Income Tax Appellate Tribunal - Chennai
P.Chandravana Murugesh L/H Of Late Shri ... vs Assessee on 16 May, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'D' BENCH, CHENNAI
BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER
I.T.(SS) A. No. 207/Mds/2006
Block Period : 1996-97 to 2001-02 & 2002-03 (Part)
Shri P. Chandravana Murugesh,
L/R of late Shri R. Ponnupillai, The Deputy Commissioner of
Prop. M/s Ramakrishna Pon v. Income Tax,
Maaligai, Central Circle II,
Main Road, Marthandam, Madurai.
K.K. District.
PAN : ABIPP1143Q
(Appellant) (Respondent)
Appellant by : Shri S. Sridhar, Advocate
Respondent by : Shri Anirudh Rai, CIT-DR
Date of Hearing : 16.05.2012
Date of Pronouncement : 15.06.2012
O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
In this appeal filed by the assessee, six grounds have been raised out of which, Grounds No.1 and 6 are general needing no adjudication.
2. Vide its ground No.2, grievance of the assessee is that an addition of ` 9,18,970/- in respect of personal jewellery of the assessee, his wife and son, was confirmed by the CIT(Appeals). This ground is closely related to ground No.3 in which the grievance raised is that the 2 I.T.(SS) A. No.207/Mds/06 CIT(Appeals) confirmed the addition of ` 16,68,637/- being the value of credit purchase of 3731.100 grams of Jewellery, such credit purchase having been not accepted by the Assessing Officer.
3. Short facts apropos the above two grounds are that assessee, proprietor of one jewellery shop called Ramakrishna Pon Maaligai, Marthandam, was in the business of purchase and sale of gold ornaments. There was a search conducted in his premises on 27.3.2002 under Section 132 of Income-tax Act, 1961 (in short 'the Act'). At the time of search, a physical inventory of jewellery in the shop was taken. The stock, as per the physical inventory, came to 18593.624 gms. The weight of stones in such jewellery came to 1540 gms. The books of accounts were written only upto 13.3.2002 and as per the stock register, the quantity of jewellery as on 13.3.2002, was 8446.030 gms. Since assessee was suffering from heart ailments, shop was being managed by his son Shri Chandravana Murugesh. A sworn statement was recorded at the time of search from Shri Chandravana Murugesh regarding the affairs of the shop. Assessee was also called on at the time of search and it seems he confirmed whatever was stated by his son. In the sworn statement given by Shri Chandravana Murugesh, it was stated that there were no purchase or sale of jewellery during the period 13.3.2002 till the date of search viz. 27.3.2002. Shri Chandravana Murugesh also accepted that the excess stock found at 3 I.T.(SS) A. No.207/Mds/06 the time of search was unaccounted and it seems assessee had agreed to pay tax on such excess stock. As per the Assessing Officer, the stock of unaccounted jewellery was as under:-
Total stock of jewellery found 18593.624 gms
Less: Weight of stones 1540.000 gms
Weight of jewellery excluding stones 17053.624 gms
Less: Stock as per stock book as on 13.3.2002 8446.030 gms
Balance considered unexplained 8607.594 gms
However, it seems out of such excess stock, only 2757 gms was shown in the return filed for the block period as part of undisclosed income.
4. During the course of assessment proceedings, assessee explained that the jewellery found at the time of search, included his own personal jewellery of 720 gms, personal Jewellery owned by his wife 740 gms and personal jewellery owned by his son 660 gms totalling to 2120 gms. Contention of the assessee before the A.O. was that during the search, not even a single gram of jewellery was found at the residence of assessee. Assessee also filed sworn affidavits affirming the ownership of personal jewellery. As per the assessee, the personal jewellery was accumulated over a period of time and were received on various occasions like marriage, birthday, anniversaries, etc. However, the A.O. was not impressed. According to him, in the sworn statement given at the time of search, assessee did not mention any item to be personally owned by him. According to A.O., on the other hand, assessee's son had correctly pointed out that 380.980 gms belonged to 4 I.T.(SS) A. No.207/Mds/06 one employee and this was excluded. Further, the A.O. also noted that the jewellery claimed by the assessee to be personally belonging to him, his son and his wife were part of the items inventorised at Sl No. 56, 65, 52, 60, 64, 78, 57, 35 & 32 of the Panchanama Annexure RJK/J/F. From the Panchanama, it was clear that such jewellery were not kept in the strong room, but in the show case of the shop. The list of jewellery claimed by the assessee to be personally owned by him and his family included 54 chains, 35 rings and 4 bracelet chains. As per the A.O., these jewellery were all kept in show case, and the claim of the assessee made through the affidavits that it belonged to him, his wife and his son could not be accepted. Since assessee's explanation for 2120 gms jewellery out of excess Jewellery found at the time of search was not accepted, an addition was made in this regard valuing it at ` 9,18,970/-.
3. Part of the jewellery found at the time of search was also claimed as coming out of credit purchases. In the return of income filed pursuant to search, assessee claimed that it had effected certain credit purchase during the period 13.3.2002 to 27.3.2002, which were not recorded in the books, since books were written only upto 13.3.2002. List of such credit purchases claimed by the assessee were as under:- 5 I.T.(SS) A. No.207/Mds/06
S.No. Date of Name and address of the Qty Value
purchase seller (in Rs.)
1. 16.03.2002 Jyothi Jewellers, 13/161 1,250.50 559,510.00
(upstairs), Shop No.13,
Jewellery Complex,
Mandapala Street, Nellore-
524 001.
2. 19.03.2002 Jyothi Jewellers, 13/161 1,465.30 661,538.00
(upstairs), Shop No.13,
Jewellery Complex,
Mandapala Street, Nellore-
524 001.
3. 18.03.2002 Sri Indian Jewellers, 715.80 322,439.00
14/15-7, Mandapala Street,
Nellore-524 001.
4. 14.03.2002 Kannika Parameswari 59.50 24,900.00
Jewellers, 29/3, South
Avanimoola Street, Madurai-
1.
5. 15.3.2002 -do- 60.10 25,100.00
6. 18.3.2002 -do- 65.05 27,100.00
7. 19.3.2002 -do- 59.80 24,950.00
8. 21.3.2002 -do- 55.05 23,100.00
3,731.10 16,68,637.00
As per the assessee, 3731.10 grams considered as excess stock at the time of search were actually represented by such credit purchases. Assessing Officer did a cross verification with the parties mentioned by the assessee. The proprietor of M/s Jyothi Jewellers accepted the sales to the assessee and also stated that the transactions were recorded in his books. The payments for such purchases, as per the said person, were received by him by way of demand drafts during the period 23.10.2002 to 12.6.2003. A.O. also examined proprietor of Sri Indian Jewellers, who also confirmed the sales to the assessee. As for the claim of purchase from Kannika Parameswari Jewellers was concerned, 6 I.T.(SS) A. No.207/Mds/06 Assessing Officer on enquiries found that the shop was closed. He, therefore, required assessee's son to produce the proprietor of the said concern and accordingly, one Shri R. Jagadeesan, proprietor of M/s Kannika Parameswari Jewellers appeared before the A.O. He also confirmed the sales made to the assessee. In all these cases, the sales were stated to have been effected through one of the two employees of the assessee, namely, Shri Kishore or Shri Sampath. However, the Assessing Officer disbelieved the claim of credit purchases. According to him, if there were such credit purchases, the concerned credit bills which were produced by the assessee during the block assessment proceedings, would have been available in the business premises at the time of search. Without the invoices, nobody would have moved the jewellery physically from the respective place of purchase to assessee's shop. Further finding of the A.O. was that M/s Jyothi Jewellers did not have any other credit sales other than that ones claimed to have been made to assessee. In the case of Kannika Parameswai Jewellers, A.O. noted that the said party had claimed a sale of ` 1,25,150/- to the assessee and such sales came to about 60% of the total sales effected by it, and hence could not be believed. In the case of M/s Sri Indian Jewellers, Assessing Officer noted that the only transactions the said party ever had with the assessee, was the credit sales claimed, thereby rendering it doubtful. As per the A.O., assessee himself had sufficient 7 I.T.(SS) A. No.207/Mds/06 stock as on 13.3.2002 and there was no necessity to make any credit purchases. Assessing Officer also noted that Shri Sampath, one of the two employees of the assessee, who as per the assessee, had received the jewellery from the sellers, was on leave during the period 14.3.2002 to 31.3.2002 on personal grounds and therefore, the claim that he had received the jewellery sold by sellers at Nellore and Madurai during that period, could not be accepted. He, therefore, declined to accept the claim of credit purchases. In the result, Assessing Officer declined to accept the claim 3731.10 grams of credit purchases and an addition of ` 16,68,637/- was made.
4. Assessee moved in appeal before CIT(Appeals) for both the additions. Similar contentions as raised before the A.O. were raised before CIT(Appeals) also. Further argument before the CIT(Appeals) was that the affidavits of the assessee, his wife and his son were rejected without any reason. As per the assessee, Amritsar Bench of this Tribunal in similar case in ACIT v. Kuldip Chand & Sons (93 ITD
253) had held that jewellery stock claimed to have been received from relatives, if supported by affidavits had to be accepted. Reliance was also placed on the decision of Indore Bench of this Tribunal in the case of Anandilal v. ACIT (86 TTJ 1135) for arguing that explanation given for gold ornaments found during search as to be belonging to unmarried members of family if not unreasonable, considering the size and status 8 I.T.(SS) A. No.207/Mds/06 of the family, had to be accepted. As for the addition made for credit purchases, argument of the assessee was that Shri Sampath, employee of the assessee, could not attend the jewellery shop during the period 14.3.2002 to 31.3.2002 on personal grounds and it was only Shri Sampath who was aware of each and every transaction of the business. As per the assessee, Shri Sampath was in-charge of stock register and he was responsible for writing the accounts. Assessee's son might not have been aware of each and every transaction and on account of this, he was unable to explain the credit purchase to the search party. Assessee was down due to illness and could not explain the purchase made on credit at the time of search. In any case, as per the assessee, on cross-verification, all the parties had confirmed sale on credit and in such a situation, it was not appropriate to reject the claim of credit purchases. However, the CIT(Appeals) was not impressed by any of these contentions. Insofar as claim of personal jewellery was concerned, CIT(Appeals) held that assessee as well as his son, during the course of search, had accepted the excess stock to be unaccounted and also declared their intention to offer the value thereof as undisclosed income of the assessee. As per the CIT(Appeals), assessee's son was in-charge of the business since long and he would definitely have had knowledge, if at all there were any credit purchase effected during the period 14.3.2002 to 31.3.2002. As for the claim that no jewellery was 9 I.T.(SS) A. No.207/Mds/06 found at the residence, CIT(Appeals) found that there was no search at all in the residential premises of the assessee. CIT(Appeals) noted that the assessee's son had mentioned in an answer to a query that no customers' jewellery or jewellery given for exchange were there in the stock. Hence, according to him, the claim that assessee had forgotten to mention credit purchase and personal jewellery included in stock, could not be believed. CIT(Appeals) also noted that jewellery claimed as personally owned was not found in the strong room but in the show case and hence, the claim of safe custody was not at all correct. Further, according to him, claim that Shri Sampath, one of the employees, had received the jewellery from the alleged sellers, was contrary to the claim that Shri Sampath was on leave due to illness in the relevant period. Thus, he disbelieved the version of the assessee and confirmed the additions made by the A.O. both with regard to claim of personal jewellery as well as with regard to claim of credit purchase.
5. Now before us, A.R., strongly assailing the orders of lower authorities, submitted that personal jewellery of 2120 gms were indeed in the shop at the time of search. The jewellery claimed by the assessee as belonging to him was only 720 gms, that of his wife 740 gms and that of his son 660 gms. These were commensurate with the status of respective persons in the society. Residence of the assessee and business premises were in one building and therefore, the claim of the 10 I.T.(SS) A. No.207/Mds/06 assessee that it was kept in the shop for safe custody, was a reasonable explanation which ought have been accepted. Reliance was once again placed on the decision of Amritsar Bench in the case of Kuldip Chand & Sons (supra) and on the decision of Indore Bench in the case of Anandilal (supra). Insofar as claim of credit purchases was concerned, A.R. submitted that each of the sellers had confirmed the respective sales. Just because assessee and his son had admitted excess stock while recording the sworn statements, claim of credit purchase could not be disbelieved. Assessee had produced invoices for the purchases. CIT(Appeals) went by a presumption that the bills issued by the sellers were to accommodate the assessee. There is not even an iota of evidence in this regard. As per the A.R., CIT(Appeals) further assumed that the sellers would have incorporated such sales on an earlier date, since their books would not have been closed. All these were assumptions and not supported by any materials. Just because assessee had not mentioned the credit purchases in the sworn statement, such purchases later corroborated with sufficient evidence ought not have been rejected. Insofar as claim of personal jewellery was concerned, A.R. submitted that the quantum of jewellery claimed was well within reasonable level and ought not have been disbelieved. In any case, according to him, the assessment could never have been rightly done solely based on sworn statements, in view of the CBDT 11 I.T.(SS) A. No.207/Mds/06 Instructions in F.No:286/2/2003/IT(INV) dated 10.3.2003. Without collecting corroborative material, an addition could not be done simply based on a confessional statement. As per A.R., there was no corroborative evidence at all for supporting the additions made based on mere presumption.
6. Per contra, learned D.R. strongly supported the orders of lower authorities.
7. We have perused the orders and heard the rival submissions. The claim of the assessee is that 2120 gms of gold jewellery were personal jewellery belonging to him, his wife and his son and 3731.100 gms were credit purchases from three parties of which, two were in Nellore and one was in Madurai. In other words, as per the assessee, out of the variation in books stock and physical stock, at least 2120 gms claimed to be personal and 3731.100 gms claimed to credit purchases, ought have been accepted. First taking up the claim of personal jewellery, no doubt, assessee's contention that 600 to 700 gms can be reasonably be considered as jewellery personally owned per individual, appear at the first instance very attractive. But, the fact of the matter here is that the residential premises was not subjected to a search at all. A.O. has clearly noted from the Panchnama what was searched was only business premises of the assessee. In the Panchnama, it is also 12 I.T.(SS) A. No.207/Mds/06 mentioned that assessee himself had come from his residence and sworn statement recorded thereafter. Therefore, claim of the assessee that not even a gram of jewellery was found at the time of search of his residence falls flat. The second reason why we cannot believe the claim of the assessee on personal jewellery is that the jewellery claimed as belonging to him, his wife and his son were items inventorised in the Panchnama and such items were part of the jewellery found in the shop show case and not in the strong room. Jewellery, if claimed by the assessee, was kept in the shop for safe custody, it would have been so kept only in the strong room and not in the showcase. What is generally kept in the showcase are items for sale and not items for safe custody. Hence, in our opinion, assessee's claim regarding owning personal jewellery and such jewellery to have been kept in the shop cannot be accepted. Affidavit alone would not be sufficient to prove a claim, especially when the claim appears improbable from circumstances. Nothing was brought on record by the assessee to corroborate its claim that 2120 gms of jewellery found at the time of search was personal jewellery.
8. Insofar as claim of credit purchase is concerned, no doubt, concerned sales of jewellery were confirmed by the sellers. But, as mentioned by A.O. as well as CIT(Appeals), in the case of Shri Jyothi Jewellers, the proprietor thereof Shri Lalith Sogra had stated that he had 13 I.T.(SS) A. No.207/Mds/06 not effected any credit sales during the relevant year other than to assessee. This appears to be very improbable. If there were any such credit purchases, no doubt the purchase invoices would have been available in the business premises of the assessee. Similarly, Shri Rajendrakumar, proprietor of Sri Indian Jewellers, stated that he had no other transaction with the assessee other than the credit sales claimed. It is improbable that a party would have effected credit sales to a customer, who was not known to him or to a customer with whom he was not having any regular business transaction. Insofar as claim of credit purchase from M/s Kannika Parameswari Jewellery is concerned, the said party was closing down its shop and it is hard to believe that he would have effected any sale to a party not known to him. He had clearly mentioned that he was not knowing Shri Sampàth, the employee of the assessee, who had allegedly received the jewellery on assessee's behalf. Thus, the statement given by each of the three parties from whom credit purchases were claimed, were rightly rejected by the lower authorities. Since none of the relevant purchase invoices were found at the time of search, such invoices later produced was rightly rejected. Assessee's son, who was in-charge of business as well as assessee himself had admitted in the statement at the time of search, that difference in stock found at the time of search was unaccounted. When viewed from these circumstances, the finding of A.O. that the claim of 14 I.T.(SS) A. No.207/Mds/06 credit purchases was only an after-thought which could not be accepted, was correct. As for the reliance placed on the decision of Amritsar Bench of this Tribunal in the case of Kuldip Chand & Sons (supra), one of the questions there was whether the claim of personal gold ornaments stated to have been kept for display purposes could be accepted. But, in that case, the concerned relatives of the assessee, who had given the gold ornaments, were all assessed to wealth tax and had declared such gold ornaments in their respective wealth tax returns. Here, on the other hand, there is no case for the assessee that any of the jewellery claimed to be personally belonging to assessee, his wife or his son was shown in any return filed by them in the earlier years. Coming to the decision of Indore Bench of this Tribunal in the case of Anandilal (supra), the claim that the ornaments belonged to family was confirmed through affidavits and such affidavits were further verified by the Department, whereupon the averments therein were confirmed by the family friends of the assessee also. In our opinion, the circumstance of that case was entirely different. Both these decisions will not help in the assessee's case. We are, therefore, of the opinion that additions were rightly done by the A.O. and confirmed by the CIT(Appeals).
9. Ground Nos. 2 and 3 stand dismissed.
15 I.T.(SS) A. No.207/Mds/06
10. In his ground No.4, the grievance of the assessee is that the addition of ` 2,50,000/- made for investments in remodeling the shop building was sustained by the CIT(Appeals).
11. Short facts apropos are that in the sworn statement recorded during the search, it was admitted by the assessee's son that two additional floors each measuring 200 sq. ft. were constructed on the property where the shop was situated. The shop was situated in the property belonging to Smt. Sundara Bai, wife of the assessee. It was admitted in the said statement that construction expenses were not recorded in the books of the assessee. When this matter was put to the assessee, claim of the assessee was that the property was purchased by his wife in the year 1976. Assessee also brought to the notice of the A.O. that expenses for the building were met by his wife. Cash flow statement of Smt. Sundara Bai was also filed. Such cash flow statement reflected certain rent receipts from the building. However, the Assessing Officer was of the opinion that the cash flow statement could not be believed. The books of accounts of the assessee reflected increasing opening balances for the years 1998-99 and 1999-2000. Therefore, as per the A.O., the cash flow statement was prepared only to the need of the assessee. He, therefore, made an addition of ` 2,50,000/- for construction of two floors measuring 200 sq. ft. each as unexplained income of the assessee.
16 I.T.(SS) A. No.207/Mds/06
12. In his appeal before CIT(Appeals), argument of the assessee was that even if there were any unexplained income, it could be considered only in the hands of his wife. In any case, as per the assessee, the cash flow statement of the assessee's wife was prepared based on actual figures and assessee's wife was receiving rental for the two floors constructed. Assessee also filed a rent agreement dated 10.4.1997. However, the CIT(Appeals) was not impressed. According to him, assessee's son had categorically stated that two floors were constructed using money which was not accounted. According to him, factual position was that the construction was completed by the assessee and the Assessing Officer was justified in rejecting the cash flow statement of assessee's wife, which was prepared after the date of search. He, therefore, confirmed the addition made by the A.O.
13. Now before us, A.R. reiterated the contentions made before the CIT(Appeals).
14. Per contra, learned D.R. submitted that material gathered during the course of search included statement recorded at the time of search. This could be considered as evidence for the purpose of making an assessment. Reliance was placed on the decision of Hon'ble jurisdictional High Court in the case of CIT v. G.K. Senniappan (284 ITR
220). Further as per learned D.R., the return filed by the assessee's 17 I.T.(SS) A. No.207/Mds/06 wife was rightly rejected since it was filed after the date of search and it was a reasonable assumption that but for detection at the time of search, no such return would have been filed. For this purpose, reliance was placed on the decision of Hon'ble jurisdictional High Court in the case of B. Noorsingh v. Union of India And Others (249 ITR 378).
15. We have perused the orders and heard the rival submissions. It is not disputed that the property on which the building was constructed belonged to assessee's wife Smt. Sundara Bai. Atleast for financial years 1998-99 and 1999-2000, a clear finding has been given by the A.O. at para 8.1 of the assessment order that rental from the said building was shown in the books of accounts of the assessee, as paid to Smt. Sundara Bai. Further, assessee had stated in the sworn statement that the cost of construction of the building was not reflected in his books. There is no reason why cost of construction in a property belonging to his wife should be reflected in the books of his business. The property belonged to his wife and therefore, the presumption is that the building would have been constructed only by his wife. No doubt, the Revenue would have been free to make any addition in the assessments done on assessee's wife, if the source of investment for the building was not properly explained. Just because source of construction was not reflected in the books of the assessee, investment made by assessee's wife for construction could not have been added in 18 I.T.(SS) A. No.207/Mds/06 assessee's hand. We are of the opinion that lower authorities fell in error in making the addition of ` 2,50,000/- for renovation expenses carried out in the building and property owned by assessee's wife. Such addition therefore stands deleted.
16. Ground No.3 of the assessee is allowed.
17. Vide ground No.5, grievance of the assessee is that interest charged under Section 158BFA of the Act is without any specific order.
18. We find that there is no provision that there should be a separate order to be passed for charging of interest under Section 158BFA of the Act. Such a charge of interest is mandatory.
19. Ground No.5 having no merits is dismissed.
20. In the result, appeal filed by the assessee is partly allowed. The order was pronounced in the Court on Friday, the 15th of June, 2012, at Chennai.
sd/- sd/-
(Challa Nagendra Prasad) (Abraham P. George)
Judicial Member Accountant Member
Chennai,
Dated the 15th June, 2012.
Kri.
Copy to: Appellant/Respondent/CIT(A)-II, Madurai/
CIT, Central-II, Chennai/D.R./Guard file