M/s.Giripai Jewellery, Ernakulam V. ACIT, Ernakulam

ITSSA 1/COCH/2012

• Counselvise Citation: [2013] 121 COUNSELVISE.COM (IT) 9118 (ITAT-COCHIN)
• Duration Of Justice: 4 month(s) 9 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 05-04-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: misc
• Appeal Filed On: 26-11-2012
• Court: TRIBUNAL
• Keywords: Revision of order; Search and seizure
• Section: 263; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.(SS)A. NO.01/COCH/2012 BLOCK PERIOD : 01-04-1996 TO 18-04-2002 M/S. GIRIPAI JEWELLERY, REP. BY L/HR. RAJESWARI S. PAI, SUDHEENDRA, ESI HOSPITAL ROAD, ERNAKULAM, KOCHI-682 018. [PAN: AACFG 4101C] VS. THE COMMISSIONER OF INCOME-TAX- II, KOCHI. (ASSESSEE -APPELLANT) (REVENUE-RESPONDE NT) ASSESSEE BY SHRI R. LOKANATHAN, FCA REVENUE BY SMT. SUSAN VARGHESE GEORGE, SR. DR AND SHRI M. ANIL KUMAR CIT(DR) DATE OF HEARING 28/02/2013 DATE OF PRONOUNCEMENT 05/04/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 27-09-2012 PASSED BY THE LD. CIT, KOCHI U/S. 263 OF THE ACT AN D IT RELATES TO THE BLOCK PERIOD FROM 01-04-1996 TO 18-04-2002. 2. THE ASSESSEE IS CHALLENGING THE VALIDITY OF THE REVISION ORDER PASSED BY THE LD. CIT. 3. THE FACTS RELATING TO ISSUE ARE STATED IN BRIEF. THE ASSESSEE IS A FIRM AND IS ENGAGED IN THE BUSINESS OF TRADING IN GOLD JEWELLER Y. THE DEPARTMENT CARRIED OUT SEARCH AND SEIZURE OPERATIONS U/S. 132 OF THE ACT I N THE HANDS OF THE ASSESSEE ON 18-04-2002. DURING THE COURSE OF SEARCH, THE SEARC H OFFICIALS NOTICED A STOCK DEFICIT OF I.T.(SS)A. NO. 01/COCH/2012 2 8529.945GMS AND IT WAS CONSIDERED BY THE REVENUE AS SALES MADE OUTSIDE THE BOOKS OF ACCOUNTS, I.E., UNACCOUNTED SALES. IN THE BLOCK AS SESSMENT, THE ASSESSING OFFICER PROPOSED TO ASSESS THE GROSS PROFIT ON THE UNACCOUN TED SALES AND ACCORDINGLY DETERMINED THE UNDISCLOSED INCOME AT RS.16,10,445/- BY APPLYING A G.P. RATE OF 36.66% ON THE UNACCOUNTED SALES. THE ASSESSEE CHALLENGED T HE ORDER OF THE ASSESSING OFFICER BY FILING APPEAL BEFORE THE LD. CIT(A), BUT COULD N OT SUCCEED. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE ITAT AND THE TRIBUNAL; VIDE ITS ORDER DATED 25-01-2011, REMITTING THE MATTER BACK TO THE FILE OF THE ASSESS ING OFFICER FOR THE PURPOSE OF EVALUATION OF CORRECT PROFIT RATE TO BE APPLIED ON THE UNACCOUNTED SALES. IN THE ORDER GIVING EFFECT TO THE ORDER PASSED BY THE APPELLATE TRIBUNAL, THE ASSESSING OFFICER DETERMINED THE UNDISCLOSED INCOME BY DEDUCTING THE COST PRICE OF GOLD FROM THE UNACCOUNTED SALES INSTEAD OF APPLYING ANY G.P. RATE . 4. THE LD. CIT FOUND IT TO BE A MISTAKE APPARENT FR OM RECORD. ACCORDING TO THE LD. CIT, THE TRIBUNAL HAS GIVEN A CLEAR FINDING IN PARA 4.2 OF ITS ORDER TO THE EFFECT THAT THE G.P. RATIO OF THE FINANCIAL YEAR 2001-02 WOULD BE M OST APPROPRIATE FOR ESTIMATING PROFIT. ACCORDINGLY, THE LD CIT INITIATED REVISION PROCEEDI NGS U/S 263 OF THE ACT. BEFORE LD CIT, THE ASSESSEE CONTENDED THAT THE TRIBUNAL HAS R EMITTED THE MATTER FOR THE PURPOSE OF EVALUATION OF CORRECT PROFIT RATE TO BE APPLIED AND HENCE IT WAS A OPEN REMAND. ACCORDINGLY, IT WAS CONTENDED BEFORE LD CIT(A) THAT HE TRIBUNAL DID NOT DECIDE THE RATE OF GROSS PROFIT TO BE APPLIED ON THE UNACCOUNTED SA LES. THE SAID CONTENTIONS WERE NOT ACCEPTABLE TO LD. CIT. ACCORDINGLY, HE DIRECTED TH E ASSESSING OFFICER TO DETERMINE THE UNDISCLOSED INCOME BY TAKING THE G.P RATIO OF FINAN CIAL YEAR 2001-02 AS DIRECTED BY THE ITAT IN PARA 4.2 OF ITS ORDER. THE LD. CIT ALSO NO TICED THAT THE AO HAS DEDUCTED THE COST OF 9028.64 GMS. OF ORNAMENTS FROM THE SALE PRI CE OF 8529.945 GMS, WHICH WAS FOUND TO BE INCORRECT. AGGRIEVED BY THE ORDER OF T HE LD. CIT, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 5. WE HAVE HEARD THE PARTIES. WE NOTICE THAT THE D ISPUTE IN THE INSTANT CASE IS WITH REGARD TO THE INTERPRETATION OF THE DIRECTION BY TH E ITAT. WHILE THE LD CIT IS PLACING RELIANCE ON PARAGRAPH 4.2 OF THE ORDER OF THE TRIBU NAL, THE ASSESSEE IS RELYING UPON I.T.(SS)A. NO. 01/COCH/2012 3 PARAGRAPH 4.4 OF THE ORDER OF THE TRIBUNAL. FOR TH E SAKE OF CONVENIENCE, WE EXTRACT BELOW PARAGRAPHS 4.2 AND 4.4 OF THE ORDER PASSED BY THE TRIBUNAL IN THE ASSESSEES CASE ON 25-01-2011. 4.2 THE NEXT QUESTION THAT ARISES IS WITH REGARD T O THE VALUE OF THE STOCK SOLD OUT OF BOOKS. TOWARD THIS, WE FIND THAT THE REVENU E HAS, CONSIDERING THE VALUE ADDITION OF UP TO 10%, ESTIMATED A SALE PRICE OF ` 515 PER GM. THE ASSESSEE HAS NOT SERIOUSLY DISPUTED THE SAME NOR LED ANY EVIDENC E TO REBUT THE SAME. THE LD. AR ALSO CONCEDED TO THE SAID POSITION BEFORE US. W ITH REGARD TO THE GROSS PROFIT RATE, THE ASSESSEES CLAIM FOR THE ADOPTION OF THE AVERAGE RATE OF GROSS PROFIT FOR THE BLOCK PERIOD, I.E., AT 23.63%, IS ITSELF IN CON TRADICTION TO ITS CLAIM, WHICH IT PREFERS THROUGH A RECTIFICATION APPLICATION, THAT T HE COST OF THE STOCK OF GOLD ORNAMENTS BEING ON RECORD, THE SAME SHOULD HAVE BEE N ADOPTED. THE TWO CAN, THEREFORE, ONLY BE CONSIDERED AS ALTERNATIVE CLAIMS . WE SHALL DEAL WITH BOTH, INCLUDING QUA THE MAINTAINABILITY OF THE SECOND CLAIM PER RECTIF ICATION PROCEEDINGS. WITHOUT DOUBT, AN EIGHTEEN DAY PERIOD (1/4 TO 18/4/2002) IS TOO SHORT A PERIOD FOR DETERMINING THE TRADING PROFIT R ATE THAT COULD REASONABLY HAVE BEEN EARNED BY THE ASSESSEE ON ITS UNDISCLOSED SALE S, PARTICULARLY CONSIDERING ITS VAST VARIATION WITH THE AVERAGE G.P. RATE FOR THE B LOCK PERIOD. IN OUR VIEW, THE G.P. RATE FOR THE IMMEDIATELY PRECEDING FINANCIAL Y EAR, I.E., F.Y. 2001-02, WOULD BE MOST APPROPRIATE FOR ESTIMATING THE PROFIT, EVEN ING OUT THE HIGHS AND LOWS, BOTH IN THE PURCHASE AND SALE RATES, THAT ARISE DUR ING THE COURSE OF A YEAR ON ACCOUNT OF A VARIETY OF INCIDENTAL FACTORS. AND, AT THE SAME TIME IS NOT TOO DISTANT IN TIME, I.E., WITH THE TIME PERIOD (APRIL02) FOR WHICH THE PROFIT IS BEING ESTIMATED, TO OBVIATE A REASONABLE ESTIMATION. THE ASSESSEE IN FACT ITSELF ADMITS TO THE STOCK DEFICIT AS ARISING DURING THIS PERIOD. THIS WOULD ALSO IN A WAY ANSWER THE QUESTION RAISED BY THE ASSESSEE PER THE RECTIFI CATION PETITION. IT SAYS THAT THE COST IS AVAILABLE, CITING THE FIGURE OF 37,43,072 I N THIS REGARD AT PARA 6 (PG. 2) OF THE ASSESSMENT ORDER. THE SAID FIGURE, THOUGH PERH APS NOT IRRELEVANT, CANNOT BE I.T.(SS)A. NO. 01/COCH/2012 4 TAKEN AT FACE VALUE, I.E., WITHOUT VERIFICATION AND , SECONDLY, IS ADMITTEDLY ONLY IN RESPECT OF 9028.604 GMS., WHILE THE STOCK DEFICIT I S FOR 8529.945 GMS. ONLY. ...................... 4.4 TO PUT THE MATTER IN SUM, THE COST UNDER REFERENCE IS ONLY ONE REFLECTED IN THE BOOKS OF ACCOUNT, WITH REFERENCE TO WHICH THE G ROSS PROFIT RATE OF 36.66% HAS BEEN WORKED OUT, VALUING THE BOOK STOCK WITH IT AT ITS COST, WHICH THE ASSESSEE ADMITS AS CORRECT. HOW COULD, THEREFORE, THE SAID C OST BE CHALLENGED BY IT, PASSES OUR COMPREHENSION. THE SOLE PURPOSE OF THE EXERCISE IS TO EVALUATE THE PROFIT THAT THE ASSESSEE WOULD HAVE REALIZED ON THE GOODS, THOU GH REFLECTED IN STOCK IN BOOKS, STANDS ACTUALLY SOLD OUT, AS INFERRED ON BEI NG NOT FOUND ON PHYSICAL VERIFICATION - AN INFERENCE THAT THE ASSESSEE DOES NOT DISPUTE, OR IMPLIEDLY ACCEPTS PER ITS APPLICATION, AND EVEN CONCEDED TO BEFORE US BY THE LD. AR. SO HOWEVER, AS WE ARE REMITTING THE MATTER FOR THE PURPOSE OF EVAL UATION OF THE CORRECT PROFIT RATE TO BE APPLIED, THE ASSESSEE WOULD HAVE ANOTHER OPPORTUNITY TO EXHIBIT ANY FACTUAL MISTAKE THAT HAS CREPT IN THE WORKING, WHIC H, IF SO, IS DEFINITELY LIABLE TO BE CORRECTED, AND TOWARD WHICH, IF SO, THE AO SHALL ISSUE DEFINITE FINDINGS OF FACT, STATING THE MISTAKE AS WELL AS ITS FINANCIAL IMPACT , RECONCILING THE PROFIT ESTIMATED EARLIER AND THAT BEING ASSESSED BY HIM, A S THE TWO ARE APPARENTLY BASED ON THE SAME SET OF BOOKS, REFLECTING THE SAME COSTS. WE DECIDE ACCORDINGLY . 6. THERE SHOULD NOT BE ANY DISPUTE THAT PARAGRA PH 4.4 OF THE ORDER IS THE OPERATIVE PORTION, WHEREIN THE TRIBUNAL HAS REMITTED THE MATT ER BACK TO THE FILE OF THE ASSESSING OFFICER FOR EVALUATING THE CORRECT PROFIT RATE TO B E APPLIED, AFTER GIVING OPPORTUNITY TO THE ASSESSEE TO EXHIBIT ANY FACTUAL MISTAKE THAT MI GHT HAVE CREPT IN THE WORKING. THE DISCUSSION MADE IN PARA 4.2 OF THE ORDER IS ONLY TO HIGHLIGHT THE FACT THAT THE GROSS PROFIT EARNED DURING 18 DAY PERIOD, NAMELY, 01-04-2 002 TO 18-04-2002 CANNOT BE CONSIDERED AS AVERAGE G.P. RATIO IN VIEW OF THE PAS T FLUCTUATIONS IN THE PURCHASE AND SALE PRICE OF GOLD ORNAMENTS. IN THAT CONTEXT, THE TRIBUNAL HAS EXPRESSED THE VIEW THAT I.T.(SS)A. NO. 01/COCH/2012 5 THE G.P. RATIO OF THE IMMEDIATELY PRECEDING FINANCI AL YEAR, I.E., FINANCIAL YEAR 2001-02, WOULD EVEN OUT THE FLUCTUATIONS BOTH IN THE PRICE O F GOLD BOTH AT THE TIME OF PURCHASES AND SALES OF GOLD. ACCORDINGLY, IT OPINED THAT THE ANNUAL AVERAGE RATE WOULD BE MOST APPROPRIATE FOR ESTIMATING THE PROFIT. 7. HOWEVER, AS STATED EARLIER, THE TRIBUNAL HAS REMITTED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER IN PARA 4.4 OF ITS ORDER FOR DETERMINATION OF CORRECT PROFIT RATE TO BE APPLIED WHICH MEANS THAT THE REMAND IS OPEN REMA ND. HAD THE TRIBUNAL TAKEN THE VIEW THAT THE G.P. RATE RELATING TO THE FINANCIAL Y EAR 2001-02 SHOULD BE APPLIED ON THE UNACCOUNTED SALES, IT WOULD HAVE EXPRESSED THE SAME IN DEFINITE TERMS. ACCORDINGLY, IN OUR VIEW, THE METHOD ADOPTED BY THE ASSESSING OFFIC ER FOR THE DETERMINATION OF UNDISCLOSED INCOME CANNOT BE CONSIDERED TO BE ERRON EOUS. ACCORDINGLY, WE SET ASIDE HIS ORDER ON THIS ISSUE. HOWEVER, THE LD. CIT HAS POINTED OUT THE DIFFERENCE THE ERROR IN THE QUANTITY OF GOLD ADOPTED FOR DETERMINING THE UN DISCLOSED INCOME. THE ASSESSEE DID NOT RAISE ANY OBJECTION TO THE SAME AND HENCE, THE SAID OBSERVATION OF LD. CIT IS SUSTAINED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 05-04-2 013. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 5TH APRIL, 2013 GJ COPY TO: 1. M/S. GIRIPAI JEWELLERY, REP. BY LEGAL HEIR RAJES WARI S. PAI, SUDHEENDRA, ESI HOSPITAL ROAD, ERNAKULAM. 2. THE COMMISSIONER OF INCOME-TAX-II, KOCHI. 3.THE COMMISSIONER OF INCOME-TAX, KOCHI 4. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 5. GUARD FILE. BY ORDER (ASSISTA NT REGISTRAR) I. T.A.T, COCHIN