I.T.A. No.677/Lkw/15 1 Assessment year :2011-2012 IN INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH , LUCKNOW BEFORE SHRI P. K. BANSAL, ACCOUNTANT MEMBER AND SHRI ABY T. VARKEY, JUDICIAL MEMBER ITA No.677/Lkw/2015 Asstt. Year:2011-12 A.C.I.T., Vs. Shri Madhav Prasad Agarwal, Central Circle-II, Prop. M/s K.D. Jewellers, Lucknow. 115, Shri Radha Brijmohan Mandir Loai Bazar, Vrindawan, Mathura. PAN:AAVPS2957K (Appellant) (Respondent) Appellant by Shri Amit Nigam, D. R. Respondent by Shri Abhinav Mehrotra, Advocate Date of hearing 10/08/2016 Date of pronouncement 16/09/2016 ORDER PER P. K. BANSAL, A.M. This appeal, filed by assessee, is directed against order dated 11/09/2015 passed by Learned CIT(A)-III, Lucknow pertaining to assessment year 2011-2012. 2. Ground No. 1 of appeal reads as under: 1. That on facts and in circumstances of case, learned CIT(A) has erred in deleting addition of Rs.3,61,747/- made by Assessing Officer by applying gross profit rate on unaccounted sales. 3. facts relates to this ground are that search & seizure operation was carried out u/s 132 of Act on 27/07/2011. During course of I.T.A. No.677/Lkw/15 2 Assessment year :2011-2012 search & seizure operation loose papers written by son of assessee namely Shri Amit Kumar were found from premises occupied by assessee at Baroran Tola, Chowk, Lucknow. assessee owned all these papers in his case and worked out income on basis of these loose papers. Quantitative details were also filed on basis of loose papers. assessee has worked out net profit at Rs.5,69,036/- and offered same for taxation which was worked out @2.31%. Assessing Officer was of view that gross profit rate shown by assessee is less than gross profit rate shown in books of account i.e. 3.78% and therefore, he computed net income by applying gross profit @3.78% at Rs.9,30,783/- and added difference of Rs.3,61,747/- in income of assessee. assessee went in appeal before CIT(A) who confirmed order of Assessing Officer. 4. We have heard rival submissions, carefully considered same along with orders of tax authorities below. Before us, Learned counsel for assessee even though vehemently contended that assessee has worked out profit on basis of loose papers along with quantitative details and gross profit rate as per loose papers comes to 2.31% on unaccounted transaction which relates to unaccounted purchase and sales of silver. Assessing Officer has adopted gross profit @3.78% as per regular books of account. said gross profit rate was combined gross profit rate of silver and gold sales. sales of gold in regular books of account were Rs.5,02,92,111/- while of silver ornaments was Rs.1,27,60,363/-. gross profit rate was higher in case of gold ornaments but it was less in case of silver ornaments. Except this argument, no cogent material or evidence was brought to our knowledge which may prove that gross profit rate in case of silver ornaments sold and shown in regular I.T.A. No.677/Lkw/15 3 Assessment year :2011-2012 books of account were much lesser than gross profit rate shown in gold ornaments. We are of view that onus is on assessee to prove that he has actually derived gross profit less than what has been estimated by Assessing Officer on basis of regular books of account maintained by assessee. Under these facts and circumstances, we do not find any infirmity in order of CIT(A) confirming addition of Rs.3,61,747/- by estimating gross profit @3.78%. 5. second ground taken by Revenue reads as under: 2. That on facts and in circumstances of case, learned CIT(A) has erred in deleting addition of Rs.33,31,762/- made by Assessing Officer on account of unexplained investment in unaccounted transactions/business of assessee. 6. facts related to this issue are that Assessing Officer noted that assessee has carried out unaccounted business operation in respect of gold and silver ornaments. assessee stated that in regular books of account credit turnover ratio is 23%. Assessing Officer noted that undisclosed sales of three months were Rs.71,16,398/- as details on pages 9 & 10 of assessment order. Assessing Officer took one month sale as initial capital for purpose of undisclosed business of assessee and therefore, he worked out one month sales on basis of unaccounted sale at Rs.33,31,762/- made from 23/10/2010 to 22/11/2010 and treated it as unexplained investment. assessee went in appeal before CIT(A) who confirmed order of Assessing Officer. 7. We have heard rival submissions, carefully considered same along with orders of tax authorities below. We noted that assessee has contended on basis of regular books of account that I.T.A. No.677/Lkw/15 4 Assessment year :2011-2012 credit turnover ratio is at 23.52%. This proves that on basis of regular books of account 76.48% purchases are made in liquid form i.e. by way of making payment in cash. assessee has entered into transaction out of books of account which are not recorded in regular books of account. In view of these transactions being made in cash, natural inference will be that prior to sales made, assessee would have made investment for making cash purchase. assessee was asked to submit rotation of purchase and sales which he could not submit before us. assessee only submitted details in respect of sales. On basis of sales, we noted that assessee has made sales for first time on 23/10/2010. In our opinion, taking rotation of one month is on higher side. At most, assessee may have stock for unaccounted sales for 10 days as most of sales are made in cash. We, therefore, reduce estimation of initial capital investment to 10 days that too on basis of cash purchases made by assessee. We noted that during first 10 days assessee made following sales: Date Amount (Rs.) 23/10/2010 5,27,250 26/10/2010 8,92,512 31/10/2010 3,60,000 31/10/2010 7,40,000 total of all these comes to Rs.25,19,762/-. Since as has been accepted by Assessing Officer, assessee s credit turnover ratio comes to 23.52% therefore, out of these sales of Rs.25,19,762/-, assessee would have made purchases on credit to extent of Rs.5,95,167/-. In view of credit turnover ratio being 23.52%, assessee would have made 76.48% purchases to be in cash. Therefore, we are of view that I.T.A. No.677/Lkw/15 5 Assessment year :2011-2012 assessee would have made initial investment of Rs.19,21,595/-. In view of this fact, we set aside order of CIT(A) and reduce addition of Rs.33,31,762/- to Rs.19,24,595/-. Thus, this ground is partly allowed. 8. In result, appeal of Revenue stands partly allowed. (Order pronounced in open court on 16/09/2016 Sd/. Sd/. ( ABY T. VARKEY ) ( P. K. BANSAL ) Judicial Member Accountant Member Dated:16/09/2016 *Singh Copy of order forwarded to : 1. Appellant 2. Respondent. 3. Concerned CIT 4. CIT(A) 5. D.R., I.T.A.T., Lucknow Asstt. Registrar A.C.I.T., Central Circle-II, Lucknow v. Madhav Prasad Agarwal