ACIT, Trivandrum V. Shri Sunny P. Jose, Trivandrum

ITSSA 2/COCH/2005

• Counselvise Citation: [2012] 121 COUNSELVISE.COM (IT) 8515 (ITAT-COCHIN)
• Duration Of Justice: 7 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 21-08-2012
• Assessment Year: misc
• Appeal Filed On: 17-01-2005
• Court: TRIBUNAL
• Department Lawyers: A S BINDHU
• Assessee Lawyers: C B M WARRIER
• Keywords: Unexplained investment; Gift; Search and seizure; Block assessment
• Section: 14A

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 IT(SS)A NO. 47/COCH/2004 BLOCK PERIOD : 01-04-1989 TO 23-12-1999 SHRI SUNNY P. JOSE, ALAPPAT SILKS, KARIMPANAL ARCADE, EAST FORT, TRIVANDRUM-23 [PAN: ACFPJ 7463F] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, TRIVANDRUM. (ASSESSEE-APPELLANT) (REVENUE-RES PONDENT) IT(SS)A NOS. 68/COCH/2004 & 02/COCH/2005 BLOCK PERIOD : 01-04-1989 TO 23-12-1999 1.THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, TRIVANDRUM. 2.THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, TRIVANDRUM. VS. SHRI SUNNY P. JOSE, ALAPPAT SILKS. KARIMPANAL ARCADE, EAST FORT, TRIVANDRUM-23. [PAN: ACFPJ 7463F] (REVENUE-APPELLANT) (ASSESSEE - RESPONDENT) IT(SS)A NO. 108/COCH/2004 BLOCK PERIOD : 01-04-1989 TO 23-12-1999 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, TRIVANDRUM. VS. SMT. MARY SUNNY, C/O ALAPPAT SILKS. KARIMPANAL ARCADE, EAST FORT, TRIVANDRUM-23. PAN: PY.7689 (REVENUE-APPELLANT) (ASSESSEE - RESPONDENT) REVENUE BY MS. A.S. BINDHU, SR. DR ASSESSEE BY SHRI C.B.M. WARRIER, CA DATE OF HEARING 21/08/2012 DATE OF PRONOUNCEMENT 12/10/2012 IT(SS) A NOS. 47, 68 & 108/COCH/2004, &02/COCH/2005, 2 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: ALL THESE APPEALS ARE DIRECTED AGAINST THE ORD ERS PASSED BY LD CIT(A)-I AND THEY RELATE TO THE BLOCK PERIOD ENDING 23.12.1999. ALL THESE APPEALS ARE ARISING OUT OF COMMON SET OF FACTS AND HENCE THEY WERE HEAR D TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF C ONVENIENCE. 2. THE APPEAL FILED BY SHRI SUNNY P JOSE, WHICH IS NUMBERED AS IT(SS)A 47/COCH/04, AND THE APPEAL OF THE REVENUE, WHICH IS NUMBERED AS IT(SS)A 68/COCH/2004, ARE DIRECTED AGAINST THE ORDER DATED 24.3.2004 PASSED BY LD CIT(A) AGAINST THE ORIGINAL ASSESSMENT ORDER DATED 29.01.2002. THE ORDER GIVING EFFECT TO THE ABOVE SAID APPELLATE ORDER OF LD CIT(A) WAS PASSED BY THE AO ON 01-06-2004. AGGRIEVED BY THE SAID CONSEQUENT IAL ORDER, THE ASSESSEE PREFERRED APPEAL BEFORE LD CIT(A) AND GOT RELIEF. AGAINST THE SAID ORDER OF LD CIT(A) DATED 18.10.2004, THE REVENUE IS IN APPEAL B EFORE US. 3. THE FACTS RELATING TO THE APPEAL FILED BY T HE REVENUE IN THE CASE OF SMT. MARY SUNNY ARE STATED IN BRIEF. SMT. MARY SUNNY IS THE PROPRIETRIX OF A BUSINESS CONCERN NAMED ALAPPAT JEWELLERS, KOLLAM. HOWEVER, HER HUSBAND, SHRI SUNNY P JOSE OFFERED THE INCOME FROM THE ABOVE SAID BUSINES S CONCERN IN HIS HAND AND ACCORDINGLY, THE AO ALSO ASSESSED THE SAME IN THE H ANDS OF SHRI SUNNY P JOSE. HOWEVER, THE ASSESSING OFFICER CHOSE TO DETERMINE T HE INCOME IN THE HANDS OF SMT. MARY SUNNY ALSO. ACCORDINGLY, HE MADE IDENTIC AL ADDITIONS IN HER HANDS, BUT FINALLY REDUCED THE SAME TO NIL BY DEDUCTING TH E ENTIRE INCOME WITH THE OBSERVATION LESS: UNDISCLOSED INCOME ASSESSED IN T HE HANDS OF SRI SUNNY P JOSE. THE ASSESSEE PREFERRED APPEAL BEFORE LD CIT (A) AND THE FIRST APPELLATE IT(SS) A NOS. 47, 68 & 108/COCH/2004, &02/COCH/2005, 3 AUTHORITY DECIDED VARIOUS ADDITIONS ON MERITS IN CO NCURRENCE WITH THE DECISION TAKEN IN THE HANDS OF SUNNY P JOSE; HOWEVER, FINA LLY HELD THAT THE SAID INCOME CONFIRMED BY HIM SHALL NOT BE ASSESSED IN THE HANDS OF SMT. MARY SUNNY, AS IT HAS ALREADY BEEN ASSESSED IN THE HANDS OF SRI SUNNY P JOSE. AGGRIEVED BY THE SAID ORDER OF LD CIT(A), THE REVENUE IS IN APPEAL B EFORE US. 4. WE SHALL FIRST TAKE UP THE CROSS APPEALS FIL ED IN THE CASE OF SRI SUNNY P JOSE. THE FACTS RELATING TO THERETO ARE STATED IN B RIEF. SRI SUNNY P JOSE IS THE PROPRIETOR OF THE BUSINESS CONCERN NAMED M/S ALAPPA T SILKS (TEXTILE SHOP) AND SMT. MARY SUNNY IS THE PROPRIETRIX OF THE BUSINESS CONCERN NAMED M/S ALAPPAT JEWELLERY (JEWELLERY SHOP), KOLLAM. THE REVENUE CA RRIED OUT SEARCH AND SEIZURE OPERATIONS IN THE RESIDENTIAL AND BUSINESS PREMISES OF THE ASSESSEE ON 23-12- 1999. CONSEQUENTLY, THE ASSESSEE SHRI SUNNY P JOSE FILED HIS BLOCK RETURN DECLARING NIL INCOME. IN THE SAID RETURN, THE ASSE SSEE HAD ADJUSTED THE LOSS FROM THE CONCERN OF HIS WIFE, VIZ., M/S ALAPPAT JEW ELLERS, KOLLAM AGAINST HIS INCOME AS PER THE PROVISIONS OF SEC. 64(1) OF THE A CT. THE AO PROCEEDED TO COMPUTE THE UNDISCLOSED INCOME IN THE HANDS OF SH RI SUNNY P JOSE BY INCLUDING THE INCOME RELATING TO M/S ALAPPAT JEWELL ERS, KOLLAM ALSO. THE AO DETERMINED THE UNDISCLOSED INCOME IN THE HANDS OF S HRI SUNNY P JOSE AT RS.3,73,76,750/-. IN THE APPEAL FILED BY BEFORE LD . CIT(A), THE ASSESSEE GOT PARTIAL RELIEF. HENCE, BOTH THE PARTIES ARE IN APP EAL BEFORE US. 5. THE BREAK UP DETAILS OF UNDISCLOSED INCOME ASSESSED IN THE HANDS OF SHRI SUNNY P JOSE AND THE DECISION TAKEN BY LD CIT(A) ON VARIOUS ITEMS ARE STATED BELOW:- IT(SS) A NOS. 47, 68 & 108/COCH/2004, &02/COCH/2005, 4 ITEMS ASSESSED BY AO DECISION BY CIT(A) A ALAPPAT JEWELLERS 1. INCOME FROM UNDISCLOSED SALES FOR YEAR ENDING 31-03-1999 FOR THE PERIOD FROM 01-04-1999 TO 23-12-1999 1,44,41,724 38,33,668 PARTLY ALLOWED 2. SUPPRESSED STOCK OF GOLD WITH GOLDSMITHS 7,40,628 DELETED 3. DIFFERENCE IN VALUATION OF GOLD 5,03,508 DELETED B ALAPPAT SILKS 1. DIFFERENCE IN VALUATION OF STOCK 34,81,027 PARTLY ALLOWED C INTEREST RELATABLE TO FUNDS DIVERTED 1,25,42,592 DELETED D INCOME OF MINOR CHILDREN CLUBBED U/S. 64 8, 24,979 DELETED E UNEXPLAINED INVESTMENT IN PROPERTIES 2,80,1 00 CONFIRMED F UNEXPLAINED INVESTMENT IN IMPROVEMENT OF LANDS 3,26,325 DELETED G UNEXPLAINED INVESTMENT IN JEWELLERY 3,32,2 08 DELETED H GIFT FROM M/S. GENERAL KURIES 70,000 DE LETED TOTAL 3,73,76,750 6. THE REVENUE IS IN APPEAL BEFORE US ON THE FO LLOWING ISSUES IN IT(SS)A 68/COCH/2004:- (A) DETERMINATION OF INCOME FROM UNDISCLOSED SALES IN M/S ALAPPAT JEWELLERS. (B) SUPPRESSED STOCK OF GOLD WITH GOLD SMITHS. (C) DIFFERENCE IN VALUATION OF STOCK IN M/S ALAPP AT SILKS. (D) GIFT FROM M/S GENERAL KURRIES RS.70,000/- (E) INTEREST RELATABLE TO FUNDS DIVERTED. (F) INCOME OF MINOR CHILDREN (G) SURCHARGE ON TAX COMPUTED ON THE UNDISCLOSED INCOME. 7. THE ASSESSEE IS IN APPEAL BEFORE US ON THE F OLLOWING ISSUES IN IT(SS)A 47/COCH/04:- (A) DIFFERENCE IN VALUATION OF STOCK IN M/S ALAPPA T SILKS. (B) UNEXPLAINED INVESTMENT IN PROPERTIES RS.2,8 0,100/-. IT(SS) A NOS. 47, 68 & 108/COCH/2004, &02/COCH/2005, 5 8. WE SHALL FIRST TAKE UP THE APPEAL OF THE RE VENUE. THE FIRST ISSUE IN THE APPEAL OF THE REVENUE RELATES TO THE DETERMINATION OF INCOME FROM UNDISCLOSED SALES IN M/S ALAPPAT JEWELLERS. IT WAS NOTICED DUR ING THE COURSE OF SEARCH THAT THE ASSESSEE WAS RESORTING TO UNACCOUNTED SALES. H ENCE, THE AO DECIDED TO REJECT THE BOOK RESULTS AND ESTIMATE THE INCOME FRO M UNDISCLOSED SALES BY DRAWING SUPPORT FROM FOUR DECISIONS OF HONBLE KERA LA HIGH COURT. HOWEVER, THE AO TOOK THE SUPPORT FROM THE DECISION OF HONBLE AN DHRA PRADESH HIGH COURT IN THE CASE OF M/S RAJNIK & CO. VS. ACIT (251 ITR 565) WITH REGARD TO THE METHOD OF DETERMINATION OF INCOME FROM UNDISCLOSED SALES. DURING THE BLOCK PERIOD, THE JEWELLERY BUSINESS WAS IN EXISTENCE FOR ABOUT 12 MO NTHS FALLING IN TWO YEARS. THE AO ESTIMATED THE UNDISCLOSED INCOME AS UNDER:- (A) FOR THE PERIOD ENDED 31.3.1999 :- (ABOUT 3 MONTHS) 6 TIMES OF ACCOUNTED TURNOVER (6 X RS.76,72,388/ -) 4,60,34,328 ========= GROSS PROFIT ON THE ABOVE SAID SALES @ 34.90% (AT THE RATE DECLARED IN THE BOOKS) 1,60,65,980 ADD:- VALUE OF GOLD HELD AS STOCK OFFERED 9,00,000 ----------------- 1,69,65,980 LESS:- GROSS INCOME DECLARED 25,24,256 ----------------- UNDISCLOSED INCOME 1,44,41,724 ========= (B) FOR THE PERIOD FROM 1.4.1999 TO 23.12.1999 :- 3 TIMES OF RUNNING STOCK IS TAKEN AS TURNOVER 6,35,65,843 ======== GROSS PROFIT ON THE ABOVE SAID SALES @ 8,1841% (AT THE RATE DECLARED IN THE BOOKS) 52,02,292 LESS:- GROSS PROFIT RETURNED 13,68,624 --------------- UNDISCLOSED INCOME 38,33,668 ======= IT(SS) A NOS. 47, 68 & 108/COCH/2004, &02/COCH/2005, 6 9. THE LD CIT(A) HELD THAT THE METHOD OF COMPUT ING SUPPRESSED SALES BY MULTIPLYING THE RUNNING STOCK IS NOT APPLICABLE TO THE INSTANT CASE, SINCE M/S ALAPPAT JEWELLERS WAS A NEW CONCERN. THE LD CIT(A) ALSO HELD THAT THE METHOD DIRECTED BY THE HONBLE ANDHRA PRADESH HIGH COURT I N THE CASE OF M/S RAJNIK & CO., SUPRA, WAS TO COMPUTE THE TURNOVER BY ESTIMATI NG THE SAME AT SIX TIMES OF THE SUPPRESSED TURNOVER AND NOT SIX TIMES OF THE AC COUNTED TURNOVER, AS COMPUTED BY THE AO. THE LD CIT(A) ALSO NOTICED THA T THE COCHIN BENCH OF ITAT HAS DECIDED AN IDENTICAL ISSUE IN THE CASE OF ASSES SEES FATHER SHRI P.P. JOSEIN IT(SS)A NO.31/COCH/2003 AND IT(SS)A NO.32/COCH/2003 AND THE TRIBUNAL, VIDE ITS ORDER DATED 27-02-2004 HAS HELD THAT:- IN THE LIGHT OF THE DECISION REPORTED IN 251 ITR 5 61 (SUPRA), WE DIRECT THE ASSESSING OFFICER TO MAKE THE ADDITION AT 6 TIMES T HE SUPPRESSED SALES FOUND FOR THE RESPECTIVE YEARS. WE FURTHER DIRECT, FOR THE BROKEN PERIOD, I.E., 1.4.1999 TO 23.12.1999, THE ADDITION SHOULD B E REDUCED PROPORTIONATELY TAKEN THE PERIOD OF BUSINESS IN CON SIDERATION. ACCORDINGLY, THE LD CIT(A) HELD AS UNDER:- CONSIDERING THE PERIOD FOR WHICH THE BUSINESS COND UCTED, I DIRECT THE ASSESSING OFFICER TO ESTIMATE THE UNDISCLOSED INCOM E ON THIS COUNT BY ESTIMATING THE SALES AT 6 TIMES THE ACTUAL SUPPRESS ION FOUND AND ADOPT THE GROSS PROFIT RATE AS PER ACCOUNTS FOR THE RELEV ANT PERIODS. FOR THIS, THE UNACCOUNTED SALES EFFECTED TO PERSONS MENTIONED IN PARAS 2.5 AND 2.6 OF PAGE 6 OF THE ASSESSMENT ORDER SHALL BE ADOPTED AS THE ACTUAL SALES SUPPRESSION. 10. THE CONTENTION OF THE REVENUE IS THAT THE ES TIMATE OF SALES BASED ON RUNNING STOCK IS A TIME TESTED AND LEGALLY APPROVED METHOD FOR ESTIMATING THE UNACCOUNTED SALES. ON THE OTHER HAND, THE CONTENTI ON OF THE ASSESSEE IS THAT THE ESTIMATE OF SALES ON THE BASIS OF THE ACTUAL SU PPRESSION FOUND IS THE CORRECT METHOD IN THE BLOCK ASSESSMENT PROCEEDINGS. IT(SS) A NOS. 47, 68 & 108/COCH/2004, &02/COCH/2005, 7 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PER USED THE RECORD. THE FACT REMAINS THAT THE ASSESSEE WAS RESORTING TO UNACCOUN TED SALES. DURING THE COURSE OF SEARCH CERTAIN SLIPS, IN THE FORM OF ESTI MATE SLIPS, DEPICTING SUCH KIND OF UNACCOUNTED SALES WERE FOUND OUT. THE ENQUIRIES MADE WITH CERTAIN CUSTOMERS AND EMPLOYEES ALSO REVEALED THE FACT OF U NACCOUNTED SALES. THE QUESTION THAT ARISES IS ABOUT THE METHOD TO BE ADOP TED FOR QUANTIFYING SUCH UNACCOUNTED SALES. THE AO, BY FOLLOWING THE DECISI ON RENDERED IN THE CASE OF M/S RAJNIK & CO., SUPRA, PROCEEDED TO DETERMINE THE UNACCOUNTED SALES AS 6 TIMES OF THE ACCOUNTED SALES FOR THE FIRST PERIOD, WHICH CONSISTED OF ABOUT 3 MONTHS ONLY. FOR THE SECOND PERIOD, WHICH CONSISTE D OF ABOUT 9 MONTHS, THE AO PROCEEDED TO DETERMINE THE UNACCOUNTED SALES AT 3 T IMES OF THE RUNNING STOCK. THUS THE AO HAS ADOPTED TWO DIFFERENT METHODS FOR T WO DIFFERENT PERIODS. THERE SHOULD NOT BE ANY DISPUTE THAT THE METHOD TO BE ADO PTED FOR DETERMINING THE UNACCOUNTED SALES HAS TO BE DECIDED ON THE BASIS OF SURROUNDING FACTS AND CIRCUMSTANCES AND HENCE NO METHOD CAN BE TERMED AS A SCIENTIFIC METHOD. IN THE INSTANT CASE, THE METHODOLOGY ADOPTED BY THE AS SESSEE WAS TO ISSUE ESTIMATE SLIPS TO THE CUSTOMERS AND RECORD IN HIS ACCOUNT BOOKS ONLY A PORTION OF SALES. AT THE TIME OF SEARCH, THE REVENUE SEIZE D CERTAIN SLIPS, BUT IT COULD NOT LAY ITS HAND IN ESTIMATE SLIPS OF OTHER PERIODS. N O OTHER CORROBORATING EVIDENCES LIKE UNACCOUNTED PURCHASES, STOCK DETAILS ETC. COUL D BE FOUND BY THE REVENUE. HENCE, THE METHODOLOGY ADOPTED BY THE ASSESSEE FOR NOT ACCOUNTING THE ACTUAL SALES COULD NOT BE CONCLUSIVELY PROVED BY THE REVEN UE. UNDER THESE CIRCUMSTANCES ONLY, THE LD CIT(A) DIRECTED THE AO T O ESTIMATE THE TURNOVER AT SIX TIMES OF THE SUPPRESSED SALES AND COMPUTE GROSS PRO FIT THEREON. WE ALSO NOTICE THAT THE CO-ORDINATE BENCH OF THE TRIBUNAL HAS TAKE N SIMILAR DECISION IN THE CASE OF ASSESSEES FATHER SHRI P.P. JOSE. SINCE, A PART ICULAR VIEW HAS ALREADY BEEN TAKEN BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN T HE CASE OF ASSESSEES FATHER; WE DO NOT WISH TO TAKE A DIFFERENT VIEW. ACCORDING LY, WE UPHOLD THE ORDER OF LD IT(SS) A NOS. 47, 68 & 108/COCH/2004, &02/COCH/2005, 8 CIT(A) ON THIS ISSUE, SINCE IT IS IN TUNE WITH THE DECISION RENDERED BY THE TRIBUNAL IN THE CASE OF SHRI P.P.JOSE. 12. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE PERTAINS TO THE ADDITION OF RS.7,40,628/- RELATING TO THE VALUE OF SUPPRESSED S TOCK OF GOLD GIVEN TO GOLD SMITHS. THE AO TREATED THE VALUE OF 1810.300 GMS O F GOLD ISSUED TO GOLD SMITHS FOR REMANUFACTURING AS UNACCOUNTED STOCK, THE VALUE OF WHICH WAS WORKED AT RS.7,40,628/-. BEFORE LD CIT(A), THE ASSESSEE ESTA BLISHED THE FACT THAT THE TRANSACTIONS PERTAINING THERETO, I.E., THE DETAILS OF GOLD ISSUED TO THE GOLD SMITHS, WERE ALREADY RECORDED IN THE BOOKS OF ACCOUNT AND S TOCK REGISTER PRIOR TO THE DATE OF SEARCH. ACCORDINGLY, THE LD CIT(A) DELETED THIS ADDITION. IN THE GROUNDS OF APPEAL RAISED BY THE REVENUE, IT IS MENTIONED TH AT THE ASSESSEE HAS RECORDED THE RELEVANT ENTRIES SUBSEQUENT TO THE DATE OF SEAR CH. HOWEVER, THE LD CIT(A) HAS GIVEN A FINDING THAT THE RELEVANT TRANSACTIONS WERE ALREADY RECORDED IN THE BOOKS OF ACCOUNTS SEIZED BY THE DEPARTMENT AT THE TIME OF SEARCH. HENCE, WE DO NOT FIND ANY MERIT IN THE CONTENTIONS RAISED IN THE GROUNDS OF APPEAL, AS NO MATERIAL WAS PLACED BEFORE US TO CONTRADICT THE FINDINGS GIVEN BY LD CIT(A). ACCORDINGLY, WE UPHOLD THE ORDER OF LD CIT(A) ON TH IS ISSUE. 13. THE NEXT ISSUE RAISED BY THE REVENUE AS WEL L AS THE ASSESSEE RELATES TO THE VALUE OF UNACCOUNTED STOCK DETERMINED BY LD CIT(A) IN THE BUSINESS CONCERN NAMED M/S ALAPPAT SILKS. DURING THE COURSE OF SEAR CH, THE REVENUE OFFICIALS TOOK PHYSICAL STOCK OF ALL TEXTILE GOODS. WHEN COMPARED WITH THE BOOK STOCK, IT RESULTED IN EXCESS STOCK IN CERTAIN ITEMS AND NEGAT IVE STOCK IN SOME OTHER ITEMS. THE NET EFFECT OF THE EXERCISE WAS THAT THERE WAS E XCESS STOCK TO THE TUNE OF RS.34,81,027/- AND THE SAME WAS TREATED AS THE UNDI SCLOSED INCOME BY THE AO. THE LD CIT(A) NOTICED THAT THE SEARCH TEAM DID NOT TAKE PHYSICAL STOCK OF ALL ITEMS, I.E., THE VALUE OF THE BLOUSE PIECES STOCK WAS ESTIMATED BY THEM. HE ALSO IT(SS) A NOS. 47, 68 & 108/COCH/2004, &02/COCH/2005, 9 NOTICED THAT THE AO HIMSELF HAS OBSERVED THAT THERE COULD BE POSSIBILITY OF MIXING UP OF CODE NUMBERS OF VARIOUS ITEMS; I.E., THE CODE NUMBER OF ONE ITEM COULD HAVE BEEN TAKEN AS THE STOCK OF OTHER ITEM, WHICH W OULD RESULT IN DIFFERENCES. WHEN THESE MISTAKES WERE POINTED OUT BY THE ASSESSE E, THE AO, IN HIS REMAND REPORT/LETTER DATED 1-12-2003 CANVASSED FOR DETERMI NATION OF CLOSING STOCK BY DEDUCTING THE COST OF PURCHASE OF SOLD GOODS AND HE PROPOSED THAT THE COST OF PURCHASE BE CONSIDERED AS 86% OF THE SALES VALUE BY TAKING RATE OF GROSS PROFIT AT 14% ON SALES. BY FOLLOWING HIS PROPOSITION, TH E AO DETERMINED THE VALUE OF EXCESS STOCK AT RS.19,08,214/-. HOWEVER, THE LD CI T(A) DID NOT ACCEPT THE RATE OF GROSS PROFIT OF 14% SUGGESTED BY THE AO. HE WOR KED OUT THE AVERAGE RATE OF GROSS PROFIT BY CONSIDERING THE RATE OF GROSS PROFI T DECLARED OVER THE YEARS, I.E., FOR THE ASSESSMENT YEARS 1993-94 TO 1.4.99 TO 23.12 .99, WHICH RESULTED IN A RATE OF 16.66%. BY ADOPTING THE SAID RATE OF GROSS PROF IT, THE VALUE OF EXCESS STOCK WAS DETERMINED BY LD CIT(A) AT RS.9,74,279/- AND TH E LD CIT(A) SUSTAINED THE ADDITION TO THAT EXTENT. BOTH THE PARTIES ARE AGGR IEVED BY THE SAID DECISION. 14. IT IS NOTICED THAT THE AO HIMSELF HAS SUGGEST ED THE METHOD OF DETERMINATION OF STOCK VALUE ON THE BASIS OF RATE O F GROSS PROFIT DURING THE COURSE OF APPELLATE PROCEEDINGS, VIDE HIS LETTER DA TED 01.12.2003. WHILE THE AO SUGGESTED THE RATE OF GROSS PROFIT AT 14%, THE LD C IT(A) ADOPTED THE RATE AT 16.66%. NOW THE QUESTION THAT ARISES IS WHETHER TH E RATE OF GROSS PROFIT ADOPTED BY LD CIT(A) AT 16.66% AS AGAINST THE RATE OF 14% SUGGESTED BY THE AO IS FAIR OR NOT. ACCORDING TO THE ASSESSEE, THE G.P RATE SHOULD FURTHER BE ENHANCED. FROM THE ORDER OF LD CIT(A), WE NOTICE T HAT THE LD CIT(A) HAS TAKEN AVERAGE OF THE RATE OF GROSS PROFIT DECLARED BY THE ASSESSEE OVER THE YEARS, I.E., FROM THE ASSESSMENT YEARS 1993-94 TO 1.4.99 TO 23.1 2.99. THUS, IT IS SEEN THAT THE LD CIT(A) HAS ADOPTED A SCIENTIFIC BASIS FOR WO RKING OUT THE RATE OF GROSS PROFIT AT 16.66%. THOUGH BOTH THE PARTIES ARE AGGR IEVED BY THE SAID DECISION, IT(SS) A NOS. 47, 68 & 108/COCH/2004, &02/COCH/2005, 10 HOWEVER, NO MATERIAL WAS PLACED BEFORE US TO POINT OUT ANY DEFICIENCY IN THE SAID METHOD OF WORKING OUT THE RATE OF G.P. HENCE, WE D O NOT FIND ANY REASON TO INTERFERE WITH THE DECISION OF LD CIT(A) ON THIS IS SUE. 15. THE NEXT ISSUE RELATES TO THE ADDITION OF R S.70,000/- PERTAINING TO THE GIFT RECEIVED FROM M/S GENERAL KURRIES. THE AO NOTICED FROM THE SEIZED MATERIALS THAT THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS.70,0 00/- IN LIEU OF TWO KINETIC HONDA SCOOTERS WON AS FIXED DISCOUNT FROM M/S GENER AL KURRIES. THE AO TOOK THE VIEW THAT THE ASSESSEE HAS NOT DECLARED THIS RE CEIPT IN HIS BOOKS OF ACCOUNT. THE AO DID NOT ACCEPT THE EXPLANATION OF THE ASSESS EE THAT THE CONCERNED CHITTIES WERE SUBSCRIBED BY A GROUP COMPANY NAMED M /S ALAPATT RESORTS AND TOURS (P) LTD AND THE SAID RECEIPT OF RS.70,000/- W AS ACCOUNTED IN THE BOOKS OF THAT COMPANY. ACCORDINGLY, HE TREATED THE SAME AS THE UNDISCLOSED INCOME OF THE ASSESSEE. THE LD CIT(A) NOTICED THAT THE COMPA NY M/S ALAPPAT RESORTS AND TOURS (P) LTD HAS SUBSCRIBED TO THE CHITTIES AND TH E SUBSCRIPTIONS WERE PAID BY WAY OF CHEQUES BY THAT COMPANY. THE LD CIT(A) ALSO NOTICED THAT THE SAID COMPANY HAS ALSO ACCOUNTED FOR THE AMOUNT OF RS.70, 000/- AND THE SAME WAS CREDITED TO THE BANK ACCOUNT OF THE SAID COMPANY. HENCE THE LD CIT(A) DELETED THE SAID ADDITION. WE DO NOT FIND ANY INFIRMITY IN THE SAID DECISION OF THE FIRST APPELLATE AUTHORITY, AS HE HAS GIVEN A CLEAR FINDIN G THAT THE FUNDS FOR THE SUBSCRIPTIONS HAVE GONE FROM THE COMPANYS ACCOUNT AND FURTHER THE AMOUNT OF RS.70,000/- WAS ALSO FOUND CREDITED IN THE BANK ACC OUNT OF THE SAID COMPANY. HENCE, THERE IS NO REASON TO TREAT THE SUM OF RS.70 ,000/- AS THE INCOME OF THE ASSESSEE HEREIN. 16. THE NEXT ISSUE RELATES TO THE ADDITION PERT AINING TO THE DISALLOWANCE OF INTEREST EXPENDITURE RELATING TO THE FUNDS DIVERTED . THE AO NOTICED FROM THE BALANCE SHEETS AND WEALTH STATEMENTS THAT THE ASSES SEE HAS DIVERTED SUBSTANTIAL IT(SS) A NOS. 47, 68 & 108/COCH/2004, &02/COCH/2005, 11 AMOUNT OF INTEREST BEARING FUNDS FOR NON-BUSINESS P URPOSES. THE AO WORKED OUT THE INTEREST RELATABLE TO SUCH DIVERSIONS AT RS.1,2 5,42,592/- AND TREATED THE SAME AS UNDISCLOSED INCOME OF THE ASSESSEE. THE LD CIT(A) DELETED THIS ADDITION ON THE GROUND THAT THE SAID ADDITION IS NO T BASED ON ANY SEIZED MATERIAL AND FURTHER THE PAYMENT OF INTEREST WAS DULY RECORD ED IN THE BOOKS OF ACCOUNTS AND HENCE THE SAID ADDITION DOES NOT FIT INTO THE D EFINITION OF UNDISCLOSED INCOME GIVEN IN SEC. 158B(B) OF THE ACT. ON MERITS ALSO, THE LD CIT(A) NOTICED THAT THE ASSESSEE WAS HAVING SUFFICIENT CREDIT BALANCES IN H IS CAPITAL ACCOUNT AND ALSO POSSESSED SUFFICIENT NON-INTEREST BEARING FUNDS OBT AINED FROM HIS SISTER CONCERNS. HENCE THE LD CIT(A) CAME TO THE CONCLUSIO N THAT THERE WOULD NOT HAVE BEEN ANY DIVERSION OF INTEREST BEARING FUNDS, AS AL LEGED BY THE AO. 17. WE ARE IMPRESSED BY THE FINDING OF THE LD C IT(A) THAT THE DEPARTMENT DID NOT UNEARTH ANY SEIZED MATERIAL TO ESTABLISH THAT T HE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE WAS BOGUS OR FALSE ONE, AS PER THE DEFINITION OF UNDISCLOSED INCOME GIVEN IN SEC. 158B(B) OF THE ACT. SINCE TH E ASSESSEE HAS RECORDED ALL THE INTEREST PAYMENTS IN HIS REGULAR BOOKS OF ACCOU NT, SUCH KIND OF DISALLOWANCES U/S 14A OF THE ACT, IN OUR VIEW, CAN BE MADE ONLY I N THE COURSE OF REGULAR ASSESSMENTS. HENCE, WE AGREE WITH THE VIEW OF LD C IT(A) THAT THIS ISSUE IS BEYOND THE SCOPE OF BLOCK ASSESSMENT PROCEEDINGS. 18. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE RELATES TO THE ADDITION OF RS.824970/- PERTAINING TO THE INCOME OF MINOR CHILD REN. THE AO ADDED THE INTEREST INCOME EARNED BY THE MINOR CHILDREN OF THE ASSESSEE IN THE YEAR RELEVANT TO THE ASSESSMENT YEARS 1992-93 AND 1993-94, ON THE GROUND THAT THE ASSESSEE HAD OMITTED TO DECLARE THE SAME AS PER THE REQUIREM ENTS OF SEC. 64(1A) OF THE ACT. THE MINOR CHILDREN OF THE ASSESSEE RECEIVED I NTEREST INCOME FROM M/S ALAPPAT JEWELLERS. THE LD CIT(A) NOTICED THAT THE PROVISIONS OF SEC. 64(1A) IT(SS) A NOS. 47, 68 & 108/COCH/2004, &02/COCH/2005, 12 WHICH PROVIDE FOR CLUBBING OF MINOR CHILDRENS INCO ME CAME INTO EFFECT ONLY FROM THE ASSESSMENT YEAR 1993-94. HE ALSO NOTICED THAT THE RESPECTIVE MINOR CHILD HAS FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 1992-93 DECLARING THE ABOVE SAID INTEREST INCOME PRIOR TO THE DATE OF SEARCH. H E FURTHER NOTICED THE CONCERN M/S ALAPPAT JEWELLERS DID NOT PAY ANY INTEREST FOR THE YEAR RELEVANT TO THE ASSESSMENT YEAR 1993-94. UNDER THESE FACTS, THE LD CIT(A) NOTICED THAT THERE WAS NO NECESSITY TO ADD ANY NON-EXISTENT INCOME FOR THE ASSESSMENT YEAR 1993- 94 IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, THE LD CIT(A) DELETED THE ADDITION MADE BY THE AO. WE FIND THAT THE DECISION TAKEN B Y LD CIT(A) ON THIS ISSUE IS IN ACCORDANCE WITH THE LAW AND HENCE, WE DO NOT FIN D ANY REASON TO INTERFERE WITH THE SAID DECISION OF LD CIT(A) ON THIS ISSUE. 19. THE LAST ISSUE IN THE APPEAL OF THE REVENUE RELATES TO THE VALIDITY OF LEVY OF SURCHARGE AS PER PROVISO TO SEC. 113 OF THE ACT. T HE LD CIT(A) DELETED THE SURCHARGE ON THE GROUND THAT THE PROVISO INSERTED T O SEC. 113 BY THE FINANCE ACT, 2002 SHALL HAVE PROSPECTIVE EFFECT ONLY FROM 1 .6.2002. HOWEVER, THIS ISSUE HAS SINCE BEEN SETTLED BY THE HONBLE SUPREME COURT IN THE CASE OF SURESH N GUPTA, 297 ITR 322; WHEREIN IT IS HELD THAT THE SUR CHARGE IS LEVIABLE IN ALL CASES. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THAT OF THE AO. 20. NOW WE SHALL TAKE UP THE APPEAL FILED BY THE ASSESSEE, WHICH IS NUMBERED AS IT(SS)A 47/COCH/04, WHERE IN TWO ISSUES ARE URGE D. THE FIRST ISSUE RELATING TO THE VALUE OF SUPPRESSED STOCK IN THE CASE OF M/S AL APPAT SILKS HAS BEEN DECIDED BY US IN PARAGRAPH 14 OF THIS ORDER. ACCORDINGLY, WE DISMISS THE GROUND RELATING TO THE SAME. THE LD A.R DID NOT PRESS THE SECOND I SSUE AND HENCE THE GROUNDS RELATING TO THE SAME ARE ALSO DISMISSED. IT(SS) A NOS. 47, 68 & 108/COCH/2004, &02/COCH/2005, 13 21. NOW WE SHALL TAKE UP THE APPEAL OF THE REVE NUE, WHICH IS NUMBERED AS IT(SS)A 02/COCH/05. IN THIS APPEAL, THE REVENUE IS URGING A SINGLE GROUND RELATING TO THE DELETION OF RS.9.00 LAKHS. THE FAC TS RELATING TO THE SAME ARE STATED IN BRIEF. IN THE REGULAR RETURN OF INCOME F ILED FOR THE ASSESSMENT YEAR 1999-2000, THE ASSESSEE DECLARED A SUM OF RS.9.00 L AKHS AS INCOME RELATING TO THE DIFFERENCE IN THE VALUE OF GOLD. IN THE BLOCK ASSESSMENT PROCEEDINGS, THE AO ADDED THE ABOVE SAID SUM OF RS.9.00 LAKHS WHILE DET ERMINING THE INCOME FROM UNDISCLOSED SALES. THE DETAILS OF SAID WORKINGS ARE EXTRACTED IN PARAGRAPH 8 SUPRA. WHILE THE AO DETERMINED THE UNDISCLOSED SAL ES AT SIX TIMES OF THE DECLARED TURNOVER, THE LD CIT(A) PROCEEDED TO DETER MINE THE UNDISCLOSED SALES AT SIX TIMES OF THE SUPPRESSED TURNOVER. REGARDIN G THE AMOUNT OF RS.9.00 LAKHS, THERE WAS NO OCCASION FOR THE LD CIT(A) TO D ISCUSS ANYTHING. IN THE CONSEQUENTIAL ORDER, THE AO ADDED THE SUM OF RS.9.0 0 LAKHS TO THE UNDISCLOSED INCOME ON THE REASONING THAT THE LD CIT(A) DID NOT INTERFERE WITH THE SAME. THE ASSESSEE PREFERRED APPEAL CHALLENGING THE SAID ADDI TION AND THE LD CIT(A) DELETED THE SAME WITH THE FOLLOWING OBSERVATIONS:- 6. I HAVE CONSIDERED THE RIVAL CONTENTIONS. FOR THE ASSESSMENT YEAR, 1999-2000, APPELLANT HAS INCLUDED IN THE REGULAR R ETURN OF INCOME RS. 9,00,000/- AS VALUE OF STOCK HELD AS STOCK. THE RETURN WAS FILED WITHIN THE EXTENDED DATE FOR FILING THE RETURN OF INCOME EVEN THOUGH IT WAS FILED AFTER THE DATE OF SEARCH. AS PER PROFIT AND LOSS ACCOUNT OF ALAPATT JEWELLERS, KOLLAM FOR THE YEAR ENDED 31-3-1999, TH E CLOSING STOCK WAS SHOWN AS RS. 2,43,78,385/- BEING THE VALUE OF 59,3 84.160 GMS. OF GOLD ORNAMENTS. THE VALUE OF THIS SAME QUANTITY OF GOL D ORNAMENTS REVALUED BY THE APPELLANT CAME TO RS. 2,52,78,385/- AND THE DIFFERENCE IN VALUE ONLY RS. 9,00,000/- WAS DECLARED IN THE REGULAR RE TURN OF INCOME. THE QUANTITY OF STOCK IS AS PER THE STOCK REGISTER MAI NTAINED BY THE APPELLANT IN THE COMPUTER WHICH WAS SEIZED AT THE TIME OF SE ARCH. THEREFORE THE FINDING OF THE ASSESSING OFFICER THAT RS. 9,00,000 /- IS THE VALUE OF UNACCOUNTED STOCK HELD BY THE APPELLANT IS AGAINST THE FACTS. THE ORIGINAL BLOCK ASSESSMENT ORDER HAS NOT ESTABLISHED THE EXI STENCE OF EXCESS STOCK. FOR THE ABOVE REASONS ONLY, IN THE APPELLATE ORDER DATED 24-3-2004 IN T007/01-02, I HAVE NOT SUSTAINED THE ABOVE ADDITIO N OF RS. 9,00,000/- IT IT(SS) A NOS. 47, 68 & 108/COCH/2004, &02/COCH/2005, 14 MAY BE NOTED THAT I HAD DIRECTED THE ASSESSING OFF ICER TO ESTIMATE THE UNDISCLOSED INCOME FROM ALAPATT JEWELLERY, KOLLAM FOR THIS ASSESSMENT YEAR BASING THE ACTUAL SUPPRESSION FOUND AS A RESU LT OF SEARCH AND THE EXISTENCE OF EXCESS STOCK WAS NOT FOUND AS A RESUL T OF THE SEARCH. THEREFORE THE ASSUMPTION OF THE ASSESSING OFFICER THAT I HAD SUSTAINED THE ADDITION OF RS. 9,00,000/- IS MISCONCEIVED AND IS AGAINST THE SPECIFIC DIRECTIONS CONTAINED IN THE APPELLATE ORDER DATED 34-3-2004. I THEREFORE HOLD THAT THE INCOME OF RS. 9,00,000/- RETURNED IN THE REGULAR RETURN FOR THE ASSESSMENT YEAR 1999-2000, BEING ONLY THE VALU ATION DIFFERENCE OF STOCK DO NOT CONSTITUTE UNDISCLOSED INCOME OF THE APPELLANT. ASSESSING OFFICER IS THEREFORE DIRECTED TO DELETE THE AMOUNT OF RS. 9,00,000/- INCLUDED AS UNDISCLOSED INCOME IN THE REVISED ASSE SSMENT ORDER DATED 1 ST JUNE, 2004. 22. WE NOTICE THAT THE SUM OF RS.9.00 LAKHS WAS DECLARED BY THE ASSESSEE IN HIS REGULAR RETURN OF INCOME AS DIFFERENCE IN THE V ALUE OF GOLD. THE LD CIT(A) HAS GIVEN A SPECIFIC FINDING THAT THE REVENUE DID N OT FIND ANY DIFFERENCE IN THE QUANTITY OF GOLD. ACCORDING TO THE LD A.R, THE AO HIMSELF HAS DEDUCTED THE AMOUNT OF RS.9.00 LAKHS WHILE WORKING OUT THE INCOM E FROM UNDISCLOSED SALES, I.E., THOUGH THE AO ADDED THE SUM OF RS.9.00 LAKHS TO THE GROSS PROFIT DETERMINED BY HIM, HE DEDUCTED THE DECLARED AMOUNT OF GROSS PROFIT AMOUNTING TO RS.25,24,256/-, WHICH INCLUDES THE AMOUNT OF RS. 9.00 LAKHS. FURTHER, THE LD CIT(A) HAS GIVEN A SPECIFIC FINDING THAT THE AMOUNT OF RS.9.00 LAKHS REPRESENTS ONLY VALUATION DIFFERENCE AND NOT ANY QUANTITY DIF FERENCE. HENCE WE AGREE WITH THE VIEW OF LD CIT(A) THAT THERE IS NO REQUIREMENT TO MAKE ANY SEPARATE ADDITION TO THE UNDISCLOSED INCOME UNDER THE FACTS AND CIRCU MSTANCES DISCUSSED ABOVE. 23. THE ASSESSMENT MADE IN THE HANDS OF SMT. MA RY SUNNY IS A PROTECTIVE ASSESSMENT. THE DECISION TAKEN BY US IN THE PRECED ING PARAGRAPHS, IN SO FAR AS IT IS APPLICABLE TO SMT. MARY SUNNY, SHALL APPLY TO THE VARIOUS GROUNDS RAISED BY THE REVENUE. WE HOLD ACCORDINGLY. IT(SS) A NOS. 47, 68 & 108/COCH/2004, &02/COCH/2005, 15 24. IN THE RESULT, THE APPEAL OF THE ASSESSEE A ND THE APPEALS OF THE REVENUE IN IT(SS)A 02/COCH/05 AND IT(SS)A 108/COCH/04 ARE DISM ISSED. THE APPEAL OF THE REVENUE IN IT(SS)A 68/COCH/04 IS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 12-10-2012. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 12TH OCTOBER, 2012 GJ COPY TO: 1. SHRI SUNNY P. JOSE, ALAPPAT SILKS, KARIMPANAL AR CADE, EAST FORT, TRIVANDRUM-23 2. SMT. MARY SUNNY, C/O ALAPPAT SILKS, KARIMPANAL A RCADE, EAST FORT, TRIVANDRUM-23. 3.THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CI RCLE, TRIVANDRUM. 4.THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, TRIVANDRUM. 5.THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, KOCHI. 6.THE COMMISSIONER OF INCOME-TAX, CENTRAL, KOCHI 7. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 8. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN