Malhotra Jewellers vs Income Tax Officer.
1993 Latest Caselaw 288 Del

ORDER

J. P. BENGRA, J. M. :

This is an appeal by the assessed against an order of the CIT(A), Rohtak, pertaining to the asst. yr. 1989-90.

2. The first and second ground of the assessed relate to an addition of Rs. 1,97,768 being the value of gold jewellery found excess on physical verification at the time of survey. Second ground is related to the first one where the Revenue authorities have computed profit at Rs. 650 on sales of said jewellery outside the books of account. The assessed firm derives income from the dealing in purchase and sale of gold ornaments and other allied items. On 4th Nov., 1988, a survey under S. 133A of the IT Act, was conducted at the business premises of the assessed firm. As a result of physical verification of stock vis-a-vis books maintained by the assessed, excess stock of gold weighing 642.109 grams, later on which was corrected to 649.100 grams mentioning that there was an arithmetical mistake in calculating the difference, was found. This was shown as under :

(i) As per physical verification :

Total weight of the 23 carat gold ornaments

7 828.000 gms.

Total weight of the 22 carat gold ornaments 434.000 gms.

8,262.000 gms.

(ii) As per Account books :

Weight of the 23 carat gold ornaments

6,934.306 gms.

Weight of the 23 carat gold ornaments

223.300 gms.

7,157.606 gms.

Weight of 22 carat gold ornaments

455.294 gms.

7,612.900 gms.

At the time of survey Shri Krishan Lal, partner was present. Therefore, he was required to explain the difference in stock. He stated that he was away from the station for past several days and had returned only on that day. Therefore, he does not known about the difference in stock. However, it was mentioned that his brother Shri Shadi Lal, who normally attends to the business affairs is away to Delhi, could explain the difference, if any. The Assessing Officer again called upon the assessed to explain the difference by a letter dt. 22nd Nov., 1988. In reply to that letter, the assessed stated that one voucher dt. 3rd Nov., 1988 issued by M/s. B. K. Manufacturing Jewellers, Delhi could not be accounted for at the time of survey as the same was kept by Shri Shadi lal, partner who was on that day not available at the station and had gone to Delhi on the 4th morning because of some urgent work and had returned back on 5th Nov., 1988 at about noon time. The voucher was in his pocket and other partners were not in the knowledge of the same. Shri Shadilal bought gold ornaments weighing 641.450 gms. from M/s. B. K. Manufacturing Jewellers, Delhi on 3rd Nov., 1988 when he had gone to Delhi. He came back from Delhi at 8 P. M. and left the goods at the shop and thereafter again gone back to Delhi on 4th morning without informing about the transaction to any other partner in view of urgency of private affair. The assessed produced a photo copy of the voucher with a request that this voucher may be considered to explain the discrepancy pointed out. However, the Assessing Officer did not accept the version of the assessed on the following grounds :

"(i) It was improbable that Shri Shadilal left substantial ornaments weighing 641.450 gms. on 3rd Nov., 1988 but did not inform anyone about it and also left without any information to anyone in this regard.

(ii) During the course of survey, no separate single packet of gold ornaments was found which could establish that goods had been left by Shri Shadilal as such. All the goods were lying in show cases separately.

(iii) It was improbable that the partners did not know that Shri Shadilal had gone back to Delhi on 4th Nov., 1988 and for what purpose he had gone. This showed the evasive attitude of the appellant.

(iv) On the date of survey, i.e., 4th Nov., 1988, the excess stock found was 642.100 gms. (later on found at 649.100 gms.) Since the discrepancy of 642.100 gms. was in the knowledge of the partners on the date of survey, the appellant firm managed to arrange the alleged voucher dt. 3rd Nov., 1988 through Shri Shadilal leaving a very nominal and negligible difference of. 600 gms. Had the appellant known arithmetical mistake (referred earlier) which came to notice later on, they would have managed to arrange the voucher of almost equal weight. The voucher given by Delhi party was an accommodation entry and subsequent entries in the appellants account books were all meant to cover the stock discrepancy.

(v) The appellants explanation that gold ornaments brought from Delhi party were for approval and 530.850 gms., were subsequently returned to the said party on 13th Feb., 1989, was a vain attempt to give a genuine colour to this alleged transaction. It was not understood as to why the goods brought for approval were not returned within a few days and why it took almost three months to return the goods. The keys of the shop as well as of the strong room always remained in the possession of Shri Mulkh Raj, partner, and even Shri Mulkh Raj was unaware that Shri Shadilal had left some goods in the shop on 3rd Nov., 1988 as alleged by the appellant. During the course of survey, i.e., throughout the day, no such version was given by anyone present at the shop."

The ITO held that no goods were bought by Shri Shadilal as contended by the assessed firm. It was merely an accommodation bill which was secretly arranged by Shri Shadilal who was out of station on the date of survey in connivance with the Delhi party. He further mentioned that the assessed firm had shown receipt of 22 carat gold ornaments weighing 641.450 gms. purchase from M/s. B. K. Manufacturing Jewellers on 3rd Nov., 1988 vide Voucher No. 087 but the gold ornaments of 22 carat were not found in excess. 22 Carat ornaments were found to be weighing only 434 gms. as per physical verification. There was a shortage of 21.294 gms. of 22 carat gold ornaments which shows that sale of such gold ornaments was made outside the books of account. The stock of 23 carat of gold ornaments was found to the extent of 670.394 gms. which was not explained at all. Therefore, he concluded that this unexplained gold ornament found in excess in stock was purchased out of unexplained investment so he added the value of those ornaments at Rs. 1,97,768 as income of the assessed from unexplained investment.

3. When the matter came before the CIT(A), the assessed pointed out that the gold of 23 carat and 22 carat were picked up from the gold lying at the shop and at that time no clear distinction was made between the ornaments of 22 carat and 23 carat. This discrepancy in categorisation of jewellery was intimated to the Assessing Officer on 10th Nov., 1988. The categorisation of gold jewellery of 22 carat and 23 carat is not perfect because there were jewelleries of 23 carat when melted, it will yield 22 carat gold due to one carat alloy in it. So in the position of 22 carat gold jewellery, it yields 20 carat gold and one carat alloy. It is depicted as 23 carat jewellery but it contained 22 carat gold. For example, it was pointed out that from receipt No. 20 and 80, dt. 15th Nov., 1988 and 28th June, 1988 respectively from one Shri Sawan Mal, Karigar, it is clear that after melting of 23 carat ornaments, pure gold of 22 carat was obtained. But it is considered as 23 carat gold ornament. It was also pointed out that where the purity of 22/22 carat is mentioned for sale purposes, it is considered 23 carats. In this way, gold of 22/22 carat was taken in the inventory of 23 carat. But where the category is mentioned as 22/20, for sale purposes it is considered as 22 carat. For example receipt voucher No. 237, dt. 16th Sept., 1988 shows that the gold ornament received as 23 carats, came to 22 carats. Similar is the position of voucher Nos. 254 and 268, dt. 24th Sept., 1988. Receipt voucher Nos. 551, 626 and bill No. 607, dt. 29th Feb., 1988 and 31st March, 1989 mentioned gold of 20 carats was issued in 22 carats whereas the jewellery of 22/22 carats is considered as 23 carats. It was also explained that Shri Shadi Lal brought gold ornaments weighing 641.450 gms. from M/s. B. K. Manufacturing Jewellers while he was away to Delhi on 3rd Nov., 1988 and without informing any other partner, kept these gold ornaments at the shop and again went back to Delhi to attend urgent affair. This jewellery was purchased from M/s. B. K. Manufacturing Jewellers which is clear from copy of extract of stock register of M/s. B. K. Mfg. Jewellers where gold ornaments weighing 641.450 gms. had been debited. Along with this reply the following documents were also produced before the Assessing Officer :

(a) Issue voucher dt. 3rd Nov., 1988 issued by B. K. Mfg. Jewellers regarding gold weighing 641.450 gms. and labour bill for Rs. 3,450.

(b) Extract from stock register which is to be kept under the Gold Control Act and can be checked by the custom authorities at any time (i.e., Gold Series No. 12) where the gold weighing 641.450 gms. has been issued to the assessed-firm on 3rd Nov., 1988.

(c) Extracts from stock register (Gold Series 12) of the assesseds stock register where, the gold received from B. K. Mfg. Jewellers has been entered on 5th Nov., 1988 though the goods have been received on 3rd Nov., 1988.

(d) A/c of gold received and gold sent back from M/s. B. K. Mfg. Jewellers from time to time.

(e) Issue voucher regarding sending of gold weighing 530.850 gms.

(f) Extracts from Gold Series 12 where gold weighing 530.850 gms. was issued to M/s. B. K. Mfg. / B. K. Jewellery House.

(g) Bill regarding purchase of gold weighing 110.600 gms. from M/s. B. K. Jewellery House/B. K. Mfg. Jewellers.

(h) Copy of a/c of M/s. B. K. Mfg. Jewellers/B. K. Jewellers House from the books of the assessed firm and vice versa.

Therefore, it was submitted that there is no discrepancy in the register, so the addition is uncalled for. After considering discrepancy pointed out by the Assessing Officer and reply given by the assessed, the CIT(A) confirmed the addition made by the Assessing Officer on the ground that the explanation given by the assessed is not plausible and against the natural conduct of business that Shri Shadilal has not informed about purchase of jewellery made from M/s. B. K. Mfg. Jewellers specially when the keys of strong room are kept with Shri Mulakh Raj. It is also improbable that he has kept voucher in his pocket instead of handing over it to any other partner. Another circumstance was pointed out that even if the purchase was made by Shri Shadi Lal solely by himself without informing the other partners, he would have kept the goods in a separate packet instead of mixing with ornaments displayed in the showcase. The assessed is aggrieved.

4. The learned counsel for the assessed Shri R. Ganesan submitted that S. 69A was enacted to make certain properties as assesseds income by a deeming provision. It is a certain principle that the facts must be found to bring a case within that deeming provision. In this connection it was pointed out that the assessed had given an explanation regarding the so called discrepancy found at the time of survey as per physical verification vis-a-vis account books maintained by the assessed but in fact there is no discrepancy at all, because the assessed from the very beginning has claimed that Shri Shadi Lal attends the business affairs of the assessed. On the date of survey he was away to Delhi wherefrom he purchased gold jewellery weighing 641.450 gms. from M/s. B. K. Mfg. Jewellers, Delhi, which could not be considered at the time of survey as the voucher relating to the purchase of that jewellery was kept by Shri Shadilal, partner himself and he has not informed the other partners of the firm regarding purchase of this jewellery. On 3rd Nov., 1988, he kept the goods purchased in the shop and again went back to Delhi on the 4th morning to attend urgent private affair and came back only on 5th Nov., 1988 at about noon time. Since the voucher was kept in his pocket and due to the urgency of his private work, he could not inform the partners, therefore, at the time of survey an excess stock of jewellery was found by the survey team. However, the fact remains that this jewellery was purchased by Shri Shadi Lal from M/s. B. K. Mfg. Jewellers, Delhi, which is clear from the statement of Shri Krishan Lal recorded on 5th Nov., 1988 and the copy of voucher given by M/s. B. K. Mfg. Jewellers dt. 3rd Nov., 1988 given at page 20 of the paper book and also from the copy of account of M/s. B. K. Mfg. Jewellers given at pages 21 and 22 of the paper book where M/s. B. K. Mfg. Jewellers have shown debit of 641.450 gms. of gold ornaments to the assessed firm. Our attention was also invited to the copy of ornament account of the assessed firm where at Srl. No. 33 against 5th Nov., 1988, receipt of 641.450 gms. gold is shown to have received from M/s. B. K. Mfg. Jewellers vide receipt No. 087 dt. 3rd Nov., 1988. Regarding discrepancy of 22 and 23 carats, it was submitted that against inventory of 23 carats given at page 7, the assessed had indicated word old against name of ornament as well against mixed item of jewellery. If those ornaments are purified, the gold obtained is of 20 carats but when it is sold, it is mentioned as 23 carats jewellery. It was submitted that on melting 23 carats ornament, the purity comes to 22 carats but for sale purpose it is considered as 23 carats purity. Similarly where the purity is 22/22 carats, for the sale purpose, it is mentioned as 23 carats. In this way, the gold of 20/22 carats was taken in the inventory of 22 carats where the category of 22/23 carats purity is mentioned as 23 carats. In order to prove this, our attention was invited to the following receipt vouchers :

"Receipt voucher No. 206 dt. 15th Nov., 1988 showing that 23 carat gold returned after manufacturing its purity comes to 22 carat.

Received voucher No. 080 dt. 28th June, 1988 showing that 23 carat gold returned after manufacturing its purity comes to 22 carats.

Received 237 taking the gold 23 carats from customer Smt. Lata Jain for manufacturing of ornaments. Issue No. 254 dt. 24th Sept., 1988 returned the ornaments after manufacturing to Smt. Lata Jain in 22/22 carats.

Bill No. 268 dt. 24th Sept., 1988 in the name of Smt. Lata Jain adjusting the gold manufactured as 22/22 against 23 carat received by voucher No. 237 from Smt. Lata Jain.

Received voucher No. 551 dt. 19th March, 1988 receiving gold for manufacturing from Smt. Saroj.

Issue voucher No. 626 dt. 31st March, 1989 giving the ornaments in carat of 22/20, in the name of Smt. Saroj.

Bill No. 607 dt. 31st March, 1989 gold ornaments of 20 carat adjusted against receipt of Gold of 22 carats on 29th March, 1988.

It was also submitted that Haryana Pradesh Sarafa Association has given a certificate showing that the Association has no objection if any dealer sells 22/22 carat of gold ornament equal to the rate of 23/22 carats gold ornaments or instead of 22/22 carats gold ornaments against 23 carats gold ornaments because the melting purity is 20/22 carats and 22/23 carats (please refer pages 37 to 46 of the paper book). It was also pointed out that even in inventory, 23 carats plus copper is mentioned at page 23 which is indicative of the fact that there is no hard and fast distinction between 23 and 22 carats gold. Lastly, it was submitted that whatever way it is considered the fact remains that the excess in stock should be considered in relation to weight of total gold shown in the register and not carat wise difference. In fact when total weight is taken, there is hardly any difference in weight of gold used in ornaments. Therefore, it cannot be said that there is difference of weight. It was also submitted that the assessed had been able to explain the discrepancy of 641.450 gms. weight whereas the Department has taken it as 649.100 gms. The difference of 7.650 gms. can occur if the same ornaments are weighed on an ordinary weighing machine other than Dharamkanta. What the assessed has shown in the register is Dharamkanta weighment whereas the Department has taken weight on the basis of its own weighment. Therefore, there has to be a difference in these two weighments to the extent of 7 gms which is negligible. In terms of weight there is no difference and the discrepancy pointed out by the Department is fully explained by the documentary evidence produced by the assessed. As against this, the learned Departmental Representative Shri Rajendra Singh supported the action of the Revenue authorities and pointed out suspicious circumstances and probabilities similar to what pointed out by the ITO.

5. We have considered the rival submissions. In the present case the Revenue authorities have made addition under S. 69A of the IT Act. Sec. 69A was enacted to make certain properties as assesseds income by a deeming provision which means that in the case of deeming provision, the Court has to assume an unreal state of things to be real. Under the deeming part of S. 69A in relation to the assesseds case two conditions are to be fulfillled. Firstly, that the assessed is owner of the jewellery found not recorded in the books of account, if any maintained by the assessed for any source of income and secondly, the assessed offers either no explanation about the nature and source of acquisition or explanation offered by him was not found satisfactory in the opinion of the Assessing Officer. The present case relates to a category where the assessed had offered an explanation to the Assessing Officer but according to the Assessing Officer the explanation give by the assessed was not found satisfactory. There is no dispute about the ownership of the jewellery found at the time of survey. The Assessing Officer rejected the explanation of the assessed for the reasons given in the preceding paras. Now we have to examine whether explanation given by the assessed regarding the nature and source of acquisition of jewellery is satisfactory or not. In this case, survey was conducted under S. 133A at the business premises of the assessed on 4th Nov., 1988. The IT authorities prepared an inventory in which as per physical verification, total weight of 23 carat gold ornaments was found 7828 gms. and 22 carat gold ornaments of 434 gms. But in the books of account maintained by the assessed, the weight of 23 carat gold was mentioned as 7157.606 gms. and weight of 22 carat gold ornaments was mentioned as 455.294 gms. Therefore, the difference as per physical verification and the stock as per books was worked out to 649.100 gms. For this difference in physical verification and as per books of the assessed, the explanation of the assessed was that Shri Shadi Lal who was looking after the affairs of the firm, had gone to Delhi on 3rd Nov., 1988 wherefrom he purchased 641.450 gms. gold ornaments from a party named M/s. B. K. Mfg. Jewellers, Delhi and in the evening he came back from Delhi around 8 P. M. and left these gold ornaments purchased from Delhi party at shop without informing the purchase of ornaments to any of the partners of the firm.

On 4th morning he again went back to Delhi to attend some urgent private work. Therefore, at the time of survey, partner Shri Shadilal was not present who could explain the nature of discrepancy in the physical verification and the stock. He returned from Delhi on 5th Nov., 1988 in the afternoon. The issue voucher regarding purchase of gold from third party of Delhi was kept by Shri Shadi Lal in his pocket. Therefore, this could not be brought to the notice of survey party. This explanation of the assessed was rejected by the Revenue authorities on the basis of probabilities and improbabilities of conduct and other surrounding circumstances in the case enumerated in the order of the CIT(A) at paragraph 3.7 of his order. The CIT(A) had treated the voucher issued by M/s. B. K. Mfg. Jewellers, Delhi and other connecting documents as made up affair to accommodate the assessed. It was mentioned that the inventory prepared by the staff for 22 carat and 23 carat gold ornaments were prepared in the presence of one of the partner Shri Krishan Lal. Therefore, there is no possibility of mixing up of two types of ornaments at the time of preparation of inventories. When we have to assume an unreal state of things to be real under a deeming provision, the basis for such an assumption must exist. If the explanation given by the assessed is probable, then it cannot be discarded on the basis of circumstantial evidence and improbabilities assumed from a particular conduct of an assessed. The law enjoins the assessed to give satisfactory explanation but not to prove a fact conclusively. In the present case when the survey was conducted, only partner Shri Krishan Lal was present. He informed the survey party that he had gone out and had returned on the very day. Therefore, he did not know about the discrepancy. He had also informed the survey party that Shri Shadi Lal normally attends the business affairs of the firm and he is away to Delhi. From this statement, it is clear that Shri Krishan Lal who was present at the time of survey, was not fully aware of the transaction of purchase and sale taken place in his absence. Shri Shadi Lal was a right person to tell about the discrepancy. When Shri Shadi Lal returned on 5th noon, he explained that 641.450 gms. of gold ornaments were purchased by him from M/s. B. K. Mfg. Jewellers, Delhi and the voucher pertaining to that purchase was kept by him in his pocket. It is a case of the assessed that Shri Shadi Lal returned in the evening of 3rd Nov., 1988 but due to urgent affair he went back to Delhi keeping voucher in his pocket but the goods were kept at the shop without informing any other partner. The factual aspect of the case is purchase of gold from M/s. B. K. Mfg. Jewellers, Delhi. If this fact is established, then the explanation given by the assessed is satisfactory. If the factum of purchase of jewellery itself is doubtful then it can be said that this is all made up affair. In order to prove the purchase of gold ornaments weighing 641.450 gms. the assessed-company has produced vouchers from M/s. B. K. Mfg. Jewellers dt. 3rd Nov., 1988 and also shown labour charges of Rs. 3,450. Besides this, he had also produced extract from stock register maintained by M/s. B. K. Mfg. Jewellers which is kept under the Gold Control Act and subject to verification by the Customs authority issued to assessed on 3rd Nov., 1988. Another extract from stock register of the assessed showing receipt of 641.450 gms. gold from M/s. B. K. Mfg. Jewellers entered on 5th Nov., 1988, was also produced. Besides this transaction a co-related transaction whereby the assessed had sent back gold received from M/s. B. K. Mfg. Jewellers weighing 530.850 gms. as on 13th Feb., 1989 vide Bill No. 577 Along with extract from gold series 12 is also presented in order to show that out of 641.450 gms. gold received, the assessed returned this much of the gold to the said concern and regarding balance 110.60 gms., a bill was prepared by M/s. B. K. Mfg. Jewellers. These documentary evidences produced before the Revenue authorities is an evidence to show that on 3rd Nov., 1988, 641.450 gms. of gold was purchased by one of the partner of assessed from M/s. B. K. Mfg. Jewellers. The Revenue has rejected the explanation on the basis of assumption that in the given facts and circumstances, it is not probable that Shri Shadi Lal will not inform the purchase of gold or will keep the voucher in his pocket and also will not make a separate packet even if purchased and will go back to Delhi. These are the inferences drawn by the Revenue authorities from a particular fact. The question is whether such an inference can be drawn or not. Inference can be drawn if it is found that the gold ornaments were not purchased. For that it was the duty of the Assessing Officer to examine M/s. B. K. Mfg. Jewellers and its books of account and in case those entries were found fictitious by evidence, then only the factum of purchase of gold ornaments could have been disbelieved. In the given facts and circumstances of the case, the Revenue authorities have brought no evidence to disprove purchase of gold whereas the assessed has produced all evidences to corroborate the purchase. Therefore, the inference drawn by the Revenue authorities from the conduct and other surrounding circumstances is merely a suspicion and surmise which cannot be made basis to reject the explanation specifically where an assumption is being drawn under a deeming provision.

The Department has also made efforts to show that inventory prepared by the Department at the time of survey is sacrosanct and the discrepancy was found in the gold ornaments of 23 carats. First of all, we would like to mention here that at the time of survey Shri Krishan Lal was present who informed the survey party that he had just returned from outstation that day and do not know about the affairs of firm that has taken place during his absence and the affairs of firm are being looked after by Shri Shadi Lal. The question is whether the inventory prepared in such circumstances can be taken as sacrosanct or not. We should not forget that at the time of survey by the IT authorities, a person who is not aware about the recent development in the business cannot explain all the things at a stretch and the possibility of getting his signature on such an inventory under wrong impression cannot be ruled out. Secondly, from the look of the stock inventory prepared at pages 6 and 7 coupled with explanation given by the assessed, we are of the opinion that the Department cannot take advantage of this position. The assessed had explained after the survey on 10th Nov., 1988 that the categorisation of gold jewellery into 23 carats and 22 carats is not correct. Jewellery of 23 carats gold when melted will yield 22 carats gold due to one carat being alloy. So the position is 22 carats gold yields 20 carats gold and one carat alloy but there are certain jewelleries which are depicted as 23 carats jewellery, will yield 22 carats gold. It is clear from the receipt from Shri Sawan Mal Karigar which shows that after melting 23 carats gold ornaments, its purity comes to 22 carats but for sale purpose, it is considered as 23 carats. Similarly other examples were given by the assessed which are elaborated by the CIT(A) in his order at paragraph 3.6. This factual aspect of mixing up of jewellery of 23 carats with 22 carats is obvious if we look into the vouchers submitted by the assessed given at pages 37 to 44 of the paper book where jewellery is mentioned as 23/22 carats, sometimes 20/22 carats and sometimes 20 carats and in the gold issued to Shri Pradeep Kumar Karigar shown at page 53 of the paper book, it is mentioned at purity column as 23 carat plus copper. Besides certificates from Haryana Pradesh Sarafa Association and Gold Dealers Association, Rohtak are submitted for the purpose that gold dealers sell 22/22 carat gold equal to the rate of 23/22 carats gold ornaments or such 22/22 carats gold ornaments. This fact clearly establishes that the jewellery which is categorised as 23 carats gold may be of 22 carats whereas at the time of preparing inventory this has been categorised as 23 carats gold jewellery. It is surprising that most of the jewellery has been mentioned as 23 carat jewellery at Paper Book pages 6 and 7 (Inventory) where description is given of a particular jewellery and hardly in 4-5 cases, 22 carats jewellery is mentioned. In any case in view of the evidence given by the assessed, the carat of gold ornament mentioned in the inventory becomes immaterial because we have to see whether there is difference in the weight or not.

The difference as found by Assessing Officer is of 649.100 gms. The assessed could explain the difference of 641.450 gms. There is hardly a difference of 7.650 gms. in the weight. The assessed has explained that his difference can be in the weighment done by the Department and the way the weighment is done by the assessed on Dharamkanta. In view of the fact that there may be difference in two weighments, the possibility of difference of 7.650 gms. is not of much importance. It will be pertinent to mention here that the books of account maintained by the assessed were subject to verification by Customs authority who subsequently checked the stock register of the assessed and had not found any discrepancy on that day. It is another circumstance which shows that the explanation given by the assessed is genuine. Keeping in view the totality of the facts and circumstances of the case, we are of the opinion that the explanation given by the assessed with regard to nature and source of acquisition of jewellery found at the time of survey is satisfactorily explained. We, therefore, do not find any justification to sustain addition made by the CIT(A) under S. 69A of the IT Act. We, therefore, set aside the order of the CIT() A and direct the ITO to delete the addition. With this issue another issue relating to addition of Rs. 650 as profits on sales of these ornaments is decided. When we are of the opinion that addition is uncalled for, there is no question of making extra profit from the sale of these ornaments. Therefore, these issues are decided accordingly.

6. The next grievance in assesseds appeal is that the CIT(A) erred in confirming an addition of Rs. 52,354 out of Rs. 2,04,014 as income from undisclosed sources. Related with this issue is another issue where the CIT(A) has made an addition of Rs. 50,000 as income from undisclosed sources. The facts of the case are that on 8th Dec., 1988 one Shri Neeraj Malhotra, son of Shri Shadi Lal was accosted by S. H. O. Nangloi Police at Tikri Border and on his search 50 gold chains and two gold karas weighing 720.900 gms. were found in his possession. Shri Neeraj Malhotra was also found having a cash amount of Rs. 50,000. The police registered an FIR against him and the case was pending in the Court of Metropolitan Magistrate of Tis Hazari, Delhi. The information was given to the IT Department. The assessed firm presented an application to the police authorities and to the Court stating that 50 gold chains and two gold karas weighing 720.900 gms. were being carried by assesseds salesman Shri Neeraj Malhotra, are the properties of the assessed firm and, therefore, the same be released to them. In this application assessed-firm claimed the ownership of the said jewellery and cash found at the time of arrest of Shri Neeraj Malhotra before police as well before the Metropolitan Magistrate. On the basis of this information the Assessing Officer required the assessed firm to explain the acquisition of 50 gold chains two gold karas and Rs. 50,000 cash found at the time of arrest. The assessed explained that these items were being carried by its salesman Shri Neeraj Malhotra to deliver the same to M/s. Bhola Sons Jewellers, Bank Street, Karol Bagh, New Delhi on behalf of assessed-firm. The assessed further contended that 57 gold chains were available in the stock with the assessed out of which 50 gold chains were given to Shri Neeraj Malhotra to be delivered to M/s. Bhola Sons Jewellers which is verifiable from the stock register of the assessed.

The Assessing Officer has not doubted the genuineness of these entries in the stock register. However, he observed that out of 57 chains 20 chains could not be in possession of the assessed before evening of 8th Dec., 1988 because the necessary gold was given to Shri Pradeep Kumar Karigar in the morning and the chains were delivered to the assessed in the evening whereas Shri Neeraj Malhotra had been apprehended by the Police at Nangloi at about 3 P. M. It means that he had left Rohtak between 1.30 P. M. to 2 P. M. It was further observed that Shri Pradeep Kumar, Karigar firstly admitted that 20 gold chains were delivered to the assessed in the evening of 8th Dec., 1988. Later on, he resiled from his earlier statement and took a stand that he delivered the chains between 1 P. M. to 1.30 P. M. He further observed that no dealing with M/s. Bhola Sons Jewellers started during the year under consideration. In the past the said party had given the gold in advance as a matter of practice for making the ornaments and it was for the first time that the assessed had not received any gold in advance from the said party. He, therefore, disbelieved the entire explanation of the assessed regarding 50 chains and two karas being sent to M/s. Bhola Sons Jewellers on 8th Dec., 1988. Regarding possession of cash of Rs. 50,000 it was contended by the assessed that the same was given to Shri Neeraj Malhotra out of cash available with them. The Assessing Officer called for cash book of the assessed and noted that on 8th Dec., 1988 cash in hand was Rs. 67,046.17 as against payment shown at Rs. 57,320. Therefore, in the cash book balance of Rs. 9,726.17 was available. Out of the said payment S/Shri Krishan Lal and Shadi Lal were debited with Rs. 30,000 and Rs. 20,000 respectively. However, to justify the availability of Rs. 50,000 given to Shri Neeraj Malhotra, these two figures were manipulated in such a way so as to give a look of Rs. 3,000 and Rs. 2,000 respectively. He, therefore, held that Rs. 50,000 could not be given to Shri Neeraj Malhotra out of cash available with the assessed.

7. When the matter came before the CIT(A), the assessed gave following explanation in order to show that this much of gold was given to Karigar Shri Pradeep Kumar for manufacturing chains which were being sent to M/s. Bhola Sons Jewellers through Shri Neeraj Malhotra Along with Rs. 50,000 in cash :

"(i) That the copy of account clearly shows that when the gold was received from M/s. Bhola & Sons and when it was returned the gold received and sent back has duly been accounted for in Gold Series Nos. 11 & 12 which are to be kept under the Gold Control Act. When the raw gold is received, it is entered in Gold Series No. 11 and when after manufacturing, it is sent in the shape of ornaments, it is entered in Gold Series No. 12. The photostat copies of the stock register was given to the Assessing Officer. He has not doubted the genuineness of the entries made in the stock register. This is no ground that as the assessed firm sent the goods without receiving gold first it is not a genuine transaction as far as the goods sent have duly been accounted for in the stock register.

(ii) That the detailed account regarding stock of 50 chains on 8th Dec., 1988 was supplied to the Assessing Authority/Officer. According to the chart supplied to the Assessing Officer, 57 chains were available with the assessed-firm on 8th Dec., 1988. According to the Assessing Officer, as Shri Pradeep Kumar received gold weighing 224.750 gms. in the morning of 8th Dec., 1988, he cannot supply the manufactured goods on the same date as previously it was never done in this way.

That the statement of Shri Pradeep Kumar was recorded by the Assessing Officer. The photo copy of the same is being filed. In his statement at page 5, Shri Pradeep Kumar stated that within one hour chains of gold weighing 250 gms. can be manufactured. For this manufacturing the time consumed can be approximately from 2 to 2.30 hours.

That the assessed firm has filed photo copies of issue vouchers (i.e., giving gold to karigars for manufacturing of chains) as well as receipts vouchers (i.e., receiving of goods after manufacturing supported with extracts from stock register Gold Series Nos. 11 & 12).

That the Assessing Officer has not doubted the entries of the stock registers as well as the vouchers.

That entries regarding this transaction were checked by the Customs authorities at Rohtak on 12th Dec., 1988 and they came to the conclusion that all the entries in the stock register are genuine entries. Photostat copy of the verification made by the Preventive Central Excise, Rohtak is being filed.

Under these circumstances, it is prayed that the addition amounting to Rs. 2,04,014 on this account as it is not warranted on the facts of the case may kindly be deleted.

That the Assessing Officer made an addition of Rs. 50,000 towards the income of the assessed firm on the following grounds :

(i) That before this, Shri Neeraj Kant never carried such huge amount with him.

(ii) That Shri Neeraj stated in his statement on 26th June, 1990 that this cash was given to him by Shri Krishan Lal partner for purchase of silver and silver utensils whereas in reply dt. 8th Jan., 1990, it was submitted that this cash was given for purchase of gold ornaments.

(iii) That the extracts of cash book on 8th Dec., 1988 shows that Shri Krishan Lal was debited Rs. 30,000 and Shri Shadi Lal debited Rs. 20,000. Again there is an entry in the last of Rs. 50,000 debited to Shri Neeraj Kumar Malhotra. This addition made by the Assessing Officer is merely on suspicion and without any basis for the following reasons :

(i) That the cash closing balance on

5-12-1988 is Rs. 65,364.31

6-12-1988 is Rs. 66,600.61

7-12-1988 is Rs. 61,973.43

That no fresh cash credit has been introduced on 8th Dec., 1988.

That Shri Krishan Lal partner and Shri Shadi Lal partner have not made any investment whatsoever after 8th Dec., 1988.

That the assessed firm has sufficient opening cash balance on 8th Dec., 1988 to give the same to Shri Neeraj Kant Malhotra."

The CIT(A) considering the explanation of the assessed held that 37 gold chains and 2 gold karas were available with the assessed. Therefore, it cannot represent unexplained income and investment of the assessed. However, he disbelieved the availability of 13 gold chains. Therefore, he restricted the addition to the value of 13 gold chains and deleted the rest of the addition. He also confirmed the addition of Rs. 50,000 as income from undisclosed sources. The assessed is aggrieved.

8. The learned counsel for the assessed submitted that the chains weighing 720 gms. were seized by the S. H. O. Police Station Nangloi when these chains Along with cash amounting to Rs. 50,000 being carried by Shri Neeraj Malhotra from Rohtak to M/s. Bhola Sons Jewellers, Bank Street, Karol Bagh, New Delhi on behalf of the assessed firm. The assessed got released the gold weighing 720 gms. and the cash found at the time of arrest by the S. H. O. Nangloi from the Metropolitan Magistrate, Tis Hazari, Delhi, after verification of records and the statement recorded by the police. It was also pointed out that the case has been withdrawn by the police. This is a prima facie evidence to show that there is nothing hanky panky which may give rise to suspicion that the assessed was surreptitiously bringing gold and cash to Delhi. At the first opportunity itself the assessed claimed that the gold chains as well as cash recovered from Neeraj Malhotra, employee belonged to him and after verification the police as well as the Court found truth in the submission of the assessed. Therefore, after being satisfied the Court has released these articles and the amount. In this connection, our attention was invited to the statement of Shri Pradeep Kumar, Karigar and the certificate given by M/s. Bhola Sons Jewellers at page 49. It was submitted that in the past also the assessed had been converting the gold of M/s. Bhola Sons Jewellers into chains and delivering the same to it which is recorded in the books of account. Our attention was also invited to the gold issued to Shri Pradeep Kumar at page 53 where a narration of gold issued to various karigars is given. It was pointed out that the Department had disbelieved the availability of gold for 13 chains and the cash. Regarding availability of 13 chains it was submitted that the availability of gold was disbelieved on the basis that in short period of 2 to 2.30 hours 20 chains cannot be manufactured. When this question arose whether it is possible to manufacture this much of gold chains in a short period, the Bench directed the IT authorities to give a report on the basis of practical demonstration as to how much chains can be manufactured by a process of machine in this period and whether it is possible to manufacture 20 gold chains within a span of two hours or so in order to verify the credibility of explanation given by the assessed that Shri Neeraj Malhotra was carrying the manufactured chains manufactured by assessed in short period of 2 hours. In this connection, a report was submitted by the IT authorities on 28th Jan., 1993 which reads as under :

"Sub : ITA No. 4441/89 in the case of M/s. Malhotra Jewellers - Asst. yr. 1989-90

Kindly refer to your office letter No. Sr. AR/A Bench/ITAT/92-93/2528 dt. 19th Jan., 1993 & 25th Jan., 1993 on subject cited above.

In this connection it is brought to your kind notice that as per directions an on the spot observation was made regarding time taken for the manufacturing of 20 gold chains. This observation was made at the business premises of M/s. Quick Chain Industries, Rohtak of which Shri Pradeep Kumar is a partner. This firm is constituted by following partners -

(i) Shri Pradeep Kumar S/o Shri Shadi Lal

(ii) Neeraj S/o Shri Shadi Lal

(iii) Chanderkala W/o Shri Shadi Lal

(iv) Rajinder S/o Hans Raj.

It is further stated that Shri Shadi Lal is a partner in the firm M/s. Malhotra Jewellers. Shri Pradeep Kumar manufactured 10 gold chains in my presence from 113.400 gms. gold. Shri Shadi Lal, Partner of M/s. Malhotra Jewellers was also present. The gold chains were manufactured at an automatic machine. This machine is installed at business premises of Quick Chain Industries. It took about 20 minutes for conversion of 113.400 gms. gold into gold wire. This wire was converted to gold chain 200 inches in length in about 28 minutes. This length of 200 inches was cut into 10 chains in 5 minutes. Another 10 minutes were consumed in affixing hooks to these chains. As such, in all, it took 63 minutes for manufacturing of 10 gold chains. As such, time taken for 20 gold chains manufacturing would be around 2 hours and 10 minutes. This time is for 20 inches long chains which is normal length of a gold chain.

It was gathered that this chain manufactures, simple fox-tail type chains which is a simple chain. Chain with any specific design cannot be manufactured on this machine.

The time noted above is in respect of chains manufactured at machine. It is further gathered that order of manufacturing of chains on 8th Dec., 1988 was given by Malhotra Jewellers on 8th Dec., 1988 itself as per Gold Register of Quick Chain Inds. On that date, one order of New Light Jewellers was pending since 11th Nov., 1988 to whom chains were delivered on 8th Dec., 1988.

The above time is for simple chain. The nature of chains manufactured on 8th Dec., 1988 is not in my knowledge because I have not seen those chains. It is so because the said chains never came into the custody of this office.

Yours faithfully,

Sd/-

(A. K. Mehta)

ITO Ward I, Rohtak."

In the above mentioned report it is submitted that in two hours and 10 minutes, 20 chains were manufactured in the presence of the ITO Shri A. K. Mehta, and in 63 minutes 10 gold chains were manufactured by the process of machine. On the basis of this report, it was submitted that the conclusion arrived at by the Revenue authorities is based on suspicion and surmises. Therefore, addition is uncalled for. Regarding addition of Rs. 50,000 it was pointed out from the cash book that on 5th Dec., 1988 the closing balance was Rs. 65,364, on 6th Dec., 1988 it was Rs. 66,600 and on 7th Dec., it was Rs. 61,973. Therefore, on 8th Dec., 1988 Rs. 50,000 of cash was available and it was given to Shri Neeraj Malhotra and entry to this effect was made in the cash book on the same date. In order to support this, our attention was invited to the cash book Paper 64. As against this, the learned Departmental Representative supported the action of the ITO and it was pointed out that the cash book is manipulated because on 8th Dec., 1988, Rs. 30,000 is shown against Shri Krishan Lal, Rs. 20,000 against Shri Shadi Lal which are scored out and manipulated as Rs. 3,000 and Rs. 2,000 in order to cover a fictitious entry of Rs. 50,000 subsequently. Regarding manufacturing process it was submitted that it is possible to make chains in a given period but he availability of gold is not proved. Therefore, the conclusion arrived at by the ITO is right.

9. We have considered the rival submissions and have gone through the evidence given by the assessed in connection with the manufacture of chains. It is not in dispute that the assessed firm is engaged in sale and purchase of gold and silver ornaments and for that purpose, it is getting manufactured gold chains also. The case of the assessed is that on the date when Shri Neeraj Malhotra was arrested, the assessed firm manufactured 57 chains out of which 50 chains were handed over to Shri Neeraj Malhotra Along with cash of Rs. 50,000. The gold chains were carried by Shri Neeraj Malhotra to be delivered to M/s. Bhola Sons Jewellers and the cash was being carried for the purchase of silver and silver utensils. The fact of availability of gold with the assessed firm for manufacturing gold chains is proved from the certificate issued by M/s. Bhola Sons Jewellers given at page 49 and copies of account of ornaments maintained by the assessed as per Excise Rules. This fact is further corroborated by the entries made by the assessed in his register, copy of which is given at page 53 at the time of issuing gold to Karigars Pradeep Kumar and Rajendra Kumar and when the manufactured chains are received by the assessed firm, the same are entered in the register. This fact is further corroborated by the statements of S/Shri Pradeep Kumar and Rajendra Kumar coupled with the statement of Shri Neeraj Malhotra. Therefore, from the statements and the documentary evidence produced, it is amply clear that the gold chains recovered from Shri Neeraj Malhotra at the time of his arrest were handed over by the assessed firm to be delivered to M/s. Bhola Sons Jewellers. The Department strangely accepted the availability of gold of 37 chains and two gold karas on the basis of these evidences but it has not accepted the availability of gold of 13 chains owing to the reason that it is not possible to manufacture 20 chains in a short span of two hours. The report of the ITO called at the instance of the Bench clearly indicates that in a short span of two hours or 2-1/2 hours, 20 chains can be manufactured by the process of machine. Therefore, keeping in view the statement of Karigars, employee Shri Neeraj Malhotra and the other documents on record, it is clear that assessed firm has handed over 50 chains to Shri Neeraj Malhotra when he was accosted by the police on 8th Dec., 1988. There is another circumstance that the apprehending authority who accosted Shri Neeraj Malhotra did not find any hanky-panky with the gold chains and cash brought by Shri Neeraj Malhotra. Therefore, not only the articles were released but also the case was withdrawn against the assessed. Therefore, taking into consideration the totality of facts and circumstances and report of the ITO, we are of the opinion that there is no justification to disbelieve the explanation of the assessed firm regarding possession of 50 chains and two karas found at the time of arrest of Shri Neeraj Malhotra.

10. Regarding addition of Rs. 50,000 made as income from undisclosed sources, we would like to mention here that in this case the entire movement of the Department is based on suspicion and with the presumption that there is something hanky-panky in the affairs of the assessed firm. It will be pertinent to mention here that besides whatever is mentioned at the time of survey, no unaccounted money or jewellery was found at the time of survey at the business premises of the assessed. Therefore, the basis itself is not correct. Apart from this, we find that the case of the assessed is proved by the entries in the books of account which show the cash balance available with the assessed as on 5th Dec., 1988, 6th Dec., 1988 and 7th Dec., 1988 out of which the assessed had shown payment of Rs. 50,000 in cash to Shri Neeraj Malhotra on 8th Dec., 1988, the day when he was accosted. The Department has disbelieved the books of account and the entries on the basis that there is a manipulation. In our view mere scrapping of zeros, against entries of Shri Krishan Lal and Shri Shadi Lal will not necessarily given a presumption that it was made with a view to make an entry of Rs. 50,000 in the name of Shri Neeraj Malhotra. Possibility of genuine mistake cannot be ruled out. In view of the circumstances when no excess cash was found and the amount was released being that of the assessed by the Court, we are of the opinion that the explanation given by the assessed with regard to possession of Rs. 50,000 is satisfactory. We, therefore, set aside the order of the CIT(A) on this score also.

11. In view of our above discussion, the appeal is allowed.