Income Tax Appellate Tribunal - Mumbai
Khushpat J Shah, Mumbai vs Dcit Cc 2(4), Mumbai on 27 December, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL "H"
BENCH, MUMBAI
BEFORE HON'BLE SH. B R. BASKARAN, AM &
HON'BLE SH. SANDEEP GOSAIN, JM
आयकरअपीलसं./ I.T.A. No. 927/Mum/2017
(निर्धारणवर्ा / Assessment Year: 2013-14)
Khushpat J. Shah, DCIT CC 2(4)
R. N. Jwellers 413, Aurum Mumbai,
Mall 4th floor, Opp-Surti बिधम/ Pin-
Hotel Near-Jewel World, Vs.
Zaeri Bazar,
Mumbai-400002
स्थायीलेखासं ./ जीआइआरसं ./ PAN No. AZQPS3599F
(अपीलाथी/Appellant) : (प्रत्यथी / Respondent)
अपीलाथीकीओरसे/ Appellant by : Shri Hari S. Raheja &
Shri Mani Jain, AR
प्रत्यथीकीओरसे/Respondentby : Shri Rajore Satish
Chandra,DR
सुनवाईकीतारीख/
: 17.10.2018
Date of Hearing
घोषणाकीतारीख /
: 27.12.2018
Date of Pronouncement
आदे श / O R D E R
Per Sandeep Gosain, Judicial Member:
The present Appeal filed by the assessee is against the order of Ld. CIT (Appeal) - 48, Mumbai dated 25.11.16 for AY 20013-14 on the grounds mentioned herein below:- 2
I.T.A. No. 927/Mum/2017 Khushpat J. Shah
1. On the facts and circumstances of the appellant's case and in law the Ld. Commissioner of Income Tax (Appeals) erred in rejecting books of accounts u/s 145(3) of the Income Tax Act 1961 as per the grounds stated in the order or otherwise.
2. On the facts and circumstances of the appellant's case and in law the Ld. Commissioner of Income Tax erred in confirming the action of Ld. AO in making an addition of Rs 1,28,56,000/- on account of gold bullions found during the course of search proceedings as per the grounds stated in the order or otherwise.
3. On the facts and circumstances of the appellant's case and in law the Ld. Commissioner of Income Tax erred in confirming the action of Ld. AO in making an addition of Rs 1,50,50,011/- on account of cash found during the course of search proceedings as per the grounds stated in the order or otherwise.
4. On the facts and circumstances of the appellant's case and in law the Ld. Commissioner of Income Tax erred in confirming the action of Ld. AO in holding that the appellant is engaged in unaccounted sales and purchases of bullion.
5. On the facts and circumstances of the appellant's case and in law the Ld. Commissioner of Income Tax erred in confirming the action of Ld. AO in adding a 3 I.T.A. No. 927/Mum/2017 Khushpat J. Shah sum of Rs 29,10,560/- by estimating Gross Profit Ratio at 1% on alleged business of unaccounted trading of bullion without any cogent basis.
6. The Appellant craves leaves to add, to amend, alter, modify and / or withdraw any or all of the above grounds of appeal, each of which are without prejudice to one another.
The appellant prays this Hon'ble Tribunal to delete the additions/disallownaces by the Ld. AO and confirmed by the Ld. CIT(A).
2. The brief facts of the case are that assessee is an individual who has been in the business of trading in jewellery in the name of his proprietary concern M/s R. N. Jewellers. A Search and seizure operation u/s 132 of the I.T. Act was conducted on 08.11.12 in the case of M/s Gold Sukh Safety Vaults Ltd, who were involved in the business of providing lockers on rent. Since locker no. 418 was allotted in the joint name including that of assessee, therefore on the basis of admission made by assessee with regard to ownership of the locker and the contents of the locker belong to him. Therefore after carrying out verifications 4 I.T.A. No. 927/Mum/2017 Khushpat J. Shah and investigation, the AO made additions on account of unexplained cash and gold bars.
Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties, dismissed the appeal of the assessee.
Now before us, the assessee has preferred the present appeal by raising the above grounds.
Ground No. 1 to 6.
3. These grounds raised by the assessee are inter connected and inter related and relates to challenging the order of Ld. CIT(A) in upholding the additions on account of gold and cash found during the course of search proceeding and also rejecting books of accounts, holding that assessee is engaged in unaccounted sales and purchases of bullions and making addition by estimating gross profit ratio @ 1% on alleged business of unaccounted trading of bullion without any cogent basis, therefore we thought it fit to dispose of the same by this common order.
5
I.T.A. No. 927/Mum/2017 Khushpat J. Shah
4. We have heard the counsels for both the parties at length and we have also perused the material placed on record, judgment cited by both the parties as well as the orders passed by revenue authorities. As per the facts of the present case, a search in the case of M/s Gold Sukh Safety Ltd was conducted on 08.11.12 who were engaged in the business of providing private lockers and had provided lockers to hawala operators. One of the lockers provided by M/s. Gold Sukh Safety Ltd. was registered in the name of one Rashesh Shah bearing locker no. 418. As per the KYC of the locker no. 418, there were additional operator of the locker which included the assessee and the said locker was opened on 05.05.2011 and it was last operated on 06.11.2012 by assessee. In the absence of assessee, a prohibitory order was placed on locker no. 418 on 09.11,2012.
5. It was submitted by Ld. AR that on 16.11.2012, the assessee appeared before the investigation wing and admitted that the locker no. 418, belonged to him and in this respect, a statement u/s 131 was also recorded. As per records, the prohibitory order was revoked and in the said locker, gold bullion valuing Rs.1,28,56,000/- and cash amounting to Rs.1,50,50,011/- 6
I.T.A. No. 927/Mum/2017 Khushpat J. Shah was found. It was noted that the cash bundles were bearing noting 'K.J' and '05 Nov 2012' and thus the said bullion and cash were seized.
6. It was submitted that immediately within 4 days, the assessee recorded an Affidavit on oath on 21.11.12 thereby stating that the contents of the statement recorded by the Department on 16.11.201 of the assessee was not read over and explained to him in Hindi. It was also submitted that since the assessee do not know English and understands only Hindi, therefore he do not know the contents of the statement which was got recorded on 16.11.12. Therefore immediately thereafter, the assessee sent affidavit through registered post to the investigation wing thereby intimating that the cash and gold found are duly accounted in the books of accounts for which the assessee also filed its books of accounts including Purchase and sale register, stock register, cash book and purchase invoices along with the said affidavit.
7. It was further submitted by Ld. AR that apart from the above, simultaneously, there was a search on Ganjamal alias Rajendra Hirani on 09.11.2012 who were alleged Hawala 7 I.T.A. No. 927/Mum/2017 Khushpat J. Shah dealers. During his search, certain loose papers, containing noting reading as 'KY were found and cash inflow transaction amounting to Rs.29,10,55,970/- and cash outflow transaction amounting to Rs.9,78,00,711/- were found against noting of 'K.J'.
8. On the basis of the above factual position, the AO made additions by holding that the assessee was dealing in unaccounted business and gold & cash found in the locker no. 418 were unexplained. He held that the assessee was dealing in unaccounted purchase and sale of gold through hawala operator and with respect to the books produced by the assessee, A.O. held that the same are fabricated so as to accommodate the cash and gold found in the locker as there was increase in cash sales right before the said period and thus made addition of Rs.1,28,56,000/- on account of unexplained gold found and Rs.1,50,50,011/- on account of unexplained cash. Further, in respect of notings found in the paper of hawala operator i.e. Ganjamal alias Rajendra Hirani, A.O. held that the same are unaccounted turnover of the assessee in gold business and estimated a gross profit @ 1% on the total inflow of Rs.29,10,55,970/- thereby estimating income at Rs.29,10,560/-. 8
I.T.A. No. 927/Mum/2017 Khushpat J. Shah
9. On appeal Ld. C1T(A) upheld the finding of the A.O. by holding that no books were presented at the time of search proceedings. The Ld. CIT(A) rejected the books of accounts u/s 145(3) of the Act and held that books were fabricated to accommodate the unaccounted stock and cash. It was also held that there were extraordinary cash sales during the relevant period prior to search which reflects that the contention of assessee regarding stoppage of cash sales after search action was an afterthought.
10. Apart from above, it was also observed by Ld.CIT(A) that it was impractical for the assessee to keep the most of the stock at the locker, leaving little stock at his shop and thus closing stock at the time of search of Rs.1.33 Crores was not normal.
11. Ld. AR submitted that the assessee had appeared before the Investigation wing on 16.11.2012 in response to notice u/s 131 and clearly explained that the contents of the locker were duly accounted on 16.11.2012. It was submitted that assessee was acquainted with only Hindi. Therefore, it was assured by the 9 I.T.A. No. 927/Mum/2017 Khushpat J. Shah revenue officers that although the statement is in English and the same has been typed as per his oral statement.
12. It was further submitted that in order to confirm his statement and substantiate the same with evidences, the assessee filed his affidavit explaining the position and also submitted the entire books of account along with invoices to prove that the stock& cash is accounted on 21.11.2012. The said explanation and documents were sent by the courier within 4 days of the original statement.
13. It was also submitted that it was impossible for the assessee to fabricate books of account, obtain purchase bills, issue sales invoices, make stock statement and cash book in such a short time of 4 days. Hench, such prompt reply by the assessee before the wing cannot be termed as an afterthought.
14. It was also submitted that AO had relied upon the statement which was not made to understand to the assessee and thus the said statement is incorrect in light of the various evidences and explanation submitted immediately subsequent to it. In this respect, reliance was placed on the decision of Hon'ble 10 I.T.A. No. 927/Mum/2017 Khushpat J. Shah Supreme Court in the case of Pullangode Rubber Produce Co. Ltd Vs. State of Kerala and another 91 ITR 18 wherein it was held as under:-
"Such admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made the admission to show that it is incorrect and the assessee should be given a proper opportunity to show that the books of account do not disclose the correct state of facts. "
15. Ld. AR also relied upon the decision of Jodhpur Tribunal in the case of Shree Chand Soni Vs. DCIT (2006] 101 TV (JD) 1028 has held that no addition can be made merely on the basis of statement which has been shown to be incorrect through evidence. The head notes of the same is as under:-
"Search and seizure--Block assessment--Computation of undisclosed income--Gold ornaments found during search--Assessee claiming that part of the gold ornaments found at his premises belonged to third parties which were received for doing job work--Job register contained entries regarding receipt of such gold ornaments--Assessee is also maintaining bill books for receipts against job charges from the customers--AO did not give any ruling that the 11 I.T.A. No. 927/Mum/2017 Khushpat J. Shah register or the bills were bogus--AO did not at all investigate as to whether the said gold really belonged to other persons as claimed by the assessee--AO rejected assessee's claim merely on the basis of the statements of the assessee and his son--Not justified-- Neither the statement of the assessee nor the statement of his son support the findings of the AO that goods did not belong to third parties--CIT(A) justified in deleting the addition."
16. On the other hand, Ld. DR relied upon the orders passed by the revenue authorities.
17. After having heard the counsels for both the parties and perusal of the records, we find that the entire basis of addition in the present case are upon the statement made by the assessee. However, from the records we notice that assessee had sent the entire books of accounts alongwith invoices to prove that the stock in cash is accounted and the said details were accompanied with a detailed affidavit. It is pertinent to mention here that all the documents and the books of accounts were sent within 4 days of the original statement. The assessee in the present case has categorically mentioned in the affidavit that he does not know English and only understands Hindi and in this respect, he had 12 I.T.A. No. 927/Mum/2017 Khushpat J. Shah filed sworn affidavit which has not been countered by the revenue. As far as the question of rejection of books of accounts is concerned, in this respect, we noticed that assessee had submitted that it is his practice to keep the excess stock in locker to avoid any loss due to theft or otherwise. It was also submitted that since it was the first time that the assessee had made cash sales, therefore the same was kept in locker. Having considered the factual submission made by the assessee, we are of the view that Ld. CIT(A) cannot step into the shoes of a businessman and decide as to where and how much stock was to be kept. It is quite normal for any jeweller to keep its stock in safe place and locker is an ideal safe place to keep such stock. Therefore, in our view the observation of Ld. CIT(A) as to why did assessee kept the entire stock at locker, is incorrect.
18. With respect to holding extraordinary stock of Rs.1.33 Crs at the time of search, it was submitted that assessee had been holding stock of 80-90 lakhs in past as well and therefore, 1.33 Crs stock cannot be termed as extraordinary. In this respect, our attention was drawn to assesee's stock register which are at page nos. 60-65 of the paper book. After having perused the same, we 13 I.T.A. No. 927/Mum/2017 Khushpat J. Shah noticed that the assessee had maintained a closing stock of Rs.80- 90 Lakhs for most of the period of time and therefore holding stock of Rs.1.33 Crs cannot be termed as unreasonable.
19. The revenue had also taken a stand that closing stock and cash sales shown by the assessee were not genuine. In this respect, we notice that neither AO nor Ld.CIT(A) had doubted the purchases made by the assessee nor examined them and therefore, doubting the sales made out of them or closing stock remained out of them, is incorrect. Although the entire details of purchases were submitted before the investigation wing as well as before the AO at no stage, the purchases were held to be doubtful. Thus, when once the purchases are held to be genuine, stock remaining out of said purchases and sales made out of such purchases cannot be termed as doubtful.
20. The revenue had also held that the books of accounts submitted by the assessee were fabricated. However, it is important to mention here that while holding the books of accounts submitted by the assessee as fabricated, no defect whatsoever had been pointed out in the books of accounts, stock 14 I.T.A. No. 927/Mum/2017 Khushpat J. Shah register or cash book. The assessee had submitted the entire stock register, purchase and sale bills before lower authorities. However, not a single discrepancy had been pointed out. Hence in the absence of any discrepancy, terming the books of account as fabricated and without affording opportunity of being heard is grossly bad in law. While reaching to the said conclusion, we draw strength from the judgment of UDHMI RAM vs. The Income Tax Officer reported in [1996] 88 TAXMAN 191 (ASR.) (MAG.) wherein it has been held that the so called discrepancy pointed out by the Assessing Officer could lead to investigation, but without specific material to show that there was under-statement in value of sales or inflation of expenses, the book results could not be rejected.
21. Ld. CIT(A) had impressed upon the fact that there was an extraordinary delay in payment of creditors out of which cash sales were made. In our view, this cannot be a reason for disbelieving books of accounts. In any case, the payment terms would depend upon understanding between buyer and saler. 15
I.T.A. No. 927/Mum/2017 Khushpat J. Shah
22. We noticed that in para 5.11, Ld. CIT(A) had mentioned that the payment to M/s. Mahesh Gold Jewellery were made in cash. However, this finding of the Ld. CIT(A) is factually incorrect as the payment were made through cheque and bank statement for the same is placed at page nos.192 of the paper book-2. Thus, the finding of the Ld. CIT(A) that the creditors were paid through cash, were not correct.
23. Ld. CIT(A) also referred to large creditors outstanding than previous years and pointed out that purchases were merely booked in order to compensate the stock or sales shown by the assessee. In this respect, it was pointed out that out of 1.40 Cr, creditors of Rs.1.04 Crs pertained to purchases made on 25.03.2012 and 28.03.14. The said creditors were cleared in the first two weeks of April. Therefore, considering these facts, we find that the observation of Ld. CIT(A) is incorrect.
24. The sales made by the assessee in current year as well as in last year around the search period are similar to sales made in 16 I.T.A. No. 927/Mum/2017 Khushpat J. Shah immediate previous year. Therefore, the allegations of fabrication of books is order to increase the sales do not hold much water. Thus, the assessee had proved that the gold bullion and cash found during the course of search is duly accounted in the regular books of accounts.
25. Now, with respect to the notings of 'K.J.' found in the material seized from one Shri Gajmangal, it is submitted that from the said notings, the AO could nowhere relate to the assessee. There was no allegation that Shri Gajmangal had stated that such notings relate to the assessee. Even no evidence linking the noting to the assessee had been brought on record by the department. Rather on the contrary, the assessee had shown his incapability to explain the said noting made by another person. Therefore, in such a circumstances, such notings cannot be applied to the assessee. It is not the case of AO that the alleged 'KJ' mentioned on the bundles was in the hand writing of the person Gajmangal or that the same matches with the papers seized from Gajmangal. Moreover, Ld. CIT(A) had tried to prove 17 I.T.A. No. 927/Mum/2017 Khushpat J. Shah that notings found in the cash notes found in the locker match with the notings found in the documents seized from Gajmanal i.e. '5 Nov 2012'. In this respect, it is pertinent to point out that as per the details of notings furnished by AO, which are also attached with the assessment order, a net total of Rs.99,36,450/- had been allegedly paid to assessee whereas the cash found with the said notings in the locker totals to Rs.1,50,50,011/- which clearly shows that the notings found with Shri Gajmanal had nothing to do with the assessee and therefore, cannot be considered as the transaction of the assessee. On the identical facts, Chandigarh Bench of Tribunal in the case of Cosmos Infra Engineering (India) Ltd. vs DCIT reported in [2017] 88 taxmann.com 761 has held as under:-
"....Under such circumstances when even the third party from whose premises the alleged documents were found, has not confirmed that the said entry belong to the assessee, there was no question of any assumption or belief that the entry belonged to the assessee. Moreover, any entry found on loose papers in the premises of the third party without any corroborative evidence, cannot be made basis for addition in the case of the assessee. During the course of search at the 18 I.T.A. No. 927/Mum/2017 Khushpat J. Shah premises of the assessee, no incriminating material relating to the above stated entry had been found. We, therefore, do not find any justification on the part of the lower authorities to make addition ii: the case of the assessee on the basis of an entry found in the "bahi" of third party from which neither it can be definitely said that the name written therein was that of the assessee nor any other evidence relating to the above transaction has been found. In view of this, the addition made by the lower authorities on this issue is not sustainable under the eyes of law and the same is accordingly ordered to be deleted."
26. Accordingly, we are of the view that the material found from an unconnected person cannot be added in the assessee 's hands when even the said person had not admitted that it relates to the assessee. Thus, no addition can be made on account of entries found from the premises of Gajmangal, merely on the basis of surmises and conjectures. Hence the additions made by AO and confirmed by CIT(A) are not sustainable and thus are ordered to be deleted. Resultantly, these grounds raised by the assessee stands allowed.
19
I.T.A. No. 927/Mum/2017 Khushpat J. Shah
27. In the net result, the appeal filed by the assessee stands allowed with no order as to cost.
Order pronounced in the open court on 27th Dec, 2018.
Sd/- Sd/-
(B. R. Baskaran) (Sandeep Gosain)
ले खासदस्य / Acountant Member न्याययकसदस्य / Judicial Member
मुंबई Mumbai;यदनां कDated : 27.12.2018
Sr.PS. Dhananjay
आदे शकीप्रनिनिनिअग्रे नर्ि/Copy of the Order forwarded to :
1. अपीलाथी/ The Appellant
2. प्रत्यथी/ The Respondent
3. आयकरआयुक्त(अपील) / The CIT(A)
4. आयकरआयुक्त/ CIT- concerned
5. यवभागीयप्रयतयनयध, आयकरअपीलीयअयधकरण, मुंबई/ DR, ITAT, Mumbai
6. गार्ड फाईल / Guard File आदे शधिुसधर/ BY ORDER, उि/सहधयकिंजीकधर .
(Dy./Asstt.Registrar) आयकरअिीिीयअनर्करण, मुंबई/ ITAT, Mumbai