N.C. Jewellers vs DCIT, Central Circle 1, New Delhi

PER S.RIFAUR RAHMAN,AM:

These cross appeals are filed by the assessee and Revenue against the order of the Learned Commissioner of Income-tax (Appeals)-23, New Delhi [“Ld. CIT(A)”, for short] dated 30.03.2021 for the Assessment Year 2017-18.

Brief facts of the case are, assessee filed its original return of income for AY 2017-18 on 05.10.2017 declaring total income of Rs.55,17,012/-. A survey under section 133A of the Income-tax Act, 1961 (for short ‘the Act’) was carried out on 22.12.2016 by the Investigation Wing at the business premises of the assessee, 7 S.B. Sarafa Market, Chandni Chowk, Delhi-110 006. The case was selected for manual scrutiny and notices u/s 143(2) was issued and duly served upon the assessee. Other statutory notices were issued from time to time. The assessee is engaged in the business of gold, silver and ornaments. The AO observed that during the course of survey proceedings conducted in the case of M/s. Soni Traders on 17.12.2016, a number of incriminating evidences with respect to cash purchase of bullion by the assessee from Soni Traders were recovered. He further observed that search and survey operation was conducted at the residential and business premises of Vishal Jain and Deepak Jain who are partners of NC Jewellers on 20.02.2016. During the course of search, Deepak Jain was confronted with the incriminating evidences as well as the statement of P.L. Soni and his son, Vikram Soni recorded during the survey proceedings on 17.12.2016. The AO confronted the evidences from the statement recorded from Vikram Soni u/s 131(1A) of the Act, During interaction with Deepak Jain, it was recorded as under:-

 Sale of 148.67 kg of gold bullion has been reflected in the books of accounts of M/s N.C. Jewellers to M/s Soni Traders, post-demonetization, in November 20016 and the consideration for the above transaction has been received in the bank account of M/s N.C. Jewellers from M/s Soni Traders.

 However, as per Sh. P.L. Soni, partner in M/s Soni Traders - he did not take delivery of 100 kg of gold bullion in respect of the above mentioned transaction. Instead, cash in the form of old demonetized currency notes, amounting to Rs. 30 Cr. was given to him by Sh. Deepak Jain in lieu of this 100 kg of gold bullion.

 Sh. Deepak Jain on being confronted with the messages recovered from the mobile phone of Sh. P.L. Soni and the statement of Sh. Vikram Soni, admitted on oath that he had purchased 5 kg of gold bullion from M/s Soni Traders in lieu of cash amounting to Rs. 1.8 Cr., in the form of old demonetized currency notes.

 The assessee engaged in systematic splitting of bills of sales invoices in order to conceal the identity of buyer in order to conceal the identity of buyers as admitted by Sh. Pushpendra, the accountant of the assessee firm.

 The assessee firm systematically falsified their books of accounts.

Based on the above observation, the AO recorded statement from Deepak Jain u/s 132(4) on 22.12.2016 and he observed that Mr. Deepak Jain had admitted under oath that he had received Rs.1.8 crores in old demonetized notes from Ashish Kumar Gupta and had given 5 kgs. of gold bullion. He further admitted that he had received this gold from Soni Traders for which he had given them Rs.1.77 crores in old demonetized notes. The AO relied on the above statement which is reproduced at pages 4 to 7 of the assessment order. Further in order to verify the claim of the assessee, the AO has issued notice to Ashish Kumar Gupta which is also reproduced at page 8 of the assessment order.

However, Ashish Kumar Gupta has denied that he had transactions with the assessee. Further notice was issued to the assessee to explain the above transaction. However, assessee remained with the answer as recorded to question no.21, during search proceedings, it was recorded to the above answer that they were not indulged in any cash transactions after 08.11.2016 and the transactions were allegedly on the basis of statement recorded of Vikram Soni of Soni Traders and there is no material unearthed during the course of search and assessee was never involved in any sale during the course, therefore, they denied any sale transaction and it was claimed that the statement was recorded under coercion. After considering the above submissions, the Assessing Officer, not satisfied with the statement and subsequent denial, he heavily relied on the statement recorded during search proceedings of Deepak Jain. He proceeded to make the addition of Rs.1.80 crores u/s 69A of the Act.

With regard to alleged bogus sales made to Soni Traders by the assessee, the Assessing Officer observed that during the course of search and survey operation carried at the premises of Soni Traders that a large number of cash was deposited. He observed that during the period of demonetization, assessee sold 158.867 kgs. of gold bullion to Soni Traders and consideration of same to the extent of Rs.47.85 crores were settled through RTGS. He further observed that however, as per the statement of P.L. Soni who had claimed that he did not take delivery of 100 kgs. of gold bullion in respect of above transactions. Instead of, it was claimed that the currency notes in the form of old demonetized currency of Rs.30 crores was given to Soni Traders by Deepak Jain in lieu of this 100 kgs. of gold bullion. The AO listed the sale transaction in the books of assessee at pages 13 and 14 of the assessment order and further observed that the transaction of 100 kgs. of gold between assessee and Soni Traders was out of the books of account and he heavily relied on the statement recorded by P.L. Soni which is placed at pages 15 and 16 of the assessment order wherein he initially stated in question no.24 that 50 kgs. of gold was received from the assessee (Deepak Jain). Subsequently, statement recorded from Deepak Jain on 22.12.2016 wherein he had denied of such transactions. Since assessee has denied the above transactions, a show cause notice u/s 133 (6) of the Act was issued to the Soni Traders but no reply was received from Soni Traders. Thereafter, summons u/s 131 was issued to P.L. Soni on 22.11.2019 asking for details of documents but no compliance was made till completion of the assessment. Subsequently, assessee also filed reply to show-cause notice issued to them. For the sake of brevity, the same is reproduced below :-

 During the period of 11.11.2016 to 21.11.2016, the assessee firm sold a total quantity of 158.867 Kg of gold to M/s Soni Traders for Rs. 47.85 cr. Payment of which was always received by the assessee firm through RTGS from time to time as per market practice before making the deliver of the gold. All the transactions are duly documented and reflected in the books of account.

 That we have already furnished necessary evidences proving the said transactions alongwith a duly confirmed statement of account incorporating the aforesaid transactions with Soni Traders.

 That the M/s Soni Traders or" its representative never met us before demonetization. On their approaching us for business, we did not trust them, kept their KYC as required under law and gave delivery of the gold only after receiving the entire payment in advance as per prevalent market practice. Since, the sale price from Soni Traders received in advance by us, there is no scope for prior cash given to them.

 Sale made to M/s 158.867Kg and entire of 47.85 cr. was received through RTGS was a undisputed and lawful sale. We did not take any other transaction with the M/s Soni Traders.

 As far as the aforesaid sale of Rs. 47.85 cr. is concerned the identity of the purchases, it creditworthiness and genuineness of the transaction having been established by us, the onus thus rest on us in law stands squarely discharged.

After considering the above submissions, the AO observed that the assessee has sold gold of 158.87 kgs. and received the payment of Rs.47.85 crores in its bank account through RTGS. He observed that assessee has also submitted copy of bills raised to Soni Traders on the alleged transaction. He analysed the reply of the assessee in the light of the statement given by P.L. Sonia and found certain discrepancies that some of the deliveries were made on the basis of phone call and certain delivery notes were not signed by the other party and based on the above discrepancy that sale of gold bars should have been supported by the proper delivery of sale instrument by obtaining signatures of the partners/manager of Soni Traders were not submitted. He observed that particularly when Soni Traders claimed that they did not take the delivery of 100 kgs. of gold from the assessee firm and delivery of proving of gold shown by the assessee himself be forged one and he heavily relied on the statement of P.L. Soni and discrepancies in the delivery challan, he came to the conclusion that assessee has not delivered 100 kgs. of gold to the Soni Traders and received demonetized currency in respect of gold and further he relied on the report of Government Crack Team on black money in the Newspaper and also statement of Pushpendra Kumar, Accountant and the issue of splitting of bills by using special software since FY 2011-12, he came to the conclusion that assessee has indulged in bogus sales transaction with Soni Traders and accordingly, he proceeded to make addition of Rs.28.20 crores after adjusting Rs.1.8 crores which was already added as unexplained cash credit u/s 68 of the Act.

Further AO observed that during survey operation at business premises of the assessee, it was found that the assessee has used accounting software which was utilised to splitting large cash sales into small retail cash bills. Based on that, he observed that large number of retail cash sales were recorded below Rs.2 lakhs since 01.10.2016 (more than 20 customers per day) were noticed and all bills ranging from Rs.1.75 lakhs to Rs.1.99 lakhs were found to be recorded. Upon confronting the same to Pushpendra Kumar (Accountant) who has accepted that he was splitting large cash sales into small retail cash bills on the directions of the partners. Based on the above statement, he came to the conclusion that assessee has indulged in splitting of bills to safeguard high value customers and accordingly, he observed that assessee has huge cash sales which was recorded during October 2016 to November 2016 to the extent of Rs.1,78,39,19,784/-during FY 2016-17. Since the assessee had not submitted details, such as, names of the buyers, copy of bills, proof of delivery filed by the assessee on cash sales, the entire cash sales made by the assessee under serious doubt since the AO is not in a position to ascertain the genuineness of such sales reported by the assessee. Since the assessee was indulged in splitting of the bills by using special software by hiding the names of the buyers since FY 2011-12. He further observed that although the entire sales of assessee made on cash cannot be called bogus but definitely some of its are bogus. In order to restrict undue hardship to the taxpayer, he proceeded to treat 10% of the cash sales as unexplained and bogus sales. Accordingly, he proceeded to make the addition of Rs.17,83,91,978/- as bogus.

Further he observed that assessee has deposited Rs.16.32 crores during the period of demonetization and out of the above, assessee has claimed that Rs.3,28,06,888/- was out of cash-in-hand. Since assessee did not offer any justification of maintaining such huge cash-in-hand, therefore, he proceeded to treat the above as unexplained income u/s 68 of the Act. Accordingly, he proceeded to make the total addition u/s 68 of the Act of Rs.21,11,98,866/-(Rs.17,83,91,978/- + Rs.3,28,06,888/-).

Aggrieved with the above order, assessee preferred an appeal before the ld. CIT(A)-23, New Delhi and filed grounds of appeal and filed detailed submissions. After considering the detailed submissions, ld. CIT (A) sustained the additions made by the AO u/s 69A of the Act of Rs.1.80 crores relating to payment of demonetized cash to Soni Traders by the assessee and the same was treated as unexplained cash.

With regard to alleged bogus sales to Soni Traders, ld. CIT (A) partly allowed the claim of the assessee by reducing bogus sales from 100 Kgs. to 50 Kgs. based on the statement of P.L. Soni recorded on 17.12.2016. For the sake of brevity, the findings of ld. CIT (A) is reproduced below :-

With regard to addition of cash deposit during demonetization period, ld. CIT (A) after considering the detailed submissions of the assessee deleted the addition by observing as under :-

With regard to cash deposit out of cash-in-hand, ld. CIT (A) allowed the claim of the assessee by observing as under :-

Aggrieved with the above order, both assessee and Revenue are in appeal before us raising following grounds of appeal :-

At the time of hearing, ld. AR of the assessee submitted as under :-

On the other hand, ld. DR of the Revenue submitted that due to huge deposits of cash by the assessee as well as Soni Traders during demonetization period, a survey was conducted on Soni Traders and based on the survey and search proceedings, a statement was recorded from P.L. Soni as well as Deepak Jain. Based on the statement of the respective partners, the AO came to the conclusion that assessee has indulged in accepting demonetized currency on sale of 5 kgs. of gold which was seized from Soni Traders and sold to one Ashish Kumar Gupta. The above transaction was accepted by Deepak Jain during survey proceedings. In this regard, he brought to our notice detailed findings of the AO and the statement. He also brought to our notice pages 67 to 69 of the first appellate order and he objected to the claim of the assessee that the statement was recorded under coercion and duress. Since Deepak Jain has admitted on oath that he has received Rs.1.8 crores in old demonetized notes which is complementing the statement of P.L. Soni, therefore, the addition made of Rs.1.8 crores has to be sustained.

With regard to no opportunity was given to cross examine P.L. Soni, he objected to the same and submitted that the AO was not agreed does not mean that opportunity was not given. Further he brought to our notice page 71 of the appellate order and he brought to our notice the statement of P.L. Soni who had categorically stated that he did not take delivery of around 100 kgs. of gold from the assessee. Considering the discrepancies in the invoices/bills, there were no signatures of the persons receiving the gold bars which clearly indicate that the assessee has not delivered 100 kgs. of gold to P.L. Soni. He also brought to our notice para 6.3 of the assessment order wherein assessee was given final show-cause notice. Further he brought to our notice page 22 and 36 of the appellate order and he submitted that AO has derived the findings on the basis of assessee’s own books of account. He heavily relied on the detailed findings of the lower authorities.

With regard to Department’s appeal, he submitted that since assessee was found to be indulged in splitting of bills through special software, there are statistical improbabilities. Since huge quantities of sales are recorded, it is difficult for the AO to verify such huge sales. Since it was found that assessee has indulged in splitting of bills, the AO was justified in restricting the disallowance of cash sales to 10% of the total cash sales. He also submitted that there is violation of section 269ST of the Act towards cash purchases. He objected to the deletion of above addition by the ld. CIT (A). He heavily relied on the findings of the AO.

Considered the rival submissions and material placed on record. With regard to alleged bogus sales to Soni Traders, we observed that it is fact on record that assessee has sold 158.867 kgs. of gold bullion to Soni Traders post demonetization and the relevant consideration was received by the assessee through bank from Soni Traders through RTGS. The same was recorded in the assessment order itself. Despite recording the above facts on record by the AO, the AO who had heavily relied on the statement of P.L. Soni that he had not taken delivery of 100 kgs. of bullion and instead of, assessee has taken Rs.30 crores in the form of demonetized currency. We also observed that P.L. Soni initially claimed that he had not taken delivery of 100 kgs., however, while recording the statement on 09.11.2016 that he had paid cash to Deepak Jain for purchase of 50 kgs. gold. This is self-contradictory to the statement recorded earlier. We observed from the record that there is no discrepancy found in the books of accounts maintained by the assessee with regard to this transaction. However, the AO heavily relied on the statement of P.L. Soni and we are not sure on what basis or what purposes, he has given a statement that he has not taken delivery of gold from the assessee. The AO heavily relied on the discrepancies found in the sales document wherein certain deliveries were not acknowledged by the Soni Traders. As long as, Soni Traders have settled the quantity for which the assessee has sold the gold bullion, it indirectly indicate that it has accepted the delivery. Mere observation of certain discrepancies in the sales documentation, the same cannot held to be non-genuine on the basis of certain statement which was claimed by P.L. Soni. It is also fact on record that a show-cause notice u/s 133(6) and subsequent notices were not complied by P.L. Soni which clearly indicate that the statement record by P.L. Soni has no evidentiary value. During search/survey proceedings, the statement recorded of P.L. Soni has to be substantiated by a proper documentary evidences or proper opportunity of cross examination. In this case, we observed that both are absent and it clearly indicate that the statement of P.L. Soni cannot be relied upon to make such huge addition without corroborating proper evidences. We observed that ld. CIT (A) has given part relief based on the statement of P.L. Soni recorded on 09.11.2016 that he had purchased 50 kgs. of gold instead of 100 kgs. gold. As discussed above, the statement of P.L. Soni cannot be relied upon. Therefore, we are inclined to delete the additions sustained by ld. CIT(A) to the extent of 50 kgs. of gold. Therefore, there is merit in the submissions of ld. AR of the assessee. Accordingly, addition sustained to the extent of Rs.13.20 crores is deleted and grounds relating to this issue are allowed.

With regard to addition of Rs.1.80 crores u/s 69A of the Act, we observed that AO has relied upon WhatsApp message from P.L. Soni and based upon that a statement was recorded u/s 132(4) of the Act from Deepak Jain on22.12.2016 and in question nos.13 to 19, Deepak Jain had categorically denied any cash transaction with Soni Traders and the relevant statement was recorded at 6.00 PM on 22.12.2016. Further another statement was recorded at 10.30 PM on 22.12.2016 wherein Deepak Jain accepts that he has received 5 kgs. of gold and sold the same to Ashish Kumar Gupta for a consideration of Rs.1.80 crores in cash by changing the statement recorded earlier at 6.00 PM. From the statement, we observed that Deepak Jain has claimed to have sold the gold to one Ashish Kumar Gupta and the sale proceeds were given to Soni Traders to the extent of Rs.1.77 crores. It is fact on record that even Ashish Kumar Gupta has denied of any dealings either in business or other financial transactions with the assessee or Deepak Jain during FY 2016-17 or during demonetization period. Therefore, the statement recorded by Deepak Jain seems to be false or made up to cover up the situation. Even otherwise, if we consider the above statement to be true, we have to take the whole statement in its spirit. Therefore, it was stated that he has sold 5 kgs. gold to Ashish Kumar Gupta and he has collected Rs.1.80 crores from Ashish Kumar Gupta and transferred Rs.1.77 crores to Soni Traders. If that being the case, the assessee has retained only Rs.3 lakhs from the above transaction. Therefore, it is wrong to make addition of Rs.1.8 crores u/s 69A of the Act in the hands of the assessee. Therefore, we are inclined to decide the issue in favour of the assessee for the simple reason that the statement was changed between 6.00 PM to 10.30 PM that he has sold 5 kgs. gold to Ashish Kumar Gupta. In the same statement, he has also stated that he had given cash of Rs.1.77 crores to Soni Traders. The whole transaction claimed to have been made by Deepak Jain without there being any evidence on record. If at all, the above statement has to be treated as genuine, the addition u/s 69A can only be made to the extent of Rs.3 lakhs. Therefore, we are inclined to allow the grounds raised by the assessee on this issue.

In the Revenue’s appeal, with regard to cash deposits made by the assessee during demonetization period and out of cash-in-hand, we observed that the assessee has reported sales of Rs.420.54 crores out of which cash sales were reported at Rs.178.39 crores. The AO held that although entire sales of assessee made on cash cannot be called bogus, therefore, he restricted the same at 10% of the cash sales to the parties as unexplained to the extent of Rs.17.84 crores. Further we observed that there is a statement recorded from Pushpendra Kumar, who is part time accountant, who had retracted the statement recorded on 29.03.2016 due to the statement was recorded under pressure. It is also fact on record that entire cash sales recorded during the year was credited to the Profit and Loss account. Since assessee has already declared entire sales in their financial statements, we observed that as held in the case of President Industries reported in 258 ITR 654 in which it was clearly held that only net profits embedded in sales and not wholesale proceeds itself would be treated as undisclosed income. Various Courts have held that once the sales were already declared in their books of account, the same cannot be added once again. We further observed that ld. CIT(A) has analysed the GP and NP in last 6 years at page 88 of the appellate order and he found that gross profit and NP has increased over the years and is higher in FY 2016-17. He also observed that in bullion trading, volumes are high but GP rates are comparatively low and we further observed that ld. CIT (A) has observed that during survey, cash book as well as stock register of the assessee was examined and soft copy of the books of account were submitted before the AO during assessment proceedings. After verification, AO has neither rejected the books of account nor pointed out any discrepancy in the cash book or stock book maintained by the assessee. Ld. CIT (A) also relied on the decision of Hon’ble Karnataka High Court in the case of CIT vs. Anil Kumar & Co. reported in 386 ITR 202 wherein it was held that jurisdiction to estimate assessee’s income is not available when books of account have not been rejected. Similar view was also expressed by Hon’ble Allahabad High Court in the case of CIT vs. Pashupati Nath Agro Food Products (P.) Ltd. (Income Tax Appeal No.165 of 2010 dated 4^th May 2017). Further we observed that it is not the case of the AO that assessee has not sold the bullion declared in its return of income. Further no discrepancies were found in quantity details of purchase and sales as well as stock at the time of survey. It is also fact on record that Department has consistently accepted the GP and NP rates declared by the assessee in the earlier years which was much lower for the year under consideration. Considering the above facts on record, it is not proper on the part of the AO to disallow 10% of the total cash sales as unexplained sales when the assessee has already established in its books of account that the sales were genuine and there is proper movement of stock. Therefore, after considering the detailed findings of the ld. CIT (A), we do not see any reason to disturb the same and accordingly, the grounds raised by the Revenue are dismissed.

With regard to cash deposits out of cash-in-hand, we observed that assessee has furnished daily cash book summary from 01.10.2016 to 10.11.2016 which is reproduced at pages 93 and 94 of the appellate order. As per the above cash book, it is clear that assessee had cash balance of Rs.13,78,11,223/- on 07.11.2016 and the same was utilized to deposit on 08.11.2016 and 10.11.2016. Further assessee has also filed detailed submission of sales during the year under consideration and the details of sales submitted by the assessee which matches with the retail sales and tax sales submitted before the VAT authorities. We observed that ld. CIT(A) has appreciated the cash book and sales during the year under consideration and after analyzing the detailed facts on record and gave relief to the assessee. After considering the detailed findings of the ld. CIT (A), we do not see any reason to disturb the same and accordingly, the grounds raised by the Revenue are dismissed.

In the result, the appeal filed by the assessee is allowed and the appeal filed by the Revenue is dismissed.