Income Tax Appellate Tribunal - Jodhpur
Income Tax Officer vs Smt. Leela Devi Badola on 22 June, 2007
Equivalent citations: (2008)116TTJ(JODH)214
ORDER
R.S. Syal, A.M.
1. This appeal by the Revenue is directed against the order passed by the CIT(A) on 22nd July, 2004 in relation to asst. yr. 1998-99.
2. The only ground raised in this appeal is against the sustenance of addition at Rs. 1,91,506 as against Rs. 13,50,000 made by the AO on account of different items on the basis of surrender made during the course of survey.
3. Briefly stated, the facts of this case are that a survey under Section 133A was conducted in the case of M/s Shimla Jewellers, in which the assessee is the proprietor, on 26th Feb., 1998. During the course of survey, no books of account were found and it was claimed that the books were feeded in the computer. On being asked, the assessee made available her computerized accounts copies which were complete upto 21st Feb., 1998. The cash in hand found at the time of survey was at Rs. 51,749 whereas the figure of cash as per computerized books of account dt. 21st Feb., 1998 was at Rs. 5,90,887. On being questioned about the difference in the cash balance, the assessee stated that Shri Dinesh Kumar had taken away the cash of Rs. 5,25,000 and at present he was out of station.
4. It was further stated that as soon as he would return, the difference would be explained. The inventory of closing stock was also prepared but could not be tallied from the books because there was no complete mention of stock in computerized sheets. During the course of assessment proceedings the claim of 8127 gms pertaining to job work was made. The AO has noted that during the course of survey it transpired that the assessee was not recording complete purchase and sales in the books of account. Considering these lapses the assessee had offered a sum of Rs. 13,50,000 as income from undisclosed sources, which was, however, not offered for taxation in the return filed. The AO made the addition of Rs. 13.50 lakhs. The learned CIT(A) reduced such addition to Rs. 1,91,506 against which the Revenue has come up in appeal before us.
5. First item of addition is unexplained investment in furniture for which surrender of Rs. 6 lakhs was made. As per the books, investment in furniture was at Rs. 4,16,754. It was stated in the statement dt. 26th Feb., 1998 by Shri Sampat Lal Badola, the assessee's husband that the assessee had taken insurance policy for Rs. 10 lakhs. The difference between the amount of insurance and the figure recorded in the books of account at Rs. 6 lakhs was surrendered at the time of survey. The said amount was included in the assessment order. In the first appeal, the learned CIT(A) observed that as per the cover note of the insurance, the value of furniture and fittings was at Rs. 6 lakhs and the remaining amount of Rs. 4 lakhs in the insurance note was towards the stock lying in show cases. He, therefore, took the unaccounted investment in furniture at Rs. 1,83,246 (Rs. 6,00,000 minus Rs. 4,16,754).
6. The learned Counsel for the assessee invited our attention towards copy of insurance cover note from which it is apparent that the value of furniture was only at Rs. 6 lakhs and the remaining amount of Rs. 4 lakhs was towards stock lying in show cases. Since the said insurance cover note was not legible, the learned Departmental Representative was directed to produce a copy of the said insurance note, which was made available. On the perusal of the said insurance cover note, it is observed that the amount of insurance on account of furniture and fixture is only at Rs, 6 lakhs.
7. Before proceeding further, it would be appropriate to consider the status of surrender made by the assessee at the time of survey. There is no dispute that a surrender is binding upon the assessee. However, if the assessee leads infallible evidence to show that the surrender was extracted by coercion or was made in a misunderstanding, he is entitled to retract from the same. However, the fact remains that the burden is always upon the assessee to show that such surrender was not validly made. The Hon'ble jurisdictional High Court in the case of C/T us. Ashofc Kumar Soni (2007) 207 CTR (Raj) 188 has confirmed the finding of the Tribunal in which the assessee has retracted from the statement made at the time of survey but thereafter produced material to show that the surrender was not valid which finding was accepted by the Tribunal. We, therefore, hold that if the surrender is made during the course of survey or search, which is retracted and positive evidence is shown in support of such retraction, such surrender cannot be imposed upon the assessee.
8. Adverting to the facts of the case, we observe that the survey operation was conducted on 26th Feb., 1998 in which the statement of assessee's husband was recorded. The statements of the assessee and her husband were recorded on 26th Feb., 1998/27th Feb., 1998. However, on 10th March, 1998, the assessee made retraction from the said surrender. Thus it is observed that retraction was made within a very short time from the date of surrender. However, it would have to be seen whether 'retraction so made by the assessee is without any basis or is founded on some positive material. Here we find that surrender of Rs. 6 lakhs was made simply on the ground that the total amount as per insurance cover was for Rs. 10 lakhs whereas the assessee had recorded only a sum of Rs. 4 lakhs and odd on account of furniture in her account books. Clearly the remaining amount of Rs. 4 lakhs in the insurance cover note is relatable to the stock, which cannot be annexed to the investment in furniture value which has been mentioned at Rs. 6 lakhs. As against this figure, the assessee had shown only an amount of Rs. 4,16,754 under the head 'Furniture' in her books of account. In our considered opinion, the learned CIT(A) was justified in reducing the addition to Rs. 1,83,246 by considering the value of furniture at Rs. 6 lakhs as per insurance cover note. Apart from such insurance cover note, there is no evidence with the Revenue to show that the assessee had made any investment over and above that declared in the books of account. Since the assessee has not come up in appeal, we therefore, uphold the impugned order on this score by which the addition on account of unexplained investment in furniture has been reduced from Rs. 6 lakhs to Rs. 1,83,246.
9. Second item is excess stock of Rs. 2 lakhs.
10. During the course of survey the assessee's husband, on 26th Feb., 1998, surrendered a sum of Rs. 2 lakhs on account of excess stock. The learned CIT(A) observed that as per stock inventory, stock was as under:
Page 1 13,373.350 gms.
Page 2 187.420 gms.
Long and Kanta 124.500 gms.
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13,685.270 gms.
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As per the statement prepared by the assessee based on the stock record, weight of total stock came to 13,763.940 gms. He, therefore, observed that there was, in fact, a shortage of stock of 78.670 gms. whose value was determined at Rs. 33,041. By applying GP rate of 25 per cent on the said amount, addition was restricted to Rs. 8,260.
11. There is no dispute about the fact that the assessee made a statement based on stock record as per which the weight of total stock came to 13,763.940 gms. The assessee's husband stated so in his statement recorded on 27th Feb., 1998, which is available at p. 24 of the assessee's aper book. On the last question on p. 24, it was clearly stated that stock position given by him on 26th Feb., 1998 i.e. on the date of survey, was in fact, the position of stock as on 31st Jan., 1998. However, the correct weight of actual stock as on the date of survey was at 13,763.940 gms. The assessee participated in the assessment proceedings before AO by producing books of account and furnishing the information as called for by the AO. Such position of stock as on the date of survey on the basis of stock recorded at 13,763.940 gms. has not been disputed by the AO. We, therefore, approve this figure. The learned CIT(A) has taken into consideration the total stock found at the time of survey at 13,685.350 gms. The learned CIT(A) has considered this stock inventory as per pp. 1 and 2 and as per long and Kanta. From the material on record, we find that the actual stock is 13,560 gms. [13,373.350 gms. and 187.420 gms. (p. 2)J. The learned Authorised Representative could not draw our attention towards the third item of 124.500 gms. considered by the learned CIT(A). Here again, we find that the addition has been restricted solely on the surrender made by the assessee without considering the actual stock vis-a-vis the stock as per the stock record. The position is crystal clear that the shortage in stock comes to 203.94 gms. (13,763.940 minus 13,560). When it is converted into monetary terms, its value comes to Rs. 85,655 on which GP comes to Rs. 21,414 when GP rate of 25 per cent is applied. It is settled position in law that the shortage in stock cannot be treated as income as shortage represents the sales made by the assessee out of books of account. On such sale, only profit element can be put to tax. As the learned CIT(A) has adopted 25 per cent GP rate on the value of shortage in stock which is not fully correct, we therefore, hold that the GP @ 25 per cent be applied on the correct amount of shortage of Rs. 85,655. This addition is, therefore, increased by Rs. 13,154 (Rs. 21,414 minus Rs. 8,260). We, therefore, order for the increase in addition to this extent.
12. The next item is the addition on account of unexplained sales of Rs. 2 lakhs.
13. On the date of survey the accountant was out of station and the assessee was not in a position to explain the cash balance and admitted that it may be sales proceeds. On that basis a sum of Rs. 2 lakhs was surrendered as undisclosed sales. The learned CIT(A) deleted this addition.
14. After considering the rival submissions and perusing the relevant material on record, we are unable to appreciate the standpoint of the Department for making addition on account of unexplained sales of Rs. 2 lakhs. Primarily, the entire sale receipts cannot be put to tax. It is only the profit element in such sales, which can be included in the total income. At the time of survey, cash was found at Rs. 52,749. It is on this basis that surrender was extracted from the assessee towards unexplained sales of Rs. 2 lakhs. However, we observe that the cash position has been duly explained. As on 21st Feb., 1998, the balance of cash in the computer book was Rs. 5,90,887 out of which the assessee stated that Shri Dinesh Kumar had taken away Rs. 5,25,000 and the remaining difference would be explained by him. The learned Authorised Representative has contended that during the interregnum, 21st Feb., 1998 to 26th Feb., 1998, there were two closed days and on the remaining days, the assessee had not effected any purchase or sales. Nothing has been shown by the learned Departmental Representative from the record found at the time of survey that this contention is not correct. Neither any purchase nor any sale bill for this period was found at the time of survey.
15. Thus we hold that the cash position cannot be made the basis for "making any addition on account of unexplained sales. In order to make addition on account of unaccounted sales, there should be some basis. There should be some sale outside the books of account unearthed at the time of survey. Nothing of the sort has been brought to our notice by the learned Departmental Representative, nor there is any discussion in the assessment order on this point. That apart the addition on account of gross amount of unrecorded sales cannot be made. It is only the profit element, which can be added. While dealing with point No. 2, we have held that there was shortage in the stock on the date of survey by 203.94 gms. amounting to Rs. 85,655. Apart from this shortage, there is nothing with the Department to show that the assessee had effected any sales outside the books of account. This shortage has been considered by making addition at the GP rate of 25 per cent in the foregoing para. We, therefore, hold that no addition can be sustained towards unrecorded sales and the learned CIT(A) was justified in deleting the addition made on account of such unexplained sales at Rs. 2 lakhs.
16. Last item is in respect of "order goods" for which surrendered amount is Rs. 3.50 lakhs but retracted and was not offered for taxation in the return filed by the assessee. The learned Departmental Representative referred to the statements of the assessee and her husband that a surrender was made in respect of orders received by the assessee and the entries for the receipt of gold recorded in the order books for which seven parties refused to have given order to the assessee. She referred to p. 9 of the Departmental paper book, vide which the assessee made surrender of Rs. 3.50 lakhs on this count. It was contended that the assessee ought to have honoured the surrender and offered the same for taxation. On the other hand, the learned Counsel for the assessee contended that the surrender was forcefully obtained in respect of entries recorded in the order books which were found at the time of survey clearly depicting full particulars, viz., date, name of the person, quantity of gold received. It was stated that the assessee had discharged her complete onus and entries recorded as per order books found at the time of survey were clear evidence that there was illusion and misconception on the part of the assessee for making surrender on this count. He referred to pp. 27 to 30 of the paper book being the bills of goods orders as on the date of survey for which order books were found there and then. He further referred to p. 31 onwards of the paper book being affidavits of some of the parties whose names were appearing in the said order books duly confirming that they had given gold to the assessee for conversion into new ornaments. The learned Counsel further invited our attention towards p. 57 onwards of the paper book being order-sheet entry of the AO vide which the independent enquiries were made by the AO in respect of such persons and no such recording was made in the assessment order on this point. The learned Authorised Representative contended that all the entries were fully explained at the time of assessment proceedings by such persons or enquiry made by the AO and since result was in favour of the assessee, the AO chose not to incorporate it in the assessment order and mechanically made the addition for the amount surrendered at the time of survey which had no basis and which was retracted immediately after survey.
17. We have heard both the sides and perused the relevant material on record. There is no dispute about the fact that the assessee made a surrender on this point. As has been held supra, if the assessee successfully explains that the surrender was not bona fide he can resile from the same and the amount of surrender cannot be imposed on him. Here is a case in which order books were duly found at the time of survey containing complete details of the persons who had ordered for the conversion of gold jewellery and had given old ornaments, the details in respect of which were recorded in such order books. From the copy of the order-sheet entry of the AO, it is observed that he has made enquiries from some of the persons whose names appeared in order book but he did not refer to such proceedings in the assessment order. It is further observed from the impugned order that the assessee had explained the ordered gold by statements of 37 persons and affidavits of 23 persons confirming their order of jewellery against old gold. Only seven persons initially refused due to defects in their statements which fact was brought to the notice of the AO. Out of such seven persons, two were later contacted by the Department. One Shri R.K. Sethi stated that no person from the IT Department had ever contacted him and he admitted having given order for job work. Probably the Department had contacted a wrong person. Another person Shri Bhavani Shanker stated that no question was put by the Department regarding the job order and admitted having given the order for job work. The statements of other persons were not recorded on oath and the assessee was not allowed to cross-examine them. With reference to the persons whose statements were recorded at the time of survey on 26th Feb., 1998, it is borne out that out of the record of customer's orders, that two persons Smt. Seema Bubna and Shri R.K. Sethi had stated to have purchased readymade ornaments from the assessee and had not given old ornaments.
18. However, it is a fact that the assessee was duly maintaining records in respect of job/conversion done by her. Such record was maintained prior to the date of survey and this record was found at the time of survey containing complete details. If out of 42 cases examined by the Department 35 persons gave the statements in assessee's favour that they had given orders of job for making jewellery items against old gold given by them and denial by one or two persons whose names appear in the order books, cannot be accepted. As regards remaining persons, Shri R.K. Sethi submitted that no person from the IT Department had ever contacted him, Shri Bhavani Shanker stated that no question was put to him regarding job work. Even Smt. Seema Bubna who initially did not accept the fact of giving her old ornaments, in response to summons under Section 131 stated that she had given jewellery. Shri P.S. Porwal, one of the remaining seven persons had stated that his wife knows about the jewellery but his wife was not contacted by the Department. Similarly the statement of Shri Kamlesh Suriya was not recorded. During the course of assessment proceedings the assessee requested that the statements of the same persons be recorded in her presence but the AO did not concede to this request. From the above discussion and the overwhelming evidence in favour of the assessee regarding receipt of gold jewellery for conversion by way of orders, it is patent that the assessee had complete record in respect of ordered goods and the surrender so made by her was not voluntary. We, therefore, approve the version of the first appellate authority on this regard.
19. Here it would be important to mention that the learned CIT(A) directed the AO to appear before him during the appellate proceedings along with record which was ignored by the AO. The detail in respect of this has been contained in para 3.2 of the impugned order from which it is clear that even the learned CIT(A) who was earlier in-charge of the said case requested the Jt. CIT vide his letter dt. 21st July, 2003 to direct the AO to make available the assessment records and survey record for his perusal and further the AO was called upon to make his submissions in writing and/or appear in person for discussion before him, which was not acted upon. The present incumbent, again vide his letter dt. 20th Jan., 2004 requested the Jt. CIT to direct the AO to make his submissions in writing and/or to appear for discussion. Despite the directions of the Jt. CIT(A) concerned, the AO did neither appear nor