exhibit C-15 which have been incorrectly considered by the Ld. AO as sales, whereas actually these are purchases which is clear from the description / narration mentioned against the particular entry.

111 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

From perusal of the aforesaid summary, it is seen that working sheet named as Annex. 5C is having highest amount totaling to Rs. 41,89,667/-. From perusal of Annex. 5C, it was explained by the Ld. AR that from perusal of page No. 14 of exhibit C-15, it is seen that entry related to Rs. 20 lakh in the name of Anil is among the various entries related to cash outgo i.e. of purchase. Similarly on same page i.e. page 14 of Exhibit C- 15, another entries of Rs. 20 lakhs is also among the various entries related to cash outgo which clearly means that it is the purchase made by the group concern and not the sale. Similar the position with entry of Rs. 1,22,140/- which is also for purchase and entry of Rs. 2,360/- in the cash outgo, which is for reference. I have perused the working sheet alongwith seized page in the paper book submitted by the AR of the appellant and found the explanation of the Ld. AR to be correct. Similar is the position in relation to other working sheets namely 5A, 5B, 5D and 5F. Accordingly it is clear that the Ld. AO has taken an amount of Rs. 83,04,167/- as unaccounted sale whereas these are basically purchases and accordingly same is hereby excluded / deleted from the total unaccounted sale.

Issue of unaccounted Bullion sale added in the case of Royal Jewels The other major issue referred by the Ld. AR in its written submission is that in Exhibit C-8 and C-15 at various places entries related to transaction of bullion are mentioned (which of course do not pertain to the appellant firm). It is the trade practice in the bullion dealing that many times deals for purchase or sale are struck for specific quantity of bullion with prevailing rate and the delivery or sale / purchase is made on some subsequent nearby dates. Accordingly the transaction have been recorded atleast twice, once at the time of striking the deal and other at the time of delivery and taking / giving of money and may be third time if delivery and / or money transaction earlier was in part and not in full. The Ld. AR has furnished party-wise details of such double entries made on different point of time and it was explained that the Ld. AO has added both the entries though actually these double entries relate to single transaction. The party-wise summary sheet reflect the amount of deal with one party and amount of final settlement / delivery with the same and the total of these amounts of deal and settlement comes to

112 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

Rs. 5,35,69,840/- and Rs. 5,07,72,315/- respectively. The Ld. AR has also furnished detailed working sheet of each party. For the sake of clarity and easy reference, the Annexure 6 and its sub-annexures are reproduced below:-

113 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

114 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

115 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

116 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

117 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

118 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT 14.3 Ld. AR has explained these working sheets. Taking the working sheet related to Anil, it was explained that at seized document page 10B of exhibit C-8 there are two entries in the name of Anil ji for Rs. 62,16,000/- and Rs. 30,99,500/-wherein deal respectively for 2 Kg. of gold and 1 Kg. of gold was finalized @ 31,080/- and Rs. 30,995/- per 10 gms. This deal was done on 14th July as per the date mentioned on seized page 10B of Exhibit C-8. As per page 10 of Exhibit C-8 which is also having date 14th July there are entries of payment made by Anil amounting to Rs.30,50,000/-, Rs. 33,00,000/- and Rs. 2,77,600/- (these details of payments are given in the working sheet on the right half portion and these particular details are on the bottom side of right half portion). Again on page 9 of C-15 which is related to 18th July payment of Rs. 42,50,000/- is received from Anil. As per page 15B of Exhibit C-8 which is for 20th July another transaction was struck for 200 gm. and 1 Kg. of gold respectively @ 30550 and @ 30400 per 10 gms (inadvertently written in Pawan's name). The payments so made to Anil are reflected on page 10, page 15 and page 18 of exhibit C-15 which relates to 22'd July, 20th July and 21St July respectively, as mentioned on the right half portion of the working sheet. Thus from perusal of the working sheet, it is seen that Ld. AO has added both the amounts once at the time of striking the deal and twice at the time of transaction getting materialized by way of payment. These details so given in the working sheet are clearly reflecting that Ld. AO has made double addition. In such cases where there is deal and consequently the actual transaction, the addition in relation to the actual transaction need to be made as there may be sometime not exactly fulfilling the deal after mutual discussion between the parties. Accordingly I agree with the argument of Ld AR that as addition of the amount of Rs. 5,07,72,315/- is already included in the addition, accordingly the another addition which relates to deals amounting to Rs. 5,35,69,840/- is required to be deleted and same is thereby ordered to be deleted.

Rough estimates noting on exhibit C-10, C-11, C-12 & C-13 Next issue raised by the Ld. AR is that in Exhibit C-10, C-11, C-12, C-13, there are mainly many slips titled as "rough estimate", wherein weight, rate and at some places the total amount is mentioned. Again these amounts related to these slips have been recorded in the summary sheet seized in Exhibit C-15. The Ld. AR has explained that weight of the item and trade as well as the amount mentioned in the slip is clearly matching with the amount recorded in Exhibit C-15 and hence there is at all no difficulty in identifying that such amount mentioning the slips have been included in the summary of the receipt and payment made on various pages seized in Exhibit C-15. Moreover the clinching evidence of slips being entered in the summary sheet in Exhibit C-15 is that the slips are having Si. No. and these very SI. Nos. are mentioned in the summary sheet of C-15 against the respective amount. Besides above, entries in various pages of A8, A9 and A10 are being repeated in Exhibit Al (i.e. respective Exhibit of Annexure AS seized from 14, Sunder Nagar). For easy reference the summary sheet named as Annexure 7 is reproduced below:

119 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

120 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

121 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

122 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

Issue of material sent on 'approval' in exhibit C-13, C-17, C-18 & C-19 Next issue raised by Ld. AR of the appellant is that there are various slips seized in Exhibit C-13, C-17, C-18 and C-19 (i.e. respective Exhibit of Annexure AS seized from Telipada) and Exhibit A-8, A-9 and A-10 (i.e. respective Exhibit of Annexure AS seized from 14, Sunder Nagar) which are the slips related to material sent / received on approval and accordingly on the top of these slips word 'APPROVAL' is clearly mentioned. It was submitted that in the business of jewellery most of the times goods are sent on approval to the customer or to the other retailer. Similarly the goods are also received from other retailers or from Karigars for approval. These goods are entered on the approval slips and these slips were seized during the course of search. The appellant had devised a simple methodology / system of recording the goods sent on approval on the "Approval slips" and thereafter recording only the actual sale of the goods in the stock register. Similar is the position in relation to the goods received on approval. The Ld. AR has submitted that these are not actual sales and wherever there are actual sales, same have been recorded in the books or other relevant pages seized. Accordingly it was submitted to exclude the amount shown on these approval slips from the sale. Total of such amount as submitted in the summary sheet in Annexure 8 comes to Rs. 18,67,67,651/-, which is reproduced below for the sake of clarity:-

123 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

15.2 Further the Ld. AR has submitted various working sheets to support the details given in summary sheet. The first working sheet related to Exhibit C-13 is reproduced below for ready reference:-

124 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

125 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

126 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

15.3 It was submitted by the Ld. AR that in Exhibit C-13 itself there are not only slips of 'approval' but there are other slips on which 'rough estimate' is mentioned. It was further submitted that in other exhibits namely C-17, C-18, C-19, etc. and also in exhibit A-8, A-9 and A-10, there are various slips on which 'rough estimate' is mentioned and moreover there are still other slips. It was submitted that the other slips on which nothing at the top is mentioned, has not been disputed or agitated in absence of any concrete and foolproof evidence with the appellant. Similarly the appellant is also not very seriously agitating the slips on the top of which 'rough estimate' is mentioned, though as the name suggest these are only rough estimates. However as it is difficult to furnish positive evidence regarding these not being sale, the issue is agitated on the basis of written submission only. However as regards approval slips are concerned, it is very much clear that these are not unaccounted sales and these may be excluded from sale. Moreover many of these slips are related to goods received on approval and obviously these can by no stretch of imagination be the sale and at the worst to the assessee these may be considered as purchases. I have considered the argument of the Ld. AR and also perused the relevant records. Generally it is a trade practice in the business of gold and silver jewellery that the slips having heading as "rough estimate" or "approval" are kept by the retailer and whenever the customer ask for the final weight and amount to be paid, the retailer calculates it on the aforesaid slips only and the final sales are also executed on the basis of these slips only. Moreover, on perusal of the slips marked as 'approval', it is seen that date as well weight of jewellery in gms. and also the rate and finally the total amount is mentioned. Considering these facts the claim of the Ld. AR of the appellant that these approval slips did not reflect the sale, is not having merits and is therefore rejected. Thus in brief, an amount of Rs. 18,67,67,651/- so sought to be excluded from the sale by the Ld. AR is not directed to be excluded but is considered as part and parcel of the sale to be considered for addition.

127 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT held them to be included in the sale. On the same line the argument is rejected for these slips also, however as these slips had been issued by some other party in the name of appellant, these are related to purchase made by the appellant. Accordingly the argument of Ld. AR is only partly accepted and these are excluded from the sale but included in the purchase.

16.2 Next issue raised by the AR of the appellant is that the Ld. AO has even considered the accounted sale as reflected in loose papers seized in Exhibit C- 22, as part of unaccounted sale. The Ld. AR has submitted specific details of each of these entries in Annexure 9, wherein entries of addition considered by the Ld. AO as per page 36 of the show cause notice (SCN) have been matched with the corresponding voucher no., date and particulars so mentioned in the ledger account of 'sale of gold ornaments'. Total of such six entries comes to Rs. 4,85,255/-. For ready reference, the annexure 9 is reproduced below:-

17.2 The next issue raised by the Ld. AR is regarding presumption of Ld. AO of the stock position taken on various dates as mentioned in some of the seized pages of Exhibit C-14 to be as unaccounted purchases. It was submitted by Ld. AR that these pages are page No. 15 (dt. 15/07), page No. 17 (dt. 18/07), page 20 (dt. 19/07), page 31 (dt. 20/07), page 9A (dt. 21/07), page 41 (dt. 22/07), page 40 (dt. 25/07), page 55 (dt. 27/07) and page 57. It was submitted that the bare perusal of these pages together at one go will clearly reveal that the entries so mentioned therein which have gross weight and net weight of various items, are obviously related to some memorandum stock taking and for this purpose the Ld. AR has furnished the two pages of working sheets on which four seized pages have been placed near one another on one page and similarly other five seized pages have also been placed on second page and these are reproduced below:-

128 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

129 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

130 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

The Ld. AR has also submitted summary of the different pages and named as Annexure 10 which is reproduced below for the sake of clarity:-

131 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

17.3 It is submitted that the Ld. AO has considered the detailed mentioned on each page as unaccounted purchase without realizing that details mentioned on one page is exactly tallying with the details available on second page for example on page 15 and 17 of C-14 (except slight difference of about 3 gms. in the last item named as IR' in its gross weight and also in net weight). Similarly all items of page 17 match with page 20 except difference of about 0.36 gms. in gross weight and net weight against one entry 'Bali' and even in the total gross and net weight there is just difference of 0.36 gms. between these two pages. Similar in the position vis-a-vis other pages where only slight decrease or increase in one of the item is reflected and accordingly the total memorandum stock position of certain items on that particular day is found slightly varying by about 1 to 10 gms. The Ld. AR has submitted that approach of the Ld. AO was so casual that he has considered gross weight of memorandum stock on particular date as purchase and again the net weight of the memorandum stock on that day itself has also been considered as purchase. These papers relate to 9 different dates and after adding the gross weight and net weight of memorandum stock and applying the rate of gold, the Ld. AO has presumed the purchase of around 4 crore and odd for each day and thereby considered the total unaccounted purchases to be Rs. 36,23,07,788/-. Similarly some further entries were found noted on these pages which were actually

132 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT related to number of bangles, however the Ld. AO have considered them also to be purchase and accordingly he has further added Rs. 73.66 lakhs. As seen from the details these entries are also related to the stock of number of bangle on different dates. I have perused the relevant pages from the paper book and also perused the working sheet given by the AR of the appellant. I have found the argument of the Ld. AR of the appellant to be correct. It is noticed by me that first item mentioned on all the nine seized pages is 'Ext.' and on all the four pages reproduced on first working sheet the gross weight and net weight against this item is exactly same i.e. 587.83 gms. and 477.89 gms. respectively. On the second working sheet on the seized page 9A, there is slight reduction (i.e. by 6.1 gm.) in the gross and net weight mentioned against this item i.e. Ext. i.e. 581.73 gm. and 471.79 gm. respectively and this same weight continues in the next four seized pages. Almost similar in the position with reference to other items. In view of these facts it is clear that these seized pages do not reflect the unaccounted purchases as presumed by the Ld. AO. The Ld. AR has also rightly pointed out that Ld. AO added gross weight and net weight both and then on the total of these two weights, he has applied the rate of gold and presumed the amount to be unaccounted purchase, which is clearly incorrect on facts and evidence on record. Similar in the position in relation to the other amount of Rs. 73,66,000/- considered by the Ld. AR as unaccounted purchases, which also is actually not the purchase but memorandum stock position of bangles. Accordingly the finding of the Ld. AR that these pages reflect unaccounted purchases of Rs. 36,96,73,788/- is found to be devoid of any merit and is therefore rejected. It may be mentioned that the Ld. AO has not made any separate addition on this issue.

17.4 The Ld. AR has submitted the summary chart of the various aforesaid issues taken up by him before me and the summary chart is enclosed as part of the written submission which indicate the summary of double additions, incorrect additions, incorrectly considering stock as sale, accounted sales considered as unaccounted, purchases considered as sales out of different exhibits. Thereafter in the body of the written submission the Ld. AR has given further summary, which is reproduced below:-

After considering various arguments of the Ld. AR and after perusing the assessment order and also the relevant records, I have deliberated upon all the aforesaid items and given my decision as mentioned in the earlier paras. In brief the explanation of the Ld. AR on items from S. No. 1 to 5 in the above table given by the Ld. AR are found to be having merits and are acceptable. Thus out of the total unaccounted

133 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT sale so considered by Ld. AO, items from S. No. 1 to 5 above are held to be not the unaccounted sale and total of these comes to Rs. 15,14,34,394/-. Accordingly sale so estimated by the Ld. AO is held to be reduced to the aforesaid extent. However explanation of the Ld. AR on the issue of unaccounted sale considered on the basis of approval memo is not accepted and accordingly an amount of Rs. 18,67,67,651/- is held to be considered as part of the sales as considered by the Ld. AO.

17.5 Ld. AR has reiterated that most of the entries relate to sale of bullion and these are easily identifiable as either the quantity is in round figure i.e. 100 gm, 200 gm, 300 gm, 150 gm etc. or the rate applied is of 24 ct gold or the purity is marked as 99.5%, 99.9% etc. The Ld. AR has submitted that such bullion is found only in Annexure C-8, C-15 and A-3. In C-8, the amount of bullion entries is Rs. 18,69,18,242/- out of which entries to the extent of Rs. 8,57,34,923/- have already been excluded in the double addition as above and the remaining amount comes to Rs. 10,11,83,319/-. In Exhibit C- 15, total entries of bullion is of Rs. 5,59,47,640/-out of which amount of Rs. 3,46,53,124/- is already excluded above because of double addition, leaving a balance of Rs. 2,12,94,516/- which need to be considered in the hands of Shrinath Corporation. In Exhibit A-3, all the entries are of bullion totaling to Rs. 1,52,97,549/- and there is no duplication found here. Accordingly in brief total amount of bullion transaction of sales comes to Rs. 13,77,75,384/- and these are required to be excluded in the instant case of the appellant and need to be considered in the case of sister concern namely M/s Shrinath Corporation. I have gone through the details submitted by the Ld. AR and I found the argument of the Ld. AR to be correct. As discussed herein above in the order and also the chart submitted by the Ld. AR as copied in the order herein above, there are many instances of sales in the nature of bullion and not in the nature of jewellery which is quite clear from the nature of entry itself. I have verified these details with the show cause notice of the Ld. AO vis-à-vis the details submitted by the Ld. AR.

17.6 Thus in brief total amount of sale transactions as depicted in all the loose papers and documents in respect of the appellant gets comes to Rs. 31,20,07,946/- and accordingly the additional sale so required to be considered in the hands of appellant gets reduced to Rs. 31,20,07,946/-.

134 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT 18.2 Here it is pertinent to state that the appellant is dealing only in the jewellery and one of its sister concern M/s Shrinath Corporation is dealing in bullion wherein the partners are common. Since the entries in the seized records pertained to the transactions carried out by all the entities of the group, it would be wrong if the profits of the entire sales including of bullion is added in the hands of the appellant i.e. M/s Royal Jewellers, therefore, AO is directed to make the addition of the profits on bullion in the hands of M/s Shrinath Corporation and not in this appellant. Summation 19. Thus it can been that the out of the total undisclosed sales emanating from various annexure totaling upto Rs. 60 Crores (rounded off) was added as such. The appellant did provide a rough working before the investigation wing outlining that total undisclosed sales is about Rs. 45 Crores (rounded off). Same thing was reiterated before the Ld. AO in the form of letter. This letter finds place in the order of the Ld. AO on last page no. 18 of the assessment order. Now as per the detailed working before me it is see that that the undisclosed sales of jewellary and bullion is as under; i. Undisclosed Sales of jewellery = Rs. 312007946 ii. Undisclosed sales of bullion = Rs. 137775384 iii. Total = Rs. 449783330 19.2 The only difference is undisclosed income out of bullion sale is to be assessed in the hands of Shreenath corporation in AY 2017-18 as the appellant exclusively deals in jewellary. As already pointed out, the business premises of appellant and Shreenath Corporation is same as is evident from the panchnama and the return of income filed. 19.3 Thus out of the total addition of Rs. 60,12,17,723/-, quantum of undisclosed sales of Rs. 44,97,83,330/- is confirmed. 19.4 However entire sales cannot be income, thus the undisclosed income is arrived at by application of GP rate. Similarly income out of the undisclosed sales of bullion shall be assessed in the hands of Sreenath Corporation by application of GP rate of 0.5% as discussed in the respective order. Thus undisclosed income of Rs. 0.5% X Rs. 13,77,75,384 = Rs. 6,88,876 out of the undisclosed sale of Bullion is assessed in the hands of Shreenath Corporation for the AY 2017-18.

10.5 On careful perusal of the order of ld. CIT(A) it is seen that ld. AR has

submitted the working in a summary of the various noting’s as found noted

in the seized document which already on record of AO and these very

noting’s have been used by the ld. AO in its show cause notice and also

135 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT 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 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

cannot be said to be the additional evidences in its strict sense. We also

found force from the arguments of the ld. AR of the assessee that till the

final hearing of these appeal ld. AO though CIT DR has not pin pointed any

error in the finding of the ld. CIT(A) on its facts. We have also noticed 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. At para 12 and 12.2, the ld. CIT(A) has specifically

discussed as to how the entries given on various pages of show cause

notice of the AO have been taken in the working sheet furnished by the ld.

AR. For the sake of clarity, both the paras are reproduced (though

repeated):-

136 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT show cause notice from particular page of exhibit 15 of Annexure AS of Telipada (referred as C-15). In the working sheet details in first three columns have been copied from the relevant page of the show cause notice related to Exhibit C-8. The page number of SCN is marked in column 5. These details have been compared with another relevant page of Exhibit C-15 and again details in the first three columns have been copied from the relevant page of show cause notice related to Exhibit C-15 and page No. of SCN is marked in column 5 (last column).

12.2 From perusal of the details given in Annexure 4, it is seen that as per the Ld. AR total double addition as appearing in C-8 and C-15 comes to Rs. 3,40,04,923/-. For this purpose, the AR has submitted 7 working sheets named as Annexure 4A to Annexure 4G. It is verified by me that out of these 7 working sheets, the Annexure 4E has the highest amount of double addition namely Rs. 1,01,99,026/-. In this working sheet entries found page No. 13 of Exhibit C-8 has been compared with page No. 9 of Exhibit C-15. Entries related to page 13 of Exhibit C-8 are mentioned at page 12 of show cause notice (SCN). Similarly entries related to page 9 of Exhibit C-15 are mentioned at page 27 of SCN. For ready reference and clarity of the issue concerned, the scanned copy of the relevant portion of page 12 of SCN has been juxtaposed with page 27 and upper portion of page 28 of the SCN as below:-

137 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT

As seen above, the ld. CIT(A) in the body of order has even juxtaposed the corresponding pages of show cause notice so as to make the issue very clear and unambiguous. At other places in the order of ld. CIT(A) specific details as per seized documents and working sheet details have been reproduced. One of the example being para 15 of the CIT(A) order is also reproduced below:- 15. I have perused the working sheets and also the corresponding pages of Exhibit C-10, C-11, C-12 vis-à-vis the relevant pages of Exhibit C-15. I found that on each rough estimate slips Sl. No. is mentioned and against the corresponding amount in Exhibit C-15 same Sl. No. is mentioned. I have also perused detailed working sheet related to common entries between Exhibit A-1 and A-8, common entries between A-1 and A-9 and A-1 and A-10 and found the explanation of the Ld. AR to be correct. Accordingly, the claim of the Ld. AR of the appellant is found correct and it is again a case of double addition by the Ld. AO, total of such amount comes to Rs. 1,29,52,107/- which is directed to be deleted. For ready reference one of the working sheet showing slip numbers and the details

138 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT mentioned in the slip seized in Exhibit C-10 alongwith details of corresponding entries of the slips so recorded on page 11 of Exhibit C-15 is reproduced below:

[working sheet being not repeated here, as the same is already reproduced in the present order while reproducing the operative part of the order of ld. CIT(A)].

10.6 Accordingly the argument of ld. CIT DR of considering these sheets

as additional evidence is hereby rejected. Without prejudice to these

arguments, it is also noticed by us that in the appeal proceedings before

us, ld. AO through ld. CIT DR has not been able to point any specific entry

or transaction which might have been incorrectly considered by ld. CIT(A),

though the detailed order of ld. CIT(A) was already available before the ld.

AO since the date on which AO received the CIT(A) order and argument of

ld. CIT DR that it appears to him that ld. CIT(A) has verified only some of

the entries on test check basis does not hold any leg to stand, as on

perusal of order of ld. CIT(A) it is seen by us that he has considered all the

various entries having bearing over the income and also mentioned them

elaborately in operative part of his appeal order. The ld. CIT(A) has

mentioned that document seized from Sunder Nagar, Malviya Nagar

residence of Shri Manoj Kumar Khandelwal has been referred as Exhibit A-

1 to A-15 by ld. AR and document seized from business premises of the

appellant firm i.e. Telipada, Chaura Rasta are referred as Exhibit C-1 to C-

139 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT 24. It is seen by us that major duplication about the bullion amounting to

Rs. 5,07,72,315/- has been discussed in detail by ld. CIT(A) at para 14.2

starting from page 65 to page 73 of his order, wherein ld. CIT(A) has even

reproduced the annexure wherein details of bullion deals and consequent

corresponding settlement by way of delivery and receipt of amount, noted

on the different pages of the seized document, have been mentioned

together and discussed as to why and how these two times of entries are

same / similar. Accordingly, ld. CIT(A) has rightly reduced the sale amount

by Rs. 5,07,72,315/-. Similarly, in the initial part of para 14.2 of ld. CIT(A)’s

order along with para 14(ii), it has been clearly discussed as to how entries

of sales within various pages of Exhibit C-15 (Exhibit No. 15 seized from

1756, Telipada) are common and thus being duplicate, sales amount has to

be correspondingly reduced. It has been discussed that entries between

page 8 & 9, between page 2 & 1, between page 14 & 15, between page 17

& 18, between page 10 & 11, between page 5 & 6, between page 20 & 21

are common and accordingly ld. CIT(A) has rightly reduced the addition on

account of sale by Rs. 1,46,82,451/-. Further at para 11.4 onward, the ld.

CIT(A) has discussed the duplication of entries between Exhibit C-8 & C-15

and has found total duplication between these pages amounting to Rs.

3,40,04,923/-. It is seen from the perusal of para 11.4, 12, 12.2, 12.3, 12.4,

140 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT 12.5 & 13 of the CIT(A) order that issue related to various double entries as

well as issue that some of the entries are of bullion and not of jewellery has

been discussed in detail and thereafter ld. CIT(A) has held the sales to the

extent of Rs. 3,40,04,923/- being double addition and same has been

directed to be deleted. We do not find any infirmity on the above findings on

facts made by CIT(A). Similar is the position in relation to the other items

for which finding has been given by ld. CIT(A) for deletion of addition. We

do not see any infirmity on these items and thereby we concur with the

order of ld. CIT(A) in respect of deletion of various additions related to

sales. In brief, order of ld. CIT(A) directing following addition to be deleted

as mentioned in written submission of ld. AR, does not require any

interference (as per details available on APB 183-184).

S.No. Particulars/nature of addition Amount 1. Addition for duplicate entries of alleged 1,65,38,922.00 unaccounted sales of jewellery 2. Addition for duplicate entries of alleged 9,86,60,399.00 unaccounted sales of Bullions 3. Addition of by taking opening balance every 1,34,23,481.00 time 4. Addition for recorded sales 4,85,255.00 5. Purchases considered as sales 2,23,26,337.00 Total 15,14,34,394.00

141 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT 10.7 Another argument taken by the ld. AR is that ld. CIT(A) has erred in

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 may

kindly be ordered to be considered as income instead of gross profit

considered as income by ld. CIT(A).

10.8 We have considered the argument of the ld. AR, on this issue we are

not inclined to accept the argument of the ld. AR that net profit rate should

be considered as income, as generally the establishment expenses and

other expenses are booked by the normal businessman in its books of

accounts fully. Moreover, the ld. AR of the appellant has not brought out

specific details of expenses under the various heads found noticed in the

seized document and not recorded in the books, to support its argument

and counter the normal practice as mentioned above. Accordingly,

argument of the appellant is hereby rejected.

10.9 Now coming to the ground of appeal related to reduction in the sale

so taken by the ld. AR, it was submitted before us by ld. AR that the entries

142 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT on small slips marked as ‘approval’ have also been considered by the ld.

AO as sales and ld. CIT(A) has also not appreciated his argument and

confirmed the finding of ld. AO. The ld. AR of the assessee submitted that

before the ld. CIT(A), there were many types of slips having some

narrations. It was submitted that there were some slips on the top of which

nothing was mentioned and entries mentioned in them were accepted to be

considered as sale by the appellant. Moreover, there were other slips on

which ‘estimate’ or ‘rough estimate’ was mentioned. It was submitted that

though as the name suggest, these are only rough estimates. However, as

it is difficult to furnish positive evidence regarding these not being sales, the

issue is not vehemently agitated. However, there were still another types of

slips on which very clearly ‘approval’ was mentioned. It was submitted that

these are actually the approval memos wherein details about some

customer / retailer taking the goods on approval is mentioned and

whenever the customer finally approves the goods, the same is entered in

the books of accounts as sales or in some another slip namely ‘estimate’

slip is prepared. Accordingly, the amount of goods sent on approval cannot

be treated as the unaccounted sales of the appellant. It was further

submitted that ld. AO has taken the issue very casually and even the goods

received by the appellant on approval were considered as sale. These slips

143 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT contain the name of karigar or party on the top and below is name of

appellant concern being ‘Royal’ or ‘M/s Royal’ or ‘Royal Jeweller’

mentioned as the party’s name. Thus, by no means these can be treated

as goods sent on approval or sale of good but these are actually slips

regarding goods received on approval. The ld. AR of the assessee drawn

our attention to the statement of Shri Manoj Kumar Khandelwal, the partner

of the appellant firm, so recorded at the residence on 31.07.2016

particularly the answer to question No. 29 (APB 71), where he was asked

about the various slips including the ‘approval slips’ seized from the

residence, wherein he has declared that the slips on which ‘Approval’ is

mentioned on the top are the slips reflecting the goods sent through

salesman for approval to the other retailer or to the customer and these

goods comes back after being seen by the retailer / customer. Whenever

goods are to the liking or to the requirement of the customer for confirmed

buying, then slip is prepared on plain or ‘rough estimate’ paper. It was

submitted by the ld. AR that surely the approval slips just reflect the goods

sent on approval and whatever goods are finally sold, these are mentioned

on plain or on ‘rough estimate’ slips on entered in books of account. Thus,

these approval slips cannot in any way reflect the sale of the appellant firm.

144 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT 10.10 We have considered the argument of the ld. AR and perused the

relevant material on record. It is clear that there are various types of slips

on which details are mentioned, which include plain slips, slips having

‘estimate’ written on the top or ‘rough estimate’ written or ‘approval’ written

on the top. It is seen that appellant has grievance against only these

‘approval slips’ to be considered as sales and as regards other types slips

are concerned, appellant has more or less not disputed. It was also noticed

by us as submitted by the ld. AR of the assessee that there are various

slips wherein material was received on approval from the karigar and these

have also been included by the ld. AO as sales, whereas on these slips

name of the karigar is clearly mentioned on top. In the statement so

recorded of the partner of the firm namely Shri Manoj Kumar Khandelwal

he has also stated the difference between the ‘approval slips’ and ‘rough

estimate slips’ and further stated to the effect that ‘approval slips’ reflects

the goods sent on approval and whenever goods are liked by the customer

or retailer and sale is confirmed, then these are mentioned on plain / rough

estimate slips. Considering these facts and in the circumstances of the

case, we are of the firm opinion that these approval slips, which include

some of the slips reflecting goods received on approval from karigars,

cannot be considered as sale effected by the appellant firm and therefore

145 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT these approval slips totaling to Rs. 18,67,67,651/- are ordered to be

reduced / excluded from the unaccounted sale. As we have already held

the GP rate of 9.06% as estimated by ld. CIT(A) to be correct and not to be

interfered with. Accordingly taking the aforesaid GP rate of 9.06%, the

appellant will get relief of Rs. 1,69,21,149/- on this issue.

10.11 Another issue referred by ld. CIT DR is that the ld. CIT(A) has

reduced the unrecorded purchases of Rs. 43.94 crore worked out by AO,

quite substantially by considering the various explanatory sheets furnished

during the course of appellant proceedings before the ld. CIT(A), without

giving any opportunity to the AO as these were basically the additional

evidence. The ld. CIT DR has also submitted that ld. CIT(A) has totally

ignored about the investment in purchase of jewellery for making

unrecorded sales and as the sales have been reduced by the ld. CIT(A)

then amount of unrecorded purchases should have been added by the ld.

CIT(A) while applying the GP rate.

10.12 We have considered the argument of the ld. CIT DR. We have

already discussed in the earlier paras that these explanatory sheets so

submitted before the ld. CIT(A) are basically emanating from the seized

146 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT documents and from the transactions taken note of by the ld. AO by way of

his show cause notice and later on by grossing up all these transactions

and making additions, which has been held to be unjustifiable. In respect of

explanatory sheets related to these unrecorded purchases the ld. CIT(A)

has discussed the issue from page 83 to page 89 of its order namely at

para 17.2 & 17.3. The ld. CIT(A) has copied the working sheet given by the

ld. AR and in first working sheet four seized pages and another working

sheet five seized pages have been placed together near one another, for

easy clarification and finding so given by ld. CIT(A). It has been mentioned

by ld. CIT(A) that after going through the details as seen from the relevant

seized documents entries in these pages are related to weight of the

various items by way of memorandum stock position taken on different

dates and ld. AO was not justified in first grossing up all the weight

including the opening balance and then multiplying it with the rate and

presuming the same to be the unaccounted purchase of the appellant firm.

Thus, these explanatory sheets cannot be treated as additional evidence,

in view of the detailed reasoning given in the earlier para of this order. After

going through the weight of different items (having gross weight and net

weight both) and quantity of item on different dates, as also seen by us

from perusal of common APB Volume 1 Part 1 pages 255, 253, 247, 229

147 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT etc., the ld. CIT(A) has rightly inferred that these are not the unaccounted

purchases but these are memorandum stock position on various dates as

mentioned on the respective loose paper itself. We also concur with the

finding of ld. CIT(A) on the basis of reasoning given by him and also

considering the fact that it is highly improbable for appellant to make

purchase of exactly same quantity of certain items on different consecutive

or almost consecutive dates. Thus, these are not unaccounted purchases

and these by total unaccounted purchases has been rightly reduced by the

ld. CIT(A) by Rs. 36,96,73,788/- as per these paras of the order. The

finding given by the ld. CIT(A) at other paras also regarding unaccounted

purchases etc. does not require any interference.

10.13 Now coming to the other argument of ld. CIT DR about investment in

unaccounted purchases not considered by ld. CIT(A) the attention of the

bench was drawn by ld. AR of the assessee that unaccounted sale receipts

are the sources for making unaccounted purchases and this being a cycle,

generally no unaccounted investment is separately required to be added.

As regards, initial investment in the year under consideration is concerned,

it was submitted by ld. AR that unaccounted income in the preceding year

148 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT so going to be sustained would be quite enough to take care of initial

investment during the year under consideration.

10.14 We have considered the argument of the ld. CIT DR and also of the

ld. AR. As it is seen that unaccounted purchases so incorrectly estimated

by the ld. AO at about Rs. 43.94 crores has been reduced by about Rs.

36.96 crore, leaving balance unaccounted purchases of about Rs. 6.98

crores. Further some sales so considered by ld. AO have been found to be

not the sales but the purchases by the ld. CIT(A) to which we have also

concurred in the present order, totaling to about Rs. 83 lacs. However, in

the appeal for A.Y. 2016-17 we have sustained the addition on alleged

parallel balance sheet amounting to about Rs. 1.50 crore, apart from some

other additions in A.Y. 2016-17 or in earlier years. Accordingly, we are of

the view that considering the addition so sustained in A.Y. 2016-17 and

earlier years there is availability of excess unaccounted income for making

initial investment in unaccounted purchases and no separate addition is

required to be made in A.Y. 2017-18 on this account. Thus, we see no

reason to interfere with the finding of ld. CIT(A) on the various issues under

consideration except the issue related to ‘approval slips’. Accordingly,

149 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT grounds of appeal so taken by the revenue are rejected. Moreover,

grounds of appeal so taken by the appellant are partly allowed as above.

Departmental Ground No. 5 to 7:

action of ld. CIT(A) in deleting the addition made by ld. AO by considering

the cash sale of Rs. 70,02,127/- made during pre-demonetization period as

unexplained cash credit u/s 68 of I.T. Act.

11.1 Brief facts pertaining to these grounds of appeal are that appellant

had deposited cash amounting to Rs. 1,16,00,000/- in its bank account with

Bank of India during the demonetization period in the form of SBN of Rs.

1,000/- and Rs. 500/-. The immediate source of cash was explained as

accumulated cash available as per the cash book maintained in the regular

course of business. However, AO noticed that accumulated cash include

cash from cash sales of Rs. 70,20,127/- made on 08.11.2016. The ld. AO

was of the view that cash sales shown in November, 2016 is exceptionally

high and accordingly presumed that these cash sales are not real sales.

The ld. AR of the assessee has furnished detailed explanation on this

issue. Crux of the explanation is that demonetization of SBN of Rs. 500/-

150 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT and 1,000/- was declared by Hon’ble Prime Minister at 8.00 PM on

08.11.2016 and it is an open fact that immediately after the announcement,

various persons having soon to be demonetized note in their possession

almost flocked to the jewelers to purchase jewellery in exchange of these notes and accordingly huge sales were made by the jewelers on the 8th

November 2016, which was obviously unprecedented. This exceptionally

high sales so made on 08.11.2016 was also reported in Economic Times

wherein the Secretary of Indian Bullion and Jewellers Association

mentioned that jewelers has sold as much as 15 tons of gold ornaments

and bars worth around Rs. 5000 crores on the intervening night of

November 8 and 9, 2016 after the announcement of demonetization. The

ld. CIT(A) has considered the various arguments including the argument of

ld. AR that sales in the month of November and December is generally high

due to marriage and festive season and sales taken for both the months

together is not exceptionally high vis-à-vis earlier two years. The relevant

part of order of ld. CIT(A) is reproduced below:

151 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT sales and the assessee has tried to introduce his own unaccounted money in the garb of cash sales and therefore made addition of aforesaid amount of Rs. 70,02,127/-. The Ld. AR has furnished detailed explanation on this issue. The crux of the explanation is that the demonetization of Rs. 500/- and 1000/- note was declared by the Hon'ble Prime Minister at 8.00 PM on 08.11.2016 and it is an open fact that immediately after the announcement, all the various persons having soon to be demonetized notes almost flocked to the jewelers to purchase the jewellery in exchange of these notes. There was an article in the Economics Times wherein the secretary of Indian Bullion and Jewellers Association mentioned that Jewellers had sold as much as 15 ton of gold ornaments and bars worth around Rs. 5000 crores on the intervening night of November 8 and 9, 2016 after the announcement of demonetization. Moreover the appellant has given chart of cash sale of November and December, considering these to be the festive months and also marriage months, for last three years and has submitted that there was no exceptional increase in the sale of these two months taken together during the year vis-à-vis earlier two years. Naturally after the spread of the news of demonetization the general public had purchased the jewellery not only for the wedding in the immediate vicinity but also for wedding and functions in late November or December and also even otherwise for future use in functions. And due to this heavy purchase in November for the purpose of utilizing the demonetized notes, the purchases in the month of December, 2016 has been very low. However, the purchase for both the months taken together is not exceptionally high and the increase is mainly due to total increase in turnover and the specific reason of demonetization. It was further submitted that sales made by the appellant was fully vouched and verified and are duly recorded in the books of accounts, which were also audited. Further the sales are duly backed by purchases and opening stock available with the appellant and after these sales the stock of the appellant was correspondingly got reduced. On being enquired by me about the stock position just before and after the date of announcement of demonetization, the Ld. AR of the appellant submitted that appellant firm had got sufficient stock as per the books of accounts as on 07.11.2016 i.e. just prior to the date of announcement of demonetization and it was around 85 Kg. (to be precise 85529.8 gm.) and even after these sales made on 08.11.2016, the stock of as much as about 83 Kg. remained with the appellant film on 09.11.2016. Ld. AR has drawn my attention to the fact that on one hand the appellant has established the authenticity of its sale so made on 08.11.2016 as mentioned above while on the other hand Ld. AO has not brought any material on record to establish that these sales are bogus. Moreover in the entire search and seizure operation conducted not only at the business premises of the group but also at the residential premises of the partners, no any evidence was found reflecting or indicating that such cash sales were bogus. On perusal of the details it has been noticed by me that though apparently cash sales made in November 2016 seems to be on higher side vis-à-vis earlier years, however it is a fact that November and December are mainly festive and marriage months and accordingly Ld. AR has given the data of sales of November and December taken together of this year as well as preceding two years. On perusal of the

152 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT same it is seen that these data of cash sales during the year of both the months taken together are comparable with the cash sales of preceding two years and does not reflect unexplainably high figure. Further it is a fact that due to announcement of demonetization of Rupees 500 and 1000 currency notes at 8.00 PM by the Hon'ble Prime Minister, the general people at large had flocked to the jewellers shop for purchase of jewellery for not only for immediate wedding in the family but also for weddings and functions in late November or December or even afterwards, against these soon to be demonetized notes. Moreover, the Ld. AR has rightly pointed out that on one hand the sales shown by the appellant are fully backed with voucher and duly recorded in the books of accounts and also in the stock register while on other hand the Ld. AO has not brought any material on record to establish that these sales are bogus. Accordingly the action of the AO in treating these sales as bogus and adding the amount relatable to these cash sales as unaccounted income is not justified and consequently the addition so made amounting to Rs. 70,02,127/- is hereby deleted. The ground 3 is allowed.

11.2 Apart from aforementioned facts, it is seen by us that ld. CIT(A) has

also enquired about the availability of the stock with appellant firm on that

day and it was found that the appellant had sufficient stock so as to make

those sales as made by the appellant on 08.11.2016. The ld. CIT(A) has

also observed that ld. AR has rightly pointed out that on one hand sales

shown by the appellant are fully backed by vouchers and are duly recorded

in the books of accounts as well as in stock register whereas on other hand

ld. AO has not brought out any material on record to rebut these evidences.

11.3 Before us the ld. CIT DR has cited the case of Shreelekha Benarjee

Vs. CIT 49 ITR 112 (SC) wherein addition was made by AO on account of

conversion of high denomination notes. We have perused the observation

153 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT of the Hon’ble Court as also mentioned by ld. CIT DR. It is seen from the

observation that before the department rejects any evidence of the

assessee, it must either show an inherent weakness in the explanation or

rebut it by putting to the assessee some information or evidence which it

has in his possession. The department cannot by merely rejecting

unreasonably a good explanation, convert good proof into no proof. In the

present case of the appellant the department has not rebutted the evidence

of sale available on record by furnishing some contrary information or

evidences. The ld. AO has presumed these sales to be bogus only

because there were exceptionally high cash sales on 08.11.2016.

However, inference of bogus sales so drawn by ld. AO only on the basis of

one peculiar fact of high sale is not justified, more so when the appellant

has properly explained the reasons of such high sale on 08.11.2016. Thus

the aforesaid decision referred by ld. CIT DR rather indirectly supports the

case of appellant. The CIT DR has cited another case of Zaveri Diamond

Vs. CIT (2012) 25 taxmann.com 552 (SC) and has stated that Hon’ble

Apex Court has dismissed the SLP and thus affirmed the finding of Hon’ble

Punjab and Haryana High Court. Attention was drawn by ld. AR that facts

of this case are quite distinguishable from the facts of appellant case. In the

afore-cited case, it is seen that AO confronted the parties who have made

154 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT sales to the firm, wherein they have admitted that no actual sale of

jewellery have been made by them to the firm. In the cited case there was

huge cash deposit of Rs. 16.28 crore in the bank account of the firm in a

short period of about a month. There was no ‘safe’ to keep the jewellery in

safe custody and the assessee was not even owning any weighing scale or

‘Dharamkanta’ which is very much required for weighing the jewellery.

However in the instant case of the appellant cash sales were to the tune of

Rs. 71.66 lakh only in the entire month of November 2016. No statement of

any person has been recorded wherein they might have admitted about not

purchasing the jewellery. We have perused the relevant record and found

the submission of the ld. AR to be correct that this cited case of Zaveri

Diamonds is quite distinguishable from the instant case of appellant. In

another case of Sudhir Kumar Sharma HUF cited by ld. CIT DR, it is seen

that assessee has shown to have received cash loans for explaining huge

cash deposit in its bank account and failed to furnish confirmation of

alleged lenders. Thus facts of the aforesaid cited case are also different as

in the case of appellant no any cash loan have been shown; and similar is

the position with other cited cases. CIT DR has referred to the case of CIT

Vs. Ajay Kapoor regarding perversity. AR has explained that facts of this

case are quite different in as much as that in this case there was admission

155 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT of the controlling person and further there were seized documents

reflecting unrecorded investment in the stock and even then appeal of the

assessee was allowed by ignoring these very vital evidences. It was

explained by ld. AR that in the instant case of appellant, there is neither

admission on the present issue of sale during pre-demonetization period

nor any seized document related to the issue was found, though obviously

because of the reason that search was conducted in the group on

28.07.2016, prior to the demonetization period.

11.4 We have considered and perused these decisions and found that

facts of these cited cases by the CIT DR are different and distinguishable

and thereby ratio of these cases are not applicable in the instant case of

the appellant. Considering the facts and in the circumstances of the case

and going through the written submissions of both sides as well as order of

ld. CIT(A), we see no reason to interfere with the order of ld. CIT(A)

deleting the addition of Rs. 70,02,127/- made by the AO. Accordingly,

grounds related to this issue taken by revenue are rejected.

Departmental Ground No. 11:

156 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT 12. In this ground of appeal, the department has challenged the action of

ld. CIT(A) in deleting the addition of Rs. 1,51,18,854/- made by ld. AO on

account of excess stock of gold and silver jewellery found during the search

and has further opposed the action of ld. CIT(A) of giving telescoping credit

of profit on unaccounted sales.

12.1 Brief facts related to this ground of appeal are that after physical

verification of the stock, excess stock of gold to the extent of 4667.901 gm.

and excess stock of silver of 32.35 kg. was alleged. It was submitted by the

ld. AR before the ld. CIT(A) that difference in stock observed by search

party was due to errors in calculating gross and net weight of the items of

jewellery wherein deduction on account of beads, threads, studded stones,

kundan, chapdi, etc. were not given. This fact was even explained by Shri

Manoj Kumar Khandelwal to the department officers during search. Further

the value of each article was to be determined based on different purity of

gold i.e. 22 Ct., 20 Ct., 18 Ct., etc. Apart from it, it was also submitted

before ld. CIT(A) that gold jewellery to the extent of 4667.901 gm. were

received from sister concern namely M/s Garg Jewellers on approval basis

and consequently shortage of jewellery was found in the business premises

of M/s Garg Jewellers, which is evident from the record of M/s Garg

157 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT Jewellers. After considering the argument of ld. AR and after perusing the

relevant record, ld. CIT(A) observed that M/s Garg Jewellers is also dealing

in gold jewellery and ornaments. Various firms of the group are handled by

main family members / partners of two families. Accordingly, explanation of

the appellant of gold jewellery and ornament belonging to sister concern

M/s Garg Jewellers being received on approval, cannot be brushed aside,

particularly considering that there is already shortage of stock in the case of

M/s Garg Jewellers. Apart from the above, ld. CIT(A) has also observed

that he has upheld the profit on unaccounted sales to certain extent, as per

his order and in absence of any evidence of other unaccounted investment

made out of such unaccounted sales, the argument of ld. AR of giving

telescoping credit of profit on unaccounted sales vis-à-vis the addition, if

any, on account of excess stock is accepted. Thus, on both the grounds

addition of Rs. 1,51,18,854/- was deleted by the ld. CIT(A).

12.2 Before us, ld. CIT DR has argued that in the statement recorded

during the course of search Shri Manoj Kumar Khandelwal has surrendered

the excess stock. Moreover, there is no evidence of stock of M/s Garg

Jewellers being received on approval in the premises of the appellant and

accordingly addition is required to be sustained. The ld. AR of the assessee

158 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT explained that during the course of search the appellant was under

pressure as search continued from 28.07.2016 to 31.07.2016 continuously

for four days. Our attention was also drawn to the statement of Shri Manoj

Kumar Khandelwal recorded on 31.07.2016 in answer to Q.No. 42 wherein

while surrendering he has stated that in order to get mental peace and to

avoid burden of complexities of the Income Tax Law, I surrender it as

undisclosed income of my firm. It was submitted by the ld. AR that from the

language of the statement so recorded, it is clear that surrender so

mentioned is not of assessee’s own volition but is coughed with the burden

of the then circumstances prevailing in such a situation. Shri Manoj

Khandelwal has also stated that weight of embedded stone, beads,

kundan, chapdi has also not been correctly and properly reduced, as the

actual rate of sale could not have been taken. Accordingly, surrender so

obtained by the search officials need to be ignored. It was further submitted

that in the business concerns of the group movement of stock of one firm to

the other firm is not unusual for which generally no written evidence is kept

as both the firms being sister concern belong to the same group.

12.3 We have considered the arguments of both sides. It is undisputed

that both the firms are dealing in gold jewellery and ornament. Moreover,

159 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT shortage of stock was noticed in the case of M/s Garg Jewellers during the

course of search and on the other hand excess stock was noticed in the

case of appellant firm. This excess stock has been claimed to be belonging

to M/s Garg Jewellers, being the sister concern, whose stock has come to

the premises of appellant firm. Movement of stock between two sister

concerns of the group is generally not un-common and many a times

evidence for the same is also not maintained as both the concerns being

sister concern, are controlled by group family members. On the basis of

these facts, we see no reason to differ with the finding of ld. CIT(A) on this

issue.

12.4 Further as regard telescoping credit is concerned, in absence of

evidence of other unaccounted investment out of unaccounted income,

being found during the course of search, the telescoping benefit so ordered

to be allowable by the ld. CIT(A) is reasoned one and does not require any

interference by us.

Departmental ground No. 12:

provision of section 115BBE on various additions so made by him. After

160 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT considering the submissions and arguments of ld. AR, the ld. CIT(A) has

decided the issue broadly in favour of appellant. 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, undisclosed cash deposits related to cash sale during pre-

demonetization period and difference in stock. Since these additions had

been made by ld. AO u/s 68, provisions of section 115BBE has been

invoked by ld. AO. The finding of the ld. CIT(A) that these additions are not

on the basis of any credit entry found in the books of accounts and

accordingly provisions of section 68 so invoked by ld. AO for making these

additions is not justified and accordingly provisions of section 115BBE so

invoked by the ld. AO is not justified.

13.1 It has been submitted by the ld. AR before the ld. CIT(A) and also

before us that provisions of section 68 are quite clear and unambiguous in

this regard.

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 ….”.

161 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT The prerequisite of making any addition u/s 68 is that the said sum should

be found credited in the books of accounts of an assessee so maintained

and the second condition is that assessee offers no explanation or

explanation is found unsatisfactory. There have been ample number of

decisions of various High Courts and also the Apex Court on this issue. It is

a settled legal position. Ld. CIT DR has cited the decision in the case of

Hazi Nazeer Hussain (Delhi Bench third member). The ld. AR submitted

that facts of the case cited by ld. CIT DR are different 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 person crediting

the ledger account. Accordingly, it was held that failure on the part of the

assessee to make credit entry in the respective account would not entitle

the assessee to claim that no account is credited. Thus ratio-decendi of

above cited case is not applicable in the instant case of appellant.

13.2 Without prejudice to above, it was also submitted by ld. AR that in

any case various additions so made by ld. AO in respect of undisclosed

cash deposits related to cash sales during pre-demonetization period and

addition of excess stock have been deleted and addition in respect of cash

sale has been substantially reduced by ld. CIT(A) and for remaining

162 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT additions appeal is pending before the Hon’ble Bench which will surely and

hopefully would be reduced to NIL and accordingly 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 and considering the legal position as submitted above, this

issue may be decided against the department and consequently in favour

of assessee.

13.3 We have considered the rival submissions on this issue and also

gone through the facts of the case. As seen above, most of the addition so

made by ld. AO u/s 68 have been held to be deleted by the ld. CIT(A) for

which we concur as discussed in detail in this order in the earlier paras.

Telescoping of other addition as provided by ld. CIT(A) has been found to

be reasonable by us also and has not been interfered with. Accordingly, we

agree with the submission of ld. AR that there is no addition remaining out

of the additions so made by ld. AO u/s 68 except of unrecorded sale and

therefore, invocation of provisions of section 115BBE does not subsists in

the facts of the present case under consideration. Moreover, considering

the facts and in the circumstances of the present case under consideration

and legal position on this issue we are of view that AO is not justified in

163 ITA Nos. 116 & 177 /JP/2020 Royal Jewellers vs. DCIT invoking section 115BBE, as the addition of unrecorded sales so made by

him are not covered within the provisions of section 68 of I.T. Act, 1961.

Accordingly, Departmental Ground of appeal on this issue is rejected.

Based on the above detailed finding recorded the appeal of the

assessee is partly allowed and that of the revenue stands 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- M/s Royal Jewellers, Jaipur izR;FkhZ@ The Respondent- DCIT, Central Circle-02, Jaipur 2. vk;dj vk;qDr@ The ld CIT 3. vk;dj vk;qDr¼vihy½@The ld CIT(A) 4. 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File (ITA Nos. 116 & 177/JP/2020) vkns'kkuqlkj@ By order,

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