Income Tax Appellate Tribunal - Cuttack
Assistant Commissioner Of Income Tax vs Jyotsna Alankar Bhandar on 24 August, 2004
Equivalent citations: (2005)92TTJ(CTK)443
ORDER
R.C. Sharma, A.M.
1. ITA No. 214/Ctk/1994 & CO. No. 13/Ctk/1994 (in ITA No. 214/Ctk/1994) This is an appeal filed by the Revenue and the cross-objection by the assessee against the order of learned CIT(A), dt. 28th July, 1994, for the asst. yr. 1991-92 in the matter of order passed under Section 143(3).
2. Rival contentions have been heard and records perused.
3. The brief facts of the case are that the assessee is an HUF deriving income from business in manufacturing and sale of gold and silver ornaments. The HUF business styled "Jyotsna Alankar Bhandar" is in existence from 1947, started by the father of the present coparceners, who are four brothers. Out of the four, two brothers are actually associated with running the busineSections A search under Section 132 of the IT Act was conducted in December, 1990, at the business premises and residence of Shri Somnath Naik and Shri Baidyanath Naik, who are the coparceners of the HUF and actively engaged in the business. During the course of search, apart from the books/documents, cash, jewellery (gold), silver utensils/articles and other assets like N.S.C., fixed deposit, etc. were found and seized.
4. Regarding stock of gold ornaments found during the course of search, the AO stated that the gold jewelleries weighing 19,462.883 gms. (net weight) were found, as per the valuation report prepared by the Departmental Valuer. The AO found that the closing stock of gold jewelleries as on 31st March, 1990, as shown in the return of income was 5,063.040 gms. Taking into account the sales and purchase from 1st April, 1990 to 30th Nov., 1990, the AO reached to the closing stock of 4,589.300 gms. which worked out to be as under :
Opening stock as on 1-4-1990. 5,063.450 gms.
Add : Purchases from 1-4-1990 to 30-11-90 4,209.550 gms.
(as per seized book PKD-25)
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9,273.000 gms.
Less : Sales during 1-4-1990 to 30-11-1990 4,683.700 gms.
(as per seized book PKD-28)
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Closing stock as on 1-12-1990 as per books : 4,589.300 gms.
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The assessee vide letter No. 2903, dt. 22nd Nov., 1993, was asked to explain the source of balance stock of gold jewellery of 14,833.583 gms. (19,462,883 -4,589.300) with supporting evidence. The assessee furnished its explanation on 4th March, 1994. The gist of the explanation given by the assessee is as below :
(a) The valuation report of the Departmental Valuer is not correct for the following reasons :
(i) The net weight of ornaments does not include proper weight of stones, cultured pearls, enamels, bronze and lac.
(ii) The purity as determined in old and in some manufactured ornaments is very high and has no basis at all.
(iii) At the time of weighment, inspite of protest the weight of bronze acrew fitted with jewelleries like ear tops were not deducted.
(iv) Purity of gold as determined is not correct.
(v) Valuation of gold @ Rs. 294.48 per gm. is not correct. The same should have been made at Rs. 214.22 per gm. as per cost.
(b)(i) As regards the sources of this stock of gold, the assessee explained that 2,334.040 gm. belongs to the assessee as undisclosed stock. The same was disclosed in the statement under Section 132(4) made by Shri Somnath Naik. The total disclosure was made @ 214.22 paise per gram amounting to Rs. 5 lakhs.
(ii) The rest of the gold ornaments, etc, belong to the customers who have left their old ornaments for conversion into new ones. After each completed transactions with a customer the name is deleted from the stock register. There are instances in which a particular customer's account is closed even after 3/4 years or more.
(iii) The assessee maintains GS 11 and GS 12 registers regularly as per specifications of the Central Excise Department and the same constitute both the stock-in-trade of the assessee and customers' gold. These registers were seized by the Department. The assessee also maintains purchase and sales , register along with customers gold issue and receipt register which are seized by the Department. According to the GS 11 and GS 12 registers the stock of gold as on 4th Dec, 1990, amounts to 17,546.400 gms. the assessee also furnishes prescribed Form No. GS-6, quarterly returns, to Central Excise Department. According to this return, the total stock as on 30th June, 1990, amounts to 14,315.799 gms.
5. After considering the explanation filed by the assessee, the AO verified the GS-11 and GS-12 registers along with the customers issue and receipt register styled as RKM-1 and PKD-24. The seized book RKM-1 contained the entries made from the financial years 1968-69 till 1987-88 and PKD-24 contains entries from financial year 1988-89 till the month of October, 1990. The AO held that the assessee's objection regarding the so-called incorrectness in the valuer's report does not hold much water as the assessee could not furnish any specific instances where these alleged discrepancies have occurred. He also stated that the so-called protest made by the assessee at the time of weighment is not recorded anywhere and it is not known in which specific respect this protest was made during the course of search. He further stated that in the statement recorded under Section 132, Shri Somnath Naik has specifically stated that he does not have any dispute about valuation. The AO also rejected the assessee's contention for valuing the gold at purchase price on the plea that the assessee has not been able to pinpoint specifically as to which items belong to which particular purchase. The AO also found that the assessee could not produce any concrete evidence in support of his claim that the stock belongs to customers except the so-called GS-11 and GS-12 registers and customers issue and receipt register. The assessee was all along asked to produce the names and addresses of these alleged customers. During the post-search investigation, the assessee was given repeated opportunities to furnish the names and addresses of the customers, vide ADl's letter No. 2938, dt. 25th Jan., 1991, which was served on the assessee on 28th Jan., 1991. In response to this letter, the assessee stated that :
"It is very difficult to give the names of such customers whose gold are lying with us; identification of such customers is impossible at this stage without verifying vouchers issued by us. Similarly, as per our trade secret, we do not keep the address of the customers at the time of receipt of the gold. As regards detailed address of such customers it is not possible. However, whatever address is available to us in future will be intimated to the AO from time to time."
The AO further stated that even during the course of assessment also, not a single name and address has been furnished by the assessee. As per AO, even if for a moment, the assessee's contention is accepted, the customers who leave some gold with the assessee, it is obvious that they would have come to the assessee's shop with their identification slips to reclaim their gold. It cannot be accepted with an iota of commonsense that none of them have appeared before the assessee to reclaim their gold which is a valuable commodity. Again, had some of the seized golds really belonged to the so-called customers atleast some of them would have approached the Department to claim their valuable gold. But, in fact, none of these customers have ever approached this Department in this respect. After giving his detailed reasonings at pp. 6, 7, 8 and 9 of his order, the AO came to the conclusion that the so-called stock which, as per the assessee, belonged to the customers, is actually unexplained jewellery of the assessee and he, therefore, made an addition under Section 69A to the tune of Rs. 42,38,970 by taking the value of gold at Rs. 285 per gram.
6. First, we take up the portion of the order of the learned CIT(A) which deals with the excess gold ornaments found at the assessee's shop and was alleged to be belonging to the customers.
7. By the impugned order, the learned CIT(A) observed that according to the stock registers GS-11 and GS-12, maintained by the assessee in the regular course of its business in the prescribed form under the Gold Control Act and even after the said Act was not in operation w.e.f. 1st April, 1990, the total possession of 17,546.400 gms. including customers' gold was proved with some minor adjustments of transactions not recorded during a week before the date of search, and that the balance deficiency of 2,436.483 gms. was duly covered by the disclosure of Rs. 5 lakhs in the statement under Section 132(4) towards appropriate value thereof. The learned CIT(A) observed that from the very beginning and also as explained finally before the AO, the assessee had relied on stock registers, GS-11 and GS-12, quarterly returns of gold stock filed before the Gold Control authorities, specifically as on 31st March, 1990 and 30th June, 1990, registers of receipt and issue of customers gold continuously maintained from 1968 to 25th Oct., 1990 (marked PKM-1 and PKD-24), two sets of gold vouchers, one for purchase or receipt and the other for sale or issue, the reference of voucher numbers having been duly recorded in the registers, GS-11 and GS-12. The learned CIT(A) found that the AO has never examined the quantitative particulars of stock position with reference to the aforesaid documentary evidences maintained in the regular course of business and had even ignored them for the purpose of verification regarding availability of stock both on own trading and customers deposit. The learned CIT(A) further stated that he called upon both the AO and the learned Representatives on behalf of the assessee to compile relevant data involving transactions in customers' gold as available from the seized registers in the custody of the Department with reference to the voucher books available with the assessee. The data prepared had also been verified by the learned CIT(A) himself with reference to the documentary evidences.
8. The learned CIT(A) further stated that:
"With regard to availability of customers' gold, repeated claims on behalf of the assessee could be appreciated from following materials on record by way of pertinent instances :
(i) Statement under Section 132(4) by Shri Somnath Naik recorded on 8th Dec, 1990. The relevant questions and answers were 'Q. 29. During the course of search at the business premises, Jyotsna Alankar, we have found gold ornaments and jewelleries and standard bar total weight 19,982.883 gms. (net weight). You have shown in IT return closing stock of gold ornaments and jewelleries as on 31st March, 1990, as 5,063.450 gms. valued at Rs. 11,24,916 only-please explain the source of above gold ornaments and jewellery found in the business premises.
Ans. I have shown 520 gms. of standard bar in the said IT return along with other ornaments as was closing stock as on 31st March, 1990. As on 31st March, 1990, closing balance of gold ornaments and standard bar was 19,565.700 gms., out of which new ornaments were 18,209.700 gms. and old ornaments were 816.350 gms. and primary gold of 22 ct. purity was 19.650 gms. and standard gold bar was 520 gms. Out of the same, my business gold was 5,063.450 gms. and standard bar was 520 gms. which were shown in the accounts filed with the IT return. The rest 13,982.250 gms. including primary gold belonged to the customers supplied to our concern for manufacturing new ornaments.
Q. 30. Can you please show me any evidence regarding customers supply to the concern?
Ans. That would be reflected in the books of account seized. Q.31. Please show me the said reflection in the books.
Ans. In the present state of mind I am not in a stable mental condition and as such not in a position to explain the same now."
(ii) Petition dt. 12th Dec., 1990, filed before the DDI Investigation :
'It may be pertinent to state that ours is one of the oldest jewellery shops in the town assessed to tax since last 40 years. During this period the business has generated tremendous amount of goodwill in the market.
As your honour may appreciate that this type of business continues mostly on faith and mutual trust for which the customers usually leave their old ornaments gold for conversion to new ornaments or repair. This continues year after year and our income from this transaction is from making charges only which are separately disclosed for our income-tax purposes, in our annual accounts.
Every year we adjust this head, after each completed transaction with a customer, and his name is deleted from our book. We get fresh customers every year and the process goes on.
There are instances in which a particular customer's account is closed even after 3/4 years or more. We maintain registers for this purpose every year to get the progressive details.
In fact, truly speaking, we also sometime make some proforma from out of intermediate sale of a particular ornament, before it is handed over to the customer without his knowledge. But, the making charges received from such intermediate sale is also reflected under that head of income.
Because of the goodwill generated in our business and where we stand today, at any point of time, we keep with us about 10.2 kgs. of gold belonging to customers duly recorded in our books, which is squared up as and when the transaction completes.
As far as the identification of the customers is concerned, we would like to state that it is also a problem for us to identify each one of them, unless they come to our shop with our identification vouchers to claim for their gold. As your honour may be aware, because of unknown/obvious reasons, most of our customers are ladies, who prefer not to give their address or identities unless specifically asked. As per our business secret, we also do not ask them their address or identities, lest they be diverted to co-traders.
It may be very difficult on our part to locate the customers unless they come to our shop with identification slips already issued to them.
The other reason for customers leaving their gold with us for long time is that, we charge the then prevailing rate of making charges, when the gold was left with us. For example, the making charges of a necklace at present ranges between Rs. 750 to Rs. 1,000. In case the gold was with us from the year 1980, we would charge between Rs. 300 to Rs. 500 on the same necklace. This probably is our other trade secret for which customers are attracted or encouraged to keep their gold with us without any fear of being unaccounted for or being charged more.
As will be found from our prescribed registers, there are a number of such customers who have left their gold with us. They are visiting our business premises every now and then to take back their gold which have been seized. We are afraid if this continues, we will lose a fair part of our goodwill in the market which in the long run be detrimental to our business.
Under the circumstances, we would like to request your honour to kindly return our gold stock registers and the customers gold which forms a part of our stock-in-trade and has been wrongly valued by the authorised officer to be belonging to us.'
(iii) Affidavit dt. 16th Dec., 1991, by Shri Dolagobinda Naik (Karta) filed in connection with proceeding under a. 132(4) :
That although the stock available in the business premises represented own gold and gold belonging to customers which were duly recorded in the prescribed registers and were individually identifiable, the search party mixed them together, thereby making a mesh of everything and have seized a part of it.
That inspite of the protest by Shri Section Naik, the authorities engaged in conducting the search in the business premises, without taking into consideration the separate identity of gold ornaments as were kept by us in separate containers making a segregation between gold used by us for making ornaments for readymade sales and gold ornaments given by customers for either repair, exchange, remake, or change of designs and such other services, mixed up everything.
That the search party weighed and valued the ornaments in a most casual manner through valuer and without taking into consideration the reasonableness of the entries in the books of account prescribed for such business, seized about 50 per cent of the stock on approximation and returned us the balance as they thought necessary and desirable.
That the gold ornaments retained by IT Department mostly represent customers' gold kept by us for making new ornaments and repair, the list of which is available in the prescribed registers, seized in course of search.
That the concerned customers are claiming their ornaments back every now and then and we are losing a lot of goodwill in the market, which was generated after about 40 years of struggle in the business."
9. On the basis of the above submissions, the learned CIT(A) found that all these excerpts not only indicate the consistent and entreaty of the assessee before the Departmental authorities for taking the realities of trade practice in dealing with customers gold into consideration and for acceptance thereof on reference to seized records, but also contain allegation of grave irregularities in the conduct of search and seizure operation with prejudice and bias. As per learned CIT(A) even during the course of search, the assessee has explained the stock belonging to customers on the basis of quarterly return as on 31st March, 1990, of the stock under Gold Control Act that the assessee was in possession of 13,982.250 gms. of customers gold at the beginning of the year and that the balance thereof could be ascertained from the stock records already seized, no attempt was made either during the course of search or years thereafter to verify the factual position with the records lying in the custody of the Department
10. The learned CIT(A) also observed that there was a separate list in Annex. 3 about inventory of ornaments said to have been kept only for repairs, aggregating to 54 items having total weight of 401,300 gms. These were not seized for the reasons that each item was kept in a separate packet bearing the name of the person supposed to have given the same for the repair. The learned CIT(A) further observed that some of these items for repair remained with the assessee from 1984, onwards without the owners bothering to take them back for years. This inventory, though indicating methodical approach of the search party, would otherwise support the assessee's claim that customers' gold received for re-manufacturing and converted to new ornaments as per orders was also kept in identifiable containers or packets for long years even if the owners had not come for taking delivery within the period stipulated in the order-cum-receipt voucher and that the aggregate quantity of such articles having been to the extent of 10/12 kgs., the authorised officer had chosen to remove the identification packets with a view to carry out substantial seizure. As per learned GIT(A) for finding out the correct state of affairs, it was for the AO and his higher administrative authorities to make proper enquiries, but that was a different issue. The fact remains that in discarding the assessee's version, no cogent material was brought on record in framing the assessment order. If there were any post-search investigations either by the Investigation wing or by the AO, nothing was placed on the assessment record or brought to his notice.
11. After verifying the assessment records, the learned CIT(A) stated that after issue of initial so-called letter dt. 22nd Nov., 1993, which contained no query asking for explanation regarding customers gold, the effective hearing of the case was taken up during March, 1994, and was concluded during the last week of that month without making any independent enquiries on the issue despite, voluminous explanations and evidences furnished by the assessee. The learned CIT(A), therefore, made his calculation as contained at pp. 30 and 31 of his order and reached to the conclusion that after giving due credit for the customers' gold, purchases and sales upto the date of the search, the correct adjusted quantity of customers' gold available at the time of search works out to be 12,694.150 gms. After giving his detailed reasoning from pp. 31 to 45 of his order, he allowed relief to Rs. 37,38,970 on account of customers' gold already possessed by the assessee.
12. Aggrieved by the above deletion by the learned CIT(A), the Revenue approached us for further adjudication.
13. The Revenue has filed appeal in respect of learned CIT(A)'s action for allowing relief of Rs. 37,38,970 being the cost of customers' gold for the asst. yr. 1991-92, whereas the assessee has filed cross-objection as well as appeal for the asst. yr. 1991-92. The assessee has also filed appeals for the asst. yrs. 1985-86 to 1990-91 in the matter of the other additions/disallowances sustained by the learned CIT(A).
14. In respect of relief of Rs. 37,38,970 given by the learned CIT(A) in respect of the cost of customers' gold, the learned CIT, Departmental Representative vehemently argued that the assessee grossly failed to show that even after lapse of 10-15 years, the gold jewellery given by the customers for repairs, re-manufacture, etc. were taken back by the respective customers, not only at the time of search but even after the search and upto the completion of the assessment, which was made after four years of the search. As per learned CIT-Departmental Representative, the so-called GS-11 and GS-12 registers maintained by the assessee did not contain the full name and address of the customers who have handed over the gold ornaments to the assessee, so as to enable the Department to make any enquiry and that inspite of giving repeated opportunity, the assessee could not produce any concrete evidence in support of its claim that the stock belongs to the customers. He draw our attention to para 3.14 at p. 8 of the AO's order in which the assessee had not made entry regarding the gold ornaments taken back by the customers and which were found as per the vouchers seized during the course of search. Thus, the learned Departmental Representative wanted to emphasise that even after taking the ornaments back by the customers, the assessee did not make entry in the relevant registers and, therefore, the authenticity of such registers could not be taken as 100 per cent correct. As per learned Departmental Representative, unless such registers are corroborated with the version of the customers or any other documentary evidence, it could not be established that whatever entries were made by the assessee are true and correct. These entries are done by the assessee himself and there was no corroborative material on record to prove them correct. He also drawn our attention to the order of the learned CIT(A) at para (ii) of p. 28 and submitted that the learned CIT(A) has only presumed the ornaments being belonging to the customers without any material to support such presumption.
15. The learned CIT-Departmental Representative further submitted that the learned CIT(A) has got co-terminus power and whatever the AO or Department has failed to do, he should do the same. Rather, in the instant case, the learned CIT(A) has tried to patch-up the lacunae of the assessee and just by pointing out the mistake in the AO's order, had given the relief to the assessee. As pet learned Departmental Representative, if the learned CIT(A) found that there was some lapses on the part of the AO, which he should have performed before making the addition, the learned CIT(A) should have himself undertaken the proper course of action with the help of the AO and his team of officers, rather than allowing assessee's claim on the ground of AO's lapses. As per learned Departmental Representative, it is beyond ones imagination that valuable gold left with the assessee for repair or remaking was not taken back by the customers even after 10-15 years. As per learned Departmental Representative, it can reasonably be presumed that under normal circumstances, a customer leaving gold ornaments, will collect the same within 6-7 months at the most. For any period exceeding the normal period is beyond the human probabilities unless duly explained by way of documentary evidences. He, therefore, submitted that relief was given by the learned CIT(A) for no cogent reason and, therefore, the same should be set aside and the order of the AO should be confirmed. He further submitted that no purpose will be served for restoring the matter back to the AO as the matter is as old as 13-14 years and the assessee will now manufacture new evidence so as to substantiate its wrongful claim.
16. On the other hand, it was argued by the learned Authorised Representative that even during the course of search, the search party has found the statutory records maintained by the assessee and which were to be maintained under the Gold Control Act. All the golds received by the assessee for repair or remaking were duly entered in these registers and proper vouchers were also maintained which clearly evidenced the fact of these golds belonging to the customers and not to the assessee. He further submitted that even in respect of separate inventory prepared by the search party in respect of jewellery belonging to the customers and which was also not seized because the search party was satisfied regarding such jewellery belonging to the customers, however, during the course of assessment, the AO also made an addition in respect of such jewellery by treating the same as assessee's own undisclosed jewellery. As per learned Authorised Representative, there was absolutely no material brought on record by the AO through independent enquiries that the names and addresses noted in the vouchers of gold relating to the customers, were bogus or unreal. As per learned Authorised Representative, in most of the cases, the full name and address was given not only in the registers but also in the vouchers, but the Department did not undertake any post-search investigation to find out the genuineness of such vouchers. As per learned Authorised Representative, during the course of search, the Departmental authorities mixed the jewelleries belonging to the customers which were properly covered in the papers in which name and separate identity of customer was mentioned and, therefore, the assessee could not tell properly the names of customers to whom jewellery belonged. He also submitted that a protest letter was also filed to the competent authorities in this regard. Thus, as per learned Authorised Representative, the genuineness of the vouchers remained intact and the learned CIT(A) after giving very elaborate reasonings and after examining all the records and vouchers personally, in the presence of the AO, had deleted the addition in respect of gold ornaments belonging to the customers. He, therefore, submitted that the learned CIT(A) was perfectly justified in relying on authenticity of statutory registers properly maintained by the assessee and the returns under Gold Control Act filed by the assessee immediately prior to the date of search, indicating the customers' gold possessed by the assessee. As per learned Authorised Representative, it is the normal practice with all the goldsmiths involved in such trade that customers leave the gold ornaments for repair and they do not furnish their full address and the goldsmiths also do not insist the customers for telling the complete address, otherwise such customers may turn to other goldsmith. He further submitted that mostly ladies are the customers in such trade and they do not furnish the full address or whatever address either correct or wrong supplied by them is not open to verification and we have to rely on whatever address they make us to record. Under these circumstances, he submitted that it was not possible for the assessee to produce such customers for verification or to furnish their confirmations regarding handing over of jewellery for repair/remaking. He, therefore, requested for confirmation of the order of the learned CIT(A) for deleting the impugned addition in respect of customers' gold.
17. We have considered the rival contentions, carefully gone through the orders of the authorities below and perused the material placed on record by the learned Authorised Representative. From the record, we find that during the course of search at the business premises of the assessee, excess gold was found at the shop as compared to the gold alleged to be possessed by the assessee as its stock-in-trade. The explanation of the assessee from the very beginning was that excess gold found physically at the shop was relating to the customers given for repair/remaking and which were also recorded by it in the respective registers maintained for this very purpose. Following undisputed facts arose out of the order of the lower authorities and materials on record :
I. There is no dispute to the entries being found recorded in the relevant registers maintained by the assessee in the course of its business, indicating the gold possessed by the assessee on behalf of the customers for repairs/ remaking.
II. There is also no dispute to the nature of trade the assessee was carrying in which there is practice of not asking the customer's address at the time of handing over of jewellery by the customers for repair/remaking.
III. There is also no dispute to the fact that most of the customers' gold possessed by the assessee was as old as 1 to 15 years and the customers did not turn up for taking delivery of the ornaments given to the assessee for repairing/remaking, until the framing of the assessment which was 4 years after the year of search.
IV. There is also no dispute that correctness of these records was found to be doubtful when some of the vouchers found during search indicated delivery of such gold ornaments having been taken back by the customers, but these were not found to be entered in the respective records, resulting in higher stock of customers' gold with the assessee which have been actually taken back by them.
V. There is also no dispute to the fact that the assessee showed his inability in giving full address of the alleged customers whose gold were recorded in these registers.
VI. There is also no dispute that the AO had made the addition on account of assessee's failure to substantiate the fact of such entries of gold in the customers' name and also on account of human improbability on not taking back gold by the alleged customers for such a long period ranging between 1 to 15 years.
VII. There is also no dispute to the fact that the CIT(A) had allowed the relief only on the ground that the Department did not undertake any inquiry either during the search or thereafter to find out the factual position. The CIT(A) also held that the assessee's stand from the very beginning was that the name of the customer was recorded in the respective registers which were found during the search.
18. In view of the above undisputed facts, following questions arose for our consideration:
I. Whether the assessee had discharged the onus cast on him for establishing the authenticity of customers' gold, merely by entering the names of such customers in his records which were found during course of search?
II. Whether the onus shifted on the Department, once the assessee had shown these records to the Department in which names of such customers were entered and the same were also found during the course of search?
III. Whether the Department was in a position to find out authenticity and correctness of entries made by the assessee in these records, when the assessee showed his inability to give addresses of such customers whose names were entered in these registers?
IV. Whether it is humanly probable to assume that the customers leaving gold ornaments for repairing/remaking will not turn up to take back delivery in years together, ranging from 1 to 15 years?
V. Whether the gold is such a cheap commodity that a person will forget to take delivery back even on lapse of years together?
19. The answer of all the above questions is "NO", i.e., merely by making entry, at its own in its record, the assessee cannot be said to have discharged the onus caste on it to show that the alleged gold was actually owned by the customers and possessed by it on their behalf, for repair/remaking.
20. Unless the primary onus cast on the assessee is discharged by it, the burden will not be shifted on the Department.
21. When the assessee has not supplied the addresses of alleged customers whose gold is possessed by the assessee, the Department is unable to make any inquiry to find out the truth.
22. It is humanly improbable that customers handing over the ornaments for repairs/remaking, will not turn up for taking possession back, years together.
23. Gold is not a cheap commodity, but one of the precious commodities that a person will not forget to take back within 4 to 8 weeks depending upon the nature of repairing ordered by him.
24. In the light of above observations, if we proceed in the instant case we find that there is no dispute to the fact that during the course of search, the Department has found the GS-11 and GS-12 registers in which entry regarding receipt and issue of customers' gold was entered. These stock registers indicate the stock carried on by the assessee at the material point of time. The Department has also found quarterly return of gold stock filed before the Gold Control authorities as on 31st March, 1990 and 30th June, 1990. It was also found that the registers for receipt and issue of customers' gold were continuously maintained from 1968 to 25th Oct., 1990, marked 'RKM-V and 'PKD-24', and which were also seized by the Department during the course of search itself. The Department had also found two sets of gold vouchers, one for purchase or receipt and the other for sale or issue, the reference of vouchers was also duly recorded in the registers RKM-1 and PKD-24 as well as also in GS-11 and GS-12. There is also no dispute to the nature of trade the assessee was carrying on, in which there is a practice for leaving old gold ornaments with the assessee for remaking, repair, etc. There is also a general practice that such customers could not be insisted for giving their full address and the shopkeepers also avoid to insist them in view of their apprehension of such customers being turned to some other goldsmith. All these facts prima facie support the contention of the assessee that the entries in these registers indicate that such gold was possessed by the assessee on behalf of the customers. If such records were found to be correct and complete, we can say that primary onus cast on the assessee had been discharged and onus now shifted on the Department to prove the entries in these registers as untrue, bogus or ingenuine. But the things are not so, insofar as entries in these registers, i.e., GS-11 and GS-12, were not found to be correct and complete, and the complete informations which are required to be given as per Section 55 of the Gold Control Act, 1968, r/w Rule 11 of Gold Control Rules, were not there in these registers. Much reliance cannot be placed on these records which are prepared by the assessee himself. Not only in the course of search but thereafter also, the assessee was asked to give full address of such customers, but the assessee failed. Customers' jewellery found during the search was highly disproportionate to the stock-in-trade carried on by the assessee. The assessee was mainly engaged in the manufacturing and selling of new ornaments, whereas his activity of repairing/remaking of old ornaments of customers were very less and only incidental to the main activity of manufacturing and selling of new ornaments. The assessee has not furnished any valid reason for holding stock of gold received by him for repairing/remaking three times as compared to the total stock of gold possessed by the assessee on his own account. Under these circumstances, it cannot be said that the assessee had discharged its primary onus so as to persuade us to find fault in the conduct of the Department for not doing any effort in finding out the correctness of gold entered in these registers as belonging to different customers and not to the assessee. In the absence of full address of the alleged customers, the Department was helpless to conduct any inquiry for ascertaining the correct position.
25. There is a presumption under Section 132(4A) to the effect that gold jewellery found in the possession of the assessee belongs to it. This presumption is rebuttable and the assessee by bringing on record sufficient material, may prove that the gold jewellery found with it actually belonged to the customers. Once the assessee is able to rebut the presumption by brining evidence to the contrary, the officer or authority shall consider all the evidence and facts judiciously. In the instant case, the assessee failed to rebut the presumption due to its inability to furnish the full address of such customers. Under these circumstances, mere entry in these records does not conclusively prove the ownership of such gold by the alleged customers so as to absolve the assessee from its onus to prove that gold possessed by it actually belongs to the customers which is lying with the assessee for abnormally long period ranging from 1 to 15 years. Hon'ble Supreme Court in the case of Sumati Dayal v. CIT (1995) 214 ITR 801 (SC) had observed that after considering the surrounding circumstances and applying the test of human probabilities, one has to decide the genuineness of assessee's claim. In the instant case, the finding recorded by the learned CIT(A) reads as under:
"Further, there was no post-search investigation and inquiry to ascertain if some of the customers could not have taken back their gold in finished form for 8 to 20 years were non-existent or had surrendered their claims. This exercise could still be attempted at in order to bring to tax the possession of forfeited gold, if any, as and when seized items are released."
26. It is a matter of record and accepted by the assessee not only while recording his statement under Section 132(4) but subsequently also that full address of such customers could not be furnished. Under these circumstances, how the Department could find out such customers who have not taken back their gold in finished form (for) 8 to 20 years, being non-existent and surrendered their claim. Thus, the finding recorded by the learned CIT(A) goes against the conclusions arrived at by him resulting in release of entire such gold ornaments by the Department, while giving effect to his order. At the same time, the probability of such gold ornaments being left with the assessee-firm for more than one year and ranging between 10-15 years is also not acceptable as per normal human probabilities. There is no dispute to the practice followed in the jewellery business in which customer leave his gold with the goldsmith for repairing, re-making, etc. There is also no dispute that goldsmiths do not try nor insist for giving full address to such customer. But, at the very same time, it is not only practice but hard fact that such customers take their gold ornaments back within 2 to 6 months. We are, therefore, not inclined to agree with learned Authorised Representative that valuable item like gold had been left by the customers with the assessee-goldsmith for years together ranging from 10-15 years and still nobody came forward for release of such gold either before the assessee or before the Department for getting it released from the year of search, i.e., 1990, till passing of order by the AO in 1994, and till release of gold by the Department while giving appeal effect to the order of CIT(A), dt. 28th July, 1994.
27. From the record, we also find that immediately after the completion of search, the ADI vide his letter No. 2938, dt. 25th Jan., 1991, which was served on the assessee on 28th Jan., 1991, had asked to furnish the name, and addresses of the customers, but the assessee has communicated his inability to give the names of such customers whose golds are lying with it. It was also submitted in reply to this letter that as per the trade secrets, the assessee did not keep addresses of customers at the time of receipt of gold. If the assessee wants the Department to rely on the authenticity and correctness of these registers, i.e., GS-11 and GS-12, which the assessee is required to maintain as per Section 55 of the Gold Control Act, 1968 r/w Rule 11 of the Gold Control Rules, the assessee is statutorily required to enter full name and address of the person from whom such gold was received or to whom such gold was returned along with the number and description of the articles and ornaments. During the course of search and also thereafter the AO has categorically noted that the names and addresses in respect of all the instances were not complete and, therefore, genuineness of such registers could not be taken as 100 per cent true.
28. The correctness of such registers becomes doubtful in view of the effect that some of the vouchers indicating return of ornaments to the customers, found and seized from the assessee's premises during the course of search, but the same were not found to be entered in GS-12 register nor in the customers' receipt and issue register as per the findings recorded by the AO at para 3.14, p. 8 of his order. Not making entry while returning the gold to the customers will keep the stock of such customers' gold intact in these records, inspite of the fact that in reality the customers had actually taken back their gold ornaments after repairing/remaking, The details of these vouchers were as per the assessee's loose bunch PKD-36. The AO also noted in his order that these vouchers also indicate the date of delivery which is usually given after 15-30 days from the date of receipt. In this backdrop, the AO reached to the conclusion that it is almost impossible to accept that customers leave their golds with the assessee for years together, in some instances for 20 years without claiming them back.
29. It is pertinent to mention here the observation of the Hon'ble Supreme Court in the case of CIT v. Durga Prasad More (1971) 82 ITR 540 (SC), to the effect that the apparent must be considered as real until it is shown that there are reasons to believe that the apparent is not the real and the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the taste of human probabilities. In the instant case, even though the entries have been found in the relevant registers, indicate apparently that gold mentioned therein belongs to the customers, but at the very same time, the contention of the assessee that those gold were left by the customers 10-15 years back and had not been taken possession back, seems to be unrealistic while applying the taste of human probabilities. Thus, in a case, where the party relies on self-serving recitals in the records maintained by it, it was for that party to establish the truth of those recitals, otherwise the taxing authorities are entitled to look into the surrounding circumstances to find out the reality of such recitals. We, therefore, agree with the contention of the learned Departmental Representative to the effect that GS-11 and GS-12 registers as well as gold issue and receipt register maintained as RKM-1 was not complete and correct, when it was found that the customers who had deposited their gold in 1969 and have not taken back the same till the date of search, i.e., 1990. The learned Departmental Representative also highlighted 15 such instances which occurred during the financial year 1970-71, 10 such instances in the financial year 1971-72, which lead to the conclusion that reliability, authenticity or correctness of such records were fully doubtful. As per learned Departmental Representative, as the authenticity of these records was doubtful, the assessee was required to establish the genuineness of gold deposited with the assessee long back and remained with the assessee for such period, which cannot be relied on under normal circumstances, without furnishing corroborative evidence, but there was a gross failure on the part of the assessee to furnish such corroborative evidence. Now, we advert to the legality of the addition made under Section 69A of the IT Act. Provisions contained under Sections 68, 69/69A clearly stipulate that the burden is on the assessee to explain the nature and source of credits in his books of account/valuables found in his possession. The assessee is required to discharge the onus. Section 132(4A) does not over ride these specific provisions, In the instant case, Clauses (i) and (ii) of Sub-Sections (4A) of Section 132 are applicable. As per Clause (i), the books of account and other documents, jewellery, etc., found during the course of search are presumed to be belonging to the assessee. As per Clause (ii), the contents of such books of account and other documents are true. Thus, as per Clause (i), the records and the jewellery found at the shop are to be assumed to be belonging to the assessee, whereas as per Clause (ii), the contents of such books of account and other records are presumed to be true. As the first presumption, to show that the alleged difference of gold was actually belonging to the customers, could not be discharged by the assessee. The presumption contained under Clause (ii) is of no help to the assessee, even though it goes in its favour. Such presumption arising under Section 132(4A) is clearly linked with search and seizure. The presumption cannot be said to have the effect of excluding operation of Section 68/69/69A of the IT Act. The question of applicability of these sections arises in the course of regular assessment and which provides that where any sum is found credited in the books of an assessee or anything is found in the possession of the assessee and the assessee offers no explanation about the nature of source thereafter or the explanation offered is not in the opinion of the AO, satisfactory, the sum so credited or the money or jewellery or other valuable found with the assessee may be charged to income-tax as income of the assessee of that previous year. These provisions have general application and apply to all cases of regular assessment. The entire Chapter XIII, Part 'C relates to search and seizure with regard to the undisclosed income of the assessee. Search and seizure is one of the accepted methods adopted by the Revenue authority with regard to digging out of undisclosed income of the assessee. The intention of the legislature is not to give a limited application of presumption under Section 132(4A). The reading of the entire Chapter shows that it was never the intention of the legislature to restrict the presumption when an order is passed under Section 132(5). Sub-Sections (4) which is a crucial provision categorically states that any books, documents, money, bullion, jewellery or any statement made by the assessee in the course of search and seizure is made use of as evidence in any proceedings of the IT Act. If Sub-Sections (4A) is read with Sub-Sections (4), it is clear that there may not be any restriction with regard to the presumptive value that can be attached to Sub-Sections 132(4A). Section 132(5) only provides for an order being made in the case on hand. That by itself does not take away the presumptive value attached to Section 132(4A) for other proceedings under the IT Act. Section 110 of the Evidence Act of 1887, embodies a statutory principle of common law jurisprudence to the effect that if a person is in possession found of something, he is deemed to be owner by virtue of possessory title and the onus should be on him if he wants to disclaim the ownership. In the instant case, the explanation offered by the assessee was found to be not satisfactory regarding excess gold found, as belonging to the customers, the AO has correctly invoked provisions of 69A while making the addition.
30. Learned Departmental Representative further submitted that the learned CIT(A) had brushed aside all these findings recorded by the AO and faulted the Department for not conducting inquiry, which was not possible because of non-furnishing of full addresses of such customers. Under these circumstances, we are persuaded to agree with the learned Departmental Representative that instead of pointing out the defect in the AO's order and deficiency on the AO's part to comply with for ascertaining the correctness of such gold having been supplied by the customers, the learned CIT(A) himself should have used his power which is co-terminus with the AO's power for ascertaining the correct factual and legal position, which the learned CIT(A) grossly failed to do. We also agree with the learned Departmental Representative that the learned CIT(A) under these circumstances should have himself undertaken the things which the AO failed to do, rather than giving relief to the assessee, just by making an observation that AO and Department have failed to do the enquiry.
31. As per our considered view, it is clear from sub-Sections (4) and (5) of Section 250 of the IT Act, that powers of the appellate authority are much wider than powers of an ordinary Court of appeal. The scope of power of CIT(A) is co-terminus with that of the AO. The power conferred on the AAC/CIT(A) under Section 251 being a quasi-judicial power, it is incumbent on him to exercise the same, if the facts and circumstances so warrant. If the AAC/CIT(A) fails to exercise his discretion judiciously, and arbitrarily refuses to make inquiry in a case where the facts and circumstances so demand, his action would be open for correction by the higher authorities/forum. As per our considered view, such co-terminus powers of the learned CIT(A) are also having equal responsibility to undertake the inquiry which the AO has failed to undertake. Being a quasi-judicial authority, it is incumbent on him to exercise the same in the interest of justice, rather than accepting the assessee's version which is without any basis, by pointing out defects and latches in AO's action.
32. By accepting the learned Departmental Representative's contention regarding co-terminus power of the learned CIT(A) as well as the fact that he has accepted additional evidence in contravention of Rule 46A without asking for any remand report from the AO, we deem it fit and proper to set aside the order of the learned CIT(A) on this ground.
33. However, at the very same time, we are not oblivious of the fact that an assessee should not be punished for the lapses of AO and/or CIT(A). From the order of the AO, dt. 30th March, 1994, we find that after search in December, 1990, the first hearing was fixed on 1st March, 1994, and thereafter four more hearings were fixed before the AO on 4th March, 1994, 7th March, 1994, 17th March, 1994 and 24th March, 1994. Thus, we find that hearing was concluded in one month only. It indicates that proper opportunities were not given to the assessee to substantiate its case.
34. However, during the course of hearing before us, the learned Authorised Representative was also asked to furnish some evidence but in view of the fact that the matter is again restored to the file of the AO, we give liberty to the assessee to file any such document before the AO in support of its contention that the alleged gold found recorded in the GS-11 and GS-12 registers pertained to the customers only, and which have either been taken back by them or are still lying with the assessee. Thus, the AO is directed to verify the correctness of GS-11 and GS-12 as well as RKM-1 and PKD-24 after giving the assessee reasonable opportunity for filing necessary confirmation.
35. So far as gold ornaments as mentioned in the list of Annex. 3 of the inventory of ornaments are concerned and which had been kept only for the repairs aggregating to 54 items having total weight of 401.300 gms. and which were not even seized by the Department during the search, by accepting the fact that these items were kept in a separate pocket bearing the names of the persons supposed to have given for repair, itself indicates that only those 54 items having total weight of 401.33 gms. belong to the customers which was physically found intact by the search party, at shop during the course of search. For the other names of customers with description of items alleged to be already recorded in the registers 11 and 12 was not found by the search party by way of separate identity.
36. In view of the fact that the Department was also convinced regarding these items listed in Annex. 3, belonging to the customers and had not seized the same even during the course of search itself, the AO should not have made any addition in respect of these items as mentioned in Annex. 3. We, therefore, direct the AO to delete the addition in respect of these 54 items having total weight of 401.300 gms. In respect of the balance relief given by the learned CIT(A), the AO may examine the issue in the light of our above observation, after giving reasonable opportunity to the assessee.
37. The cross-objection No. 13/Ctk/1994 (arising out of ITA No. 214/Ctk/1994) for the asst yr. 1991-92 which is in support of the learned CIT(A)'s action for giving relief of Rs. 37,38,970 and was against the observation of the learned CIT(A), as contained at p. 41 of his order, is also allowed in part as per our observation contained hereinabove.
38. In the result, both Departmental appeal and cross-objection are allowed in part, subject to the direction given hereinabove.
[Para Nos. 1 to 38 only have been marked "fit for publication" by the Tribunal, hence para Nos. 39 to 69 are not reproduced-Ed.]