Delhi High Court

O.P. Jewellers vs Asstt. Cit on 31 December, 1998

Equivalent citations: (2001) 71 TTJ Del 206

ORDER

Nathu Ram, A.M.

The appeal, preferred by the assessee, is directed against the order of the assessing officer passed under section 158BC read with section 143(3) of the Income Tax Act for the block period from 1-4-1986 to 3-11-1996.

2. The facts, in brief, are that search and seizure operations were carried out on 3-11-1996, at the business premises of the assessee-firm and residential premises of the partners and during the course of search undisclosed assets, books of account, documents, etc., were found and seized. The assessing officer issued a notice under section 158BC(a) on 15-5-1997, and the same was served on 20-5-1997, requiring the assessee to file the return of undisclosed income for the block period 1-4-1986 to 3-11-1996, within 16 days of the receipt of the notice. The assessee-firm in response filed a return on 4-1-1997, disclosing the total income for the block period at Rs. 74,03,294 which included undisclosed income of Rs. 59,64,123 relating to the accounting year from 1-4-1996 to 3-11-1996, relevant to the assessment year 1997-98. The details of the income returned and assessed in the regular assessment and undisclosed income declared for each of the assessment year falling in the block period is given hereunder :

Previous year

Asst. yr.

Total income including income

Returned/Assessed income

31-3-1987

1987-88

2,62,551

31-3-1988

1988-89

4,45,830

31-3-1989

1989-90

59,879

31-3-1990

1990-91

42,864

31-3-1991

1991-92

1,78,209

31-3-1992

1992-93

3,67,286

31-3-1993

1993-94

25,448

31-3-1994

1994-95

5,011

31-3-1995

1995-96

7,005

31-3-1996

1996-97

45,090

31-3-1996

1997-98

59,64,123

74,03,294

14,39,171

2.1. The firm carried on business of manufacturing and sale of gold ornaments, silverware, etc. The assets found during the course of search were as under :

Gold ornaments

Weight (Gross) (Gms)

Weight (net) (Gms)

Value (Rs.)

26,471,060

24,944.760

95,67,790

Precious stones

4,24,840

Silverwares and Silver bars 30kg.

30kg.

1,80,000

Total value

1,01,72,630

2.2. The gold ornaments found contained certain pearls and suzni of net weight of 1,770 gms. valued at Rs. 34,000 and after adjustment thereof the net weight of gold ornaments was worked out at Rs. 23,174.760 gms. as per the books of the assessee-firm, gold ornaments as on the date of search on 3-11-1996 were found as under :

New ornaments a/c

1,933.800 gms.

Old ornaments a/c

8,297.745 gms.

Broken gold a/c

250.425 gms.

10,482.060 gms.

(10,481.970) gms.

2.3. Further gold ornaments as given to the karigars as per the books as on the date of search were found at 343.810 gms. valued at Rs. 1,41,943. Thus the total gold ornaments found at the premises and those lying with the kari gars as on the date of search weighed 23,518.570 gms. valued at Rs. 97,09,733. Out of this the gold ornaments as found disclosed in the books of account weighed 10,482.060 gms. valued at Rs. 43,27,559. Unaccounted gold ornaments were, therefore, worked out at 13,036.510 gms. valued at Rs. 53,82,174. From this precious stones shown in the books at Rs. 10,000 were deducted and value of precious stones as found during the course of search at Rs. 4,24,840 was added. There were no silverwares or silver bars disclosed in the books of account, whereas 30 Kg. silver valued at Rs. 1,80,000 were found on search. Total value of unaccounted assets consisting of gold ornaments, precious stones and silver was thus worked out at Rs. 59,77,014. Since the assessee declared undisclosed income on account of gold ornaments and silver at Rs. 59,64,123 the assessing officer made an addition therein of the balance amount of Rs. 12,891 for the assessment year 1997-98 falling in the block period.

3. The first ground raised by the assessee is against an addition of Rs. 23,08,219. The assessing officer noted that during the course of search certain loose papers listed as Annexure LP-3, LP-4 and LP-13 were found and seized. These loose papers were in fact customers order slips. When a customer places an order a slip containing details of the weight of gold, rate of gold, description of ornaments to be made, etc., is prepared. Thereon kari gars are given requisite amount of gold for making of ornaments as per specification of the customer. According to the assessing officer the total weight of gold as per these slips given to the kari gars comes to 4,662 gms. The ornaments manufactured out of such gold were neither found at the time of search nor the same were found recorded in the sales. According to the assessing officer the assessee failed to give account of such gold delivered to kari gars either at the time of search or during the course of assessment proceedings. The assessing officer, therefore, required the assessee to explain why the gold weighing 4,662 gms. valued at Rs. 23,97,219 given to the kari gars be not treated as representing unexplained investment. The assessee in reply denied having given any gold to kari gars on this count. It was contended that it is not the practice of the assessee-firm to give gold in advance to kari gars for manufacturing ornaments as ordered by the customers. Such explanation offered was not accepted by the assessing officer for the following reasons :

(i) It is the most common practice with all the jewellers to first give adequate amount of gold to the kari gars before the kari gars give them the ornaments manufactured as per the orders.

(ii) Even the assessee has himself admitted having given 343.810 gms. of gold to the kari gars for this purpose.

(iii) Even the entry number 62 of the valuation report dated 3-11-1996, prepared at the time of search, also shows ornaments weighing 1,425 gms. got manufactured against the orders.

(iv) These facts belie the assessees claim that they do not advance gold to the customers."

3.1. The assessing officer, therefore, concluded that the gold ornaments weighing 4,662 gms. lying with the kari gars were in addition to the ornaments found at the time of search at the business premises. According to the assessing officer if the ornaments corresponding to this gold had been received the same would have been found along with relevant slips as was the case with 1,425 gms. of gold ornaments got manufactured on order appearing at entry No. 62 of the valuation report. The assessing officer also noted that the disclosed gold of 343.810 gms. admitted as lying with kari gars was against the disclosed turn over of around Rs. 17 lacs per annum. However, the fact brought on record proved that the actual turn over was more than ten times the disclosed turn over. The corresponding amount of gold with the kari gars is, therefore, bound to be more in proportion to the turn over. The figure of 4,662 gms. of gold with kari gars was, therefore, considered to be reasonable. The assessing officer, therefore, concluded that said gold ornaments weighing 4,662 gms. and valued at Rs. 23,97,219 as lying with the kari gars represented the undisclosed income of the assessee-firm and the same was adopted as such. Copies of Annexures LP-3, LP-12 and LP-13 are annexed to the assessment order as Annexure "C".

3.2. The learned counsel Shri K. Sampath took us through Annexure LP-3, LP12 and LP-13 and submitted that according to the assessing officer these slips contained particulars of customers, design, rate of gold, weight of gold along with due dates of delivery. He further invited our attention to the statement of Shri Sudhir Bansal, partner of the assessee-firm, placed at pp. 10 and 11 of the departmental paper-book wherein he clarified that the assessee first receives order for an ornament from a customer and the same is noted down in the slip. Thereafter the order is placed with a viopari for manufacturing of the said item of gold. At that point of time neither gold nor money is paid to the viopari. The payment is made at the time of receipt of the ornaments. He however, admitted that some gold was given to kari gars but that was merely for minor repairs and preparation of petty items. He further pointed out that the assessing officers theory that gold had been given for making the ornaments was fallacious and untenable because if that were so there was no logic or point in indicating the rate of gold on the order slip. If the gold had indeed been given as assumed by the assessing officer, then the rate would have no significance at all and it would be wholly superfluous. But that in fact was not so. The learned counsel has further contended that these slips were of such items which had not been collected by the customers despite the lapse of due dates or were such which having been collected remained undestroyed. As to the former their analysis and estimation was not possible because while preparing the valuation report of different items found with the assessee had been aggregated and consolidated for valuation. The items having lost their identity bars any subsequent analysis through identification. As to the latter no such exercise was necessary because the profit from such items formed part of the seizure which has already been surrendered. He further submitted that giving of gold with the order to the Viopari was not a feasible commercial proposition from the point of view of the assessee as in that case the assessee would be at the mercy of the viopari at all the times which was commercially inexpedient and impracticable. The learned counsel has, therefore, pleaded that looking to the nature of business and the explanation offered there was no justification for making any addition on this count. The addition being arbitrary based on surmises and conjectures deserves to be deleted.

3.3. The learned Departmental Representative on the other hand, strongly supported the order of the assessing officer and has further submitted that the said slips as seized during the course of search give complete details of the weight of the ornaments, market rate of gold, value and the date of delivery. These papers clearly indicate that on booking of the orders from the customers the assessee-firm has given gold to that extent to the kari gars for manufacturing of ornaments as per the required specification. The said gold ornaments as per the slips were neither found recorded in the books of account nor the same were found in the business premises on the date of search. Therefore, the said ornaments being unaccounted the addition made was fully justified. He also refuted the claim of the assessee that the assessee in turn gave orders or various vioparies for manufacturing of the ornaments as per the orders of the customers book. He also drew pointed attention to the averments contained in the statement of Sudhir Bansal, partner, placed at pp. 10 & 11 of the departmental paper-book and brought out the fact of the assessees declining to reconcile the stock received from the vioparies and kari gars and also getting corroborative statement from them. The learned Departmental Representative, therefore, contended that on given facts and material available on records the assessing officer was fully justified in treating the said amount of gold as representing undisclosed income of the assessee-firm and the addition made on this count deserves to be confirmed.

3.4. We have carefully considered the facts, material evidence available on records and the rival submissions. Admittedly the said slips of papers giving details of ornaments, market rate of gold, value of gold and date of delivery were found and seized from the business premises of the assessee as per Annexure LP-3, LP-12 and LP-13 of the Panchnama. The assessing officer has tabulated the details of these slip of papers and annexed to the assessment order. We find that the assessee has admitted the booking of the orders of the customers for manufacturing of gold ornaments as per the specifications as per details given in the seized slips. We, however, find that in some of the slips the weight of ornaments and other details have not been mentioned. Date of delivery is also not mentioned against a number of entries.

3.5. The assessing officer required the assessee to explain the transaction recorded in the said seized slips in his letter dated 4-11-1997, placed at pp. 11 to 18 of the assessees paper-book and the assessee gave the explanation in its reply placed at pp. 19 to 23 of the said paper-book. It is admitted in reply that the said Annexures LP-3, LP-12 and LP-13 represented various orders placed by customers for making new ornaments which in fact was part of the stock found in search. All the said items had come for handing over to the customers as the Diwali was very near and the goods had to be given to them. The delivery dates as given on various slips had also been specified whereas other slips carried no delivery date. It was, therefore, contended that the delivery date of the said item of jewellery in most of the cases have expired and in very few cases there was very little time for its delivery. It was, therefore, claimed that all the items of jewellery ordered were available at shop on date for delivery and the same were included in the jewellery found on search.

3.6. During the course of assessment proceedings statement of Sudhir Bansal, partner, was recorded by the assessing officer on 27-10-1997 and the same is placed at pp. 10 and 12 of the departmental paper-book. In this statement he was asked about the said Annexures at LP-3, LP-12 and LP-13. Shri Bansal deposed that the slips found related to the orders booked by the customers and these contained names of the customers, catalogue number, design number, weight of the ornaments to be made and due date of delivery. He further explained in reply to another question that when a customer comes, his order is booked. Based on the order of the customer the assessee-firm further places order to a viopari for manufacturing of the required item of gold. No gold or money is given to viopari at the time of booking of such order. When viopari comes with item manufactured, payment is made to him and when the item manufactured is liked by the customer the same is sold and payment is received. He further confirmed that the orders obtained from customers as per LP-3, LP-12 and LP13 were given to the vioparies and the ornaments manufactured were not given to the customers and the same were lying at the shop at the time of search. He, however, expressed his inability to file confirmation in support thereof. He was also not in a position to have confirmation either from vioparies or kari gars as to when they handed over the items manufactured and whether the gold was given to them or not for manufacturing of ornaments as per orders booked.

3.7. We further note that as per the deposition of Sudhir Bansal the names of customers were given in the said slips but the department made no efforts to make necessary enquiries from them about the status of the orders booked such as whether they had given any old ornaments for manufacturing of new ones, whether by the date of search they had got the delivery of the ornaments ordered and payments made, etc. The department has also not ascertained the names and addresses of various kari gars from whom the gold ornaments are got manufactured by the assessee-firm and to make further enquiries from them about the manufacturing of the ornaments relating to the said slips found. It also appears that at the time of search these slips were not confronted to the assessee to seek their reaction and to make necessary spot enquiries on the date of search itself from the kari gars or vioparies to whom orders were given for manufacturing of ornaments as ordered by the customers. There is otherwise no evidence brought on record by the revenue to establish that the assessee-firm had given to the said amount of gold either to the kari gars or to vioparies on booking of the orders for manufacturing of the said items of ornaments and in the absence of any such material evidence the view taken by the assessing officer that the gold weighing 4,662 gms. belonged to the assessee-firm and was lying with the kari gars as on the date of search is based on surmises and conjectures and not on any positive evidence. Further, the explanation given by the assessee and depositions made in their behalf by Sudhir Bansal partner remained uncontroverted and disproved. Moreover, as per Annexure "C" containing details of the said slips, the due date for delivery of the ornaments to customers had elapsed before the date of search in majority of cases and in those cases the ornaments manufactured have either been given delivery to the customers on the due date or the same were received on their manufacturing either from vioparies or kari gars and the same were lying at the business premises of the assessee-firm on the date of search. Such gold ornaments relating to the orders of the customers being available at the business premises and the same having not been recorded in the books of account the department had seized them and the assessee has already offered undisclosed income on that accounting the return filed for the block period. No separate addition on this count could be made as that would amount to charging the same undisclosed to tax twice which is not permissible under the law. We further note that there are 13 cases where the date of delivery falls after the date of search and the total amount of gold ornaments relating to such orders were at 297.115 gms as per details given below :

LP-3-2

1,509

5-11-1996

LP-3-7

36,716

7-11-1996

LP-3-18

15,090

5-11-1996

LP-3-30

20,200

4-11-1996

LP-12-4

7,530

8-11-1996

LP-12-11

6,025

5-11-1996

LP-12/19

60,255

8-11-1996

LP-12/24

16,064

8-11-1996

LP-12/25

49,698

8-11-1996

LP-12/26

17,570

14-11-1996

LP-12/27

17,570

14-11-1996

LP-12/30

25,150

8-11-1996

LP-12/35

23,735

5-11-1996

3.8. We find that the assessee itself has disclosed the gold lying with the kari gars as on the date of search at 343.810 gms. This otherwise fully covers the gold ornaments due to be delivered after the date of search at 297.115 gms. and on this count also no addition could be made in the undisclosed income computed for the block period.

3.9. Looking to all the facts and circumstances discussed the undisclosed income computed by the assessing officer on this count at Rs. 23,97,219 is not justified and the same is directed to be deleted.

4. The next ground taken by the assessee is against an addition of Rs. 4,78,389 on account of valuation of stock. The assessing officer noted that the valuation of gold ornaments found at the time of search was prepared by the approved valuer and that gives only the value of metal and precious stones but he has not taken into account the making charges which amounted to 5 per cent on account of labour, shortage, polishing, etc. When confronted it was explained that labour charges are included in the rate applied by the approved valuer as is borne from the facts on record. The assessing officer noted that the rate applied by the valuer for valuing the gold ornaments is Rs. 4,150 per ten grams as against the then prevalent rate of Rs. 5,150 per ten grams for standard gold. As the ornaments are claimed to be of 22 cts. purity the rate applied by the valuer gave the purity level of 80 per cent. According to the assessing officer this rate being on the lower side cannot be supposed to include making charges. The assessing officer, therefore, separately estimated the making charges @ 5 per cent of the value of the ornaments found at the time of search which worked out to Rs. 4,78,389 and the same was adopted as undisclosed income of the assessee-firm for the block period.

4.1. The learned counsel for the assessee has strongly contested the authority of the assessing officer to meddle with the expert opinion of the valuation officer. He has contended that the assessing officer was not qualified to sit in judgment over an expert opinion. According to him there are direct authorities of the Supreme Court and the jurisdictional High Court which bar any such interference. On merits the learned counsel has pointed out that the presumption of the assessing officer that the assessee-firm sold 22 cts. gold ornaments was in itself fallacious. If that was so the gross profit rate of the assessee ought to have been around 5 per cent. According to the learned counsel as per the market practice the rate as quoted is always under-rated because the making charges are always nominal and weight loss in soldering, polishing and other manufacturing operations is lucrative enough to cover up the making charges also. Moreover, the AVO has carried out the valuation according to the accepted market practice and, therefore, the value determined by him requires no further adjustments. The learned counsel has, therefore, pleaded that the addition made on account of labour charges, etc., is totally misconceived and there being no material to support the addition so made deserves to be deleted.

4.2 The learned Departmental Representative, on the other hand, has relied upon the order of the assessing officer. He has further submitted that admittedly the assessee-firm. has been getting the ornaments manufactured through Karigars and the labour charges are obviously paid to them. The DVO in his report has taken the value of the metal contents of the ornaments only and the payment made on account of the labour charges to the kari gars , etc., has to be taken into account to ascertain the correct value of the ornaments found and the assessing officer was right in doing so.

4.3. We have carefully considered the facts, material on record and the rival submissions. The inventory of gold ornaments prepared at the time of search is placed on pp. 88 to 94 of the departmental paper-book. The valuation was got made on the date of search from the approved valuer Chandra Prakash Rastogi. In the valuation report the AVO has given description of the gold ornaments, nature of the metal contents, gross and net weight and the value. There is no mention made in the report about the purity of the gold ornaments whether made of 22 cts. gold or 20 cts. gold. Normally the AVO value particular item of ornaments considering the purity of the gold contents, precious stones embodied therein, if any. We find that the AVO has separately valued the precious stones found embodied and included the same in the total valuation. Moreover, the AVO has estimated the market value of the said ornaments and while doing so the value has to be put only for gold contents and it is only the gold contents which carry market value and if offered for sale in the open market the same would not fetch any making charges apart from the value of the gold contents.

4.4. We have also perused the accounts for the assessment years 1996-97 and 1997-98 and we find that the assessee has not debited any labour charges in the trading account or profit and loss account. As is evident the assessee-firm either purchased ornaments from vioparies or got the same manufactured for kari gars . The purchases made from vioparies could not separately include the labour charges. As regards the jewellery got manufactured for kari gars there is general practice in the line that the kari gars do not separately charge for labour and whatever gold they save on account of soldering, polishing, etc., is sufficient enough to compensate them for labour and it is for this reason that no separate labour charges have been debited and claimed by the assessee-firm in its account.

4.5. Moreover, the assessing officer has worked out the labour charges @ 5 per cent of the total value of the gold ornaments but he has not given any basis for working out the labour charges thereon. No enquiry has been made from the kari gars about the labour charges they received on manufacture of ornaments from the customers nor the assessee has been questioned about the labour charges paid, if any. The addition made on this account is based only on surmises and presumption and not on any material evidence and accordingly the addition made deserves to be deleted and we do so.

5. The next ground taken by the assessee is about adopting the undisclosed income at Rs. 1.90 crores based on seized documents including Dharamkanta receipts. The assessing officer noted that Annexure LP-2/18 is a piece of paper seized from the premises of the assessee-firm during the course of search. This paper contained entries of transactions on both sides and it was found clipped with Dharamkanta weighment slips. The document contained entries on the front side as under :

Cr.

2,004.100

6,000

2,503.300

4,000

Muha

2,003.400

1,000

Raju a/c

2,527.300

(18) 15/2

1,000

Sunny

12,000

1,909.650

3,500

2,208.150

2,500

2,100

18,000

3,020.650

17/2 Pappu

2,000

20,000

1,638.401

17.2

1,000

17,814

21,000

The back side of the document also contained the following entries :

D a/c

"Gd"

C. No. 5,220.200

5.00

C. No. 5,247.900

16.2

8.50

C. No. 5,177.400

18.2

5.00

C. No. 5,561.400

18.2

9.00

10.00

Total 21,206.900 gms.

20.2

13.00

1,13,543.46

6.00

4.00

10.50

65.00

8.50

5.1 As regards the front side of the document the assessing officer noted that figures on the left hand side indicated the weight of gold purchases in grams and milligrams and figures on the right hand side indicate the unaccounted payments made on the dates mentioned against them. The assessing officer noted that payments shown appear to have been written in code words and the decimal shown therein is not to be taken into consideration. The front side of the paper suggests that against the purchase of 17814.950 gms. of gold payments of the order of Rs. 21 lacs were made in cash within three days from 15th February though only the date and month is given and not the year but the transactions are of February 1996 as is apparent from the Dharamkanta Weighment slips wherein date, month and year is given.

5.1A. As regards the back side entries, the assessing officer noted that it gives account of some person whose name starts with "D" and on top of the entries totalling to 21,206.700 "Gd" is written which is an abbreviation for gold being used quite often by the assessee-firm. Against the figure of 21,206.700 certain payments amounting to Rs. 73.50 have been made on different dates from 16th February to 18th February. The document indicates that the figure of 21,206.700 represents the weight of gold purchased in grams on few days of February, 1996 against which payment of Rs. 73.50 lacs had been made on different dates. According to the assessing officer 73.50 is coded in lacs. According to the assessing officer the detail of both sides of the document would show that the firm purchased gold weighing 17,810.950 gms. + 21,206.700 totalling to 39017.650 grams in February, 1996 against which payment amounting to Rs. 94.50 lacs (21 lacs + 73.50 lacs) were made in cash. There transactions of purchase of gold and the payments made their against were not found recorded in the books of account maintained by the assessee-firm. The assessing officer has further noted that slips of Dharamkanta found indicate that the weighment made is only in respect of gold and not of silver to establish this fact he has given necessary details of the said Dharamkanta receipts as under :

S. No.

Entry

Weight of Dharamkanta receipts

Annexure No. of Dharamkanta receipts

Date of Dharamkanta receipts

2,503.100

2,503.300

16,17

14-2-1996

2,003.400

16-2-1996

2527.300

2,527.300

13,14

16-2-1996

1,909.650

12-A

18-2-1996

2,208.150

18-2-1996

3,020.650

20-2-1996

1,638.400

1,638.450

17-A

20-2-1996

5.2. The assessing officer, therefore, held the view that the entries on front side of the document are in respect of gold only and the said gold was got weighed from Dharamkanta from 14-2-1996, to 20-2-1996 and the weighment figures given in the Dharamkanta slips tallied exactly with those found recorded on the seized document. The assessing officer required the assessee to offer explanation on the question posed as under :

(a) Why the purchase of gold weighing 39 kgs. 31 gms. 850 ml. gms. entered on both sides of paper may not be treated unaccounted purchases for the period 14-2-1996 to 20-2-1996.

(b) why the undisclosed income on unaccounted sales may not be estimates at the gross profit rate disclosed in regular account books.

(c) Why the value of gold of 39 kg. 21 gms. 850 ml. gms. be not treated undisclosed income utilised for purchase of unaccounted gold.

(d) Why conclusion may not be drawn that amount written on both sides of papers represents amounts in lakhs in coded figures.

5.3 In reply the assessee-firm explained that the so-called document is a rough paper and it contains working of stock prepared for few days because entire stock cannot be weighed at a particular time. On front side of the paper at right hand side the figure of 21,000 cannot be read as 21 lacs. On back side of the paper weight 21,206 gms. relates to weight of silver valued at Rs. 1,13,543.46 which tallies with the prevalent rate of silver and the amount 65.00 and 8.50 in nothing but amount towards weighing charges and these cannot be treated as payment of Rs. 65 lacs and 8.50 lacs. The Dharamkanta receipts are nothing but the weight receipts of stock weighted during the said period as the entire stock cannot be weighed in one day or at a particular point of time. The explanation so given was not accepted by the assessing officer for the reasons as recorded in para 11 of the assessment order and for proper appreciation the same is reproduced hereunder :

"(a) The contention of the assessee that the paper LP-18 contains entries of working of stock prepared for a few days cannot be believed because the closing stock is worked out on a particular date and not for a particular period.

The entries are in different ink i.e. in red ink for some dates and for others in black ink which also shows that these entries do not relate to stock.

The payment made against each entry of weight clearly establish that the entries on the front side of paper represents purchase of gold and do not relate to stock weighment as claimed by the assessee.

That the entries pertain to weighment of stock in proved wrong by the assessees own books of account. It is fact that the closing stock as on 31-3-1996 has been shown at 9.793 kgs. of gold and the assessees sale during the month of February and March, 1996 are of about Rs. 3.00 lacs i.e., equivalent to about 600 gms. to 700 gms. of gold ornaments. By no stretch of imagination, the stock of gold ornaments with the assessee on the relevant dates in February, 1996 (given in LP-2/18) can exceed 10.500 kgs. Now can the assessee made weigh ments of 17,814.950 gms. and 21,206.700 gms. is simply impossible to understand.

Further the closing stock is prepared at the end of the year i.e., 31st March and not in the month of February.

For taking weighment of ones own stock one need not go to an outside person i.e., Dharamkanta and expose himself and the stocks to risk. An independent weighment facility/Dharamkanta is used only when the transaction is with the outsiders, to ensure impartiality. The very fact that the gold was not weighed with the help of in house weighment facility, proves that the gold in question was not the assessees stock but is purchases made from other persons.

(b) The contention of the assessee that transaction of Rs. 21,000 cannot be read as 21 lac, is also not believable because against purchase of 17,814.950 gms. of gold payments cannot have been made in amounts of thousands because the value of 17,814.950 gms. comes to amount of Rs. 86,75,880. Further the assessee has also not stated as to what was the purpose of the entry of amount 21,000 and why it was written on the paper.

(c) The contention of the assessee that the 4 entries on the back side of LP-2/18 represents weight of stock of silver is totally without any merit for the following reasons:

(i) The assessee never had silver of 21,205 gms. at any time during the financial year 1995-96, is apparent from the figures given below :

Opening stock of silver as on 1-4-1995

1,184 gms.

Purchases during financial year 1995-96

Nil

1,184 gms.

Less : Sold during financial year 1995-96

960 gms.

224 gms.

The facts prove that the assessee was never in possession of silver weighing more than 1,184 gms. during the financial year 1995-96.

(ii) Though silver bullion, etc., weighing 30 kgs. amounting to Rs. 1,80,000 was found at the time of search, but the same is the acquisition of financial year 1996-97 as is further confirmed by the assessee himself by declaring its value in financial year 1996-97 and not in financial year 1995-96.

(iii) The assessees contention that the figures of 1,13,543,46 represents the value of 21 kgs. 206 gms. of silver is further without any basis. The rate of silver at the relevant time being Rs. 6,800 per kg. the value of silver should be around Rs. 1,44,200.

(iv) If the figures are to be treated as silver, the 8 figures mentioned against it totalling to 73.50 would lose its meaning.

(v) The assessees contention that the different figures mentioned against four weigh ments represent the weighment charges is again wrong on the ground that there are four weighment entries and the different figures representing money against them are eight in number. This proves that the entries in amount are not weighment charges in any case.

(vi) The heading of the paper D account shows that it is not stock but account of some person with initial D,

(vii) The words C No. written against entry indicate that it refers to cash memo No.

(viii) The abbreviation "Gd" written at the top of entries prove beyond any doubt that all the four weights written underneath in respect of "gold" as "Gd" stands for gold and this abbreviation is very frequently used by the assessee.

(ix) This. abbreviation "Gd" for "gold" has been used several times by the assessee in the documents at page Nos. 3,4 & 5 of Annexure LP-10. e.g, following entries have been made at p. 4 : 87,600 Gd to Motilal and 55.810 Gd to Chander.

The first entry means that 87.600 gold has been given to Shri Moti Lal, the Karigar make new ornaments. Similarly the second entry in the case 35,180 gms. of gold has been given to Chander, the Karigar to make new ornaments.

(x) The entry is in figure against the weights with dates of 16.2, 18.2, etc., indicate the payments in lakhs of rupees paid by the assessee against the purchase of gold.

(d) The contents of the assessee that amounts of 65.00 and 8.50 represent weighing charges is not acceptable because on back side of the paper only four weigh ments are mentioned while amounts written on the right hand side are eight in number which fact belie the claim of the assessee that these amounts are weighing charges. The further contention of the assessee that amounts 65.00 lacs and 6.50 lacs is not acceptable because the amounts of 65.00 and 8.50 in code language represents Rs. 65.00 lacs as payments towards cost of purchase of gold weighing 21,206 gms. of gold will come to about Rs. 1,03,27,322 which fact also prove that amount 65.00 and 8.50 represent 65 lacs and 8.50 lacs respectively.

(e) the contention that Dharamkanta receipts are nothing but the weighment slips of stock got weighed during the period of a few days as the entire stock cannot be weighed in one day of a particular period of time. This contention of the assessee is not acceptable as discussed above in sub-para 11(a) above."

5.4. The assessing officer on given facts came to the conclusion that the assessee made purchases of gold weighing 39 kg. 21 gms. and 650 ml. gms. in one week from 14-2-1996 to 20-2-1996 and their against made payments in cash of Rs. 94.50 lacs. The value of the gold at the rate prevalent during the period was worked out to Rs. 1.90 crores. Since these purchases were not found recorded in the regular books of account, the assessing officer treated the same as undisclosed income representing unexplained investment in the purchase of gold at Rs. 1.90 crores for the financial year 1995-96 relevant to the assessment year 1996-97 falling in the block period.

5.5 The learned counsel of the assessee has strongly opposed such action taken by the assessing officer and he has further submitted that the addition made was based on mere conjectures and surmises without any reasonable or proper appreciation of the seized material. He further contended about the entries relating to the front side of the document that it was the normal business practice to weigh the stock of goods at the shop periodically so as to ensure some internal control over the stock holdings. Recourse to weighment at Dharamkanta had been taken because the weighing scales the shop was small which did not have the capacity to weigh beyond 300 gms. at one time. The Dharamkanta was equipped to weigh up to 5 kg. at one time and for that purpose the goods at the shop were sent in reasonable instalments for security reasons to the Dharamkanta for weighment. The payment indicated on the front side of the paper against various dates were in rupees and parse only and were not in lacs of rupees as wrongly proposed by the assessing officer. The amounts rather did not hear any relationship with the value of the gold and as such it could not be the account of gold. No other document had been found which could corroborate the assessing officers version with regard to the money as indicated on the paper forming part of the purchase price and having been paid in instalments as held by the assessing officer. As regards the entries on back side of the paper the learned counsel submitted that the same were of silver and not of gold. 21,206 gms. of silver had been purchased. Elaborating the learned counsel further submitted that assessing officer while treating the said entries as of gold had ignored a vital entry of Rs. 1,13,543.46 on the paper. The value of silver weighing 21,206.900 gms. was at Rs. 1,13,543.46. In order to project and perpetuate his hypothesis of the said four items representing gold, the learned assessing officer had ignored totally the figure of Rs. 1,13,543.46 and construed the word "Gd" as representing gold and rejected the assessees contention that "Gd" represented goods. As to the entries on the right hand side on back of the paper the learned counsel submitted that these represented weighment and refinement charges paid on different occasions. He also pointed out that the assessing officer was inconsistent in his theory of the cash entries being in lacs. He argued that whereas the entries on the front side of the paper were generally in four figures plus 2 decimals, the ones at the back of the paper were in single figure with the double figures after the decimals. As regards the figures on the front side of the paper the assessing officer has held that the decimals are to be ignored and on so doing the four figure amounts would get converted into lacs of rupees whereas the figures appearing on back side of the said paper the assessing officer has assumed that the entries themselves in single figures with two decimal figures thereafter were in lacs. The learned counsel, therefore, contended that the entire hypothesis was totally devoid of any material or any scientific basis or substance. He further submitted that all these entries were rough jottings and they remained so as rough papers kept for scribbling. The learned counsel further made a submission that the assessing officer had attempted a double taxation on the same income. In the first place he has taken for assessment the entire amount of excess gold and silver which was found at the time of search weighing 12,456.580 gms. of gold and 30 kg. of silver respectively besides the assessee had goods in the books of account weighing 9,398.435 gms. The aggregate of these two was more than sufficient to cover up and explain the stock of goods in hand at the relevant time and it was that which was got weighed from Dharamkanta. After so doing it was not permissible for the assessing officer to return once again to the Dharamkanta slips and make that the basis of fresh addition without giving credit for what had already been added and assessed. The learned counsel has further pointed out that the assessee having surrendered 30 kg. of silver for assessment could well be held to have had 21,206.900 gms. on the relevant dates. The learned counsel submitted that there is no evidence otherwise in possession of the revenue that said assets in possession of the assessee at the relevant time represented the undisclosed income of the assessee and in support be has placed reliance on the decision of Honble Supreme Court in the case of CIT v. Vindhya Metal Corporation & Ors. (1997) 224 ITR 614 (SC).

5.6. On the principle of double taxation he placed reliance on the Tribunals decision in the case of Kantilal & Brothers v. Asstt. CIT (1995) 52 ITD 412 (Pune-Trib). In this case certain documents seized revealed borrowings and also acquisition of certain assets. It was held that the assessee apprehending that the creditors may not come forward for confirmation surrendered the amount relating to the borrowings found recorded in the seized papers. The department accepted the amount surrendered and also made additions on account of cost of assets. The Tribunal held that addition on account of acquisition of assets was not justified as the borrowings were utilised in clearing the assets following the principle that no one should be harassed twice for the same cause. As regards the decy phering of the said figures in lacs the learned counsel also placed reliance on the following decisions :

(1) Ashwani Kumar v. ITO (1992) 42 TTJ (Del-Trib) 644; and

(2) Brijlal Roopchand v. ITO (1991) 40 TTJ (Ind-Trib) 668.

5.7. While submitting that there was no basis or material in support of the decoding done by the assessing officer of the said figures, the learned counsel also placed reliance on the following decisions in support of the proposition that the addition made is based on surmises and conjectures and not on any corroborative and supporting material evidence :

(a) Asstt. CIT v. Shalesh S. Shah (1997) 63 ITD 153 (Mum-Trib);

(b) CIT v. Mahesh Chand (1992) 199 ITR 247 (All);

(d) Ashok Kumar Rastogi v. CIT 55 Taxman 433 (All);

(e) CIT v. Surjeet Singh Mahesh Kumar (1994) UPTC 233; and

(f) Vishwanath Paran v. ITO (1992) 41 ITD 6 (Cal-Trib).

5.8. The learned counsel, therefore, pleaded that the undisclosed income computed by the assessing officer at Rs. 1.90 crores is neither justified nor valid as the same in not supported by any material evidence and the same deserves to be deleted.

5.9. The learned Departmental Representative on the other hand has strongly relied upon the order of the assessing officer and advanced elaborate arguments in support thereof. The learned Departmental Representative has further submitted that the said paper was found and seized from the business premises of the assessee-firm during the course of search and as per provisions of section 132(4A) it is presumed that these documents belonged to the assessee and contents thereof are correct. He also submitted that similar presumption is also available under section 278D for tendering of evidence in support of the prosecution launched. He also referred to the decision of the Honble Allahabad High Court in the case of Pushkar Narayan Saraf v. CIT (1990) 183 ITR 386 (All) and submitted that facts in that case are distinguishable and accordingly ratio of that decision is not applicable to the facts of the present case.

5.10. Learned Departmental Representative carried us through the entries of the said paper seized and submitted that the said documents contained weight of the gold ornaments and weight given is fully supported by Dharamkanta receipts. He further pointed out that during the course of assessment proceedings the assessee had taken the plea that the said papers contain certain rough jottings, estimates, etc., and the same were left over by the customers whereas during appellate proceedings the learned counsel of the assessee has admitted existence of the gold/silver and their weighment made on Dharamkanta. The entries of gold ornaments on the front side of the document are claimed to be the weighment made of the existing stock of gold ornaments and the entries on the back side of the paper claimed to be relating to the existing stock of silver on the given dates. According to the learned Departmental Representative the stand of the assessee is not consistent and accordingly the same could not be relied upon and accepted.

5.11. The learned Departmental Representative has further submitted that the figures of amount given against the value of the gold ornaments on front side of the paper have rightly been taken in lacs looking to the amount of gold involved in each lot. As regards the back side of the paper the learned Departmental Representative has pointed out that at the top of the paper there is a mention of "D account". This refers to the account of the person whose name starts with alphabet "D". There is also a mention of "Gd" which means gold. The learned Departmental Representative further pointed out from the seized document IR-10 that the assessee therein has used the abbreviation "P" for pearl, "R" for rubi, "E" for emerald and since abbreviations used are of a particular item the "Gd" would obviously mean "gold" and not "goods" as claimed by the learned counsel of the assessee as the goods would include all items such as gold, silver, pearl, rubi, emerald and there was no necessity of separately using the abbreviation for pearl, rubi, emerald, etc. According to the learned Departmental Representative the weight given therein is of gold and this in no way means silver as claimed. He has pointed out that the weight mentioned is to the extent of milligram. Normally weight of silver is taken up to grams and not up to s. This also suggests that the weighment is given of gold and not of silver. He has further submitted that the figure given at the bottom of all entries as 13,543.46. is claimed to be value of the total weighment of 21,206.900 gms and such valuation could only be of silver and not of gold. Learned Departmental Representative pointed out that the figure given below the weighment entries in no way suggests that it is the valuation of 21,206.900, the same having not been written against the weighment entries. There is, however, entries of 73.50 against the weighment entries and the same has rightly been decoded by the learned assessing officer in lacs which conforms to the valuation of the gold of that weight. The weight and amount shown there against on both sides of the paper ,therefore, suggest and establish that the assessee made purchases of gold to the extent of 39,021.650 gms. and its purchase amount has been adopted as per market at Rs. 1.90 crores. Admittedly such transactions filed no place in the regular books of account of the assessee-firm. The assessing officer is, therefore, fully justified in treating the investment made in the purchase of gold as from undisclosed source. The learned Departmental Representative, therefore, pleaded that the action of the assessing officer is fully justified and the same deserves to be upheld.

5.12. In the rejoinder the learned counsel for the assessee Shri K. Sampath has submitted that the assessing officers hypothesis as also the defense of the Departmental Representative is erroneous and untenable inasmuch as every item forming part of Annexure LP-10 contains prefixes like "P", "R", "E", "Gd", "B", etc. According to the assessee "P" represented pearls, "R" represented rubi, "E" represented emerald "B" represented bangles and "Gd" represented goods. He also submitted that the theory that silver was not weighed up to three decimal places was not correct as would be borne out from the statement of Dharamkanta owner, available on record. The learned counsel has also pointed out to an entry "Cr" at top of the entries in the paper. This endorsement cuts out the very root of the assessing officers presumption that fresh entries were advance for purchase. Payments for purchases would be debited and not credited. He further submitted that there was no truth in the statement made by the assessing officer and the entire addition of Rs. 1.90 crore was superfluous and unwarranted.

5.13. We have carefully considered the facts, relevant material on records and the rival submissions made before us. We have also gone through the various papers placed in the paper-book both of assessee and the department to which our attention was drawn during the course of hearing. It is an undisputed fact that the said paper at Annexure LP-2/18 was found and seized from the business premises of the assessee-firm at the time of search and this fact has also not been denied by the assessee. This document is written on both sides and the entries made therein are presumed to be correct as per provisions of section 132(4A) of the Income Tax Act. Both sides of the document needs to be examined to ascertain the nature of the entries recorded therein. We in the first instance examine the entries recorded at the back side of the said paper. At the top of the paper there is written "D account". "D" appears to represent the first alphabet of name of a certain person or it could also be Dummarge account kept by the assessee-firm separately. There is, however, no explanation offered by the assessee about the nature and meaning of "D account" and in the absence of any valid explanation the account shown is presumed to be taken that of the assessee-firm within the meaning of section 132(4A) of the Income Tax Act. Further, at the top of the weighment given the abbreviation word "Gd" is mentioned. According to the assessee "Gd" refers to "goods" whereas according to the revenue "Gd" is an abbreviation of gold. We have gone through the documents seized as Annexure L-10 wherein a record is kept of various items given to kari gars , such as, 76.700 P to Uttam; 12,680 Gd to Gian and 13.900 Gd to Madan Lal; 87.600 Gd to Motilal, 27.710 R to Uttam; 21.250 E to Uttam. It is admitted by the assessee that P stands for pearl; R for rubi, E stands for emerald likewise Gd obviously stands for gold. We also note that such abbreviations have been used against certain weight given to kari gars . Pearl, rubi, emerald are given to kari gars for setting gold ornaments where as gold is given to kari gars for manufacture of ornaments therefrom. Moreover, the goods would indicate all types of items including gold ornaments, precious stones, etc., but when abbreviation such as P, R, E is used for pearl, rubi and emerald separately it is logical to infer that "Gd" is used for gold and not for goods.

5.14. Another argument taken by the revenue is that it is only the gold which is weighted to the extent of milligarm and the position being so the weighment recorded could only be of gold and not of silver. The assessee on the other hand has referred to the statements recorded of the Dharamkanta owner and claimed that weighment of silver is also to the extent of miligram. We find that the assessing officer has recorded statement of Dharamkanta owners or persons working on Dharamkanta during the course of assessment proceedings and the same are placed at pp. 5 to 9 of the paper-book filed by the assessee. Shri Ashok Kumar who was working as Accountant with the Sarafa Committee deposed that Sarafa Committee Dharamkanta is used for weighment of gold as went as silver and for that separate receipts are kept. He also averred that the weighment of gold is to the extent of miligram and as regards the weighment of silver he admitted that up to weighment of 2 kg. it is up to miligram and beyond the weighment of 2 kg. it is in grams but that is also taken upto miligram as per the demand of the customer. He, however, clarified that normally weighment of silver upto 2 kg. is written in miligram and weighment above 2 kilograms is written in grams only as per the rules of the Sarafa Committee. The assessing officer showed certain weighment receipts for the period 29-10-1997 to 4-11-1997 to Shri Ashok Kumar to indicate whether the weighment is given in miligram of silver beyond 2 kg. and in reply he stated that there is no such slip. The other persons examined were also shown Dharamkanta slips and they confirmed that said Dharamkanta weighment slips are of gold and the weighment is to the extent of miligram. It would be seen from the entries made on back side of the said paper that all the weighment are above 5 kg. and as per the Sarafa Committee rules the weighment of silver above 2 kg. is to be only in grams whereas in the present case the weighment shown is in miligram and there is no material adduced by the assessee to establish that the weighment was taken in miligram on its demand. Thus looking to the details of the weighment given it could be of gold and not of silver.

5.15. According to the assessee a vital entry made in this document is of 1,13,543.46 as given below the weighment entries. According to the learned counsel this is the value of the total weight given at 21,206.900 looking to the market rate of silver of 70 per cent purity. This amount only represent the value of silver weighing 21,206.900 gms. According to the revenue these figures given below the weighment entries are not relevant. If it represented the value it would have been recorded against the said weighment entries on right hand side and there was no point in mentioning such figure at the bottom and in corner of paper. We find that figure of 1,13,543.46 does appear at left side bottom of the paper and if it represented the value of 21,206.900 gms. it should have been written against the weighment given and not at the bottom corner of the paper. Moreover, we find that the assessee-firm was mainly engaged in the manufacture and sale of gold ornaments. Moreover, 30 kg. silver was found during the course of search and the same has been valued by the approved valuer at Rs. 1,80,000. The rate per kg. comes to Rs. 6,000. It so appears that as per the valuers report 30 kg. silver comprised of silver bars and solid silver and not of ornaments whereas if 1,13,543 is taken as valuation of Rs. 21,206.900 gms. the average rate per kg. works out to Rs. 5,350. The assessee had filed a certificate of Sarafa Committee according to which market rate of silver of 70 per cent purity as on 27-2-1996 is Rs. 5,350 per kg. Normally silver ornaments could be of 70 per cent purity but as mentioned above the assessee is not engaged in manufacturing and sale of silver ornaments and the silver found at the time of search was comprised not of silver ornaments but of silver bullion and silver wares. Silver bullion is of 100 per cent purity whereas silver wares could contain impurity not exceeding 5 per cent whereas the value as shown on behalf of the assessee is of silver of 70 per cent purity. There is no material evidence found at the time of search or further adduced during the course of assessment proceedings to show that the assessee-firm also dealt in silver ornaments of 70 per cent purity and in the absence of any such evidence the explanation offered that figure of 1,13,543.46 represented the value of 21,206.900 gms. silver cannot be accepted.

5.16. We also note that against the four weighment entries there are shown four figures as under there against.

5.00

8.30

5.00

9.00

Further under these four entries there appears the following entries :

10.00

13.00

4.00

10.50

8.50

5.17. The total of all these figures comes to 73.50. According to the assessee these figures represented weighment and refining charges where according to the revenue these represented the payment made for purchase of the said gold in coded figures. The revenue has, however, not given any basis for decoding these figures in lacs and there is no material also found or brought on record to support the view taken by the revenue of decoding these figures in lacs. The decoding made by the revenue is, therefore, based only on surmises and conjectures in the absence of any corroborative evidence. The claim of the assessee on the other hand that these represented the weighment and refining charges appears to be correct to some extent. We have perused the Dharamkanta receipts annexed to the assessment order and we find that these Dharamkanta receipts are for weighment of gold and these contain the columns for weighment in kilograms and miligram , nug, date, weighment charges and signature of the Dharamkanta owner. We find that these contain the weighment charges as per details below:

Annexure

No. of items

Weighment charges

B-2

10.50

B-3

2003.400 mg.

B-4

5.18. The weighment charges recorded in other Dharamkanta receipts is not legible, the photo copies thereof being not clear. We, however, find that the aforementioned weighment charges find place on the back side of the said paper below-.04 items. It could, therefore, be logically inferred that these entries represent the weighment charges exclusively. This shows that the said four lot of ornaments were got weighed from some Dharamkanta and weighment charges were paid but weighment slips have not been retained and accordingly not found at the time of search.

5.19. It thus becomes clear that the back side of the paper contained entries of weighment of gold ornaments to the extent of 21,206.900 gms. in four lots comprised of 5,220.200 gms. 5,247.900 gms., 5,177.400 gms. and 5,561.400 gms. on 16th & 18th February and since the Dharamkanta receipts as referred to above-mentioned the year 1996 these weigh ments were got done by the assessee on 16 & 18-2-1996. On these facts we conclude that such gold ornaments were is possession of the assessee-firm on 16th and 18-2-1996 and there being no other claim or any material to prove to the contrary the same have to be held to be belonging to the assessee-firm.

5.20. The question that now arises is whether the assessee-firm purchased these ornaments as on the said dates and made investments from undisclosed source therein and whether undisclosed income on that count is to be computed when the assessee has made a disclosure of unaccounted gold ornaments as on the date of search of the value of Rs. 59,64,123.

5.21. We note that the said ornaments were weighed on 16 & 18-2-1996 and the weighment charges are recorded their against along with certain weighment charges paid for the weighment of gold ornaments recorded on the front side of the paper as the amount recorded tallied with that shown in the Dharamkanta receipts found relating to the weighment recorded on the front side. There is, however, no material evidence brought on record to show that these ornaments were purchased by the assessee on the said dates, from whom these ornaments were purchased; how much payment was made and in what form the payment was made. There is no such details found at the time of search nor the assessing officer has been made any efforts to ascertain such details before coming to the conclusion that the said gold ornaments were purchased by the assessee-firm out of the undisclosed income. The view thus taken by the assessing officer is not based on any material evidence but on surmises and conjectures and accordingly we hold that such ornaments were not purchased by the assessee-firm on the said dates but the same were lying in its stock and these were only got weighed as the material on records suggests.

5.22. We find from the records that the assessee-firm was mainly engaged in the following activities :

(1) purchase and sale of new ornaments :

(2) purchase of old ornaments and their sale after carrying out minor repairs polishing, etc.

(3) Manufacturing of ornaments from kari gars from the old ornaments given by the customers or the gold provided by the assessee-firm as per orders of the customers.

5.23. As per the records maintained the substantial stock of ornaments available with the assessee-firm were of old ornaments as is evident from details of stock of gold ornaments found on the date of search on 3-11-1996.

New ornaments account

1,933.800 gms.

Old ornaments account

8,297.745 gms.

Broken gold a/c

250.425 gms.

5.24. We also find that as on 15-2-1986 as per books of the assessee the stock of gold ornaments was as under :

Old ornaments

Opening stock as on 1-4-1995

5,162.720

Purchase during the period 1-4-1995 to 16-2-1996

3,553.480

8,716,200

Sales from 1-4-1995 to 16-2-1996

(-) 1,972.865

Balance

6,743.335

New ornaments

Opening stock as on 1-4-1995

3307.750

Purchases from 1-4-1995 to 16-2-1996

Nil

Balance

3,307.750

Sales from 1-4-1995

903.070

Balance

2,405.680

Broken ornaments

Opening stock as on 1-4-1995

250.420

Purchases from 1-4-1995

Nil

Total

250.420

Less : Sales

Nil

Balance

250.420

Total ornaments both new and old :

9398.435

Gold ornaments surrendered for the block period

13,036.510

Total goods

22,434.945

Thus with gold ornaments, total stock of gold ornaments available was of 22,434.945 gms.

5.25. The stock weighed as per back side of the a forecited document comes to 21,206.700 gms. This is fully covered by the total gold ornaments as should be available with the assessee during the relevant period including that disclosed and offered for taxation for the block period. For gold ornaments, the weighment of which is found recorded on the back side of the said paper, in our considered view, no separate addition could justifiably be made on account of the said gold ornaments and that would amount to the double taxation and this view is supported by the decision of the Tribunal reported in Kantilal Brothers case (supra) and a number of other judgments on the subject. The addition thus made on this ground is directed to be deleted.

5.26. As regards the entries recorded on the front side of the said paper we find that these relate to the weighment of the ornaments as per Dharamkanta receipts found. In the second column, date is given and in third column amount is given against each weighment entry. We find that the date of weighment as per the Dharamkanta receipts being 16, 18 and 20-2-1996, are different from the dates recorded in column No. 2 of the paper being 15, 16 and 17-2-1996. Obviously the dates given in column No. 2 of the paper are not the dates of weighment of the gold ornaments and the same could, therefore, relate to the amount recorded against each entry in column No. 3 of the paper. We further find that at the top of column No. 3 giving amount against each weighment entry totalling to Rs. 21,000 there is a mention of "Cr" and this abbreviation is normally used for credit in the accounts. The entries thus made of amounts against the weighment entries in the paper, therefore, represent the receipt of the amount. The analysis of the three columns would, therefore, indicate that the said gold ornaments weighing 17,814.950 could have been sold on weighment and on preceding dates the assessee received the said amount totalling to Rs. 21,000 possibly as advance.

5.27. We also find that against some of the amount entries, certain names are mentioned as per details below :

15.2

4,000

Muha

15.2

1,000

Raju a/c

15.2

1,000

Sonu

17.2

2,000

Pappu

5.28. The names given of these persons in short also indicate that the said advance amounts were received through these persons. We find that the assessing officer has not made any efforts to ascertain the full names of the persons and to enquire from them about the nature of the said entries or any transactions made through them nor the assessee has offered any explanation about the names appearing of such persons against the entries of the said amounts given is column No. 3, of the paper, though the assessee is in full knowledge of the actual state of affairs. Having regard to the above discussions the only inference that could be drawn is that the said entries relate to sale of gold ornaments. There is otherwise no material brought on record by the revenue to show that these entries represent purchase of gold ornaments or the total amount given as 21,000 in fact represented Rs. 21 lacs. In the absence of any such material the hypothesis put forward by the assessing officer that the assessee purchased the said gold ornaments on such dates out of its undisclosed income is not supported by any material and not justified on facts.

5.29. We also note that in back side of the paper there are only four entries of weighment and their against the weighing charges have been given but thereunder certain weighing charges have further been recorded in respect of five items, we find that such weighing charges are in respect of some of the weigh ments recorded on the front side of the paper. This gives an indication that after the ornaments were weighed lying in possession of the assessee-firm as per back side of the paper the ornaments on the front side were weighed subsequently and these could be for sale out of those recorded on the back side of the paper. There is, therefore, sufficient indication that such sales as per entries on the front portion of the paper are not of the existing stock of gold ornaments including that recorded on the back side of the paper. Having regard to all the facts and, circumstances discussed we come to the conclusion that the various entries recorded on front side of the paper represent sale of gold ornaments. The valuer has adopted the market rate for valuing the stock found on 3-11-1996, at Rs. 4,150 per ten gms. whereas these sales are in the month of February, 1996. The market rate of these ornaments on an average rate of Rs. 4,100 per ten gms. would work out to Rs. 73,04,150 rounded to Rs. 73,04,000. These sales are in lots and apparently these are on wholesales. The assessee has disclosed a gross profit rate around 20 per cent but such gross profit rate is on retail sales and that also included the majority charge form the customers for getting new ornaments made out of old ones from kari gars . The gross profit on wholesales should reasonably be adopted at 5 per cent and at this rate the profit would work out to Rs. 3,65,200. We, therefore, sustain the addition to the extent of Rs. 3,65,200 which has not been disclosed to the department for the assessment year 1996-97 falling in the block period. The addition made of the balance amount is directed to be deleted.

6. The next ground taken by the assessee-firm. is against estimating the undisclosed sales at Rs. 2,33,81,737 and income therefrom at Rs. 43,81,662. The assessing officer noted that the capital employed and sales effected in the assessment years 1994-95 to 1996-97 were as under :

Asst. yr.

Capital employed

Sales

1994-95

29,62,017

16,53,862

1995-96

36,75,699

17,47,457

1996-97

50,86,232

17,99,413

6.1. The assessing officer observed that to make sales of Rs. 16 lacs to 18 lacs the assessee had attained capital in the range of Rs. 29 lacs to Rs. 50 lacs. The assessing officer further noted that the entire payment against the unaccounted purchases of Rs. 1.90 crore was made in cash during the period 14-2-1996 to 20-2-1996 and such payment was made out of the undisclosed income of the assessee. He, therefore, treated the amount of Rs. 1.90 crore utilised for purchase of 39.21 kg. of gold as unexplained investment for the financial year 1995-96. On that basis the assessing officer estimated that unexplained sales at Rs. 2,33,81,737 and applying thereon a gross profit rate of 18.74 per cent as disclosed in the books of account he worked out the profit at Rs. 43,81,662 which the assessee failed to disclose in the assessment year 1995-96.

6.2. We have heard the learned representatives of the assessee as well as the revenue and also considered the facts in this behalf. While considering the preceding ground we have not approved the action taken by the assessing officer in computing the undisclosed income at Rs. 1.90 crore on account of unexplained investment for purchase of 39.21 kg. of gold. We have given a finding that no purchase as such is proved to have been made by the assessee-firm during the relevant period and as such there was no question of making any sales based thereon and earning profit. We have, however, held in the preceding ground that the assessee sold gold ornaments out of its existing stock for Rs. 73,04,000 and profit earned thereon has been computed at Rs. 3,65,200 and undisclosed income to that extent has been confirmed by us. The undisclosed income computed by the assessing officer for the financial year 1995-96 at Rs. 43,81,662 based on the said unaccounted sales of Rs. 2,33,81,337 is not supported by any material evidence and the same being on presumption and surmises the undisclosed income computed deserves to be deleted and we order accordingly.

7. The next ground raised is against an addition of Rs. 38 lacs. The assessing officer noted that the payment for unaccounted purchases of Rs. 39.21 kg. of gold was made by the assessee in cash at Rs. 1.90 crore and the assessing officer invoking the provisions of section 40A(3) adopted 20 per cent thereof as income at Rs. 38 lacs for the financial year 1995-96 relevant to the assessment year 1996-97 which the assessee failed to disclose.

7.1. We have heard both the parties and considered the facts in this behalf. As discussed above we have not accepted the unaccounted purchase of 1.90 crore on cash payment being not supported by any material evidence. There being no cash payment as such proved. There is no question of making any disallowance or treating part of such cash payment as income by invoking the provisions of section 40A(3). The undisclosed income adopted at Rs. 38 lacs on this count in our view is totally misconceived and without the support of any corroborative material and the same is directed to be deleted.

8. The next ground raised is against proposing addition of Rs. 2,62,214. The assessing officer noted from seized documents at LP-1, LP-2, LP-4, LP-10 that the assessee made purchases of Rs. 1,34,031, Rs. 3,63,307 and Rs. 4,96,025 and also effected sales at Rs. 69,574, Rs. 700 and Rs. 6,276 out of the books. When confronted it was explained that the said papers seized denote rough jottings and did not relate to actual happening of any transaction. The explanation so offered was not accepted by the assessing officer observing that the said papers contained transactions of sales of ornaments giving their weight and amount. According to the assessing officer document at LP-1 is in handwriting of partner O.P. Bansal who looked after the work relating to purchase of gold ornaments and these papers contained transactions of purchase of old ornaments and it gives details of weight and value of ornaments. The said transactions are not reflected in the regular books of account. LP-10 is said to be a diary in which details of gold given to kari gars for making ornaments were noted. LP-4 is said to be containing entries of gold ornaments given to kari gars for setting precious stones. One paper gives details for sale of ornaments and the other paper noted transactions of either purchases or sales. According to the assessing officer such transactions were not found recorded in the regular books of account. Based on these papers the assessing officer as per details given in the block assessment order worked out the profit thereon at Rs. 2,62,214 and the same was treated as undisclosed income for the assessment year 1997-98. The assessing officer has, however, not made any separate addition on this count and the same was treated as covered in the income disclosed on account of excess gold ornaments found at the time of search. Since no separate undisclosed income has been computed for taxation the assessee-firm. should not have any grievance there against and the ground raised is only academic in nature requiring no separate discussion and finding.

9. The other grounds raised are of general nature and the same require no comments.

10. In the result, the appeal preferred by the assesese stands partly allowed.