IN THE ITAT PUNE BENCH ‘A’
Jyotichand Bhaichand Saraf & Sons (P.) Ltd.
versus
Deputy Commissioner of Income-tax, Circle 11(1)
IT APPEAL NO. 08 (PN) OF 2011
[BLOCK PERIOD 1996-97 TO 2002-03]
JULY 27, 2012
ORDER
Shailendra Kumar Yadav, Judicial Member
This appeal filed by the assessee is directed against the order of CIT(A) dated 30-03-2010 relating to Block Period 1996-97 to 2002-03 on following grounds :
“1. On the facts and in the circumstances of the case and in law, the Hon’ble Commissioner of Income Tax (Appeal) erred in confirming addition of Rs. 50,00,000/- as undisclosed income on account of declaration of income during the course of search action on account of shortage of stock of gold without appreciating the facts of the case in the proper perspective. The Hon’ble CIT(A) failed to appreciate the fact that no evidence in respect of additional investment in the agricultural land was found during the course of search action. The appellant prays that the disallowance may please be deleted.
2. On the facts and in the circumstances of the case and in law, the Hon’ble Commissioner of Income Tax (Appeal) erred in not considering the valuation report in proper perspective.
3. The Hon’ble CIT(A) directed the assessing officer to add gross profit of Rs. 4,73,262/- after giving a opportunity to assessee of being heard. The direction by the CIT (Appeals) amounted to enhancement of assessment without giving an opportunity to the appellant in terms of section 251(2) of the I.T. Act and hence, exceeded his jurisdiction. The directions issued by the Hon’ble CIT (Appeals) to the assessing officer is bad in law. The appellant hereby requests that the direction may please be quashed”.
2. Facts of the case, in brief, are that the assessee is a private limited company and is engaged in business of dealing in gold ornaments and jewellery at Baramati, District Pune, under name and style Jyotichand B Saraf & Sons Pvt. Ltd., hereinafter called JBS in short. A search and seizure action under section 132 of the Income Tax Act, 1961 was conducted at the business premises of the assessee situated at Jayashree Complex, Station Road, Pune on 06-11-2001. In the course of search action, physical inventory of stock was taken by the Income Tax Department. Stock of gold ornaments and jewellery as per physical inventory was 95,056 grams as against stock of 1,10,870 grams as per books of accounts of the assessee indicating a deficit of stock by 13,514 grams (After accounting for stock of 2300 grams on account of theft). Explaining the reason for deficit in stock Mr. Shantikumar Shah, Director of the assessee company in his statement recorded on 06-11-2001 u/s. 132(4) of the Income Tax Act, 1961 stated that there have been unrecorded sales which were not reflected in books of account and further stated that proceeds out of such sales were invested in purchase of agricultural land at Malad, Tal : Daund, District Pune and towards development of the said land and declared unaccounted income of Rs. 50,00,000/-. However, in a letter failed on 21-06-2002, assessee retracted from the statement given by Mr. Shantikumar Shah u/s. 132(4) in the course of search stating that the said admission was made under mistaken belief of law and fact. In fact he intended to declare profit earned out of the unrecorded sales and not the total amount of unrecorded sales. Assessee also retracted from the statement made by Mr. Shantikumar Shah that the sale proceeds out of the unrecorded sales were invested in purchase of agricultural land and instead contended that said investment was in fact shown as an advance of respective members of the family by company. Accordingly in the return filed on 23-07-2002 in response to notice issued u/s. 158BC, assessee declared undisclosed income of Rs. 4,01,321/- which included gross profit of Rs. 3,80,518/- on account of unaccounted sales relatable to shortage of gold ornaments. Assessing Officer accepted the contention of the assessee and assessed undisclosed income of Rs. 4,01,321/- as disclosed by assessee in the return filed. Subsequently the CIT (Central), Pune set aside the assessment order passed by the Assessing Officer u/s. 158BC dated 25-07-2003 vide his order u/s. 263 dated 14-03-2006 on the ground that said order of the Assessing Officer was erroneous and prejudicial to the interest of revenue in so far as Assessing Officer accepted the retraction of statement made u/s. 132(4) by Mr. Shantikumar Shah without verifying investment made in purchase of agricultural land at Malad, Tal: Daund, Distt. Pune and development expenses incurred to the tune of Rs. 50,00,000/- which was admitted by Mr. Shantikumar Shah as out of proceeds of unrecorded sales in the above said statement. The CIT also observed that prevailing value of the gold at the time of search was Rs. 4,601.80 per 10 grams as on the date of search. In the return filed value adopted by assessee was only 3,700/- per 10 gram, thus declaring gross profit of Rs. 3,80,518/- as against Rs. 4,19,055/- ought to have been declared as per then prevailing value. Consequently, concern Assessing Officer initiated assessment proceedings wherein he refused to accept retraction made by assessee from declaration of undisclosed income of Rs. 50,00,000/- made at the time of search stating that statement recorded u/s. 132(4) at the time of search has evidentiary value at par with material found in the course of search. Accordingly, the Assessing Officer proceeded to assess investment made in agricultural land of Rs. 50,00,000/- as undisclosed income of the assessee for block period. Further Assessing Officer observed that value of deficit stock totalling to Rs. 11426.97 grams noticed at the time of search was done @ Rs. 4601.80 per 10 gram, the value of which comes to Rs. 52,58,463/- and the gross profit on the same @ 9% works out to Rs. 4,73,262/-. However, assessee in the block return filed offered gross profit to the extent of Rs. 3,80,518/- only resulting in under declaration of gross profit to the tune of Rs. 92,744/-. Accordingly the said amount was added to the undisclosed income of the assessee. In the meantime, assessee approached the Tribunal against the order of the CIT (Central) passed u/s. 263 of the Income Tax Act, 1961 and though ITAT upheld the assumption of jurisdiction by CIT u/s. 263 it was observed by the Tribunal that CIT was justified in giving direction in his order u/s. 263 that certain amounts needed to be assessed as undisclosed income of the assessee. Modifying the order of CIT passed u/s. 263 the Tribunal directed the Assessing Officer to examine and verify the issue raised by CIT in his order passed u/s. 263. Consequently fresh assessment proceedings were initiated by the Assessing Officer.
3. Stand of the assessee before the Assessing Officer at this stage was that the unrecorded sales of assessee cannot be assessed as undisclosed income merely because assessee could not correlate/identify corresponding purchases. It was further contended that the shortage of stock itself indicate that all the purchases were accounted for properly but only sales were not accounted for. Therefore in respect of such unaccounted sales only gross profit ought to have been added instead of adding the entire unrecorded sales because investment in agricultural land was found at the time of search. Moreover the development expenses in respect of said land were incurred through crossed cheque by various family members/shareholders which are duly reflected in their respective books. Without prejudice to the above, it was contended that in case the Assessing Officer proceeds to assess the entire undisclosed sale of Rs. 50,00,000/- as undisclosed income same should be reduced by Rs. 4,01,321/- being gross profit already disclosed by assessee on the said unrecorded sales. However, the Assessing Officer refused to accept the retraction of statement made by Director of the company u/s. 132(4) at the time of search offering to declared undisclosed investments of Rs. 50,00,000/- holding that such retraction is clearly an afterthought as assessee failed to prove by leading evidence that said statement during search was given under threat or coercion. Accordingly retraction made by assessee vide his letter dated 21-10-2002 was rejected and entire amount of Rs. 50 lakhs declared in the assessment recorded u/s. 132(4) was drawn as undisclosed income of the assessee for block period under consideration. Since the entire unrecorded sale were assessed as undisclosed income no separate addition on account of suppressed gross profit in respect of such unrecorded sales were considered by the Assessing Officer.
4. Matter was carried before the first appellate authority who after considering the various statements put forward on behalf of the assessee dismissed the appeal by observing that Assessing Officer was justified in treating the amount of Rs. 50 lakhs as undisclosed income for the block period. Accordingly addition made on this account was justified and Assessing Officer was also directed to assess the gross profit of Rs. 4,73,262/- separately after giving opportunity of being head to the assessee.
5. Before us, stand of the assessee is that CIT(A) erred in confirming the addition of Rs. 50,00,000/- as undisclosed income on account of declaration of income during the course of search action on account of shortage of stock of gold without appreciating the facts of the case in the proper perspective. The CIT(A) failed to appreciate the fact that no evidence in respect of additional investment in the agricultural land was found during the course of search action and CIT(A) also erred in considering the valuation report in proper perspective. The direction to assessing officer to add gross profit of Rs. 4,73,262/- amounted to enhancement of assessment without giving an opportunity to the appellant in terms of section 251(2) of the I.T. Act and hence exceeded the jurisdiction. The directions issued by CIT(A) to Assessing Officer are bad in law. Accordingly the learned Authorised Representative requested to delete the addition in question and quash the direction given to Assessing Officer.
6. On the other hand, learned Departmental Representative submitted that CIT(A) was justified in confirming the addition of Rs. 50 lakhs on account of declaration of income during the course of search actions on account of shortage of the stock of gold. Assessing Officer was justified in rejecting the retraction of the statement made by Director of the company u/s. 132(4) at the time of search offering to declare undisclosed investment of Rs. 50 lakhs by holding that such retraction is clearly an afterthought as assessee has failed to prove by cogent reasoning that said statement was given under threat or coercion. The retraction made by assessee vide his letter dated 21-06-2002 was rightly rejected by the Assessing Officer and entire amount of Rs. 50 lakhs declared in statement recorded u/s. 132(4) was rightly held as undisclosed income of the assessee for block period under consideration. It was also submitted that CIT(A) was justified to direct the Assessing Officer to assess the gross profit of Rs. 4,73,263 separately after giving opportunity of being heard to the assessee. Accordingly the appeal filed by the assessee should be dismissed.
7. After going through rival submissions and material on record, we find that the assessee is a private limited company and is engaged in business of dealing in gold ornaments and jewellery at Baramati, District Pune. A search and seizure action under section 132 of the Income Tax Act, 1961 was conducted at the business premises of the assessee situated at Jayashree Complex, Station Road, Pune on 06-11-2001. During the course of search action physical inventory of gold ornaments was taken by the search party. The stock of gold ornaments as per physical inventory was 95,056 grams as compared to stock of 1,10,870 grams as per books of account. Therefore, the actual stock found was short by 15,814 grams as compared to stock as per books of account. Mr. Shantikumar Shah, the Director of the assessee brought to the notice of search party that there was theft in shop premises about 6 months back and gold weighing 2,300 grams was stolen for which an FIR has been lodged with Baramati Police Station. Same was brought to the notice of search party. Therefore, the actual shortage of stock was 13,514 grams (15816-2300 grams) the value of which was arrived at Rs. 50,00,000/- considering the market rate of gold Rs. 370 per gram.
8. During the course of search action, statement of Mr. Shantikumar Shah, the Director of the assessee was recorded under section 132(4) of the Income Tax Act, 1961 on 6th November 2001. In response to question No. 27 of the statement, Mr. Shantikumar Shah agreed to declare the unaccounted income of Rs. 50,00,000/- equivalent to sale value of shortage of stock and he further stated that the cash generated from unaccounted sales was invested in purchase of agricultural land at Malad, Tal: Daund, Distt. Pune.
9. The assessee was given copies of the statement recorded under section 132(4) of the I.T. Act, 1961 on 20th May 2002. On receipt of the copy of the statement the assessee realized that there was a mistake in the declaration of income. The assessee instead of declaring gross profit on unaccounted sale represented by shortage of gold had wrongly declared the entire sale proceeds as unaccounted/undisclosed income. The assessee submitted a letter clarifying the mistake on 21st June 2002 to the Assessing Officer, placed at page 16 & 17 of paper book certified to be filed before authorities below, relevant portion of same reads as under:
“Subject: Mistake in the Statement Recorded Under Section 132(4) of the Act
Honourable Sir,
A search and seizure action u/s. 132 of the Income Tax Act, 1961 was carried out on the registered office of the company as stated above on 6th November 2001. During the course of search action statement of one of the Director of the company Mr. Shantikumar Shah was recorded on 6th November 2001 u/s. 132(4) of the Income Tax Act, 1961. The company in receipt of the notice under section 158BC(c) of the Act to file the return for the Block Period. We have received the copy of the statement of Mr. Shantikumar Shah on or about 20th May 2002.
During the course of search action jewelry/gold ornaments found as per physical inventory was 95,069.96 Grams (Net) whereas jewellery/gold ornaments as per books of account were 110870.75 Grams (Net). Thus there was short fall of 15,214.28 grams. Mr. Shantikumar Shah was asked the explanation for shortage of jewelry/gold ornaments. Mr. Shantikumar Shah brought to the notice of search party that there was theft in the shop and jewellery weighing 2,300 grams was stolen and FIR was lodged with the concerned Police Station. Therefore, there was actual shortage of jewellery to the tune of 13,514.28 grams. Mr. Shantikumar Shah in reply to question No. 27 of his statement stated that the shortage was due to unrecorded sales that is sale without bills. The total amount of unrecorded sale was arrived at Rs. 50,00,000 by applying gold rate of Rs. 3,700 per 10 grams to the shortage of 13514.28 grams. Mr. Shantikumar Shah further stated that the amount of unrecorded sale was invested in purchase and development of land at Malad, Tal Daund, Distt. Pune. He further agreed to declare the amount of unrecorded sale Rs. 50,00,000 as undisclosed income in the hands of company i.e. J.B. Saraf & Sons Pvt. Ltd. In this connection it humbly submitted as follows
(1) We have gone through the Statement of the director Mr. Shantikumar Shah and Panchanama of the jewellery found. In the Panchanama there are several mistake in physical verification of the jewellery. Similarly the valuer has, without application of the mind, determined gross weight and respective net weight of the jewellery. For example jewellery item “Thusi” is a pure gold item and it does not contain any alloys. However, the valuer has considered the net weight at 50% of the gross weight. (Please refer item no.29 page no.2 of the Panchanama). There are several other instances also. Similarly, the gold items in lying in silver section of the shop was not considered in valuing gold jewelelry summery. Such differences in jewellery weight are to the tune of 2,087 grams. The details of difference in gross weight and net weight and jewellery lying in silver section are given on separate sheets enclosed herewith. Therefore, actual shortage is 11426.97 grams as follows:
