Motiwala & Sons, New Delhi V. Pr.CIT- 17, New Delhi

ITA 2756/DEL/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1025 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 20-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJA RAM SAH
• Keywords: Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1); 133A; 263

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI E BENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA , ACCOUNTANT MEMBER, AND MS. SUCHITRA KAMBLE , JUDICIAL MEMBER ITA NO. 2756 /DEL/201 8 [A.Y 20 1 3 - 1 4 ] M/S MOTIWALA & SONS VS. THE PR . C.I.T - 17 2633, BANK STREET NEW DELHI KAROL BAGH, NEW DELHI PAN : AABFM 3409 L [APPELLANT] [RESPONDENT] DATE OF HEARING : 2 2 . 1 1 .201 8 DATE OF PRONOUNCEMENT : 2 9 . 1 1 .2018 ASSESSEE BY : SHRI VED JAIN, ADV REVENUE BY : SHRI RAJA RAM SAH , CIT - DR ORDER PER N.K. BILLAIYA , ACCOUNTANT MEMBER, WITH THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE VALIDITY OF THE ORDER FRAMED U/S 263 OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT'] DATED 27.03.201 8 PERTAINING TO A.Y 201 3 - 1 4 . 2 2. THE SUM AND SUBSTANCE OF THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD. P CIT WRONGLY ASSUMED JURISDICTION U/S 263 OF THE ACT. 3. THE REPRESENTATIVES OF BOTH THE SIDES WERE HEARD AT LENGTH, THE CASE RECORDS CAREFULLY PERUSED AND WITH THE ASSISTANCE OF THE L D. COUNSEL, WE HAVE CONSIDERED THE DOCUMENTARY EVIDENCES BROUGHT ON RECORD IN THE FORM OF PAPER BOOK IN LIGHT OF RULE 18(6) OF ITAT RULES. JUDICIAL DECISIONS RELIED UPON WERE CAREFULLY PERUSED. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT A SURVEY O PERATION U/S 133A OF THE ACT WAS CARRIED OUT AT THE PREMISES OF THE ASSESSEE . ACCORDINGLY, RETURN FOR THE YEAR WAS SELECTED FOR SCRUTINY ASSESSMENT AND RETURNED INCOME OF RS. 6.34 CRORES WAS ACCEPTED BY THE ASSESSING OFFICER VIDE ORDER DATED 30.03.2016 FR AMED U/S 143(3) OF THE ACT. 5. INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT, THE PCIT ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE , AS THE PCIT WAS OF THE FIRM BELIEF THAT THE ASSESSMENT FRAMED U/S 143(3) OF THE ACT IS NOT ONLY ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE. 3 6. IT IS A SETTLED POSITION OF LAW THAT THE POWERS U/S 263 OF THE ACT CAN BE EXERCISED BY THE C OMMISSIONER ON SATISFACTION OF TWIN CONDITIONS , NAMELY, (I) THE ASSESSMENT ORDER SHOULD BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. BY ERRONEOUS , IS MEANT CONTRARY TO LAW. THUS, THIS POWER CANNOT BE EXERCISED UNLESS THE COMMISSIONER IS ABLE TO ESTABLISH THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 7. HON'BLE SUPREME COURT IN MALABAR INDUSTRI AL CO. LTD., 243 ITR 83, HAS LAID DOWN THE FOLLOWING RATIO: - 'A BARE READING OF SECTION 263 OF THE INCOME - TAX ACT, 1961, MAKES IT CLEAR THAT THE PREREQUISITE FOR THE EXERCISE OF JURISDICTION BY THE COMMISSIONER SUO MOTU UNDER IT, IS THAT THE ORDER OF THE INCOME - TAX OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE COMMISSIONER HAS TO BE SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENT IF THE ORDER OF THE INCOME - TAX OFFICER IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO THE REVENUE RECOURSE CANNOT BE HAD TO SE CTION 263( 1) OF THE 4 ACT. THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR BY THE ASSESSING OFFICER, IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT WILL SATISF Y THE REQUIREME NT OF THE ORDER BEING ERRONEOUS ' . 8. IN THE LIGHT OF THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT, WE WILL NOW SEE WHETHER THE ASSESSMENT ORDER FRAMED U/S 143(3) OF THE ACT IS CONTRARY TO THE FACTS OF THE CASE IN HAND. 9. BEFORE PROCEE DING FURTHER, LET US EXAMINE THE RELEVANT PART OF THE NOTICE U/S 263 OF THE ACT WHICH READS AS UNDER: D URING THE COURSE OF SURVEY OPERATION, THE STOCK OF GOLD AND DIAMOND JEWELLERY WAS FOUND IN THE BUSINESS PREMISES OF THE ASSESSEE FIRM. THE VALUER VALUE D THE EN TIRE JEWELLER Y I N THE PRESENCE OF THE PARTNER. AS PER BOOKS, THE VALUE OF GOLD AND DIAMOND JEWELLERY WAS AT RS. 17,52,77 ,030/ - WHEREAS THE SAME WAS VALUED BY THE APPROVED VALUER AT RS. 33,48,49,952/ - . THIS RESULTED INTO EXCESS/ UNACCOUNTED STOCK OF GOLD AND DIAMOND JEWELLERY AT RS. 15,95,72,922/ - . AGAINST THIS, THE FIRM HAS DISCLOSED ONLY RS. 6 CRORE AND FOR THE 5 REMAINING AMOUNT OF RS. 9,95,72,922/ - , NO PROPER ENQUIRIES WERE MADE NOR THE AO TOOK PAINS TO INVESTIGATE THE MATTER. IT IS WORT HWHILE TO MENTION THAT FOR THE PROPER ENQUIRY IN THIS CASE, IT WAS IMPORTANT TO ASK THE ASSESSEE WHETHER HE MAINTAINS HIS STOCK REGISTER ON LIFO (LAST IN FIRST OUT) OR FIFO (FIRST IN FIRST OUT) METHOD. OTHERWISE/HOW CAN AO WOULD HAVE COME TO THE CONCLUSION THAT THE GOLD IN STOCK WAS OLD OR NEW. SECONDLY, NO PURCHASE BILLS WERE PROVIDED TO THE SURVEY TEAM ON THE DATE OF SURVEY. THE AO SHOULD HAVE MADE A COMPLETE ENQUIRY FOR THE AMOUNT OF EXCESS STOCK AT RS. 9,95,72,922/ - ; CALLED FOR A DOCUMENTAR Y EVIDENCE FO R PURCHASE OF GOLD AND DIAMOND AND VERIFIED THE GENUINENESS THIS WAS NECESSARY TO. ACCEPT THE ASSESSEE'S CONTENTION. THE ASSESSI - N - I OFFICER DID NOTHING AS FAR AS ENQUIRY AND VERIFICATION OF EXCESS STOCK NO DISCLOSED BY THE ASSESSEE FIRM IN ITS RETURN OF I NCOME IS CONCERNED. IN VIEW OF THE FACTS STATED ABOVE, THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS LIABLE TO BE CANCELLED. YOU ARE , THEREFORE, REQUESTED TO SHOW CAUSE AS TO WHY ASSESSMENT ORDER DATED 30,3 - 2016 PASSED BY THE AC SHOULD NOT BE CANCELLED AND THE AO IS DIRECTE D TO PASS A FRESH ORDER AFTE R MAKING PROPER ENQUIRY AND VERIFICATION . 6 10. LET US NOW SEE WHETHER THE ASSESSING OFFICER HAS MADE SUFFICIENT ENQUIRY BEFORE FRAMING THE ASSESSMENT ORDER. 1 1. EXHIBIT 72 IS THE NOTICE DATED 01.02.2016 SERVED BY THE ASSESSING OFFICER AND THE SAME READS AS UNDER: DATED : 01/02/2016 M / S - MOT IW AL A & S O NS 2633, BANK STREET. KARO! BAGH, NEW DELHI SIR/MADAM, DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN YOUR EASE FOR THE A Y 2013 - 14, IT HAS FOUND THAT T YOUR PREMISE ON 15.02.2013. IN THIS CONNECTION, YOUARE REQUIRED TO FURNISH THE FOLLOWING INFORMATION PRODUCED BEFORE ME AT MY OFFICE AT THE ABOVE MENTIONED OFFICE ADDRESS ON OR BE FORE 08.02.2016 AT 11.30 A.M .: 1. ON PERUSAL OF THE STATEMENT OF SH. KANWALJIT SINGH, PARTNER M/S MOTIWALA & SONS RECORDED AT THE TIME CT SURVEY, IT WAS NOTICED THAT EXCESS STOCK OF RS. 15.95 CRORES WAS FOUND AT YOUR PREMISE. PHASE EXPLAIN THIS DISCREPANCY . 7 2 . PLEASE EXPLAIN THE METHOD OF STOCK VALUATION ADOPTED BY YOU WHILE ARRIVING AT THE ADDITIONAL INCOME OF RS. 6 CRORES. ON THE DAY OF SURVEY, IT WAS FOUND THAT NO S TOCK REGISTER WAS MAINTAINED. AL SO IT WAS NOTICED THAT OF RS. 1 1 CRORES WAS MADE BY THE FIRM IN JANUARY, 2013. IN VIEW OF THE ABOVE FACTS, HOW DO YOU JUSTIFY THE AVERAGE COST METHOD OF STOCK VA LUATION AD OPTED BY YOU ? 12. REPLY TO THIS NOTICE IS AT PAGE 73 AND THE SAME READS AS UNDER: T HE AS STT C O MMISSIONER O F INCOME T AX CIRCLE 51(1) , NEW DELHI INCOME TAX OFFICE CIVIC CENTRE , NEW DELHI REF: MOTIWALA& SONS/A.YR.2013 - 14/ PAN AABFM3409L SUB: REPLY OF NOTICE RECEIVED U/S 142(1) OF THE I. TAX ACT DATED 01/02/2016 SIR/MADAM, AS REQUIRED BY YOUR GOOD SELF I CA M.S. KATHURIA THE AUTHORIZED REPRESENTATIVE SUBMIT AS FOLLOW : 1. THE DIFFERENCE IN TH E FIGURE OF STOCK IS DUE TO THE FOLL OWING REASON. THE VALUER HAS TAKEN THE VALUE AT THE MARKET VALUE AND 8 WEIGHED THE STOCK ALONG WITH THREADS, STONES, MENA AND WAX ETC. HE VALUED IT AT THE PREVALENT MARKETMATE OF GOLD ON THE DATE OF THE SURVEY, BUT THE STO CK SHOWN IN BOOKS IS AT THE COST O R MARKET VALUE WHICHEVER IS LESS . THE ASSESSE E IS FOLLOWING THE SAME METHOD OF VALUATION WHICH IS REGU L ARLY EMPLOYED SINCE LONG. SO THE DIFFERENCE OF RS 15.95 IN THE STOCK VALUATION IS DUE TO MARKET RATE TAKEN BY THE VALUER AND THE COST OF THE STOCK TAKEN BY THE ASSESSE E . 2. THE STOCK SURRENDERED IS VALUED AT THE COST I.E. RS 2805/ - PER GM I.E THE RATE PREVALENT ON THE DATE OF THE SURVEY. 21,390.380 GMS. X RS. 2805/ - PER GM.= 6,00,00,000/ - HERE, THIS IS SUBMITTED THAT THE SURRENDERED VALUE OF STOCK OF RS 6,00,00,000/ - HAS BEEN ARRIVED BY VALUING STOCK AT MARKET RATE . HOWEVER THE COST OF THIS IS RS.21, 390.380 GMS X RS. 1770.26 = RS. 3,78, 66,534 .00. HENCE, YOUR GOOD SELF IS REQUESTED TO TAKE THE VALUE OF SURRENDERED STOCK AT RS 3.78 & NOT 6 CR & HENCE ACCORDINGLY REDUCE PROFIT BY RS. 2,21,33,466/' - & ISSUE RESULTED TAX REFUND OF RS 68,39,241/ - 3. THE STOCK REGISTER IS ALREADY MAINTAINED BY THE ASSESSE E . IT IS EVIDENT FROM THE TAX AUDIT REPORT I.E. FORM 3CD. IN THE MO NTH OF JANUARY 2013 THE PURCHASES WERE MADE OF RS 10, 15, 29,411 / - OUT OF WHICH DIAMONDS WERE PURCHASED OF 8, 61, 48,411/ - AND GOLD PURCHASED OF RS. 1 , 53, 81,000/' - . 9 THE ASSESSE E VALUED THE STOCK OF DIAMOND A T COST AND AT FIFO METHOD. THE MAJOR PURCHASE OF THE MONTH WAS OF DIAMOND AND THE BALANCE WAS OF GOLD. THE METHOD OF VAL UATION OF STOCK OF GOLD ON WEIGHTED AVERAGE IS FULLY JUSTIFIED AS T HE ASSESS E E IS ADOPTING THE UNIFORM METHOD OF VALUAT ION OF STOC K FOR YEARS TO GETHER. I HOPE THE ABOVE INFORMATION IS SUFFICIENT TO YOUR SATISFACTION. YOUR'S TRULY FOR M.S. KATHURIA ASSOCIATES CHARTERED ACCOUNTANTS CA. M.S. KATHURIA (FCA) 13. NOT SATISFIED WITH THE REPLY OF THE ASSESSEE, THE ASSESSING OFFICER ISSUED FURTHER NOTICE DATED 19.02.2016 WHICH IS AT PAGE 74 OF THE PAPER BOOK AND THE RELEVANT PART READS AS UNDER: O FFICE OF THE ASSTT. COMMISSIONER OF INCOME TAX CIRCLE - 51 (1;RO0M NO 1504. 15 FH FLOOR E - 2 BLOCK, PRATYAKSH KAR BHAWAN, DR SHAYMA PRASAD MUKHARJEE, CIVIC CENTRE, J.L.NEHRU MARG, NEW DELHI DATED: 19/02/2015 ML S MOTIWALA & SONS 2633. BANK STREET, KAROL BAGH NEW DELHI - 110 005 10 SIR/MADAM DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN YOUR CASE FOR T HE A. Y 2013 - 14, IT HAS FOUND - THAT THE SURVEY WAS CONDUCTED AT YOUR PREMISE OR. 15.02.2013. IN THIS CONNECTION YOU ARE REQUIRED TO FURNISH THE FOLLOWING INFORMATION PRODUCED BEFORE ME AT MY OFFICE AT THE ABOVE MENTIONED OFFICE ADDRESS OR BEFORE 25.02.2016.AT 11:30 A.M YOURS FAITHFULLY (SHEE TA! SARIN) ASSTT. COMMISSIONER OF INCOME - TAX CIRCLE(MFFI QT E M. SELHT.I N) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE - 51{1), 14TH FLOOR, E - 2 BLOCK, PRATY A KSH KAR B HAWAN 1. DURING THE COURSE OF SURVEY, THE ASSESSEE WAS CONFRONTED WITH A DIFFERENCE OF RS. 15,95,73,560/ - . IN RESPONSE THE ASSESSEE CONTENDED AT HIS STATEMENT THE DIFFERENCE OF VALUATION IS NAMELY ON ACCOUNT OF DIFFERENCE OF VALUE OF BOARD ADOPTED B Y THE VALUERS. P LEASE JUSTIFY THE DIFFERENCE IN VALUATION AND THE BASIS OF ARRIVING AT A FIGURE OF RS.6.00 CRORES AS CONCEALED INCOME. 2. PLEASE PRODUCE THE BILLS OF PURCHASE OF STOCK DURING A.Y. 2013 - 14 AND PARTY - WISE PURCHASE TABULATION IN THE FOLLOWING FORMAT : 11 PARTY FROM WHOM PURCHASE WAS MADE DATE OF PURCHASE DESCRIPTION OF ITEMS QUANTITY PURCHASE RATE OF PURCHASE 4. PLEASE PRODUCE THE COPY OF CHALLAN OF TAX DEPOSITED WITH SALES TAX DEPARTMENT. 5. PLEASE PRODUCE ANNEXURE 2A AND 2B OF FORM NO.30 AND 31 OF DVAT RETU RN PARTY - WISE PURCHASES AND SALES FOR A.Y. 2013 - 14 . 14. REPLY OF THE ASSESSEE IS AT PAGE 75 AND THE SAME READS AS UNDER: THE ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 51(1) NEW DELHI INCOME TAX OFFICE CIVIC CENTRE , NEW D ELHI REF: MOTIWALA& SONS/A.YR.2013 - 14/ PAN AABFM3409L SUB: SUBMISSION OF INFORMATION REQUIRED BY YOUR GOODSELF. SIR/MADAM, AS REQUIRED BY YOUR GOOD SELF I CA M.S. KATHURIA THE AUTHORIZED REPRESENTATIVE IS SGBMITTINGJHE FOLLOWING INFORMATIO N: 1. JUSTIFICATION OF DIFFERENCE OF VALUATION OF STOCK AS ON THE 15/2/2013 - SHOWN BY VALUERS AND 'VALUE OF STOCK TAKEN BY THE CLIENT ON THAT DATE. 12 IN THIS R EGARD THE RECONCILIATION STATEMENT IS ATTACHED HEREWITH. 2 WHILE PREPARING STOCK VALUATION RECONCILIATI ON IT IS OBSERVED THAT AS PER THE STOCK OF GOLD (CONVERTED IN TO 22 CT) COUNTED BY THE VALUERS WAS 60,161.109 GRMS. WHILE THE SURVEY TEAM FORCED THE ASSESSEE TO SURRENDER 6 CRORES VALUE 'OF GOLD AT MARKET VALUE ON THE DATE OF THE SURVEY, I.E. RS. 2805 X 21 ,390.380 = 6,00,00,000/ - . IT IS OBSERVED THAT THE SURRENDERED QUANTITY SHOULD HAVE BEEN 17,448.953 GMS (60,161.109GMS - 42712.156GMS.). AND NOT 21,390.380 GMS. THE MARKET VALUE OF 17,448.953 GMS COMES TO (17,448.953 GMS. X RS. 2805/ - ) 4,89,44,313/ - THIS ME ANS THAT THERE WAS EXCESS SURRENDER OF RS. L,10,55,687/ - (6,00,00,000/ - - 4,89,44,313/ - ). THE_ ABOVE CALCULATION RESULTED IN EXCESS TAX CHARGED TO THE TUNE CF RS. 34,16,207/ - . WHICH SHOULD BE REFUNDED TO THE CLIENT . MOREOVER THE STOCK OF 17,448.953 GMS. SH OULD HAVE BEEN VALUED AT THE WEIGHTED AVERAGE COST I.E RS. 1770.26 PER GRM. AND NOT AT MARKET VALUE I.E. RS, 2805/ - PER GRM. WHICH IS RESULTED INTO EXCESS VALUATION OF RS. 1,80,55,130/ - (17448.953 GMS. X RS.1034.74 [2805.00 - 1770.26]). THE ABOVE RESULTED IN EXCESS PAYMENT OF TAX TO THE TUNE OF RS. 55,79,035/ - . SO THE EXCESS AMOUNT OF TAX CHARGED BY THE DEPARTMENT I.E. RS. 89,95,242/ - (RS. 34,16,207/ - + 55,79,035/ - ) SHOULD BE REFUNDED TO THE CLIENT. I HOPE THE ABOVE INFORMATION IS SU FFICIENT TO YOUR SATISFACT ION. ' YOURS TRULY FOR M.S. KATHURIA ASSOCIATES 13 15. EXHIBITS 77 TO 127 ARE DETAILS OF FORM NO. 2A AND 2B GIVING DETAILS OF PURCHASES AND SALES TAX PAID THEREON. EXHIBIT 128 IS THE PROFORMA OF THE PURCHASES AS ASKED BY THE ASSESSING OFFICER. EXHIBIT 129 AND 130 ARE DETAILS OF CLOSING STOCK AS ON 31.03.2013 AND THE SAME READ AS UNDER : DETAIL OF CLOSING STOCK AS ON 31.03.2013 PARTICUCARS AMOUNT GOLD 1327184,560.78 DIAMOND 95,867,316.82 PEARL 1,782.00 STONE 396,508,41 228,450,168.01 PACKING MATERIAL 180,270.00 TOTAL 228,630,438.01 DIAMOND STOCK AS ON 31/03/2013 RATE OPENIN G PURCHAS E SALE CLOSIN G STK IN CTS IN CTS IN CTS STK IN CTS TOTA L 516.91 14690.97 1561.29 13646.59 14 16. EXHIBITS 131 TO 133 ARE THE ITEM - WISE DETAILS OF OPENING STOCK, PURCHASES, SALES AND CLOSING STOCK S OF GOLD , PEARL, STONE AND DIAMOND. PAGE 135 IS THE LETTER DATED 28.03.2016 FILED BEFORE THE ASSESSING OFFICER EXPLAINING THE DIFFERENCE IN THE VALUE OF STOCK AND THE SAME READ AS UNDER: THE ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 51(1) NEW DELHI INCOME TAX OFFICE CIVIC CENT RE , NEW DELHI GOLD STOCK AS ON 31/03/2013 - PURIT Y OPENING PURCHAS E SATE CLOSING STOCK INGMS IN GRM STOCK 22 CT - 38518.240 12808.150 10550.142 40775.248 STOCK SURRENDER U/S 133 A 21390.380 TOTAL 62166.628 PEARL STOCK AS ON 31/03/2013 RATE OPENING PURCHAS E SALE CLOSING STK IN GRM STK IN GRM STK IN GRM STK IN GRM TOTA L 90.60 0.00 0.00 90.60 STONE STOCK AS ON 31/03/2013 RATE OPENIN G PURCHAS E SALE CLOSIN G STK IN CTS IN CTS IN CTS STK IN CTS TOTAL 99295.79 8148.00 3492.27 103951.52 15 REF: MOTIWALA& SONS/A.YR.2013 - 14/P AN AABFM3409L SUB: S SUBMISSION OF INFORMATION REQUIRED BY YOUR G OODSELF . S IR/MADAM, AS REQUIRED BY YOUR GOOD SELF , I CATV!.S. KATHURIA THE AUTHORIZED REPRESENTATIVE IS SUBMITTING THE FOLLOWING INFORMATION. 17. EXHIBITS 136 AND 137 FILED BEFORE THE ASSESSING OFFICER CONTAIN COMPLETE DETAILS OF STOCK OF DIAMOND AS ON 15.02.2013 I.E. DATE OF SURVEY. QUANTITY HAS BEEN SHOWN AT 13965.31 CARATS AMOUNTING TO RS . 9,92,66,223/ - . COPY OF THE QUANTITATIVE STOCK STATEMENT OF DIAMOND AS ON 15/02/2013 2. THE REASONS FOR THE DIFFERENCE IN THE VALUATION OF DIAMOND STOCK ARE AS BELOW 1 . THE VALUERS HAD TAKEN THE MARKET VALUE OF THE DIAMONDS WHILE THE ASSESSE HAD TAKEN THE VALUE OF THE DIAM ONDS AT COST. 2 . AT SOME PLACES ARTIFICIAL STONES ARE ALSO VALUED AS DIAMONDS,. THE VALUERS HAD NOT DIFFERENTIATED BETWEEN STONES AND DIAMONDS AT SOME PLACES WHILE VALUING THE DIAMONDS. IN SOME OF THE CASES THE WAX, DORI, LAKH , PEARLS ARE ALSO VALUED AS DIAMOND .THE METHOD OF WEIGHING AND VALUATION OF DIAMONDS ADOPTED BY THE VALUERS WAS NOT PROPER, AND THE VALUE OF THE DIAMONDS WAS ALSO TAKEN IN ARBITRARY MANNER. THIS IS ALSO SUBMITTED THAT IT IS VERY DIFFICULT FOR ANY BODY TO WEIGH THE STUDDED DIAMOND PROPERLY IN A SHORT SPAN OF TIME, AND THE VALUE TAKEN BY THE PERSON VALUING THE DIAMONDS DEPENDS UPON HIS PERCEPTION ABOUT THE COST OF THE DIAMOND. WHILE ACCORDING TO ACCOUNTING STANDARDS THE VALUE SHOULD BE TAKEN AT THE COST OR MARKET VALUE WHICH EVER IS LESS. SO THE VALUATION OF DIAMOND TAKEN BY THE ASSESEE IS CORRECT AND SHOULD BE ACCEPTED BY YOUR GOODSELF. I HOPE THE ABOVE EXPLANATION / INFORMATION IS SUFFICIENT TO YOUR SATISFACTION. C THANKING YOU YOURS TRULY FOR M.S. KATHURIA ASSOCIATES CHARTERED ACCOUNTA'NTS (C.A. M.S. KATHURIA) FCA 1. 16 18. A RECONCILIATION STATEMENT WAS ALSO FILED RECONCILING THE DIFFERENCE IN VALUE WHICH IS EXHIBITED AT PAGE 140 OF THE PAPER BOOK. 19. AFTER EXAMINING THESE DETAILS, THE ASSESSING OFFICER WAS CONVINCED WITH THE RETURNED INCOME OF THE ASSESSEE AND ACCEPTED THE SAME AS SUCH WHILE FRAMING THE ASSESSMENT ORDER U/S 143(3) OF THE ACT. 20. THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF NIRMA CHEMICAL WORKS 309 ITR 67 HAS OBSERVED THAT IF THE ASSESSMENT ORDER WERE TO INCORPORATE R E ASONS FOR UPHOLDING THE CLAIM MADE BY AN ASSESSEE, RESULT WOULD BE AN EPITOME AND NOT AN ASSESSMENT ORDER. 21. THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GABRIEL INDIA LTD 203 ITR 108 HAS HELD THAT THE DECISION OF THE ITO CANNOT BE HELD TO BE ERRONEOUS SIMPLY BEC AUSE IN HIS ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION IN THIS REGARD. 22. IN THE LIGHT OF THE AFOREMENTIONED RATIO, WE HAVE NO HESITATION TO HOLD THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS MADE DETAIL AND SPECIFIC ENQUIRIES IN RELATION TO STOCK AND AFTER MAKING DETAILED ENQUIRIES, ACCEPTED RECONCILIATION IN THE 17 VARIATION IN THE VALUE OF STOCK. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSING OFFICER DID NOT MAKE ANY ENQUIRY WHILE FRAMING THE ASSESSMENT ORDER. THE PCIT HAS G ROSSLY ERRED IN OBSERVING THAT THE ASSESSING OFFICER SHOULD HAVE MADE A COMPLETE ENQUIRY FOR THE AMOUNT OF EXCESS STOCK AT RS. 9,95,72,922/ - CALLED FOR DOCUMENTARY EVIDENCE FOR PURCHASE OF GOLD AND DIAMOND AND VERIFIED THE GENUINENESS. AS MENTIONED ELSEWH ERE, THE ASSESSEE HAD FILED COMPLETE DOCUMENTARY EVIDENCES OF PURCHASE OF GOLD AND DIAMOND AND THE ASSESSING OFFICER HAS VERIFIED THE SAME. EVEN THE ALLEGED EXCESS ST OCK HAS BEEN EXPLAINED COMPLETELY BY FILING A RECONCILIATION STATEMENT. THEREFORE, IT IS INCORRECT TO SAY THAT NEITHER PROPER ENQUIRIES WERE MADE NOR ANY INVESTIGATION WAS MADE BY THE ASSESSING OFFICER. 23. AT THIS JUNCTURE, IT WOULD BE PERTINENT TO REFER TO THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF D.G. HOUSING PROJECT LTD 343 ITR 329. THE RELEVANT PART OF THE ORDER READS AS UNDER: 15. IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SUNBEAM AUTO LTD . (2011) 332 ITR 167 (DEL), DELHI HIGH COURT WAS CONSIDERING THE ASPECT, WHEN THERE IS NO PROPER OR FULL VERIFICATION, AND IT WAS HELD AS UNDER: - 18 'WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE COUNSEL ON THE OTHER SIDE AND HAVE GONE THROUGH THE RECORDS. THE FIRST ISSUE THAT ARISES FOR OUR CONSIDERATION IS ABOUT THE EXERCISE O F POWER BY THE COMMISSIONER OF INCOME - TAX UNDER SECTION 263 OF THE INCOME - TAX ACT. AS NOTED ABOVE, THE SUBMISSION OF LEARNED COUNSEL FOR THE REVENUE WAS THAT WHILE PASSING THE ASSESSMENT ORDER, THE ASSESS ING OFFICER DID NOT CONSIDER THIS ASPECT SPECIFICALLY WHETHER THE EXPENDITURE IN QUESTION WAS REVENUE OR CAPITAL EXPENDITURE. THIS ARGUMENT PREDICATES ON THE ASSESSMENT ORDER, WHICH APPARENTLY DOES NOT GIVE ANY REASONS WHILE ALLOWING THE ENTIRE EXPENDITURE AS REVENUE EXPENDITURE. HOWEVER, THAT BY ITSELF WOULD NOT BE INDICATIVE OF THE FACT THAT THE ASSESSING OFFICER HAD NOT APPLIED HIS MIND ON THE ISSUE. THERE ARE JUDGMENTS GALORE LAYING DOWN THE PRINCIPLE THAT THE ASSESSING OFFICER IN THE ASSESSMENT ORDER I S NOT REQUIRED TO GIVE DETAILED REASON IN RESPECT OF EACH AND EVERY ITEM OF DEDUCTION, ETC. THEREFORE, ONE HAS TO SEE FROM THE RECORD AS TO WHETHER THERE WAS APPLICATION OF MIND BEFORE ALLOWING THE EXPENDITURE IN QUESTION AS REVENUE EXPENDITURE. LEARNED CO UNSEL FOR THE ASSESSEE IS RIGHT IN HIS SUBMISSION THAT ONE HAS TO KEEP IN MIND THE DISTINCTION BETWEEN ' LACK OF INQUIRY' AND ' INADEQUATE INQUIRY' . IF THERE WAS ANY INQUIRY, EVEN INADEQUATE THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE COMMISSIONER TO PA SS ORDERS UNDER SECTION 263 OF THE ACT, MERELY BECAUSE HE HAS A DIFFERENT OPINION IN THE MATTER. IT IS ONLY IN CASES OF 'LACK OF INQUIRY' THAT SUCH A 19 COURSE OF ACTION WOULD BE OPEN. IN GABRIEL INDIA LTD. [1993] 203 ITR 108 (BOM), LAW ON THIS ASPECT WAS DISCUSSED IN THE FOLLOWING MANNER (PAGE 113): ' . . . FROM A RENDING OF SUB - SECTION (1) OF SECTION 263 , IT IS CLEAR THAT THE POWER OF SUO MOTU REVISION CAN BE EXERCISED BY THE COMMISSIONER ONLY IF, ON EXAMINATION OF THE RECORDS OF ANY PROCEEDINGS UNDER THIS ACT, HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE INCOME - TAX OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE . IT IS NOT AN ARBITRARY OR UNCHARTERED POWER, IT CAN BE EXERCISED ONLY ON FULFILMENT OF THE REQUIREMENTS LAID DOWN IN SUB - SECTION (1). THE CONSIDERATION OF THE COMMISSIONER AS TO WHETHER AN ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, MUST BE BASED ON MATERIALS ON THE RECORD OF THE PROCEEDINGS CALLED FOR BY HIM. IF THERE ARE NO MATERIALS ON RECORD ON THE BASIS OF WHICH IT CAN BE SAID THAT THE COMMISSIONER ACTING IN A REASONABLE MANNER COULD HAVE COME TO SUCH A CONCLUSIO N, THE VERY INITIATION OF PROCEEDINGS BY HIM WILL BE ILLEGAL AND WITHOUT JURISDICTION. THE COMMISSIONER CANNOT INITIATE PROCEEDINGS WITH A VIEW TO STARTING FISHING AND ROVING ENQUIRIES IN MATTERS OR ORDERS WHICH ARE ALREADY CONCLUDED. SUCH ACTION WILL BE A GAINST THE WELL - ACCEPTED POLICY OF LAW THAT THERE MUST BE A POINT OF FINALITY IN ALL LEGAL PROCEEDINGS, THAT STALE ISSUES SHOULD NOT BE REACTIVATED BEYOND A PARTICULAR STAGE AND THAT LAPSE OF TIME 20 MUST INDUCE REPOSE IN AND SET AT REST JUDICIAL AND QUASI - J UDICIAL CONTROVERSIES AS IT MUST IN OTHER SPHERES OF HUMAN ACTIVITY. ( SEE PARASHURAM POTTERY WORKS CO. LTD. V. ITO [1977] 106 ITR 1 (SC) AT PAGE 10) . . . FROM THE AFORESAID DEFINITIONS IT IS CLEAR THAT AN ORDER CANNOT BE TERMED AS ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. IF AN INCOME - TAX OFFICER ACTING IN ACCORDANCE WITH LAW MAKES A CERTAIN ASSESSMENT, THE SAME CANNOT BE BRANDED AS ERRONEOUS BY THE COMMISSIONER SIMPLY BECAUSE, ACCORDING TO HIM, THE ORDER SHOULD HAVE BEEN WRITTEN MORE ELABORATELY. THIS SECTION DOES NOT VISUALISE A CASE OF SUBSTITUTION OF THE JUDGMENT OF THE COMMISSIONER FOR THAT OF THE INCOME - TAX OFFICER, WHO PASSED THE ORDER UNLESS THE DECISION IS HELD TO BE ERRONEOUS. CASES MAY BE VISUALISED WHERE THE INCOME - TAX OFFICER WHILE MAKING AN ASSESSMENT EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME EITHER BY ACCEPTING THE ACCOUNTS OR BY MAKING SOME ESTIMATE HIMSELF. THE COMMISSIONER, ON PERUSAL OF THE RECORDS, MAY BE OF THE OPINION THAT THE ESTIMATE MADE BY THE OFFICER CONCERNED WAS ON THE LOWER SIDE AND LEFT TO THE COMMISSIONER HE WOULD HAVE ESTIMATED THE INCOME AT A FIGURE HIGHER THAN THE ONE DETERMINED BY THE INCOME - TAX OFFICER. THAT WOULD NOT VEST THE COMMISSIONER WITH POWER TO RE - EXAMINE THE ACCOUNTS AND DETERMINE THE INCOME HIMSELF AT A HIGHER FIGURE. IT IS BECAUSE THE INCOME - TAX OFFICER HAS EXERCISED THE QUASI - JUDICIAL POWER VESTED IN 21 HIM IN ACCORDANCE WITH LAW AND ARRIVED AT A CONCLUSION AND SUCH A CONCLUSION CANNOT BE FORMED TO BE ERRONEOUS SIMPLY BECAUSE THE COMMISSIONER DOES NOT FEEL SATISFIED WITH THE CONCLUSION . . . THERE MUST BE SOME PRIMA FACIE MATERIAL ON RECORD TO SHOW THAT TAX WHICH WAS LAWFU LLY EXIGIBLE HAS NOT BEEN IMPOSED OR THAT BY THE APPLICATION OF THE RELEVANT STATUTE ON AN INCORRECT OR INCOMPLETE INTERPRETATION A LESSER TAX THAN WHAT WAS JUST HAS BEEN IMPOSED . . . WE MAY NOW EXAMINE THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE PO WERS OF THE COMMISSIONER SET OUT ABOVE. THE INCOME - TAX OFFICER IN THIS CASE HAD MADE ENQUIRIES IN REGARD TO THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSEE HAD GIVEN DETAILED EXPLANATION IN THAT REGARD BY A LETTER IN WRITING. ALL THESE ARE PART OF THE RECORD OF THE CASE. EVIDENTLY, THE CLAIM WAS ALLOWED BY THE INCOME - TAX OFFICER ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. SUCH DECISION OF THE INCOME - TAX OFFICER CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER H E DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD.'' 16. THUS, IN CASES OF WRONG OPINION OR FINDING ON MERITS, THE CIT HAS TO COME TO THE CONCLUSION AND HIMSELF DECIDE THAT THE ORDER IS ERRONEOUS, BY CONDUCTING NECESSARY ENQUIRY, IF REQUIRED AND NECES SARY, BEFORE THE ORDER UNDER SECTION 263 IS PASSED. IN SUCH CASES, THE ORDER OF THE ASSESSING 22 OFFICER WILL BE ERRONEOUS BECAUSE THE ORDER PASSED IS NOT SUSTAINABLE IN LAW AND THE SAID FINDING MUST BE RECO RDED. CIT CANNOT REMAND THE MATTER TO THE ASSESSING OFFICER TO DECIDE WHETHER THE FINDINGS RECORDED ARE ERRONEOUS. IN CASES WHERE THERE IS INADEQUATE ENQUIRY BUT NOT LACK OF ENQUIRY, AGAIN THE CIT MUST GIVE AND RECORD A FINDING THAT THE ORDER/INQUIRY MADE IS ERRONEOUS. THIS CAN HAPPEN IF AN ENQUIRY AND VERIFICATION IS CONDUCTED BY THE CIT AND HE IS ABLE TO ESTABLISH AND SHOW THE ERROR OR MISTAKE MADE BY THE ASSESSING OFFICER, MAKING THE ORDER UNSUSTAINABLE IN LAW. IN SOME CASES POSSIBLY THOUGH RARELY, THE C IT CAN ALSO SHOW AND ESTABLISH THAT THE FACTS ON RECORD OR INFERENCES DRAWN FROM FACTS ON RECORD PER SE JUSTIFIED AND MANDATED FURTHER ENQUIRY OR INVESTIGATION BUT THE ASSESSING OFFICER HAD ERRONEOUSLY NOT UNDERTAKEN THE SAME. HOWEVER, THE SAID FINDING MUS T BE CLEAR, UNAMBIGUOUS AND NOT DEBATABLE. THE MATTER CANNOT BE REMITTED FOR A FRESH DECISION TO THE ASSESSING OFFICER TO CONDUCT FURTHER ENQUIRIES WITHOUT A FINDING THAT THE ORDER IS ERRONEOUS. FINDING THAT THE ORDER IS ERRONEOUS IS A CONDITION ORREQUIREM ENT WHICH MUST BE SATISFIED FOR EXERCISE OF JURISDICTION UNDER SECTION 263 OF THE ACT. IN SUCH MATTERS, TO REMAND THE MATTER/ISSUE TO THE ASSESSING OFFICER WOULD IMPLY AND MEAN THE CIT HAS NOT EXAMINED AN D DECIDED WHETHER OR NOT THE ORDER IS ERRONEOUS BUT HAS DIRECTED THE ASSESSING OFFICER TO DECIDE THE ASPECT/QUESTION. 23 24. IN THE LIGHT OF THE ABOVE OBSERVATION OF THE HON'BLE JURISDICTIONAL HIGH COURT, THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN T HE CASE OF MALABAR INDUSTRIAL CO. 243 ITR83 SQUARELY APPL IES ON THE FACTS OF THE CASE. THE HON'BLE SUPREME COURT HAD OBSERVED THAT : THE PHRASE PREJUDICIAL TO THE INTEREST OF THE REVENUE HAS TO BE READ AS CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EXAMPLE, WHEN AN INCOME - TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT H AS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME - TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE INCOME - TAX OFFICER IS UNSUSTAINABLE IN LAW. 25. CONSIDERING THE JUDICIAL PRECEDENTS AS DISCUSSED HEREINABOVE, IN THE LIGHT OF THE FA C TS OF THE CASE IN HAND, AS EXPLAINED HEREINABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSMENT ORDE R FRAMED U/S 143(3) OF THE ACT IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THE PCIT HAS ERRONEOUSLY ASSUMED JURISDICTION U/S 263 24 OF THE ACT. WE , ACCORDINGLY , SET ASIDE TH E ORDER FRAMED U/S 263 OF THE ACT AND RESTORE THAT OF THE ASSESSING OFFICER FRAMED U/S 143(3) OF THE ACT. 26 IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO. 2756 /DEL/201 8 IS ALLOWED . THE ORDER IS PRON OUNCED IN THE OPEN COURT ON 2 9 . 1 1 .2018. SD/ - SD/ - [ SUCHITRA KAMBLE ] [ N.K. BILLAIYA ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 9 T H NOVEMBER , 2018 VL/ COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI 25 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER