Income Tax Appellate Tribunal - Rajkot
Metallic Enterprise, Rajkot-Gujarat vs Assessee on 27 March, 2002
IN THE INCOME TAX APPELLATE TRIBUNAL
RAJKOT BENCH, RAJKOT
Before Shri A.L. Gehlot (AM) and Shri N.R.S. Ganesan (JM)
I.T.A. No.45/Rjt/2006 - AY 2002-03
I.T.A. No.361/Rjt/2009 - AY 2002-03
M/s Metallic Enterprise vs The ACIT, Cir.2
GIDC, Aji-II, Plot No.330 Circle-2, Rajkot
Rajkot
PAN : AADFM2184F
(Appellant) (Respondent)
Appellant by : Shri Vimal Desai
Respondent by: Shri SL Meena
ORDER
Per N.R.S. Ganesan, JM
ITA No.45/Rjt/2006 is directed against the order of the Administrative
Commissioner u/s 263 of the Income-tax Act. The assessee has filed the appeal in ITA No.361/Rjt/2009 against the additions made by the assessing officer and confirmed by CIT(A) consequent to the order of the Administrative Commissioner u/s 263. Therefore, we heard both the appeals together and are disposing off the same by this common order.
ITA No.45/Rjt/20062. Let us first take the assessee's appeal in ITA No.45/Rjt/2006. Shri Vimal Desai, the learned representative for the assessee submitted that the assessing officer has completed the assessment u/s 143(3) determining the total taxable income at Rs.13,61,050. During the course of assessment proceedings, the assessing officer considered all the issues raised by the Commissioner in the proceedings u/s 263 and thereafter taken a conscious decision. Referring to the notice issued by the assessing officer and the explanation submitted by the assessee the learned representative submitted that with regard to the unexplained investment in furniture the value of the unexplained investment in 2 ITA No.45/Rjt/2006 ITA No.361/rjt/2009 furniture was estimated by the partner at Rs.1 lakh and it was agreed to pay tax on it. Accordingly the investment of Rs.1 lakh in furniture was shown in schedule 12, as also sales and other income and tax thereon was paid. The assessing officer, after examining the explanation of the assessee satisfied and no further addition was made in the regular assessment. Therefore, the assessing officer has taken a conscious decision with regard to the investment of Rs.1 lakh and therefore, the addition made by the Administrative Commissioner to the extent of Rs. 10,000 is not justified. Referring to the excess cash found during the course of survey operation, the ld.representative submitted that Shri Jaisukhbhai Jasani admitted during the course of survey operation that the excess cash of Rs.3,00,940 belonged to Shri Kartik Jasani. Shri Kartik Jasani was also examined during the course of survey operation and he admitted that the excess cash belonged to him. Accordingly Shri Kartik Jasani filed return of income disclosing the above said sum of Rs.3,00,940 and paid taxes also. Regarding the undisclosed investment in excess stock to the extent of Rs.7,14,441 the ld.representative submitted that during the course of survey operation the book stock was found at Rs.32,33,469. The assessee explained before the assessing officer the error / omission in the calculation of book stock at the time of survey. The correct stock as per the book as on the date of survey was Rs.40,47,126 and not Rs.32,33,469. Therefore, according to the ld.representative, there was no excess stock on the date of survey. This fact was also brought to the notice of the assessing officer by a letter dated 27-03-2002. The assessing officer, after examining the explanation of the assessee found that no addition is required to be made. Since the assessing officer has examined the issue with regard to all the three points raised by the Administrative Commissioner, according to the ld.representative, the assessment order is neither erroneous nor prejudicial to the interest of the revenue. Therefore, the exercise of jurisdiction u/s 263 of the Income-tax is not justified.
3. On the contrary, Shri SL Meena, the ld.DR submitted that admittedly there was a survey operation u/s 133A of the Act on 28-12-2001. The statement was 3 ITA No.45/Rjt/2006 ITA No.361/rjt/2009 also recorded u/s 131(1) of the Act. During the course of survey operation, Shri Jaisukhlal Dharjilal Jasani, partner of the assessee firm admitted to offer the following income for taxation:
Undisclosed investment in excess stock Rs. 7,14,441 Undisclosed expenditure in furniture Rs. 1,10,000 Excess cash found during the course of survey operation Rs. 3,00,940
Inspite of this admission made by the partner of the assessee during the course of survey operation the assessing officer has made no addition in the assessment order. According to the ld.DR the assessing officer has not discussed anything in the assessment order. The assessing officer simply accepted the return filed by the assessee and computed the taxable income without examining the facts and the material available on record. Since the assessing officer has not discussed anything in the assessment order with regard to the unexplained investment in furniture, excess cash and excess stock in the assessment order, the order of assessment is erroneous and prejudicial to the interest of the revenue. Therefore, the Administrative Commissioner has rightly invoked his revisional power u/s 263 of the Income-tax Act.
4. We have considered the rival submissions on either side and have also perused the material available on record. The question arises for consideration is whether the assessing officer examined the facts of the case and the material available on record with regard to the unexplained investment in furniture, excess cash and excess stock found during the course of survey operation. The contention of the learned counsel for the assessee is that the assessing officer has called for the explanation and after examining the explanation of the assessee accepted the case of the assessee and decided not to make any addition. Therefore, it is not a case that the assessing officer has not examined the material available on record. We have also carefully gone through the impugned order of the Administrative Commissioner passed u/s 263 of the 4 ITA No.45/Rjt/2006 ITA No.361/rjt/2009 Income-tax Act. The Administrative Commissioner fairly states in the impugned order that in the course of regular assessment, the assessing officer has made no addition with regard to the unexplained investment, excess stock and excess cash found during the course of survey operation by accepting the explanation submitted by the representative of the assessee. Therefore, the fact remains that the assessing officer accepted the explanation without discussing the same in the assessment order. The next question which follows for our consideration is whether the application of mind should reflect in the assessment order with regard to the material facts available on record or not. We have carefully gone through the assessment order passed by the assessing officer. The assessing officer simply says that the assessee has produced books of account, information, account copies, documents, etc. as required. However, he had not discussed anything in the assessment order with regard to the unexplained investment in the furniture, excess stock and excess cash found during the course of survey operation. The ld.counsel placed his reliance on the judgment of the Bombay High Court in the case of JCIT vs Development Credit Bank Ltd (2010) 323 ITR 206 (Bom). In the case before the Bombay High Court, the assessee bank claimed depreciation on current investment at Rs.622.39 lakhs. The assessing officer accepted the claim of the assessee. The Administrative Commissioner in exercise of his powers u/s 263 found that the order of the assessing officer is erroneous and prejudicial to the interest of the revenue. On appeal by the assessee, the Tribunal found that the exercise of powers u/s 263 of the Act was not warranted. On further appeal before the High Court the order of the Tribunal was upheld. The High Court specifically found that the assessing officer specifically called for details from the assessee with regard to depreciation and capital gain. After examining the details furnished by the assessee, the assessing officer accepted the explanation and came to the conclusion that the depreciation of Rs.622.39 lakhs has been claimed towards investment held and classified as stock in trade. In the assessment order, the assessing officer had, after making an enquiry and elicit in response from the assessee came to the conclusion that the assessee would entitle for depreciation on the value of the 5 ITA No.45/Rjt/2006 ITA No.361/rjt/2009 securities held on the trading account. In such circumstances, the Hon'ble Court held that In the absence of any tangible material to the contrary, the Commissioner of Income-tax could not have treated this finding as to be erroneous and prejudicial to the interest of the revenue. Therefore, in the case before the Bombay High Court, the assessing officer called for details with regard to the depreciation on investment and recorded a specific finding with regard to the entitlement of the assessee to claim depreciation on the investment. Therefore, the High Court held that the Commissioner could not have treated this finding as erroneous and prejudicial to the interest of the revenue. In the case before us, even though the assessing officer called for details, no finding was recorded in the assessment order. In the assessment order, the assessing officer simply computed the taxable income without recording any finding as to how the discrepancies found during the course of survey operation, viz. the unexplained investment, excess stock and excess cash was not to be added as income of the assessee. In the absence of any such finding, in our opinion, mere calling for details from the assessee would not be sufficient. In other words, the assessment order shall contain the specific finding with regard to the issues decided therein. Since the assessing officer has not recorded any specific finding in the assessment order, in our opinion, the order of the assessing officer is erroneous and prejudicial to the interest of the revenue. It is not in dispute that the assessing officer is a quasi judicial authority exercising judicial power under the Income-tax Act. Therefore, the income-tax proceedings are judicial proceedings. The order passed by the assessing officer is subjected to further appeal before the Commissioner, Tribunal, High Court and Supreme Court. The order of the assessing officer is also subject to revision u/s 263 / 264 before the Commissioner. Against the order passed by the Commissioner u/s 263 / 264 a further appeal is provided under the Act before the Tribunal, High Court and Supreme Court. Therefore, the order passed by the assessing officer shall speak for itself. In other words, the assessing officer is bound to record reasons for the conclusion reached in the assessment order. In the absence of any reasons recorded in the assessment order, the appeal / revisional jurisdiction 6 ITA No.45/Rjt/2006 ITA No.361/rjt/2009 provided under the Income-tax Act would be ineffective. The appellate / revisional authorities could not effectively exercise their appeal / revisional power unless the reasons are recorded in the assessment order. It is also well settled principles of law that the reasons for conclusion reached in the judicial order has to contain in the order itself. The reasons for taking a decision cannot be supplemented by way of filing affidavit or further document before the appeal / revisional proceedings. What we are trying to say is the assessing officer is bound to pass a speaking order so that the appeal / revisional authorities can exercise their appellate / revisional power in an effective manner as provided in the Income-tax Act. In this case, the assessing officer has not recorded any findings with regard to the discrepancies found during the course of survey operation, viz. unexplained investment in the furniture, excess cash, excess stock. Therefore, in our opinion, to this extent, the order of the assessing officer is erroneous and prejudicial to the interest of the revenue. Accordingly, the Administrative Commissioner has rightly invoked his revisional power u/s 263 of the Income-tax Act.
5. Now coming to the other appeal of the assessee in ITA No.361/Rjt/2009, the first ground relates to addition of Rs.7,14,441 on account of excess stock.
6. Shri Vimal Desai, the ld.representative for the assessee submitted that the assessing officer examined this issue elaborately and found that there was no excess stock as on the date of survey. Accordingly, the assessing officer has not made any addition at all. The excess stock to the extent of Rs. 7,14,441 being the difference between physical stock found during the course of survey operation and the stock as per the books of account, cannot be treated as income of the assessee on the basis of the statement recorded during the course of survey operation. According to the ld.representative for the assessee, the statement recorded during the course of survey operation cannot be basis for making any addition. Therefore, the addition made by the lower authorities is not sustainable. For this proposition, the ld.representative for the assessee relied 7 ITA No.45/Rjt/2006 ITA No.361/rjt/2009 upon the decision of the Tribunal in the case of Dy.CIT vs M/s Saurahtra Tin & Metal Industries order dated 30-01-2008 in ITA No.202/RJT 2007 for the assessment year 2004-05.
7. On the contrary, Shri SL Meena, the ld.DR, submitted that during the course of survey operation physical stock was verified by the revenue authorities and it was found that the assessee was in possession of stock worth about Rs.39,47,910. However, as per the books of account, the tock was only Rs.32,33,469. Therefore, the difference of R,.7,14,441 which was not recorded in the books of account was treated as income of the assessee. According to the ld.DR when the assessee was examined with regard to this difference it was admitted by one of the partners that it was unexplained investment and agreed to pay the tax. Therefore, it is not correct to say that the assessing officer has made addition only on the basis of statement alone. The statement was supported by the stock found during the course of survey operation. Therefore, according to the ld.DR, CIT(A) has rightly confirmed the addition.
8. We have considered the rival submissions on either side. During the course of survey operation the revenue authorities found physical stock of Rs.39,47,910. However, as per the books of account, the stock was only Rs.32,33,469. When questioned by revenue authorities, one of the partners of the firm admitted that this was the investment in the stock and agreed to pay the tax. The excess stock found during the course of survey operation was not recorded in the books of account. Therefore, as rightly stated by the ld.DR it is not a case of addition only on the basis of the statement recorded during the course of survey operation. The statement recorded by the assessing officer during the course of survey operation was supported by the excess stock found physically during the course of survey operation. Having failed to explain the excess stock found, the partner of the assessee firm admitted that it is an unexplained investment. In such circumstances, it may not be right to say that the lower authorities made the addition only on the basis of the statement 8 ITA No.45/Rjt/2006 ITA No.361/rjt/2009 recorded during the course of survey operation. We have also gone through the decision of this Tribunal in Saurashtra Tin & Metal Industries (supra). In the case before the Tribunal in the case of Saurashtra Tin & Metal Industries, excess of stock was found during the course of survey operation and the assessee agreed to pay tax on the difference of stock physically found and the stock as per the books of account. Accordingly the income was computed after recording the difference found during the course of survey operation as income assessable. Once the income was computed as business income with regard to difference found during the course of survey operation this Tribunal found that there cannot be any further addition u/s 69B of the Act. Therefore, the Tribunal found that the addition made by the assessing officer again with regard to the difference in stock was not justified. In the case before us it is nobody's case that the difference in stock was included in the income computed as business income. Since the assessee explained that there was no difference, the assessing officer rejected the contention of the assessee and added the same towards the taxable income. Therefore, it is not a case of double addition. For the first time, the addition was made with regard to the excess stock. Therefore, this decision of the Rajkot bench of the Tribunal is not applicable to the facts of the case.
9. Since admittedly, the excess stock was found during the course of survey operation, the assessee cannot now contend that there was no excess stock. The explanation of the assessee as found in the letter dated 24-03-2002 that the purchase bill was not received along with the material. The assessee has also claimed certain machine expenditure and factory expenses. When the assessee has received the goods, it is not known how the purchase bill was not received by the assessee. If the contention of the assessee that the goods were received on the last day of the financial year, then there may be justification for not accounting the same in the books of account since the assessee may do it in the regular course. In this case, admittedly, the survey operation was made on 28- 12-2001. Therefore, there is no justification for not bringing the purchase to the 9 ITA No.45/Rjt/2006 ITA No.361/rjt/2009 extent of Rs.7,14,441. In these circumstances, we do not find any infirmity in the order of the lower authority. Accordingly, the same is confirmed.
10. The next issue is with regard to the addition of Rs.10,000 on account of undisclosed investment in furniture. We have heard the ld.representative for the assessee and the ld.DR. Admittedly, during he course of survey, undisclosed investment in office renovation and new furniture was found to the extent of Rs.1,10,000. The partners of the firm valued the investment during the course of survey operation and paid taxes to the extent of Rs.1 lakh. Therefore, the remaining amount of Rs.10,000 was added by the assessing officer as undisclosed investment. Admittedly, the investment was found during the course of survey operation and the partners of the firm admitted that there was an unexplained investment in office renovation and furniture which was not entered in the books of account. Therefore, it is for the assessee to explain how the remaining balance of Rs.10,000 came to be invested in renovation and furniture. In the absence of any explanation from the assessee it is to be construed that the source for such investment has come from the very same business. Therefore, it is to be added as business income. Since the assessee has not disclosed the same in the return of income, in our opinion, the assessing officer has rightly made the addition which was confirmed by CIT(A). Therefore, we do not find any infirmity in the order of CIT(A). Accordingly the same is confirmed.
11. The next ground of appeal is with regard to the addition of Rs.3,00,940 towards excess cash found. We have heard the learned representative for the assessee and the ld.DR. Admittedly, the excess cash of Rs.3,00,940 was found during the course of survey operation from the premises of the assessee from the table drawer of Shri Kartik Jasani, an employee of the assessee firm, who is son of one of the partners, Shri Jaisukhlal Dhirajlal Jasani. Since the money was found in the premises of the assessee firm and it was found in the drawer of the employee of the firm who is none other than the son of the partners, the natural presumption is that the money belongs to the assessee firm. It appears that the 10 ITA No.45/Rjt/2006 ITA No.361/rjt/2009 assessee explained before the lower authorities that the money belongs to Shri Kartik Jasani, who was keeping his personal money in his drawer. The assessee has filed the copy of the return filed by Shri Kartik Jasani. The return of income was filed on 02-08-2002 for the assessment year 2002-03. Shri Kartik Jasani has disclosed Rs.3 lakhs specifically stating cash disclosed at survey u/s 133A on 28-12-2001. Since Shri Kartik Jasani filed the return of income disclosing Rs.3 lakhs found during the course of survey operation, in the absence of any other material to show that the above said cash belongs to the assessee firm, in our opinion, addition of the above said sum of Rs.3,00,940 in the hands of the assessee is not justified. In other words, Shri Kartik Jasani, the employee of the assessee firm had already disclosed the same in his personal return filed in the regular course and paid the taxes. Therefore, the addition is not justified in the hands of the assessee. Accordingly, the order of the lower authority on this issue is set aside and the addition of Rs.3,00,940 is deleted.
12. In the result, appeal of the assessee in ITA No.45/Rjt/2006 is dismissed and appeal of the assessee in ITA 361/Rjt/2009 is partly allowed.
Order pronounced in the open court on 03-06-2011.
Sd/- sd/-
(A.L. Gehlot) (N.R.S. Ganesan)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Rajkot, Dt : 03rd June, 2011
pk/-
copy to:
1. Assessee
2. Revenue
3. the CIT(A)-III, Rajkot
4. the CIT-II, Rajkot
5. the DR, I.T.A.T., Rajkot
(True copy) By order
Asstt.Registrar, ITAT, Rajkot