M/s Canara Jewellers, Mangalore V. ACIT, Mangalore

ITA 671/BANG/2010

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5468 (ITAT-BANGALORE)
• Duration Of Justice: 6 year(s) 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 24-01-2017
• Assessment Year: 1993-1994
• Appeal Filed On: 14-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Unexplained investment; Search and seizure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CIRCUIT BENCH AT MANGALORE BEFORE SHRI INTURI RAMA RAO, ACCOUNTA N T MEMBER AND SHRI SUDHANS H U SRIVASTAVA, JUDIC I AL MEMBER ITA NO . 671 /BANG/201 0 (ASS ESSMENT Y EAR: 1993 - 94 ) M/S.CANARA JEWELLERS, HAMPANAKATTA, MANGALORE - 57001. VS. ... APPELLANT ASST. COMMISSIONER OF INCOME - TAX, CIRCLE 1(1), MANGALORE. ... RESPONDENT APPELLANT BY : MRS.SHEETAL BORKAR, ADVOCATE. RESPONDENT : SHRI JOSEPH RODRIGE, ACIT(DR) DATE OF HEARING : 03/02/2017 DATE OF PRONOUNCEMENT : 02 /0 5 /2017 O R D E R PER INTURI RAMA RAO, AM : THIS IS AN APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A), MANGALORE, DATED 17/03/2010 FOR THE ASSESSMENT YEAR 1993 - 94. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL: ITA NO.671/BANG/2010 PAGE 2 OF 12 ITA NO.671/BANG/2010 PAGE 3 OF 12 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FIRM DULY CONSTITUTED UNDER THE PROVISIONS OF THE PARTNERSHIP ACT. I T IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF GOLD ORNAMENTS AND SILVER WARE. I T FILED R ETURN OF INCOME 14 /02/1994 DECLARING INCOME OF RS.8347/ - . SEARCH AND SEIZURE OPERATIONS WERE CARRIED ON IN THE BUSINESS PREMISES OF THE ASSESSEE ON 08/07/1992. DURING THE COURSE OF SEARCH AND SEIZURE OPERATIONS OPERATIONS , EXCESS STOCK OF GOLD WEIGHING 5971.25 GRAMS AND EXCESS STOCK OF 42 KGS OF SILVER ARTICLES WERE ALSO SEIZED ON 28 TH ITA NO.671/BANG/2010 PAGE 4 OF 12 JULY 1992. T HE ASSESSMENT WAS COMPLETED BY THE ACIT, CIRCLE - 1(1), U/S 143(3) VIDE ORDER DATED 1 1/01/2010 BRINGING THE ABOVE ITEMS AS UNEXPLAINED INVESTMENT IN THE STOCK OF SILVER AND GOLD. 4. THE F ACTS LEADING TO THE ABOUT ADDITION ARE SET OUT BY THE AO VIDE PARA.6.2 OF HIS ASSESSMENT ORDER AS UNDER: THE CIT(A) GRANTED RELIEF BY DELETING THE AD DITION ON ACCOUNT OF 493.25 G RA MS HOLDING IT TO BE DOUBLE ADDITION. 5. BEING AGGRIEVED, THE ASSESSEE IS BEFORE US IN THE PRESENT APPEAL. 5.1 WITH REGARD TO GROUND OF APPEAL NO. 3 , L EARNED AR OF THE ASSESSEE CONTENDED THAT FOR THE PURPOSE OF PHYSICAL STOCK TAKING OF GOLD, THE FOLLOWING THREE ITEMS WERE TAKEN AS PART OF STOCK BELONGING TO THE ASSESSEE - FIRM : ITA NO.671/BANG/2010 PAGE 5 OF 12 WITHOUT APPRECIATING THE FACT THAT THE ABOVE STOCK UNDOUBTEDLY AVAILABLE IN THE PREMISES OF THE APPELLANT - FIRM BUT THE SAME DOES NOT FORM PART OF THE STOCK AS PER BOOKS FOR THE SIMPLE REASON THAT THE CUSTOMER SAMPLE BELONGED TO CUSTOMERS AND THIS GOLD WAS GIVEN FOR DEMO PURPOSES. 5.2 S AME IS WITH REGARD TO ORNAMENTS GIVEN FOR REPAIRS. AS REGARDS GOLD WITH GOLDSMITH OF 4431.600 GMS. T HIS GOLD WAS OUT OF STOCKS BELONGING TO THE FIRM. SO, THIS WAS SHOWN AS ISSUE IN THE STOCK REGISTER OF THE FIRM. HENCE , THIS DOES NOT AMOUNT TO UNACCOUNTED STOCK OF GOLD. THUS, WHAT REMAINS AS UNEXPLAINED IS ONLY 68.900 GMS. 6. WE HEARD RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. T HE EXPLANATION TENDERED BY THE ASSESSEE - F I RM IS A PLAUSIBLE EXPLANATION . T HE SAME CANNOT BE REJECTED WITHOUT CONTRARY EVIDENCE ON RECORD . FURTHER THERE IS NO DISPUTE ABOUT THE QUANTUM OF STOCK SHOWN UNDER THE THREE CATEGORIES AND IN FACT FROM THE PERUSAL OF THE ASSESSMENT ORDER IT IS CLEAR THAT THE AO HIMSELF TAKEN THEM AS PART OF THE PHYSICAL VERIFICATION OF THE STOCK OF GOLD. THUS IN THE ABSENCE OF ANY CONTRARY EVIDENCE, WE DELETE ADDITION TO THE EXTENT OF 5627 .100 GMS . AND CONFIRM THE ADDITION O F 68.9 GMS. THUS, THIS GROUND OF APPEAL IS PARTLY ALLOWED. ITA NO.671/BANG/2010 PAGE 6 OF 12 7. GROUND NO.4 REL ATES TO THE ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT BY WAY OF BOGUS PENDING ORDERS TO THE EXTENT OF 9991.500 GMS. T HE AO S OBSERVATION IS AS FOLLOWS : I T IS SUBMITTED ON BEHALF OF THE ASSESSEE - FIRM THAT IT IS THE PRACTICE OF THE ASSESSEE - FIRM TO RECEIVE GOLD FROM ITS CUSTOMERS FOR THE PURPOSE OF MAKING ORNAMENTS WHICH IS SHOWN AS GOLD RECEIVED FROM CUSTOMERS AGAINST PENDING ORDERS . T HE ASSESSEE HAS BEEN FOLLOWING THE PRACTICE OF RECORDING NAMES AND THEIR ADDRESSES . TOTAL G OLD SHOW N UNDER THIS HEAD IS 15193 GRAMS . Y EAR - WISE BREAKUP OF SUCH GOLD RECEIVED AS UNDER: I T IS SUBMITTED THAT 88.6% I.E. 13461.9 00 GRAMS OF GOLD WAS RECEIVED AS ADVANCE IN L AST 6 MONTHS PRIOR TO DATE OF SEARCH I.E. IS FOR THE PERIOD FROM 0 8 / 0 1/1990 TO 0 7/ 0 7/1992. THE BALANCE 11.4 % I.E. 1731.31 GMS RECEIVED FOR THE PERIOD 1 ST APRIL 1989 TO 0 7/ 1 1/1992. OUT OF THE ABOVE, THE AO MADE ADDITION OF 999 1 .5 G RA MS AS FOLLOWS: ITA NO.671/BANG/2010 PAGE 7 OF 12 THUS, THE WHOLE BASIS OF ADDITION IS THAT THE ADDRESSES GIVEN BY THE CUSTOMERS COULD NOT BE VERIFIED BY THE DEPARTMENT AT THE GIVEN ADDRESSES OR THE PERSONS HAVE DENIED HAVING ANY TRANSACTION WITH THE ASSESSEE - FIRM. THE R EGISTER MAINTAINED BY THE ASSESSE E - FIRM , SHOWING ORDERS AS ON 0 8/ 0 7/1992 , IS PLACED AT PAGES 4 4 TO 48 OF THE PAPER BOOK. VERACITY OF THE REGISTER IS NOT DOUBTED BY THE AO. IN FACT, BASED ON THE SAME REGISTER, THE AO HAD COME TO CONCLUSION THAT GOLD RECEIVED AS PENDING ORDERS IS SO MUCH. FROM THE PERUSAL OF THE REGISTER, IT IS CLEAR THAT THE ASSE SSEE HAS BEEN RECODING DATE OF RECEIPT, QUANTITY OF GOLD RECEIVED AND THE NAME OF THE CUSTOMERS. THE PROVISIONS OF THE IT ACT OR RULES DO NOT PRESCRIBE THE FORM OR THE DETAILS WHICH ARE TO BE RECORDED IN SUCH REGISTER. THEREFORE, IT IS OPEN TO THE ASSESSE E TO MAINTAIN REGISTER IN SUCH FORM AND CONTAINING SUCH DETAILS TO SUIT HIS CONVENIENCE. WHEN THE ADDITION IS BASED ON VERY SAME REGISTER, THE SAME CANNOT BE REJECTED WITHOUT VALID REASONS. THEREFORE, NO ADDITION CAN BE MADE SIMPLY BECAUSE THE ASSESSEE HAS NOT DISCHARGED THE ONUS OF PROVIDING CORRECT ADDRESS OR PRODUCE CUSTOMERS FOR VERIFICATION OR SIMPLY BECAUSE CUSTOMERS HAVE DENIED HAVING ANY TRANSACTIONS WITH THE ASSESSEE - FIRM. IN ANY EVENT, IT MUST BE APPRECIATED THAT THE ITA NO.671/BANG/2010 PAGE 8 OF 12 AMOUNT OF GOLD RECEIVED DU RING THE YEAR UNDER CONSIDERATION ALONE SHOULD BE CONSIDERED , IF AT ALL , ADDITION IS WARRANTED. FROM THE DETAILS GIVEN IN THE ASSESSMENT ORDER , IT IS NOT CLEAR THAT ADDITION IS MADE OUT OF TRANSACTIONS PERTAINING TO EARLIER YEAR OR THIS YEAR. IN THE CIRC UMSTANCES, WE ARE NOT ABLE TO UPHOLD THE ADDITION AND WE DIRECT THE AO TO DELETE THE ADDITION. THUS GROUND NO.4 IS ALLOWED. 8. GROUND OF APPEAL NO.5 CHALLENGES THE ADDITION OF EXCESS OF STOCK OF SILVER. FACTS RELATING TO THE ADDITION ARE SET OUT BY THE AO VIDE PARA.7 OF HIS ORDER WHICH READS AS UNDER: ITA NO.671/BANG/2010 PAGE 9 OF 12 THE EXPLANATION TENDERED BY THE ASSESSEE - FIRM IS THAT EXCESS STOCK OF SILVER FOUND OF 2894 KGS. REPRESENTS STOCK OF SILVER BOUGHT BY PARTNER AND THE SAME REMAINS UNRECORDED IN THE BOOKS OF THE PAR TNER. 9. WE HEARD RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. THE STATEMENT OF MANAGING PARTNER THAT SILVER BELONGING TO THE PARTNERS OF THE FIRM HAS BEEN BROUGHT INTO THE FIRM THOUGH IT REMAINS UNRECORDED IN THE BOOKS OF THE FIRM. BUT FACT REM AINS THAT SILVER WAS DECLARED IN THE RETURN OF WEALTH FILED BY THE FAMILY MEMBERS OF THE PARTNERS OF THE FIRM. IN OUR CONSIDERED OPINION, THE STATEMENT GIVEN BY THE MANAGING PARTNER OF THE FIRM THAT SILVER BELONGING TO FAMILY MEMBERS OF THE PARTNERS OF TH E FIRM HAVE BEEN BROUGHT INTO FIRM THOUGH NOT RECORDED IN THE BOOKS OF ACCOUNT CANNOT BE DISBELIEVED. KEEPING IN VIEW THAT THERE IS NO DISTINCTION BETWEEN FIRM AND ITS PARTNERS AND THE ASSESSEE - FIRM AND THE NATURE OF BUSINESS REMAINS TO BE JEWELLERY BUSIN ESS. THEREFORE, BENEFIT OF DOUBT SHOULD BE GIVEN TO THE ASSESSEE - FIRM AND THE EXPLANATION TENDERED BY THE MANAGING PARTNER OF THE FIRM ITA NO.671/BANG/2010 PAGE 10 OF 12 CANNOT BE REJECTED WITHOUT COGENT REASONS. IN THE CIRCUMSTANCES, GROUND NO.5 FILED BY THE ASSESSEE - FIRM IS ALLOWED. 10. GROUND OF APPEAL NO.6 RELATES TO ADDITION OF RS.2,90,000/ - ON ACCOUNT OF ALLEGED SHORTAGE OF DIAMOND FOUND AT THE TIME OF SEARCH. FACTS LEADING TO THE ADDITION ARE SET OUT BY THE AO VIDE PARA.8.3 OF THE ASSESSMENT ORDER AS UNDER: 11. BEFORE TH E AO, THE ASSESSEE HAD TRIED TO EXPLAIN THAT THE SOME EXPENDITURE ASSUMING IT TO BE EXCESS STOCK OF DIAMOND FOUND AND NO EXPLANATION WAS TENDERED BY THE ASSESSEE. IN THE CIRCUMSTANCES, ADDITION WAS CONFIRMED BY THE CIT(A) ALSO. EVEN BEFORE US, NO PLAUSIBL E EXPLANATION WAS TENDERED BY THE ASSESSEE. IN THE CIRCUMSTANCES, WE CONFIRM THE SAME. ITA NO.671/BANG/2010 PAGE 11 OF 12 12. GROUND OF APPEAL NO.7 RELATES TO ADDITION OF RS.1 LAKH ON ACCOUNT OF UNDISCLOSED INCOME FROM BUSINESS. FACTS RELATING TO THE ADDITION ARE SET OUT BY THE AO VID E PARA.9 OF THE ASSESSMENT ORDER WHICH READS AS UNDER: THE ONLY SUBMISSION MADE BY THE ASSESSEE IS THAT BENEFIT OF TELESCOPE MAY BE GRANTED IN RESPECT OF ADDITION OF 2,90,000/ - MADE. THE CONTENTION OF THE ASSESSEE CANNOT BE ACCEPTED FOR THE SIMPLE REASO N THAT THE BENEFIT OF TELESCOPING CANNOT BE GIVEN IN THE FACTS OF THE PRESENT CASE AS NO ADDITION WAS MADE FOR WANT OF SOURCE OF INVESTMENT. THE ADDITION WAS MADE ONLY FOR UNDISCLOSED INCOME FROM BUSINESS ON ACCOUNT OF PURCHASE MADE ON BEHALF OF THE CUSTOM ERS. THEREFORE, IN THE ABSENCE OF VALID EXPLANATION FROM THE ASSESSEE, WE CONFIRM THIS ADDITION. ITA NO.671/BANG/2010 PAGE 12 OF 12 13. GROUND NO.8 IS CONSEQUENTIAL AND NEEDS NO ADJUDICATION. GROUND NO.9 IS GENERAL IN NATURE. ORDER PRONOUNCED IN THE OPEN COURT ON 2 N D M A Y , 201 7 S D / - S D / - (SUDHANSHU SRIVASTAVA) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: BENGALURU. DATE: 0 2 /0 5 /2017 SRINIVASULU, SR. PS COPY TO: 1) APPELLANT 2) RESPONDENT 3) CIT(A) 4) CIT, 5) DR ITAT, BANGALORE, 6) GUARD FILE ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE