Zaveri Diamonds V. Commissioner of Income Tax, Ludhiana

ITA/316/2011

AI Insights

M/s Zaveri Diamonds, a partnership firm engaged in the business of diamond and gold jewelry, appealed against the order of the ITAT which had reversed the decision of the Commissioner of Income Tax (Appeals) and upheld the assessment made by the Assessing Officer. The assessment had declared the firm's income based on the finding that it was not conducting genuine business transactions but was instead involved in issuing bills for a commission. The firm contested the ITAT's decision on several grounds, including the alleged coercion in the retraction of witness statements and the improper application of the VDIS scheme. The High Court, after reviewing the submissions and evidence, agreed with the ITAT's findings and dismissed the appeal.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 810538 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 19-01-2012
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Assessee Lawyers: S K MUKHI
• Keywords: Bogus sales; Commission on purchases; Double addition; Perverse order; Retraction of statement; Voluntary Disclosure of Income Scheme, 1997
• Section: 148; 143(1); 260A

Judgement Text

" ITA No.316 of 2011 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Civil Misc. No. 24231-CII of 2011 & ITA No. 316 of 2011 Date of decision: 19.01.2012 M/s Zaveri Diamonds -----Appellant Vs. Commissioner of Income Tax, Ludhiana ----Respondent CORAM:- HON'BLE MR JUSTICE M.M.KUMAR HON’BLE MR. JUSTICE AJAY KUMAR MITTAL 1. To be referred to the Reporters or not? 2. Whether the judgment should be reported in the Digest? Present:- Mr. S.K.Mukhi, Advocate for the appellant. Ajay Kumar Mittal,J. Civil Misc. No. 24231-CII of 2011 Delay in refilling is condoned. ITA No. 316 of 2011 1. The assessee has filed this appeal under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 31.10.2008, Annexure A-3, passed by the Income Tax Appellate Tribunal Bench ‘A’, Chandigarh (in short, “the ITAT) in ITA No.503/CHD/2004 for the assessment year 1998-99, claiming following substantial questions of law:- i) That whether the ITAT was justified in not considering the retraction of the persons from their earlier statement when they specifically stated that their earlier statements were recorded under pressure and they were made to sign certain written pages with a threat that in case they do not 1 ITA No.316 of 2011 do so they will be subjected to lot of litigation and other harassments. They further stated that there were no bogus sales of jewellery to M/s Zaveri Diamonds (appellant). Copies of the Retraction letters being as per Annexure A-9. Hence adverse finding of the ITAT on this count is perverse and needs intervention by this Hon’be Court in view of various judgments on the issue of Retraction? ii) That whether ITAT was justified in not considering the request by the appellant for supplying various documents in the form of confirmation, affidavit, valuation report and the source of acquisition of the impugned jewellery as declared by various customers before the concerned CIT under the VDIS scheme so as to give its comments on the same as these formed important evidence of sale to the appellant by the customers and in other words purchases by the appellant which declarations of these customers of the appellant having been accepted by the Income Tax Department, so that the department cannot adopt double standards to the same transaction, i.e. by accepting sale to the appellant by the customers but on the other hand not accepting the purchases by the appellant, which is against the established principles of law as even held by Hon’ble Punjab and Haryana High Court wherein it was held that surrender to be accepted in toto? iii) That whether the ITAT was justified in not considering the fact that since the whole amount of sale by the customers having surrendered under the VDIS-1997 scheme and having paid taxes due therein and accepted by the department any further addition under any count will lead to double addition which is not warranted under any enabling provisions of the Income Tax Act, 1961? 2 ITA No.316 of 2011 iv) Whether, on the facts and circumstances of the case, the Tribunal was justified in reversing a well versed order of CIT(A) and thereby confirming the order of AO that no actual business of purchase or sale of jewellery was carried out by the assessee firm even when evidence in the shape of purchase bills and sales bills, bank statements, pass books through which various transactions have been done, balance sheet, trading and profit and loss account, schedule of partners capital account, quantitative details of stock, written submissions before various authorities, case laws, statement of Manoj Kumar, partner, certificate from Sarafan Bazar Association, copy of the assessment order of M/s Vishal Jewellers showing that partners of the appellant firm were in regular jewellery business have been furnished by the assessee, which findings of the ITAT being perverse needs due indulgence by this Hon’ble Court? v) Whether, on the facts and circumstances of the case, the Tribunal was justified in confirming the action of A.O., in applying the rate of 2% commission on the purchases of Rs.16,27,86,745/- and making an addition of Rs.32,55,740/- on estimate basis by ignoring the regular books of account being duly audited by a firm of chartered accountants and is infact based on surmises and conjectures? vi) Whether the order of the Tribunal is perverse and against the provisions of law? 2. Brief facts as narrated in the appeal may be noticed. The appellant is a partnership firm at Ludhiana. It consists of two partners namely Sarv Shri Manoj Kumar and Vineet Kumar. It is engaged in the business of purchase and sale of diamond and gold jewellery. The 3 ITA No.316 of 2011 Government of India had announced a Voluntary Disclosure of Income Scheme, 1997 (VDIS) whereby the declarants were allowed to declare undisclosed income/assets on payment of prescribed taxes without being liable for prosecution. The appellant filed its return of income for the assessment year 1998-99 on 30.10.1998 declaring total income of Rs.1,11,500/- which was processed under Section 143(1) of the Act. A notice under Section 148 of the Act was issued to the assessee on 18.3.2002. During assessment proceedings, the Assessing Officer confronted Shri Manoj Kumar with the statements of S/Shri Sanjeev Jain, Sanjeev Goel, Shyam Lal and Prem Chand who had stated that actually no sale of jewellery was made by them to the assessee and only bills were issued by the assessee against commission. Later on these persons retracted from their statements. The Assessing Officer made the assessment at an income of Rs.32,55,735/- by holding that the assessee is not engaged in the business of sale and purchase of diamond jewellery and only bills were issued after getting two-three percent commission. Copy of the order dated 28.3.2003 is at Annexure A-1. The appellant filed an appeal before the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”] against the said order which was partly allowed vide order dated 6.1.2004, Annexure A-2. Aggrieved by the order passed by the CIT(A), the revenue filed an appeal before the ITAT which was allowed vide order dated 31.10.2008, Annexure A-3. Hence this appeal by the assessee. 3. Learned counsel for the appellant submitted that the persons who had made statements had declared the jewellery under the VDIS scheme and the said statements were later on retracted in as 4 ITA No.316 of 2011 much as it was stated by all of them that the earlier statements were recorded under coercion and duress. In the light of the same, no addition could have been made to the income disclosed by the assessee. 4. After giving thoughtful consideration to the submissions made by learned counsel for the appellant, we do not find any merit in the appeal. 5. The Assessing Officer noticed that the assessee had opened Bank account No. 16475 in Punjab National Bank, Chaura Bazar, Ludhiana in the name of Zaveri Diamonds which had lot of cash deposits in the short period of time and cheques/demand drafts had been issued to various parties from this account. The account was opened on 13.2.1998 and uptil 20.3.1998, it had cash deposit of Rs.16.28 crores and cheques/demand drafts for the corresponding amount had been issued to various parties. The statement of Sh. Manoj Kumar partner was recorded which only revealed that such a huge volume of business could not be done from shop measuring 8’ x 10’ located in Nalkewali Gali, Pausari Bazar, Ludhiana. There was only one more employee, named, Guru Parshad aged 30 years who was known to him for about last 1½ years only. The shop was hired in February, 1998 and no fittings were made. The furniture used in the shop was not commensurate with the quantum of business alleged to have taken place at the shop. On certain dates cash deposits in the bank had exceeded Rs.20 lacs. Like on 23.2.1998 cash deposited in the bank was Rs.20 lacs whereas on 24.2.1998 there was a cash deposit of Rs.47 lacs. Cash deposit entries of Rs.53 lacs on 26.2.1998 and Rs.57 lacs on 27.2.1998 were also found in the bank 5 ITA No.316 of 2011 account. Besides, several other alarming factors were observed in the assessment order by the assessing authority to conclude that the amount of purchases as declared by the assessee amounting to Rs.16,27,86,745/- was not on account of any business carried on in the name of Zaveri Diamond but was a device adopted by the assessee whereby it was receiving 2 to 3% commission on the alleged purchases. Taking 2% as the commission, the total commission income was calculated to be Rs.32,55,735/-. 6. In addition to the above factors and those referred to in the assessment order, the assessing authority noticed that during investigations four persons, namely, (i) Sanjay Jain S/o Sh. Sham Lal r/o 297, Major Sham Singh Road, Ludhiana; (ii) Sanjeev Goel S/o Sh. Brij Mohan r/o Ohri Chowk, Batala, District Gurdaspur (statement recorded on 9.11.2000); (iii) Shri Sham Lal S/o Shri Hem Raj r/o Grain Market, Mandi Nihal Singh Wala, District Moga (statement recorded on 6.11.2000); and (iv) Shri Prem Chand S/o Shri Miri Ram r/o Dashmesh Colony, near Shishu Bharat School, Sunam, District Sangrur had admitted that they have not sold any jewellery to the firm M/s Zaveri Diamonds and they had received cheques and deposited in the bank account and had paid 2 to 3% commission. However, in response to letter dated 28.1.2003 summons were issued and S/Shri Prem Chand, Sham Lal and Sanjeev Goel appeared and in their statements again recorded had resiled from their earlier statements made in the year 2000. Even Shri Amarjeet Singh S/o Shri Harbol Singh resiled from his earlier statement. A perusal of the assessment order shows that the assessing authority had noticed several factors for concluding that jewellery business as claimed by the assessee was 6 ITA No.316 of 2011 not being carried on by it and the findings were not based on these statements alone. 7. On appeal, the CIT(A), without giving any cogent reasons and on the basis of conjectures had reversed the findings. The ITAT on appreciation of entire matter had upheld the order of the assessing authority and reversed that of CIT(A). 8. Under the circumstances, the benefit of VDIS scheme where various persons had declared the jewellery thereunder was not available which could have been taken by the appellant. A perusal of the order of the assessing authority and also ITAT shows that they had not recorded findings only on the basis of statements made by various persons which were later on sought to be retracted by them. There was huge cash deposit of Rs.16.28 crores in a period of 1 month and 7 days from 13.2.1998 to 20.3.1998 in the bank account of the assessee for which heavy onus lay upon it to satisfactorily tender explanation along with supportive material to substantiate its plea which the assessee had failed to do. Even with regard to the retraction of statement, it may be noticed that the earlier statements of these persons were recorded in the year 2000 whereas they had sought to resile therefrom in the year 2003. The retraction from earlier statement has to be at the earliest opportunity, in the absence of which retraction may not be taken to be of any value. The totality of factors as recorded by the assessing authority and the ITAT clearly points out relating to the modus operandi of the assessee. It would be apposite to refer to the findings recorded by the ITAT, which read thus:- “24. To verify the above claim of the assessee of conduct of business of purchase and sale of diamond jewellery/loose diamond/bullion, enquiries were 7 ITA No.316 of 2011 conducted from the partner of the assessee firm Shri Manoj Kumar, both by the Investigation wing as well as by the Assessing Officer. In the statements recorded by the Investigation wing of Shri Manoj Kumar on 6.5.1999 and 23.11.2000, he explained that, the main business is trading in diamond jewellery, gold and silver utensils etc. He further stated that this business was carried out at the shop located at Nalke Wali Gali in Pansari Bazar, Ludhiana. He also stated that, the Business was carried out by him alongwith one employee whose name was Guru Prasad. No particulars of such employee other than the fact that he was aged about 30 years were stated by Shri Manoj Kumar. He has stated that the employee namely Shri Guru Prasad used to go with him to help him in sales. It has also been stated that the said employee never went to the bank alone but used to accompany him sometimes for helping in carrying and counting currency notes. It was stated that the help in which the business was carried out, was taken on rent in February, 1998. It was also stated that no fittings were installed in the shop but only whitewash was got done. Further, the furniture purchased for carrying on the business included one table, one half size almirah and two chairs. It has been stated that no counter or safe was purchased in the shop. Also, no glass work was done. So far as the modus operandi to carry on the business it was stated that purchases were made directly from the customers and no agent or broker was involved in the purchases. It was stated that the payments to the sellers of jewellery have been made through cheques and most of the times, the cheques were issued immediately and in some cases, the cheques were payable after two-three days. It was further stated that the entire jewellery purchased by the assessee was sold on the same shape as it was purchased without any alteration to different parties. It was also stated that even the buyers who 8 ITA No.316 of 2011 purchased the jewellery from the assessee, had approached directly and not through any agent or broker. Infact, when asked to name or identify a single person to whom sales were made, it was stated as under:- “I do not know any such person.” 25. It was further stated in regard to the above sales as under: Q: Have you made any sales through cheque or draft? Ans. All sales are made in cash. Q: Have you made any sale to any local jeweller of any item i.e. Gold, Silver, Diamond etc.? Ans. No jeweller from the local market ever purchased any item from me. Q: Where have you kept your cash when the cash in hand was more than crores? Ans. Most of the times, the cash was kept in business premises and sometimes, I used to carry it home. Q: Did you employ any security guard for security purposes to guard such huge amount of cash and jewellery amounting to few crores? Ans. No, I never employed any such guard. 26. Thereafter, another statement of Shri Manoj Kumar was recorded on 23rd of November 2000 wherein it was further stated that there was no fixed time to deposit the cash in bank and time taken to deposit the cash depended on the quantity of cash. It was also stated that at time, it used to take thirty minutes and, other time, the bank authorities used to keep the cash and note down the bank account number and give the pay in slip receipt later. It was further stated that the assessee used to lock the safe and, the boy Mr. Guru Prasad who was employed used to sit in the shop during his absence, which is apparently contradictory to his earlier statement, when he had stated such purported employee used to accompany him to the 9 ITA No.316 of 2011 Bank. At this juncture too, Shri Manoj Kumar failed to provide the particulars of the employee Shri Guru Prasad. So far as the safe is concerned, it was stated that the same was a half floor. It was further stated that this business was carried out upto March 1999 and thereafter closed. As regards the packaging at the time of making of sales, it was stated that since the volume of jewellery was less, they were put in lifafa and were delivered at shop only and therefore, there was no requirement of any jewellery box. It was also stated that since the jewellery was old jewellery, there was no requirement of any display also. 27. Thereafter another statement was recorded by the Assessing Officer in the course of assessment proceedings on 27th March 2003 wherein Shri Manoj Kumar stated that diamond jewellery was purchased on the basis of weight which was engraved in the jewellery and is valued on the basis of quality of diamonds studded therein. It was also stated that the quality is checked through an instrument called I-glass. The ……checked its colour, cuts and spots and cracks, if any. It was stated that on the basis of experience and looking to the size of diamond, the assessee was able to judge the value. Regarding the value and weight of the material in which diamond is studded it was stated that there were two types of studded material; i.e. diamond sets in gold and other is studded in white metal. So far as the white metal, it was stated that the same is valueless because this is made of inferior metal quality. As regards diamond studded in gold jewellery, the weight of the product is taken on the weighment scale (Dharamkanata). Out of total weight, the diamond weight engraved on the gold or the white metal is reduced and balance was taken as the weight of gold. It was further stated that bigger size diamond is costly i.e. called solitaire which is normally 10 ITA No.316 of 2011 weighed in lots and small diamonds are cheaper. It was stated that new assessee firm M/s Zaveri Diamond, had been opened with intention to expand the family business, however on account of subsequent unfortunate events, the firm had to be closed in March 1999. So far as the sales, it was stated that he knew the customers to whom, sales had been made but he could not disclose the name due to professional/trade secret and otherwise also, considerable time was lapsed. It was further stated that the customers used to come to sell the jewellery and, the business of jewellery is done on reputation and family background. 28. From the aforesaid, it is seen that Shri Manoj Kumar in his statement has stated that the sales have been made in cash and the person to whom, sales are made are unverifiable. Infact, he says he knows the names of the customers through whom sales have been made personally but he did not disclose the names due to professional/trade secret. This is in clear contradiction to his first statement recorded on 6.5.1999 when he stated that he did not know any such person and the buyers approached him directly. It is thus a case where the assessee has been changing his stand as regards the particulars of sales. No evidence worth any credence has been led either in the course of assessment proceedings or appellate proceedings to establish that the sales have been made and the cash deposited in the bank account was in lieu of the sales made of jewellery. Infact, we find that unverifiability of the sales had been accepted by the CIT(A) in his order when he had enhanced the income returned to Rs.3 lacs and the assessee in the impugned proceedings, has neither challenged this finding either by filing a separate appeal or cross objection or for that matter leading any evidence. Mere furnishing of cash memos cannot, by any stretch of imagination, be made a 11 ITA No.316 of 2011 sole basis to conclude that any sales have been made by the assessee. It is, therefore, a case where on the basis of the evidence on record and on the basis of the findings recorded by both Assessing Officer as well as the CIT (A), it has to be held that the sales made by the assessee are unverifiable and unacceptable and in view thereof, it is held that the sales so declared by the assessee of Rs.16.28 crores, since are not supported by any evidence, the same are acceptable. 29. Moreover we find that the entire transactions of purchase and sale of jewellery, as claimed by the assesasee have been carried out in a peculiar manner and abnormal circumstances, which to our mind, irrefutably leads to a conclusion that there is no business per se of the assesasee of purchase and sale of jewellery. It is firstly seen in this regard that assessee firm did not even have the necessary infrastructure to carry on the business of purchase and sale of diamond jewellery. One of the most essential infrastructure, as has also been admitted by the assessee, in the course of business of purchase and sales of jewellery, is Dharmkanta, on the basis of which, the jewellery is purchased and sold. It may be stated here that total weight of the jewellery purchased and sold by the assesasee is substantial as reflected in quantitative details on page 7 of the paper book and the total value of business carried out is in excess of Rs.16 crores. It is nowhere stated that assessee has any Dharamkanta which could have enabled it to carry on such business and that too of such huge volumes. The fact is that the assessee was not in ownership of any weighing scale to weigh the jewellery allegedly purchased or sold and even otherwise no particulars have been placed on record to show that such jewellery was allegedly purchased and sold by the assessee with a weighing scale of third party. In fact, the evidence furnished by the assessee in the shape of 12 ITA No.316 of 2011 purchase bills and sales bills do not include the weighment slips, which as per the admission of the assessee is the fundamental requirement for any transaction of purchase/sale of jewellery. Infact during the course of the instant proceedings a specific question was put to the assessee by the bench, to which it was stated that so far as the transaction of purchase is concerned, the weighment slips have been handed over to the seller of the jewellery and as regard the transactions of sales, they had been handed over to the buyers of jewellery and no records have been maintained by the assessee in this regard. We are unable to accept such a fallacious statement made particularly in light of the fact that even the basic particulars of the person, from whom such weighment has been got done is not brought to record. Also, no expenses with regard to the weighment have been debited by the assessee in its books of account. This conclusion is also supported from the statement recorded of one of the sellers of the jewellery to the assessee. Infact, even in the course of hearing before us in the cases of the sellers of jewellery, weighment slips have been brought on record either before the lower authorities or even before us. Infact, the assessee’s stand is manifested by the contradiction in the assessee’s approach vis a vis that of the sellers of the jewellery to assessee. One of the seller stated that the weighing scale was available in the shop of the assessee whereas admittedly the assessee does not own any weighing scale and instead the assessee stated that weighment was done on a Dharmkanta of another party, who has not even been identified.” 9. In view of the aforesaid findings, which have not been shown to be illegal or perverse, no substantial question of law as claimed by the assessee arises in this appeal. 13 ITA No.316 of 2011 10. Accordingly, the appeal is dismissed. (Ajay Kumar Mittal) Judge January 19, 2012 (M.M.Kumar) ‘gs’ Judge 14 "