Appeal details
Counselvise Citation
[2010] 119 COUNSELVISE.COM (IT) 5778 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 25 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-03-2010
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
D
Next Hearing Date
17-03-2010
Assessment Year
2003-2004
Appeal Filed On
05-03-2007
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : D NEW DELHI BEFORE SHRI DEEPAK R SHAH, ACCOUNTANT MEMBER SHRI RAJPAL YADAV, JUDICIAL MEMBER I.T.A NO. 1082/DEL./07 ASSESSMENT YEAR 2003-04 ASSTT. COMMISSIONER OF INCOME TAX, VS. M/S. MOTIWAL A & SONS CIRCLE 33(1), NEW DELHI. 2633, BANK STREET, KAROL BAGH NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.K. GUPTA, SR. DR. RESPONDENT BY : SHRI KANWAL MALHOTRA, CA ORDER PER DEEPAK R SHAH, AM: THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE OR DER OF LD. CIT (A) XXVI NEW DELHI DATED 22.12.06 IN AN APPEAL AGA INST THE ORDER FRAMED U/S 143(3) OF THE INCOME TAX ACT 1961 (THE A CT). 2. THE ASSESSEE IS A FIRM DEALING IN GOLD JEWELLERY , DIAMOND AND OTHER JEWELLERY. THE ASSESSEE FILED A RETURN OF INC OME DECLARING TOTAL INCOME OF RS. 6,42,410. A SURVEY WAS CONDUCTED AT T HE BUSINESS PREMISES OF ASSESSEE U/S 133(A) ON 23.4.2002. WHEN THE SURVEY WAS CONDUCTED THE VALUE OF STOCK ON HAND WAS WORKED OUT AT RS. ITA NO. 1082/DEL/07 ASSTT. YEAR 2003-04 2 49100712/- AND AS AGAINST THIS THE STOCK AS PER BOO KS OF ACCOUNTS WERE WORKED OUT AT RS.4,42,56,924/-. THUS A DIFFERE NCES OF RS. 4843748/- WAS WORKED OUT. DURING THE COURSE OF STAT EMENT RECORDED AT THE TIME OF SURVEY ONE OF THE PARTNER AGREED TO THE DISCREPANCY AND OFFERED THE SAME TO TAX. HOWEVER IMMEDIATELY TH EREAFTER ON 6.5.2002 THE ASSESSEE SUBMITTED A LETTER POINTING O UT CERTAIN APPARENT MISTAKE WHICH HAS BEEN FOUND IN THE INVENT ORY OF CLOSING STOCK FOUND DURING SURVEY. THE ASSESSEE VIDE LETTER DATED 6.5.2002 CONTENDED THAT THERE ARE APPARENT AND PATENT MISTAK ES IN THE INVENTORY RECORDED AT THE TIME OF SURVEY. IT WAS SU BMITTED THAT THE QUANTITIES RECORDED ARE NOT CORRECT AND VALUATION H AS BEEN TAKEN ON GROSS WEIGHT WHEREAS IT SHOULD HAVE BEEN TAKEN ON N ET WEIGHT. THE ASSESSEE SUBMITTED THE RECONCILIATION OF STOCK AND ITS VALUATION IS LIKELY TO TAKE FEW DAYS TIME WHICH WILL BE SUBMITTE D ON RECONCILIATION. THE ASSESSEE THEREAFTER VIDE LETTER DATED 30 TH MAY, 2002 FILED THE COMPLETE RECONCILIATION AND IT WAS SUBMITTED THAT T HE DIFFERENCE IS ONLY OF RS. 7.60. IT WAS INTER ALIA SUBMITTED THAT SOME JEWELLERY OF 18 CARATS HAVE BEEN TAKEN ON 22 CARATS AND VICE VERSA. IT WAS ALSO SUBMITTED THAT SOME OF THE JEWELLERY OF SISTER CONC ERN M/S. MOTIWALA SONS WAS MIXED UP WITH THE STOCK OF ASSESSEE FROM T IME TO TIME. THE ITA NO. 1082/DEL/07 ASSTT. YEAR 2003-04 3 MAJOR DIFFERENCE WAS ATTRACTED DUE TO ADOPTION OF G ROSS WEIGHT AGAINST THE NET WEIGHT AND NOT REDUCING THE WEIGHT OF STONE, THREAD, LAKH ETC. THOUGH IN THE PROFORMA FOR VALUATION OF J EWELLERY THE CLAIM FOR GROSS AND NET WEIGHT ARE MENTIONED, NOTHING WAS MENTIONED BY WAY OF NET WEIGHT AND GROSS WEIGHT WAS ADOPTED TO W HICH THE RATE OF PURE JEWELLERY WAS APPLIED WHICH IS INCORRECT. IT W AS ALSO CONTENDED THAT DURING THE COURSE OF SURVEY NO AUTHORIZED OR A PPROVED VALUER WERE CALLED. THE INVENTORY WAS PREPARED BY INSPECTO R, UDC, LDC ETC. AND NOT ANY COMPETENT PERSON. WHEN THE STOCK WAS HU GE EXCEEDING RS. 442 LACS THE SAME COULD NOT HAVE BEEN ARRIVED A T IN A SINGLE DAY TIME. THUS IT WAS DEMONSTRATED THAT THERE WERE INFI RMITY IN THE INVENTORSING THE ENTIRE STOCK AND NOT REDUCING THE WEIGHTS OF STONES, THREAD, LAKH ETC. IT WAS ALSO SUBMITTED THAT THE DI AMOND JEWELLERY WERE VALUED WITHOUT THE HELP OF ANY TECHNICAL PERSO N. THIS RECONCILIATION WAS AGAIN FILED DURING THE ASSTT. PR OCEEDINGS. THE ASSESSEE RELIED UPON VARIOUS DECISIONS FOR THE PROP OSITION THAT THE ADMISSION DURING THE SURVEY IS NOT BINDING AND ASSE SSEE IS ENTITLED TO RETRACT FOR THE SAME BY POINTING OUT THAT EARLIER S TATEMENT WAS INCORRECT AND FILING CORROBORATION THEREFORE. THE A O DID NOT ACCEPT THE CONTENTION OF ASSESSEE AND HELD THAT SINCE THE ASS ESSEE ADMITTED TO ITA NO. 1082/DEL/07 ASSTT. YEAR 2003-04 4 THE DISCREPANCY DURING SURVEY AND THE VALUATION WAS DONE WITH THE HELP OF ASSESSEE HIMSELF, THE ASSESSEE CANNOT BACK OUT FROM HIS ADMISSION. ACCORDINGLY ADDITION OF RS. 48,43,788/- WAS MADE. LD. CIT(A) AFTER CONSIDERING THE SUBMISSION MADE BEFORE AO AND HELD AS UNDER :- THE ABOVE ARGUMENT OF THE AR OF THE APPELLANT HAVE BEEN CAREFULLY CONSIDERED. IT IS SEEN THAT AGAINST THE RETURNED INCOME OF RS. 6,42,410/- THE ASSESSMENT HAS BEEN FR AMED BY THE AO AT A FIGURE OF RS. 79,10,130/- AFTER MAKING ADDITIONS ON ACCOUNT OF UNACCOUNTED STOCK (RS. 48,43,788/-) AND CASH FOUND DURING THE SURVEY CERTAIN ADDITIONS HAVE ALSO BEEN MADE ON ACCOUNT CASH FOUND AT THE TIME OF SURVEY PURCHASE, ADDITIONAL PROFIT, TRAVELING EXPENSES NOT RELATED TO BUSINESS AND OUT OF CAR MAINTENANCE ETC. WITH REGARD TO THE SECOND GROUND OF APPEAL RELATING TO THE ADDITIONAL STOCK FOUND DURING THE SURVEY IT IS SEEN THAT A SURVEY U/S. 133A WAS CARRIED OUT ON THE ASSESSEES PREMISE S ON 23.4.2002. PHYSICAL VERIFICATION OF THE STOCK WAS M ADE AND IT WAS FOUND THAT STOCK VALUED AT RS. 4,91,00712/- WAS AVAILABLE AGAINST WHICH THE STOCK AS PER BOOKS WORKED OUT TO BE RS. 4,42,56,924/-. THUS THERE WAS A DIFFERENCE OF SRS. 48,43,748/- IN THE STOCK. THE APPELLANT WAS CONFRONTED WITH THI S DIFFERENCE DURING THE COURSE OF SURVEY. THE APPELLANT AT THAT TIME WAS STATEDLY UNABLE TO EXPLAIN THE DIFFERENCE. APPARENT LY TO AVOID LITIGATION AND TO BUY PEACE OF MIND THE ABOVE DIFFE RENCE WAS SURRENDERED BY THE APPELLANT FOR TAXATION WITH THE CONDITION THAT NO PENALTY OR PROSECUTION PROCEEDINGS WOULD BE INIT IATED AGAINST HIM. IN THIS CONNECTION A STATEMENT OF SHR I INDERJEET SINGH, PARTNER WAS ALSO RECORDED ON OATH. SUBSEQUENTLY, ON 6.5.2002, THE APPELLANT SUBMITTED A LETTER POINTING OUT CERTAIN APPARENT MISTAKES WHICH HAD BE EN FOUND AND NOTICED BY HIM IN THE INVENTORY OF THE CLOSING STOCK AS PREPARED DURING THE COURSE OF SURVEY. IN THIS LETTE R DATED 6.5.2002 THE APPELLANT HAS CATEGORICALLY SUBMITTED THAT THERE ITA NO. 1082/DEL/07 ASSTT. YEAR 2003-04 5 ARE A NUMBER OF PATENT AND APPARENT MISTAKES WHICH HAVE NOW BEEN FOUND IN THE INVENTORY OF CLOSING STOCK PREPAR ED BY THE DEPARTMENTAL PEOPLE AT THE TIME OF SURVEY. ON THE F IRST ALLEGATIONS MADE IN THIS SUBMISSION IS THAT CORRECT QUANTITIES OF WEIGHT OF THE ITEMS OF JEWELLERY HAVE NOT BEEN ADOP TED BY THE SURVEY TEAM OF THE DEPARTMENT. GROSS WEIGHTS HAVE B EEN ADOPTED WHEREAS FOR THE PURPOSE OF VALUATION NET WE IGHT OF VARIOUS ITEMS SHOULD HAVE BEEN TAKEN. THAT HAS RESU LTED IN SUBSTANTIAL DIFFERENCE IN THE TOTAL WEIGHTS CALCULA TED DURING THE SURVEY AND CONSEQUENTLY HAS AFFECTED THE VALUATION ADOPTED. THE APPELLANT FURTHER SUBMITTED IN THIS LETTER DATE D 6.5.2002 THAT AN ATTEMPT IS BEING MADE TO RECONCILE THE STOCKS (A T THAT TIME) AND ITS VALUATIONS WHICH ARE LIKELY TO TAKE A FEW D AYS TIME AND, THEREFORE, THE RECONCILED AND REVISED LIST OF STOCK WILL BE FURNISHED ALONGWITH THE TRADING ACCOUNT TO THE DEPA RTMENT. IT WAS ALSO STATED IN THAT LETTER THAT IF ANY FURTHER DIFFERENCE ON ACCOUNT OF STOCK REMAINED, THE SAME WILL BE SURREND ERED. THE APPELLANT ALSO REQUESTED THAT THE POST DATED CHEQUE S ISSUED BY HIM IN FAVOUR OF THE DEPARTMENT MAY NOT BE PRESENTE D FOR ENCASHMENT. THE APPELLANT RECONCILED ITS STOCK SUBSEQUENTLY AND VIDE LETTER DATED 30.5.2002 SUBMITTED A REVISED STOCK TALLY, PR EPARED A STATEMENT OF CASH IN HAND ON 23.4.2002 AND FILE REC ONCILIATION OF 22 CARAT AND 18 CARAT GOLD WHICH WAS EARLIER MIX ED UP BY THE SURVEY TAKING TEAM AND WHICH WAS NOW BEING BIFURCAT ED. AS PER THIS STOCK TAKING REPORT, IT WAS SEEN THAT THERE WA S HARDLY ANY DIFFERENCE ON ACCOUNT OF STOCK. THIS REVISED STOCK TALLY WAS STATEDLY EXAMINED BY THE AO. AFTER EXAMINING THE EN TIRE MATTER, IT IS FELT THAT THE DIFFERENCE IN THE AMOUNT AND VA LUE OF STOCKS AT THE TIME OF SURVEY AROSE DUE TO GROSS WEIGHTS BEING TAKEN AND INCLUDED IN THE INVENTORY WITHOUT GIVING BENEFIT OF OTHER IMPURITIES LIKE STONES, THREAD, LAKH ETC. BEFORE AR RIVING AT THE NET WEIGTH. I AGREE WITH THE APPELLANTS CONTENTION TH AT THE PRINTED PROFORMA WHICH IS USED EVERY WHERE FOR SUCH PURPOSE OF STOCK TAKING CLEARLY SHOWS SL. NO. DESCRIPTION OF THE IT EM, GROSS WEIGHT, NET WEIGHT AND THEN THE LAST COLUMN SHOWS T HE TOTAL VALUE OF EACH ITEM. IN THIS CONNECTION BEFORE DECID ING ON THE ISSUE, I CALLED FOR THE SURVEY FILE FROM THE AO VID E THIS OFFICE LETTER NO. CIT(A)/XXVI/06-07/139 DATED 2.11.2006. A PERUSAL OF THE FILE CONTAINING DETAILS OF STOCK TAKING, SHOWS THAT DURING THE ITA NO. 1082/DEL/07 ASSTT. YEAR 2003-04 6 COURSE OF RECORDING OF THE WEIGHTS AND DESCRIPTIONS OF THE VARIOUS PRECIOUS AND NON-PRECIOUS ITEMS, ALL THE RE QUISITE COLUMNS WERE NOT FILLED UP BY THE MEMBERS OF THE SU RVEY TEAM. IT WAS STRANGE TO SEE THAT GROSS WEIGHT AND NET WEI GHT HAVE NOT SEPARATELY MENTIONED THEREIN. IN FACT, IN MOST OF T HE PAGES ONLY THE DESCRIPTION AND ONE WEIGHT HAS BEEN GIVEN. IT I S NOT EVEN MENTIONED WHETHER THE WEIGHT IS GROSS OR NET. THE A R HAS SUBMITTED THAT IN ORDER TO ARRIVE AT THE CORRECT VA LUES, THE DEDUCTION FOR SUBSTANTIAL WEIGHTS ON ACCOUNT OF DOR I, STONES, LAKH ETC. MUST BE GIVEN. I HAVE OBTAINED SOME SPECI MEN PAGES OF THE SURVEY FILE FROM PAGE 200 TO 203 AND I FIND THAT THESE PAGES ARE SUPPORTING THIS OBSERVATION. THE APPELLANT HAS SUBMITTED THAT IT IS NOT POSSIBLE FOR A LAYMAN TO TELL THE PRICE OF A BANGLE OR A DIAMOND RING OR NECKLACE WHEREAS IN THE PRESENT CASE, STOCK WORTH ABOUT RS. 5 CRORES HAS BEEN INVENTORIZED AND VALUED BY JUST ONE INCOME -TAX OFFICER, ONE OR TWO INSPECTORS AND 10-11 UDCS AND L DCS. WOULD ANY PERSON OF ORDINARY PRUDENCE AGREE TO THIS PREPOSITION, IT IS IMPOSSIBLE BOTH WAYS GIVEN A S CALE AND ORNAMENTS, ORDINARY PERSON CANNOT TAKE THE WEIGHT O F ORNAMENTS WHEN HARDLY ONE PERCENT IS MADE OF PURE G OLD. IN VERY ITEM, THERE IS AN ELEMENT OF ARTIFICIAL STONES , SEMI-PRECIOUS STONES, DORI, LAKH AND SO MANY OTHER THINGS AND TH ERE WERE ABSOLUTELY NO TAG OF THE PRICE DISPLAYED ON THE ITE MS. VALUE- WISE, DIAMONDS HAVE DIFFERENT QUALITIES, DIFFERENT CUT, DIFFERENT BRIGHTNESS, DIFFERENT WEIGHT AND IN GOLD, THERE ARE 16 CARATS TO 24 CARATS WHICH NOBODY CAN JUDGE BEING A NON-TECHNI CAL PERSON. THIS IS THE REASON WHY IN THE INCOME TAX AC T AS WELL AS WEALTH TAX ACT, PROVISIONS HAVE BEEN MADE FOR APPRO VED VALUERS AND FOR THE PURPOSE OF JEWELLERY, THERE ARE APPROVED JEWELERS, FOR THE PURPOSE OF PROPERTIES, THERE ARE APPROVED ENGINEERS FOR THAT PURPOSE, MEANING THEREBY THE ACT DOES NOT AUTHORIZE NON-TECHNICAL PEOPLE TO DO THE VALUATIONS OF ANY ARTICLE OF WHICH THE PERSON HAS NO KNOWLEDGE AND TE CHNICAL KNOW-HOW. FURTHER THE APPELLANT HAS ALSO SUBMITTED THAT NO AP PROVED VALUER ACCOMPANIED THE SURVEY TEAM. THE AO HAS OBSE RVED THAT THE PARTNER OF THE APPELLANT FIRM IS HIMSELF A N APPROVED ITA NO. 1082/DEL/07 ASSTT. YEAR 2003-04 7 VALUER. BUT THE APPELLANT HAS DENIED THIS AND HAS SUBMITTED THAT NONE OF THE PARTNERS IS A GOVT. APPROVED VALUE R. THE APPELLANTS CASE IS NOT COVERED UNDER THAT CATEGORY WHERE THE APPELLANT HAD RETRACTED FROM THE DISCLOSURE MADE BE FORE THE SURVEY TEAM IN ISOLATION, I.E. WITHOUT ANY SUPPORTI NG EVIDENCE. THIS IS A CASE WHERE THE APPELLANT HAS SUBMITTED A FRESH STOCK TALLY EXPLAINING EVERY REASON FOR VARIATION WHEREVE R APPLICABLE. FROM THE RECORD, IT IS SEEN THAT THE AO HAS NOT POI NTED OUT ANY DISCREPANCY IN THE STOCK RECONCILIATION SUBMITTED B Y THE APPELLANT. THE AO HAS ALLEGED THAT THE BASIS OF THE RECONCILIATION OR METHOD OF WORKING IT OUT HAS NOT BEEN MENTIONED. HE HAS MADE THESE GENERAL OBSERVATIONS B UT NO SPECIFIC INSTANCES HAVE BEEN POINTED OUT. THE ASSES SMENT RECORD FOR THE YEAR UNDER CONSIDERATION, WHICH COVE RS THE SURVEY PERIOD WAS ALSO CALLED FOR FROM THE AO, HAS BEEN PERUSED. A PERUSAL OF THE ASSESSMENT RECORD SHOWS T HAT THE AO HAS ISSUED HAS SUMMONS U/S 131 OF THE I.T. ACT, 1961 TO APPROXIMATELY 40 PARTIES WITH WHOM THE APPELLANT HA S MADE TRANSACTIONS OF SALES AND PURCHASES IN REGULAR COUR SE OF BUSINESS. HOWEVER, IT IS SEEN THAT APPARENTLY NO SU CH INSTANCE HAS COME TO LIGHT , WHEREIN THERE HAS BEEN ANY DIFF ERENCE FOUND BY THE AO IN THE DETAILS SUBMITTED BY THE APPELLANT AND BY THE OTHER PARTIES. SINCE NO MENTION FINDS PLACE IN THE BODY OF THE ASSESSMENT ORDER WITH REGARD TO ANY DISCREPANCY THA T MAY HAVE BEEN DETECTED, IT IS CLEAR THAT NO DISCREPANCY AS SUCH WAS FOUND. IN OTHER WORDS IT CAN BE TAKEN TO MEAN THAT ALMOST AL THE PURCHASES HAVE BEEN VERIFIED BY THE AO NOT ONLY WIT H REGARD TO THE QUANTITY OF GOLD BUT ALSO WITH REGARD TO THE CA RAT VALUE WHICH IS FOUND MENTIONED ON EVERY PURCHASE BILL. THE ASSE SSMENT RECORD ALSO REVEALS THAT BANK STATEMENTS OF VARIOUS PARTIES WERE ALSO EXAMINED BY THE AO. THE AR HAS ALSO STATED THAT IN THE PRECEDING YEARS THE TRADING RESULTS OF THE APPELLANT HAVE ALWAYS BEEN ACCEPTED. IN CASE, SOME ADDITION HAS BEEN MADE AT THE AO LEVEL, THE SA ME HAS BEEN DELETED AT APPELLATE LEVELS. HOWEVER EVERY ASS ESSMENT YEAR IS A SEPARATE ENTITY SO NO WEIGHT CAN POSSIBLY BE PLACED ON THIS ARGUMENT OF THE AR. HOWEVER, KEEPING IN VIE W THE GLARING INCONSISTENCIES AND DEFICIENCIES IN THE PRO CESS OF STOCK TAKING, AND KEEPING IN VIEW THE SUBMISSION OF REVIS ED STOCK TALLY ITA NO. 1082/DEL/07 ASSTT. YEAR 2003-04 8 AND RECONCILIATION DURING THE PROCEEDINGS BY THE AP PELLANT AND ALSO KEEPING IN VIEW THE SUBSEQUENT VERIFICATIONS MADE BY THE AO, IT IS FELT THAT THIS IS NOT A CASE OF RETRACTIO N PER SE, WHEREIN THE APPELLANT GOES BACK ON HIS WORD. THIS CASE FALL S IN THAT CATEGORY, WHERE THE APPELLANT SUBMITS A REVISED TAL LY OF STOCK, WITH COMPLETE DETAILS AND VERIFIABLE REASONS. KEEPING IN VIEW THE ABOVE FACTS, IT IS HELD THAT TH E VALUATION MADE BY THE SURVEY TEAM DURING THE COURSE OF THE SU RVEY WAS NOT CORRECT AND CANNOT BE TREATED AS RELIABLE. THER EFORE, THE ADDITION BY THE AO ON THE BASIS OF DIFFERENCES IN S TOCK VALUATIONS DESERVES TO BE DELETED. ACCORDINGLY, THE ADDITION OF RS. 48,43,788/- IS HEREBY DELETED. 2.1. THE REVENUE IS IN FURTHER APPEAL BEFORE US AGA INST THE DELETION OF ADDITION BY RAISING GROUND NO. 1 AND 2 HEREIN. LD. DR SUBMITTED THAT THE STOCK WAS INVENTORIED IN THE PRE SENCE OF PARTNER HIMSELF. THERE IS NO DIFFERENCE IN THE VALUATION OF DIAMOND JEWELERY BUT THERE IS DIFFERENCE IN THE VALUE OF GOLD JEWELE RY WHICH WAS ARRIVED AT AS UNDER :- 22 KT GOLD = 45631.705 GM 18 KT GOLD = 20151.700 GM 22 KT GOLD IS TAKEN @ RS. 4200 PER 10 GMS 18 KT GOLD IS TAKEN @ RS. 3800 PER 10 GMS. VALUE OF TOTAL GOLD = RS. 2,68,22,962 2.2 LD. DR SUBMITTED THAT WHEN THE ASSESSEE PURCHAS ES JEWELLERY THE SAME IS ON THE BASIS OF GROSS WEIGHT AND SAME I S IN CASES OF SALES THE SAME IS ON THE BASIS OF GROSS WEIGHT. FOR THIS PURPOSE HE ITA NO. 1082/DEL/07 ASSTT. YEAR 2003-04 9 REFERRED TO SOME OF THE INVOICES PREPARED BY THE AS SESSEE. HE ACCORDINGLY SUBMITTED THAT THE THEORY OF NET WEIGHT IS AN AFTER THOUGHT AND NOT ACCEPTABLE. HAD THIS BEEN POINTED OUT THROU GH SURVEY OFFICIALS THE SAME COULD HAVE BEEN EXAMINED BY THEM . LATER ON THE ASSESSEE CAN NOT BE PERMITTED TO RAISE SUCH PLEA AN D HE CANNOT BE ALLOWED TO RETRACT. 2.3 LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HAND SUBMITTED THAT STATEMENT RECORDED DURING THE SURVEY HAS NO BINDING FORCE. THOUGH ADMISSION IS PIECE OF EVIDENCE YET THE ASSESSEE CAN RETRACT THE SAME BY POINTING OUT THE ERROR IN THE ADMISSION AND BY F ILING CORRABORATING MATERIAL FOR THE SAME. FOR THIS PROPOSITION RELIAN CE IS PLACED ON FOLLOWING DECISIONS :- 1. RISHAB KUMAR JAIN VS. ASSISTANT COMMISISONER OF INCOME TAX ITAT DELHI I BENCH (1999)09 TTJ (DEL)236 2. ACIT (INV.) CIRCLE 11(I) VS. KALA NIKETAN, NEW D ELHI (ITA NO. 850/DEL/96) ITAT DELHI BENCH 3. MAGANBHAI BECHARBHAN PATEL & CO. VS. ITO (ITA NO . 1346/AHD./1998 ) ITAT AHMEDABAD BENCHA 4. M/S. PUSHPA VIHAR, BOMBAY VS. THE ACIT (ITA NO.1822/BOM./1990) ITAT BOMBAY BENCH D 5. M/S. RAGHUVANSHI BUILDERS VS. ITO (ITA NO. 1057- 63/BOM/1990) ITAT BOMBAY BENCH D ITA NO. 1082/DEL/07 ASSTT. YEAR 2003-04 10 2.4. LD. AR SUBMITTED THAT THERE IS COMPLETE RECONC ILIATION WHICH IS AT PAGE 93 OF THE PAPER BOOK AND THE COMPLETE INVEN TORY AS PER THE ASSESSES RECORDS IS AT PAGES 94 107 OF THE PAPER BOOK. IT WAS SUBMITTED THAT THERE IS NO DIFFERENCE IN THE QUANTI TY AND EVEN AS PER THE DESCRIPTION OF EACH ITEM, IT CAN BE SEEN THAT T HESE ITEMS WILL DEFINITELY CONTAIN THE CONTENTS LIKE MEENA, STONE, PEARLS, KUNDAN ETC. WHEN THE ITEMS ARE LIKE SIMPLE BANGLES, BRACELETS, RINGS ETC. THE GROSS WEIGHT AND NET WEIGHT ARE SAME. ONLY WHEN THE Y ARE STUDDED WITH STONE, LAKH OR MEENA THE GROSS WEIGHT AND NET WEIGHT WILL BE DIFFERENT. IF THE RATE APPLIED IS THAT OF THE 24 C ARAT OR 18 CARAT, THE SAME CAN BE APPLIED ONLY TO NET WEIGHT AND NOT GRO SS WEIGHT. THIS IS ALSO THE USUAL TRADITION IN THE MARKET. IT IS ALSO TO BE NOTED THAT THERE IS NOT DIFFERENCE TO THE QUANTITY OF ONLY VALUATION . THE STOCKS ARE VALUED DURING SURVEY AT A FLAT RATE AS PER THE RATE PREVAILING ON THE DATE OF THE SURVEY, THEN IT ALONE CANNOT BE COMPARE D WITH THE VALUE AS PER BOOK SINCE THE VALUE AS PER BOOKS IS REQUIRE D TO BE ADOPTED AT COST OR MARKET PRICE WHICHEVER IS LESS. MERELY BECA USE OF SAID VALUATION OF DIFFERENCE THE ADDITION IS NOT SUSTAIN ABLE. 2.5 WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS AND DECISIONS CITED. IN ALL THE DECISIONS CITED IT HAS BEEN HELD THAT THE ITA NO. 1082/DEL/07 ASSTT. YEAR 2003-04 11 ADMISSION IS BEST PIECE OF EVIDENCE YET THE SAME AR E NOT CONCLUSIVE AND CANNOT BE SAID TO BE NON-RETRACTABLE. THE ASSES SEE IS ENTITLED TO DEMONSTRATE THAT THERE ARE ERRORS IN THE ADMISSION BY FILING NECESSARY EVIDENCE IN THIS REGARD. IF DISCREPANCY IS EXAMINED , NO ADDITION IS SUSTAINABLE, MERELY BECAUSE IT WAS ADMITTED AT TIME OF SURVEY THE ADDITION IS NOT SUSTAINABLE. IMMEDIATELY AFTER THE SURVEY THE ASSESSEE BROUGHT TO THE NOTICE OF THE AO AS WELL AS SURVEY O FFICIALS THAT THE VALUATION WAS INCORRECT AND FOR THIS PURPOSE THE LE TTERS WERE FILED IMMEDIATELY . THUS IT CANNOT BE SAID THAT RETRACTIO N IS BY WAY OF AN AFTER THOUGHT. IT IS HUMANLY IMPOSSIBLE TO CERTIFY THE VALUATION OF STOCK OF OVER 4.50 CRORES IN JUST A DAYS TIME BY SINGLE PERSON. EVEN IN THE PROFORMA FOR THE VALUATION OF JEWELLERY IT CONTAINS COLUMNS FOR GROSS WEIGHT, STONE WEIGHT AND NET WEIGHT ETC. IN THE ENT IRE INVENTORY THE REVENUE DID NOT MENTION ANYTHING AGAINST THE STONE WEIGHT OR NET WEIGHT. ON THE OTHER HAND AS PER THE RECONCILIATION STATEMENT AND THE INVENTORY AS PER ASSESSEE THE SAME ARE CLEARLY MENT IONED. THE ITEMS LIKE MANGALSUTRA WILL CONTAIN BEADS OR STONES AND O NLY THE NET WEIGHT CAN BE CONSIDERED FOR APPLYING THE RATE OF PURE GOL D. SIMILARLY OTHER ITEMS LIKE RING, TOPS, NECKLACE ETC. WHICH CONTAIN STONE, DORI, MEENA ETC. THE VALUE CAN BE ARRIVED AT ONLY AFTER REDUCIN G SUCH WEIGHT. THE ITA NO. 1082/DEL/07 ASSTT. YEAR 2003-04 12 AO INSTEAD OF VERIFYING ALL THESE DETAILS BRUSHED T HEM ASIDE BY HOLDING THE SAME TO BE AFTER THOUGHT OR THAT SINCE IT WAS ADMITTED HE REFUSED TO LOOK AT IT. THE SCOPE OF SECTION 133A IS LIMITED TO THE EXTENT OF ALLOWING AN INCOME TAX AUTHORITY TO ENTER ANY PL ACE TO AFFORD HIM NECESSARY FACILITY TO INSPECT SUCH BOOKS OF ACCOUNT S, TO CHECK OR VERIFY THE CASH STOCK OR OTHER VALUABLE ARTICLES WH ICH MAY BE FOUND THEREIN AND TO FURNISH SUCH INFORMATION AS HE MAY R EQUIRE. HOWEVER THERE IS DIFFERENCE BETWEEN CONDUCTING A SURVEY AND MAKING AN ASSESSMENT OF AN INCOME. THE INCOME IS COMPUTED DUR ING THE ASSESSMENT PROCEEDING ONLY AND NOT AT THE TIME OF C ONDUCTING THE SURVEY. THEREFORE ONLY THE INFORMATION GATHERED DUR ING THE COURSE OF SURVEY MAY BE CONSIDERED WHILE FINALIZING THE ASSES SMENT BUT THE SAME IS NOT CONCLUSIVE SO AS TO REJECT THE EXPLANA TION OF ASSESSEE AS TO DISCREPANCY NOTICED DURING SURVEY. THE AO IS THE ONLY PERSON WHO IS REQUIRED TO COMPUTE THE INCOME ON THE EVIDENCE P RODUCED BEFORE HIM. WHEN THE EVIDENCE WAS PRODUCED BEFORE THE AO T HAT AGAINST THE GROSS WEIGHT ONLY NET WEIGHT SHOULD BE ADOPTED AND IF SO DONE THERE IS NO DIFFERENCE BETWEEN THE VALUATION. THE AO CANN OT REFUSE TO ACCEPT SUCH VALID CONTENTION. THE LD. CIT(A) HAVING APPRECIATED THE SAME AND SINCE NO DEFECT HAS BEEN POINTED OUT IN TH E ORDER OF LD. ITA NO. 1082/DEL/07 ASSTT. YEAR 2003-04 13 CIT(A), MERELY BECAUSE THE ASSESSEE ADMITTED DURING SURVEY THE ADDITION IS NOT SUSTAINABLE. WE THEREFORE DO NOT FI ND ANY JUSTIFICATION OR SUSTAINING ADDITION OF RS. 48,43,788/- ACCORDING LY GROUND NO. 1 AND 2 FAILS. 3. GROUND NO. 3 AND 4 ARE AGAINST THE DELETION OF R S. 1,91,220/- BEING EXCESS CASH FOUND DURING SURVEY. 3.1. WE HAVE HEARD THE PARTIES. LD. CIT(A) IN THIS REGARD HELD THAT THE RECONCILIATION STATEMENT OF THE CASH FOUND OF D IFFERENT ENTITIES WITH THEIR BOOKS OF ACCOUNTS WERE PRODUCED BEFORE AO AND NO DEFECT WAS FOUND THEREIN. THE ADDITION WAS SIMPLY ON THE BASIS OF ADMISSION DURING SURVEY BUT SINCE THE CASH FOUND DURING SURV EY ALSO CONTAINS CASH OF OTHER ENTITIES OPERATING FROM THE SAME PREM ISES, THE ADDITION IS NOT SUSTAINABLE. 3.2 WE ARE IN AGREEMENT WITH THE FINDING OF LD. COM MISSIONER IN THIS REGARD. THE CASH FOUND DURING THE SURVEY WAS S OUGHT TO BE RECONCILED BY FILING EVIDENCE IN THE FORM OF CASH B OOKS OF VARIOUS CONCERNS. HENCE THE ADDITION MERELY ON THE BASIS OF ADMISSION DURING SURVEY IS NOT SUSTAINABLE. 4. GROUND NO. 5 IS AGAINST DELETION OF ADDITION OF RS. 7,25,250/- BEING ADDITIONAL PROFIT EARNED ON ROTATION OF UNDIS CLOSED STOCK. ITA NO. 1082/DEL/07 ASSTT. YEAR 2003-04 14 4.1. WHILE MAKING THIS ADDITION THE ASSESSING OFFIC ER HAS HELD THAT THE ADDITIONAL STOCK & CASH OF RS. 50,35,000/- AS F OUND AT THE TIME OF SURVEY REMAINED AVAILABLE WITH THE ASSESSEE OUTSIDE THE BOOKS OF ACCOUNTS FOR THE WHOLE YEAR. THE ASSESSEE MUST HAVE MADE PROFITS BY RELATING THIS STOCK AND CASH, WHICH REMAINED OUT SIDE THE BOOKS. HE ACCORDINGLY APPLIED GROSS PROFIT RATE OF 15% AND ADDED INCOME OF RS. 7,25,250/- BEING ADDITIONAL PROFIT. 4.2. LD. CIT(A) HELD THAT SINCE THE BASIS OF ADDITI ON WERE DUE TO ADDITION OF STOCK AND CASH FOUND AND SINCE BOTH THE SE ADDITIONS HAVE BEEN DELETED BY HIM THERE IS NO MERIT IN THIS HYPOT HETICAL ADDITION. HE ACCORDINGLY DELETED THE SAME. 4.3. WE HAVE HEARD THE PARTIES IN THIS REGARD. THE EVIDENCE FOUND DURING SURVEY WAS ONLY FOR DIFFERENCE IN THE VALUAT ION OF STOCK AND CASH COMPARED WITH BOOKS OF ACCOUNTS. HOWEVER NO EV IDENCE WAS FOUND EVEN AFTER CONDUCTING THE SURVEY THAT THERE W ERE CERTAIN SALES OR PURCHASES OUTSIDE BOOKS OF ACCOUNTS WHICH CAN GI VE THE ASSESSEE AN OPPORTUNITY TO EARN ANY INCOME OUTSIDE BOOKS OF ACCOUNTS. THUS IT CANNOT BE PRESUMED THAT THE ASSESSEE ROTATED THE EX CESS STOCK SO AS TO PRESUME FURTHER INCOME. ACCORDINGLY THE ADDIT ION OF RS. ITA NO. 1082/DEL/07 ASSTT. YEAR 2003-04 15 7,25,250/- IS NOT SUSTAINABLE IN THE ABSENCE OF ANY EVIDENCE IN THIS REGARD. 5. GROUND NO. 6 IS AGAINST THE DELETION OF DISALLOW ANCE OF 50% OF THE FOREIGN TOUR AND TRAVEL EXPENSES OF RS. 7,48,58 1/-. 5.1. WHILE DISALLOWING THIS AMOUNT THE ASSESSING OF FICER HAS DISALLOWED THE ENTIRE TRAVELING EXPENSES OF THE ASS ESSEE ALLEGING THAT THE EXPENSES WERE RELATED TO EXPORT BUSINESS OF THE TWO SISTER CONCERNS OF THE APPELLANT FIRM NAMELY M/S. UNIVERSA L DIAMOND AND M/S. MOTIWALA & SONS (EXPORTS). FOR THE PURPOSE OF CLAIMING MORE DEDUCTION U/S 80 HHC, THE EXPENSES OF THOSE FIRMS H AVE BEEN DIVERTED TO THE APPELLANT FIRM. 5.2. BEFORE LD. CIT(A) IT WAS CONTENDED THAT THESE FIRMS WERE NOT DOING ANY EXPORT BUSINESS. IT WAS CONTENDED THAT IN THE IMMEDIATELY PRECEDING YEAR THE EXPENSES ON FOREIGN TRAVELING OF RS. 5,94,811/- WERE ALLOWED. THE EXPENSES ARE SUPPORTED BY DOCUMEN TARY EVIDENCE AND DETAILS WHICH WERE FURNISHED DURING COURSE OF A SSTT. PROCEEDINGS. THE EXPENSES WERE INCURRED TO STUDY NEW CREATION OF DESIGN RELATING TO MANUFACTURING OF GOLD JEWELLERY AND THE DESIGNS FOR THE SAME. THE SAME WERE TO ATTEND EXHIBITION WHEREIN THE DISPLAY OF PACKING MATERIAL MACHINERY USED FOR MANUFACTURING JEWELLERY AND STUDDED ITA NO. 1082/DEL/07 ASSTT. YEAR 2003-04 16 STONES ETC. LD. CIT(A) AFTER CONSIDERING ALL THESE THINGS HELD THAT THE EXPENSES WERE INCURRED FOR ATTENDING EXHIBITION AND ACQUIRING KNOWLEDGE ABOUT NEW TECHNOLOGIES. HOWEVER THE WIVES OF THE PARTNER HAVE ALSO ACCOMPANIED ON VISIT ABROAD AND HENCE 50% RELATABLE TO THE PERSONAL BENEFIT ENJOYED BY THE PARTNERS AND TH EIR WIVES ARE NOT ALLOWABLE. 5.3. AFTER CONSIDERING RIVAL SUBMISSIONS WE ARE INC LINED TO AGREE WITH THE FINDING OF THE COMMISSIONER ( APPEAL ). WH EREVER THE EXPENSES ARE FOUND TO BE FOR THE PURPOSE OF BUSINES S, THE SAME ARE ALLOWABLE PROVIDED THE SAME IS WHOLLY AND EXCLUSIVE LY FOR THE PURPOSE OF BUSINESS. SINCE SOME OF THE EXPENSES RELATING TO THE PERSONAL BENEFIT OF THE PARTNER AND WIVES IS NOT HELD EXCLUS IVELY FOR THE PURPOSE OF BUSINESS TO THAT EXTENT THE EXPENSES WER E DISALLOWED. SINCE BALANCE EXPENSES WERE FOUND TO BE FOR THE PUR POSE OF BUSINESS THE SAME WERE HELD TO BE ALLOWABLE. ACCORD INGLY THERE IS NO INFIRMITY FOR THE SAME. ACCORDINGLY GROUND NO. 6 AN D 7 FAILS. 6. GROUND NO. 8 IS AGAINST DELETION OF DISALLOWANCE OF 25% DEPRECIATION OF CAR. ITA NO. 1082/DEL/07 ASSTT. YEAR 2003-04 17 6.1. THE AO HELD THAT PART OF THE VEHICLE EXPENSES ARE FOR THE PERSONAL PURPOSES OF THE PARTNERS AND HENCE 25% THE REOF ARE NOT ALLOWABLE. SIMILARLY HE DISALLOWED 25% ON THE DEPRE CIATION ON THE CAR ALSO. LD. CIT(A) HELD THAT THE DEPRECIATION ON CAR COULD NOT HAVE BEEN DISALLOWED AS EVEN IF A CAR IS PARTLY USED FOR THE PURPOSE OF BUSINESS UNDER THE INCOME TAX ACT IT IS ENTITLED TO FULL DEP RECIATION. 6.2. LD. DR SUBMITTED THAT IN VIEW OF SECTION 38 (2 ) WHERE ANY MACHINERY PLANT ETC. IS NOT EXCLUSIVELY USED FOR TH E PURPOSE OF BUSINESS THE DEDUCTION U/S 32 SHALL BE RESTRICTED T O FAIR PROPORTIONATE PART THEREOF HAVING REGARD TO THE USER OF SUCH ASSE T FOR THE PURPOSE OF BUSINESS. ACCORDINGLY THE DISALLOWANCE SHOULD HAVE BEEN CONFIRMED. 6.3 LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IF THE CAR IS USED EVEN FOR FEW DAYS IN A YEAR FOR THE PURPOSE OF BUSI NESS THE DEPRECIATION THEREON IS ALLOWABLE IN ITS ENTIRETY. 6.4 WE HAVE CONSIDERED RIVAL SUBMISSIONS. THERE IS NO DENIAL OF FACT THAT THE CAR WERE USED FOR THE PERSONAL PURPOS ES BY THE PARTNER AND EXPENSES ON RUNNING AND MAINTENANCE WERE PARTLY DISALLOWED TO THE EXTENT 25%. THEREFORE IN TERMS OF SECTION 38(2) WHEN THE ASSET IS NOT EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS TH E EXPENSES THEREON ALLOWABLE U/S 30, 31 OR 32 SHALL BE RESTRIC TED TO A FAIR ITA NO. 1082/DEL/07 ASSTT. YEAR 2003-04 18 PROPORTIONATE PART THEREOF. THE COMMISSIONER (A) HA S NOT CONSIDERED THE PROVISION OF SECTION 38(2) IN PROPER PERSPECTIV E. AS PER EXAMPLE GIVEN BY HIM, IF OUT OF 5000 KMS TOTAL RUNS IF 100 0 KM ARE FOR PERSONAL USES BY THE PARTNERS THE SAME CANNOT BE CO NSIDERED TO BE EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS AND HE NCE IN TERMS OF SECTION 38 (2) THE DISALLOWANCE IS CALLED FOR. WE T HEREFORE UPHELD THE DISALLOWANCE OF DEPRECIATION TO THE EXTENT OF 25% O N THE CAR, PARTICULARLY WHEN 25% OF THE CAR EXPENSES WERE HELD TO BE DISALLOWED AND AGAINST WHICH THE ASSESSEE HAS NOT RAISED ANY O BJECTION. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MARCH, 2010. [RAJPAL YADAV] [DEEPAK R SHAH) JUDICIAL MEMBER ACCOUNTANT MEMBER VEENA DATED : 31.3.2010 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, D EPUTY REGISTRAR, ITAT
