Income Tax Appellate Tribunal - Amritsar
Shri Manmohan Singh, Jalandhar vs Assistant Commissioner Of Income Tax ... on 7 June, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH, AMRITSAR
BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER
AND SH. UDAYAN DASGUPTA, JUDICIAL MEMBER
I.T.A. No. 316/Asr/2023
Assessment Year: 2021-22
Sh. Manmohan Singh, Vs. Asstt. Commissioner of Income
171-A, New Vijay Nagar, Tax, Central Circle-1,
Jalandhar-144002, Punjab Jalandhar
[PAN: ABQPS 5329B]
(Appellant) (Respondent)
Appellant by : Sh. Ashray Sarna, C. A.
Respondent by : Sh. Rajiv Wadhera, Sr. DR
Date of Hearing : 30.04.2024
Date of Pronouncement : 07.06.2024
ORDER
Per Dr. M. L. Meena, AM:
The captioned appeal has been filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-5, Ludhiana dated 18.10.2023 in respect of Assessment Year: 2021-22 which is arising out of the Assessment Order dated 30.09.2022 u/s 143(3) of the Income Tax Act, 1961 passed by the ACIT, Central Circle-1, Jalandhar. 2 ITA No. 316/Asr/2023
2. The appellant- assessee has raised the following grounds of appeal:
"1. That the order passed by the Hon'ble CIT(A) dated 18.10.2023 is against the law and facts of the case.
2. That having regard to the facts and circumstances of the case, Hon'ble CIT(A) has erred in law and on facts in confirming the action of Ld. AO Ld. in framing the impugned assessment order u/s 143(3) of the Act and without complying with the mandatory conditions u/s 143/153A/153D/145 as envisaged under the Income Tax Act, 1961.
3. That having regard to the facts and circumstances of the case, Hon'ble CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making an addition to the extent of Rs. 32,43,206/- on account of alleged gross profit on sales incurred by assessee, as against the gross profit earned/declared by assessee, purely on estimation basis, that too without considering the facts of the case and submission of assessee and without observing the principles of natural justice.
4. That having regard to the facts and circumstances of the case, Hon'ble CIT (A) has erred in law and on facts in confirming the action of Ld. AO in making addition without rejecting the books of accounts as per provisions of Income Tax Act, 1961.
5. That having regard to the facts and circumstances of the case, Hon'ble CIT(A) has erred in law and on facts in confirming the action of Ld. AO has erred in law and on facts in making an addition to the extent of Rs. 16,03,606/- treating the investment made in gold/ diamond jewellery as unexplained u/s 69A of the Act, without considering the facts of the case and submission of assessee and without observing the principles of natural justice.
6. That having regard to the facts and circumstances of the case, Hon'ble CIT (A) has erred in law and on facts in confirming the action of Ld. AO has erred in law and on facts in charging income tax as per provisions of section 115BBE, without considering the facts of the case and without observing the principles of natural justice.3 ITA No. 316/Asr/2023
Manmohan Singh v. Asstt. CIT
7. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other."
3. Ground no. 1 general in nature which does not require as per of adjudication.
4. The issues in Ground nos. 2, 3 & 4 are interlinked to each other that pertains to rejection of books of account and addition on estimate basis to the extent of Rs.32,43,206/- on account of alleged gross profit on sales.
5. Briefly the facts are that a search and seizure action u/s 132 of the Income-tax Act, 1961 was carried out at the residential premises and business premises of Saffron Group on 29.10.2020 and in the course of search and seizure on 29.10.2020 at the Residential premises and business premise i.e. M/s. Saffrino, the Art of Furniture, the statements of GM and Assistant Accountant of the assessee concern were recorded wherein they stated that the margin of profits was around 58% on domestic products and 88% percent on imported products of furniture. The case of the assessee in the present year was assessed u/s 143(3) of the Income Tax Act, 1961. The AO during assessment proceedings for AY 2021-22 held that the assessee would be having an average profit of 45% on the sale price by reducing the purchase price from the tag value and giving 4 ITA No. 316/Asr/2023 Manmohan Singh v. Asstt. CIT benefit of discount after rejecting the books of accounts of the assessee for the current year and made addition in the case of the assessee by estimation of income for Assessment Year 2021-22.
6. Aggrieved with assessment order, the assesse filed an appeal before the ld CIT appeal who granted part relief to the assessee by observing as under:
6.3.6 I have considered the assessment order, the submissions of the appellant along with the information/documents filed by the AR. During the year under consideration. The AO has calculated GP @45% by calculating the profits on the basis of purchase price of items and sale prices mentioned on the sale tags found on the documents impounded for AY 2021-22. Benefit of discount, import and cartage expenses etc. has been given while doing the above calculation. Further, in the present year, the assessment has been made u/s 143(3) and not under 153A of the Act.
Therefore, the decision of H on'ble Supreme Court in the case of Abhisar Buildwell Ltd is not applicable in this case. Hence, it cannot be held that the AO has been reasonable in doing the said estimation. The AO was well within his jurisdiction in estimating the GP rate based on the facts of the case. The AO has also discussed at length, the methodology of arriving at the GP rate of 45%. He has already given benefit of 20% discount while calculating profit margin in the table. Subsequently, he has given further benefit of further discounts, freight etc. Therefore, the approach taken by the AO is he'd to be correct.
6.3.7 However, it is seen that the appellant has also purchased raw material. It was argued by the AR that this raw material is required to maintain the furniture and is inherent part of the cost. He submitted that benefit of purchase or raw material of Rs.23,60,270/- should be given.
I have considered this submission of the appellant and partly agree with him. While this raw material is required for maintaining the furniture, it cannot be said that entire raw material would be consumed in respect of furniture sold. Part of the raw material would be in closing stock. Some 5 ITA No. 316/Asr/2023 Manmohan Singh v. Asstt. CIT raw material must have been consumed on the furniture, which is part of closing stock. Therefore, benefit of the raw material in the ratio of sale to closing stock is being given During the year, the sale is Rs. 1,92,34 ,090/- and closing stock is Rs. 1,66,03,738/-. Therefore, appellant gets benefit of Rs.23,60,270 x 1,92,34,090/ (1,92,34,090 - 1,60,03,738) = Rs. 12,66,752/- . The remaining addition of Rs. 32,43,206/- (Rs. 45,09,958 - Rs. 12,66,752) is confirmed.
Accordingly, this ground of appeal is partly allowed.
7. The ld. counsel for the assessee has submitted that the CIT(A) has erred in law and on facts in confirming the action of Ld. AO Ld. in framing the impugned assessment order u/s 143(3) of the Act and without complying with the mandatory conditions u/s 143/153A/153D/145 as envisaged under the Income Tax Act, 1961 and that on the facts and circumstances of the case, the CIT(A) was not justified in confirming the action of Ld. AO in estimating trading addition to the extent of Rs. 32,43,206/- on account of alleged gross profit on sales incurred by assessee, as against the gross profit earned/declared by assessee, purely on estimation basis, that too without considering the facts of the case and rebutting the contention of assessee in the written submissions in contravention to the principles of natural justice. He filed a written synopsis which reads as under:
"BEFORE THE HON'BLE INCOME TAX APPELLATE TRIBUNAL, AMRITSAR 6 ITA No. 316/Asr/2023 Manmohan Singh v. Asstt. CIT SYNOPSIS IN THE CASE OF MANMOHAN SINGH , 171 -A , NEW VIJAY NAGAR , 144002 , PUNJAB FOR THE ASSTT. YEAR 2021-22 ITA 316/ASR/2023 Respected Sir, SUBMISSION ON ADDITION OF Rs.32,43,206/-
a. SUBMISSION WITH RESPECT TO ISSUE OF REJECTION OF BOOKS OF ACCOUNTS.
Sir, Ld. AO rejected books of accounts without any basis and without any defect. Sir, it is submitted that while estimating the net income from the business, the Ld. AO totally disregarded the book results. Every assessment year is independent and self-contained and hence book results of one year cannot be applied to the other year. It is elementary that dynamics of business gets influenced by variety of factors peculiar to a business as also demand and supply environment. Sir, the gross profit rate cannot be estimated cursorily and in a routine manner without showing as to how the book results are superfluous. The AO has not brought any material which has any reasonable nexus to the estimation. Even the best judgment assessment cannot be done in a vindictive manner. No DEFECT HAS BEEN POINTED OUT BY THE LD. AO IN THE BOOKS OF ACCOUNTS AND NO MATERIAL HAS BEEN BROUGHT ON RECORD WHICH IS AGAINST THE ASSESSEE AND NO INCRIMINATING MATERIAL IS FOUND DURING SEARCH AND BOOKS ARE REJECTED ONLY ON ASSUMPTION AND PRESUMPTION BASIS.
Sir, in this regard reliance is being placed upon the following Judgments wherein the order of the ld. AO rejecting the books of accounts of the assessee have been quashed by the Hon'ble Courts and book results have been accepted:
a) Assistant Commissioner of Income Tax Vs. Roopchand Tharani, Hon'ble High Court of Chhattisgarh, (2012) 249 CTR 0326, Held: "Assessing Officer not justified in rejecting assessee's books of account without pointing out any specific error in books"
b) In Case of Nyasa vs. Assistant Commissioner of Income Tax, Delhi (2012) 33 CCH 0579 (Del-ITAT)
c) Hon'able jurisdictional High court in the case of CIT vs. Om Overseas, 173 Taxman 185, (P & H) "In the absence of any illegality or perversity in the finding of fact arrived at by the CIT(A) sand the Tribunal that the assessee's books of account were rejected by the AO and the addition was made without pointing out any specific defect in the books of account, impugned addition was rightly deleted and no substantial question of law arises for determination."
7ITA No. 316/Asr/2023
Manmohan Singh v. Asstt. CIT Thus, considering the submissions of assessee and following the principles of consistency, it is requested that addition made in the hands of assessee may kindly be deleted.
b. SUBMISSIONS WITH RESPECT TO WRONGLY ESTIMATION OF INCOME Sir, as regard to profit margin of 45% as calculated by Ld. AO. on the basis of seized documents the contention put forth by the assessee is that the actual profit margin earned by him after claiming direct expenses in P/L account comes to 19.37%. Sir, the ld. AO has calculated the profit without considering the following facts:
That no sale outside the books of have been found during the search. That no case of under billing have been found during the search. That no difference in stock have been found during the search. That no defect has been found in the audited books of accounts. That the statement recorded u/s 133A of the Act de hors incriminating material found at the time of survey cannot be basis to make any addition , there should been an evidence found which can lead to the conclusion that assessee has suppressed income.
Sir, the balance of the unsold stock tallies with the register maintained by the assessee during the year under consideration, thus the assessee has not concealed any income and has maintained true and tallied books of accounts.
Ld. AO is under the presumption that there is only trading executed by assessee i.e sale and purchase and no additional cost incurred by assessee whereas in actual goods purchased are many times semi finished and needs additional items to bring them to salebale condition and assessee has to incur cost.These are direct cost without which assessee cannot sale the items.
That Ld. AO. has calculated the profit on cost i.e the list of stock containing rates and codes where purchase prices were mentioned, these are in actual price of semi finished stock and once they are purchased assessee incur expense on these such as polishing, beautification, minor repairs etc. to bring it to the final saleable position but Ld. AO. has not allowed the benefit of these expenses.
That during the year assessee has purchased raw material amounting to Rs 23,74,842.75 and the same is shown in the audited books of assessee under the head Purchase GST( within state 18%) 8 ITA No. 316/Asr/2023 Manmohan Singh v. Asstt. CIT Sir, as per the assessment order, Ld. AO. allowed the benefit of freight amount to Rs 2,61,186/- which is a direct expense, has not allowed the benefit of raw material consumed amounting to Rs 23,60,270/- which is also a direct expense , moreover such cost was considered by the assessee to determine his gross profit margin . There is complete contradiction in the addition made by Ld. AO as he allowed benefit of freight expense and disallowed raw material expense as both are direct expense and should be allowed while computing Actual Gross Profit.
Sir, the assessee at the time of assessment proceedings has filed his reply stating that Ld. AO. while calculating gross margin , the cost incurred on improvement / furnishing of the original product has not taken into consideration. Had the same been considered along with the discount generally allowed to the customer then the gross profit rate comes to actual declared by assessee in his return but while framing the addition such fact was not taken into consideration. Further the Ld. AO. has not brought on record any contrary evidence to proof/show that such purchases of raw material are not genuine ,therefore the expense on such raw material should be allowed to assessee.
Your attention is brought to the fact that during the year assessee incurred expense of Rs.23,60,270/-on furniture for polishing, beautification, minor repairs etc. to bring it to the final saleable position. Sir this being the Covid Year and sales declined and stock quality started deteriorating and started becoming obsolete and to bring them back to saleable position assessee had to incur such expense. Without these expense assessee could not have sold the stock, thus these are direct expense.
Sir, the assessee has maintained proper stock register and the balance of closing unsold stock tallies with the register maintained by the assessee thus, the assessee has not concealed any income and has maintained true and tallied books of accounts. Sir, since the proper stock register is maintained and the unsold stock as shown in the documents/bills are already recorded and tallied ,moreover the stock lying in the premises when sold are recorded in the books thus assessee has not concealed any fact nor has earned extra profit on such stock. The raw material expenses of Rs 23,60,270/- are genuine expenses and the benefit of the same should be given.
The gross profit rate of the assessee as per Ld. AO. comes to 34% (i.e 54%- 20%) rather than 45% as stated in para 5.4 of the assessment order. The chart showing the addition to made in hands of assessee is as follows:9 ITA No. 316/Asr/2023
Manmohan Singh v. Asstt. CIT PARTICULAR AMOUNT Sale during the year under consideration Rs 1,92,34,090 34% gross profit on sale (i.e 54% of Rs 65,39,590.60 average profit on sale price - 20% of discount given on sale tag price) Less:freight claimed Rs 2,61,186 Less:Raw material expenses (expenses Rs 23,60,270 not allowed by Ld. AO. but is incurred by the assessee during the year, debited in trading account ) That the list of stock containing rates and codes where purchase prices were mentioned, these are in actual price of semi finished stock and once they are purchased assessee incur expense on these such as polishing, beautification etc. to bring it to the final saleable position and Ld. AO. has not allowed the benefit of these expenses.
Total (65,39,590.60-26,21,456) Rs 39,18,134.6 Less:declared profit during the year Rs 37,26,251 Admissible addition ought to be made Rs 1,91,883.6 in the hands of assessee even if the observation of the Ld. AO. are accepted for arguments sake Sir, from above chart it is clear that the eligible addition to be made in the hands of assessee after considering 20% minimum discount would be amounting to Rs 1,91,883.6 rather than 45,09,958/-.
c. SUBMISSION OF ASSESSEE REGARDING DISCOUNT OF 20% TO 35% DURING TRADE PRACTICE:
Sir, the assessee in order to proof his claim of discount ranging from 20% to 35% incurred at the time of sale , is reproducing herewith the banners displayed in the showroom :10 ITA No. 316/Asr/2023
Manmohan Singh v. Asstt. CIT Sir, the above reproduced pictures shows that the assessee has offered discount of minimum discount of 20% and the same was also displayed in the showroom at the time of search at the business premises of assessee.
However in most cases customers ask for additional discount (bargaining) , and some by the way of their family relation with assessee request for additional discount, other request for friends and family additional discount hence the discount of the assessee goes up from 20% to 30% or 35% .
Sir, also being the Covid year assessee had to give discount more than the regular discount so that there is alteast churning of stock and assessee 11 ITA No. 316/Asr/2023 Manmohan Singh v. Asstt. CIT was under fear that if stock is not sold it will become outdated or become obsolete.
Sir, therefore as the Ld. AO. has mentioned to accept average discount in the assessment order so, the average discount offered should be 27.5% rather than 20% , as 20% discount is the minimum discount and not the average discount.
Sir, the addition amounting to Rs 45,09,958/- made in the hands of assessee is incorrect on the following basis:
That sale during the year under consideration amounts to Rs 1,92,34,090 rather than 1,88,83,099.
Ld. AO. in the assessment order has considered the weighted average profit on sale price for 54% ( as per para 5.2 of the assessment order) Ld. AO. has accepted the average discount of 20% to 35% on sale tag price (as per para 5.4 of assessment order) The gross profit rate of the assessee as per Ld. AO. comes to 34% (i.e 54%-20%) rather than 45% as stated in para 5.4 of the assessment order. That the Ld. AO. has not allowed the claim of Rs 23,60,270/- on account of raw material to assessee.That the list of stock containing rates and codes where purchase prices were mentioned, these are in actual price of semi finished stock and once they are purchased assessee incur expense on these such as polishing, beautification etc. to bring it to the final saleable position and Ld. AO. has not allowed the benefit of these expenses.
That for arguments sake even if the observation of Ld. Ao. are accepted the addition in the hands of assessee should be of Rs 1,91,883.6 rather than Rs 45,09,958 ( as per chart shown above) That the Ld. AO. has accepted an average discount of 20% to 35%, whereas while making addition he allowed average discount of 20%. Sir, in the trade practice of assessee discount is around 30% . Sir, even if we accept the claim of Ld. AO. only wherein he says that average discount ranges from 20% to 35% ,thenthe average discount comes to 27.5% (i.e average of 20% to 35%) and not 20% . Sir, Ld. AO. has allowed the minimum discount and not the average discount. Therefore the average discount to be allowed in the case of assessee should be 27.5% and not 20% .
PARTICULAR AMOUNT
Sale during the year under consideration Rs 1,92,34,090
26.5% gross profit on sale (i.e 54% of Rs 50,97,033.85
12
ITA No. 316/Asr/2023
Manmohan Singh v. Asstt. CIT
average profit on sale price - 27.5% of
discount given on sale tag price)
Less:freight claimed Rs 2,61,186
Less:Raw material expenses (expenses Rs 23,60,270 not allowed by Ld. AO. but is incurred by the assessee during the year) That the list of stock containing rates and codes where purchase prices were mentioned, these are in actual price of semi finished stock and once they are purchased assessee incur expense on these such as polishing, beautification etc. to bring it to the final saleable position and Ld. AO. has not allowed the benefit of these expenses.
Total (50,97,033.85-26,21,456) Rs 24,75,577.85 Profit declared by assessee Rs 37,26,251 The profit declared by assessee is more than the profit to be assessed if average discount is taken at 27.5% Sir, at the time of search and seizure operation the statement of the employees were also recorded wherein they admitted that the gross profit of the assessee ranges from 58% to 88% on domestic and imported sales , but has not put forth the point that while calculating gross profit the cost incurred on improvement/furnishing of the original/final product has not been taken into consideration. Had the same been considered along with the discount generally allowed to the customers then the gross profit rate comes to the actual declared by the assessee in his return. From the quoted price in general trade practice assessee offered 20 %to 35 % of discount to all customers. The Ld. AO. in the assessment order has produced various documents in order to proof the claim of the employees without considering the following facts:
That the documents / bills found pertains to different assessment years , but it is pertinent to mention that these registeres were also filed by assessee during the assessment proceedings and was also filed with previous submissions at the time of assessment proceedings. These sale/purchase registers are part of regular Audited books of accounts and have already been considered at the time of filing of original return.13 ITA No. 316/Asr/2023
Manmohan Singh v. Asstt. CIT That various sale bill was found and as per the list of stock containing rates and codes there purchase prices were mentioned, but he failed to state that how these are incriminating.
That sale bill that were found belongs to different asssessment years and is already accounted in books of accounts and declared as part of sale register. How could this be regarded as incriminating material?. The list of stock containing rates and codes there purchase prices were mentioned, there is nothing incriminating in this regard. The profit which is earned by assessee is declared by assessee and taxes have been paid already for the relevant assessment year.
That the list of stock containing rates and codes where purchase prices were mentioned, these are in actual price of semi finished stock and once they are purchased assessee incur expense on these such as polishing, beautification etc. to bring it to the final saleable position. Moreso the profit earned is already declared and taxes are already paid then, how could these be incriminating.
The documents that Ld. AO is producing in assessment order belongs to different AY. and at the time of its sale the said amount is accounted in the books of accounts for the said year. Thus, there is no concealment of income or profit.
That the documents pertaining to the year under consideration are the details of stock lying in the showroom and not the actual sale. Sir, how can the addition be based upon the profit that is not even earned by the assessee.
That Ld. AO. alsoon the basis of the statements of employees Ld. AO. is estimating the profit percentage of assessee more than the actual profit declared by him in his books thus, rejecting the audited books of accounts maintained by the assessee during the year under consideration. The Ld. AO. failed to consider that the cost price of the stock lying has already been included in the books during the year it was purchased and when the stock is sold the same will also be included in the books during the year the sale is to be made.
Sir, the documents / bills that pertains to earlier assessment years (i.e from AY. 2013-14 to 2020-21) has already been accepted by Ld. AO. by considering that the said bills/documents were a part of the books during the relevant year and the rejection of books of accounts without any plausible reason cannot be considered as valid. Moreover the documents belong to the year under consideration are the stock lying in the 14 ITA No. 316/Asr/2023 Manmohan Singh v. Asstt. CIT showroom and not the actual sales thus the assessee has not earned the profit on such unsold finish sold yet. Therefore the said addition is incorrect."
8. Per contra, the ld. DR relied on the impugned order.
9. We heard both the sides, perused the record, impugned order and case law cited before us. Admittedly, the AO has made addition on estimate basis in the appellant case, based on statements of GM and Assistant Accountant of the assessee concern recorded during the search u/s 132 of the Income-tax Act, 1961, carried out at the residential premises and business premises of Saffron Group on 29.10.2020 and in the course of search at M/s. Saffrino, the Art of Furniture, wherein they stated that the margin of profits may be around 58% on domestic products and 88% percent on imported products of furniture. The Ld. CIT(A) discussed that the appellant has also purchased raw material and that raw material was required to maintain the furniture and is inherent part of the cost. However, he has given part relief of purchase of raw material to the extent of Rs. 12,66,752/- out of Rs.23,60,270/- on estimate basis but ignored to consider the claim of expenditure in respect discounts given to the customers on the sale of the said furniture in respect of the estimated addition made by the Assessing Officer(in short "the AO").
15ITA No. 316/Asr/2023
10. The Ld. AR contended that the gross profit rate estimated by the AO in a routine manner without pointing out any discrepancy in books of account or book results with reference to any incriminating material if any found during the course of search u/s 132 of the Act. are superfluous. He further contended that the AO has not brought any material on record to establish any reasonable nexus to the estimation. In our view, where no defect has been pointed out the AO in the books of account and no material brought on record against the appellant and that no incriminating material was found during search, the addition on estimation of Gross profit on assumption and presumption would be liable to be deleted.
11. The Hon'able jurisdictional High court in the case of CIT vs. Om Overseas, 173 Taxman 185, (P & H) observed that the assessee's books of account were rejected by the AO without pointing out any specific defect in the books of account, impugned addition was rightly deleted and no substantial question of law arises.
12. It is noted that the AO has allowed the benefit of freight amount to Rs 2,61,186/- a direct expense, but he has not allowed the benefit of raw material consumed amounting to Rs 23,60,270/- which was also a direct expense, which was considered by the assessee in determining his gross 16 ITA No. 316/Asr/2023 Manmohan Singh v. Asstt. CIT profit margin. Thus, there was contradiction in the finding of the AO and the Ld. CIT(A) as they allowed benefit of freight expense but disallowed raw material expense although both were direct expense and should be allowed while computing Actual Gross Profit.
13. Further the assessee has maintained proper stock register and the balance of closing unsold stock tallies with the register maintained by the assessee. Thus, the assessee has not concealed any income and has maintained true and audited books of accounts. Since the proper stock register is maintained and the unsold stock as shown in the documents/bills are already recorded and tallied and that the stock lying in the premises when sold were also recorded in the books. In our view, the raw material expenses of Rs 23,60,270/- are genuine expenses and the benefit of the same ought to have been given by the authorities below. After considering the computation chart of the assessee the gross profit rate of the assessee, on allowing the permissible discount of 20 % would be computed at 34% (i.e 54%-20%) rather than 45% as per AO vide para 5.4 of the assessment order.
14. In view of that matter, after considering 20% minimum discount, we sustain the addition amounting to Rs 1,91,883.6/- out of the addition of Rs. 17 ITA No. 316/Asr/2023
Manmohan Singh v. Asstt. CIT 32,43,206/- sustained by the Ld. CIT(A). Thus, issues raised in Ground nos. 2, 3 & 4 is partly allowed.
16. In ground no. 5, the assessee has objected to the decision of the ld. CIT(A) in confirming the addition of Rs. 16,03,606/- in treating the investment made in gold and diamond jewellery as unexplained u/s 69A of the Act without considering the facts of the case and submissions of the assessee.
17 The Ld. CIT(A) has granted part relief on the issue of unexplained investment in jewellery u/s 69A of the Act by observing as under:
"I have considered the assessment order, the submissions of the appellant along with the information/documents filed by the AR. During the course of appellate proceedings vide note sheet entry dated 04.10.2023, it has been agreed by the AR that the benefit of jewellery of son as per CBDT Instruction dated 11.05.1994 was not provided. It is also observed that while computing the excess jewellery, the AO has to give the part benefit to the assessee as per the CBDT Circular No. 1916 dated 11.05.1994. Therefore, by following the instructions of the Hon'ble CBDT vide Circular No. 1916 dated 11.05 1994 and as per the note sheet entry dated 04.10.2023, the benefit is allowed to the assessee as the assessee has two sons i.e. Sh. Gurmehar Singh and Sh. Awalpreet Singh. The contention of the AR that the benefit of CBDT Circular is allowable to the assessee to the extent of 800 grams on account of four family members as contested in his submissions is not fully acceptable. In that context, the benefit of only 200 grams of gold is allowed to the assessee. Further, the AR also submitted that benefit of jewelley of Rs.4,15,000/- declared in the appellant in his return for the AY 13-14 was also not given. Since this amount has been declared, it is held that benefit of the same has to be given.18 ITA No. 316/Asr/2023
Manmohan Singh v. Asstt. CIT Therefore, the jewellery to the extent of balance 170.067 grams o f gold jewellery and 34.79 grams of diamond jewellery is held as excess jewellery found in the possession of the appellant/ family at the time of search. The value of such jewellery at the rate of Rs. @5200 per grams for gold jewellery (170.067 grams) and @ Rs. 32603 per Carat (34.79 grams) for diamond jewellery (the rate of jewellery at the time of valuation as mentioned by the Valuer in his report) comes to Rs. 8,84,348/ - & Rs.
11,34,258/- respectively. Thus total unexplained investment in jewellery works out as under:
Gold jewellery as calculated above Rs. 8,84,348/-
Diamond jewellery as calculated above Rs. 11,34.258/-
Total Rs. 20,18,606/-
Less: jewellery already disclosed Rs. 4.15,000/-
Unexplained jewellery Rs. 16,03,606/-
Therefore, the addition to the extent of Rs.16,03,606/- is confirmed and the appellant gets relief of the balance amount.
Accordingly, this ground of appeal is partly allowed."
18. The Ld. AR submitted before the Ld. CIT(A) that AO made addition stating that Locker was owned by the assessee and his wife Smt. Inderjit Kaur so the jewellery found belongs to their family but, the benefit to the extent of 1100 gms has been allowed in his hands, his wife (i.e. Smt. Inderjit Kaur) and his daughter in law and no benefit was allowed to other family members ignoring the vital facts that the jewellery found in the locker are also owned by other family members too. The AR also contended that at the time of assessment proceedings he has provided the explanation regarding the holding of 1080 gms of gold owned by him and his family members but 19 ITA No. 316/Asr/2023 Manmohan Singh v. Asstt. CIT the same was not considered while making the addition of 370.067 gms of gold in the hands of assessee on account of unexplained jewellery.
19. That the Ld. AO. has made an addition amounting to Rs 30,58,606/- on account of unexplained jewellery found at the residence of the assessee without allowing the benefit of other family members of the assessee, and without allowing the benefit of jewellery received by assessee's daughter in law from her parents at the time of her marriage and accordingly, the Ld. CIT(A) restricted the addition to Rs. 16,03,606/-. The Ld. AR argued that the Ld. AO. has not provided the benefit of jewellery amounting to Rs 4,15,000/- i.e. 280 Grams declared by the assessee in his return for the AY. 2013-14 copy of return has already been provided during assessment and appellate proceedings and 100 grams owned by the father. Further, the jewellery consisted of gold, diamond and other ornaments and the value of such jewellery as on date amounts to Rs 4,15,000/- and weight was approx. 280 grams. The Counsel contended that the appellant was allowed benefit of Rs.4,15,000/- and not of the actual benefit of the absolute value of 280 grams jevellery as on the date of search at the prevailing market rate. Thus, if benefit of 280 grams has been allowed to be allowed to assessee then no excess jevellery found as per norms of CBDT circular. 20 ITA No. 316/Asr/2023
20. The ld. AR placed reliance on the decision of ITAT Delhi Bench: D:
New Delhi in the case of Kumkum Kanodia v. DCIT in ITA No. 5260/Del/2014, AY: 2011-12 order dated 20.11.2018 that the Tribunal had observed vide para 11 as under:
"11. We have considered the rival arguments made by both sides and perused the orders of the authorities below. We find that out of the total jewellery valued at Rs.87,82,230/- comprising two reports, the Assessing Officer has not made any addition in the hands of the assessee on account of jewellery valued at Rs.46,09,580/- being the jewellery purchased by M/s Pashupati Jewellers, proprietor Mrs. Sumedha Pathak on the ground that the same has been added in the hands of Mrs. Sumedha Pathak in the assessment year 2011-12. Although in appeal the ld.CIT(A) has deleted such additions, however, the Revenue is not in appeal before the Tribunal. Therefore, we are not concerned with the same. So far as the jewellery weighing 1846.400 gm with 154 ct. diamond valued at Rs.41,72,650/- is concerned, we find the Assessing Officer has made addition of Rs. 13,86,500/- which has been reduced to Rs.4,24,773/- by the CIT(A), the reasons for which has already been reproduced in the preceding paragraph. However, while sustaining the addition, he has held that diamond jewellery cannot be equated with gold jewellery in the light of the CBDT Instructions. It is the submission of the Id. counsel for the assessee that jewellery includes ornaments made of gold, silver, platinum or any other precious metals or any alloy containing one or more precious metals, whether or not containing any precious or semi-precious stones. We find merit in the above arguments of the Id. counsel for the assessee. In our opinion, merely because the jewellery is studded with the diamond of 47.18 carat in the instant case, the same cannot be added in the hands of the assessee when such jewellery formed part of the gross weight of the jewellery found from the premises of the assessee which is within the permissible limits prescribed as per CBDT Instruction No. 1916 dated 11 th April, 1994. The decision of the Mumbai Bench of the Tribunal relied on by the Id. counsel for the assessee supports his case wherein the Tribunal, after considering the CBDT Instruction dated 11th April, 1994, has deleted the addition on account of gold and diamond jewellery. Since the addition has been deleted by the CIT(A) and the Revenue is not in appeal before the Tribunal, therefore, considering the totality of the facts of the case, we are of the considered opinion that the ld.CIT(A) is not justified in sustaining the addition to the tune of 21 ITA No. 316/Asr/2023 Manmohan Singh v. Asstt. CIT Rs.4,24,773/- on account of unexplained diamond jewellery of 47.18 carat treating the same as not covered by the CBDT Instruction No.1916 dated 11 th April, 1994. We, therefore, set aside the order of the CIT(A) and direct the Assessing Officer to delete the addition. The grounds raised by the assessee are, accordingly, allowed."
21. Having heard both sides and perusal of record and impugned order, we find that admittedly, the appellant has been denied the benefit of the jewelley owned by his father to the extent of 100 grams as per CBDT circular dated 11/05/1994 which clearly states that, the circular not only powers the assessing officer not to seize the prescribed limit of jewellery but also directs that the jewellery found during the search to the extent of prescribed limit cannot be treated as undisclosed investment. In the case of CIT v. Satya Narain Patni (2014) 46 taxmann .com 440 (Rajasthan) wherein it is observed that once the Board is of the express opinion that the said jewellery cannot be seized, it should normally mean that any jewellery, found in possesion of a married lady to the extent of 500 gms, 250 gms per unmarried lady and 100 gms per male member of the family will also not be questioned about its source and acquisition. Thus, it is abundantly clear that jewellery which has been found in possession of the family members is in accordance with customs and practice prevalent in the community and in accordance with status of the family.
22ITA No. 316/Asr/2023
22. In the present case, the appellant's family was in possession of jewellery as specified by CBDT vide Circular No. 1916 dated 11.05 1994 in accordance with customs and practice prevalent in the community and in accordance with status of the family. Therefore, when allowing the benefit of jewellery of 100 grams pertaining to father of assessee and actual full value of jewelley of 280 grams already disclosed in his returned income of AY. 2013-14, then the whole of jewelly found during search stands explained.
23. In the above view, we accept the grievance of assessee as genuine and as such delete the addition of Rs.16,03,606/- as the jevellery stands explained. Thus, the ground no. 4 of the assessee is allowed. 23.1 In the background of the aforesaid discussion, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 07.06.2024
Sd/- Sd/-
(Udayan Dasgupta) (Dr. M. L. Meena)
Judicial Member Accountant Member
*GP/Sr.PS*
23
ITA No. 316/Asr/2023
Manmohan Singh v. Asstt. CIT
Copy of the order forwarded to:
(1)The Appellant:
(2) The Respondent:
(3) The CIT concerned
(4) The Sr. DR, I.T.A.T.
True Copy
By Order