Income Tax Appellate Tribunal - Ahmedabad
Suresh Ramjibhai Dhanak, Surat vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C"
[BEFORE S/SHRI BHAVNESH S AINI,JM & A N P AHUJ A, AM]
IT(SS)A No.96/Ahd/2001
[Block Period : 01-04-1988 to 28-01-1999]
Assistant Commissioner
of Income-tax, Inv. Circle-3(1),
Surat .. .....Appellant
Vs
Smt. Kumudben W ife &
Shri Vimalbhai,son,
Legal heirs of late
Shri Sureshbhai Ramjibhai Dhanak, Surat ....Respondent.
Revenue by :- Shri K Sridhar,DR
Assessee by:- Shri M J Shah, AR
O R D E R
A N Pahuja: This appeal by the Revenue against an order dated 11- 06-2001 of the ld. CIT(Appeals)-III, Surat, raises the following grounds :-
"1. On the facts and in the circumstances of the case and in law, the learned C.I.T.(A), has erred in directing to exclude all recorded material from consideration for the block assessment contrary to the fact that had the search not been conducted, the assessee would not have shown the so called customers gold which was not recorded in the books of accounts nor the duplicate register No.11 would have been shown to the Department.
2. On the facts and In the circumstances of the case and in law the learned CIT(A) has erred in deleting the addition of Rs.24,62,700/- observing that assessee filed affidavits from all the depositors and genuineness of same were verified by Assessing Officer but has not considered various discrepancies pointed out by Assessing Officer in the seized material including the fact that assessee could not give even the addresses of the so called depositors at the time of search as also no record or register was found at the time of search which contains details of remolding of the old ornaments.
IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat
3. The learned CIT(A) also erred in deleting the addition of Rs.1,36,332/- made on account of Silver articles accepting assessee's plea of having covered under VDIS, 1997 whereas no such entries were made in books of accounts as required under the law nor any nexus was proved and without considering the fact that assessee himself admitted during the course of search that same was acquired out of undisclosed income.
4. The learned CIT(A) also erred in deleting addition of Rs.1,50,000/- made on protective basis by observing that substantive addition of similar amount made in the case of Shri Yogeshbhai has been confirmed without ascertaining the fact whether the assessee has accepted the said decision of the CIT(A).
5. The learned CIT(A) also erred in deleting the addition of Rs.59,208/- made on account of profit on unaccounted sale, unaccounted labour charges, observing that they have been clearly mentioned as estimates in the related paper contrary to the fact that these estimate books are containing all the details as also cash receipts.
6. The Ld. CIT(A) also erred In deleting addition of Rs.5,62,161 made on account of undisclosed income in respect of gold loan accepting assessee's plea of having covered by VDIS 1997 whereas no such entry were made in books of accounts as required under the law nor any nexus was proved.
7. The Ld. CIT(A) also erred in deleting the addition of Rs.3,90,150/- made on account of unaccounted investment in furniture and fixture observing that figures mentioned on seized papers were on estimate whereas addition was made on the basis of seized material. The CIT(A) has erred in accepting the new version of the fact that assessee has failed to establish as to whether he lied before the insurance authority or before I.T. Authority.
8. The learned CIT(A) also erred in deciding the appeal without giving an opportunity to the Assessing Officer as per provisions of section 250 of the I.T. Act, 1961 and deciding the appeal in a hurried manner.
9. On the facts and in the circumstances of the case, and in law, the learned CIT(A) ought to have upheld the order of the AO.
10 It is, therefore, prayed that the order of the CIT(A) be set aside and that of the AO be restored."2
IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat 2 Adverting first to ground nos.1 & 2 in the appeal, facts, in brief, as per relevant orders are that initially the assessee, proprietor of M/s Labh Jewellers, was assessed with the Assessing Officer[AO in short] at Mumbai. A survey u/s 133A of the Income-tax Act, 1961 [hereinafter referred to as the "Act"] was conducted in the business premises of the assessee on 28-01-1999 and several incriminating papers and stock were found, which were not explained by the assessee. Therefore, survey was converted into search u/s 132 of the Act. In consequence of the search, a notice u/s 158BC of the Act was served on the assessee by the Assessing Officer at Mumbai on 9.7.1999.In response the assessee filed return declaring nil undisclosed income. Subsequently jurisdiction was transferred to the AO at Surat vide order dated 22.12.1999 u/s 127 of the Act.
3. As regards ground no.1 relating to directions of the ld. CIT(A) to exclude all recorded material from consideration of the block assessment, the AO has discussed the issue in para 16.17 of the assessment order specifically. According to the AO but for the search, stock of gold found and seized and duplicate register no.11 would not have been produced before the Department and therefore, addition on account of gold ornaments claimed to be belonging to certain depositors, was required to be made in the block assessment on the basis of seized documents. However, the ld. CIT(A) after going through the relevant provisions of sec.158B(b),158BA(1) and 158BA(3) concluded as under:
"4.2 I agree with the learned counsel that in view of the specific provisions of law, what is found recorded is to be excluded for the purposes of block assessment. It is not that addition cannot be made in respect of recorded material but such addition can be made only in the regular assessment u/s 143(3) / 144 and not in the block assessment u/s 158BC. It is not required that the recorded material should contain all manner of detail. The only requirement in law is that the information should be recorded in the books of accounts and other documents maintained in 3 IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat the normal course. The Assessing Officer is accordingly directed to exclude all recorded material from consideration for the purpose of block assessment."
4 Ground no.2 connected with aforesaid ground no.1, relates to addition of Rs.24,62,700/- on account of gold ornaments claimed to be belonging to certain depositors. During the course of search in the business premises of the assessee on 28-01-1999, several incriminating papers and stock found were seized. The details of gold ornaments / silver articles seized revealed as under:
Particulars Found Seized
W eight Value (Rs.) W eight Value (Rs.)
Gold 7405.923 29,80,887 3578.320 14,40,000
ornaments gms gms
as per
Annexure S-
1
Silver 26.485 kg. 1,85,395 - -
Articles
Under deemed seizure:
Particulars W eight Value (Rs.)
Gold Ornaments 2625.986 gms. 10,56,960
Silver Articles 19.00 kg. 1,33,000
4.1 Inter alia, during the course of search, it was explained that 6168.20 gms. gold ornaments belonged to customers, who had given for remoulding/repair etc. During the search, Shri Kishorbhai Pandya, Manager admitted in his statement that stock lying in the shop belonged to their firm and there was no stock belonging to customers. He also stated that they were trading in gold and silver jewellery and were not doing any job work. In response to a showcause dated 11.10.2000 issued during the course of block assessment proceedings, the assessee replied vide letter dated 21-11-2000 and furnished copies of 4 IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat affidavits of the persons who had given loans of gold ornaments to the assessee. It was contended that the affidavits were obtained immediately after search and the assessee had even offered to present the lenders before the Intelligence W ing in post search proceedings. In fact, the assessee produced most of the lenders. Since excess stock of ornaments was found recorded in registers, the assessee contended that it could not be treated as undisclosed .It was further explained that since most of the stock belonged to others, such stock was not recorded in financial books. The assessee also submitted names and addresses along with affidavits of parties, most of whom were agriculturists and did not have PAN. However, the AO while rejecting the affidavits of the depositors, being self serving documents, did not accept the submissions of the assessee in terms of his findings in para 16.1 to 16.19 of the assessment order in view of categorical statement of the main person Shri Kishor Pandya looking after the day to day working of M/s Labh Jewellers that no ornaments belonging to customers or any other person were lying in the shop [reply to question no.20 ] while Register no. 11 did not contain address of the customers, whose names were written or even the details of ornaments or order placed. Even the first copy of the incoming receipt, normally handed over to the customers, was also lying with the assessee and the facts in the case of M/s Prakash Jewellers, a sister concern revealed that within three days of receipt of old ornaments, newly made ornaments were returned to the customers . Inter alia, the AO concluded that Register no.11 did not represent record of persons who had given gold for job work, rather it represented partly introduction of assessee's own unaccounted gold and partly of persons who exchanged their old ornaments for new one of same value or had paid the difference . Accordingly, the AO concluded that the assessee's claim of jewellery belonging to customers was 5 IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat bogus and untenable as genuine customers received their gold ornaments the same day ,resulting in addition of Rs.24,82,700/- on account of gold weighing 6168.2 gms., valued @ Rs.402.50 per gm.
5. On appeal, the ld. CIT(A) deleted the addition in the following terms:
"5.1 This is the main addition in this case. The addition has been made in respect of gold belonging to certain depositors. Shri Vepari argues that deposit o£ gold is substantively akin to deposit of cash and in regard to the requirements of proof, both stand on the same footing. I agree with the learned counsel on this.
5.2 As to the circumstances in which the deposits have been made, Shri Vapari explains that the appellant comes from Dam Nagar in Amreli district in Saurashtra where the family commands trust and respect. Shri Vepari points out that more than one lac people from that area work in Surat and there is a regular communication and interaction between these people in Surat and, those back home. Shri Vepari points that there is a fairly developed feeling of fraternity and mutual trust among people coming from the same place in Saurashtra on account of which there are extended networks of social relationship. Shri Vepari submits that it is only on account of such factors that the appellant shifted base from Mumbai to Surat, in the hope that the appellant will be able to capitalize on the advantages the community solidarity may offer.
5.3 On the matter of deposits of gold, Shri Vepari explains that it is a win-win arrangement. In this arrangement the depositor deposits gold ornaments with the jeweller. Those ornaments lose identity once they are deposited. The jeweller utilizes this gold to make Jewellery in the latest designs which is displayed in the shop for sale as the jeweller's own stock- in-trade. When the ornaments are needed, the depositor can collect them from the jeweller in equivalent weight in the latest dosigns. The advantage such arrangement offers the jeweller is obvious. The jeweller is saved from making a personal investment to the extent of the gold received as deposit. For the depositor, the pay-off is by way of security and choice of the latest designs. Shri Vepari points out that the security aspect is important for people in rural areas who don't normally keep bank lockers. Shri Vepari points out that such arrangement would not be possible without an underpinning of trust such as exists in the area the appellant comes from. Shri Vepari also points out that it is lack of appreciation of this arrangement and of the social cohesion in the community that has 6 IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat contributed to some of the confusion that is apparent from a reading of the assessment order.
6.1 The assessment order presents one highly unusual feature. It is well established that any addition sought to be made to the total income declared by an assessee is required to be juatified with adequate evidence. A curious feature of this case and two other related cases, Sumangal Jewellers and Prakash Jewellers, is that the assessments point to a patently capricious and non-judicious approach. The predominant addition in this case (and other two cases referred to above) is of deposits of gold by certain persons. The record reveals that the AO went about verification in a text-book fashion and all that an AO would be expected to do in regard to such verification was done. There are proper order-sheet entries by way of record of such verification. If anything were found amiss or if the Assessing Officer wanted the assessee to produce some further evidence on some point, it would be required to be mentioned in the order- sheet recorded in the process of verification of gold deposits. There is nothing at all that points to the fact that the Assessing Officer considered evidence tendered by the assesses to be inadequate or asked the assessee to substantiate the evidence in some manner. The assessee filed affidavits in support of the genuineness of the gold deposits and these affidavits, were verified by the Assessing Officer by asking for the production of the depositors and also by sending the ward Inspector to the area the depositors come from. In these circumstances, the following reasoning of the Assessing Officer in justification of the addition is wholly incongruous and suggests a lack of reasoned judgement:
(a) Affidavits have no evidentiary value.
(b) As there are contradictions in the statements recorded and identity of persons produced is neither established nor verifiable and the statement recorded always has preference over affidavits.
6.2 In the context of the facts concerning verification outlined above, one can see that the above reasoning is clearly out of place. Besides the above justification patently misrepresents facts. The following aspects deserve attention:
(i) Affidavits by themselves, without corroboration, may not constitute adequate evidence. But in this case the affidavits have been corroborated by actual production of the depositors for examination before the Assessing Officer.
The Assessing Officer has further satisfied himself by sending the ward Inspector for further enquiries. Neither the order-sheet nor the assessment order specify the infirmities emerging from verification. If some infirmities had come to light from such verification, principles of natural justice would 7 IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat require, adequate opportunity to be given to the assessee to explain the things. The order-sheet does not mention a single infirmity or requirement having been brought to the assessee's attention in course of verification of gold deposits.
(ii) There is no method of verification other than what the Assessing Officer adopted, that the Department follows. In fact there seems to be no other better method of verification known to law that would be applicable to the facts. The depositors have confirmed their deposits, through affidavits and by way of further corroboration, the depositors were produced before the Assessing officer and were examined to the satisfaction of the Assessing Officer. No further evidence on any aspect of verification has been called from the assessee. So where has the assessee been wanting?
(iii) The observation of the Officer quoted at (b) above to the effect that 'identity of persons produced is neither established nor verifiable' is patently false.
6.3 The situation as is emerges from the above discussion seems unusual. A question at once arises: How a person trained in law and with long experience in the Department should take such a self-contradictory and unreasonable stand?. If the facts brought on record didn't favour an addition, addition should not have been made.
6.4 Some relevant order sheet entries recorded in the context of verification of gold deposits in different cases of the group are as under:-
Sumangal Jewellers:
17-11-2000 Case heard. Verification of detailed submissions was made. The AR & Yogesh R Dhanak attended asked to furnish the further evidence in support of affidavits filed. The information shall be furnished in the proforma supplied by this office, either personally or through representative. Further the assessee furnished the notices in support of their claim for returning the ornaments. Adjourn. Refixed on 27-11-2000.
6/7/8-12-2000 Produced the information called for u/s 133(6), who lent gold for remodeling. Proof of income furnished.8
IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat 6-1-2000 to8-1-2001 Proofs regarding information called for u/s 133(6) furnished. Brought the persons who lent the gold queries and verification made.
Prakash Jewellers:
21-11-2000 The assessee's AR attended. Furnished the reply in detail. Case heard. Verification made with seized material. Shri Prakash R Dhanak, partner of the firm was asked to furnish the evidence / proof in support of persons in whose case the affidavits were filed, i.e. in respect of Annexure C of letter dated 21-11-2000. AR & your attention is draw in respect of letter No. ACIT / Inv. Cir.3(1)/B.Asstt./2000-01 dated 16- 11-2000 issued in the case of M/s Labh Jewellers. The same way you have to furnish the details in this case also. However a separate letter is also issued.
sd/-
23/24-11-2000 The assessee in support of claim produced the customers who lent the gold for remoulding. Further the necessary evidence of capacity of lending gold, proof of residence etc. furnished in view of information called for u/s 133(6).
Sd/-
21-12-2000 Summons issued on 21-12-2000 in the case of .....(5 persons are mentioned - names not legible) ... to attend office in connection with the case of M/s Prakash Jewellers.
Sd/-
5-2-2001 Statement u/s 131 recorded of Shri P P Dhanak and N G Soni. The Inspector was directed to visit Damnanagr and the surrounding villages and make the inquiries relating to authenticity of affidavit furnished and to ascertain the capacity of the persons of lending gold.
Sd/-
14-2-2001 The inquiry report of Inspector visiting the places as directed is received. Another letter in 9 IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat respect of payment received from ---- (names not legible) was issued to the assessee.
Sd/-
Labh Jewellers:
16-11-2000 Case heard - Verification of detailed submission was made. Shri Sureshbhai, assessee was asked to furnish the evidence / proof in support of persons in whose case the affidavits were filed, i.e. in respect of Annexure C of letter dated 14-11-2000. The information shall be furnished in the proforma supplied by this office; either personally or through Representative. In support of claim assessee furnished the notices which he received from the advocates for returning of gold ornaments of customers.
Sd/-
23/24-11-2000 The assessee in support of claim produced the customers who lent the gold for a remoulding. Further the necessary evidence of capacity of lending gold proof of residence etc. furnished in view of information called for u/s 133(6).
Sd/-
12-12-2000 For further verification, certain parties were called by inquiry summons.
Sd/-
7.1 Since it is so pivotal to the issue at hand, it will be proper to examine the following reasoning of the AO in justification of the addition of gold deposits again.
(a) Affidavits have no evidentiary value.
(b) "As.....identity of persons produced is neither
established nor verifiable...."
7.2 The identity of the persons produced was first verified by the Assessing officer in course of examination of depositors when they were produced before him. So that no doubt remains on the identity and the capacity to make deposits, the Assessing Officer also carried out on-the- spot check through the ward Inspector. Paras 3 and 5 of the Inspector's 10 IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat report are reproduced below. The report is attached to this order as Annexure "A".
"3. On 8-02-2001 and 9-2-2001 I have visited Damnagar and nearby villages viz. "Turakhakhia", Pandarsiga, Dhufania, Chhabhoda" of Tal. Lathi, Dist. Amreli to confirm the identity of lenders of gold ornaments related to M/s Prakash Jewellers & others. In this regard, I have personally visited the residential houses of the lenders and as a mark of my visit I have obtained their signature on notes-pad which helped me to compare their signatures with affidavits filed by them and interrogate verbally.
5. I have visited residential houses of the lenders and looking to the standard of living in the village area and houses occupied by them leads to arrive at the conclusion that lender does possess capacity to lend gold ornaments belonging to their family members."
7.3 In the light of the order sheet entries concerning verification of gold deposits and the Inspector's report which is so much in the affirmative, it will be easy to see how misleading the justification for the addition is. It is amazing that the AO should have resorted to such justification for addition. The question arises that if affidavits have no evidentiary value, why the affidavits were verified in all the three cases at length by summoning depositors all the way from Saurashtra, and an Inspector sent to Saurashtra to supplement the AO's enquiry. It is also relevant to ask in what other way was the enquiry sought to be carried out if the affidavits have no evidentiary value and why was it not done? Further, as the affidavits have been corroborated and enquiry has not brought out anything to the contrary, the affidavits do have adequate evidentiary value. As the addition of gold ornaments is without basis, it is directed to be deleted."
6. The Revenue is now in appeal against the aforesaid findings of the ld. CIT(A) . Before us , both the parties agreed that issue raised in this ground is squarely covered by the decision dated 19.9.2002 of the ITAT in the group case of M/s Prakash Jewellers in IT(SS)A no. 63/Ahd./2001.
7. We have heard both the parties and gone through the decision dated 19.9.2002 in the aforesaid case of Prakash Jewellers, wherein the ITAT while adjudicating a similar issue concluded as under:
"6.4 ..................... The dispute is with regard to only third source which is stated to be loans from various persons. In the third category of receipts 11 IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat also there is no dispute over- the ornaments received as loans from 180 persons out of total 232 persons from whom the assessee had received the ornaments. The dispute is with regard to the ornaments received from the balance 52 persons only. It is intriguing to note that when these loan transaction's belonged to the same genre, how and why the AO bifurcated these transactions into two sub-categories, namely, (a) persons to whom the ornaments were returned and (b) persons to whom the ornaments were yet to be returned. If the transactions with 180 persons were found to be genuine and no addition was made in respect thereof, what was non- genuine about remaining 52 persons, is incomprehensible. All the 232 poisons are stated to be belonging to the areas in and around Amreli. If 180 persons from Amreli could come and deposit the ornaments with the assessee, we fail to understand why the remaining 52 persons could not. The case of the Revenue hinges mainly on the improbability that the persons from as far as 400 Kms would come to deposit their ornaments. For a moment, we may ignore the incomprehensible bifurcation made by the AO and let us examine this issue independent of that fact. The case of the Revenue is that it is improbable. Well, in our opinion, apparently it may sound to be improbable, but certainly not impossible. However, when a proposition appears to be improbable, it calls for closure examination and a probe in depth. The AO did not fail in his duty to further investigate into the matter. Not only the affidavits were produced before him but he also had the opportunity to examine the depositors. He also deputed a Ward .Inspector at Amreli to ascertain the'real facts. This detailed examination did not reveal anything adverse against the assessee. There can not be any evidence for an impossible proposition. But when cogent evidence and the result of a detailed investigation are on record, the improbable proposition can not be treated as an impossible one. This is exactly what has happened in the present case. Another aspect on which much stress, was laid by the learned DR is with regard to the signing of receipts and certain torn out bills. The practice, of obtaining old ornaments on loan basis is not uncommon and has been accepted by the AO himself in respect of 180 persons. The record maintained in Register No.11 also corroborates the version of the assessee which has been the same right from the day of search. When all these substantial facts do not incriminate against the assessee, the stress of the learned DR on unsigned receipts and torn out bills are mere peripheral aspects which cannot be given much weightage. Since the depositor is entitled to take back ornaments of equal weight, the distinction between gross weight and net weight loses significance. Generally, making charges are not recovered by the assessee from the lenders. However, if the lender takes back the ornaments within a short time, then certainly the assessee would recover making charges from him. This fact was before the AO vide assessee's letter dated 21-11-2003. The gain of the lender was undoubtedly security of the ornaments and return in the form of new designs. Gain of the assessee was use of more gold to make new arrangements, more display and more business. Quid pro quo does not appear to be lopsided on either 12 IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat side. We need not go into the aspect whether deposit of gold is similar to cash credit or not. But the fact remains that the assessee was successful in proving to the hilt the genuineness of the transactions encompassing all its aspects. The assessee had duly discharged its onus. Therefore, we see no justification at all for reversing the order of the CIT(A) on this issue. We uphold the deletion of addition of Rs.29,77,726/-."
7.1 In the instant case, as the facts already narrated above in the impugned orders reveal, the assessee explained that 6168.20 gms. of gold ornaments belonged to customers, who had given for remoulding/repair etc. The assessee also furnished the affidavits of the persons who had given such loans of gold ornaments to him. Subsequently, these depositors were produced before the Assessing officer and were examined . Inspector deputed by the AO also conducted necessary enquiries and submitted his report. In the light of these facts, the ld. CIT(A) on the basis of the order sheet entries relating to verification of gold deposits and the Inspector's report concluded that the contents of the affidavits having been corroborated and enquiry having not brought out anything to the contrary, the affidavits did have adequate evidentiary value. Consequently, addition of gold ornaments was deleted. In the absence of any basis, we agree with these findings of the ld. CIT(A) as also his conclusion that if any transaction is recorded in the books of accounts and other documents maintained in the normal course, addition can not be made in the block assessment.. In this connection, Hon'ble Gujarat High Court in the case of N.R. Paper & Board Ltd. & Ors. vs. Dy. CIT (1998) 146 CTR (Guj) 612 : (1998) 234 ITR 733 (Guj) held that the essence of the special procedure of Chapter XIV-B is to provide for an assessment of the undisclosed income detected as a result of the search, without affecting the regular assessments made or to be made. The special provisions are devised to operate in the separate field of undisclosed income and are clearly in addition to the regular assessments covering the previous years falling in the block period. We are of the opinion that transactions which are the subject-matter of regular assessment, can be assessed in the regular assessment and not in the block assessment in terms of provisions of section 158BB of the Act .
13IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat 7.2 In view of the foregoing, the Revenue having not placed any material before us in order to controvert the aforesaid findings of facts recorded by the ld. CIT(A), so as enable us to have a different view in the matter, we are not inclined to interfere. Therefore, ground nos.1 & 2 in the appeal are dismissed.
8. Ground no.3 relates to addition of Rs.1,36,332/- on account of silver articles while ground no.6 relates to an addition of Rs.5,62,161/- on account of gold loan. During the course of search, silver articles were found in excess by 19,476 kgs., the physical stock being 26.485 kgs while as per books only 7.009 kgs. During the search, no explanation was given for such excess stock. However, during the block assessment proceedings, the assessee's counsel vide his letter dated 21-12-2000 reconciled the stock difference stating that the silver was brought out of the disclosure made under the VDIS 1997. A copy of the relevant certificate issued by the C.I.T. was also submitted. However, necessary accounting entries were admittedly not made in the books. Accordingly, while referring to provisions of sec. 68 of the Act and circular no. 754 dated 10.6.1997 issued by the CBDT, the AO added an amount of Rs. 1,36,332/-, nexus of the silver declared under VDIS and that found in the business premises, having not been established.
8.1 Likewise the AO added an amount of Rs.5,62,208/- on account of undisclosed income in respect of gold loan in para 16.20 of the assessment order, the assessee having not made any entries in the books of accounts after acceptance of their declaration under VDIS nor the assessee established nexus.
9. On appeal, the ld. CIT(A) deleted the addition on the basis of submissions on behalf of the assessee that necessary entries had been made in the books, holding as under:
14IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat "9 Silver ornaments - Rs.1,36,332/-
In the written submissions, Shri Vepari observes as under:-
"Vide para 19 of the assessment order the AO has not accepted the excess stock of silver ornaments of 19.476 kg. inspite of the fact that the Commissioner of Income Tax had issued the certificate. In this regard I also further rely on the earlier para of letter. The only ground for the AO not to consider it available is not passing of the entry. However, entries were passed and English translation thereof is enclosed. On that ground alone no addition should have been made. That apart merely non-fulfilling of a technical requirement when the Commissioner of Income-tax has accepted the disclosure, issued certificate and tax has been paid would be sufficient to accept the existence of gold and silver ornaments as mentioned above."
I agree with the learned counsel that the addition is not justified."
9.1 Likewise, the learned CIT(A) deleted the addition of Rs.5,62,161/- in para 8 of his order, merely accepting the submissions of the assessee.
10. The Revenue is now in appeal against the aforesaid findings of the ld. CIT(A) . Before us, both the parties agreed that issues raised in these grounds are squarely covered by the decision dated 19.9.2002 in the group case of M/S Prakash Jewellers in IT(SS)A no. 63/Ahd./2001.
11. We have heard both the parties and gone through the decision dated 19.9.2002 of the ITAT in the aforesaid case of Prakash Jewellers, wherein the ITAT while adjudicating a similar issue concluded as under:
"7.5 We have duly considered the rival contentions arid material on record. It has been held by the Hon'ble Supreme Court in the case of Jamnaprasad Kanhaiyalal (130 ITR 244) that the amount declared under VDIS grants immunity only to the declarant. It does not preclude inquiry into the genuineness of credit and their assessment as firm's income from undisclosed sources. It is also held that even if it is again assessed in the hands of the person to whom the amount really belongs to, there is no question of double taxation. Hence, in the instant case, merely because 15 IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat the gold and silver articles were declared by the relatives under VDIS, 1997, the assessee firm does not automatically get immunity from proving the genuineness of such credit. In the present case, since the declarants did not maintain any books of account, no entries could have been made by them. However, between declaration made by them and credit taken thereof by the assessee firm has to be established. Copy of Gold Loan Stock Account as appearing in the books of the assessee firm is placed before us to show that the assessee had taken credit thereof during 1997-98. It appears that a copy of this account was not before the AO. Even if the seized material contained this ledger, the AO does not seem to have verified the entries from the ledger. Therefore, we are of the view that it would be in the interest of justice if this matter is remanded back to the file of the AO for proper verification. Thee AO is directed lo verify the ledger account and satisfy himself that the credit taken by the assessee pertains to the declaration made by the relatives. If he is so satisfied, then no addition need be made merely on the ground that the declarants themselves had not made any entries in their books of account. It is expected that both the parties will extend mutual co-operation to dispose of the issue expeditiously."
11.1. Since the ld. CIT(A) deleted the aforesaid additions merely on the submissions on behalf of the assessee that necessary entries for the silver articles and gold ornaments declared under VDIS, had been made in the books while before the AO, the assessee admitted that no such entries were made in the books, following the view taken in their aforesaid decision by the ITAT, we are of the opinion that it would be in the interest of justice if this matter is remanded back to the file of the AO for proper verification. The AO is directed to verify the relevant books of accounts and satisfy himself that the credit taken by the assessee pertains to the declaration made under the VDIS. If he is so satisfied, then no addition need be made merely on the ground that the entries for the silver or gold articles declared under VDIS had not been made by the assessee in their books of account. The assessee is also directed to co-operate with the AO in the process of verification. With these directions, ground nos.3 & 6 are disposed of.
12. Ground no.4 relates to protective addition of Rs.1,50,000/-, During the course of search, it was found that the shop of the assessee belonged to Mr. Kishor Pandya and Mr. Ashwin Satkuver, 16 IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat while power of attorney for this property was held by Shri Yogesh Dhanak brother of the assessee. The AO was of the opinion that Shri Yogeshbhai had been made the virtual owner of the property for all purposes. However, since property was used by the assessee, the AO added an amount of Rs.l,50,000/- on protective basis on the basis of amount reflected in the purchase deed for this shop while substantive addition was made in the hands of Shri Yogeshbhai Prop. M/s Sumangal Jewellers.
13. On appeal, the learned CIT(A) deleted the addition, the substantive addition in the case of Shri Yogeshbhai Prop. Sumangal Jewellers,, having been upheld.
14. The Revenue is now in appeal against the aforesaid findings of the ld. CIT(A) . Before us, the ld. AR on behalf of the assessee submitted that addition having been accepted in the group case of Shri Yogeshbhai, protective addition in this case has rightly been deleted by the ld. CIT(A).To a query by the Bench, the ld. AR stated that addition upheld by the ld. CIT(A) in the case of Shri Yogeshbhai has not been disputed in further appeal. The ld. DR, on the other hand, submitted that in the event entire amount has been upheld in the case of Shri Yogeshbhai, there is no point in protective addition in this case.
15. We have heard the ld. DR and gone through the facts of the case. Since a similar amount of Rs. 1,50,000 added substantively in the case of Shri Yogeshbhai,Prop. Sumangal Jewellers, had been upheld by the ld. CIT(A) while the order dated 19.9.2002 of the ITAT in the case of Shri Yogeshbhai reveals that addition had not been disputed in the CO no. 84/Ahd./2002 filed by the assessee, we do not find any infirmity in the conclusion of the ld. CIT(A). Therefore, ground no.4 is dismissed.
17IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat
16. Ground no.5 relates to addition of Rs.59,208/- on account of profit on unaccounted sales & unaccounted labour charges. On examination of the seized documents BS-3, BS-5, and BS-6, AO noticed unaccounted sales for the period 20.1.99 to 23.1.99, 21,1.99 to 27,1.99 and 12.1.99 to 29.1.99. Accordingly, the AO added gross profit for an amount of Rs.54,683/-,calculated @15% of the unaccounted sales, corresponding purchases having already been accounted for in the books, while relying upon decision of the ITAT, Bombay Bench in the case of Sundram Agencies and M/s N.R. Paper and Board Ltd, and Others vs. Dy. CIT, 234 ITR 733(Guj).Besides, another amount of Rs.4,525/- on account of unaccounted labour receipts mentioned in seized document BS-4, was also added.
17. On appeal, the learned CIT(A) deleted these two additions while accepting the submissions of the assessee that the seized documents BS-3,BS-4,BS-5 and BS-6 did not contain details of any unaccounted sales or labour receipts.
18. The Revenue is now in appeal against the aforesaid findings of the ld. CIT(A) . Before us, the ld. AR on behalf of the assessee submitted that the issue raised in this ground is squarely covered by the decision dated 19.9.2002 in the group case of Shri Yogeshbhai Ramjibhai,Prop. M/s Sumangal Jewellers in IT(SS)A no. 64/Ahd./2001.On the other hand, the ld. DR did not oppose these submissions of the ld. AR.
19. We have heard both the parties and gone through the decision dated 19.9.2002 of the ITAT in the aforesaid case of Shri Yogeshbhai Ramjibhai,Prop. M/s Sumangal Jewellers , wherein the ITAT while adjudicating a similar issue concluded as under:
"5. We have duly considered the rival submissions and the material on record. On page 73 of the paper book submitted by the Department, it is 18 IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat mentioned that the cash receipts were also found in the course of search. It is also mentioned that the estimate book containing details of cash payments and dates cannot be imagined. These facts have not been clearly brought out by the AO in the assessment order. The order of the CIT(A) is also cryptic on this issue. Neither the Department nor the assessee have placed before us the seized material on the basis of which addition is made. As the issue involves appreciation of evidence which is not placed before us, we deem it proper to remand this issue back to the file of the AO to bring out the facts clearly and decide it afresh after giving due opportunity of being heard to the assessee."
19.1 As is apparent from the aforesaid decision of the ITAT in the group case, since facts were not brought out in the impugned orders, matter was restored to the file of the AO. In the instant case also, the impugned order of the ld. CIT(A),merely accepting the submissions of the assessee, is cryptic and non-speaking. Neither the ld. AR nor the ld. DR placed before us the relevant seized documents, forming the basis of aforesaid additions. As is apparent from the impugned order, the ld. CIT(A) have not passed a speaking order, bringing out clearly the nature of transactions mentioned in the relevant seized documents nor these documents have been placed before us. In these circumstances, we are of the opinion that matter needs to be reconsidered by him. The application of mind to the material facts and the arguments should manifest itself in the order. Section 250(6) of the Income Tax Act mandates that the order of the CIT(A) while disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision. The impugned order passed by the ld. CIT(A), in our opinion, is cryptic and grossly violative of one of the facets of the rules of natural justice, namely, that every judicial/quasi-judicial body/authority must pass reasoned order, which should reflect application of mind by the concerned authority to the issues/points raised before it. The requirement of recording of reasons and communication thereof has been read as an integral part of the concept of fair procedure and safeguard to ensure observance of the rule of law. It introduces clarity, checks the introduction of extraneous or irrelevant considerations and minimizes arbitrariness in the decision-making process. We may point out that a 'decision' 19 IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat does not merely mean the 'conclusion'. It embraces within its fold the reasons forming basis for the conclusion.[Mukhtiar Singh Vs. State of Punjab,(1995)1SCC 760(SC)].
19.2 In view of the foregoing, especially when the ld. CIT(A) have not passed a speaking order ,we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the issue raised in this ground no.5 to his file for deciding the matter afresh in accordance with law, after allowing sufficient opportunity to both the parties. Needless to say that while redeciding the appeal, the learned CIT(A) shall pass a speaking order, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of the Act, bringing out clearly the nature of amounts reflected in the aforesaid seized documents. With these observations, ground no. 5 is disposed of.
20 Ground no.7 relates to an addition of Rs.3,90,150/- on account of unaccounted investment in furniture and fixtures. On examination of seized material in form of BS-23 at page no.1, the AO noticed the details of damage in the business premises of the assessee during floods. The item and value thereof were shown as under:-
[1] Melter Rs. 35,000/-
[2] Fan Rs. 3,000/-
[3] Fridge Rs. 10,000/-
[4] Trays Rs. 47.550/-
[5] Box Rs. 19,250/-
[6] Stationery Rs. 4,800/-
[7] W ood Rs. 72.500/-
[8] Plywood & Chairs Rs.1,35,000/-
[9] Glasses Rs. 43,000/-
[10] Colours Rs. 42,500/-
[11] Sunmica Rs. 24,000/-
[12] Labour Rs. 48,000/-
[13] Carpets Rs. 4,550/-
Total Rs.4.89,150/-
Since the assessee reflected only an amount of Rs.99,000/- in the books while the total amount mentioned on the letter pad of M/s 20 IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat Labh Jewellers was Rs.4,89,150/- as on 3-10-1998 and the renovation expenses as per the same annexure on various pages 3 onwards and as per BS-24 were found to have been incurred prior to 3-10-1998, the AO added the difference of Rs.3,90,150/- towards undisclosed income.
21. On appeal, the learned CIT(A) deleted the addition,merely accepting the submissions of the assessee,holding as under:
"12 Unaccounted Investment made on furniture - Rs.3,90,150/-
Shri Vepari submits as under in the written submissions.
"Vide para 20 of the assessment order the AO has made addition of Rs.3,90,150/- being unaccounted investment in furniture and fixtures. He has made this addition on the basis of seized material in Form No.BS-23 (page No.150) in which details are given to the extent of Rs.4,89,150/-. This was just a claim made on account of loss in flood and was not even signed by the appellant. The inflated claim was made to get as much damages as possible. Eventually, the appellant did not get any claim. The above statement does not establish that the assessee had incurred such expenditure. The addition made may kindly be deleted."
I agree that the addition is required to be deleted."
22. The Revenue is now in appeal against the aforesaid findings of the ld. CIT(A) . Before us, the ld. AR on behalf of the assessee pleaded that issue raised in this ground is squarely covered by the decision dated 19.9.2002 in the group case of M/S Prakash Jewellers in IT(SS)A no. 63/Ahd./2001.The ld. DR, on the other hand, did not oppose these submissions of the ld. AR.
23. We have heard both the parties and gone through the decision dated 19.9.2002 of the ITAT in the aforesaid case of Prakash Jewellers, wherein the ITAT while adjudicating a similar issue concluded as under:
21IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat "8.4 On due consideration of the matter, we uphold the order of the CIT(A) deleting the addition. It is true that the insurance of any asset is generally not taken on its purchase price except in the year of purchase. In subsequent years, generally, insurance would be taken on market value of the asset owned by the assessee. This is obviously to cover the cost of replacement. Moreover, the mere fact that the insurance was taken for higher value, it does not by itself go to show that there are certain fixtures which are not accounted for in the books of account. There is also no finding to the effect that the recorded furniture and fixtures were found in the course of search. Thus, the addition not being justified is rightly deleted by the CIT(A). Rule 46A is with regard to the admission of additional Evidence. In the instant case the objection of the Revenue is with regard to the new explanation being accepted by the CIT(A). New explanation can not be equated with new evidence and. hence Rule 46A has no applicability and therefore, the objection of the Revenue is rejected."
24. W e are of the opinion that findings recorded by the ITAT in the aforesaid case were on different facts of their own. In the said case, difference between amount as per approved proposal for insurance and amount reflected in the books was added in the absence of any explanation of the assessee while it was contended before the ld. CIT(A) that normally a businessman would take insurance on a higher amount to cover cost of replacements. But in the instant case, no such facts have been brought to our notice nor the ld. CIT(A) assigned any reasons for his conclusion. Since the ld. CIT(A) has not passed a speaking order , in view of detailed reasons given in para 19.1 above, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the issue raised in this ground no.7 to his file for deciding the matter afresh in accordance with law, after allowing sufficient opportunity to both the parties. Needless to say that while redeciding the appeal, the learned CIT(A) shall pass a speaking order, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of the Act, bringing out clearly the nature of amounts reflected in the seized documents. With these observations, ground no. 7 is disposed of.
22IT(SS)A No.96/Ahd/2001 Late Suresh Ramjibhai Dhanak, Prop. M/s Labh Jewellers, Surat
25. Ground nos. 8 to 10 being general in nature nor any submissions having been made by the ld. DR on these grounds, do not require any separate adjudication and are, therefore dismissed.
26. In the result, appeal is partly allowed but for statistical purposes.
Order pronounced in the court today on 9- 7-2010 Sd/- Sd/-
(BHAVNESH S AINI) (A N P AHUJ A) JUDICI AL MEMBER ACCOUNTANT MEMBER Date : 9-7-2010 Copy of the order forwarded to:
1. Smt. Kumudben Wife and Shri Vimalbhai son and LH of late Shri Sureshbhai Ramjibhai Dhank, A-502, Panchratna Tower, Lambe Hanuman Road, Varachha, Surat.
2. The ACIT, Inv. Circle-3(1), Surat
3. CIT concerned
4. CIT(A)-III, Surat
5. The DR, Bench-C, ITAT, Ahmedabad
6. Guard File BY ORDER Deputy Registrar Assistant Registrar ITAT, AHMEDABAD 23