ITO, WARD - 12(3), KOLKATA, KOLKATA vs. M/S. HARSHWARDHAN GEMS P. LTD., KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH: KOLKATA [Before Shri Mahavir Singh, JM & Shri M. Balaganesh, AM]

I.T.A No. 1070/Kol/2010 Assessment Year: 2005-06

Harshwardhan Gems Pvt. Ltd. Vs. Income-tax Officer, Wd-12(3), Kolkata (PAN: AABCH2778Q) (Appellant) (Respondent) & I.T.A No. 1337/Kol/2010 Assessment Year: 2005-06

Income-tax Officer, Wd-12(3), Kolkata Vs. Harshwardhan Gems Pvt. Ltd. (Appellant) (Respondent) Date of hearing: 23.12.2015 Date of pronouncement: 03.02.2016 For the Assessee: Shri S. M. Surana, Advocate For the Revenue: Shri P. B. Pramanik, JCIT, Sr. DR ORDER Per Shri Mahavir Singh, JM: Both these cross appeals by assessee and revenue are arising out of order of CIT(A)-XXXII, Kolkata in Appeal No. 29/CIT(A)-XXXII/08-09/Wd-12(3)/R&T/Kol dated 21.01.2010. Assessment was framed by ITO, Wd-12(3), Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2005-06 vide its order dated 31.12.2007. 2. The first issue in this appeal of revenue is against the order of CIT(A) in deleting the addition of share capital made by AO u/s. 68 of the Act. For this, revenue has raised following ground no.1: ”1. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.65,50,000/- u/s. 68, on account of increase in share capital, while the assessee has failed to establish the genuineness of the transactions.” 3. Briefly stated facts are that the assessee is a manufacturer and dealer in gold ornaments, jewelleries, diamonds, cut and polished stones. A survey u/s. 133A of the Act was conducted on the business premises of the assessee on 05.11.2004. During the course of survey, the books of account and documents were found and were impounded, inventorised and marked as HG-1 to HG-33. The AO during the course of assessment proceedings on going through the return of income noticed that the assessee has increased share capital to the extent of Rs.65.50 lacs during the year under consideration. The AO

2 ITA No. 1070 & 1337/Kol/2010 Harshwardhan Gems Pvt. Ltd., AY 2005-06 also observed that the assessee has issued shares at the face value of Rs.100/- and premium of Rs.100/- during the year. The AO required the assessee to furnish the complete details of share-holding stating names, addresses, no. of shares allotted and face value/premium thereon. The assessee filed complete details including names and addresses, PAN of shareholders, face value of shares and premium charged on shares. The relevant details are reproduced by the AO in his assessment order at page 2. The AO issued notice u/s. 133(6) of the Act to these parties and asked the assessee to produce all the shareholders. The assessee could produce only four parties out of twelve parties and statements were recorded. The assessee before the AO claimed that three shareholders are senior citizens and hence, they are not in a position to appear before him. Balance eight parties did not attend personally but filed the details of confirmation. The AO examined Sm. Anita Mukim, Reena Bucha, Dipti Singhi, Kaushik Sethia and after recording their statement the AO reached to conclusion that the creditworthiness of these shareholders is not established. Hence, he added the entire amount of Rs.65.50 lacs being share capital and premium as undisclosed cash credit u/s. 68 of the Act. Aggrieved, assessee preferred appeal before CIT(A) who deleted the addition by following the decision of Hon’ble Delhi High Court in the case of CIT Vs. Divine Leasing & Finance Ltd. 299 ITR 268, the relevant finding of CIT(A) in para 3.7, 3.8, 3.9 and 3.10 reads as under: “3.7 I .have carefully considered the reasoning of the A.O. in making the addition and the submission of the A/R in this regard. From the perusal of the assessment order it is observed that the A.O. was not satisfied about the charging of premium of Rs.100/- per share by the assessee, therefore, he had doubt about the genuineness of the share subscription and share premium money received by the assessee during the relevant year. The A.O. suspected the premium charged on the price of shares for the reason that such a premium was not justified considering the book value of the shares. 3.8 The A.O. has treated the entire amount of Rs.65,50,000/-, received by the assessee on account of share subscription and share premium, as assessee's undisclosed cash credit uls.68 of the Act. Now, it needs to be examined whether such amount is assessable and taxable under the provisions of section 68 of the Act. 3.9 Applicability of provisions of section 68 to the share subscription money received by a company has been dealt with in a catena cases by various courts including the Hon'ble Apex Court. More recently, similar issue came up for consideration in the case of CIT v. Divine Leasing & Finance Ltd. 299 ITR 268 (Delhi) before the Delhi High Court wherein the Hon'ble Court discussed the issue under consideration at length. After analyzing the judgments of various High Court and Hon'ble Supreme Court on the issue, the Hon'ble Court observed that a distillation of the precedents yields the following proposition of law in context of applicability of provisions of section 68 of the Act in case of issue of share capital. The assessee has to prima facie prove (1) the identity of the creditors/subscriber; (2) the genuineness of transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber; (4) if relevant details of the address or PAN identity of the

3 ITA No. 1070 & 1337/Kol/2010 Harshwardhan Gems Pvt. Ltd., AY 2005-06 creditors/subscriber are furnished to the Department it would constitute acceptable proof or acceptable explanation by the assessee. (5) the Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee; and (7) the Assessing Officer is duty bound to investigate the creditworthiness of the creditor/subscriber, the genuineness of the transaction and the veracity of the repudiation. The Department's SLP against the said judgment has been dismissed by the Hon'ble Supreme Court as reported in 216 CTR (SC) 195. 3.10 In the light of the proposition of law as enunciated by the Hon'ble Delhi High Court as above, in respect of the issue of examining the genuineness of subscription to the share capital of a company, vis-a-vis, section 68 of the Act, let me examine the facts of the case before me. In the present case, the facts which emanate from the assessment order and the submissions of the A/R are that: a) the assessee had submitted the copies share application and money receipts in respect of the subscribers to its share capital, and the subscribers, in response to A.O.'s notices u/s.133(6) of the Act issued to them, submitted their addresses, their P.A.No.s and their respective balance sheets confirming subscription by them to the share capital of the assessee; b) none of the subscribers denied subscribing to share capital of the assessee; c) the subscription money was received by the assessee through banking channel by way of cheques; d) four of the subscribers appeared before the AO and confirmed the transaction; e) three of the subscribers communicate their inability to appear before the AO for the reason that they are senior citizens or they were disabled because of their illness. In the light of the above facts of the case the explanation and proof furnished before the AO constitute acceptable proof and acceptable explanation as held by the Hon’ble Court in CIT v. Divine Leasing & Finance Ltd. (supra). Therefore, it is held that the AO was not justified in treating the amount of share subscription money and of share premium to be assessee’s unexplained cash credit u/s. 68 of the Act. Accordingly, the addition of Rs.65,50,000/- made by the AO is deleted.”

Aggrieved, now revenue is in second appeal before Tribunal.

Sl. No. Name & address & PAN of share holders Rs.100/- per share Rs. 100/- per face value share Premium 1 Choudhury Management P. Ltd., P-41, 250000 250000 Princep Ghat, Kolkata-72 AABCC1163G 2 Shreevar Overseas Ltd., 2, Jogendra 500000 500000 Kabiraj Road, Kol-7, AADCS5853R

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3 DAR’s Business Finance P. Ltd., 45/2, 200000 200000 Rafi Ahmed Kidwai Road, Kol-16, AAACD9635P 4 Akshat Developers Pvt. Ltd. 225C, AJC 1000000 1000000 Bose Road, Kol-20, AAECA5920C 5 Binoy Kumari Devi, 34/1W, Ballygunge 1000000 1000000 Circular Road, Kol-20, ADRPD5795R 6 Ranjeet Singh Baid, 27, Ekdalia Place, 50000 50000 Kol-19, AECPB2347B 7 Anita Mookim, 60/10, Gouri Bari Lane, 50000 50000 Kol-4, AFAPM3187K 8. Tilak Devi Dugar, Shyam Apartment, BC- 50000 50000 76, Kestopur, Samarpally, Kol ACSPD7243G 9. Anju Dugar, Shyam Apartment, BC-76, 50000 50000 Kestopur, Samarpally, Kol ADWPD0469R 10. Rina Bucha, 118/B, C.R. Avenue, Kol-48, 50000 50000 AEIPB8310C 11 Dipti Singhi162, Dakshin Dari Road, Kol- 50000 50000 48, ARBPS6174M 12 Koushika Sethia, Mahadevi Apartment, 25000 25000 Rabin Pally Bazar, Kestopur, Kol-101, ARKPS6758G

From the records we have seen that all the applicants who have subscribed the fresh share capital issued by the assessee during the relevant year under consideration are assessed to income tax and payments are made through banking channel by way of issuance of cheques. The assessee has furnished complete details of such shareholders like complete name, address, PAN, income tax details and bank particulars along with copies of acknowledgement of returns of income filed by them with the department along with Balance Sheets. In the Balance Sheets of all these shareholders, the investment made in this entity i.e. the assessee is disclosed and is depicted. The assessee has produced four shareholders on test check basis. The statement of Anita Mookin who has contributed share capital of Rs.50000 and share premium of Rs.50000 can be taken into consideration. The AO has reproduced the relevant portion of the statement recorded on behalf of smt. Anita Mookin and she admitted having given cheque in lieu of issuance of share and share premium. Vide question no. 20 the AO asked the relevant question no. 20 and assessee explained as under:

“As per your Balance sheet as on 31.03.05, your capital is Rs.465184/- out of there you have invested Rs.340000/- to the equity shares of M/s. Harshvardhan Gems Pvt. Ltd. As you have claimed not to have received any dividend from those investment and a loan of Rs.104183/- given to the same company. Justify the investment? Just I expected dividend in future so I am enable to justify the statement.”

5 ITA No. 1070 & 1337/Kol/2010 Harshwardhan Gems Pvt. Ltd., AY 2005-06 It means that she is having capital of Rs.4,65,184/- as on 31.03.2005 out of which a sum of Rs.3,40,000/- was invested to acquire equity shares of the assessee company. The AO just presumed that share applicant Anita Mookin does not have source of income but we find that the immediate source of investment is clearly reflected in the Balance Sheet of the shareholder which is very much noted by the AO during examination of the share applicant. Similar is the position in regard to other three shareholders whose statements were recorded. We find that the assessee has produced complete details in respect to these twelve shareholders out of which four were Limited Companies, eight were individuals, who were family members or relatives of the directors. We also find that the AO issued notices u/s. 133(6) of the Act to all the shareholders and all of whom filed their replies and confirmed their investment made along with all the details required by the AO. The AO could not point out any defect or any deficiency in these replies but straightway issued notices u/s. 131 of the Act and out of twelve, four persons came forward and their statements were recorded who proved that they have immediate source for investment out of their capital. All these shareholders are regularly assessed to income tax filing their income tax returns along with Balance Sheet. We find that the only premise for making this addition by the AO was that the creditworthiness of these shareholders was not proved. The CIT(A), on the other hand, relying on the decision of Hon’ble Delhi High Court in the case of Divine Leasing & Finance Ltd., supra has deleted the addition .

“11. Before applying the law to the facts of the present case, we should reflect on the manner in which the Division Bench dealt with the factual matrix in Dolphin Canpack. It observed that where a credit entry relates to the issue of share capital, the ITO is also entitled to examine whether the alleged shareholders do in fact exist or not. Such an inquiry was conducted by the AO in the present case. In the course of the said inquiry, the assessed had disclosed to the AO not only the names and the particulars of the subscribers of the shares but also their bank accounts and the PAN issued by the IT Department. Super added to all this was the fact that the amount received by the company was all by way of cheques. This material was, in the opinion of the Tribunal, sufficient to discharge the onus that lay upon the assessed. This is evident from the passage extracted from the order passed by the Tribunal earlier. In the absence of any perversity in the view taken by the Tribunal or anything to establish conclusively that the finding regarding the genuineness of the subscribers and the transactions suffers from any irrationality, we see no substantial question of law arising for our consideration in this appeal to warrant interference. This

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appeal accordingly fails and is hereby dismissed. It seems clear to us that where moneys have been received in cash or even Demand Drafts, the standard of proof would be much more rigorous and stringent than where the transaction is by cheque where the date and source of the investment cannot be manipulated.

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8 ITA No. 1070 & 1337/Kol/2010 Harshwardhan Gems Pvt. Ltd., AY 2005-06

9 ITA No. 1070 & 1337/Kol/2010 Harshwardhan Gems Pvt. Ltd., AY 2005-06

10 ITA No. 1070 & 1337/Kol/2010 Harshwardhan Gems Pvt. Ltd., AY 2005-06 are of the view that CIT(A) has rightly deleted the addition and we confirm the order of CIT(A) on this issue.

“Revenue’s grounds: 2. The Ld. CIT(A) went wrong in directing the AO to assess only the profit arising out of the unaccounted transactions recorded in the impounded documents HG-4, HG-30 and HG-31. 3. The Ld. CIT(A) ought to have realized that assessing only the profit element of the unaccounted transactions would mean that the purchases of those items sold were accounted in the books which in turn would logically follow that the entire sales should be treated as the profit of the assessee. 4. That on the facts and in the circumstances of the case, the Ld. Cit(A) has erred in holding that only the profit element in the sale of the stock found short should be assessed as income. As the purchases have been debited to the profit and loss account, the unaccounted sales should be credited to the profit and loss account and not merely the profit.” “Assessee’s grounds: 1. FOR that the Ld. CIT (Appeals) erred in law as well as on facts in holding that the notings in the impounded document marked HG/9 were relating to actual business transactions of the assessee and that the income arising from such transactions was not recorded in the regular books of accounts. 2. FOR that the Ld. CIT(Appeals) erred in law as well as on facts in holding that notings recorded in HG/30 and HG/31 related to business transactions of the appellant (Para- 4.10) and that the income arising from such transactions estimated @ 13.39% was not disclosed by the appellant (Para-4.12). 3. FOR that on the facts & in the circumstances of the case the Ld. CIT(Appeals) erred in holding that the notings in the impounded documents marked as HG/9, HG/30 and HG/31 represented accomplished business transactions of the assessee and that such transactions were not recorded in the regular books of accounts. He further erred in sustaining addition in respect of the said impounded documents to the extent of 13.39% of the value of the purported transactions noted in these documents. b) Without prejudice to the foregoing ground, assuming but not admitting that on physical verification stock found was short, then also no addition could be made because the alleged excess stock as per accounts was duly taken into account in the P&L A/c for the year.” 8. Briefly stated facts relating to this issue are that the assessee is engaged in the manufacture and trading in gold ornaments, jewelleries, diamonds, cut and polished stones. A survey u/s. 133A of the Act was conducted on the business premise of the assessee on 05.11.2004. During the course of survey, books of accounts and other documents were found, impounded and invetorised and marked as HG-1 to HG-33. The

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AO after going through the diaries found and marked as HG-9, HG-30 and HG-31, which were found and impounded from the premises of the assessee during the course of survey, when confronted, the assessee claimed first of all that this belongs to Shri Uttam Ray and Chinu Ray. When these two persons were confronted they categorically denied maintaining these diaries. Shri Uttam Ray and Chinu Ray are goldsmiths taking order from various gold shop owners and making jewellery for them including the assessee. The AO has attached annexure “A” to the assessment order consisting of pages 1 to 7, which contains, according to AO, the unaccounted purchases to the tune of Rs.99,14,006/-. The AO after considering these diaries and tabulating the same valued the unaccounted purchase at Rs.99,14,006/- and made addition of the same. The AO also applied G.P. rate at 13.39% on the above unaccounted purchase and treated the same as sales and undisclosed profit to the tune of Rs.13,27,485/- was assessed. For this, the AO observed as under:

“In the course of survey operation conducted in the business premises of the assessee company on 5.11.04 amongst others the following Registers were impounded and marked as under: Sl. No. Identification Mark Description 9 HG-9 Register 30 HG-30 Red pocket diary 31 HG-31 -do- On perusal of the above registers/diaries, it is seen that they pertain to transaction of gold (18 and 22K) and diamonds. On totaling of various entries contained in the said Registers/Diaries the following quantity of gold/diamond is found (as per attached sheet vide Annexure “A” being a part of assessment order). Gold 22K 274.98 grm -do- 18K 551.19 grm Diamond 1075.50 C During the course of survey, the assessee company claimed that the diaries so found belonged to Sri Uttam Ray and Chinu Ray respectively and said parties were summoned u/s. 131 and their statement were recorded. It is stated by them that they have no knowledge of these diaries. Thus, the assessee’s earlier claim is found incorrect, the ownership of the said diaries considered to be that of the assessee. Since, both purchases and sales of items contained in these diaries is not recorded, the gross profit of the assessee i.e. 13.39% (as per TAR) is applied to the market value of gold and diamond as per value arrived above in computation of undisclosed sales. Applying the above method, the following out of books sale is determined. Item Grms. Weight Rate (Rs.) Value (Rs.) Gross Profit(Rs.) Gold 22 274/98 570 per grm 1,56,738 20,987 Gold 18 551/19 466 per grm 2,57,054 34,420 Diamond(ct) 1072/501 8858 95,00,214 12,72,078 9914,006 13,27,485

12 ITA No. 1070 & 1337/Kol/2010 Harshwardhan Gems Pvt. Ltd., AY 2005-06 Total purchase value of (Gold + Diamond)= 99.14 (GP@13.39% On 99.17 = 13,27,485) In view of the above, a sum of Rs.13,27,485/- is determined as undisclosed profit an amount of books sale and added back. Since, the assessee company cancelled the particulars of income, penalty proceedings 271(1)(c) has been initiated separately. The rate which is applied to the quantity the rate which is submitted by the assessee during the course of assessment proceedings is average rate. Hence an addition of Rs.95+2.57+1.57=99.14 (lac) is added an undisclosed purchases of the assessee company. In view of the above, a sum of Rs.99.14 lacs is determined as undisclosed purchase of the assessee and added back to the total income of the assessee. Since, penalty proceedings u/s. 271(1)(c) has been initiated separately. Since these purchases are not accounted in the books of accounts or these transactions are outside the regular books of accounts were sale this purchases as well in which it will be earning gross profit. The GP rate of the assessee company that arbitrary is 13.39%. Hence, the same that taken work out included profit which the assessee company would earn while selling this unaccounted profit 13,27,485 calculated by taking GP rate on 13.39 GP total undisclosed purchase in the computation of income and undisclosed unaccounted profit of this transactions.”

“4.10 Having held as above, that the notings recorded in the said documents HG-9, HG/30 & HG/31 relate to the business of the assessee, the question arises about the quantum of the transactions recorded therein. The A.O., in the assessment order, had determined the value of such undisclosed transactions of the assessee at Rs.99,14,006/-. However, during the appellate proceedings the A.R. of the assessee pointed out certain discrepancies in the calculations made by the A.O., therefore, the matter was remanded to the A.O. vide this office letter no. CIT(A)-XXXII/09-10/Koll17 dated 17.04.2009. In his remand report submitted vide letter no. ITO,W-12(3)/Kol/Remand Report/09-10/l25 dated 01.06.2009, the A.O. admitted that certain discrepancies had in fact crept in the calculation of unaccounted income of the assessee on the basis of the impounded material HG-9, HG/30 & HG/31while completing the assessment. As per the said remand report the quantity of unaccounted stock of diamonds, as recorded in the document HG-9, was taken in the assessment order to be at 966.661 Cts. whereas, the correct quantity of such unaccounted items has been worked out by the A.O. in the remand report as follows: Rounds Sticks Fancy Colour Stones Total 234.54 85.69 60.10 717.86 1096.19 As regards the addition made in the assessment order on the basis of the documents HG/30 & HG/31 the A.O. submitted in his remand report that in the assessment order the entire

13 ITA No. 1070 & 1337/Kol/2010 Harshwardhan Gems Pvt. Ltd., AY 2005-06 notings in the said documents HG/30 & HG/31 were taken into consideration as gold and diamonds while on verification the correct weight of different items recorded therein is as follows: HG30 HG 31 Gold (18K) 289.080 gms. 430.205 gms. Diamonds 02.15 cts. 44.43 cts. Stick (semi precious stones) 0.00 cts. 10.79 cts. Fancy 0.00 cts. 02.85cts. Colour Stone 66.00 cts. 48.99 cts. 4.11 The remand report of the A. O. was confronted to the assessee through its A.R., who vide their letter dated 17.06.2009 reiterated what he had stated in his earlier submissions. In the Rejoinder to the Remand Report the appellant-company gave calculation of the value of the revised correct quantities as intimated by the A.O. in the Remand Report. This has been worked out to Rs.6,76,562/- (HG/30 - Rs.1,47,475/- + HG/31-Rs.5,29,087/-). It was contended that even if the entire notings in these two diaries were treated as relating to the transactions of the appellant then also the total value of the gold, diamond, stones etc. noted in these diaries worked out to Rs.6,76,562/- only. If the entire quantity is treated as undisclosed transaction of the appellant then also the profit arising from such transactions @ 13.39% will work out to Rs.90,591/- only and the addition on the basis of these two diaries could not exceed the sum of Rs.90,591/- under any circumstances. 4.12 In the light of the above discussion I hold that the transactions of the items noted in HG-9, HG-30 and HG-31, details of which are given in Para 4.6 above, are not recorded in the regular books of accounts. It is pertinent to mention here that the total value of the unrecorded transactions cannot be the income of the appellant. The settled position of law as laid down by the High Court decisions - referred to in Para 4.5 (supra) is that the total value of the unrecorded transactions cannot be treated as income of the assessee; only the profit earned from such transactions can be added as income of the assessee. The A.O. has not worked out the value of the unaccounted transactions in his Remand Report. He is therefore directed to ascertain the value of the unaccounted transactions and work out the profit arising from such transactions @ 13.39% of the value (being the G.P. % shown by the assessee in regular accounts) and reduce the addition made in respect of three documents - HG-9, HG-30 and HG-31 to the extent of the profit so worked out. The addition to that extent is confirmed. 5. Grounds no.10 to 12 of the appellant are against the addition of Rs.13,27,485/- as estimated profit @ 13.39 % on the alleged undisclosed purchases. In view of my finding in the preceding paragraph-4.12 no separate addition is called for the estimated profit on the undisclosed transactions. The separate addition of Rs.13,27,485/- has already been considered by me in the said preceding paragraph. The addition of Rs.13,27,485/- is therefore deleted. These grounds are disposed as above.” Aggrieved, against recalculation of undisclosed purchases and estimation of profit rate, the revenue came in appeal against deletion of addition and assessee came in appeal against the sustenance of balance addition.

14 ITA No. 1070 & 1337/Kol/2010 Harshwardhan Gems Pvt. Ltd., AY 2005-06 has contested the addition of undisclosed purchases by reiterating that seized diaries HG- 30 and HG-31 and HG-9 belongs to these Karigars namely, Uttam Ray and Chinu Ray, who was working as craftsmen for manufacturing of jewellery of the assessee i.e. the Karigars. The assessee gave his own computation and stated that the figures taken by AO from the diaries were inaccurate and exorbitant figures were taken. The CIT(A) remanded the issue to the AO, who gave his remand report. During the course of remand proceedings, the AO issued summons u/s. 131 to Uttam Ray and Chinu Ray, who denied the diaries belonged to them but accepted that the contents of details of job work were undertaken by them and these diaries are maintained by assessee company on their behalf. We find that in the remand report dated 01.06.2009 vide No. ITO,W- 12(3)/Kol/Remand Report/09-10/25 dated 01.06.2009 has verified the correct weight of gold and diamond in HG-30 and HG-31 the total quantity is mentioned as under: “Regarding quantity of gold/diamond and other articles noted in the impounded diaries marked as HG-30 and HG-31: After going through the submissions made by the assessee company before your honour, and also further deposition recorded, as directed of S/shri Uttam Ray and Chuni Ray stated to be the Karigors and associated in the assessee company, the figures and quantity of gold/diamond and other related articles are stated hereunder. However, in the assessment order entire notings in the said diary of Sri Uttam Ray/Chuni Ray were taken into consideration as gold and diamond while the assessee company during remand proceedings stated that the entire figures as noted in the said diary should not be gold/diamond but some other articles stick/fancy/colour stone. After verification of the diaries of Sri Uttam Ray/Chuni Ray the correct weight of gold/diamond etc. are under: HG 30 HG 31 quantity Quantity Gold (18K) 289.080 gms 430.205 gms Diamond 02.15 cts 44.43 cts. Stick (semi Precisions stones) 0.00 cts 10.79 cts. Fancy 0.00 cts. 02.85 cts Colour stone 66.00 cts. 48.99 cts. During the depositions of the above two persons, they deposed that all the notings in their diaries were not related to M/s. Harshabardhan (the assessee company) but some other parties also. However, both of them could not specify and/or identity which entries belonged to Assessee Company and others.” 11. Further, in regard to HG-9 the quantity mentioned in respect to round stick, fancy, colour stone etc. was at 1098.19. In view of the above, revised correct quantity of gold, diamond and colour of semi precious stone received by these the Karigars from customers for the purpose of making jewellery and/or design is given and the total quantity received was revised by the AO during remand proceedings (as given above). Similarly, in respect to HG-9, the AO has admitted the mistake in calculating the quantity of diamond and stones and also treating other fancy coloured and semi precious

15 ITA No. 1070 & 1337/Kol/2010 Harshwardhan Gems Pvt. Ltd., AY 2005-06 stone as diamond but now he has furnished the correct quantity as per the noting in two diaries. In the revised working the AO has intimated that the diamond quantity is of 234.54 ct. only in place of 986.661 ct. worked out by him originally. The rest of the quantities relates to fancy coloured or semi precious stones which have very little value. We find that the CIT(A) after taking the working from the AO in remand proceedings as worked out the total value of revised correct quantities at Rs.6,76,562/- in respect to the diaries HG-30, HG-31 and also HG-9. The CIT(A) has also worked out the profit on the above purchases by applying the GP rate at 13.39% and estimated the net profit at Rs.90,591/- and confirmed this addition. In view of the above and facts and circumstances, we are of the view that the CIT(A) has acted on the remand report of the AO and re-worked the unaccounted purchase and treating the same restricted the addition by applying profit rate. We find no infirmity in the order of CIT(A) and hence, the same is confirmed. This issue of assessee as well as revenue is dismissed. 12. The next common issue in these cross appeals is as regards to the order of CIT(A) treating the shortage of stock found as sale and restricting the addition to the extent of profit element only. For this, revenue is in appeal vide ground no.4 as under: “4.That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that only the profit element in the sale of the stock found short should be assessed as income. As the purchases have been debited to the profit and loss account, the unaccounted sales should be credited to the profit and loss account and not merely the profit.” The assessee has also challenged the restriction of addition of profit vide ground no. 4(a) as under: “4. a) FOR that the Ld. CIT(Appeals) erred in sustaining addition of Rs.3,14.033/- in respect of the alleged short-stock found of the value of Rs.23,45,278/- during the survey on 05.11.2004. The Ld. CIT (Appeals) failed to consider the explanation of the appellant in the letters dated 17.12.2004, 15.11.2007 and 20.12.2007 in respect of defect in the inventory prepared at the time of survey. The appellant denies that there was shortness of stock as conceived by the survey team. The addition made on this score is wholly wrong and misconceived and liable to be deleted.” 13. Briefly stated facts are that during the course of survey and assessment proceedings, the AO noted that there was a short stock of gold of 447 gms. and diamond 236 cts. as declared in the books of account and, therefore, he valued 62 items at Rs.23,45,278/- as under: “Gold – 447 Gms. @ Rs.570 … Rs. 2,54,790/- Diamond – 236 Cts. @ Rs.8,858/- … Rs.20,90,485/- Rs.23,45,278/-

16 ITA No. 1070 & 1337/Kol/2010 Harshwardhan Gems Pvt. Ltd., AY 2005-06

The AO accordingly made addition treating the same as sale. Aggrieved, assessee preferred appeal before CIT(A), who restricted the addition of gross profit rate by applying the GP at 13.39% on the above sale which was found as short stock and estimated the profit at Rs.3,14,033/- and partly allowed the appeal of the assessee. Aggrieved against the action of CIT(A) both revenue as well as assessee is in appeal before us. 14. We have heard rival submissions and gone through facts and circumstances of the case. We find that there is discrepancy found in the physical stock vis-à-vis the stock in the books of account of 447 gms of gold and 236 cts of diamond. The AO presumed the shortage of stock as sales of diamond the sale price at Rs.23,45,278/-. The CIT(A) deleted the addition that no separate addition was called for when addition of unaccounted purchase and profit was being made on undisclosed purchase in the earlier issue and he retained the addition of profit only and estimated the profit at Rs.3,14,033/-. We find no infirmity in the findings of CIT(A) and hence, the same is confirmed. This issue of both the appeals is dismissed. 15. The next issue in revenue’s appeal is against the order of CIT(A) in deleting the disallowance of job charges paid to Karigars for non-deduction of TDS by invoking the provisions of section 40(a)(ia) of the Act. Before CIT(A) it was argued that none of the payments of job charges was more than Rs.20,000/- and total payment to any of the Karigars during the year was less than Rs.50,000/-, which is evident from the copies of ledger account and accordingly, the assessee is not liable to deduct TDS in term of section 194C of the Act. The CIT(A) only on this premise deleted the addition by observing as under: “After carefully considering the submission of the appellant and the facts as stated by the AO in the assessment order, the contention of the AR is found to be correct that the provisions of sec. 40(a)(ia) are not attracted to this case since each individual payment, as mentioned by the AO in the assessment order itself, is less than a sum of Rs.50,000/-, which is the threshold limit for attracting the provisions of section 194C of the Act. Therefore, the disallowance made by the AO is held to be misconceived and deserves to be deleted. Accordingly, the disallowance of a sum of Rs.2,74,000/- is deleted.” 16. We find no infirmity in the order of CIT(A) as the assessee made payment on account of job charges on a single occasion less than Rs.20,000/- and total payment during the year Rs.50,000/- in each of the Karigar’s case. In such situation, the provision of section 194C of the Act will not apply in the case of the assessee and, therefore, the

17 ITA No. 1070 & 1337/Kol/2010 Harshwardhan Gems Pvt. Ltd., AY 2005-06 disallowance made by AO by invoking the provisions of section 40(a)(ia) of the Act is without any basis. Hence, we confirm the order of CIT(A) and this issue of revenue’s appeal is dismissed. 17. In the result, both the appeals of revenue and that of assessee are dismissed. 18. Order is pronounced in the open court on 03.02.2016 Sd/- Sd/- (M. Balaganesh) (Mahavir Singh) Accountant Member Judicial Member

Dated : 3rd February, 2016 Jd. Sr. P.S

Copy of the order forwarded to:

APPELLANT – Harshwardhan Gems Pvt. Ltd. 227, A.J.C. Bose Road, 1. Kolkata-700020. Respondent – ITO, Wd-12(3), Kolkata. 2 The CIT(A), Kolkata 3. 4. CIT Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order,

Asstt. Registrar.