IN INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORESHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA No. 748 to 751/PN/2009 (Assessment year: 2003-04, 2004-05, 2005-06 & 2006-07) Purshottam N. Gadgil Saraf Bazar SANGLI 416 416 PAN AAFFP 3237 R .. Appellant Vs. I.T.O. Central, Kolhapur Respondent ITA No. 394/PN/2010 (Assessment year: 2006-07) I.T.O. Central Kolhapur Appellant Vs. Purshottam N. Gadgil Saraf Bazar SANGLI 416 416 PAN AAFFP 3237 R Respondent Assessee by : Shri Sunil Pathak Department by : Shri S.K. Singh, CIT DR Date of hearing: 23-01-2013 Date of pronouncement: 31-01-2013 ORDER PER BENCH captioned five appeals relate to same assessee and involve certain common issues, therefore, they have been clubbed and heard together and consolidated order is being passed for sake of convenience and brevity. 2. First, we shall take up appeal of assessee in ITA No. 748/PN/2009 which is appeal directed against order of Commissioner of Income-tax (Appeals) Kolhapur dated 19-3-2009 which, in turn, has arisen from order dated 8-8-2008 passed by Assessing Officer, under section 143(3) r.w.s. 153A(b) of Income-tax Act, 1961 (in short Act ), pertaining to assessment year 2003-04. In this appeal, assessee has raised 2 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 two issues as is evident from following two abridged Grounds of Appeal:- On facts and in law, 1) learned CIT(A) erred in sustaining addition of Rs. 7,01,589/- on account of customers gold/silver lying with appellant by holding that said customers gold/silver belonged to appellant and hence, there was under valuation of stock to that extent. 2) learned CIT(A) erred in confirming addition of gross profit of Rs. 3,00,365/- by holding that appellant must have carried out trading activity out of customers gold/silver and hence, GP addition was warranted. 3. Before proceeding to adjudicate specific Grounds of Appeal raised, it would be appropriate to refer to background of case. assessee is partnership firm which is, inter-alia, engaged in business of sale and purchase of jewellery. assessee-firm is regularly assessed to tax. On 26-10-2005, search and seizure action u/s 132(1) of Act was conducted at residential as well as business premises of Gadgil Group, Sangli and assessee being run by members of Gadgil family was also covered. Pertinently, on 10-3-2005, survey action u/s 133A of Act was also carried out at business premises of assessee- firm on which occasion, assessee had made declaration of additional income in respect of excess stock amounting to Rs. 71,56,219/- for A.Y. 2005-06. As consequence of search action on 26-10-2005 also, assessee-firm had made declaration of additional income on account of excess stock of Rs. 97,11,449/- for A.Y. 2006-07. aforesaid additional incomes declared by assessee have been duly assessed in respective assessments. 4. In so far as A.Y. 2003-04 is concerned, originally, assessee filed return of income on 31-10-2003 declaring total income of Rs. 91,63,603/-. Consequence to search action, notice u/s 3 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 153A(a) of Act was issued on 12-12-2006 requiring assessee to furnish return of income for A.Y. 2003-04, in response to which, assessee stated that there was no change in income originally declared and that return of income filed originally on 31-10-2003 be treated as return filed in response to notice u/s 153A(a) of Act. In assessment finalized by Assessing Officer u/s 143(3) r.w.s. 153A(b) of Act dated 8-8-2008, total income has been assessed at Rs. 1,08,41,510/- after making certain disallowances/additions. subject matter of dispute before us pertains to two additions viz. Rs. 7,01,589/- and Rs. 3,00,365/- representing additions on account of gold/silver belonging to customers treated as belonging to assessee and gross profit on sales out of customers gold/silver treated as of assessee respectively. 4. In this background, both parties have made their submissions and assessee had also furnished two Paper Books, containing pages 1 to 59 and 1 to 34 respectively. 5. In assessment order, Assessing Officer has noticed that Auditor appointed in terms of section 142(2A) of Act was directed to examine details of gold jewellery received from customers year-wise and for how much period it remained with assessee before it was adjusted or returned. Auditors furnished list of customers whose gold/silver was lying with assessee-firm since F.Y. 2002-03 to 2005-06. Assessing Officer required assessee to explain said balances and to prove genuineness of such balance of gold lying with assessee. assessee submitted that quantity of customers gold/silver lying with assessee was very insignificant percentage of total gold/silver 4 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 received from customers against orders and same was mainly on account of human error and mistakes in computer data feeding . Assessing Officer however, held that such quantity of gold actually belonged to assessee and accordingly in A.Y. 2003-04 made addition of Rs. 7,01,589/- as tabulated in para 3 of Annexure E to assessment order. CIT(A) has also sustained said addition, against which assessee is in appeal before us. 6. Before us, learned counsel for assessee vehemently pointed out that addition has been made on incorrect assumption that balance of gold/silver standing in account of customers actually belonged to assessee. learned counsel pointed out that quantity as well as percentage of gold lying in stock at close of year was insignificant as compared to total quantity of gold/silver received from customers against orders and that same was attributable to mistake in entries on account of wrong computer feeding and that in reality, no such gold belonged to assessee. In any case, it was also pointed out that when customer places order, he is given specific date on which ornaments will be ready. As such, when ornaments are received from Karigars after making it is separately kept in bag for delivery and therefore, there is no question of such item being included in stock of assessee-firm. It was also pointed out that there has been no evidence found at time of search which indicated that balance of gold in name of customers gold/silver actually belonged to assessee. It was therefore, contended that addition made be deleted. 5 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 7. On other hand, learned CIT DR appearing for Revenue has contended that as per list, some of balances have remained unchanged over long period and that there was no satisfactory explanation as to why such balance of gold belonging to different customers have not been claimed by them. It was therefore, contended that addition has been rightly made by Assessing Officer. 8. We have carefully considered rival submissions. assessee-firm is engaged in business of jewellery and inter-alia, receives orders from customers for making of ornaments, etc. In course of business, assessee also receives gold/silver ornaments from customers for execution of their orders. Obviously, such quantity of gold/silver belonged to customers and not to assessee as same are received for making of ornaments as desired by customers. It also emerges from record that assessee was maintaining separate records for such gold/silver received. Assessing Officer noticed that at end of year, there were certain quantities of gold/silver lying with firm which was on account of customers deposit. Such balance of gold/silver has been held to be belonging to assessee and accordingly added to returned income. In this connection, we find that preliminary plea of assessee was that such balances represented certain errors in recording transactions and that there was no such actual gold belonging to assessee. In this connection, it is seen that for F.Y. 2002-03 relevant for year under consideration total gold received from customers was 296958.855 grams and balance lying with firm on this count at end of year was 1351.17 grams. Similarly for A.Y. 2004-05 gold received from customers was 306536.640 grams and balance lying with firm at 6 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 end of year was 1443.88 grams and for A.Y. 2005-06 and 2006-07 gold received from customers was 341637.670 grams and 359665.840 grams whereas balance lying at end of close of year with firm was 1456.60 grams and 1456.60 grams respectively. Ostensibly, explanation of assessee is borne out from aforesaid figures. percentage of gold said to be lying with firm is quite insignificant and is not more than 0.50% as compared to quantity of gold received from customers. reasons for such difference is sought to be explained on account of human errors while feeding data in computer. Considering enormity of gold received from customers and balance outstanding at end of each year, we find that motive of concealing one s own gold in garb of customers gold cannot be attributable to assessee. Moreover, in course of search action, there is no such modus operandi which has come to light and therefore, in our view, explanation of assessee was liable to be accepted and income-tax authorities have wrongly inferred that balances of gold lying in name of customers actually belonged to assessee. Having regard to facts and circumstances and material on record, we hold that inference drawn by lower authorities is untenable and is liable to be set aside. We hold so. In conclusion, we therefore, set aside order of CIT(A) and direct Assessing Officer to delete addition of Rs. 7,01,589/-. Thus on Ground No. 1, assessee succeeds. 9. Ground No. 2 is related to Ground No. 1. After treating gold/silver belonging to customers lying with assessee as belonging to assessee, Assessing Officer inferred that such deposit of gold would have been used by assessee in its trading 7 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 operations and he thereafter, estimated gross profit on such sales and accordingly made addition of Rs. 3,00,365/- for assessment year under consideration. Since we have deleted first addition, by holding that balance of gold/silver belonging to customers lying with assessee cannot be treated as belonging to assessee, consequent addition on account of gross profit as aforesaid is also not sustainable. We therefore, reverse order of CIT(A) and direct Assessing Officer to delete addition of Rs. 3,00,365/-. Thus on Ground No. 2 also, assessee succeeds. 10. In result, appeal of assessee in ITA No. 748/PN/2009 for A.Y. 2003-04 is hereby allowed. 11. Now, we shall take up appeal of assessee in ITA No. 749/PN/2009 which is appeal directed against order of Commissioner of Income-tax (Appeals) Kolhapur dated 19-3-2009 which, in turn, has arisen from order dated 8-8-2008 passed by Assessing Officer, under section 143(3) r.w.s. 153A(b) of Income-tax Act, 1961 (in short Act), pertaining to assessment year 2004-05. In this appeal, assessee has raised following issues as is evident from following abridged Grounds of Appeal:- On facts and in law, 1) learned CIT(A) erred in confirming addition of Rs. 3,69,254/- on account of estimated gross profit on alleged unaccounted sales. 2) learned CIT(A) erred in confirming addition of Rs. 4,69,543/- on account of estimated capital employee for making unaccounted sales. 3) learned CIT(A) erred in sustaining addition of Rs. 57,698/- on account of customers gold/silver lying with appellant by holding that said customers gold/silver belonged to appellant and hence, there was under valuation of stock to that extent. 8 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 4) learned CIT(A) erred in confirming addition of gross profit of Rs. 2,70,944/- by holding that appellant must have carried out trading activity out of customers gold/silver and hence, GP addition was warranted. 12. dispute in Ground of Appeal No. 1 is with regard to addition of Rs. 3,69,254/- representing gross profit on certain unaccounted sales noticed as per material found during search. W ith regard to Ground of Appeal No. 1, relevant facts are that certain diaries/note books and loose papers, bundles were impounded at time of survey action u/s 133A of Act and certain incriminating documents were also found and seized from residence of partners of assessee-firm covered u/s 132(1) of Act. Such diaries/note books found reflected notings of certain transactions and Assessing Officer found it difficult to separate transactions on page as regards sale/purchase of gold/silver/diamond/jewellery etc. and it was also difficult to ascertain from such diaries whether transactions recorded therein had been reflected in regular books of account of assessee or not. Therefore, case of assessee was referred for Special Audit u/s 142(2A) of Act. Special Auditors appointed u/s 142(2A) of Act, examined seized material and reported entries which were not found reflected in regular books of account maintained by assessee. For year under consideration i.e. A.Y. 2004-05, such entries which are stated by auditors to be outside books of account amount to Rs. 31,76,522/- as per tabulation in para 8 of Annexure E to assessment order. aforesaid amount has been treated as unrecorded sales and after applying average gross profit rate of 11.31%, gross profit of Rs. 3,59,264/- was worked out which has been assessed as income earned outside books of account. 9 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 CIT(A) has also upheld addition, against which assessee is in appeal before us. 13. Before us, learned counsel for assessee submitted that seized material in question has been wrongly interpreted by Assessing Officer to be containing sale transactions not recorded in books of account. In this context, our attention was invited to pages 41 to49 of Paper Book No. 1 wherein sample of such seized papers have been placed. It is sought to be explained that such papers are part of diary/note book maintained by different salesmen at respective counters and notings therein are mere estimations prepared on asking of customers, and same do not reflect actual sales . learned counsel explained that when customer visits, he asks for price of different ornaments and to facilitate decision making, salesman makes rough calculation of weight and labour charges and such notings are made in impugned note books. price for ornaments varies because prices of gold and silver fluctuate everyday and therefore, note books are used to calculate price of ornaments by multiplying weight displayed on tag and rate of gold/silver at that moment after adding labour charges. Out of several articles, which may be inquired by customer, he may finally select only one article for which final sale bill is prepared by salesman. However, several calculations made for single customer which are rough notings made in seized paper do not reflect actual sales. W ith reference to samples of seized material placed in Paper Book, it is canvassed by learned counsel that by very manner in which notings have been made they do not reflect actual sales. In any case, it is submitted that wherever possible even such notings have been co-related with 10 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 entries made in regular books of account and such amounts have been excluded by auditors, while arriving at alleged unrecorded sales. learned counsel pointed out that impugned seized material can be understood as dumb document , inasmuch as notings contained therein do not bear character of sale as alleged by Assessing Officer and that it was only on presumption amounts noted in seized material have been said to be unrecorded sales. 14. On other hand, learned CIT-DR has vehemently pointed out that factum of assessee executing sales outside books of account was clearly emerging, inasmuch as in course of survey operation on 10-03-2005 and at time of search on 26-10- 2005, assessee had disclosed additional income on account of excess stock of gold/silver jewellery and that such admission of excess stock demonstrated that assessee was making purchase and sale outside books of account. It was also pointed out that at time of search at residence of one of partners, gold bricks weighing 4 kgs. were found which was unrecorded in books of account and assessee group had accepted fact and disclosed income on such unrecorded transactions. According to learned CIT DR, aforesaid clearly shows that modus operandi of unrecorded sales was being undertaken by assessee; and therefore, entries in seized note book/diaries have been correctly taken as sales, which were not recorded in regular books of account. 15. In reply, learned counsel for assessee has submitted that impugned seized material does not contain any narration that it reflected actual sales and therefore, addition has been 11 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 unjustly made by lower authorities. additional income declared on account of excess stock at time of survey as well as search operation has no bearing with regard to impugned issue as according to learned counsel, evidence in question does not reflect any actual sales undertaken by assessee. It was also pointed out that other than aforesaid seized material, there was no corroborative evidence to support inference that notings in seized material were actual sales. 16. We have carefully considered rival submissions. plea set up by assessee is that calculation/notings in seized material are rough calculations made in course of discussions with customers who come to purchase gold/silver jewellery from assessee. As per assessee, seized Note-books/diaries are maintained by salesmen for making rough calculation of estimates and do not reflect actual sales. sample of such seized diary/Note book has been placed at pages 41 to 49 of Paper Book. Notably, calculation and notings made in seized Note-books/diary on various dates were subject matter of audit by Special Auditor appointed u/s 142(2A) of Act. On asking of assessee exercise was also undertaken whereby auditors examined notings on seized diary and compared same with regular account books. transactions which were found recorded as sales in regular account books were excluded and entries/notings which were not found recorded in regular account books have been treated as sales executed by assessee outside regular account books. assessee challenges aforesaid inference by Revenue. 12 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 17. plea of assessee that such diaries/Note-books are dumb documents and do not reflect any income assessable in hands of assessee is concerned, same in our view, is unacceptable. Ostensibly, some of notings in seized material/diaries tally with sales recorded in account books and therefore, notings/entries in seized material cannot be completely disregarded as dumb document. Of course, it is also plausible that each and every narration or noting in diary is not actual sales executed by assessee. We say so for reason that there is no denying fact that such diaries are maintained by different salesmen and recordings have not been made in very formal manner. So however, having regard to fact that some of notings in diary have been found to be actual sales executed by assessee and that such record maintained is found maintained at business premises in course of business, onus is entirely on assessee to justify that notings therein do not reflect any income which is likely to escape assessment. assessee has sought to explain seized documents on basis of prevailing practice at jewellery shops where customer while deciding to purchase article, inquires about several articles and cost thereof. calculations are made several times for several articles for customer after which he may select only one article. aforesaid practice is not being disputed by Revenue. Therefore, considering entirety of facts and circumstances, we find that explanation of assessee cannot be completely brushed aside. So however, in absence of any clinching evidence with assessee to prove that all entries do not reflect actual sales, in our opinion, it would be appropriate to make estimate of sales, so as to meet ends of justice. For said purpose, in our view, 50% of un-reconciled entries in seized 13 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 diaries/Note-books be treated as sales effected by assessee outside account books. Therefore, we set aside order of CIT(A) on this aspect and direct Assessing Officer to re-compute addition on account of gross profit on unrecorded sales as estimated in aforesaid manner. At this point, we may refer to alternate plea raised by assessee with regard to computation of gross profit on such unrecorded sales. In A.Y. 2004-05, gross profit rate in gold business was 5.39% and in silver business it was 17.24% and Assessing Officer computed gross profit on unrecorded sales by applying average of two gross profit rates i.e. @ 11.31%. assessee has contended that gross profit be computed with reference to respective gross profit rate, inasmuch as profit from sale of gold items be computed by applying rate of 5.39% in gold business and that of silver items by applying 17.24%, as such details are available on record and not on basis of average gross profit which is erroneous. aforesaid point made by assessee is quite reasonable and in our view, deserves to be considered by Assessing Officer while re- computing income from unrecorded sales as directed by us in earlier paragraphs. In conclusion, we therefore, set aside order of CIT(A) and direct Assessing Officer to re-compute income on account of gross profit in respect of unrecorded sales in manner indicated above. Thus on this Ground, assessee partly succeeds. 18. Now, we may take up Ground of Appeal No. 2 which relates to addition of Rs. 4,69,543/- made by Assessing Officer on account of capital employed in respect of unaccounted sales identified by him on basis of seized material, which was subject matter of consideration in Ground of Appeal No. 1. 14 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 Assessing Officer reasoned that in order to effectuate unaccounted sales, assessee would have employed capital which was also not recorded in account books. For aforesaid reason, further addition of Rs. 4,69,543/- was made by Assessing Officer for assessment year under consideration. Such addition has also been upheld by CIT(A) against which, assessee is in appeal before us. 19. Without prejudice to its primary plea that there was no unaccounted sales effected by assessee and therefore, no addition is merited on account of capital employed, learned counsel submitted before us that proportion of alleged unaccounted sales stated by Assessing Officer is very meager in comparison to total sales declared in books of account and therefore, no separate capital was required to undertake such unrecorded sales. In any case, it has also been submitted that credit should be given for gross profit earned on unrecorded sales in order to arrive at capital employed for in such unrecorded business. 20. On other hand, learned CIT-DR has defended addition made on this score by Assessing Officer by submitting that necessarily certain level of capital would have been employed by assessee to undertake sales which are not recorded in books of account. 21. We have carefully considered rival submissions. In principle, we are in agreement with Revenue that addition is merited on account of capital employed by assessee in undertaking unrecorded sales. factum of assessee 15 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 undertaking unrecorded sales as per seized material has been upheld by us in earlier paragraphs, subject to re-working of quantum of such sales. Keeping that in mind, on this ground also, we find that assessee is eligible to certain relief inasmuch as quantum of unrecorded sales have been reduced. Considering aforesaid aspect, we therefore, deem it fit and proper that addition of Rs. 2,00,000/- on this score would be adequate in order to plug leakage of revenue, if any. Thus, assessee partly succeeds on this Ground. 22. Ground of Appeal No. 3 relates to addition of Rs. 57,698/- on account of customers gold/silver lying with assessee. Similar issue came up for consideration before us while dealing with appeal for A.Y. 2003-04. On similar set of facts, our decision on Ground of appeal No. 1 for A.Y. 2003-04 would apply mutatis mutandis to facts of case for year under consideration also. We therefore, set aside order of CIT(A) and direct Assessing Officer to delete addition of Rs. 57,698/-. Thus, on Ground No. 3, assessee succeeds. 23. Ground of Appeal No. 4 relates to addition of gross profit of Rs. 2,70,944/-. Similar issue came up for consideration before us while dealing with appeal for A.Y. 2003-04. On similar set of facts, our decision on Ground of appeal No. 2 for A.Y. 2003-04 would apply mutatis mutandis to facts of case for year under consideration also. We therefore, set aside order of CIT(A) and direct Assessing Officer to delete addition of Rs. 2,70,944/-. Thus, on Ground No. 4, assessee succeeds. 24. Resultantly, appeal of assessee in ITA No. 749/PN/2009 pertaining to A.Y. 2004-05 is partly allowed. 16 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 25. Now, we shall take up appeal of assessee in ITA No. 750/PN/2009 which is appeal directed against order of Commissioner of Income-tax (Appeals) Kolhapur dated 19-3-2009 which, in turn, has arisen from order dated 8-8-2008 passed by Assessing Officer, under section 143(3) r.w.s. 153A(b) of Income-tax Act, 1961 (in short Act), pertaining to assessment year 2005-06. In this appeal, assessee has raised following issues as is evident from following abridged Grounds of Appeal:- On facts and in law, 1) learned CIT(A) erred in confirming addition of Rs. 6,73,624/- on account of estimated gross profit on alleged unaccounted sales. 2) learned CIT(A) erred in sustaining addition of Rs. 7,800/- on account of customers gold/silver lying with appellant by holding that said customers gold/silver belonged to appellant and hence, there was under valuation of stock to that extent. 3) learned CIT(A) erred in confirming addition of gross profit of Rs. 4,10,854/- by holding that appellant must have carried out trading activity out of customers gold/silver and hence, GP addition was warranted. 4) Without prejudice to above grounds, assessee submits that in case, above additions are sustained, same should be set off against excess stock of Rs. 71,56,219/- declared by appellant. 26. Ground of appeal No. 1 relates to addition of Rs. 6,73,624/- on account of estimated gross profit on alleged unaccounted sales. Similar issue came up for consideration before us while dealing with appeal of assessee in ITA No. 749/PN/2009 pertaining to assessment year 2004-05. On similar set of facts, our decision on Ground of appeal No. 1 for A.Y. 2004-05 would apply mutatis mutandis to facts of case for year under consideration also. We therefore, set aside order of CIT(A) and direct 17 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 Assessing Officer to re-compute income on account of gross profit in respect of unrecorded sales in manner as indicated in preceding paragraphs while dealing with Ground no. 1 pertaining to A.Y. 2004-05. Thus on this Ground, assessee partly succeeds. 27. Ground of Appeal No. 2 relates to addition of Rs. 7,800/- on account of customers gold/silver lying with assessee. Similar issue came up for consideration before us while dealing with appeal of assessee for A.Y. 2003-04. On similar set of facts, our decision on Ground of appeal No. 1 for A.Y. 2003-04 would apply mutatis mutandis to facts of case for year under consideration. We therefore, set aside order of CIT(A) and direct Assessing Officer to delete addition of Rs. 7,800/-. Thus, on Ground No. 2, assessee succeeds. 28. Ground of Appeal No. 3 relates to addition of Rs. 4,10,854/- made on account of gross profit. Similar issue came up for consideration before us while dealing with appeal of assessee for A.Y. 2003-04. On similar set of facts, our decision on Ground of appeal No. 2 for A.Y. 2003-04 would apply mutatis mutandis to facts of case for year under consideration. We therefore, reverse order of CIT(A) and direct Assessing Officer to delete addition of Rs. 4,10,854/-. Thus on Ground No. 3 also, assessee succeeds. 29. By way of Ground of Appeal No. 4, omnibus plea has been raised by assessee that incase any additions are sustained, same should be set off against additional income of Rs. 71,56,219/- offered by assessee for year under consideration 18 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 in respect of excess stock. Justifying aforesaid plea, learned counsel for assessee submitted that in case addition on account of gross profit on unaccounted sales is made and also declaration on additional income on account of excess stock made by assessee is retained, it would be anomalous situation, inasmuch as it would result in double addition. It is sought to be pointed out that income which was hitherto earned outside account books, was declared in form of excess stock amounting to Rs. 71,56,219/- and therefore, other additions made by Assessing Officer are not required. It is therefore, sought to be made that addition, if any, on account of gross profit in respect of unaccounted sales be set off against additional income on account of excess stock declared by assessee. 30. In our considered opinion, plea of assessee is not misplaced and addition sustained on account of undisclosed gross profit on account of unrecorded sales, if any, can be said to be subsumed in additional income declared by assessee for assessment year under consideration on account of excess stock amounting to Rs. 71,56,219/-. Assessing Officer is directed to allow appropriate relief on this score while re-working income of assessee. Needless to mention, Assessing Officer shall give reasonable opportunity of being heard to assessee. 31. Thus, appeal of assessee in ITA No. 750/PN/2009 for assessment year 2005-06 is partly allowed. 32. Now, we shall take up appeal of assessee in ITA No. 751/PN/2009 which is appeal directed against order of Commissioner of Income-tax (Appeals) Kolhapur dated 19-3-2009 19 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 which, in turn, has arisen from order dated 8-8-2008 passed by Assessing Officer, under section 143(3) r.w.s. 153A(b) of Income-tax Act, 1961 (in short Act), pertaining to assessment year 2006-07. In this appeal, assessee has raised following issues as is evident from following abridged Grounds of Appeal:- On facts and in law, 1) learned CIT(A) erred in confirming addition of Rs. 19,00,286/- on account of estimated gross profit on alleged unaccounted sales. 2) learned CIT(A) erred in confirming addition of Rs. 6,43,641/- on account of estimated capital employee for making unaccounted sales. 3) learned CIT(A) erred in confirming addition of gross profit of Rs. 5,36,763/- by holding that appellant must have carried out trading activity out of customers gold/silver and hence, GP addition was warranted. 4) learned CIT(A) erred in confirming addition of Rs. 1,89,888/- on account of gross profit inr4espect of sale of gold bricks to shri Ganesh H. Gadgil. 5) Without prejudice to above grounds, assessee submits that in case, above additions are sustained, same should be set off against excess stock of Rs. 97,11,449/- declared by appellant. 32. Ground of appeal No. 1 relates to addition of Rs. 19,00,286/- on account of estimated gross profit on alleged unaccounted sales. Similar issue has come up for consideration before us while dealing with appeal of assessee in ITA No. 749/PN/2009 pertaining to assessment year 2004-05. On similar set of facts, our decision on Ground of appeal No. 1 for A.Y. 2004-05 would apply mutatis mutandis to facts of case for year under consideration also. We therefore, set aside order of CIT(A) and direct Assessing Officer to re-compute income on account of gross profit in respect of unrecorded sales in manner as indicated preceding paragraphs while dealing with Ground 20 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 no. 1 pertaining to A.Y. 2004-05. Thus on this ground, assessee partly succeeds. 33. Ground of Appeal No. 2 relates to addition of Rs. 6,43,641/- on account of estimated capital employed for making unaccounted sales. Similar issue has come up for consideration before us while dealing with appeal of assessee in ITA No. 749/PN/2009 pertaining to assessment year 2004-05. On similar set of facts, parity of reasoning adopted by us while dealing with Ground of appeal No. 2 for A.Y. 2004-05 would apply mutatis mutandis to facts of case for year under consideration also. Following reasoning given therein, for year under consideration, we deem it fit and proper that addition of Rs. 3,00,000/- on this score would be justified in order to plug leakage of Revenue. Assessee partly succeeds on this ground. 34. Ground of Appeal No. 3 relates to addition of gross profit of Rs. 5,36,763/-. Similar issue came up for consideration before us while dealing with appeal for A.Y. 2003-04. On similar set of facts, our decision on Ground of appeal No. 2 for A.Y. 2003-04 would apply mutatis mutandis to facts of case for year under consideration. We therefore, set aside order of CIT(A) and direct Assessing Officer to delete addition of Rs. 5,36,763/-. Thus, on Ground No. 3, assessee succeeds. 35. Ground of Appeal No 4 relates to addition of Rs. 1,89,888/- made on account of gross profit in respect of sale of gold bricks to shri Ganesh H. Gadgil. facts in this regard are that at time of search action at residence of Shri Ganesh H. Gadgil, one of partners of assessee-firm, jewellery found included 4 pure gold 21 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 bricks of one kg. Shri Ganesh Gadgil could not explain source of investment and he made declaration of income on account of undisclosed investment in purchase of such gold bricks at Rs. 27,60,000/- in his personal return of income for A.Y. 2006-07. In course of impugned assessment proceedings of firm, it was pointed out that investment in such gold bricks has been admitted by partner in his individual return. However, to buy peace of mind, assessee firm paid tax on Rs. 1,89,888/- being profit on such transaction. Assessing Officer brought to tax sum of Rs. 1,89,888/- on ground that same has been admitted by assessee as gross profit assessable to tax for A.Y. 2006-07. CIT(A) has also upheld said addition. 36. Before us, only point made by assessee is that no separate addition be made on this count and that same be set off against additional income declared in this assessment year in respect of excess stock of Rs. 97,11,449/-. Similar point has been raised by assessee for A.Y. 2005-06 in ITA No. 750/PN/2009, wherein we have directed Assessing Officer to allow appropriate relief on this score while re-working income of assessee. For reasoning given therein, for year under consideration also, we direct Assessing Officer to allow appropriate relief while re- working income of assessee. Needless to mention, Assessing Officer shall give reasonable opportunity of being heard to assessee and thereafter adjudicate issue. This ground of appeal is accordingly allowed for statistical purposes. 37. Ground No. 5 raised by assessee is omnibus plea similar to that made for A.Y. 2005-06 which is to effect that additions, if any, is sustained be set off against declaration 22 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 of additional income of Rs. 71,56,219/-. Following reasoning given while dealing with assessee s appeal for A.Y. 2005-06, this ground is treated as allowed for statistical purposes. 38. In result, captioned appeals of assessee are partly allowed in manner indicated above. 39. Now we shall take up Revenue s appeal in ITA No. 394/PN/2010 pertaining to A.Y. 2006-07 which is appeal directed against order of Commissioner of Income-tax (Appeals) Kolhapur dated 20-3-2009 which, in turn, has arisen from order dated 8-8-2008 passed by Assessing Officer, under section 143(3) of Income-tax Act, 1961 (in short Act ). 40. first issue raised in appeal of Revenue is with regard to addition of Rs. 1,52,47,994/- made on account of excess closing stock which has since been deleted by CIT(A). At time of survey on business premises of assessee, stock of gold, silver and diamond found was got valued through Government Approved Valuer and certain difference vis- -vis value of stock as per account books was found. assessee firm had declared additional income of Rs. 97,11,449/- on account of such excess stock of gold, silver and diamond as detailed below: i) Gold account Rs. 71,35,290/- ii) Silver Account Rs. 1,90,324/- iii) Diamond Account Rs. 23,895,835/- --------------------- Rs. 97,11,449/- -------------------- 41. In course of assessment proceedings, Assessing Officer noticed that difference in stock position noticed was 23 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 to extent of Rs. 2,49,59,443/- as detailed in para 4 of order of CIT(A). assessee was asked to explain as to why declaration of additional income on account of excess stock was lower at Rs. 97,11,449/-. assessee explained before Assessing Officer that total amount of gold found, adjustment was made for gold receivable from karigars and reduction on account of gold deposits by customers and by relatives to arrive at physical closing stock which was then compared with value of stock as per account books and on difference assessee had surrendered additional income. For each of items of gold, silver and diamond, assessee furnished requisite information along with difference and value thereof which was in consonance with additional income of Rs. 97,11,449/- declared by assessee. Assessing Officer however, in para 9(iii) of order has not accepted explanation of assessee and accordingly, difference of Rs. 1,52,47,994/- representing short declaration made was assessed to tax. Before CIT(A_), assessee reiterated submissions made before Assessing Officer. In para 5 of order of CIT(A) submissions made by assessee have been reproduced and plea of assessee was that excess value of stock worked out by Assessing Officer was not correct and that assessee had correctly worked out excess stock at time of survey and difference to extent of Rs. 97,11,449/- was correctly declared as additional income. CIT(A) has examined reconciliation furnished by assessee and found them to be correct and according to him, declaration of excess stock made by assessee was correct and no addition was justifiable. factual findings have been arrived at by CIT(A) in respect of each of 24 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 stocks, viz. gold, silver and diamond in para 6 to 11 of impugned order, which we reproduce hereunder: 6. I have considered submissions. During search, statement of Shri Sameer Gadgil, partner of appellant firm was recorded. In this statement, he was asked to explain inventory of gold of 94042 grams. valued at Rs.6.53 crorcs and 932.2 kg silver valued at Rs. 1.07 crorcs. appellant in reply to above question gave reconciliation of gold and silver found with gold and silver in books. reconciliation in terms of weight was as under; As per books (Kgs.) As per Valuation Report (Kgs, Gold 71,234 81.575 Silver 775.331 791.598 7. He admitted that stock of gold physically present was higher than books by 10.34 kg and silver by 16.26 kg. stock of diamond was also in excess of 23.85 lacs. above difference in stock of gold, silver and diamond between books and physical inventory was accepted by him. Again in question No.28, he was asked what was value of stock on that day. He stated that value of stock of gold was 71.35 lacs and silver 1.90 lacs. In question No.29, it was asked if he had anything more to state. In answer to question No.29, appellant declared following amounts with regard to gold, silver and diamonds. Gold Rs. 71,35,290/- Silver Rs. 1,90,324/- Diamond Rs. 28,35,835/- 8. In addition, there was declaration on certain other items viz. labour charges etc. total declaration was Rs.1,06,04,6847-, out of which, declaration on account of excess gold and silver was Rs.73,25,614/-. 9. In appellant's answer to question No.26, quantity of gold as per valuation report is given as 81.575 Kgs and quantity as per books given at 71,234 Kgs. resulting in difference of 10.34 kgs excess gold found during survey. value per gm adopted by registered valuer is Rs.695/-(65359232/94042 gm). value of 10.34 Kgs @ 695/- per gm is to Rs.71,83,600/-. declaration of appellant is Rs.71,35,290/- which is marginally lower. adjustments made to total gold found to arrive at figure of 81.575 kg is given in submission of appellant at para 5 above. closing stock as per books of accounts similarly is 83701.525 which after adjustment comes down 25 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 71234.635. difference between quantities as per physical inventory and books of accounts remains 10.340 Kgs before and after adjustments. adjustments are on account of gold deposits from ^ customers and relatives. This gold belongs to other parties and therefore not part of closing stock. stock difference of 10.340 Kg @ 690/- per grm amounts to 71,35,290/- which is amount declared by appellant. In situation, there is no justification for addition to be made. 10. Similar is case of silver. Although adjusted quantity of gold as declared in statement during survey is 71234.635 grn, quantity before adjustment is 83701.525 gms. This quantity should be compared with physical inventory of 94042. AO has however compared quantity in books after adjustments for gold deposit by third parties of 71235 grns with unadjusted physical inventory of 94042 gms thereby resulting in higher difference and addition made. In tentative trading account drawn up on date of survey, gold amount shows closing stock of Rs.4,50,11,860/-. This is value of 71235 gms. of gold @ 612/- per gm as stated by appellant. AO valued stock at Rs.695/-. assessee's declaration was at rate of 690/- per gm. 11. value of closing stock in tentative trading account @695/- per gm works out to Rs.4,95,08,32s/- that is higher than closing stock shown in trading account by Rs.44,96,465/- There is statement attached to tentative trading account which shows closing stock of gold in quantity terms. According to this statement fine weight of closing stock before adjustment is 83701.525 gms and after reducing gold deposits by customers and family members and gold receivable from Karigars is 71234.635 gms. This is same quantity mentioned in statement recorded during survey. There is therefore no doubt that quantity of 71234 is quantity after adjustments and cannot be compared with gross quantity of closing stock found on physical verification before any adjustment. 12. In view of above, addition is held to be unjustifiable and made on wrong appreciation of facts. addition is therefore deleted. 42. Against aforesaid, learned CIT-DR has submitted that CIT(A) was not justified in deleting addition, inasmuch as, difference in stock as worked out by Assessing Officer is quite justified as apparent from record. On other hand, learned counsel for Respondent-assessee vehemently pointed out that Assessing Officer erred in computing excess stock, inasmuch 26 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 as on one hand, stock as per physical inventory was taken and on other hand, stock position as per books was adopted which was after adjustment on account of material receivable from karigars, deposited by customers and by relatives. Our attention was invited to working reproduced by CIT(A) in para 5 of his order and therefore, on this basis it is sought to be made out that there was no discrepancy in excess stock as determined by assessee at time of survey. 43. We have carefully considered rival submissions. It is clear from order of CIT(A) that Assessing Officer has not appreciated position being canvassed by assessee in its proper perspective. assessee explained before Assessing Officer manner in which excess stock on account of gold, silver and diamond was worked out and additional income thereon was declared. We find that Assessing Officer has reproduced reply of assessee in para 9(ii) of assessment order. So however, there is no reasoning extended by Assessing Officer in para 9(iii) thereof as to why such explanation of assessee is not acceptable. only reason was that stock at time of survey was got valued by Government Approved Valuer and therefore, valuation has been adopted as such. So however, order of CIT(A) clearly brings out that excess stock vis- - vis account books was to be determined after making suitable adjustments enumerated therein. As per such adjustment for which there is no credible negation brought out by Revenue, CIT(A) has correctly deduced that excess stock determined by assessee for purposes of declaring additional income of Rs. 97,11,449/- was fair and proper. order of CIT(A) is 27 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 therefore, hereby affirmed. stand of Revenue therefore, fails. 44. last issue in this appeal is with regard to addition u/s 40A(3) of Act. Assessing Officer made disallowance of Rs. 1,03,076/- u/s 40A(3) of Act as per details in annexure C to assessment order on ground that assessee had effected purchases in cash of Rs. 5,15,383/- which was in violation of provisions of sec. 40A(3) of Act. plea of assessee was that none of purchases was in excess of Rs. 20,000/- and therefore, such payment even if made in cash were outside purview of disallowance of sec. 40A(3) of Act. Assessing Officer however, made disallowance by countering assessee and holding that because payments have been made on same day in excess of Rs. 20,000/-, disallowance u/s 40A(3) of Act was justified. CIT(A) has deleted addition as per discussions in para 31 of impugned order. In terms thereof, CIT(A) accepted plea of assessee that there was no presumption that payments have been made to one person by way of same transaction. Against aforesaid decision, Revenue is in appeal before us. 45. Before us, learned CIT-DR reiterated his arguments set up by Assessing Officer which we have already noted in earlier paragraphs and is not repeated here for sake of brevity. On other hand, learned counsel for Respondent-assessee has relied upon finding of CIT(A) in this regard and has defended deletion. 28 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 46. Having considered rival submissions, we find that disallowance has been correctly deleted by CIT(A). assessing Officer noticed that assessee had effected purchases on same day but bills have been split up in name of family members and individual payment was below Rs. 20,000/- each. CIT(A) has found that simply because dates of payment are same and surnames of persons to whom payments have been made or they belong to one group or family it cannot be presumed that payments have been made to one person by way of single transaction. In fact, CIT(A) has given instances where bills and receipts numbers are different. We find that Assessing Officer has made very generalized observation to make impugned disallowance and CIT(A) made no mistake in deleting impugned addition. action of CIT(A) is hereby affirmed, inasmuch as no infirmity has been brought out on basis of any cogent reasons and material. Thus, on this issue as well, Revenue fails. 47. In result, all appeals of assessee are partly allowed whereas appeal of Revenue is dismissed. Decision pronounced in open court on 31 st January 2013. Sd/- sd/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER Pune, Dated: 31 st January 2013 Ankam Copy to:- 1. Assessee 2. Department 3. CIT (A) Kolhapur 4. CIT- Kolhapur 5. Departmental Representative, B Bench, I.T.A.T., Pune. By Order //true copy// Sr. P.S. I.T.A.T., Pune 29 ITA No. 748 to 751/PN/2009 And ITA No. 394/PN/2010 P.N. Gadgil A.Y. 2003-04 to 2006-07 M/s Purushottam Narayan Gadgil v. ITO- Central- Kolhapur