Rajasthan High Court - Jaipur
Pr Commissioner Of I T Jaipur-Ii Jaipur vs M/S Jypore Manufacturing Jewellers P ... on 12 December, 2017
Author: K.S. Jhaveri
Bench: K.S. Jhaveri
HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT
JAIPUR
D.B. Income Tax Appeal No. 139 / 2016
Commissioner of Income TAx Jaipur-II Jaipur
----Appellant
Versus
M/S Jypore Manufacturing Jewellers (P) Ltd. Plot No. 1 & 2, Ratan
Shikha Building, Near Gokhle Park, Janta Colony, Jaipur
----Respondent
Connected With D.B. Income Tax Appeal No. 148 / 2016 Commissioner of Income TAx Jaipur-II Jaipur
----Appellant Versus M/S Jypore Manufacturing Jewellers (P) Ltd. Plot No. 1 & 2, Ratan Shikha Building, Near Gokhle Park, Janta Colony, Jaipur
---Respondent D.B. Income Tax Appeal No. 149 / 2016 Commissioner of Income TAx Jaipur-II Jaipur
----Appellant Versus M/S Jypore Manufacturing Jewellers (P) Ltd. Plot No. 1 & 2, Ratan Shikha Building, Near Gokhle Park, Janta Colony, Jaipur
---Respondent _____________________________________________________ For Appellant(s) : Mr. R.B. Mathur with Mr. Prahansh Sharma & Mr. Ankit Poply For Respondent(s) : Mr. Gunjan Pathak with Ms. Ishita Rawat _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 12/12/2017
1. In these appeals common questions of law and facts are involved, hence, they are decided by this common judgment.
(2 of 11) [ ITA-139/2016]
2. By way of these appeals, the appellant has assailed the judgment and order of the Tribunal whereby the Tribunal has allowed the appeals of the assessee and dismissed the appeals of the department.
3. This Court while admitting the matters framed following questions of law:-
In DBITA No. 139/2016"1. Whether in the facts and circumstances of the case the ITAT was justified in law in mentioning of wrong provisions i.e. 153A instead of 153C will vitiate the proceedings."
2.Whether in the facts and circumstances of the case the ITAT was justified in law in the deleting the trading addition of Rs. 3732242/- made by the Assessing Officer without appreciating the facts of the case as brought out by the lower authorities."
In DBITA No. 148/2016"1. Whether in the facts and circumstances of the case the ITAT was justified in law in mentioning of wrong provisions i.e. 153A instead of 153C will vitiate the proceedings."
2.Whether in the facts and circumstances of the case the ITAT was justified in law in the deleting the trading addition of Rs. 4998340/- made by the Assessing Officer without appreciating the facts of the case as brought out by the lower authorities."
In DBITA No. 149/2016"1. Whether in the facts and circumstances of the case the ITAT was justified in law in mentioning of wrong provisions i.e. 153A instead of 153C will vitiate the proceedings."
2.Whether in the facts and circumstances of the case the ITAT was justified in law in the deleting the trading addition of Rs. 11260845/- made by the Assessing Officer without appreciating the facts of the case as brought out by the lower authorities."
(3 of 11) [ ITA-139/2016]
4. Counsel for the appellant Mr. Mathur has taken us to the order of the AO wherein it has been observed as under:-
"On the other hand Sh. Radha Mohan Agarwal, Director M/s Jypore Jewellery Manufacturing Pvt. Ltd. 1 & 2, Ratan Shikha, Near Gokhale Park, Janta Colony, Jaipur filed a letter dated 10/09/2009 before the investigation wing of the Department claiming the ownership of the contents of the locker of his company. His statement were recorded on 23/09/2009 and 25/09/2009 u/s 131 of the Income Tax Act and in the statement he admitted on oath that the locker no. 1004 searched was hired by him and the documents/ assets were admitted property of the company.
In view of the above stated facts the proceedings initiated in the name of Shri Ram and Sh. Govind Dev have been dropped being infructuous. On the other hand proceedings u/s 153C of the Act is initiated in the case of M/s Jypore Jewellery Manufacturing Pvt. Ltd. 1 & 2, Ratan Shikha, Near Gokhale Park, Janta Colony, Jaipur (PAN:AAACJ4640C) which satisfies the terms of issue of notice under that section.
4.3. In compliance to this notice a letter was filed by the A/R of the assessee stating as under:-
"With reference to above and your notice dated 19.07.2011 we would like to submit that our return filed u/s 153A dated 22.03.2010 be treated as return filed in compliance to your notice dated 19.07.2011 u/s 153C of the Income Tax Act, 1961. We are also requested to you that our all earlier reply/submissions be treated filed in compliance to notice u/s 153C of the Income Tax Act, 1961."
7. Statement of Sh. Radh Mohan Agarwal, director of the company was recorded on 25/09/2009, 02/12/2009 u/s 131 of the IT Act, 1961. In the statement recorded on 02/12/2009 he stated as under:-
iz-7 vkius iz'u la[;k 6 ds mRkj esa dgk Fkk fd eSa tks dkxt vkSj Locker (4 of 11) [ ITA-139/2016] la[;k 1004 ls cjken gq, Fks mudk o"kZokj dkxtksa dh Photocopy izkIr djus ds i'pkr~ crk ikÅ¡xkA vkidks papers dh Photo Copies miyC?k djk nh xbZ gSA Ñi;k vki viuh v?kksf"kr vk; dh Year wise bifurcation nsosaA m-7 gka eSaus Seized Documents dh Photo copies izkIr dj yh gSaA eSaus igys vius c;kuksa esa 1-50 crores :i;s dh v?kksf"kr vk; Lohdkj dh FkhA vc eSaus vius Seized Documents dh Copies Hkyh Hkkafr ns[k yh gSA bUgsa ns[kus ds ckn eSa viuh v?kksf"kr vk; :i;s 2 djksM (two crores) Lohdkj djrk gwaA ftldk o"kZokj fooj.k eSa vius i= fnukad 02@12@09 ds lkFk izLrqr dj jgk gwaA fofr; o"kZ 2006&07 esa esjh QeZ dk Net Profit Rs.21396/- o"kZ 2007&08 esa R. 1231754/-, o"kZ 2008&09 esa Rs.4391086/- o o"kZ 2009&10 esa Rs.1888254/- vkrk gS] bl izdkj dqy Net Profit bu pkj o"kksZa esa Rs.7532490/- vkrk gSaA ckdh Rs.12467510/- dh vk; eSa fofr; o"kZ 2009&10 esa Surrender djrk gwaA bl izdkj esjh dqy v?kksf"kr vk; :i;s 2 djksM gksrh gS ftl ij eSa vk;dj pqdk nwaxkA iz-8 vkius tks v?kksf"kr vk; Åij crkbZ gS mldk fuos'k vkius fdl izdkj ls fd;k gSA m-8 eSaus :i;s 93]63]209@&] Jewellery esa fuos'k fd;k FkkA ckdh 10636791@& :i;s esjs ikl Cash ds :i esa FksA bl izdkj dqy 2 djksM :i;s gksrs gSA The jewellery found in the locker was result of unaccounted business business all the details of unaccounted transactions were foun d in the same locker. Since the assessee was not maintaining any systematic purchase details. He was only recording unaccounted sales figure. Therefore, the stock details can not be worked out from the seized documents but without having unaccounted stock how the unaccounted sales can be possible. Therefore, the stock found in the locker is result of unaccounted business done by the assessee. Estimation of profits-
The reason explained for decline in G.P. rate as discussed in para 10 above is unsubstantiated and the reply submitted is not supported by corroborative evidence. The assessee during the year under consideration has carried on unaccounted business in large proportion. The details of accounted for and unaccounted turnover is furnished as under:-
Nature of Business Turnover Profit Accounted for business 36176638 10983115 Unaccounted for business 10560429 1642616 (Excluding office expenses of Rs. 410862) (5 of 11) [ ITA-139/2016] Total 46737067 12625731 The G.P. of accounted for and unaccounted turnover taken together at Rs. 4,67,37,067/- works out to Rs. 1,26,25,731/- on which G.P. rate is worked out @ 27.01%. After taking into consideration the facts and circumstances of the case and G.P. rate declared @ 36.9% in preceding assessment year 2007-08 on turnover of Rs. 3.57 Crores, the G.P. rate for the year under consideration is estimated @ 35% of the total turnover of Rs. 4,67,37,067/-. The estimated G.P. is worked out to Rs. 1,63,57,973/-. After deducting the G.P. declared by the assessee at Rs. 1,26,25,731/- the difference of Rs. 37,32,242/- is added to income of the assessee."
5. He has also taken us to the order of CIT(A) wherein it has been observed as under:-
"The AO has applied the G.P. rate of 35% on the total turnover (both accounted and unaccounted) of Rs. 4,67,37,067/- stating that assessee has declared G.P. rate of 36.9% in A.Y. 2007-08 and made addition of Rs. 37,32,242/-However, the assessee has pointed out that as regarding the accounted turnover of the assesse was 3,61,76,638 on which gross profit of 1,09,83,115 was declared showing the G.P. rate of 30.36%. The books of accounts have been maintained as regarding the regular turnover of the assessee which include cash books, bank book, journal, ledger, bills and vouchers and stock register. These books have been audited and audit report has been submitted. The same were produced before the AO and AO has merely mentioned that no stock register and quantitative details have been maintained. However, it was pointed out in the letter dated 22.12.2011 to the AO that the complete quantitative details in respect of purchase, sales, closing stock for the regular transactions have been recorded in the books and stock register. Further, the assessee explained that as regarding the accounted transaction, the turnover of the assessee has increased from Rs. 3.58 crores in A.Y. 2007-08 to Rs. 3.61 crores in A.Y. 2008-09 leading to decrease in the profit margin from 36.89% to 30.36%. Even then, the same is better than A.Y. 2004-05 to A.Y. 2006-07 (chart supra). From above it is apparent (6 of 11) [ ITA-139/2016] that as far as regular books of accounts for the accounted turnover are concerned, G.P. results are reasonable. The AO has not pointed out any discrepancy in the books maintained by the assessee in respect of accounted turnover and there is no reason to reject the G.P. rate in respect of transactions recorded in the regular books of accounts. Accordingly, the addition made by increasing the G.P. rate of 30.36% to 35% in respect of accounted turnover of Rs. 3,61,76,638 is deleted.
As regarding unaccounted turnover of the business of Rs. 1,05,60,429, the assessee has shown the gross profit Rs. 16,42,616 as mentioned by the AO, thereby giving the G.P. rate of 15.55%. The assessee has pointed out that said working has been done based on the seized documents found from the locker during search. It was observed that as per the assessee's own reply dated 22.12.2011 that assessee was not maintaining any systematic purchase details and he was only recording unaccounted sales figure therefore stock details cannot be worked out from the seized documents. Further, it cannot be said that G.P. rate in the similar line of trade can vary from 30.36% in respect of recorded transactions and drops down to 15.55% in respect of unaccounted transactions. From above, it is seen that assessee's G.P. rate shown by the assessee is not reliable. Also, the assessee's unaccounted turnover is not more than the recorded turnover in the books of accounts. Accordingly, G.P. rate of 30.36% as shown in the recorded transaction is applied in case of unaccounted transactions of the assessee on the sales of Rs. 1,05,60,429 which gives the G.P. of Rs. 32,06,146. Out of the same, assessee has already declared gross profit of Rs. 16,42,616. Accordingly, addition of the balance amount of Rs. 15,63,530 is confirmed."
6. He further contended that the Tribunal while considering the matter has observed as under;-
"2.11. As regards the GP rate application on regular turnover, has the assessee is maintaining all the books of accounts including cash book, bank books, journal book. Ledger, bills & voucher and stock register along with their supporting as prescribed u/s 44AA of the Income Tax Act, 1961. the books of (7 of 11) [ ITA-139/2016] accounts are maintained on mercantile system of accounting. The books of accounts are audited. The auditors have not made any adverse remarks regarding the maintenance of the books of accounts. The trading results of the assessee are reflected in the following table:-
A.Y. Turnover1 Gross Profit G.P. Rate 2008-09 63176638 10983115 30.36% 2007-08 35823089 13216344 36.89% 2006-07 40047615 7015945 17.52% 2005-06 20996585 6268319 29.85% 2004-05 25826192 7418021 28.72% 2003-04 14135008 32.02% 2.18.We have heard the rival contentions and perused the material available on record. Apropos the validity of assessments we find that original notice was issued u/s 153A and there as neither any warrant or search on assessee. Similarly while issuing notice u/s 153C no satisfaction in this behalf in the case of Modi group nor there was any assessment in the case of Shri Govind Dev as the 153A proceedings were dropped in that case. The satisfaction recorded by AO initiating 153C is silent regarding the pending proceeding initiated u/s 153A by notice dt. 29.12.2009 in the case of the assessee. The proceedings though purported to be initiated u/s 153C the assessments are completed u/s 153A rws 143(3) as evidenced by the respective orders of ld. AO and CIT(A). this leads to a legal situation where during the pendency of 153A proceedings notice u/s 153C is issued. To further confound the situation the proceedings are purported to be continued u/s 153C but the assessments are completed u/s 153A despite consciously dropping the notice u/s 153A. We find merit in the argument of ld. Counsel that assessments u/s 153A and 153C are independent and mutually exclusive, an assessment cannot be framed in continuation of both notices and similarly cannot be concluded u/s 153A if proceedings are undertaken u/s 153C. In view of the facts, circumstances and judicial precedents cited above (8 of 11) [ ITA-139/2016] we hold that impugned assessments are untenable and bad in law. Our view is fortified by Jindal stainless steel ltd. and Shital Prasad Kharag Prasad (supra).
2.19. Apropos merits also we are of the view that regular trading results of the assessee's business were already subject matter of appeals, there was no search on his show room, and therefore, no incriminating material was found. By estimating the GP from regular business ld. AO has reviewed settled position without any incriminating material in this behalf, which is not permissible in search assessments. In view thereof we delete the additions made in respect of estimation of GP from regular business.
2.20. Apropos the income declared from unaccounted business it has not been disputed that assessee filed complete record of year wise and transaction wise accountes of material found in the locker. No adverse comments have been offered by ld. AO in this behalf. Regarding comparatively lesser GP from unaccounted business than regular business assessee offered proper reasons which have not been even considered by AO. The GP has been enhanced not based on any objective considerations but by summarily relying on estimated GP of regular business. In our considered view the incriminating material should considered in totality and when assessee has submitted copious accounts for incriminating material it cannot be discarded summarily as done by ld. AO. Since there is no rebuttal in respects of accounts of unaccounted income furnished by the assessee, the profits declared deserve to be accepted in given facts and circumstances. Similarly it is not disputed that value of stock of jewelry found from locker was taken by ld. AO on market price whereas as per settled accounting principles same should have been valued at cost. Consequently, valuation adopted by assessee is to be adopted. Thus the additions in question deserve to be deleted on merits also."
7. Counsel for the respondent has supported the order of the Tribunal and contended that notice u/s 153A was not followed by proceedings u/s 153C. In that view of the matter, proceedings initiated was without any basis or search by the present appellant.
(9 of 11) [ ITA-139/2016]
8. He has also taken us to provision of Section 292 B of the Income Tax Act and contended that in view of the decision of Allahabad High Court in case of Commissioner of Income Tax vs. Shital Prasad Kharag Prasad reported in (2006) 280 ITR 0541 wherein it has been held as under:-
"8. We have independently examined the findings of the Tribunal on the question of issuance of a valid notice under Section 148 of the Act and its service on Shri B.D. Agarwal, who represented Shri J.B. Gupta. It is not in dispute that Shri J.B. Gupta had died on 13th Aug., 1974. Therefore, notice under Section 148 of the Act could not be validly served on Shri B.D. Agrawal on 27th Aug., 1976. The authority of Shri B.D. Agrawal came to an end ipso facto on 13th Aug., 1974, on account of death of Shri J.B. Gupta. It is settled law that service of a valid notice under Section 148 is the foundation for the initiation of reassessment proceedings and a condition precedent for the validity of the notice. The further fact is that the notice under Section 148 was not served on the adult members of the family who were in existence at the time of the partition of the joint Hindu family. Filing of the return in consequence of illegal service of notice on Shri B.D. Agrawal will not validate the reassessment proceedings. A Full Bench decision of this Court rendered under Section 21 of the U.P. Sales Tax Act which is in pari materia of Section 147 of the Act says no. This has been so held in Laxmi Narain Anand Prakash v. CST 1980 UPTC
125. In this case the High Court has relied upon number of cases relating to service of reassessment notice under the IT Act including Bhagwan Devi Saraogi and Ors. v. ITO MANU/WB/0117/1975 : [1979]118ITR906(Cal) and quoted following passage from it :
"If the authority concerned does not acquire jurisdiction in absence of a valid notice being served, the entire proceedings will be without jurisdiction and void and even the consent on the part of the assessee would confer no jurisdiction on the 'ITO'."
The Kerala High Court in P.N. Shashi Kumar and Ors. v. CIT MANU/KE/0130/1987 :
[1988]170ITR80(Ker) has held that the issue of a (10 of 11) [ ITA-139/2016] notice under Section 148 of the IT Act, 1961, is a condition precedent to the validity of any assessment order to be passed under Section 147 of the Act. It is also settled law that if no such notice is issued or if the notice is invalid or is not in accordance with law or is not served on the proper person in accordance with law, the assessment would be illegal and without jurisdiction. The notice should specify the correct assessment year and should be issued to particular assessee. The notice issued to the assessee in that case did not specify the capacity in which it was issued to one S, whether as individual or as "principal officer" or as a member of association or BOI. The assessment was completed by the ITO in the status of an AOP consisting of S and some others. It was held that before assessing an AOP, notice should be addressed to the "principal officer" or a "member" thereof as required by Section 282(2)(c), which was not done. Such a fundamental infirmity, it was held, could not be called a "technical objection" or a mere irregularity; such vital infirmity could not be cured or obliterated by placing reliance on Section 292B.
A Division Bench of this Court in the case of Madan Lal Agrawal v. CIT MANU/UP/0353/1982 :
[1983]144ITR745(All) has held that a notice contemplated by Section 148 is a jurisdictional notice for initiating proceedings for making an assessment under Section 147 and any defect in that notice cannot be cured by any thing done by the ITO subsequently. A vague notice is an invalid notice and in such a case vagueness cannot be removed by reference to the other documents on the record. If a notice itself is otherwise bad in law, invalidity thereof cannot be cured by any act of the assessee to whom the said notice is issued.
9. In view of above, the Tribunal has rightly held that Section 292B of the Act will have no application to the facts of the present case. The said section condones the invalidity which arises merely by reason of any mistake, defect or omission in a notice, if in substance and effect, it is in conformity with or according to the intent and purpose of the Act. The notice in question was not served on all the adult members of the family, as required under Section 283(1) of the Act. This mistake goes to the very root of the matter. It is fairly settled that an assessing authority gets jurisdiction to reopen a concluded assessment only (11 of 11) [ ITA-139/2016] after serving a valid notice on the assessee. A notice contemplated under Section 148 of the Act is a jurisdictional notice and is not curable under Section 292B of the Act, if it was not served in accordance with the provisions of the Act."
9. The initiation u/s 153C is bad in law and to get advantage of Section 292B of the Income Tax Act.
10. We have heard counsel for both the sides.
11. The argument u/s 292B was not considered and canvassed before the Tribunal. In that view of the matter, taking into consideration overall view and more particularly looking to the fact that the Tribunal has traveled beyond the pleadings and has not correctly given the finding while reversing the view taken by the CIT(A), we are of the opinion that the matters be remitted back to the Tribunal to reconsider the issue afresh after hearing both the sides on all questions of law and facts. Therefore, the order of the Tribunal is quashed and set aside. The matters are remitted back to the Tribunal.
12. Both the parties will appear before the Tribunal on 3 rd January, 2018 and thereafter, the Tribunal will decide the matters afresh.
13. The appeals stand allowed.
(VIJAY KUMAR VYAS), J. (K.S. JHAVERI), J.
A.Sharma/19-21