M/S. Clarity Gold Pvt. Ltd v. Pr. Commissioner Of Income Tax, Central Circle 1 , Centralrevenue Building, Department Of Income Tax, Statue Circle, C-Scheme, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 146/2018 M/s. Clarity Gold Pvt. Ltd. , 4, Ganga Vihar, Sardar Patel Marg,C-Scheme, Jaipur Presently At C-82, Star Mansion, 2Nd FloorShyam Marg, Shastri Nagar, Jaipur Through Its Director Sh. ShivShankar Lal Gupta. ----Appellant Versus Pr. Commissioner Of Income Tax, Central Circle 1 , CentralRevenue Building, Department Of Income Tax, Statue Circle, C-Scheme, Jaipur. ----Respondent D.B. Income Tax Appeal No. 148/2018 M/s Gem Mart India Pvt. Ltd., 1, Ganpati Building ShoppingCentre, Shastri Nagar, Jaipur , Through Its Director Sh. ShivShankar Lal Gupta ----AppellantVersus Pr. Commissioner Of Income Tax , Central Circle1, CentralRevenue Building Department Of Income Tax, Statue Circle C-Scheme, Jaipur Rajasthan ----Respondent For Appellant(s) : Mr. N.L. Agarwal HON'BLE MR. JUSTICE KALPESH SATYENDRA JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS 25/07/2018 Judgment 1.By way of these appeals, the appellants have assailed thejudgment and order of the tribunal whereby tribunal has partly allowed the appeal of the assessee reducing the GP rate from 15%to 12%. 2.In both these appeals common question of law and facts areinvolved hence they are decided by this common judgment. Forconvenience of the court, facts are taken from ITA No.146/2018. 3.Counsel for the appellant has framed following substantialquestion of law:- Appeal No.146/2018 i) Whether the ld. ITAT was justified under lawwhile confirming the enhanced addition ofRs.14,14,80,498/- out of the enhancedaddition made by ld. CIT(A) ignoring theexplanation submitted by the Assessee-appellant before the search team at the time ofsearch on 20.5.2009 as well as explainedbefore the ld. AO as well as before theauthorities? ii) Whether the ld. ITAT was justified under lawwhile sustaining the aforesaid enhancedadditionmadebyld.CIT(A)atRs.14,14,80,498/- on account of so calledunaccounted stocks based on its suspicion andsurmises and without having any evidence insupport of the enhanced addition? iii) Whether the ld. ITAT was justified under lawwhile sustaining the aforesaid addition ofRs.14,14,80,498/- made by ld. CIT(A) bycomparing the statement dated 30.4.2009submitted by assessee-appellant to State Bankof Indore and the actual stock found while thebooks of accounts were rejected u/s 145(3) by the ld. AO and confirmed by the ld. CIT(A) aswell as the ld. ITAT, Jaipur? Appeal No.148/2018 i) Whether the ld. ITAT was justified under lawwhileconfirmingtheadditionofRs.4,23,56,186/- made by ld. CIT(A) ignoringthe explanation submitted by the assessee-appellant before the search team at the time ofsearch on 20.5.2009 as well as explainedbefore the ld. CIT(A)? ii) Whether the ld. ITAT was justified under lawwhile confirming the aforesaid addition madeby ld. CIT(A) at Rs.4,23,56,186/- on account ofso called unaccounted stocks based on itssuspicion and surmises and without having anyevidence in support of the addition? iii) Whether the ld. ITAT was justified under lawwhile confirming the addition made by ld.CIT(A) at Rs.4,23,56,186/- merely on the basisof its findings in the case of M/s. Clarity Goldwho deals in business of Gold and not ofcutting and polishing of raw material i.e.kharad and thus the business of the assessee-company and M/s. Clarity Gold is not of similarnature? 4.The facts of the case are that assessee company derivesincome from business of manufacturing of jewellery and trading ofgem stones. A search and seizure operation u/s 132(1) of IT Act,1961 was carried out on 20.5.2009 at the business and residence iii) Whether the ld. ITAT was justified under lawwhile confirming the addition made by ld.CIT(A) at Rs.4,23,56,186/- merely on the basisof its findings in the case of M/s. Clarity Goldwho deals in business of Gold and not ofcutting and polishing of raw material i.e.kharad and thus the business of the assessee-company and M/s. Clarity Gold is not of similarnature? 4.The facts of the case are that assessee company derivesincome from business of manufacturing of jewellery and trading ofgem stones. A search and seizure operation u/s 132(1) of IT Act,1961 was carried out on 20.5.2009 at the business and residence premises of the assessee group. The background of search actionon the Clarity group was survey u/s 133(A) conducted in FY 2007-08 by BCTT wing of Investigation Directorate at Jaipur whichrevealed that the assessee company and its sister concern hadobtained bogus purchase bills from various entry providers whoprovided bogus sales bills without supplying the goods mentionedin the bills. 5.Counsel for the appellant has taken us to the order of AOwhere bogus purchase bill for financial year 2004-05, 2005-06,2006-07 & 2007-08 of M/s. Clarity Gold Pvt. Ltd. has beendetailed which reads as under:- F.Y. 2004-05 S.No.Name & Concern fromGroup which bogus purchase bill obtained Amount F.Y. 2005-06 F.Y. 2006-07 F.Y. 2007-08 6.He also taken us to the finding recorded by AO which reads as under:- 10.Answering Q.No.15, Sh. Khushi KumarAmeriya also stated that 95% of the turnoverof the Gems Unit was also bogus and theturnover was being enhanced for the purposeof obtaining higher bank finance. The bankfinances upto 75% of the stock value as wellas 75% of 90 days debtors. In this manner,the stock in trade of the concern has alsobeen inflated. Sh. Khushi Kumar Ameriya also admitted this modus operandi in thestatements recorded at his residence whileconfronted with the documents seized fromhis residence. Relevant part of his statementis reproduced below:- iz’u 15 vkius crk;k fd Bogus Billsds ek/;e ls vkidh QeksaZdk Turnover,oa stock in Tradenksuksa Inflatefd;k x;kgSA ;g vki fdl izdkj djrs gS] Ñi;k foLrkj ls le>k;saAmRrj% Turnoverc<kus ds fy, Purchaseds Bogus Bill ysrsgS ftldh paymentpsd }kjk dh tkrh gS] blh izdkj Sale dsHkh Bogus billysrs gSA ftldh paymentHkh psd }kjk izkIrgksrh gS ,d gh ,tsUV Sales,oa purchase nksuksa arrangedjrk gSA bl izdkj ls Gem unitdh F.Y. 2008-09 dh tksgeus 83-34 Croredh Turnoverviuh Bookesa fn[kkbZ gSftlesa rdjhcu 95% Sales Bogus gS eS vkidks gekjh dEiuhdh fofHkUu Unitsdh Genuine ,oa Bogus SalesdhPercentage crk jgk gw¡ tks fd fuEu izdkj ls gSA 1. Jewellery Unit-Sita Purabl Unitesa 100% actual salesgSA 2. Nizami Unit -bl Unit esa Hkh 100% actual sales gSA 3. Gems Unit -bl Unit esa yxHkx 95% sales BogusgSA 4. Silver Star - bl Unitsa dh Salesds ckjs esa eq>s dksbZtkudkjh ugha gS rFkk blds fo"k; esa vkidks iw.kZ tkudkjh Jhegs’k [k.Msyoky ,oa Jh iou [k.Msyoky ns ldrs gSA 5. Mumbai Sales Office - blUnitesa Hkh 100% actualsalesgSA iz’u 16 tSlk fd vkids }kjk iwNs x;s iz’uksa ds mRrj esa crk;kx;k gS fd vkidh dEiuh Turnoverc<kus ds fy, BogusPurchase ,oa Bogus Salesfn[kkrh gS rFkk vki ;g dk;ZBrokersds ek/;e ls djrs gSA Ñi;k crk,¡ fd vkidh dEiuhus bl izdkj ds Bogus Purchase,oa Sales ,oa dk;Zfdu&fdu Brokers ds ek/;e ls fd;k gS] budks fdrukdeh’ku fn;k gS\mRrj % bl fo"k; esa eSa ;g crkuk pkgrk gw¡ fd geusfuEufyf[kr Brokersds ek/;e ls Bogus Purchase ,oaSales dk dk;Z fd;k gS 1- Jh vuqi dkykuh] fu& t;iqj 2- Jh jke 'kekZ] fu& t;iqj 3- Jh ';ke 'kekZ] fu& t;iqj 4- Jh lqHkk"k tSu] fu& t;iqj 5- Jh xksiky ef.k;kj] fu& t;iqj 6- Jh ikjl tSu] fu& eqEcbZ 7- Jh vfuy yyokuh] fu&t;iqj iz’u 19 Ñi;k crk;sa fd vkidh dEiuh ds Åij of.kZr BogusPurchase ,oa salesbR;kfn dk;ksZa dks djus dk fu.kZ;fdlds }kjk fd;k x;k\ mRrj % ;g lHkh fu.kZ; gekjh dEiuh ds chairmen –Managing DirectorJh f’ko’kadj xqIrk dk gS rFkk mUghs dsdgus ij ;g lHkh dk;Z fd;s x;s gSA 1- Jh vuqi dkykuh] fu& t;iqj 2- Jh jke 'kekZ] fu& t;iqj 3- Jh ';ke 'kekZ] fu& t;iqj 4- Jh lqHkk"k tSu] fu& t;iqj 5- Jh xksiky ef.k;kj] fu& t;iqj 6- Jh ikjl tSu] fu& eqEcbZ 7- Jh vfuy yyokuh] fu&t;iqj iz’u 19 Ñi;k crk;sa fd vkidh dEiuh ds Åij of.kZr BogusPurchase ,oa salesbR;kfn dk;ksZa dks djus dk fu.kZ;fdlds }kjk fd;k x;k\ mRrj % ;g lHkh fu.kZ; gekjh dEiuh ds chairmen –Managing DirectorJh f’ko’kadj xqIrk dk gS rFkk mUghs dsdgus ij ;g lHkh dk;Z fd;s x;s gSA iz’u 20 Ñi;k crk;s fd vkidh M/s Clarity Gold Pvt. Ltd.dh lHkh Units/state officersds F.Y. 2008&09 dh dqysales fdruh gS ftlesa ls Actual,oa Bogus sales fdruh gSaAmRrj % gekjh mijksDr dEiuh dh F.Y.2008&09 dh dqy salesyxHkx 107 djksM gS ftlesa ls yxHkx Rs. 25 djksM dh actual sales gSrFkk ckdh yxHkxRs. 82 djksM dhBogus sales gS tks fdokLro esa gqbZ gh ugha gS rFkk dsoy Turnover c<kus dh fy,fn[kkbZ xbZ gSA iz’u 21 Ñi;k crk;sa fd vkidh dEiuh esa Bogus Purchase,oasalesdk dk;Z fdls izdkj fd;k tkrk gS] vFkkZr dgk¡ ij odjrkdSls nyky ls eqykdkr gksrh gS] dkSu ;g ckr@eqykdkrgS Ñi;k foLrkj ls ;g lkjh izfØ;k crk;saAmRrj % bl fo"k; esa eSa ;g crkuk pkgrk gw¡ fd dqN rks gekjsRegular broker gS tSls fd Jh lqHkk"k tSu] t;iqj] Jh ikjltSu eqEcbZ] Jh vuqi dkykuh t;iqj ftuls dh Regular Basisij gekjh dEiuh dks A Bogus sales ,oaPurchase ds billizkIr gksrs jgrs gSA blds vykok tc dHkh vf/kd Boguspurchase ;k sales ds billdh t:jr gksrh gS rks esa Brokersdks gekjh dEiuh ds Regal Office 4] ljnkj iVsy ekxZ]lh&Ldhe] t;iqj ij cqykrk gw¡ ,oa gekjh dEiuh ds CMD Jhf’ko 'kadj xqIrk ls Discusses ,oa approval ysdj mlBrokers dks Bogus sales/Purchase bill arrange djus dhekSf[kd funsZ’k ns nsrk gw¡ ftlds ckn ogBroker gekjh dEiuhds fy, bl izdkj ds Bils ns nsrk gS bl izdkj dsBrokersdks gekjs }kjk 0-25% ls ysdj 0-65% rd deh’ku nsuk r;gksrk gSA 18.In post search proceedings a detailedquery letter was issued on 16.7.2009 forexplaining the issues of bogus purchasesinview of statements of Sh. K.K. Ameriya,bogus sales, discrepancies in silver star unitand submissions of silver star persons butassessee did not respond and opted not tocomply the terms of the letter. The basicfacts found during the search thereforeremained uncontroversial. 19. During the course of presentproceedings the assessee company wasgiven required to explain its case on thevarious finding of search action and evidencegathered. Vide notice u/s 142(1) of the ITAct, specifically the assessee was required toexplain its case on the submissions made bythe key persons u/s 132(4) dealing with thebusiness of the assessee and it was alsorequired to produce the concerned partiesfrom whom bogus sales and purchase aremade. Assessee was allowed more thansufficient opportunities vide order sheetentries dated 11.7.2011, 18.7.2011,21.7.2011, 28.7.2011, 29.7.2011, 2.8.2011,8.8.2011, 9.8.2011, 11.8.2011, 16.8.2011and 17.8.2011 but most of the times thereply of A/R remained that relevantexplanation/informationswouldbesubmitted on next hearings. However, on5.8.2011 the A/R of the assessee filed replysubmitting that:- 2.With regards to difference in valuationof stock found at the time of search; wewish to reiterate as was submitted beforethe ADIT, Jaipur-II; that the valuation wasgot done by Income tax departmentpersonnel’s which has no credence andsanctity in the eyes of law. 2.1 The said valuation as has got done bythe office of the income tax Department isunauthorized, illegal, irrelevant, contrary tothe provisions of section 133A of the incometax Act and has been prepared as per ownconvenience and thus deserves to beignored being void ab initio. 2.2 The departmental valuers were allowedaccess to business premises of the assesseewithout subjecting themselves to verificationat the time of entry and at the same timethere were not subject to frisking at the timewhen they have left the business premises. 2.1 The said valuation as has got done bythe office of the income tax Department isunauthorized, illegal, irrelevant, contrary tothe provisions of section 133A of the incometax Act and has been prepared as per ownconvenience and thus deserves to beignored being void ab initio. 2.2 The departmental valuers were allowedaccess to business premises of the assesseewithout subjecting themselves to verificationat the time of entry and at the same timethere were not subject to frisking at the timewhen they have left the business premises. 2.3 We would like to know on what basis thevaluation exercise has been done by thesevaluers. Prima facie it appears that thesevaluers have inserted the stock values asper their convenience. The valuation somade by them is biased, faulty and beforeyou rely on any of these figures we wouldrequest you to provide us an opportunity tocross examine each one of them. 2.4 As submitted earlier, the assesseecompany is dealing in more than 100 typesof precious, semi precious stones, goldornaments and metals and within eachcategory of stones there are more than 500types of qualities that are to be looked into.There are thousands of packets of stones(stones kept in packets). These valuers havewithout adhering to the norms of valuation,have mixed the lots of stones and valued thestones. Each category of stone may havevaluation ranging from Rs. 1 per cent tomore than Rs.1.00 lacs per carat. This hasalso caused our business an irreparable lossas we are at loss to reclassify the stones asthey were kept in the lots originally. 2.5 It is also surprising to note that thevaluers have managed to value over 14tonnes of various Raw materials kept in 89bags in a short span of few hours, whereasit would take several man days just to openthem and keep them for weighment. Thevolume of finished goods (cut stones) wasequally huge and one cannot possibly weigheven in a few hours when packets were tobe opened, seen, weighed in weighmentmachine and again put back in packets, etc. 2.6 It is clear that the total exerciseundertaken by the paid personnel’s of thedepartment is as per dictated terms and in convenience and is a total farce anddeserves to be ignored. 3. With regards to the alleged statements ofSh. Khushi Kumar Ameriya, we wish toreiterate as was submitted before the ADIT,Jaipur-II; that we have been providedcomputerized copies of the statementrecorded of Sh. Khushi Kumar Ameriya. It isrequested to provice complete hand writtencertified copy of the statements recorded ofSh. Khushi Kumar Ameriya instead of atyped copy. The papers given by you do noteven bear signatures of Sh. Khushi KumarAmeriya- it also no evidentiary value. 3.1 It is also submitted that the allegedstatements of Sh. Khushi Kumar Ameriyawere recorded under duress; he waspressured to sign on the dotted lines. Thestatements were recorded beyond thepowers granted as per provisions of section132 and section 133A. The statements wererecorded when Sh. Khushi Kumar Ameriyawas not in a proper physical and mentalstate of mind. The statements so recordedhave no sanctity in the eyes of law and isillegal and deserves to be ignored. Copy ofaffidavit duly notarized by Sh. Khushi KumarAmerioya on 19.6.2009 and submittedbefore the District Magistrate and copy ofwhich is already with the income taxdepartment is enclosed herewith which willclarify our submission. 3.2 Before you rely upon the alleged illegalstatements of Sh. Khushi Kumar Ameriya;we should be allowed an opportunity tocross examine, Sh. Kushi Kumar Ameriya.Placing reliance on such illegal statementswould be in illegality. 3.3 All transactions of purchase and salehave been declared in the books ofaccounts. Due taxes on the income is beingdeclared from year to year. Nothing is therewhich is outside the books of accounts. 3.2 Before you rely upon the alleged illegalstatements of Sh. Khushi Kumar Ameriya;we should be allowed an opportunity tocross examine, Sh. Kushi Kumar Ameriya.Placing reliance on such illegal statementswould be in illegality. 3.3 All transactions of purchase and salehave been declared in the books ofaccounts. Due taxes on the income is beingdeclared from year to year. Nothing is therewhich is outside the books of accounts. 4. With reference to your observation withregards to submission of trading account forbogus transactions and real and genuinetransactions we wish to reiterate as wassubmitted before the ADIT, Jaipur II; thatyou are kindly requested to first clarify to usas to what is meant by the term Bogus Bills,according to use a bill is a bill. 4.1 A business man during the course of hisbusiness purchase the goods locally or from foreign parties mainly on credit. All suchparties are income tax assessee (PAN isallotted by the income tax Department) andSales tax assessee (TIN is allotted by theSales tax Department). As a businessmanwe are supposed to know the products weare buying, the terms for which the goodsare sold and also do a reasonable check onthe parties who are supplying the products.Our checks are based on PAN issued by theincome tax department and TIN issued bythe Sales tax Department. We do not havethe infrastructure nor have the power toinvestigate the parties who are supplying usthe goods. What else are we supposed togather from the parties? That is not theintention of the income tax Act and if thatwere the case then how one will conduct thebusiness? If you as an official of the incometax Department do not own upto the partiesto whom you have issued PAN then it is notthe fault of the businessmen. Entire issue ofbogus bill being raised by you time andagain as instilled fear in the minds of thebusinessmen and in turn it is leading tocollapse of the trade in city of Jaipur. 4.2 Even the banker has to be satisfiedwhen one opens a bank account, identity isobtained, complete particulars are obtained,all payments are by account payee chequesand this fact can be verified from both thebanks by you. 4.3 The goods and the bills are procured fromthe registered sellers. All the goods purchasedhave been entered in the stock registermaintained by the company. Entire paymenttowards the purchase of such goods have beenmade by way of an account payee chequeissud by the assessee to the concernedpurchasers. The gods are subseqently sold asit is in the same shape, size and weight orafter mixing it with other lots. Entire goodsthat are sold subsequent to purchase aresupported by the sales bills issued to thecustomer and gods so sold are entered in thestock register maintained by the assesseeappellant. Payments towards such sales havecome from through proper banking channel inthe account of the assessee. Profits from suchsale have been duly disclosed in the books ofaccounts. All provisions of Sale of Goods Acthave been accomplished in these transactions. 5. With regards to the alleged statement ofSh. Raghu Dutt Tiwari; accountant at SilverStar, we wish to submit that we have beenprovided computerized copies of the statements goods of Sh. Raghu Dutt Tiwari. Itis requested to provide complete hand writtencertified copy of the statements recorded ofSh. Raghu Dutt Tiwari instead of a typed copy.The papers given by you do not even bearsignatures of Sh. Raghu Dutt Tiwari-it has noevidentiary value. 5. With regards to the alleged statement ofSh. Raghu Dutt Tiwari; accountant at SilverStar, we wish to submit that we have beenprovided computerized copies of the statements goods of Sh. Raghu Dutt Tiwari. Itis requested to provide complete hand writtencertified copy of the statements recorded ofSh. Raghu Dutt Tiwari instead of a typed copy.The papers given by you do not even bearsignatures of Sh. Raghu Dutt Tiwari-it has noevidentiary value. 5.1 It is also submitted that the statements ofSh. Raghu Dutt Tiwari were recorded underduress; he was pressured to sign on thedotted lines. He was subjected to physicalharm by the officers of the department. Thestatements were recorded beyond the powersgranted as per provisions of section 132 andsection 133A. The statements so recordedhave no sanctity in the eyes of law and isillegal and deserves to be ignored. Copy ofaffidavit duly notarized by Sh. Raghu DuttTiwari on 19.6.2009 and submitted before theDistrict Magistrate and copy of which is alreadywith the income tax Department is enclosedherewith which will clarify our submission.” 19.1 Vide letter dt. 9.8.2011, the A/R furthersubmitted his arguments as under:- Without prejudice to what has been submittedearlier and without admitting what has beenstated earlier with reference to the purchasemade by the assessee as well as sales madeby the assessee over the years, we furthersubmit that the employees or/and otherpersons clearly have stated in their statementsthat purchases or/and sales in the followingunits are genuine, fool proof, verifiable and nottainted: . Jewellery Unit. . Nizami Unit. . Mumbai Division Thus, as far as these units are concerned theyhave to be treated to have been properlyaccounted for are genuine, not tainted, arefool proof and all purchases/sales in theseunits deserve to be accepted as such and noaddition is required to be made as far as theseunits are concerned. For other units also, wehave already explained that no addition isrequired to be made as all sales are vouched,detailed, verifiable and mainly on credit and allpurchases so made have been made by A/cPayee Cheques and all payments relating tosales have been received by the assessee byA/c Payee Cheuqes. Further verification can bemade from the income tax Assessments, SalesTax Assessment and from Banks directly. In view of the above facts and circumstancesand earlier letters, no addition is required to be made treating the purchases or/and salesas bogus/tainted in all the units. In view of the above facts and circumstancesand earlier letters, no addition is required to be made treating the purchases or/and salesas bogus/tainted in all the units. Further if you so rely on the statement of Sh.K.K. Ameriya, Sh. Raghu Dutt Tiwari or/andother persons then certainly the assessee hasa right to cross examine these persons as theyhave stated wrongly under coercsion, underpressure and threatening given by the variousofficers during the course of the search. Thestatements were recorded when these personswere not in a proper physical and mental stateof mind. These are self statements and unlessright to cross examine is permitted, theycannot be relied upon by any stretch ofimagination. They may state all along wrongthings but that wrong things cannot be madegood unless they so so at the time of crossexamination. It is settled opposition of law byvarious judgments of the Hon’ble SupremeCourt of India which is the Law of the land thataddition cannot be made merely saying so byone person against another unless in crossexamination also one says the same thing orotherwise. One has to weight in whatcircumstances statements were given. Whenall the purchases are by proper bills fromincome tax assessees, Sales tax assesses,payments are by A/c Payee Cheques, whensales are too by proper bills to income taxassessees, Sales tax assessees and paymentsare by A/c Payee Cheques, there was nooccasion for Sh. K.K. Ameriya, Sh. Raghu DuttTiwari or/and other persons to say that thesales/purchases are bogus, not genuine, nottainted. On the face of these overwhelmingevidence none would say to be bogus ortainted or non genuine unless one isthreatened of dire consequences or oncoercion, pressurizing tactics or otherwise. Wehave already submitted that the same Sh. K.K.Ameriya immediately after the search gave anaffidavit voluntarily duly notarized which wassubmitted before the Judicial Authorities thathe had and his family members werethreatened, he and other employees weremanhandled and that whatever has beenstated in the so called statements were notgiven by him, were written by the authorizedofficers on their own and without reading orwriting he was asked to sign on the dottedlines at odd hours in the late night. Similar hasbeen the Affidavit of Sh. Raghu Dutt Tiwarialso. We have already placed on record theAffidavits of both these persons alongwith ourletter of August 5, 2011. We strongly rely onthese. On the face of it, these are after thealleged statements if any and thereforewhatever has been stated on oath by them hasto be accepted rather than what they had stated earlier under threat, coercion orpressurizing tactics. It is in the light of thesefacts that we again request you to provideright to cross examine of the persons who sayotherwise/adversely other than, what isapparent on record. One may be a Director oran employee but if coercive measures are usedone may not withstand atrocities committed bythe officers & can write whatever one wishes &sign on the dotted lines. It is on record thatpressurizing tacks were used employees weremanhandled, were not permitted to eatproperly, meet family members, sleep properlyand threatened. We again submit that it ismerely a bold statement by them anddeserves to be ignored or it has no evidentiaryvalue. stated earlier under threat, coercion orpressurizing tactics. It is in the light of thesefacts that we again request you to provideright to cross examine of the persons who sayotherwise/adversely other than, what isapparent on record. One may be a Director oran employee but if coercive measures are usedone may not withstand atrocities committed bythe officers & can write whatever one wishes &sign on the dotted lines. It is on record thatpressurizing tacks were used employees weremanhandled, were not permitted to eatproperly, meet family members, sleep properlyand threatened. We again submit that it ismerely a bold statement by them anddeserves to be ignored or it has no evidentiaryvalue. 25.Since books of accounts were notcomplete on the date of search exact stock asper books on the date of search could not beworked out neither in terms of value norquantitatively. However, it was seen that theassessee furnished details of stock statementas on 30.4.2009 to State Bank Indore. Thisstock statement was obtained and it was foundthat on 30.4.2009 the company was havingstock of Rs.295567819. Thus as on 30.4.2009the book stock was of Rs.29.55 crores. Takingthis stock in to consideration there was adeficiency of stock of more than Rs.75.03crores as one the date of search. Thedifference in stock has not been explained bythe assessee. In post search proceedings theassessee was specifically asked vide letter dt.16.7.2009 to reconcile the difference in stockfound and submitted to bankers but it hastotally failed to reconcile the same. Even in thepresent asstt. Proceedings and it has not bearsatisfactorily explained. A very general andvague reply has been filed by the A/R videletter dt. 5.8.2011. Contentions raised in para12 of letter dt. 5.8.2011 reproduced above arenot tenable as the valuation was done by theexperts, in the presence of assessee’semployees dealing/managing the affiars on thedate of search/seizure, no objection of anynature were raised by the employees at thetime of search or just after the search. Nowchallenging the valuation on frivolous groundsis only an after though and just too devoid theinvestigation. Even the assessee has not beenable to produce correct quantification andvaluation after search, if it was of the viewthat valuation made by the search prty wasfaulty or incorrect. It may further be seen thatassessee itself admits that there is vastdifferent in rate of items of one category andunder such circumstances if assessee itself was not possible to quantify and value thegoods, the figures of stock and sale/purchasesin trading accounts are admittedly not subjectto proper verification deficient stock foundclearly proves that either fake purchase billsare introduced so as to increase the stock orthe sales are reduced. The submission of Sh.K.K. Ameriya again comes in to the picturethat stock statements are inflated by way ofshowing bogus purchases, debtors andturnover. This fact is conclusively proof ofincorrectness of books of accounts and tradingresults of the company. 7.Thereafter, the CIT(A) has reproduced the finding recordedby the AO which we have already discussed.by the AO which we have already discussed. 8.He also taken us to the submissions made by the appellantbefore the CIT(A) in para no.5.2 which reads as under:- 5.2 The AR of the appellant has contendedas under:- The additions made by the LearnedAssessing officer in the trading account areassailed as under- 1. Business of the assessee- 7.Thereafter, the CIT(A) has reproduced the finding recordedby the AO which we have already discussed.by the AO which we have already discussed. 8.He also taken us to the submissions made by the appellantbefore the CIT(A) in para no.5.2 which reads as under:- 5.2 The AR of the appellant has contendedas under:- The additions made by the LearnedAssessing officer in the trading account areassailed as under- 1. Business of the assessee- The assessee is a company and engaged inthe business of manufacturing and tradingof gem stones. The company has separatemain four units working at differentlocations in Jaipur besides other branchesat Mumbai and other places in variousparts of India. Separate books of accountsare maintained for these units. The fourunits working at Jaipur are named as GemUnit, Silver Star Unit, Jewellery Divisionand Nazami Division. Complete books ofaccounts have been maintained during thecourse of business. The assessee ismaintaining all the books of accountsincluding cash book, bank books journalbook, Ledger bills & voucher along withtheir supporting as prescribed U/s 44AA ofthe Income Tax Act, 1961. The books ofaccounts are maintained on mercantilesystem of accounting. The books ofaccounts are audited u/s 44AB of theIncome Tax Act, 1961 and audit report wassubmitted along with the return of income. The auditors have not made any adverseremarks regarding the maintenance of thebooks of accounts. During the course ofassessment proceedings all these bookswas pointed out. In view of this theLearned Assessing Officer was not justifiedin rejecting the books accounts. 2. BCTT survey results not provided to theassessee- In the assessment order the LearnedAssessing Officer has referred to surveysconducted by BCTT wing of the departmentin Financial Year 2007-08 it is mentioned inthe assessment order that during thecourse of surveys it was gathered thatassessee was obtaining bogus bills andVijay Group and Lalwani Group. Beforecompleting assessment the AssessingOfficer has not provided either the resultsof surveys or the statement of Shri AnilKumar Lalwani and Others so that assesseecould furnish his defense. Hence when thematerial used by the Assessing Officer wasnot provided to be assessee, theassessment proceedings become bad inlaw. 3. In turnover of bogus purchase and salesthe margin is Nil- In the entire assessment order the mainthrust of the Learned Assessing officer ison the issue of bogus voucher of purchaseand sale. In this regard statements of ShriK.K. Ameria, Shri Raghu Dutt Tiwari andShri Pawan Kumar Khandelwal have beenquoted at length. The assessee has alreadychallenged the veraity of these statementsin as much as these were recorded underthreat and duress. In any case the gist ofthe statements is that bills of purchases(bogus) were obtained after makingpayment of commission from 65 paise torupee 1. (Page 22 of the assessment orderwhere statement of Shri Raghu Dutt Tiwariis reproduced). Similarly the assessee alsogot a similar COMMISSION on issuringsuch bogus sale bills. In other words theassessee was not earning anything in theprocess of obtaining bogus purchasevouchers and issuing sale vouchers. Theonly benefit which the assessee derivedwas banking credit facility on the basis ofincrease turnover. This finds support fromthe statement of Shri K.K. Ameria reliedupon by the Learned Assessing Officer. Thisis quoted in para 7 on page 2 of the assessment order. The assessee couldincrease his turnover in the process ofalleged bogus purchase vouchers andbogus sale vouchers. Therefore the entireexercise of the Learned Assessing Officerwhich suggests that assessee earned in theaforesaid process of bogus vouchers. TheLearned Assessing Officer has notconducted any post search inquiries whichmay also support the finding of theLearned Assessing Officer of earning higherprofits by the assessee by way of obtainingbogus purchase vouchers and issuingbogus sale vouchers. Thus there was nojustification of the Learned AssessingOfficer for taking u/s 153 in the case andsubsequently completing the assessmentby making addition of Rs.1,02,92,954/-. 4. Sunjay Oil Case Industries vs. CIT 10DTR 153 (Guj.) case is not applicable-The Learned Assessing Officer has referredthe aforesaid case law on page no.36 ofthe assessment order. It is submitted thatthe ratio of this case has not been foundapplicable in the case of the assessee inAssessment Year 2006-07 wherein additionwas made by disallowing 25% of the boguspurchases to the tune of Rs.5.40 crores. Inthe first appeal itself the Learned CIT(A)directed for applying GP rate of 8.5% asagainst 7.40% disclosed by the assesse. Itis further submitted that as mentioned bythe Learned Assessing Officer in theassessment order on page no.36 that inAssessment Year 2005-06 the issue ofbogus purchases cropped up and theLearned Assessing Officer has applied GPrate of 13.2% as against GP rate of12.72% disclosed by the assessee. This GPrate was subsequently reduced by theLearned CIT(A) to 13%. The Hon'ble ITATlater on sustained addition only ofRs.1,00,000/- against a turnover ofRs.14,26,09,000/- meaning thereby the GPrate was increased only 0.07%. In otherwords as against GP rate disclosed 12.72%GP rate applied was 12.79%. In view of the above facts the GP rate forthe Assessment Year 2005-06 virtuallystood accepted by the Hon'ble ITAT despiterejection of books of accounts. In thesecircumstances no addition was warrantedduring the year under consideration also. 5. History of the case is the best guidance-As discussed in the forgoing para in theAssessment Year 2005-06 the Hon'ble ITAThas accepted the GP rate of 12.79% in thecase of the assessee as against disclosedGP rate of 12.72%. This means thatdespite rejection of accounts on the groundof bogus purchase bills only an addition ofRs.1 Lac was sustained. The facts andcircumstances of the case, the nature ofbusiness is same in the year underconsideration and is identical toAssessment Year 2005-06. The GP rate ishigher being 16.08%. Hence there wasabsolutely no justification for making anyaddition. Further the Learned CIT(A) hasalso accepted the GP rate of 8.5% inAssessment Year 2006-07 in the same setof ircumstances. Considering these factswhich constitute the history of the case noaddition is called for in the year underconsideration. 6. No basis of application of GP rate of17%- It is further submitted the entirefacts for the Assessment Year 2005-06 and2006-07 have been discussed by theLearned Assessing Officer in the body ofthe assessment order on page 36. In theseassessment Year the GP rate accepted bythe department is 12.79% in AssessmentYear 2005-06 and 8.5% in AssessmentYear 2006-07. Despite all this the LearnedAssessing Officer has applied GP rate of17% without bringing any additionalmaterial on record. No comparable casehas been cited. In view of this the tradingaddition made by the Learned AssessingOfficer deserves to be knocked down. Thefollowing table reflects the trading resultsof the assessee in Assessment Year 2006--07 to 201011. CIT(A) in A.Y. 2006-07 of 8.5%. Noaddition is Decision of ITAT in assesses'sown case in assessment year 2005-06 to200-10. CIT(A) in A.Y. 2006-07 of 8.5%. Noaddition is Decision of ITAT in assesses'sown case in assessment year 2005-06 to200-10. The Hon'ble ITAT in ITA No.245/JP/2013 to249/JP/2013 has deleted the entireaddition made under the similar facts andcircumstances therefore the issue of theappeal is squarly covered in favour of theassessee. 9.He contended that tribunal has committed serious error innot appreciating the argument advanced by the appellant in parano.5.5 before the CIT(A) which reads as under:- 5.5The appellant was again given ashow cause u/s 251(2) of the IT Act, 1961as to why not the income be enhanced byapplying a GP rate of 15% (as upheld byHon’ble ITAT in the recent cases) on stockdeficiency of Rs.15,03,42,985 aftertreating the same as unaccounted sales. 10.Counsel for the appellant has taken us to the observationsmade by the tribunal which according to the appellant are contraryto law. 11.He also taken us to the paper book where complaints havebeen lodged on 22.6.2009 & 26.6.2009. Again, he has also takenus to the different correspondence entered either by him orcounsel for the assessee dt. 25.5.09, again by one of the Directordt. 25.5.2009 and One Sh. Shiv Shanker Gupta on 25.5.2009, bycounsel on 26.5.2009 and two letters dt. 27.5.2009, thereafter, byDirector of Clarity Gold dt.3.6.2009, another letter of Sh. ShivShanker Lal Gupta dt. 3.6.2009. He contended that againcompliant was lodged on 12.12.2013 and has also produced affidavit of different Directors namely Kushi Kumar, RaghuduttTiwari, Roshan Meena, Pawan Khandelwal & Pankaj Khandelwal. 12.Taking into consideration, he contended that the tribunal hascommitted serious error in dismissing the appeal of the assessee.He further contended that the notice issued u/s 251 was repliedby the assessee despite, the same was not considered by tribunal. 13.Counsel for the appellant has relied upon the decision ofGujarat High Court in Commissioner of Income Tax vs. PresidentIndustries reported in (2002) 258 ITR 654 wherein it has beenheld as under:- 2. The Assessing Officer made the addition of theentire sum of the said undisclosed sales asincome of the assessee for the asst. yr. 1994-95.The additions on account of undisclosed sales wasaffirmed by the CIT(A) to the reduced sum of Rs.28,35,883. On further appeal the Tribunal foundthat the entire sale could not have been added asincome of the assessee for the assessment year inquestion but only to the extent the estimatedprofits embedded in the sales for which the netprofit rate was adopted entailing addition ofincome on the suppressed amount of sales. TheTribunal also found that there is no material onthe record to suggest that the assessee made anyinvestment outside books of accounts to makealleged unaccounted sales in respect of theaforesaid appellate order. The applicant made anapplication under s. 256(1) for referring theaforesaid two questions said to be arising out ofTribunal's order. 3. Having perused the assessment order made bythe AO, the order made by the CIT(A) and theTribunal, we are satisfied that the Tribunal wasjustified in rejecting the application unders.256(1). It cannot be a matter of an argumentthat the amount of sales by itself cannotrepresent the income of the assessee who has notdisclosed the sales. The sales only representedthe price received by the seller of the goods forthe acquisition of which it has already incurredthe cost. It is the realisation of excess over the 3. Having perused the assessment order made bythe AO, the order made by the CIT(A) and theTribunal, we are satisfied that the Tribunal wasjustified in rejecting the application unders.256(1). It cannot be a matter of an argumentthat the amount of sales by itself cannotrepresent the income of the assessee who has notdisclosed the sales. The sales only representedthe price received by the seller of the goods forthe acquisition of which it has already incurredthe cost. It is the realisation of excess over the cost incurred that only forms part of the profitincluded in the consideration of sales. Therefore,unless there is a finding to the effect thatinvestment by way of incurring cost in acquiringgoods which have been sold have been made bythe assessee and that has also not beendisclosed. In the absence of such finding of factthe question whether entire sum of undisclosedsale proceeds can be treated income of therelevant assessment year answers by itself innegative. The record goes to show that there isno finding nor any material has been referredabout the suppression of investment in acquiringthe goods which have been found subject ofundisclosed sales. 4. We are, therefore, of the opinion that noquestion of law which requires to be referred tothis Court arise out of Tribunal's appellate order.The order of Tribunal under s. 256(1)is noterroneous in reaching such conclusion. 13.1 Another decision of Rajastha High Court in Commissioner of Income Tax vs. Laxmi Engineering Industries reported in (2009)308 ITR 279 wherein it has been observed as under:- After a review of all the judgments cited at thebar, we are of the view, that of course, inCoimbatore Spinning & Weaving Co.'s case it hasbeen observed, that the alleged practice showinginflated figure to the bank is not recognised incommercial circles or by court, and the Tribunal isnot expected to take judicial notice of suchsubstandard morality, but then, the plethora ofjudgments cited on the side of the assessee, doclearly show, that there can be circumstances,where there may be difference in the quantity ofstock, as appearing in the balance sheet, and asappearing in the hypothecation made to the bank,and that if there is any explanation comingforward for the discrepancy, then the additionneed not be made, and that, sufficiency orreliability of the explanation, offered by theassessee, is a question of fact, and the findingsthereon, as recorded by the learned Tribunal,cannot be interfered with by the High Court, as itdoes not give rise to any substantial question oflaw. With this, so far as the case in hand isconcerned, it stands at much higher footing,inasmuch as positive finding of fact has beenrecorded by the learned Tribunal, which may berepeated by us, being as under: ...Besides, we find that the AO had not been ableto point out any discrepancy in the quantity ofstock hypothecated to the bank and the quantityof stock as per books of accounts. In our view, on the face of this finding, even ifthere is some difference in the valuation of thesaid quantity of the stock in the balance sheet, asagainst the valuation shown in the bank, it cannotbe said to be resulting into any income fromundisclosed sources, coming to the assessee,capable of being added in his income. 14.In our considered opinion, the tribunal while considering the matter has not committed any error in confirming the order of both the authorities by holding as under:- ...Besides, we find that the AO had not been ableto point out any discrepancy in the quantity ofstock hypothecated to the bank and the quantityof stock as per books of accounts. In our view, on the face of this finding, even ifthere is some difference in the valuation of thesaid quantity of the stock in the balance sheet, asagainst the valuation shown in the bank, it cannotbe said to be resulting into any income fromundisclosed sources, coming to the assessee,capable of being added in his income. 14.In our considered opinion, the tribunal while considering the matter has not committed any error in confirming the order of both the authorities by holding as under:- 19. We have heard the rival contentions andperused the material available on record. The ld.CIT(A) noted that during the course of searchconducted at the premises of the assesseecompany, a number of incriminating documentswere found pertaining to unaccounted sales,purchases and expenses of the business. It wasfurther noted by the ld. CIT(A) that the assesseehas admitted in the course of statement recordedduring the course of search that total sales of allthe units during FY 2008-09 was around Rs. 107crores and the declared turnover was only aroundRs. 10.36 crores. Further, ld. CIT(A) refers to theorder of the AO and stated that the appellant hassuppressed the turnover of the businesssubstantially as may be seen from para 22 of theassessment order. It was further noted by the ld.CIT(A) that AO has accordingly rejected the bookresults declared by the appellant. It was furthernoted from the order of the AO that books ofaccounts were found to be not complete on thedate of search and as per the stock statement ason 30.04.2009 filed by the appellant with theState Bank of Indore, the value of stock as on30.04.2009 was Rs. 29,55,67,819/- and asagainst this, the actual stock found at the time ofsearch on 20.0