ITO, Ludhiana V. Surinder Mohan Dhir, Ludhiana

ITA 432/CHANDI/2003

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9810 (ITAT-CHANDIGARH)
• Duration Of Justice: 12 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 16-06-2015
• Assessment Year: 1998-1999
• Appeal Filed On: 01-07-2003
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR AMA RVEER SINGH
• Assessee Lawyers: AHOK GOYAL
• Keywords: Business income; Search and seizure; Opportunity of being heard; Corroborative evidences; Valuation report; Accommodation entries
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES SMC CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT ITA NO. 432/CHD/2003 (ASSESSMENT YEAR: 1998-99) THE INCOME TAX OFFICER VS. SH.SURINDER MOHAN DHI R, II (3), LUDHIANA. PROP. M/S SEISS DIAMONDS, GHANT GHAR, LUDHIANA. PAN/GIR NO. 129-S (APPELLANT) (RESPONDENT) APPELLANT BY : DR.AMAR VEER SINGH, DR RESPONDENT BY : S/SHRI SUDHIR SEHGAL & AHOK GOYAL DATE OF HEARING : 29.06.2015 DATE OF PRONOUNCEMENT : 27.07.2015 O R D E R PER H.L.KARWA, VP : THIS APPEAL FILED BY THE REVENUE IS DIRE CTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, LUDHIANA DATED 28.3.2003 RELATING TO A SSESSMENT YEAR 1998-99. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE IN THIS APPEAL READS AS UNDER : 2 1. THE LD. CIT(A)-I, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, HAS ERRED IN DELETING TH E ADDITION OF RS.95,92,522/- CONCLUDING THAT THE SALE OF DIAMONDS WERE NOT SHAM, AND HAD ACTUALLY TAKEN PLACE. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE SUBMITTED HIS RETURN FOR ASSESSMENT YEAR 1998-99 DECLARING LOSS OF RS.1,20,93,435/- ON 30.10.1998. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF GOLD AND DIA MOND JEWELLERY. EXPORT OF JEWELLERY WAS ALSO SHOWN DUR ING THE RELEVANT PREVIOUS YEAR. AS PER THE TRADING ACCOUN T, THE ASSESSEE HAS SHOWN TOTAL SALES OF RS.9.85 CRORES, W HICH INCLUDED SALE OF DIAMONDS AND GOLD ORNAMENTS. ON S UCH TURNOVER, A GROSS LOSS OF RS.67.77 LACS WAS SHOWN. THE ASSESSEE HAS SHOWN THE SALE OF DIAMONDS AT RS.5.10 CRORES AND SALE OF GOLD AT RS.4.65 CRORES. WHILE GROSS L OSS OF RS.19.43 LACS HAS BEEN SHOWN ON TRADING IN DIAMONDS AND GROSS LOSS OF RS.18.22 LACS HAS BEEN SHOWN ON SALE OF GOLD ORNAMENTS. DURING THE COURSE OF ASSESSMENT PROCEE DINGS, THE ASSESSEE WAS ASKED TO RECONCILE THE OPENING AND CLOSING STOCK, BOTH IN QUANTITATIVE AND VALUE TERMS. THE ASSESSING OFFICER ON ANALYSIS OF THE FIGURES OF OPENING STOCK AS ON 1.4.1997 NOTICED THAT THE VALUE OF OPENING STOCK TO TALED TO RS.1,69,70,016/- AS AGAINST A SUM OF RS.2,04,26,526 /-, BEING REFLECTED IN THE TRADING ACCOUNT OF THIS YEAR. TH US, THERE WAS A DISCREPANCY OF RS.34,56,510/-. WHEN THE SAID DI SCREPANCY WAS POINTED OUT TO THE ASSESSEE, THE ASSESSEE ACCEP TED THE SAME AND SURRENDERED THE DIFFERENCE IN VALUE AMOUN TING TO RS.34,56,510/-. ACCORDING TO THE ASSESSING OFFIC ER, THE SAID 3 DIFFERENCE HAS EFFECTIVELY BROUGHT DOWN THE GROSS L OSS TO RS.33,20,707/-. FURTHER, THE ASSESSING OFFICER AS KED THE ASSESSEE TO JUSTIFY THE ADMISSIBILITY OF GROSS LOSS ARRIVED AT ON DIAMOND AND GOLD SALES. FROM THE ACCOUNTS OF THE ASSESSEE, THE ASSESSING OFFICER NOTICED THAT MOST OF THE PERS ONS FROM WHOM DIAMONDS WERE PURCHASED WERE VDIS, 1997 (DECLA RANTS). THE ASSESSING OFFICER FURTHER NOTICED THAT IN ADDIT ION TO THE GROSS LOSS SHOWN IN THE TRADING ACCOUNT, A SUBSTANT IAL AMOUNT OF INTEREST WAS ALSO DEBITED TO THE PROFIT & LOSS A CCOUNT. SUCH INTEREST PRIMARILY RELATED TO THE LOANS/PACKIN G CREDITS AVAILED ON EXPORTS AND EARLY DISCOUNTING OF EXPORT BILLS. THE ASSESSEE SUBMITTED BILL-WISE BIFURCATION OF THE DIA MONDS PURCHASED, SOLD AND BALANCE IN THE CLOSING STOCK. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE REASONS FOR THE GROSS LOSS INCURRED IN RESPECT OF DIAMONDS AND GOLD. IN RESPONSE TO THE AFORESAID QUERY, THE ASSESSEE SU BMITTED HIS REPLY ON 23.3.2001, WHICH READS AS UNDER : 'THERE IS A PRINCIPLE OF VALUATION/ESTIMATION OF DI AMONDS DEPENDING UPON CERTAIN NORMS OF VALUATION. THE GENERAL NORMS AS SET DOWN BY THE VARIOUS ASSOCIATIONS/ORGANISATIONS ETC. ARE F IRST THE FOUR C METHOD I.E. CLARITY, COLOUR, CUTS AND CARATS AND THEN THE SAME IS BASED ON THE COMBINATION AND PERMUTATION METHOD...THAT THIS STATISTIC OF THE GEMS AND JEWELLERY EXPORT PROMOTIO N COUNCIL IS BASED ON THE GENERAL CRITERIA AND THE DATA BEST KNO WN TO THEM AND DOES NOT MENTION THE QUALITY OF THE DIAMONDS AND GENERAL CRITERIA CAN NOT BE MADE THE BASIS OF ANY DECISION/AS SESSMENT...THAT THE ASSESSES PURCHASED THE DIAMONDS FROM THE MARKET MAY THEY BE VDIS DECLARANTS, BUT THE SCHEME OF VDIS, 1997 WITH REGARD TO THE DECLARATION OF JEWELLERY ETC. WAS GIVEN BY THE FINA NCE MINISTRY ONLY. THE DIAMONDS WERE PURCHASED AFTER DULY VERIFYIN G AND VALUATION OF THE SAME AS PER THE ABILITY AND CAPABILI TY...THAT THE 4 MAXIMUM RATES QUOTED BY THE GEMS AND JEWELLERY PROM OTION COUNCIL DATA AS ANNEXED BY YOU DATED 20.03.2001 IS TOTALLY WRONG BECAUSE THE VALUE OF DIAMONDS RANGES FROM RS. 10,000/- PER CT TO RS. 2.00 LACS PER CT AND THE FACTS OF THE SAME CAN BE VERIFI ED FROM THE MARKET AND ALSO THE SALE/PURCHASE MADE BY US...THAT TH E ASSESSEE EXPORTED THE GOLD JEWELLERY AND DIAMONDS, AND AS PER TH E POLICY, WERE ALLOWED TO PURCHASE THE GOLD AGAINST THE EXPORT AT A RATE LOWER THAN THE MARKET RATE I.E. ON THE INTERNATIONA L RATE AND WERE TO BE GIVEN THE IMPORT LICENCE ETC, AGAINST THE EXPORTS OF DIAMONDS. THE ASSESSEE COULD NOT AVAIL THE BENEFIT OF THIS LOSS BECAUSE OF DISPUTE WITH THE BANKERS AND COULD NOT MAKE FURTHER E XPORTS AS THE BANKERS WROTE LETTERS TO ALL THE BANKS FOR NOT OPENING AND CONDUCTING THE ACCOUNT OF M/S SWISS DIAMONDS IN ANY OF THE BANK AND FURTHER LODGE THE FIR IN THE POLICE AGAINST THE ASSESSEE... THAT THE PERSON/FIRM TO WHOM THE GOODS I.E. GOLD JEWELLERY AN D DIAMONDS WERE EXPORTED ALSO SENT US THE ADVANCE AGAI NST SUPPLIES AND THUS THE SALE ARE TO BE EFFECTED AT RATE SOMEWHA T LOWER THAN THE MARKET RATE TO COMPENSATE THE ELEMENT OF INTERE ST ON THE AMOUNT OF ADVANCE...THAT THEIR LORDSHIPS OF THE SUPREME COURT , HIGH COURT AND IT AT HAVE OPINED IN A NUMBER OF CASES THAT ANY ASSESSMENT FRAMED ON MERE SURMISES, PRESUMPTIONS AND CONJECTUR ES ARE BAD IN LAW.' 4. THE ASSESSING OFFICER OBSERVED THAT THE REPLY D ATED 23.3.2001 AS SUBMITTED BY THE ASSESSEE WAS NOT TENA BLE AND HE, THEREFORE, REJECTED THE SAME ON THE GROUNDS STA TED IN PARA 9 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER CONCLUDED THAT THE ENTIRE BUSINESS ACTIVITY WAS GEARED TO GIV E ACCOMMODATION ENTRIES IN THE GARB OF PURCHASE OF DI AMONDS AT INFLATED PRICES. FURTHER, IN ORDER TO MANAGE THE FUNDS, HAWALA MONEY WAS ROUTED IN THE FORM OF EXPORT SALES HOWEVER, EVEN SUCH MONEY REMAINED INSUFFICIENT SO A S TO PROJECT LOSSES. ACCORDING TO THE ASSESSING OFFIC ER, THE ENTIRE EXERCISE OF SHOWING PURCHASE OF DIAMONDS AND THEREB Y 5 EXPORTING THE SAME IS NOTHING BUT A COLLUSIVE ARRAN GEMENT BY WHICH THE ASSESSEE HAS BEEN A CONDUIT IN MANAGING H AWALA ENTRIES AND HAS DERIVED PROFIT THEREON. FOR THE D ETAILED REASONS GIVEN IN PARA 9 OF THE ASSESSMENT ORDER, TH E ASSESSING OFFICER REJECTED THE BOOK RESULTS QUA TRA DING IN DIAMONDS IN VIEW OF THE FOLLOWING : I) THAT THE OPENING STOCK IS ADMITTEDLY INFLATED BY A FIGURE OF AS MUCH AS RS.34,56,510/-. II) THAT IF THE G.P. ON SALE ALONGWITH THE INTE REST ON PACKING CREDIT AND LOANS TAKEN FOR THE DISCOUNTING THE BILLS IS CO NSIDERED, THEN IN RESPECT OF EACH AND EVERY TRANSACTION THERE IS A GROS S LOSS. (III) THAT EVEN OTHERWISE, THERE IS A GROSS LOSS IN RESPECT OF SALES MADE ON TWO OCCASIONS. (IV) THAT THE PURCHASE OF DIAMONDS HAS BEEN MADE A T INFLATED PRICE AND IS NOT SUPPORTED BY THE MARKET APPRECIATI ON AND SOUND BUSINESS PRUDENCE. (V) THAT THE FACT THAT THE PURCHASES HAVE BEEN MADE AT VALUES MUCH HIGHER THAN THE MARKET PRICES IS CLEARLY BORNE O UT FROM THE STATISTICS OF M/S GEMS & JEWELLERY EXPORT PROMOTION COUNC IL. 5. THE ASSESSING OFFICER MADE THE ADDITION OF RS.58,66,872/- ON ACCOUNT OF TRADING IN DIAMONDS. ACCORDING TO THE ASSESSING OFFICER, IN RESPECT OF T RADING IN DIAMONDS, IN ORDER TO ARRIVE AT A FAIR QUANTUM OF P ROFIT ON SUCH TRANSACTIONS, THE FOLLOWING ANALYSIS IS RELEVA NT : (A)TOTAL INTEREST CLAIMED ON PACKING CREDIT/LOANS FOR DISCOUNTING EXPORT BILLS: = RS. 45,75,707/- OUT OF THE ABOVE INTEREST, COMPONENT ATTRIBUTABLE TO DIAMOND EXPORTS (IN PROPORTION OF DIAMOND & GOLD EXPORT TURNOVER): = TOTAL INTEREST PAID X DIAM OND T.O. TOTAL EXPORT T.O. = RS. 4575770X51016286 72633724 = RS. 32,13,917//- (B) GROSS LOSS ON DIAMOND TRADING = RS. 19,43,630/- (C) TOTAL LOSS ON A/C OF DIAMONDTRADMG = RS. 51,57,547 /- (A+B) (D) G.L. (AS A %) = GROSS LOSS X 100 TOTAL DIAMOND T.O. = 5157547X100 = 10% 51016286 11. GIVING MAXIMUM BENEFIT TO THE ASSESSEE, EVEN IF A GROSS PROFIT RATE OF 1.5% IS APPLIED ON THE DIAMOND TURNOVER THEN AN ADD ITION OF 11.5% OF THE TOTAL DIAMOND TURNOVER IS TO BE MADE TO THE ASSESSEE'S IN COME. TOTAL SALE OF DIAMOND = RS. 51016286/- ADDITION: 11.5% OF TOTAL SALE = RS. 58,66,872/- 12. THIS FIGURE OF RS. 58,66,872/- INCLUDES DISA LLOWANCE OF GROSS TOSS OF RS. 51,57,547/- AND AN AMOUNT OF RS. 7,09,325/- TOWARDS PROFIT BEING APPLIED @ 1.5% THUS, THIS ADDITION OF RS. 58,66,872/- IS MAIN LY ATTRIBUTABLE TO THE INFLATED PURCHASES MADE BY THE ASSESSEE AS DISCUSSE D AT LENGTH IN THE FOREGOING PARAS. 6. AS REGARDS GOLD TRANSACTIONS, THE ASSESSING OFF ICER OBSERVED THAT THE ASSESSEE CLAIMED LOSS OF RS.18.22 LACS. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE PUR CHASED GOLD ORNAMENTS FROM VDIS, 1997 (DECLARANTS) OF 22 C ARATS AND 18 CARATS PURITY. HOWEVER, AS PER THE QUANTITATIV E TALLY FURNISHED, THE ASSESSEE HAS CONVERTED THE ENTIRE PU RCHASES 7 INTO 24 CARATS AND HAS SHOWN THE SALE OF 24 CARATS GOLD AND OF 18 CARATS/22 CARATS GOLD JEWELLERY. ACCORDING TO T HE ASSESSING OFFICER, SUCH AN EXERCISE OF CONVERSION O F 18/22 CARATS GOLD INTO 24 CARATS HAS BEEN DONE MERELY TO BALANCE THE QUANTITATIVE TALLY. THE ASSESSING OFFICER OBS ERVED THAT THERE CAN BE NO OCCASION FOR LOSS ON GOLD TRADING S INCE THE JEWELLERY ADJUSTS THE SALE VALUE KEEPING IN VIEW TH E WASTAGE INVOLVED IN SUCH CONVERSIONS AND THE LABOUR/MAKING CHARGES INVOLVED UNLESS THERE IS A DRASTIC FALL IN THE GOLD RATES WHICH OF COURSE, IS NOT THE CASE. HE, THEREFORE, OBSERV ED THAT THE ASSESSEE IS A JEWELLER SINCE LONG. ACCORDING TO H IM, NO PRUDENT BUSINESSMAN WOULD MAKE ESTIMATES WHILE PURC HASING ON A HIGHER SIDE AND THUS, INCUR LOSS. AS A BUSIN ESSMAN, WHEN THE DETERMINATION OF IMPURITY IS SUBJECTIVE, O NE WOULD BE CONSERVATIVE IN MAKING AN ESTIMATE. THE ASSESS ING OFFICER FURTHER OBSERVED THAT THE TOTAL EXPORT SALES OF GOL D MADE BY THE ASSESSEE WERE TO THE TUNE OF RS.2,16,17,438/- A S AGAINST THE TOTAL GOLD SALE FOR THE YEAR AT RS.4,65,70,628/ -. THE ASSESSING OFFICER TOOK THE VIEW THAT WHILE WORKING OUT THE PROFIT DIRECTLY ATTRIBUTABLE TO THE EXPORT SALES OF GOLD, THE INTEREST COMPONENT INCURRED AS EXPENSES SHOULD ALSO TO BE CONSIDERED. THE ASSESSING OFFICER REJECTED THE BO OK RESULTS IN RESPECT OF GOLD TRANSACTIONS ALSO FOR THE REASON S GIVEN AS UNDER : 15. THUS, EVEN IN RESPECT OF GOLD, THE BOOK RESULTS OF THE ASSESSEE ARE BEING REJECTED IN VIEW OF THE FOLLOWING:- (A) THAT THE QUANTITATIVE TALLY FURNISHED IS NOT RE LIABLE KEEPING IN VIEW OF THE UNVERIFIABILITY OF THE WASTAGE INVOLVED IN THE CONV ERSION PROCESS. ALSO THAT THE OPENING STOCK IS ADMITTEDLY INFLATED BY A FIGURE OF RS. 34,56,510/- AS ALREADY 8 MENTIONED. IT MAY BE INDICATED THAT ALTHOUGH THE AS SESSEE HAS SURRENDERED THE AMOUNT NO VALID REASONS FOR SUCH DISCREPANCY HAS BE EN GIVEN. (B) THAT IF THE G.P. ON SALE ALONGWITH PACKING CREDIT A ND LOANS TAKEN FOR DISCOUNTING THE BILLS ARE CONSIDERED, THEN IN RESPE CT OF EACH AND EVERY GOLD TRANSACTION THERE IS A GROSS LOSS. (C) THAT INCURRING OF GROSS LOSS IS NOT IN CONSONANCE W ITH SOUND BUSINESS PRUDENCE. 7. THE ASSESSING OFFICER MADE THE ADDITION OF RS.37,25,650/-. THE ASSESSING OFFICER OBSERVED THA T IN RESPECT OF TRADING IN GOLD, IN ORDER TO ARRIVE AT A FAIR QUANTUM OF PROFIT ON SUCH TRANSACTIONS, THE FOLLOWING ANALY SIS IS RELEVANT : (A) INTEREST ATTRIBUTABLE TO GOLD EXPORT = TOTA L INTEREST PAID X GOLD EXPORT T.O. TOTAL EXPORT T.O. =45.75.770 X 21617438 72633724 = RS. 13,61, 852/- (B) GROSS LOSS ON GOLD TRADING =RS.L8,22,399/- (C) TOTAL LOSS ON GOLD TRADING = RS.31,84,251/ - (A) +(B) (D) GROSS LOSS (AS A %) = GROSS LOSS X 100 TOTAL T.O. ON GOLD =3184251 X 100 = 6.8% 46570628 17. GIVING MAXIMUM BENEFIT TO THE ASSESSEE, EVEN IF A G.P. RATE OF 1% IS APPLIED ON GOLD TURNOVER, THEN AN ADDITION OF 8% OF THE TOT AL GOLD TURNOVER IS TO BE MADE TO THE ASSESSEE'S INCOME. TOTAL SALE OF GOLD =RS. 4,65,70,628/- ADDITION OF 8% OF TOTAL GOLD SALES =RS. 37,25,650/- 9 18. THIS FIGURE OF RS. 37,25,650/- INCLUDES DISALLO WANCE OF GROSS LOSS OF RS. 31,84,251/- AND AN AMOUNT OF RS. 5,41,399/- TOWARDS PROFIT BEING APPLIED AT THE RATE OF 1%. THUS, THE ADDITION OF RS. 37,25,650/-IS MAINLY ATTRIBUTABLE TO INFLATED PURCHASES MADE BY THE ASSESSEE AS DISCUSSED AT LENG TH IN THE FOREGOING PARAS. 8. THE ASSESSING OFFICER RE-COMPUTED THE INCOME OF ASSESSEE AS UNDER : NET LOSS AS RETURNED (-) RS. 1,20,93,435/- ADDITION: (I) DIFFERENCE IN OPENING RS. 34,5 6,510/- STOCK AS SURRENDERED. (II) ADDITION ON A/C OF DIAMOND (A) DISALLOWANCE OF LOSS - RS. 51,57,547/- (B) ON A/C OF PROFIT =RS. 7,09,325/- RS. 58,66, 872/- (III) ADDITION ON A/C OF GOLD (A) DISALLOWANCE OF LOSS = RS. 31,84,251/- (B) ON A/C OF PROFIT = RS. 5,41,399/- RS. 37,25,650/- TOTAL ASSESSED INCOME (+) RS. 9,55,597/- 9. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER , THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LE ARNED CIT (APPEALS), AND THE LEARNED CIT (APPEALS) VIDE HIS O RDER DATED 28.3.2003 ALLOWED THE APPEAL OF THE ASSESSEE. NOW , THE REVENUE HAS CHALLENGED THE ORDER OF THE LEARNED CIT (APPEALS) BY PREFERRING THE INSTANT APPEAL BEFORE THE TRIBUNA L. 10. I HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES AT LENGTH AND HAVE ALSO PERUSED THE MATERIA LS AVAILABLE ON RECORD. IT APPEARS THAT THE ASSESSEE HAS SUBMITTED WRITTEN SUBMISSIONS BEFORE THE LEARNED CI T (APPEALS), WHICH ARE REPRODUCED BY THE LEARNED CIT (APPEALS) IN PARA 2 OF THE IMPUGNED ORDER. THE MAIN CONTENT ION OF THE ASSESSEE BEFORE THE LEARNED CIT (APPEALS) WAS THAT THE 10 ASSESSING OFFICER HAS MADE THE ADDITION IN RESPECT OF TRADING IN DIAMONDS ON THE BASIS OF A REPORT OF GEM JEWELLE RY EXPORT PROMOTION COUNCIL. FURTHER THE GOLD AND SILVER IS QUOTED WHEREAS THE DIAMONDS ARE NOT QUOTED. IT IS STATED THAT THE DIAMONDS CONTAIN VERY VERIFYING DIMENSIONS, QUALITI ES, ETC. IT WAS ALSO CLAIMED THAT THE RATES OF DIAMONDS DIFFER FROM EACH OTHER AND THERE IS NO YARDSTICK TO VALUE ALL DIAMON DS AT A SIMILAR RATE. THE DIAMONDS ARE VALUED ON THE BASI S OF FOUR C FORMULA I.E. CUTS, COLOUR, CLARITY AND CARATS A ND AGAIN AS PER ITS COLOUR. FURTHER THE ASSESSEE CLAIMED THAT THE PURCHASES WERE MADE FROM SHRI ANAND PARKASH SIKHRI, WHOSE VALUATION REPORTS WERE ACCEPTED BY THE INCOME TAX DEPARTMENT AT THE TIME OF SEARCH AND SEIZURE OPERAT IONS AND WHOLE VALUATIONS WERE TO BE ACCEPTED AT THE TIME OF VDIS, 1997 SCHEME. AS REGARDS THE LOSS INCURRED IN TRAD ING OF DIAMONDS, THE ASSESSEE FURTHER STATED THAT : THE ASSESSEE MADE THE EXPORT OF ITS GOOD A AS PER COMMITMENT MADE AND THE COMMITMENT OF SALE WAS AS PER THE DOLLAR PRICE AND NOT THE INDIAN CURRENCY. THE EXPORT COMMITMENT WERE M ADE BEFORE AND IN CASE THE ORDERS WOULD NOT HAVE BEEN EXECUTED AND ASSESSEE WOULD HAVE MADE A HUGE LOSS AND JUST TO CURTAIL ITS LO SSES THE EXPORT COMMITMENT WERE HONORED AND MOREOVER THE BANK ERS OF THE ASSESSEE ALSO BECAME A HINDRANCE IN EXECUTING OF THE EXPORT ORDERS. THE LOSS WAS MAINLY ON ACCOUNT OF THE FACT THAT EXP ORT ENTITLEMENTS WHICH THE ASSESSEE WAS TO AVAIL AND PURCHASE OF GOLD FORM RBI AT A LOWER COULD NOT BE AVAILED DUE TO BANK DISPUTES AND LODGING OF THE FIR AGAINST THE ASSESSEE ON ACCOUNT OF WHICH HE COULD BAILOUT HIMSELF FORM THE HIGH COURT ONLY. THE BANK DISPUTE IN FACT RUINED THE UNIT AND DISPUTES ARE STILL PENDING IN VARIOUS COURTS. 11. THE LEARNED CIT (APPEALS) DELETED THE ADDITION 11 STATING THAT NO TANGIBLE EVIDENCE OR ANY CONCRETE E VIDENCE ON FACTS HAVE BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER TO DISPROVE ASSESSEES VERSION. HE FURTHER OBSERVED THAT THE CONCLUSIONS OF THE ASSESSING OFFICER ARE BASED ON C ONJECTURES AND SURMISES. THE CIT (APPEALS) ALSO OBSERVED THA T THE ASSESSING OFFICER HAS VERIFIED EACH AND EVERY PURCH ASES ALONGWITH ITS QUANTITY AND RATE. HE, THEREFORE, OB SERVED THAT THE ASSESSING OFFICER WAS WRONG IN HOLDING THAT THE PURCHASES HAVE BEEN INFLATED. THE LEARNED CIT (APPEALS) FUR THER OBSERVED THAT THE ASSESSING OFFICER HAS NOT DOUBTED EITHER THE EXPORT TURNOVER OR SALE PROCEEDS RECEIVED BY THE AS SESSEE IN CONVERTIBLE FOREIGN EXCHANGE. THE LEARNED CIT (AP PEALS) CONCLUDED THAT THERE WAS SUBSTANTIAL FORCE IN THE C ONTENTION OF THE ASSESSEE THAT HE HAD CERTAIN EXPORT COMMITME NTS TO HONOUR, AND WHILE DOING SO, THE ASSESSEE SUFFERED M ASSIVE LOSSES. 12. AFTER CONSIDERING THE ENTIRE FACTS AND CIRCUMS TANCES OF THE PRESENT CASE, I AM OF THE OPINION THAT THE O RDER OF THE LEARNED CIT (APPEALS) DESERVES TO BE SET ASIDE. I T IS OBSERVED THAT IN THE IMPUGNED ORDER, THERE IS NO DISCUSSION ABOUT THE GOLD TRANSACTIONS. IN FACT, THE ASSESSING OFFICER HAS MADE TWO SEPARATE ADDITIONS OF RS.58,66,872/- ON ACCOUNT OF TRADING IN DIAMONDS AND RS.37,25,650/- ON ACCOUNT O F GOLD TRANSACTIONS. THESE TWO ADDITIONS WERE MADE AFTER REJECTING THE BOOK RESULTS UNDER SECTION 145 OF THE INCOME TA X ACT, 1961 (IN SHORT THE ACT), FOR WHICH THE ASSESSING OFFICER HAS GIVEN THE DETAILED REASONS. ONE OF THE REASONS GI VEN BY THE 12 ASSESSING OFFICER WHILE REJECTING THE BOOK RESULTS WAS THAT IF THE G.P. ON SALE ALONGWITH PACKING CREDIT AND LOANS TAKEN FOR DISCOUNTING THE BILLS ARE CONSIDERED, THEN IN RESPE CT OF EACH AND EVERY GOLD TRANSACTION, THERE IS A GROSS LOSS. IN DIAMONDS TRADING, THERE WAS A GROSS LOSS IN RESPECT OF SALES MADE ON TWO OCCASIONS. THE GROUNDS AND REASONS GIV EN BY THE ASSESSING OFFICER FOR REJECTING THE BOOK RESULT S QUA BOTH THE ADDITIONS HAVE BEEN REPRODUCED HEREINABOVE. N O FINDINGS HAVE BEEN GIVEN BY THE LEARNED CIT (APPEALS) IN RES PECT OF REJECTION OF BOOK RESULTS BY THE ASSESSING OFFICER. THERE IS NO DISCUSSION IN THE ORDER OF THE LEARNED CIT (APPE ALS) WHETHER THE GROSS PROFIT RATE APPLIED BY THE ASSESS ING OFFICER WAS JUSTIFIED. IN FACT, THE LEARNED CIT (APPEALS) HAS DELETED THE ADDITION BY MAKING CERTAIN GENERAL OBSERVATIONS , I.E. (A)THAT THE ADDITION IS BASED ON SURMISES AND CONJE CTURES; (B)NO TANGIBLE EVIDENCE OR ANY CONCRETE EVIDENCE HA S BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER TO CONTR OVERT ASSESSEES VERSION, AND (C)THE ASSESSING OFFICER HA S VERIFIED EACH AND EVERY PURCHASES ALONGWITH THE QUANTITY AND RATE. THERE IS NO MERIT IN THIS OBSERVATION OF THE LEARNE D CIT (APPEALS) THAT THE ASSESSING OFFICER WAS NOT JUSTIF IED IN MAKING THE ADDITION. IN FACT, THE LEARNED CIT (APP EALS) HAS NOT ASSIGNED ANY COGENT REASONS TO SHOW THAT AS TO WHY HE DISAGREED WITH THE REASONS AND FINDINGS OF THE ASSE SSING OFFICER. IT IS WORTHWHILE TO OBSERVE HERE THAT THE RE IS NO DISCUSSION IN THE ORDER OF THE LEARNED CIT (APPEALS ) TO THIS EFFECT AS TO WHETHER THE ASSESSING OFFICER WAS JUST IFIED IN REJECTING THE BOOK RESULTS? IT IS RELEVANT TO OBSE RVE HERE THAT 13 THE LEARNED CIT (APPEALS) HAS ACCEPTED THE EXPLANAT ION OF THE ASSESSEE WITHOUT VERIFYING THE AUTHENTICITY OF THE SAME. THE ASSESSEE CLAIMED THAT HE HAD MADE THE EXPORT OF ITS GOODS AS PER COMMITMENT MADE AND THE COMMITMENT OF SALE WAS AS PER DOLLAR PRICE AND NOT THE INDIAN CURRENCY. THE EXPO RT COMMITMENTS WERE MADE BEFORE AND IN CASE, THE ORDER WOULD NOT HAVE BEEN EXECUTED, THE ASSESSEE WOULD HAVE MAD E A HUGE LOSS AND JUST TO CURTAIL ITS LOSSES, THE EXPORT COM MITMENT WAS HONOURED AND MOREOVER THE BANKERS OF THE ASSESSEE A LSO BECAME HINDRANCE IN EXECUTING OF THE EXPORT ORDER. THE ASSESSEE ALSO CLAIMED THAT THERE WERE DISPUTES WITH THE BANK AND, THEREFORE, LOSS WAS INCURRED. IT WAS ALSO ST ATED BY THE ASSESSEE THAT THE BANK DISPUTE IN FACT, RUINED THE UNIT. IN MY OPINION, THE EXPLANATION OF THE ASSESSEE CANNOT BE ACCEPTED WITHOUT ANY SUPPORTING EVIDENCE. THERE I S NO DISCUSSION IN THE ORDER OF THE LEARNED CIT (APPEALS ) AS TO WHETHER ANY SUPPORTING EVIDENCE HAS BEEN FURNISHED BY THE ASSESSEE TO SUBSTANTIATE HIS EXPLANATION. IT IS A LSO OBSERVED THAT THE ASSESSING OFFICER HAS ALSO REJECTED THE BO OK RESULTS IN TRADING OF GOLD AND AFTER REJECTING THE BOOK RES ULTS, THE ASSESSING OFFICER APPLIED GROSS PROFIT RATE AND MAD E THE ADDITION OF RS.37,25,650/-. I MAY OBSERVE HERE TH AT THERE IS NO DISCUSSION IN THE ORDER OF THE LEARNED CIT (APPE ALS) ON THIS ISSUE AND THE ONLY DISCUSSION RELATING TO THIS ISSU E IS THAT THE APPEAL OF THE ASSESSEE IS ALLOWED. IN OTHER WORDS , NO REASONS HAVE BEEN GIVEN IN THE IMPUGNED ORDER AS REGARDS TO THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F GOLD TRANSACTIONS. IT IS TRUE THAT IF NO REASONS ARE G IVEN BY THE 14 APPELLATE AUTHORITY, THE ORDER CANNOT BE HELD VALID . IN THIS REGARD, IN THE CASE OF MANEKLAL D.SHAH VS. P.K.GU PTA & OTHERS (2004), 267 ITR 340 (BOM), THE HON'BLE BOMBA Y HIGH COURT AT PAGE 344 HELD AS UNDER : A RIGHT TO REASONS IS, THEREFORE, AN INDISPENSABLE PART OF A SOUND SYSTEM OF JUDICIAL REVIEW. A REASONED DECISION IS NOT ONLY FOR THE PURPOSE OF SHOWING THAT THE CITIZEN IS RECEIVING JUSTICE, BUT ALSO A VALID DISCIPLINE FOR THE AUTHOR ITY ITSELF. THEREFORE, STATING OF REASONS IS ONE OF TH E ESSENTIALS OF JUSTICE. THE APPELLATE AUTHORITY IS ENJOINED AND IT IS INCUMBENT UPON IT TO APPRECIATE THE EVIDENCE CONSIDER THE REASONING OF THE PRIMARY AUTHORITY AND ASSIGN ITS OWN REASONS AS TO WHY IT DISAGREES WITH THE REASONS AND FINDINGS OF THE PRIMARY AUTHORITY. UNLESS ADEQUATE REASONS ARE GIVEN, MERELY BECAUSE IT IS AN APPELLATE AUTHORITY, IT CANNOT BRUSH ASIDE THE REASONING OR FINDINGS RECORDED BY THE PRIMARY AUTHORITY. THE ORDER SHOULD BE SELF-EXPLANATORY AND SHOULD NOT KEEP THE HIGHER COURT GUESSING FOR REASONS. THE REASONS PROVIDE A LIVE LINK BETWEEN THE CONCLUSION AND THE EVIDENCE. THAT VITAL LINK IS THE SAFEGUARD AGAINST ARBITRARINESS. IT GIVES AN OPPORTUNITY TO THE HIGH ER COURT TO SEE WHETHER OR NOT THE SUBORDINATE COURT O R AUTHORITY OR THE TRIBUNAL CONSIDERED THE RELEVANT MATERIAL. SINCE NO REASONS ARE FOUND IN THE ORDER, WE ARE LEFT WITH NO OTHER ALTERNATIVE BUT TO QUASH AND SET ASIDE THE IMPUGNED ORDER TO THE EXTENT IT I S CHALLENGED AND TO REMIT THE PROCEEDINGS BACK TO THE COMMISSIONER OF INCOME TAX, CENTRAL-II, MUMBAI, FOR HEARING AND CONSIDERATION AFRESH ON THE MERITS. 13. IN THE ABOVE CASE, NO REASONS WERE FOUND TO BE GIVEN 15 BY THE LEARNED CIT (APPEALS) AS TO WHY PENALTY FOR SOME YEARS WAS SUSTAINED TOTALLY AND FOR SOME YEARS WAS REDUCE D TO 18%, WHILE EXERCISING POWER UNDER THE ACT. THE HON'BLE BOMBAY HIGH COURT SET ASIDE THE IMPUGNED ORDER AND REMANDE D THE MATTER TO THE COMMISSIONER OF INCOME TAX FOR HEARIN G AND CONSIDERATION AFRESH ON THE MERITS. 14. IN VIEW OF THE ABOVE DISCUSSION, I SET ASIDE T HE ORDER OF THE LEARNED CIT (APPEALS) IN TOTO AND REMAND THE MATTER TO HIM WITH THE DIRECTION TO DECIDE THE ISSUES AFRESH IN ACCORDANCE WITH LAW AFTER AFFORDING DUE AND REASONA BLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND THE ASSESSING OFFICER. THE LEARNED CIT (APPEALS) IS DIRECTED TO DECIDE THE MATER EXPEDITIOUSLY, PREFERABLY WITHIN FOUR MONTHS FROM THE DATE OF RECEIPT OF A COPY OF THIS ORDER. 15. FOR STATISTICAL PURPOSES, THE APPEAL OF THE RE VENUE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF JULY, 2015. SD/- (H.L.KARWA) VICE PRESIDENT DATED : 27 TH JULY, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 16