M/s. Alankar Jewellers, Surat V. The Income tax Officer,Ward-3(3), Surat

ITA 511/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6330 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 20-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 17-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Keywords: Income from undisclosed sources; Loose papers; Document seized; Documents seized
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 20/06/2011 DRAFTED ON: 2 0/06/2011 ITA NO.511/AHD/2009 ASSESSMENT YEAR : 2005-06 M/S.ALANKAR JEWELLERS SHOP NO.17/18, GROUND FLOOR JOLLY ARCADE OPP.RANGILLA PARK GHOD DOD ROAD,SURAT VS. THE ITO WD-3(3) SURAT PAN/GIR NO. :AAGFA 3051 R ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI PRAMOD KUMAR PARIDA RESPONDENT BY: SHRI B.L. YADAV O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE W HICH HAS EMANATED FROM THE ORDER OF THE LEARNED CIT(APPEALS) -II, SURAT DATED 12/12/2008 PASSED FOR ASSESSMENT YEAR 2005-06 AND T HE GROUNDS RAISED ARE AS FOLLOWS: 1. ADDITION ON ACCOUNT OF ALLEGED UNEXPLAINED CASH OU T OF SALE RS.2,96,669/- I) THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION WITHOUT APPRECIATING THAT CONSIDERATION RECEIVED ON ACCOUNT OF ALLEGED SALE OF DIAMOND WAS DURING THE COURSE OF BU SINESS. MERELY BECAUSE THE SAME WAS NOT RECORDED INSTANTLY AND WHEN PHYSICAL STOCKS FOUND TO BE LESS THAN BOOK STO CK, THE ITA NO.511/AHD/ 2009 M/S.ALANKAR JEWELLERS VS. ITO ASST.YEAR - 2005-06 - 2 - FACT CANNOT BE TAKEN AS AFTERTHOUGHT AND THEREFORE, THE ADDITION IS NOT JUSTIFIED. II) WITHOUT PREJUDICE TO ABOVE, WHAT COULD BE TAXE D SHOULD BE THE ELEMENT OF PROFIT @ CERTAIN % SINCE ENTIRE SALE S CONSIDERATION IS NOT THE PROFIT. III) WITHOUT PREJUDICE TO ABOVE, THE PRESENCE OF BL ACK MONEY CANT BE PRESUMED. IV) THE LD. CIT(A) FAILED TO APPRECIATE THAT THER E CANNOT BE ANY SALE WITHOUT THERE BEING CORRESPONDING PURCHASE. 2. ADDITION ON ACCOUNT OF ALLEGED SUPPRESSED PROF IT RS.1,51,065/- I) THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITIO NS ON THE ALLEGED SUPPRESSED PROFITS ON THE SHORTAGE OF STOCK S WITHOUT APPRECIATING THAT AS THE CONSIDERATION IS EXPLAINED AND ACCOUNTED, NO EXTRA ADDITION THEREOF, IS CALLED FOR AND FURTHER, AS THE SHORTAGE OF STOCK IS EXPLAINED, THE ADDITION MAY BE DELETED. II) WITHOUT PREJUDICE TO ABOVE, THE UNSIGNED COPY OF PROFORMA BILL IS NOT A DULY RAISED BILL/INVOICE. AS SAID LOOSE PAPERS ARE NOT BOOKS OF ACCOUNT, NO ADDITION THEREOF IS CA LLED FOR. III) WITHOUT PREJUDICE TO ABOVE, THIS GROUND OF APPEAL H AS A LINK TO THE GROUND NO.1 ABOVE. 3. ADDITION ON ACCOUNT OF LOOSE PAPERS NOTINGS RE PRESENTING ALLEGED PROFIT ON THE ALLEGED UNACCOUNTED SALES R S.9,83,054/-. I) THE LD. ASSESSING OFFICER ERRED IN CONFIRMING THE ALLEGED ADDITIONS OF RS.3,56,211/- AND RS.6,26,843/ - WITHOUT APPRECIATING THAT THE COPIES OF LOOSE PAPERS ARE NO T BOOKS OF THE APPELLANT AND AS THE ALLEGED TRANSACTIONS ARE NOT CONNECTED TO THE FIRM BUT TO THE WIFE OF EMPLOYEE W HO IS SEPARATELY ASSED TO TAX, NO ADDITION OF RS.9,83,054 /- IS ITA NO.511/AHD/ 2009 M/S.ALANKAR JEWELLERS VS. ITO ASST.YEAR - 2005-06 - 3 - CALLED FOR IN THE HANDS OF THE FIRM AND THE SAME MA Y BE DELETED. II) WITHOUT PREJUDICE TO ABOVE, LINKING TO QUANTUM OF SALARY DRAWN TO THE VALUE OF TRANSACTIONS IS OF NO CONSEQU ENCE. THEREFORE, MERELY ON SUSPICION AND SURMISES, NO ADD ITION IS CALLED FOR. III) WITHOUT PREJUDICE TO ABOVE, AS THE LOOSE PAPER S WERE NOT IN THE HAND WRITING OF PARTNERS, NO ADDITION THEREOF I S CALLED FOR IN THE HANDS OF THE FIRM IN THE ABSENCE OF ANY CROSS- EXAMINATION OF THIRD PARTY. 4. MERELY ON THE BASIS OF ACTIVE INVOLVEMENT OF E MPLOYEE IN THE BUSINESS, NO ADDITION CAN BE MADE IN THE HANDS OF T HE FIRM. SINCE NO SUBSTANTIVE MATERIALS HAD BEEN BROUGHT BY THE RE VENUE IN SUPPORT OF THE ALLEGED ADDITION, ENTIRE ADDITION MA Y BE DELETED. 5. AD-HOC (@50%) DISALLOWANCE OF REMUNERATION PAID TO PARTNER U/S.40(B) RS.48,929/-. THE LD. CIT(A) ERRED IN CONFIRMING THE SUMMARY DISA LLOWANCE FAILING TO APPRECIATE THAT AS THE PARTNER IS NOT TH E EMPLOYEE OF THE FIRM AND WHEN SHE CONTRIBUTES AND ACTIVELY INVOLVES IN PURCHASES MADE BY THE FIRM AND IN TAKING OTHER IMPORTANT MANA GEMENT DECISIONS, NO AD-HOC DISALLOWANCE IS CALLED FOR AND THE SAME MAY BE DELETED. 6. AD-HOC (@20%) DISALLOWANCE OF TELEPHONE AND CON VEYANCE EXPENSES RS.11,924/- THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE WITHOUT APPRECIATING THAT THESE ARE ROUTINE BUSINESS EXPENS ES RECURRINGLY INCURRED. MERELY ON PRESUMPTION, NO SUMMARY DISALL OWANCE IS CALLED FOR. 7 . LEVY OF PENAL INTEREST THE APPELLANT, ON MERITS, DENIES ITS LIABI LITY TO PENAL INTEREST. ITA NO.511/AHD/ 2009 M/S.ALANKAR JEWELLERS VS. ITO ASST.YEAR - 2005-06 - 4 - 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDI NG ASSESSMENT ORDER PASSED U/S. 143(3) OF THE I.T. ACT, 1961 DATED 28/ 12/2007 WERE THAT THE ASSESSEE-FIRM IS ENGAGED IN THE BUSINESS OF TRADING OF GOLD & DIAMOND ORNAMENTS AND SILVER UTENSILS. DURING THE YEAR U NDER ASSESSMENT, THE ASSESSEE HAS SHOWN TOTAL TURNOVER AT RS.83,88,853/- AND GROSS PROFIT OF RS.24,83,596/-, THUS THE RATIO OF G.P. WAS AT 29.6 % AS PER RECORDS. 2.1 APROPOS GROUND NO.1; THE FACTS HAVE REVEALED THAT AN ACTION OF SURVEY U/S.133A OF THE I.T.ACT WAS CARRIED OUT ON 2 5/02/2005. AT THE TIME OF SURVEY, CASH AMOUNTING TO RS.3,67,925/- WAS FOUND. AS AGAINST THAT, CASH AS PER BOOKS AS ON THE DATE OF SURVEY WA S STATED TO BE RS.71,226/-. THE DIFFERENCE BETWEEN THE TWO, I.E. RS.2,96,669/- WAS, THEREFORE, THE SUBJECT MATTER OF THIS CONTROVERSY. EXPLANATION OF THE ASSESSEE IN THIS REGARD WAS THAT THE IMPUGNED EXCES S CASH HAD ACTUALLY REPRESENTED UNRECORDED SALES OF DIAMOND JEWELLERY. IT WAS ELABORATED THAT THE SALES OF DIAMOND JEWELLERY AND SILVER ARTI CLES, ETC. HAVE BEEN MADE, WHICH COULD NOT BE ENTERED IN THE BOOKS OF AC COUNT WHEN THE SURVEY WAS CONDUCTED. IT WAS ALSO MENTIONED THAT T HE SALES BILLS, ETC. WERE PART OF THE SEIZED PAPERS WITH THE DEPARTMENT. IT WAS VEHEMENTLY CONTESTED THAT, ON ONE HAND, THERE WAS A SHORTAGE O F STOCK AND ON THE OTHER HAND, THERE WAS UNRECORDED SALE. THAT SITUATI ON COULD RESULT INTO ONLY ONE PRESUMPTION THAT THE SHORTAGE OF STOC K WAS DUE TO UNRECORDED SALES WHICH RESULTED INTO THE AVAILABILI TY OF SAID CASH. HOWEVER, THE ASSESSING OFFICER WAS NOT CONVINCED AN D HELD THAT THE PLEA RAISED WAS AN AFTER-THOUGHT. IN HIS OPINION, THE A SSESSEE HAD SIMPLY TRIED TO CORRELATE THE EXCESS CASH WITH THE DEFICIT OF TH E DIAMOND JEWELLERY. HE ITA NO.511/AHD/ 2009 M/S.ALANKAR JEWELLERS VS. ITO ASST.YEAR - 2005-06 - 5 - HAS CONCLUDED THAT SINCE THE ASSESSEE HAD MAINTAINE D STOCK REGISTER AND CASH BOOK WHICH WAS FOUND WRITTEN UPO TO 24/02/2005 , THEREFORE, THE EXCESS CASH REPRESENTED THE UNACCOUNTED INCOME AND THE SAME WAS ACCORDINGLY TAXED IN THE HANDS OF THE ASSESSEE. TH E MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 3. THE LEARNED CIT(APPEALS) HAS AFFIRMED THE FINDI NGS OF THE ASSESSING OFFICER ON THE GROUND THAT THE EXPLANATION OF THE ASSESSEE WAS SELF- EXPLANATORY AND AFTER-THOUGHT. HE HAS ALSO ALLEGED THAT THE ASSESSEE HAS NOT FILED ANY CONFIRMATION FROM THE BUYERS. HAD IT BEEN THE ACTUAL SALES THE SAME SHOULD HAVE BEEN RECORDED IN THE BOOKS OF ACCOUNT. RESULTANTLY, THE ACTION OF THE ASSESSING OFFICER WA S APPROVED AND THE ADDITION WAS SUSTAINED. 4. FROM THE SIDE OF THE ASSESSEE, LEARNED AUTHORISE D REPRESENTATIVE MR.PRAMOD KUMAR PARIDA APPEARED AND VEHEMENTLY CONT ESTED THAT ONCE IT WAS AN UNDISPUTED FACT THAT ON ONE HAND CASH WAS FO UND AND ON THE OTHER HAND THERE WAS A DEFICIT STOCK, THEN THE NORMAL CO NSEQUENCES OUGHT TO BE THAT OUT OF THE SALE OF THAT STOCK THE SAID CASH WAS GENERATED. HIS SECOND PLANK OF ARGUMENT WAS THAT THE SEIZED DOCUMENTS HAVE ALSO DEMONSTRATED THAT PURCHASES HAVE BEEN MADE WHICH WE RE NOT AVAILABLE IN THE STOCK WHICH MEANS THAT DURING THAT PERIOD SALES WERE MADE HOWEVER ON THE DATE OF SURVEY THOSE SALES WERE NOT RECORDED IN THE BOOKS. HE HAS ALSO CONTESTED THAT THE ASSESSEE HAD MAINTAINED STOCK REGISTER AND CASH BOOK WHICH WERE WRITTEN UPTO 24/0 2/2005, BUT THOSE WERE INCOMPLETE. HE HAS THUS PLEADED THAT THE ASSES SEE IS ENTITLED FOR THE ITA NO.511/AHD/ 2009 M/S.ALANKAR JEWELLERS VS. ITO ASST.YEAR - 2005-06 - 6 - SET-OFF OF AMOUNT OF UNRECORDED SALES OF THE SAID S HORT STOCK AGAINST THE CASH FOUND ON SEARCH. 5. FROM THE SIDE OF THE REVENUE, LEARNED DEPARTMENT AL REPRESENTATIVE MR. B.L. YADAV HAS PLACED RELIANCE ON THE ORDERS OF THE REVENUE AUTHORITIES AND CONTESTED THAT THE LEARNED CIT(APPEALS) HAS RIGHTLY OPINED THAT EVEN IF THERE WAS SHORTAGE OF S TOCK OF DIAMOND, ETC. BUT THE ASSESSEE WAS UNDER OBLIGATION TO CORRELATE THE SHORTAGE OF STOCK WITH THE SALES TO PROVE THAT SALES HAVE ACTUALLY BE EN MADE OUT OF THE SAID STOCK. BY PLACING RELIANCE ON THE JUDGEMENT OF LEA RNED CIT(APPEALS), HE HAS PLEADED TO AFFIRM THE ADDITION. 6. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH AND ALSO CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW IN THE LIGHT OF THE COMPILATION FILED. OUR ATTENTION WAS DRAWN ON PAGE NO.87 OF THE COMPILATION TO DEMONSTRATE THAT THE ASSESSEE HAS TIME AND AGAIN ST ATED THAT THE SHORTAGE OF STOCK WAS THE RESULT OF SALES WHICH CO ULD NOT BE RECORDED AT THE TIME OF SURVEY, HOWEVER, CORRESPONDING CASH WAS AVAILABLE. FOR THE SAKE OF COMPLETENESS, RELEVANT PORTION IS R EPRODUCED BELOW:- A) ADDITION ON ACCOUNT OF DIFFERENCE IN CASH (2 ,96,699) THE LEARNED ASSESSING OFFICER WITHOUT CONSIDERING T HE EXPLANATION FURNISHED ON BEHALF OF THE APPELLANT, MADE ADDITION OF ENTIRE EXCESS CASH FOUND DURING THE COURSE OF SURVEY PROCE EDINGS. THE CONTENTION OF THE APPELLANT WAS VERY SIMPLE AND COU LD EASILY BE UNDERSTOOD BY A MAN OF COMMON KNOWLEDGE BUT THE LEA RNED ASSESSING OFFICER SEEMED TO HAVE MADE UP HIS MIND T O FRAME A HEAVY ASSESSMENT IN THIS CASE. ITA NO.511/AHD/ 2009 M/S.ALANKAR JEWELLERS VS. ITO ASST.YEAR - 2005-06 - 7 - 1. APPELLANT HAS CATEGORICALLY SUBMITTED THAT EXC ESS CASH FOUND DURING THE COURSE OF SURVEY PROCEEDINGS WAS PERTAINING TO SALES OF DIAMOND AND SILVER JEWELLERY , WHICH COULD NOT BE ENTERED IN THE BOOKS OF ACCOUNT AT THA T TIME. 2. THE CONTENTION OF THE APPELLANT WAS SELF EXPLAN ATORY AS THE PHYSICAL STOCK OF DIAMOND AND SILVERY JEWELLERY WAS FOUND LESS THAN ITS BOOK STOCK. 3. IT WAS AGAIN ESTABLISHED FROM THE LOOSE PAPER S EIZED FROM THE SHOP PREMISES AT THAT TIME, YOUR KIND ATTENTION IS INVITED ON PAGE NO.15, WHICH CONAINS DETAILS OF SALES OF DIAM OND. 4. THE LEARNED ASSESSING OFFICER FAILED TO APPRECIA TE THE FACT THAT STOCK OF DIAMOND AND SILVER JEWELLERY WAS FOUN D SHORT IN THE QUANTITY AND MOREOVER SEIZED PAPER ALSO INDICATED THE SALE OF THE SAME, IN THE CIRCUMSTANCES REJECTION OF EXPLANATION ONLY BY DESCRIBING THE SAME AS AFTERTHO UGHT WAS NOT REASONABLE AND LOGICAL. 5. THE LEARNED ASSESSING OFFICER TREATED THE EXCESS CASH AS UNACCOUNTED INCOME OF THE APPELLANT BUT NO KIND OF MATERIAL OR EVIDENCE WAS BROUGHT ON RECORD INDICATING ANY WHEREABOUTS OR SOURCE OF ANY UNACCOUNTED INCOME IN THE HANDS OF THE APPELLANT. 6. THE ADDITION WAS MERELY PRESUMPTIONS OF THE ASSE SSING OFFICER AND WITHOUT ANY BASIS AND MATERIAL; IT WAS NOTHING BUT MISUSE OF POWERS, HENCE SHOULD NOT BE SUSTAINED . 6.1. IT HAS ALSO BEEN CONTESTED BY THE LD.AR MR.PRA MODKUMAR PARIDA THAT THE ASSESSEE HAS DULY RECORDED ALL THE PURCHASES IN RESPECT OF THOSE ITEMS OF JEWELLERY THE STOCK OF WHICH WAS FOUND SHO RT. WHEN THE PURCHASES HAVE DULY BEEN ACCEPTED BY THE REVENUE DE PARTMENT, THEN NO SCOPE WAS LEFT TO REJECT THE EXPLANATION OF THE COR RESPONDING CASH FOUND AT THE TIME OF SURVEY. IN SUPPORT, A VEHEMENT REL IANCE HAS ALSO BEEN ITA NO.511/AHD/ 2009 M/S.ALANKAR JEWELLERS VS. ITO ASST.YEAR - 2005-06 - 8 - PLACED ON THE AUDITED ACCOUNTS FOR THE LEGAL PROPOS ITION THAT WHEN THE STOCK REGISTER, SALES AND PURCHASE REGISTER, BANK A CCOUNT ADDRESS, ETC. WERE PROPERLY MAINTAINED AND NO SPECIFIC DEFECT WAS POINTED OUT THEN THE BOOK RESULT OUGHT TO HAVE BEEN ACCEPTED. IT HAS AL SO BEEN DEMONSTRATED BEFORE US THAT THE QUANTITATIVE DETAILS OF THE STOC K WAS DULY MAINTAINED AND AT THE CLOSE OF THE ACCOUNTING PERIOD, THE OPEN ING STOCK QUANTITY, PURCHASES DURING THE YEAR AND QUANTITY-WISE SALES H AVE DULY BEEN RECONCILED WITH THE CLOSING STOCK AVAILABLE AT THE CLOSE OF THE ACCOUNTING PERIOD. BEFORE US A BILL OF SALES OF DIAMOND KADA (2) FOR AN AMOUNT OF RS.1,23,607/- DATED 24/02/2005 HAS BEEN REFERRED, P AGER-BOOK PAGE NO.144 WHICH WAS STATED TO BE ONE OF THE SALE BILLS NOT RECORDED UPTILL THE DATE OF SURVEY. A STATEMENT OF ONE OF THE PARTNER WAS RECORDED U/S.131 OF THE I.T.ACT, COPY OF THE STATEMENT ON PAGE NOS.6 9 TO 75 FILED, AND THEREIN VIDE ANSWER NO.5 IT WAS REITERATED THAT THE SALE AMOUNTS OF DIAMOND ORNAMENTS AND SILVERY UTENSILS WERE NOT REC ORDED IN THE BOOKS OF ACCOUNT WHEN THE SURVEY WAS CONDUCTED. IN THE LIGHT OF THESE EVIDENCES AND THE EXPLANATION OFFERED BY THE ASSESS EE, WE ARE OF THE VIEW THAT THE EXPLANATION OFFERED COULD BE A PLAUSIBLE F ACTUAL POSITION TO BE ACCEPTED SPECIALLY UNDER THE CIRCUMSTANCES WHEN THE RE IS NOTHING ON RECORD TO CONTRADICT THE SAME. WE, THEREFORE, DI RECT NOT TO TREAT THE CASH FOUND AT THE TIME OF SURVEY OF RS.3,67,925/- AS UNA CCOUNTED INCOME OF THE ASSESSEE. WE HEREBY DIRECT TO DELETE THE SAME . GROUND ALLOWED. 7. APROPOS GROUND NO.2, THE ASSESSING OFFICER HAS NOTED A DISCREPANCY IN THE STOCK WHICH WAS PHYSICALLY FOUND , AS AGAINST THE STOCK FOUND RECORDED IN THE BOOKS OF ACCOUNT, AS PER THE FOLLOWING CHART:- ITA NO.511/AHD/ 2009 M/S.ALANKAR JEWELLERS VS. ITO ASST.YEAR - 2005-06 - 9 - S.NO. ITEMS PHYSICALLY FOUND ON THE DAY OF SURVEY AS PER BOOKS DIFFERENCE 1 GOLD JEWELLERY 50972.500 GMS. 49083.500GMS -DO- 75.000 GRAMS STUDDED WITH DIAMOND JEWELLERY -- 2309.800GMS -DO- WITH KARIGAR 345.800 GRMAS -- 2. DIAMOND JEWELLERY 7.88 CARATS 26.25 CARATS 18.37 CTS. 3. SILVER 24 KGS. 30.883 KGS. 6,883 KGS. 7.1. AS PER THE ABOVE CHART, THE ITEMS OF DIAMOND J EWELLERY AND SILVERY ORNAMENTS WERE LESSER IN QUANTITY THAN THE BOOKS OF ACCOUNT. ASSESSEES EXPLANATION WAS THAT SOME OF THE DIAMONDS AND SILVE R ARTICLES WERE SOLD IN CASH BUT IT COULD NOT BE RECORDED IN THE BOOKS O F ACCOUNT. THE ASSESSING OFFICER HAS MADE A CALCULATION OF SALES M ADE OUT OF THE BOOKS OF ACCOUNT AS FOLLOWS:- (I) SALE OF DIAMOND JEWELLERY RS.4,34,920 (II) SALE OF SILVER RS. 68,630 TOTAL RS.5,03,550 7.2. AS PER THE ASSESSING OFFICER, SINCE THOSE WERE THE SALES WHICH WERE NOT ACCOUNTED FOR IN THE BOOKS OF ACCOUNT, THE REFORE, APPLYING THE RATE OF PROFIT AT 30% HE HAS CALCULATED UNDISCLOSED PROFIT AT RS.1,51,065/- AND, ACCORDINGLY, TAXED. THE MATTER WAS CARRIED B EFORE THE FIRST APPELLATE AUTHORITY. ITA NO.511/AHD/ 2009 M/S.ALANKAR JEWELLERS VS. ITO ASST.YEAR - 2005-06 - 10 - 8. THE LEARNED CIT(APPEALS) HAS HELD THAT SOME OF T HE BILLS AND EVIDENCES PLACED ABOUT THE SALE OF DIAMOND ORNAMENT S WAS NOT PROPERLY SIGNED. THOSE PROFORMA BILLS WERE IN THE NATURE OF ROUGH BILL FOR SAMPLE. THOSE ITEMS BEING NOT CORRELATED WITH THE STOCK, THEREFORE, SHORTAGE COULD NOT BE EXPLAINED BY THE ASSESSEE. R ESULTANTLY, LEARNED CIT(APPEALS) HAS REJECTED THOSE EVIDENCES AND AFFIR MED THE ADDITION. 9. WE HAVE HEARD BOTH THE SIDES IN RESPECT OF THIS GROUND ALONGWITH THE GROUND NO.1 AS DISCUSSED ABOVE. WHILE DECIDING GROUND NO.1, WE HAVE BEEN INFORMED THAT THE SAID CASH WAS GENERATED OUT OF THE SALES WHICH WERE NOT RECORDED IN THE BOOKS OF ACCOUNT. M EANING THEREBY THIS GROUND IS RELATED WITH GROUND NO.1 BECAUSE THE ASSE SSEE HAS MADE AN ATTEMPT TO PLACE ON RECORD CERTAIN DOCUMENTS WHICH WERE PART OF THE IMPOUNDED PAPERS, NAMELY, PROFORMA BILLS TO DEMONST RATE THAT THE SHORTAGE OF STOCK WAS ON ACCOUNT OF SALES MADE DUR ING THAT PERIOD BUT COULD NOT BE RECORDED. ONCE THE ASSESSEE WAS IN P OSSESSION OF CERTAIN EVIDENCES AND FEW OF THEM WERE, IN FACT, IMPOUNDED DURING THE COURSE OF SURVEY, THEN IT WAS NOT JUSTIFIABLE ON THE PART OF THE LEARNED CIT(APPEALS) TO BRUSH ASIDE THOSE EVIDENCES MERELY BY SAYING THAT THOSE WERE AFTER-THOUGHT OR DID NOT CORRELATE WITH THE PO SSESSION OF STOCK AS RECORDED IN THE STOCK REGISTER. IN OUR OPINION, W ITHOUT QUOTING A PARTICULAR DEFECT OR A PARTICULAR ITEM OF DISCREPAN CY IN THE JEWELLERY IT WAS NOT FAIR TO REJECT THE EXPLANATION OF THE ASSE SSEE. INTER-ALIA, IT IS ALSO A VALID ARGUMENT THAT AT THE CLOSE OF THE ACCOUNTIN G PERIOD (31.3.2005) ALL THOSE SALES HAVE DULY BEEN RECORDED AND THE POSITION ITA NO.511/AHD/ 2009 M/S.ALANKAR JEWELLERS VS. ITO ASST.YEAR - 2005-06 - 11 - OF THE STOCK HAS ALSO BEEN RECONCILED THEREFORE IT WAS INCORRECT TO TAX TWICE THOSE VERY FIGURES, AS IT WAS DONE BY THE REV ENUE. WE, THEREFORE, REVERSE THE FINDINGS OF THE LEARNED CIT(APPEALS) AN D HEREBY HOLD THAT THE SHORTAGE OF STOCK WAS CORRELATED WITH THE CASH FOUND, THEREFORE, THE IMPUGNED ADDITION WAS UNCALLED FOR. THIS GROUND IS HEREBY ALLOWED. 10. APROPOS GROUND NO.3 , DURING THE COURSE OF SURVEY SEVERAL LOOSE- PAPERS WERE FOUND AND THOSE WERE IMPOUNDED. PAGE-W ISE EXPLANATION WAS TENDERED BEFORE THE ASSESSING OFFICER WHICH WAS REPRODUCED IN THE BODY OF THE ASSESSMENT ORDER. HOWEVER, THE ASSESSI NG OFFICER WAS NOT CONVINCED AND HELD THAT THOSE HAVE REPRESENTED UNACCOUNTED SALES OF RS.11,87,370/-. BY APPLYING THE RATE OF PROFIT AT 30% UNACCOUNTED PROFIT WAS COMPUTED ON THOSE SALES AT RS.3,56,211/-. IN ADDITION TO THE ABOVE AMOUNT, IT WAS ALSO HELD BY THE ASSESSING OFF ICER THAT THE UNACCOUNTED PURCHASES HAVE ALSO BEEN FOUND RECORDED IN THOSE PAPERS WHICH WERE WORKED OUT AT RS.6,26,843/-. WITH THE RESULT BOTH THE AMOUNTS WERE TAXED IN THE HANDS OF THE ASSESSEE AS UNDISCLOSED INCOME. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE A UTHORITY. 11. THE LEARNED CIT(APPEALS) HAS AFFIRMED THE ACTIO N OF THE ASSESSING OFFICER PRIMARILY ON THE GROUND THAT THE UNACCOUNTED BUSINESS OF THE ASSESSEE WAS EXPOSED BY THE REVENUE DEPARTME NT BY CONDUCTING A SURVEY OPERATION ON THE BUSINESS PREMISES OF THE AS SESSEE. ONCE THE ASSESSEE WAS FOUND GUILTY OF HAVING TRANSACTION OUT SIDE THE BOOKS OF ACCOUNT, THEREFORE, THOSE LOOSE-PAPERS HAVE SUBSTAN TIATED THE VIEW TAKEN ITA NO.511/AHD/ 2009 M/S.ALANKAR JEWELLERS VS. ITO ASST.YEAR - 2005-06 - 12 - BY THE ASSESSING OFFICER. THE ACTION OF THE ASSESSI NG OFFICER WAS UPHELD. 12. FROM THE SIDE OF THE ASSESSEE, PRELIMINARY ARGU MENT OF THE LEARNED AUTHORISED REPRESENTATIVE MR. PARIDA WAS THAT THE L OOSE-PAPERS WERE GENERAL IN NATURE AND NOT CONNECTED WITH THE BUSINE SS ACTIVITY OF THE ASSESSEE. THOSE LOOSE-PAPERS WERE DEPICTING THE PE RSONAL EXPENDITURE NOTED BY ONE OF THE PARTNERS. IN SUPPORT OF THIS CONTENTION, HE HAS DRAWN OUR ATTENTION ON SOME OF THOSE LOOSE-PAPERS, BUT IT IS WORTH TO CLARIFY AT THIS STAGE ITSELF, THAT THE PHOTOCOPIES WERE NOT CL EAR AND EVEN THE LEARNED AUTHORISED REPRESENTATIVE WAS UNABLE TO NARRATE THE CONTENTS. HIS ALTERNATE PLEA BEFORE US IS THAT ON BOTH THE COUNTS , I.E. PURCHASES AS WELL AS SALES, ADDITION SHOULD NOT HAVE BEEN MADE, BUT I F AT ALL, THE SALES SHOULD BE ONLY CONSIDERED FOR THE CORRESPONDING ADD ITION OF UNACCOUNTED PROFIT BY APPLYING A REASONABLE PERCENTAGE OF PROFI T. 13. FROM THE SIDE OF THE REVENUE, LEARNED DEPARTMEN TAL REPRESENTATIVE MR. B.L.YADAV HAS CONTESTED THE SUBM ISSIONS AND BY PLACING RELIANCE ON THE ORDERS OF THE AUTHORITIES B ELOW PLEADED TO CONFIRM THE ADDITION. 14. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. W E HAVE ALSO PERUSED THE ANNEXURES IN THE COMPILATION FILED BEFO RE US. WE ARE CONVINCED WITH THE FUNDAMENTAL ARGUMENT OF THE LEAR NED AUTHORISED REPRESENTATIVE THAT ONCE THE IMPUGNED PURCHASES AS WELL AS IMPUGNED SALES WERE ALLEGED TO HAVE BEEN FOUND FROM THOSE LO OSE-PAPERS, THEN IT ITA NO.511/AHD/ 2009 M/S.ALANKAR JEWELLERS VS. ITO ASST.YEAR - 2005-06 - 13 - WAS JUSTIFIABLE TO APPLY THE PERCENTAGE OF PROFIT O N THE SALES ONLY. IF WE ACCEPT THIS PRINCIPLE, THEN THE RESULT IS THAT ON T HE SALES OF RS.11,87,370/- THE GROSS PROFIT @ 30% WOULD AMOUNT TO RS 3,56,211/ . WHICH WAS ALLEGEDLY EARNED OUT SIDE THE BOOKS. NEXT IS THE QUESTION OF UNACCOUNTED PURCHASES, WHICH WERE IN-TOTO TAXED BY THE ASSESSIN G OFFICER, HOWEVER, IN THIS CONTEXT THE VEHEMENT CONTENTION IS THAT PUR CHASES & SALES ARE A CONTINUOUS PROCESS OF THE ENTIRE YEAR, THEREFORE, A TRANSACTION IS REPEATED ONE AFTER ANOTHER TRANSACTION. KEEPING THIS FACTUA L ASPECT IN MIND, WE HAVE ENQUIRED ABOUT THE RATIO OF CAPITAL INVOLVED O VER TURNOVER. THE LD.AR HAS FURNISHED A CALCULATION AND ACCORDING TO THAT INFORMATION OVERALL CAPITAL TO TURN OVER RATIO WAS 26.30% FOR T HE YEAR UNDER CONSIDERATION, MEANING THEREBY THAT FOR CARRYING O UT THE TURN OVER OF RS. 11,87,370/- ONE WOULD REQUIRE A CAPITAL OF RS. 3,12 ,278/- HOWEVER, ASSESSEE HAS EARNED A PROFIT OF RS.3,56,211/-, ITS EFFECT WOULD BE THAT UNACCOUNTED PROFIT SO EARNED WOULD BE AVAILABLE FOR MAKING INVESTMENT IN ROTATION OF UNACCOUNTED PURCHASES . THE LD.AR H AS THUS EXPLAINED THAT INITIAL CAPITAL INVOLVED FOR FIRST PURCHASE WAS VER Y NOMINAL AND THAT PURCHASE WAS ROTATED THROUGHOUT THE YEAR. CONSIDER ING THIS FACTUAL ASPECT, WE HEREBY HOLD THAT AT LEAST SEED UNACCOUNT ED CAPITAL OF RS.75,000/ - OUGHT TO BE THE INITIAL INVESTMENT TOWARDS PURCHA SES. WE HEREBY DIRECT TO TAX THE SAME AS UNACCOUNTED INVEST MENT TOWARDS UNRECORDED PURCHASES. WITH THE RESULT, INSTEAD OF TAXING THE ENTIRE SUM OF RS.9,83,054/-, WE HEREBY SUBSTITUTE THE SAID AMO UNT BY RS.4,31,211/- (RS.3,56,211/- + RS.75,000) AND DIRECT TO TAX ACCOR DINGLY. AS A RESULT, THIS GROUND IS PARTLY ALLOWED. ITA NO.511/AHD/ 2009 M/S.ALANKAR JEWELLERS VS. ITO ASST.YEAR - 2005-06 - 14 - 15. APROPOS GROUND NO.4 IS INTERCONNECTED WITH GROUND NO.3 THEREFORE REQUIRES NO INDEPENDENT ADJUDICATION. 16, APROPOS GROUND NO.5 , ACCORDING TO ASSESSING OFFICER REMUNERATION PAID TO ONE OF THE PARTNERS, NAMELY SM T. KANTA M.JAIN OF RS.97,858/- WAS NOT JUSTIFIABLE BECAUSE ACCORDING T O HIM, SHE WAS NOT A WORKING PARTNER AND NOT RENDERED ANY SERVICE TO THE FIRM. THE A.O. HAS DISALLOWED 50% OF THE TOTAL REMUNERATION PAID TO HE R. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY WHO HA S AFFIRMED THE ACTION OF THE ASSESSING OFFICER. 17. ON HEARING THE SUBMISSIONS OF BOTH THE SIDES, W E ARE NOT CONVINCED WITH THE MANNER IN WHICH AN ADHOC 50% DISALLOWANCE WAS MADE. IF THE REVENUE WAS OF THE VIEW THAT THE PARTNER BEING STAY ING IN BOMBAY HAD NOT RENDERED ANY SERVICE TO THE FIRM, THEN THE ENTI RE REMUNERATION SHOULD HAVE BEEN HELD AS NOT ADMISSIBLE, BUT BY PARTLY MAK ING A DISALLOWANCE THE REVENUE DEPARTMENT HAS CONVEYED THAT THE SAID P ARTNER HAS RENDERED SOME SERVICES; FOR WHICH A PART OF THE TOTAL REMUNE RATION WAS HELD JUSTIFIABLE. ON THE OTHER HAND, LEARNED AUTHORISED REPRESENTATIVE HAS VEHEMENTLY PLEADED THAT THE SAID LADY-PARTNER WAS, IN FACT, HELPING THE FIRM IN FINALIZATION OF THE DESIGNS WHICH WERE PROC URED BY HER. REMUNERATION WAS PAID TO HER FOR THE REASON THAT SH E HAD CONTRIBUTED HERE SKILL IN THE FINALIZATION OF THE DESIGNS OF TH E JEWELLERY. PAST HISTORY OF THE CASE, I.E. ASSESSMENT YEARS 2006-07 & 2007-0 8 HAVE DEMONSTRATED THAT THOUGH SCRUTINY ASSESSMENTS U/S.143(3) OF THE I.T.ACT WERE MADE RESPECTIVELY VIDE ORDERS DATED 5.12.2008 AND 30.09. 2009 BUT NO SUCH ITA NO.511/AHD/ 2009 M/S.ALANKAR JEWELLERS VS. ITO ASST.YEAR - 2005-06 - 15 - ADDITION OF DISALLOWANCE OF REMUNERATION WAS EVER M ADE. IN ANY CASE, CONSIDERING THE CIRCUMSTANCES OF THE CASE, WE ARE N OT CONVINCED WITH THE MANNER IN WHICH AN ADHOC 50% DISALLOWANCE WAS MADE BY THE REVENUE AUTHORITIES, THEREFORE, THE SAID ACTION OF THE ASSE SSING OFFICER BEING NOT SUSTAINABLE IN THE EYES OF LAW, THUS HEREBY REVERSE D. WE HEREBY DIRECT TO DELETE THE ADDITION. THIS GROUND IS ALLOWED . 18. APROPOS GROUND NO.6, THE ASSESSING OFFICER MADE THE DISALLOWANCE OF 20% OF TELEPHONE, CONVEYANCE, ETC. AS NOTED ABOVE REVENUE DEPARTMENT HAS NOT MADE SUCH TYPE OF ADHOC DISALLOWANCE IN ASSESSMENT YEARS 2006-07 & 2007-08 THOUGH THE ASSES SMENTS WERE MADE U/S.143(3) OF THE I.T.ACT, THEREFORE, MAINTAIN ING THE CONSISTENCY IN THIS REGARD, WE HEREBY REVERSE THE FINDINGS OF THE AUTHORITIES BELOW SPECIALLY FOLLOWING THE DECISION HON'BLE GUJARAT H IGH COURT IN THE CASE OF SAYAJI IRON AND ENGG. CO. VS. CIT REPORTED AS ( 2002)253 ITR 749 (GUJ.). THIS GROUND IS HEREBY ALLOWED. 19. GROUND NO.7 IS CONSEQUENTIAL IN NATURE NEEDS NO INDEPENDENT ADJUDICATION. 20. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 24 TH JUNE, 2011. SD/- SD/- ( D.C. AGRAWAL) ( MUKUL KR. SH RAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBE R AHMEDABAD; DATED 24/ 6 /2011 T.C. NAIR, SR. PS ITA NO.511/AHD/ 2009 M/S.ALANKAR JEWELLERS VS. ITO ASST.YEAR - 2005-06 - 16 - COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DE PARTMENT. 3. THE CIT CONCERNED. 4. THE LD. CIT( APPEALS)-II, SURAT 5. THE DR, AHMEDABAD BENCH. 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD 1. DATE OF DICTATION.. 20/06/2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 20/06/2011 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S24 6 11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 24 6 11 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER