M/s Nimesh Jewellers, JAMNAGAR V. The Income Tax Officer, ward-2(2), JAMNAGAR

ITA 613/RJT/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7148 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2004-2005
• Appeal Filed On: 22-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S L MEENA
• Assessee Lawyers: J C RANPURA
• Keywords: Unexplained investment; Business income; Income from undisclosed sources; Source of fund; Deemed to accrue or arise in india; Retraction; Set aside
• Section: 133A; 69B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI M.V.NAYAR (AM) AND SHRI D.T. GARASIA (J M) ITA NO. 613/RJT/2008 - AY 2004-05 M/S. NIMESH JEWELLERS SHOP NO 8-9, LABH COMPLEX CHANDI BAZAAR, JAMNAGAR APPELLANT PAN : AAEFN5808M V/S. THE INCOME TAX OFFICER, WARD 2(2),JAMNAGAR RESPONDENT APPELLANT BY : SHRI J C RANPURA, CA RESPONDENT BY : SHRI S L MEENA, CIT(DR) O R D E R PER M.V. NAYAR, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF CIT(A), JAMNAGAR IN THE APPEAL NO. 382/06-07/390 VIDE ORDER DTD. 22/ 10/2008. 2. THE FOLLOWING GROUNDS OF APPEALS WERE RAISED IN THE PRESENT APPEAL. A. THE LD. CIT(A) ERRED ON FACTS AS ALSO IN LAW IN CONFIRMING THE ADDITION MADE IN RESPECT OF ALLEGED EXCESS STOCK FOUND DURIN G THE COURSE OF SURVEY OF RS 19,95,695/- AS AGAINST ACTUAL EXCESS STOCK OF RS 7,31,594/-. B. THE LD. IT(A) ERRED ON FACTS AS ALSO IN LAW IN C ONFIRMING THE ADDITION MADE IN RESPECT OF ALLEGED EXCESS CASH FOUND DURING THE COURSE OF SURVEY OF RS 1,04,089/- AS AGAINST ACTUAL EXCESS CASH OF RS 60,5 43/-. C. THE LD. CIT(A) ERRED ON FACTS AS ALSO IN LAW IN CONFIRMING THE ADDITION MADE IN RESPECT OF ALLEGED UNRECORDED RECEIVABLES O F RS 1,14,725/-. D. WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(A) E RRED ON FACTS AS ALSO IN LAW IN TREATING THE ALLEGED EXCESS STOCK FOUND DURING T HE COURSE OF SURVEY AS DEEMED INCOME U/S. 69B OF THE ACT. E. THE LD. CIT(A) ERRED ON FACTS AS ALSO IN LAW IN CONFIRMING THE DISALLOWANCE OF RS 7,297/- BEING 20% OF THE TELEPHONE EXPENSES. F. THE LD. CIT(A) HAS ERRED ON FACTS AS ALSO IN LAW IN CONFIRMING THE DISALLOWANCE OF RS 21,540/- MADE OUT OF LABOUR CHAR GES. ITA NO. 6 13/RJT/2008 A.Y. 2004-05 2 G. THE LD. CIT(A) ERRED ON FACTS AS ALSO IN LAW IN DISMISSING THE GROUND OF APPEAL RELATED TO SET OFF OF BROUGHT FORWARD LOSS A GAINST ADDITIONS MADE ON ACCOUNT OF ALLEGED EXCESS STOCK, CASH AND RECEIVABL E. H. THE LD. CIT(A) HAS ERRED ON FACTS AS ALSO IN LAW IN CONFIRMING THE DISALLOWANCE OF REMUNERATION PAID TO PARTNERS OF RS 1,52,469/-. I. THE LD. CIT(A) ERRED ON FACTS AS ALSO IN LAW IN CONFIRMING THE DISALLOWANCE OF CLAIM OF DEDUCTION OF DONATION OF RS 3,101/-. 2. GROUND NO. (A) AND (D) ABOVE ARE TAKEN TOGETHER SINCE THEY ARE SIMILAR. THE FACTS OF THE CASE IS THAT, THE ASSESSEE, A PARTNERS HIP CONCERN ENGAGED IN THE BUSINESS OF MANUFACTURING AND MARKETING OF GOLD ORN AMENTS AS ALSO TRADING IN SILVER ARTICLES. A SURVEY U/S. 133A OF THE ACT WAS CARRIED OUT AT THE PREMISES OF THE ASSESSEE ON 9 TH AND 10 TH OF OCTOBER 2003. DURING THE COURSE OF SURVEY, EXC ESS STOCK OF GOLD ORNAMENTS WEIGHING 3410.86 GRAMS AND GOLD BULLION OF 329.72 GRAMS WERE FOUND. IN THE STATEMENT RECORDED DURING THE CO URSE OF SURVEY, ONE OF THE PARTNER OF THE ASSESSEE FIRM AGREED THAT THE VALUE OF EXCESS GOLD ORNAMENTS OF RS 18,07,755/- AND GOLD BULLION OF RS 1,87,940/- WERE NOT ACCOUNTED FOR AND HENCE, AGREED TO OFFER THE INCOME OF RS 19,95,695/- AS THE FIRMS UNACCOUNTED INCOME. HOWEVER, IN THE TRADING / P&L ACCOUNT, THE ASSESSEE FIRM HAD SHOWN EXCESS STOCK UNDER THE HEAD CLOSING STOCK ONLY TO THE EXTENT O F RS 7,31,594/-. HE THEREFORE MADE AN ADDITION OF RS 19,95,695/- AS UNEXPLAINED I NVESTMENT U/S. 69B OF THE ACT, AFTER DEDUCTING THE SUM OF RS 7,31,594/- SHOWN AS C LOSING STOCK. 3. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD. CIT(A) JAMNAGAR. HE VIDE ORDER PASSED ON 22.10.2008, DISMISSED THE ASSESSEE S APPEAL BY HOLDING THAT, ONE OF THE PARTNER IN THE STATEMENT RECORDED DURING THE COURSE OF SURVEY HAD ADMITTED THAT THERE WAS EXCESS STOCK AND PROMISED TO PAY THE TAXES ON SUCH UNACCOUNTED INVESTMENT OF RS 19,95,695/-. THE RETURN OF INCOME IS FILED ON 14.10.2004 I.E., EXACTLY A YEAR AFTER SURVEY AND THE ASSESSEE HAD RE TRACTED THE DISCLOSURE MADE BY ONE OF THE PARTNER AS THE FIRM HAD OFFERED ONLY RS 7,31,594/- AS EXCESS STOCK IN THE RETURN. THE EXPLANATION MADE IS ONLY AT THE TIME OF FILING OF RETURN AND NOT IMMEDIATELY AFTER THE DATE OF SURVEY AND DATE OF RE CORDING OF STATEMENT. 3.1 THIS ADDITION WAS MADE U/S. 69B BY TREATING THE SAME AS ASSESSEES UNEXPLAINED INVESTMENT INSTEAD OF FORMING PART OF I TS BUSINESS INCOME, AS CAN BE ITA NO. 6 13/RJT/2008 A.Y. 2004-05 3 SEEN FROM GROUND (D) NARRATED SUPRA. WHILE JUSTIFYI NG THE ADDITION U/S. 69B, THE LD. CIT(A) HAD HELD THAT, SINCE THE DIFFERENCE IS ON AC COUNT OF STOCK OF GOLD, IT MEANS THAT THE ASSESSEE HAS EITHER NOT RECORDED PURCHASES TO THE ABOVE EXTENT OR NOT RECORDED PURCHASES AND SALES CORRECTLY. THEREFORE, THERE IS A MISMATCH OF STOCK VIS- -VIS BOOKS OF ACCOUNT. THE PRIME CONDITION FOR ANY INCOME TO FALL UNDER ANY HEADS OF INCOME IS THAT THE ASSESSEE HAS TO ESTABLISH THE SOURCE OF INCOME AND INVESTMENT AND MAKE TRUE AND PROPER DISCLOSURE. SINCE THE ASSE SSEE HAD FAILED TO ESTABLISH THE SAME, THE AO HAS RIGHTLY TREATED THE DIFFERENCE ARI SING ON STOCK AS INCOME U/S. 69B. 4. BEFORE US, THE LD. AR OF THE ASSESSEE SUBMITTED THAT, DURING THE COURSE OF SURVEY, THE MAIN MANAGING PARTNER ALONG WITH THE KE Y EMPLOYEE WERE NOT PRESENT AS THEY WERE IN MUMBAI FOR A BUSINESS DEAL AND THE STA TEMENT WAS GIVEN BY ANOTHER PARTNER WHO WAS NOT THOROUGH WITH THE DAY TO DAY AC TIVITIES, ESPECIALLY THE ACCOUNTING ASPECTS. THE LD. AR SUBMITTED THAT, PURC HASE OF GOLD BARS IN THE MONTH OF SEPTEMBER 2003 WERE 1983.040 GRAMS (EQUAL TO 2179.1 60 OF 22 CARATS), AND OUT OF THESE PURCHASES, GOLD BARS OF 700 GRAMS WERE FOUND DURING THE SURVEY PROCEEDINGS AND THE REMAINING GOLD BARS OF 1283.040 GRAMS WERE SENT FOR JOB WORK AND THEY WERE THUS EXCLUDED FROM THE BOOK STOCK. HE FURTHER SUBMITTED THAT, PURE GOLD ORNAMENTS OF 380.34 GRAMS RECEIVED ON 30.9.2003 WER E NOT RECORDED IN THE STOCK REGISTER. FURTHER, NEW GOLD ORNAMENTS OF 507.130 GR AMS RECEIVED ON 12.10.2003 WERE NOT RECORDED IN THE STOCK REGISTER. THUS, STOC K OF 22 CARAT GOLD ORNAMENTS AS ON 9.10.2003 IS TO BE FURTHER INCREASED BY 887.470 GRAMS. IN THE AUDIT REPORT, IT HAS BEEN FURTHER STATED THAT NEW GOLD ORNAMENTS OF 509. 010 GRAMS WERE RECEIVED ON 12.10.2003, HOWEVER, AS THE MATERIALS WERE RECEIVED AFTER THE SURVEY OPERATION, THE SAME REQUIRES TO BE CONSIDERED IN THE RECONCILIATIO N. THE DISCREPANCY IN STOCK DURING THE COURSE OF SURVEY OCCURRED BECAUSE, ONE OF THE K EY ACCOUNTANT CUM MANAGER, HAD ACCOMPANIED THE KEY PARTNER FOR THE MUMBAI TRIP AND HENCE, MANY ENTRIES REMAINED TO BE RECORDED. UPON HIS ARRIVAL, THE ENTR IES WERE DULY RECORDED AND AFTER NOTING THE MOVEMENT OF STOCK, THE EXCESS STOCK WAS WORKED OUT AT RS 8,22,973/- WHICH WAS DULY CREDITED IN THE BOOKS, RESULTING INT O HIGHER INCOME AND THUS, THE SAME WAS HONOURED BY PAYING TAX THEREON. REGARDING THE TREATMENT OF STOCK AS BUSINESS INCOME, THE LD. AR SUBMITTED THAT, THE ASS ESSEE IS PRIMARILY DEALING IN GOLD JEWELLERY AND BULLION AND THE SURVEY REVEALED THAT IT IS NOT HAVING ANY OTHER SOURCES OF INCOME. THE AO FAILED TO APPRECIATE THE RECONCIL IATION OF STOCK SUBMITTED BEFORE HIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OT HERWISE IT IS QUITE CLEAR THAT THE ITA NO. 6 13/RJT/2008 A.Y. 2004-05 4 THIS STOCK WAS ACQUIRED FROM THE ASSESSEES BUSINES S INCOME AND HENCE, THE SAME WAS RIGHTLY TREATED AS PART OF BUSINESS PROFIT. 4.1 WE HAVE PERUSED THE ASSESSMENT ORDER, ORDER OF THE LD. CIT(A) AS WELL AS THE SUBMISSION PUTFORTH BY THE LD. AR OF THE ASSESSEE. WE FIND THAT, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD SUBMITTED A RECONCILIATION WHEREBY IT WORKED OUT ITS EXCESS STOCK WHICH WAS OFFERED TO TA X. THE AO AS WELL AS THE LD. CIT(A) HAD DECLINED TO ACCEPT THE RECONCILIATION ME RELY ON THE BASIS THAT, THE PARTNER OF THE ASSESSEE FIRM HAD ALREADY DISCLOSED DURING S URVEY AND HENCE, THE RETRACTION MADE AFTER A PERIOD OF ONE YEAR, IS JUST AN AFTER T HOUGHT. THE AO THEREFORE FAILED TO VERIFY THE RECONCILIATION CHART SUBMITTED BY THE AS SESSEE AND HENCE, IN THE INTEREST OF JUSTICE, IT WOULD BE REASONABLE IF THE MATTER IS SE T ASIDE TO THE FILE OF THE AO, WITH A DIRECTION TO VERIFY THE SAME, AFTER ACCORDING REASO NABLE OPPORTUNITY TO THE ASSESSEE. THEREFORE, THE FIRST AND THE FOURTH GROUND IS SET A SIDE. 5. THE SECOND GROUND IS ADDITION OF RS 1,04,089/- O UT OF EXCESS CASH. IT IS SEEN THAT, DURING THE COURSE OF SURVEY, CASH OF RS 1,66, 110/- WAS FOUND AGAINST CASH AS PER BOOKS OF RS 31,585/-. THUS, THERE WAS EXCESS C ASH OF RS 1,34,525/-. SINCE THE STOCK POSITION REVEALED SHORTAGE OF SILVER ITEMS OF 3043.65 GRAMS, THE AO REDUCED THE EXCESS CASH TO THE EXTENT OF SALE PROCEEDS OF 3 043.65 GRAMS AND MADE ADDITION OF RS 1,04,089/- AS UNEXPLAINED CASH. THE LD. CIT(A ) UPHELD THE FINDING OF THE AO ON THE GROUND THAT THE ASSESSEE HAD FAILED TO EXPLAIN THE SAME. 5.1 BEFORE US, THE LD. AR OF THE ASSESSEE SUBMITTED THAT, THE ACCOUNTANT-CUM- MANAGER HAD ACCOMPANIED THE KEY PARTNER ON MUMBAI B USINESS TRIP AND THEREFORE, THE RECORDING OF ACROSS THE COUNTER SALES OF JEWELL ERY WERE PENDING FOR THE PERIOD IN AND AROUND THE DATE OF SURVEY. HENCE, THE CASH BOOK WAS NOT UPDATED TILL THE DATE OF SEARCH, WHICH RESULTED IN EXCESS PHYSICAL CASH. THI S FACT WAS CONVEYED TO THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AND CA SH BOOK DULY RECONCILED, EXPLAINING THE POSITION OF CASH AS ON THE DATE OF S URVEY WAS FURNISHED TO THE AO. THE AO HOWEVER FAILED TO COGNIZANCE OF THE SAME, BU T HELD THE SAME AS MERE AFTER THOUGHT. 6. WE HAVE PERUSED THE ASSESSMENT ORDER, ORDER OF T HE LD. CIT(A) AS WELL AS THE SUBMISSION PUTFORTH BY THE LD. AR OF THE ASSESSEE. WE FIND THAT, THE AO HAS FAILED TO ITA NO. 6 13/RJT/2008 A.Y. 2004-05 5 BRING ON RECORD THE RECONCILIATION OF CASH POSITION PUTFORTH BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IT IS A FACT THAT THE ACCOUNTANT AND KEY PARTNER WERE OUT OF TOWN AS THEY WERE NOT PRESENT D URING SURVEY. THE PERIOD BEING THE PEAK DIWALI SEASON, THE CASH SALES MADE MAY NOT HAVE BEEN RECORDED IN THE CASH BOOK. THE AO OUGHT TO HAVE ENTERTAINED THE UPD ATED CASH BOOK, WHICH HE FAILED TO DO SO. THEREFORE, IN THE INTEREST OF JUST ICE, IT WOULD BE REASONABLE IF THE MATTER IS SET ASIDE TO THE FILE OF THE AO, WITH A D IRECTION TO VERIFY THE RECONCILIATION OF CASH, AFTER ACCORDING REASONABLE OPPORTUNITY TO THE ASSESSEE. THEREFORE, THE SECOND GROUND IS SET ASIDE. 7. THE THIRD GROUND IS REGARDING ADDITION OF RS 1,1 4,725/- BEING RECEIVABLES SHOWN FROM CUSTOMERS. THE AO ON THE BASIS OF IMPOUN DED MATERIALS HAD HELD THAT THE ASSESSEE HAD RECEIVABLES TO THE EXTENT OF RS 1, 14,725/- WHICH ACCORDING TO THE STATEMENT MADE BY THE PARTNER OF THE ASSESSEE FIRM WAS NOT ACCOUNTED FOR IN THE BOOKS. HE THEREFORE MADE ADDITION OF THE SAME. THE LD. CIT(A) UPHELD THE ADDITION BY HOLDING THAT, SINCE THE IMPUGNED PAPER WAS FOUND DURING SURVEY AND THE PARTNER HAD ADMITTED THAT AMOUNT WRITTEN THEREIN IS RECEIVA BLES AND NOT RECORDED IN THE BOOKS, THE SAME HAS TO BE TAKEN AS INCOME OF THE AS SESSEE. ON HIS PART, THE ASSESSEE DURING THE COURSE OF ASSESSMENT AND FIRST APPEAL PROCEEDINGS HAD ALSO TAKEN A PLEA THAT THE SAME STANDS COVERED IN THE TO TAL DISCLOSURE SO MADE. 8. BEFORE US, THE LD. AR OF THE ASSESSEE HAD REITER ATED THE STAND TAKEN EARLIER THAT, SINCE THE ACCOUNTANT CUM MANAGER HAD ACCO MPANIED THE MAIN PARTNER FOR MUMBAI BUSINESS TRIP AND AS THE PERIOD OF SURVEY WA S THE PEAK DIWALI SEASON, IT WAS IMPERATIVE TO MAKE CREDIT SALES, ESPECIALLY TO SMAL L TRADERS OF FAR AWAY AND REMOTE VILLAGES. THEREFORE, THE SAME WERE ROUGHLY RECORDED ON THE SAID IMPOUNDED PAPER, ONLY TO BE RECORDED IN THE REGULAR BOOKS BY THE ACC OUNTANT. THE AO AND THE LD. CIT(A) FAILED TO APPRECIATE THIS FACT. THE LD. AR S UBMITTED THAT, ALL THE ENTRIES WERE DULY RECORDED AND THE RESPECTIVE LEDGER ACCOUNT WAS PRODUCED BEFORE THE AO. HE FURTHER SUBMITTED THAT, MOST OF THE SAID RECEIVABLE REPRESENTS JHANGAD OUTGO (SALE ON APPROVAL) AND WERE TO BE RECORDED IN REGULAR BOO KS OF ACCOUNTS ONLY WHEN THEY WERE SOLD. AS IS THE PRACTICE THE ASSESSEE MAKES A ROUGH NOTE OF SUCH JHANGAD MOVEMENTS OF ORNAMENTS. 9. WE HAVE PERUSED THE FACTS OF THE CASE AS ALSO TH E FINDING OF THE AO AND THE LD. CIT(A). THE AO HAS NOT DISCUSSED ANYTHING ON TH IS ISSUE, EXCEPT THAT THE ITA NO. 6 13/RJT/2008 A.Y. 2004-05 6 IMPOUNDED MATERIAL INDICATED RECEIVABLES WHICH WERE NOT RECORDED. THE LD. CIT(A) ALSO, MERELY HELD THAT SINCE THE ASSESSEE HAD MADE A DISCLOSURE HE WAS NOT SUPPOSED TO RETRACT. HOWEVER, BOTH THE ABOVE FINDIN GS ARE WITHOUT CONSIDERING THE ASSESSEES SUBMISSION IN THIS REGARD. WE ARE THEREF ORE OF THE OPINION THAT, IN THE INTEREST OF JUSTICE, IT WOULD BE FAIR IF THE MATTER IS SET ASIDE TO THE FILE OF THE AO, FOR CONSIDERATION AFTER CONSIDERING THE CIRCUMSTANTIAL BACKGROUND OF THE EVENTS. THEREFORE, THE THIRD GROUND IS ALSO SET ASIDE. 10 THE REMAINING GROUNDS ARE ISSUES REGARDING DISAL LOWANCE OF TELEPHONE EXPENSE, VEHICLE EXPENSES, ETC. SINCE THE CORE ISSU ES ARE ALREADY SET ASIDE, FOR THE SAKE OF CONVENIENCE WE SET ASIDE THE REMAINING GROU NDS ALSO, TO THE AO, WITH A DIRECTION TO CONSIDER THE SAME AFRESH, ACCORDING TO THE PROVISIONS OF LAW. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSE. ORDER IS PRONOUNCED IN THE OPEN COURT ON _19/03/201 0_ SD/- SD/- (D.T. GARASIA) (M.V. NAYAR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 19/03/2010 RAJKOT COPY FORWARDED TO, 1. M/S. NIMESH JEWELLERS, SHOP NO. 8-9, JAY LABH C OMPLEX, CHANDI BAZAR, JAMNAGAR 2. THE INCOME TAX OFFICER, WARD-2(2), JAMNAGAR. 3. THE CIT, JAMNAGAR 4. THE CIT(A), JAMNAGAR 5. THE D.R., I.T.A.T., RAJKOT 6. THE GUARD FILE TRUE COPY BY ORDER ASSISTAN T REGISTRAR