Income Tax Appellate Tribunal - Mumbai
Naresh K. Pafauja vs Deputy Commissioner Of Income-Tax on 10 July, 2007
ORDER
D.K. Srivastava, Accountant Member
1. For the sake of convenience all the aforesaid appeals are being disposed off by a Consolidated order.
ITA No. 3527/Mum./2003:Assessment year 1995-96: Assessee's appeal
2. First Ground taken by the assessee reads as under:
A. Re-opening Bad-in-law, the reassessment order may be quashed
1. The learned Commissioner (Appeals) erred in confirming the reassessment as valid without appreciating that recorded reasons had not been communicated to the appellant, therefore, the reassessment is bad-in-law and the order under Section 143(3) read with Section 147 is liable to be quashed.
3. Briefly stated, the assessee had filed its return of income for the assessment year under appeal under Section 139(1) declaring total income at Rs. 59,050 which was processed and accepted under Section 143(l)(a)of the Income Tax Act without any adjustment. The business premises of the assessee were subsequently surveyed under Section 133A on 14-6-1999 in the course of which the statement of the assessee was recorded. Relevant portions of the said statement have been reproduced in the assessment order. In his statement, the assessee, inter alia, stated that he has received a gift of Rs. 13,25,000 from one person whose name was stated to be Shri Kishan Punjabi which he subsequently changed by stating that the aforesaid gifts were received from three persons, namely, Shri Kishan Sanmukhdas Punjabi, Shri Jeetu Gulab Lalwani and Shri Mohan Vatumal Mikhwani. According to the Assessing Officer, the assessee pleaded complete absence of knowledge regarding whereabouts of the two donors namely Shri Jeetu Gulab Lalwani and Shri Mohan Vatumal Mikhwani while he could not give any satisfactory reply regarding the whereabouts of Shri Kishan Punjabi. The assessing officer also noticed that none of the donors had any close relationship with the assessee who were claimed to be near friends. In addition to the aforesaid issue, the assessing officer also noticed that the assessee had not correctly valued the closing stock. The assessing officer therefore, after recording the reasons as required by law, issued notice under Section 148on9-7-1999in response to which the assessee filed his return of income on 20-9-1999.
4. The assessee submitted before the assessing officer that the notice issued by him under Section 148 was not valid. The assessing officer has dealt with the issue in detail in the assessment order and held that the notice issued by him was in conformity with the requirements of law.
5. The assessee challenged the order of the assessing officer in this behalf before the learned Commissioner (Appeals) who decided the issue against the assessee. According to the learned Commissioner (Appeals), the assessing officer has correctly assumed the jurisdiction under Section 148 after recording the reasons. Aggrieved by his order, the assessee is now in appeal before this Tribunal on the aforesaid ground.
6. In support of the aforesaid ground of appeal, the learned Counsel for the assessee submitted that the assessee had credited a sum of Rs. 13.25 lakhs in his capital account appearing in the books maintained by him for the year under appeal and further that he had shown the basis of valuation of closing stock in the Tax Audit Report and therefore there was no failure on his part in making full, complete and truthful disclosure of all the f acts material to the assessment of his income. According to him, there was no fresh material in the possession of the assessing officer, which could lead him to reopen a concluded assessment. Relying upon the decision of the Full Bench of the Hon'ble Delhi High Court in CIT v. Kelvinator of India Ltd. (2002) 256 ITR 1', he submitted that the assumption of jurisdiction by the assessing officer under Section 147/148 was wholly arbitrary and incorrect and therefore unsustainable in law in that it was based on mere change of opinion without there being any fresh material for formation of requisite belief under Section 147.
7. In reply, the learned departmental Representative supported the orders of the assessing officer and the Commissioner (Appeals) in this behalf.
8. We have heard the parties. It is not in dispute that the return of income filed by the assessee was processed and accepted under Section 143(1)without making any adjustment. It is also not in dispute that the impugned notice was issued before the expiry of four years from the end of the assessment year under appeal and hence the case of the assessee would squarely fall under the main provisions of Section 147 of the Income-tax Act and not under the proviso to Section 147 of the Income Tax Act. Sufficient materials existed on record for issuing the impugned notice. The assessing officer has recorded the reasons in conformity with law while issuing the impugned notice. The reasons recorded by him are specific, definite, and relevant to the matter under dispute. The return of income filed by the assessee was accepted without any scrutiny and hence it cannot be said that the assessing officer had expressed his opinion while processing the return of income under Section 143(1). In our view, the assumption of jurisdiction by the assessing officer under the main provisions of Section 147 meets all the requirements of law. We therefore confirm the order of the Commissioner (Appeals) in this behalf.
9. In taking the aforesaid view, we are supported by the judgment of the Hon'ble Supreme Court in Asstt. CITv. Rajesh Jhaveri Stock Brokers (P.) Ltd. in which the Hon'ble Supreme Court has explained the law as under:
16. Section 147 authorizes and permits the assessing officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word 'reason' in the phrase 'reason to believe' would mean cause or justification. If the assessing officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the assessing officer should have finally ascertained the f act by legal evidence or conclusion. The function of the assessing officer is to administer me statute with solicitude for the public exchequer with an in-built idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. v. ITO , for initiation of action under Section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the f ormation of belief by the assessing officer is within the realm of subjective satisfaction.
17. The scope and effect of Section 147 as substituted with effect from April 1, 1989, as also Sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of Section 147, separate Clauses (a) and (fc) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To conf er jurisdiction under Section 147(a) two conditions were required to be satisfied firstly the assessing officer must have reason to believe that income profits or gains chargeable to income-tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the assessing officer could have jurisdiction to issue notice under Section 148 read with Section 147(a). But under the substituted Section 147 existence of only the first condition suffices. In other words, if the assessing officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to re-open the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to Section 147. The case at hand is covered by the main provision and not the proviso.
10. The action of the assessing officer in issuing the impugned notice isthus in conformity with the law laid down by the Hon'ble Supreme Courtin the aforesaid case. The learned Commissioner (Appeals) has rightly upheld the action of theassessing officer in this behalf. His order in this behalf is well reasonedand is in conformity with the law. Ground No. 1 taken by the assessee isdismissed.
11. Ground Nos. 2, 3 and 4 taken by the assessee read as under:
B. Disallowance of Gift - Rs. 13,25,000
2. The learned Commissioner (Appeals) erred in confirming the addition of Rs. 13,25,000 arising out of alleged gift received from following three parties without appreciating that the initial burden to treat the gifts as genuine had been discharged. Therefore the addition is uncalled for and may be deleted.
Amount of Gift (Rs.)
(a) Shri Kishan Punjabi 10,00,000
(b) Shri Mohan Vatumal Mikhwani 85,000
(c) Shri Jeetu Gulab Lalwani 2,40,000 13,25,000 Gift of Rs. 10,00,000 from Shri Kishan Punjabi
3.(a) The learned Commissioner (Appeals) ought to have appreciated that one of the parties Shri Kishan Punjabi had appeared before the assessing officer, filed affidavit and all the materials to prove the alleged gift as genuine, therefore, the addition of Rs. 10,00,000 is uncalled for and may be deleted.
(b) The learned Commissioner (Appeals) failed to consider that the statement of Shri Kishan Punjabi was recorded besides submitting other supportive documents such as affidavit, gift deed etc. Hence, the gift of Rs. 10,00,000 may be treated as genuine and addition may be deleted.
Other Gifts: Rs. 3,25,000
4. The learned Commissioner (Appeals) erred in not considering the gift deeds and affidavits of other two donors (Shri Mohan Vatumal Mikhwani and Jeetu Gulab Lalwani) Since the primary onus is discharged, the addition of alleged gift of Rs. 3,25,000 may be deleted.
12. Briefly stated, the facts of the case are, as stated earlier, that thedepartment surveyed the business premises of the assessee under Section 133 A on 14-6-1999 in the course of which a statement of the assessee was recorded. In the said statement the assessee was asked about the gifts received during the year under appeal along with the nature and source thereof. The questions put to him and the answers given by him read as under:
Q.13 Please give details of gifts received during the assessment year 1994-95 of Rs. 13,25,000?
Ans. In 1993, / had received gifts of Rs. 13,25,000 front one Shri Kishan Punjabi who is N.R.I. Q.15 Please give the details and mode of gift received from Shri Kishan Punjabi. What is your relation with Shri Kishan Punjabi? Where at present Shri Kishan Punjabi is staying?
Ans. I had received gift of Rs. 13,25,000 by cheque from Shri Kishan Punjabi and perhaps two other persons. At present, I do not remember their names. Kishan Punjabi is my friend. He is staying in Thane (E). Ido not know his exact address or telephone number. I can produce this man in your office in a day or two, if he is in India.
13. Statement of the assessee was again recorded on oath on 26-9-1999 inthe course of which he stated as under:
Q.1 Please give the details of gifts received by you during the financial year 1994-95?
Ans. I had received gift of Rs. 13,25,000 during the financial year 1994-95. I am submitting here three copies of gift deeds.
Q.2 What is your relationship with Kishan Sanmukhdas Punjabi, Jeetu Gulab Lalwani and Mohan Vatumal Mikhwani? When you have came to contact with the above persons and till today what is the status of the relationship and what are the whereabout of the above persons, if known to you? Please give the physical feature of these persons?
Ans. Shri Kishan Sanmukhdas Punjabi is my friend since last Wyears. I met him at my shop. Whenever he comes to India he also meets me at my shop. At present, Ido not know his whereabout - he may be in India or in Dubai. His height will be 5.8" he is wearing spects and is of whitish colour.
Shri Jeetu Gulab Lalwani is also my friend since last 8 years. I first met him at Pune about 8 years ago. / have not met him af ter 1994.1 do not know his present whereabouts - he may beat Pune orabroad,Idon't know. His physical features are like me - he is of whitish colour, his height will be 5.7".
Shri Mohan Vatumal Mikhwani is also my friend since last 8 years ago. I have not met af ter 1994.1 do not know his present whereabouts - he may be in India or abroad. I do not know. He is somewhat fat and of white colour. His height may be 5.4".
Q.7 What is the profession/business of that persons f rom whom you have received gifts? How many time had you met with those persons and where have you met with them? Have you given any gift in your lif etime?
Ans. Mr. Kishan Punjabi is working in a Petroleum Co. at Dubai and he is still working there. The other two persons are doing cloth business, the place where they are doing business is written in the gift deeds. Kishan Punjabi is staying in Thane and I have met him so many time at Ulhasnagar. With the other two persons also I have met so many times. Generally I also talk with them on telephones. Kishan Punjabi meets me every month. I have not made any gift in my lif etime. Ido not remember whether I have received any gift f rom any person except f rom the above three persons.
Q.8 Is it true that the money which you have received by way of gift is earned outside India and has been paid from that money?
Ans. Ionly know the gifts have been paid f rom NREA/c. Ido not know the source of deposits in the account.
Q.9 What are addresses in India of the three persons who have given gifts to you?
Ans. l do not know their addresses. I shall furnish the addresses afterwards.
Kishan Punjabi is staying in Thane (E) and the other two persons are staying in Pune. I will also give the telephone numbers of those persons.
14. The Assessing Officer took note of all the materials on record including the explanation given by the assessee and held that the alleged gifts were not genuine. He has given foUowing, amongst others, reasons for coming to the aforesaid conclusion:
(a) All the three donors have filed identically worded declarations of giftwhich, in the ordinary course of human conduct, were not possibleas all the three donors were neither related to each other nor hadcommon addresses in India and therefore they had no occasion toprepare identically worded declarations. The assessing officer haspointed out that the donors resided at Pune and Thane. On the basisof the aforesaid material, he has concluded that it would be too muchof coincidence that declarations made on different dates and placeswould carry identical narrations unless all of them were asked to puttheir signatures on identically worded declarations at the instance ofthe assessee or persons acting on his behalf with ulterior motive.
(b) Shri Kishan Punjabi allegedly gifted Rs. 5 lakhs each in quicksuccession ie. 25-4-1994 and 11-7-1994 which, according to theassessing officer, were quite abnormal.
(c) The giftsallegedly made byShriJeetuLalwani and MohanMikhwani were surprisingly in odd figures, namely, Rs. 2,40,000 and Rs. 85,000.
(d) The signature of Shri Mohan Vatumal Mikhwani on the declarationof gift was apparently different from his signature on the photocopyof the passport filed by the assessee before him.
(e) The assessee did not produce the donors despite various opporturiitiesgiven to him.
15. As regards the gifts allegedly received from Shri Mohan Vatumal Mikhwani through cheque issued from his NRE account No. 441 with Sangli Bank Ltd., Pune, the assessing officer made the requisite inquiries from the bank and noticed that the said account was opened on 31 -5-1994with credit of Rs. 2,35,267 by way of transfer. He further noticed that pay order No. 764151 for Rs. 2,35,000 was issued in favour of the assessee on that very date. According to him, the balance amount was withdrawn on the text date i.e. 1-6-1994 and the account was ultimately closed on 2-6- 1994. He also noticed that the signature available on the photocopy of the application form was substantially different from the signature available on the gift deed. He further noted that the assessee himself was not aware regarding the whereabouts of the aforesaid donor, namely, Shri Mohan Vatumal Mikhwani.
16. As regards the gift allegedly received from Shri Jeetu Gulab Lalwani, the assessing officer noticed that the NRE bank account was opened in Jammu & Kashmir bank Ltd., Pune with cheque for Rs. 50,000 dated 30-5-1994 deposited in the said NRE account. The assessing officer noted that, as per the RBI regulations, the deposits permitted in NRE account were required to be in foreign currency remittances from abroad through normal banking channels. He further noticed that there were total deposits of Rs. 1,01,35,000 made in the said account from 30-5-1994 to September 1.994 which was withdrawn in its entirety in the same period leaving behind balance of Rs. 199 in September 1994. He noticed that this was an unusual feature in the NRE account. He made the enquiries from the bank and the assessee without any satisfactory clarification coming from either of them in this behalf. He therefore inferred that the said account was apparently used for hawala transactions involving Sangli Bank Ltd. and Rupi Co-operative bank Ltd.
17. As regards the gift of Rs. 10 lakhs allegedly obtained from Shri Kishan Punjabi, the assessing officer noted that the assessee was a paid em- ployee. He referred to the salary slip for the month of April 1999 filed by the assessee showing monthly salary of 12,267 Dirhams out of which the entire amount of 12,267 was deducted leaving behind net salary al Nil The assessing officer inferred that the salary of Kishan Punjabi was not sufficient enough to enable him to pay gift of Rs. 10 lakhs to the assessee. Besides, he held that the gifts allegedly received from Shri Kishan Punjabi were not genuine.
18. In view of the aforesaid facts, the assessing officer held as under:
12. On carefui consideration of the above facts on records, it prima facie appeared that the claim of gifts was suspicious and therefore requiring the assessee to produce the donors personally to investigate the matter further. Despite a number of opportunities given to the assessee as discussed above, the assessee failed to produce the donors. However, he failed to do so even on the last occasion when he was allowed time of 42 days to produce the witness on any working day as per his convenience. Since the assessee has failed to produce his witnesses being the alleged donors, I am lef t with no alternative but to decide the issue in accordance with the law. This brings me to the provision of Section 68 of the Act which squarely cast onus on the assessee to prove satisfactorily credit entries appearing in his books of account. Since the amount of gifts "have been credited to the assessee's capital account, he is supposed to discharge the primary onus by proving identity of the party, his capacity to give money and the genuineness of transaction. For this purpose, it is for him to produce the parties personally if so required as his witness. If he fails to do so, the requirements of Section 68 are not satisfied. This is regardless of the location of the witnesses and attendant inability to produce the donors personally to prove the alleged huge amount of gifts. When the law cast onus on the assessee to prove genuineness of gifts and for that reason, the donors are required to be produced personally, there is no escapement from the same except when the donor is not alive. In the instant case, the assessee is not aware of the whereabouts of two donors. It is highly improbable that the assessee would receive huge amount by way of gift from near stranger. The reason stated for alleged gift ie. natural love and affection is extremely incredible in the sense that the assessee virtually does not even have the donor's telephone No. or their address. Though action of giving gift is supposed to be a voluntary act, still the justification and consequent genuineness is to be interred from various attendant social customs like relationship, occasion or at least discharge of some personal obligation. According to the tradition, huge amount of gifts are unknown except when made to close relatives for charitablé cause. It is significant to note that the assessee has himself stated that he has not given nay gift in his lifetime. This is again very strange. According to the recognized social norms, there has to be a well measured and adequate response by way of reciprocal gift. For this reason, at least a mental note is kept regarding gifts received on various social ceremonies so as to ensure adequate return gifts. In the case of assessee, these appears only one way traffic ie. receiving huge gifts and that too of money and in odd figures like Rs. 85,000, Rs. 2,40,000 etc. On totality of the facts and circumstances of the case and after considering the position of law, I hold that the credit entries by way of alleged gifts are not satisfactorily proved within the meaning of Section 68 of the Act and therefore the same is treated as unexplained and added to the total income of the assessee.
19. Aggrieved by the aforesaid order, the assessee filed an appeal before the Commissioner (Appeals). Ld. Commissioner (Appeals) however agreed with the Assessing Officer with the following observations:
19. A perusal of these submissions shows that nothing more than making a reference to the documentary evidences filed before the assessing officer has been done in support of appellant's case. But the evidence does not prove the source of the amounts, much less that they were gif ted to the appellant. These submissions made on behalf of the appellant thus do not answer the issues raised by the assessing officer in his assessment order, namely, those reproduced as points (d) to (d) of para No. 13 above.
20. Further, the following issues raised by the assessing officer have remained unanswered even till now:
(a)In case of the alleged donor, Shri Kishan Punjabi, his pay slip andother f acts stated in the assessment order, do not show that he ishighly paid employee having salary that would enable him to giftsuch a huge amount.
(b) There were unexplained credits of Rs. 2,74,236 and Rs. 2,73,117 on 12-7-1994, the date on which a gift of Rs. 5 lakhs was made by Shri Punjabi to the appellant.
(c) The bank account of another alleged donor, Shri Jeetu Gulab Lalwani, through which the alleged gift was received by the appellant, was not a Non-Resident External Account (NRE A/c.) in which the deposit was made not from foreign remittances in foreign currency but through local transfer in Indian currency.
(d) The aforesaid bank account of the alleged donor, Shri Jeetu Gulab Lalwani, was opened only so as to operate for hawala transactions for the appellant and others, which is indicated by the f act that during a short period of 4 months a sum over Rs. 1 crore were deposited in that account, whole of which were withdrawn leaving behind a balance of Rs. 199.
(e) It seems that the aforesaid bank account of the alleged donor, Shri Jeetu Gulab Lalwani, was opened only with the connivance of bank employees, who flouted the RBI Regulations regarding the NRE accounts.
(f) Similarly, the bank account of the alleged third donor, Shri Mohan Vatumal Mikhwani was opened on 31-5-1994 with credit of Rs. 2,35,267 by way of transfer and on the same day Rs. 2,35,000 was withdrawn for being given to the appellant and the balance F amount of Rs. 267 was withdrawn on the next day and the account was closed. This also shows that the bank accounts were opened to channelise the unaccounted sums of money into the books of account of the appellant by way of alleged gifts.
(g) The signature of Shri Mikhwani on the application was substantially different from the signature made on the gift deel aration which, in turn, again differs from the signature appearing on the passport.
(h) The relevant page showing immigration endorsement on the passport evidencing the presence of Shri Mikhwani in India was not available.
(i) The appellant himself was unaware of the whereabouts of Shri Mikhwani and Shri Lalwani.
(j) Numerous entries in the bank account of Shri Punjabi raised doubts about his Non-Resident status.
(k) When the relationship between the appellant and Shri Punjabi is too remote, how giving of gift could be established.
21. In the course of appellate proceedings, through office note dated30-12-2003, the representative of the appellant were asked to file thedetails of the amounts sent by the alleged donors to their own familiesduring the same period when such alleged gifts were made by them to theappellant. The case has been heard four times thereafter. However, suchdetails have not been furnished even till the date of passing this order.
This also speaks volumes about the genuineness of the so-called gifts received by the appellant.
22. It can, therefore, be said that it is not as simple as matter of AssessingOfficer's making the addition merely because the alleged donors werenot produced before the assessing officer, as the representative of theappellant would like me to believe. As stated above, it is a f ar more seriousmatter in which the issues raised by the assessing officer still lack proper explanation on part of the appellant. I also wish to bring on record my appreciation for the good investigative work done by the assessing officer in this case.
23. Keeping all the facts in view, I completely agree with the Assessing Officer that the source of the so-called gifts claimed to have been received by the appellant have not been proved and are not genuine. The amount of Rs. 13,25,000 was, therefore, rightly added back by the assessing officer. The addition is uphelearned
20. Aggrieved by the order of the Commissioner (Appeals), the assessee is now in appeal before this Tribunal. In support of appeal, the learned Counsel for the assessee has invited our attention to the f actual aspects of the case, which we have already narrated above, and submitted that the gifts received by the assessee from the aforesaid three persons were genuine. He submitted that the gift of Rs. 10 lakhs, received from Shri Kishan Punjabi was supported by a declaration of gift, copy of his passport, copy of cheque for gifts, copy of bank statement showing that the amount gifted through cheques were debited, copy of his salary slip for the month of April 1999, copy of appointment letter issued by Kamte Agencies & Services Pvt. Ltd. regarding his appointment with M/s. Abu Dhabi Gas Industries Ltd., list of shares held by Shri Kishan Punjabi in Demat account with Stock Holdings Corporation of India Ltd., copy of his statement recorded on oath on 9-8-1999, copy of his affidavit dated 22-1-2001 etc. He submitted that the aforesaid documents clearly established the identity of Shri Kishan Punjabi and his financial capacity to make the impugned gift as also the genuineness of the gift and hence the departmental authorities were not justified in treating the impugned gift received from him as unexplained. As regards the gifts allegedly received from the other two donors, the learned Counsel for the assessee has relied on similar declarations of gift made by them as also the copy of passport, bank certificate etc. issued by the concerned bank.
21. As regards the genuineness of gift allegedly received from Shri Kishan Punjabi, the learned Counsel for the assessee submitted that the said Shri Kishan Punjabi was a family friend of the assessee and the father of the assessee was known to the father of Shri Punjabi since 1930 when they were residents of Pakistan. Ref erring to the affidavit and salary slip for the month of April 1999 of Shri Kishan Punjabi, he submitted that the salary of Shri Kishan Punjabi was more than Rs. 1.50 lakhs per month and that the affidavit of Shri Kishan Punjabi could not have been disregarded in the absence of any contradictory evidence in view of the decision in Mehta Parikh & Co. v. CIT (1956) 30 ITR 181 (SC). According to him, Shri Kishan Punjabi appeared before the assessing officer on 5-12-2001 before the assessing officer but his statement could not be recorded, as the assessing officer was busy with some other matter on that day. He further submitted that Shri Kishan Punjabi had confirmed of having made gifts to other relatives in his statement recorded on 9-9-1999.
22. The learned Counsel for the assessee further submitted that the assessee has all along been stating that the amounts recorded in his books of account represented gifts which he subsequently explained by establishing the identity and financial capacity of the donors as also the genuineness of the gift before the assessing officer and the Commissioner (Appeals). He contended that the addition made by the assessing officer treating the impugned gifts as unexplained cash credits was not sustainable.
23. In support of his case, the learned Counsel for the assessee has placed reliance on the following decisions:
(i) Smt Bhagwati Devi v. ITO (1993) 47 ITD 58 (Cal.).
(ii) AtmaramJ. Manghirmalani (HUF) v. Ninth ITO (1998) 67 TID 289,298 (Mum.) (SMC).
(iii) Dy. CIT v. Ramdeo Kumar (2004) 140 Taxman 102 (Jodh.) (Mag.).
(iv) CIT v. R.S. Sibal .
(v) Murlidhar Lohorimal v. CIT .
(vi) A. Rajendran v. Asstt. CIT (2006) 155 Taxman 364 (Mad.).
(vii) CIT v. Mrs. Sunita Vachani .
(viii) CIT v. Smt. P.K. Noorjahan .
24. In reply, the learned departmental Representative supported the orders passed by the assessing officer and the learned Commissioner (Appeals).
25. We have heard the parties. Both the parties have ref erred to and relied upon several authorities in the course of their submissions. The decision in the case before us turns essentially on f acts. A finding as to whether the impugned gifts are genuine or not is essentially a finding of fact as held in CIT v. P. Mohankala . The decisions, orders and judgments referred to by both the parties are nevertheless helpful in understanding the broad propositions of law applicable to the issue under consideration. There is no dispute that the assessee has recorded cash credit of Rs. 13.25 lakhs in his books of account maintained for the previous year relevant to the assessment year under appeal. The short question therefore is whether the assessee has satisfactorily explained the nature and source of aforesaid cash credits. It has been held long ago in A. Govindarajulu Mudaliar v. CIT that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income Tax Officer is entitled to draw the inference that the receipts are of an assessable nature. The aforesaid proposition of law laid down by the Hon'ble Supreme Court has since remained unaltered. Section 68 was inserted in the Income Tax Act, 1961 to statutorily recognize the aforesaid proposition of law. Section 68 comes into play where a sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory. In such a case, the sum so credited in the books may be brought to the charge of the income-tax as the income of the assessee of that previous year. In Sumati Dayalv. CIT it has been held that where any sum is found credited in the books of the assessee for any previous year it may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the assessing officer, not satisfactory. The Hon'ble court has further held that in such a case there is prima facie evidence against the assessee, viz., the receipt of money, and if he fails to rebut the said evidence it can be used against him by holding that it was a receipt of an income nature. As stated earlier, it is not in dispute that the assessee has credited a sum of Rs. 13.25 lakhs in his books f or the previous year relevant to the assessment year under appeal. He has also attempted to offer an explanation regarding the nature and source of the aforesaid cash credit. The Assessing Officer has held that the explanation offered by the assessee is not satisfactory and consequently brought the amount of cash credit to the charge of income-tax under Section 68. On first appeal, the Ld. Commissioner (Appeals) has confirmed the order of the assessing officer in this behalf by his well reasoned order. Our adjudication is therefore limited to the issue as to whether the departmental authorities have correctly rejected the explanation given by the assessee regarding the nature and source of the aforesaid cash credit.
26. In order to decide as to whether the impugned gifts in the present case are genuine or not, one has to look not only at the documents produced but also at the surrounding circumstances. In this connection, we may fruit-fully notice and reproduce the following observations made by the Hon'ble Supreme Court in CIT v. Durga Prasad More :
It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents.
27. According to Section 3 of the Evidence Act, a fact is said to be proved when, after considering the matters before it, the court either believes it to exist, or considers its existence so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it exists. Section 114 of the Evidence Act pro vides that the court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct, and public and private business, in their relation to the facts of the particular case. The aforesaid provisions are nothing but recognition of broad principles of common law governing the issue under consideration.
28. In P. Mohankala's case (supra) the assessee had received foreign gifts from one common donor. The payments were made by instruments issued by foreign banks and credited to the respective account of the assessee by negotiation through a bank in India. Most of the cheques, in that case, sent from abroad were drawn on the Citibank, N.A. Singapore. The assessing officer held that the gifts though apparent were not real and accordingly treated all those amounts, which were credited in the account books of the assessee as their income applying Section 68 of the Income Tax Act. The Hon'ble Supreme Court held that in cases where the explanation offered by the assessee about the nature and source of the sums found credited in his books is not satisfactory, there is prima facie evidence against the assessee, viz-, the receipt of money and that the burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assessee that it was receipt of an income nature. The Hon'ble court further observed: "May be the money came by way of bank cheques and was paid through the process of banking transaction but that itself is of no consequence."
29. Tested on the aforesaid parameters, the learned Commissioner (Appeals), in our opinion, has rightly confirmed the order of the assessing officer treating the impugned cash credits as unexplained under Section 68 of the Income Tax Act. The assessee himself has recorded cash credit of Rs. 13.25 lakhs in his books of account. It was his case that he had received gift of Rs. 10 lakhs from Shri Kishan Punjabi and remaining Rs. 3.25 lakhs from other two persons. Receipt of such large sum of money as gift from unrelated persons happens quite rarely and if it happens at all, it may happen, if one is so lucky, once or twice in his life. It is quite unlikely and against the ordinary course of human conduct that a person will suddenly receive not only one but three gifts and that too of such large sums in quick succession from three different and unrelated persons and that he would credit all of them in his books so as to build up the capital base or introduce the money in the business. One can understand receipt of gifts once or twice from near and dear ones and that too on social occasions. Be what it may, it will indeed be a memorable occasion for the person receiving gifts of large sums of money from unrelated persons without there being any occasion for them to make the gift. It's more like a windfall. But here is an assessee who receives such gifts not from one unrelated person but from three unrelated persons and all of them in the same year. Yet he does not know their whereabouts when he is called upon at the time of survey to furnish their addresses. It makes the story of gift completely unreliable when one is reminded of the statement given by the assessee in which he confesses of not having met the other two donors since 1994. May be, the assessee was caught unawares at the time of survey when his statement was recorded. Let us now have a look at what else the assessee has stated in his statements. In his statement recorded at the time of survey, he first stated that he had received gift of Rs. 13.25 lakhs from Shri Kishan Punjabi. When he was further questioned, he stated that he had received gift of Rs. 13.25 lakhs by cheque "from Shri Kishan Punjabi and perhaps two other persons". The use of the word "perhaps" by him in his statement itself shows that he was not sure about the nature of his transaction with the donors and that's why he thought of making a guarded statement. Thematter does not end here. The statement proceeds further, in which the assessee states: "At present I do not remember their names. Kishan Punjabi is my friend. He is staying in Thane (E). I do not know his exact address or telephone number." In his statement recorded on 29-6-1999(p. 3 of the assessment order), the assessee states that Shri Kishan Punjabiis his friend for last 10 years and that he has met him at his shop though in the same statement he pleads ignorance regarding the whereabouts of Shri Kishan Punjabi. When the matter reaches before this Tribuned, the assessee contends that "Mr. Punjabi's father and the appellant's father were known to each other since 1930 when they were residents of Pakistan": para 6 (a) of the Fact Sheet filed by the assessee before the Tribunal. There is apparent contradiction in the stand taken by the assessee in this behalf. The assessee files salary slip of Shri Kishan Punjabi for the month of April 1999 before the departmental authorities and also before us though the gift was allegedly made in financial year 1994-95. The salary drawn by him in April 1999 cannot establish his financial capacity in financial year 1994-95. It is cardinal principle of law of evidence that the best evidence to establish a case should be filed at the earliest possible time. Nothing prevented the assessee or Shri Kishan Punjabi from filing asalary slip for the relevant period, Ie., financial year 1994-95 as that would have clearly established the financial position of Shri Kishan Punjabi but that was not done and there is no explanation before us as to why that was not done. There is no evidence on record to show that Shri Kishan Punjabi was a highly paid employee in the relevant period in which he had allegedly made the impugned gift. Then there were unexplained credits of Rs. 2,74,236 and Rs. 2,73,117 on 12-7-1994, ie., the date on which gift of Rs. 5 lakhs was allegedly made by Shri Kishan Punjabi to the assessee. Similar is the position with regard to the gifts allegedly received from two other donors. These aspects have been elaborately highlighted in the assessment order as well as in the appellate order passed by learned Commissioner (Appeals). The points raised by them in their respective orders have remained unanswered and this is what makes the theory of gift incomplete and unreliable. The mere fact that the amounts were received by cheque or the alleged donors were identifiable would not by themselves prove the genuineness of the impugned gif ts.
30. It is evident on perusal of the assessment order and the order passed by the learned Commissioner (Appeals) that the Assessing Officer insisted on personal attendance of all the donors for examination. The assessing officer has dealt with the issue in para 11 as under:
...the assessee was specifically required to produce the donors personally on 22-10-2001 and 23-10-2001. Shri R.N. Naik attended on 22-10-2001 and stated that it is not possible for the assessee to produce the donors personally because they are residing abroad. It was explained to Shri Naik that the onus is on the assessee to produce them as his witnesses for the purpose of explaining satisfactorily the genuineness of the gift claimed to have been received by the assessee. The assessee was given one more opportunity to produce them on 12-11-2001. On this occasion also, the assessee failed to produce the donors. On 26-11-2001 a further letter, was issued requiring the assessee to produce the donors on 5-12-2001. On the said date one Shri Kishan Punjabi attended at 10.45 hrs. just to inform that on the same day he is going abroad by the flight leaving at 16.00 hrs. and therefore he has to report at the Airport at 12.00 noon. As the assessee had to first identify and examine his witness to be followed by his cross-examination and as Shri Kishan Punjabi expressed his inability to remain in the office, further opportunity was granted as per the order sheet noting dated 10-1-2002 in which the assessee was given time up to 22-2-2002 to produce the donors on any day before me. However, during this period of 42 days, the assessee has not been able to produce any of the donors before me.
31. The assessee filed an affidavit of Shri Kishan Punjabi dated 22-1-2001 before the assessing officer but did not produce Shri Kishan Punjabi for examination in spite of the aforesaid opportunities given by the assessing officer. Having not produced Shri Kishan Punjabi for examination by the assessing officer after filing his affidavit, the assessee cannot contend that the assessing officer was not justified in rejecting the affidavit. Failure of the assessee to produce Shri Kishan Punjabi and other two donors for examination and the availability of other materials on record were sufficient enough for the assessing officer to reject the affidavit of Shri Kishan Punjabi and to draw adverse inference. The assessing officer has thus rightly rejected the affidavit of Shri Kishan Punjabi. In Smt. Gunwantibai Ratilal v. CIT (SLP rejected by the SC), it has been held:
Now, an affidavit is a piece of evidence, which, along with other material on record, has to be taken into consideration by the Tribunal before arriving at a finding. The decisions relied on by the assessee are distinguishable on facts. These decisions lay down that when there is nomaterial on record to disprove the veracity of a statement made in an affidavit, a finding arrived at ignoring that statement, would be a, finding based on no evidence or a finding which no person acting judicially could have arrived at. In Mehta Parikh & Co. v. CIT (1956) 30 ITR 181, the Supreme court found that the finding of the Tribunal was a pure surmiseand had no basis on the evidence. The Supreme Court found that the cash book of the assessee was accepted, that the entries therein were not challenged and no further documents or vouchers in relation to these entries were called for nor was, the presence of the deponents of affidavits considered necessary by either party. The Supreme Court, therefore, held that there was no material whatsoever to justify the finding of the Tribunal. The decision in (1956) 30 ITR 181, cannot be construed to lay down the proposition that unless the deponents arecross, examined, the affidavits cannot be rejected. That decision lays down that if there is no material whatsoever on record for doubting the veracity of the statements made in the affidavits and if the deponent shave also not been subjected to cross-examination for bringing out the falsity of their statements, then the Tribunal would not be justified indoubting the correctness of the statements made by the deponents in the affidavits. The finding arrived, at in such a case would, according to the Supreme Court, be a finding based on pure surmise, having no basis in evidence. In the instant case, however, there was material on record which was considered by the Tribunal along with the affidavits and the Tribunal found that no reliance could be placed on the affidavits, statement by a deponent can be held to be unreliable by the Tribunal either on the basis of cross-examination of the deponent or by reference to other material on record leading to the inference that the statement made in the affidavit, cannot be held to be true.
32. Section 122 of the Transfer of Property Act defines gift as "the transfer of certain existing movable or immovable property made voluntarily and without consideration." Thus, in order to constitute a valid gift the transfer of property should be voluntary and without consideration. An act of transfer is voluntary if it is unconstrained by interference or not impelled by outside influence. In the case before us, all the declarations of gift are identically worded. They have been made by three different persons residing at three different places. They are neither related inter se nor with the assessee. Identically worded declarations of gift would not have been possible unless they were constrained by interference or impelled by outside influence either at the instance of the assessee or of a person acting on his behalf. Similarly, the amounts deposited in the bank accounts of the donors either on the same day or a few days before the gifts were made also demolishes the theory that the gifts were unconstrained by interference and not impelled by outside influence. The f act that all the three gifts of large sums of money were made simultaneously or within a short period would also suggest that they were constrained by interference or impelled by outside influence. Voluntariness is a natural instinct, which can arise only between closely related persons. Such relationship is absent between the donors and the assessee in the case before us. This aspect of the matter further strengthens the case of the department that the gifts are not genuine.
33. The learned Counsel is right in his submission that the donors a re identifiable and the impugned gifts have been received through cheques. But they are not by themselves sufficient to establish the genuineness of the impugned gifts if one has to have a look at the surrounding circum-stances and the materials brought on record by the department in thiscase. Focus of Section 68 is not only on the identity and creditworthiness of the creditors but also on the genuineness of the transaction. An explanation tendered under Section 68 cannot be considered to be satis-factory unless the transaction giving rise to the cash credit is also found to be genuine. Genuineness of a transaction has to be gathered on the parameters spelt out in Section 3 of the Evidence Act, which provides as to when a fact should be treated as proved. In this connection, one is reminded of the judgment in Director of Income-tax v. Bharat Diamond Bourse (2003) 259 ITR 280', 293 in which the Hon'ble Supreme Court has observed: "The story rings false from beginning to end, and yet, the Tribunal accepted it by saying, 'as regards the bona fides of the transaction, in our opinion, there is nothing to suspect the same'. The Tribunal says, 'there is a transparency about the entire transaction which nullifies any attempt to make out the transaction as something unusual and out of the ordinary'. That diamonds are not transparent, that they dazzle with a brilliance that blinds the eye, seems to have escaped the notice of the Tribunal. It un-discerningly accepted the glib explanation of the assessee, though teeming with improbabilities and strenuous on credulity". The aforesaid observations emphasize the importance that a glib explanation tendered by the assessee teeming with improbabilities and strenuous on credulity cannot be accepted. After having considered the explanation of the assessee in the light of all the facts and circumstances of the case in their entirety, we are inclined to endorse the well-reasoned appellate order passed by the learned Commissioner (Appeals) in this behalf. The story of gift set up by the assessee is unacceptable as it is contrary to the preponderance of probabilities and common course of human conduct. The Commissioner (Appeals) has rightly decided the issue against the assessee. We confirm his order. Ground Nos. 2, 3 and 4 are dismissed.
34. Ground Nos. 5, 6, 7 and 8 read as under:
C. Addition on account of under valuation of stock - Rs. 1,08,893
5. The learned Commissioner (Appeals) erred in confirming the addition of Rs. 1,08,893 arising out of alleged under-valuation of stock disregarding the consistently followed method of 'net realizable value' where the conversion charges are duly taken into account. As the rates are published by the bullion market everyday, therefore, the alleged addition may be deleted.
6. The learned Commissioner (Appeals) failed to appreciate that net realizable value method is the universally accepted method. As appellant's valuation is in accordance with the rate published by the bullion market which takes into account all conversion charges, there is no notional charges as has been alleged, hence the addition is not justified.
7. Without prejudice to above, any change of method should apply to both opening and closing stock. There can't be partial application only to closing stock.
8.Without prejudice to above, if addition is confirmed the consequential adjustment in next year's opening stock may be directed to be allowed.
35. The assessee is engaged in trading and manufacturing of gold ornaments. While examining the Tax Audit Report filed along with the return of income, the assessing officer noted as under:
Opening stock 10729.700 gms. Purchases 22522.300 gms. (24 et.) Sales 7361.960 gms. Closing Stock 14890.040 gms.
Note : closing stock valued as on 3 lst March, 1995 is 15574.200 gms. i.e., 684.160 gms. more than as the calculation shown above as the purchase are made at 24 cts. and subsequently converted to 22 cts. while adding in physical stock, ie., purchase of 100 gms. of 24 et. gold is added as 108.500 gms. of 22 et. in the stock.
36. Thus, while, as per the Tax Audit Report, the closing stock as on31-3-1995 was shown at 14,890 gms., the closing stock actually valued ason 31-3-1995 was 15,574,200 gms. as there was an excess of 684.160 gms. on account of the f act that the assessee purchased gold of 24 et. which is subsequently converted into 22 et. causing increase in the physical quantity of closing stock. Thus the purchase of 100 gms of 24 et. of the gold would stand converted into 108.500 gms. of 22 et. of gold in stock. The assessing officer inf erred from these details that the assessee had considered the value of 22 et. of gold only exclusive of making charges while valuing the closing stock. The assessing officer therefore converted the purchases of 11522.30 gms. of 24 et. of gold during the year into 22 et. by multiplying it with 108.5 and then worked out conversion or making charges per gram out of the total labour charges. Applying the average rate of Rs. 85.41 per gm. as making charges, the assessing officer enhanced the value of closing stock by Rs. 13,30,225. However, af ter considering the opening stock and sales, the assessing officer restricted the addition to Rs. 9,745 being the entire cost of manufacturing wages, presuming that the sales were from the old stock.
37. On appeal, the learned Commissioner (Appeals) examined the matter thoroughly and held as under:
41. Thus the foregoing also shows that the accounts prepared by the appellant are not reliable. This is so because f or valuing his stock of 22 cts. ornaments, the appellant not only adopts the weight at a flat rate (ie., a purchase of 100 gms. of 24 cts. of gold adds 10.500 gms. of 22 cts. in stock) but also adopts the labour charges not on actual basis but on the basis of rate published by the bullion market. The labour charges debited in appellant's books of account (where, according to him, charges are also paid for converting 24 cts. gold into 22 cts.) therefore, would be different from those adopted from the bullion market. In this way, the labour charges adopted for valuation of stock and those actually paid for conversion would never tally. As stated above, this query was put to the representative of the appellant but has not been answered. Further, even after accepting all the explanations given by the appellant, he was not able to reconcile/explain the diff erence of 0.210 gms. in his accounts howsoever negligible the amount may be. Under the circumstances, the action of the Assessing Officer in applying the proviso to Section 145( 1) in this case was correct and the same is uphelearned
42. Now coming to the quantum of addition, it is noted that the Assessing Officer has made an addition of Rs. 9,07,045 on account of under valuation of closing stock. The amount added represents the entire labour charges spent by the appellant during the year. However, after accepting that these labour charges included various other types of labour expenses besides those spent for converting the 24 et. gold into 22 carat gold jewellery e.g. Repair charges of customer's jewellery etc. and giving the finding that only some part of the labour charges must necessarily relate to the manufactured items lying in the closing stock, it was not justified on part of the assessing officer to have added to the income of the appellant, the entire labour expenses. In his report, the assessing officer has stated that the appellant had purchased 3300 gms. of primary gold of 24 cts. which have been checked by him with the corresponding bills. The appellant has also furnished to the Assessing Officer another statement of labour charges paid during the financial year 1994-95 claimed to be incurred for conversion into 22 cts. jewellery. The labour charges paid for this purpose amount to Rs. 1,08,893 which according to the assessing officer are debited into P & L account. According to the assessing officer while working out the valuation of stock of 22 cts. jewellery, the assessee has taken only the value of the gold alone on the basis of labour charges incurred for converting 24 cts. Into 22 cts. ornaments. As per the assessing officer, the valuation of stock should have been made by the appellant by taking into account the labour charges incurred for conversion amounting to Rs. 1,08,893.
43. Keeping these observations of the assessing officer in view, it will be proper to uphold an addition of Rs. 1,08,893 to the total income of the appellant on account of labour charges incurred for conversion of 24 et. into 22 et. jewellery and to that extent the addition is sustained. Thus the appellant shall get a relief of Rs. 7,98,152.
44. Before parting from the subject, it may be stated the issue of valuationof closing stock of 22 carats gold jewellery, was also considered by theassessing officer in the appellant's case in the assessment year 1998-99and an addition of Rs. 10,25,45 was made by him in this regard. However, the Commissioner (Appeals) reduced the addition to Rs. 3,73,265 by following a derivative method to reach the labour charges for conversion of gold from 24 et. to22 et. However, it is felt that the method followed by the assessing officer is to be preferred to the derivative method as the former is based on the actual method of labour charges.
38. Aggrieved by the aforesaid order, the assessee is in appeal before this Tribunal.
39. In support of the appeal, the learned Counsel f or the assessee submitted that the assessee had been consistently valuing closing stock of gold ornaments at net realizable value which was also accepted by the department. According to him, the only dispute was regarding addition to the value of closing stock on account of addition of making charges to the base rate of the go learned He submitted that the designs of ornaments keep on changing frequently with the result that the assessee is required to maintain huge stock of ornaments and hence they need to be melted and new ones prepared. He argued that the aforesaid aspects made it difficult for the assessee to recover making charges and therefore the assessee did not include them in the valuation of closing stock. His alternative prayer was that the closing stock taken this year should be directed to be taken as opening stock next year in case the order of the Commissioner (Appeals) is uphelearned
40. In reply, the learned departmental Representative supported the order of the assessing officer and of the Commissioner (Appeals).
41. We have heard the parties. Perusal of para 2 of the order passed by the Commissioner (Appeals) for assessment year 1998-99 shows that the representative for the assessee appearing before him had submitted that the assessee had been valuing the closing stock after including the labour charges consistently in the past. It is thus clear that the closing stock has got to be valued at the rate equal to that of 22 carat of gold and labour charges. Be whatever it may, it is not in dispute that the assessee has been valuing the stock at net realizable value, which obviously would include not only the price of 22 carat of gold but also the making charges. For purposes of inventory valuation, net realizable value would mean selling price less the completion and disposal costs: page 1662 of Btack's Law Dictionary (7th Edition). The action of the assessee in valuing the closing stock at the base price of the gold exclusive of labour charges is therefore not in order.
42. We have perused the order of the Commissioner (Appeals) and f ind that he has correctly appreciated all the relevant aspects of the case. We endorse his order. Ground Nos. 5, 6, 7 and 8 taken by the assessee are dismissed.
ITA No. 5518/Mum./2001 : assessment year 1998-99 : Assessee's appeal ITA No. 5516/Mum./2001: assessment year 1998-99: department's appeal
43. The assessee has taken the following grounds of appeal:
A. Addition on account of alleged under-valuation of closing stock -Rs. 3,73,265
1. The learned Commissioner (Appeals) erred in sustaining the addition of Rs. 3,73,265 arising out of the alleged under valuation of closing stock on account of non-inclusion of labour charges (by Rs. 182 per 10 gms.) in the closing stock of gold ornaments without appreciating the facts and submissions.
2. The learned Commissioner (Appeals) failed to appreciate that the rate determined by the appellant is a scientifically approved method where labour charges of Rs. 42 per gm. had been adopted in the valuation of closing stock. Therefore, without justification and any basis, enhancing the labour rate by Rs. 18 to make it to Rs. 60 per gms. amounts tomisappreciation of facts. Hence, the addition of Rs. 3,73,265 may be deleted.
3. The learned Commissioner (Appeals) ought to have appreciated that the appellant follows this method of valuation consistently f or many years. In appellant's one case, the Tribunal had deleted the same addition in respect of under-valuation of closing stock in the earlier year. Therefore, the addition of Rs. 3,73,265 is uncalled for and may be deleted.
44. department has taken the following grounds of appeal:
1. On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) has erred in holding that the assessee had shown the value of closing stock of 22 carat gold ornaments at Rs. 4126 per 10 gms.
2. On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) failed to notice that the assessee had taken the rate of 24carat gold at Rs. 4,126 per 10 grams and had calculated the value of 22 carat gold at Rs. 3,779 for 10 grams and multiplying the same with the quantity of gold ornaments at 20509.110, the value was worked out at Rs. 77,51,254.
3. On the facts and in the circumstances of the case and in law thelearned Commissioner (Appeals) failed to appreciate that the above value of 22 carat gold was further required to be increased by the manufacturing wages determined by the assessing officer at Rs. 500 per 10 grams. Thus, the assessing officer was correct in making an addition of Rs. 10,25,455 being manufacturing wages not considered in the closing stock.
4. On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) has erred in holding that the assessee had considered manufacturing wages at Rs. 418 per 10 grams and thereby erred in granting relief of Rs. 6,52,190.
45. In the course of the assessment proceedings, the assessing officer noticed from the Tax Audit Report that the assessee was valuing his stock at net realizable value. He verified the position of stock for the year under appeal and noticed that the assessee has valued the closing stock of 22 carats of gold ornaments at Rs. 77,51,254 giving average rate of Rs. 4,126 per 10 grams without including the labour charges. The assessing officer took note of the labour charges paid by the assessee for converting the gold into ornaments during the year under appeal, which worked out the average rate of the same at Rs. 51.71 paise per gram. The assessing officer therefore estimated the net realizable value of closing stock of 22 et. gold ornaments at Rs. 4,126 being the value taken by the assessee per 10 gram of 22 carat gold + Rs. 500 per 10 gram towards making charges for estimating the value of closing stock. In this process he added a sum of Rs. 10,25,455 to the income returned by the assessee.
46. On appeal, the learned Commissioner (Appeals) took the figure of 22 carat gold @ Rs. 3,783per 10 grams and labour charges @ Rs. 600 per 10 gram. Applying the aforesaid formula, the Commissioner (Appeals) confirmed the addition to the extent of Rs. 3,73,265 and deleted the remaining amount of addition. Both the parties are aggrieved by the aforesaid order of the Commissioner (Appeals) and hence they are in appeal through the present bunch of cross appeals before this Tribunal.
47. We have heard the parties. We have already held in our order for assessment year 1995-96 that the assessee was not justified in valuing the closing stock of 22 et. of gold ornaments at the base price of 22 et. of go learned We have also upheld the order of the learned Commissioner (Appeals) for that year and held that the closing stock should be valued at the base price of 22 et. of gold + making charges. We direct the assessing officer to follow the same principle for valuation of closing stock this year.
48. The only dispute that survives now is the rate of 22 carat of gold and making charges for valuation of closing stock. The assessing officer has taken the rate of 22 carat of gold at Rs. 4,126 per 10 grams while the Commissioner (Appeals) has taken the rate of 22 carat of gold at Rs. 3,703 per 10 grams. Reasons for such wide valuation in the rate of 22 et. of gold have not been spelt out in the orders of the departmental authorities. Therefore, entire exercise needs to be redone on the lines adopted by the learned Commissioner (Appeals) in his appellate order for assessment year 1995-96, which we have confirmed. We therefore set aside the orders of the departmental authorities in this behalf and restore the matter to the file of the Assessing; Officer for re-computation of the value of closing stock on the principles adopted by the Commissioner (Appeals) in his appellate order for assessment year 1995-96, which we have already approved.
49. Since the issue under consideration in both the appeals has beenrestored to the file of the assessing officer, the appeals filed by both theparties are treated as allowed for statistical purposes.