Income Tax Appellate Tribunal - Delhi
Sushil Kumar Jain, Prop., New Delhi vs Assessee on 6 July, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : 'G : NEW DELHI
BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER
AND
SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER
ITA No.4396/Del /2011
Assessment Year : 2004-2005
Income Tax Officer, Vs. Shri Sushil Kumar Jain,
Ward 4(1), Prop. M/s Jain Metal Works
New Delhi 9/104, Shastri Gali, Vishwas
Nagar, Shahdara, Delhi- 110032
CO No.64/Del /2013
(In ITA No.4396/Del/2011)
Assessment Year : 2004-2005
Shri Sushil Kumar Jain, Vs. Income Tax Officer,
Prop. M/s Jain Metal Works Ward 4(1),
9/104, Shastri Gali, Vishwas Nagar New Delhi
Shahdara, Delhi- 110032
(PAN AAFPJ 5870 N)
(Appellant) (Respondent)
Date of Hearing : 07.04.2015
Date of Pronouncement : 06.072015
Assessee by : Sri Ramesh Chandra, CIT DR
Respondent by: Sri C.S. Anand, Advocate
ITA No. 4396/Del/2011
C.O. No. 64/DEL/2013
ORDER
PER CHANDRA MOHAN GARG, JUDICIAL MEMBER
1. This appeal of the Revenue and cross objection of the assessee have been directed against the order of the CIT(A)-VII, New Delhi dated 11.07.2011 in Appeal No. 120/2006-07 for AY 2004-05.
2. Ground Nos. 1 & 2 of the Revenue are general in nature, which need at no adjudication. Remaining grounds of the Revenue for adjudication reads as under:-
"2. On the facts and in the circumstances of the case, the Ld CIT(A) has erred in deleting the addition of Rs. 25,75,000/- made by the AO under section 69A of the I T Act, 1961.
2.1 The learned CIT(Appeals) has erred in ignoring the finding of the AO that the evidence and explanation put forth by the assessee in support of the sources of cash of Rs. 25,75,000/- seized by the excise authorities and repayment of advances received against sale agreements was not only clearly an after thought but also inherently defective. 2.2 The Ld CIT(Appeals) has erred in considering the explanation of the assessee with respect to each of the purported transaction in isolation and not appreciating the effect of the facts of the case in their totality and without countering the infirmities, inconsistencies and anomalies in the purported evidence discussed by the AO.
3. On the facts and in the circumstances of the case the Ld CIT(A) has erred in deleting the addition of Rs. 5,00,000/- out of an a thon of Rs.6,77,000/-- made by the account of under statement of sale consideration of property situated at 9/100, Shastri Gali, Vishwas Nagar, Shahdara, Delhi.
4. On the facts and in the circumstances of the case, the Ld CIT(A) has erred in deleting the addition of Rs. 5,00,000/- made by the AO on 2 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 account of unaccounted source of repayment of advance against sale agreements.
5. On the facts and in the circumstances of the case, the Ld CIT(A) has erred in deleting the addition of Rs. 5,00,000/- made by the AO on account unexplained source of repayment of property advance to Shri Vinod Kumar Jain.
6. On the facts and in the circumstances of the case, the Ld CIT(A) has erred in deleting the addition of Rs. 3,00,000/- made by the AO on account of unaccounted receipt of cash claimed to have been received from Sh. Sheel Kumar Jain.
7. On the facts and in the circumstances of the case, the Ld CIT(A) has erred in deleting an addition of Rs.16,96,788/- made by the AO on account oflow GP Ratio.
7.1 The Ld CIT(A) has erred in holding that the books of accounts of the assessee were rejected by the AO without any finding on the "correct or completeness" of the accounts."
3. The sole ground of cross objection of the assessee reads as under:-
"1. That on the facts of the case and under the law, the ld. CIT(A) has erred in not deleting the addition of Rs.1,77,000/-. Ld. AO had replaced the figure of actual sale consideration in respect of property bearing no.9/100, Shastri Gali, Vishwas Nagar, Shahdara, Delhi-32, declared by the assessee at Rs.8,00,000/- on the basis of Sale Deed executed by him, by the figure of Rs.9,77,000/- representing the fair market value estimated by the Assistant Valuation Officer."
4. Briefly stated the facts giving rise to these cases are that during the course of action on the assessee's business premises on 20.02.2004, the Central Excise Authorities had found cash amount of Rs.25,75,000/- lying with the assessee and the same was seized by the Central Excise Authorities. Subsequently, in due course of process and time, the Central Excise Authorities 3 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 had failed to make out any case against the assessee or his sole proprietary concern M/s Jain Metal Works in regard to said cash amount which was seized from the business premises of the assessee. Later on, the said cash of Rs.25,75,000/- was requisition by the Income Tax Department on 19.09.2006.
5. The Assessing Officer issue notice u/s 153A of the Income Tax Act, 1961 (for the short the 'Act') to the assessee for AY 2001-02 to AY 2006-07 and thereafter completed reassessment on the returned income for five assessment years accepted AY 2004-05. Finally, for AY 2004-05, the reassessment was completed at the income of Rs.65,25,710/- against the returned income of Rs.7,69,423/-. The Assessing Officer made certain additions on account of unexplained money u/s 69A of the Act amounting to Rs.25,75,000/-. Understatement of the sale consideration of proprietary sold amounting to Rs.6,77,000/- income from undisclosed sources amounting to Rs.5,00,000/- unexplained receipt of cash from Shri Sheel Kumar Jain amounting to Rs.3,00,000/- addition on account of no GP rate amounting to Rs.16,96,788/- much as disallowance of general expenses amounting to Rs.7,500/-. Aggrieved assessee preferred an appeal before the CIT(A) which was partly allowed on all the issues except part confirmation of addition of Rs.1,77,000/- in respect of sale consideration of property bearing No. 9/100, Shastri Gali, Viswas Nagar, Shahdra, Delhi-32. Aggrieved Revenue, before this Tribunal with the Ground as reproduced hereinabove and the assessee has 4 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 also filed cross objection in regard to part confirmation of addition and dismissal of first appeal by the CIT(A).
Ground nos. 2, 2.1 & 2.2 of the assessee
6. We have heard rival arguments and perused the relevant material placed on record, inter alia assessment year, first appellate order of the CIT(A) and written synopsis of the assessee filed before us. The Ld. Departmental Representative (DR), supporting the action of the AO submitted that the AO was quite justified in making addition in regard to the unexplained money/seized cash of Rs.25.75 lakh u/s 69A of the Act. The Ld. DR further contended that despite of adequate opportunity were given to the assessee to submit said original receipt, but the same was not submitted during the assessment proceeding. The Ld. DR further contended that in fact Shri Sheel Kumar Jain had not signed any receipt/agreement not even on the date when the money was returned him by the assessee Shri Sushil Kumar Jain. Ld. AR further pointed out that in the said receipt/agreement, the assessee had given conditional undertaking that he will get the property vacate from his sister, which convinced that he was in complete command and controlled to get the property vacate. Ld. DR further submitted that the AO rightly observed that the said agreement was cancelled on account of nonpayment of instrument by Shri Sheel Kumar Jain and not because the assessee Shri Sushil Kumar Jain could 5 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 not get the property vacated from his sister. Ld. DR took us through the relevant part of the assessment order and vehemently contended that the Assessing Officer established made out that the explanation offered by the assessee was not satisfactorily with regard to source of cash found in his possession thus, third limb of Section 69A was satisfied and the seized amount of cash was correctly added to the total income of the assessee u/s 69A of the Act as his unexplained money. Ld. DR further pointed out that the CIT(A) ignored the facts and allegation brought out by the AO and wrongly held that the conclusion of the AO have been satisfactorily rebutted on behalf of the assessee. Ld. DR finally prayed that the impugned order on this issue may be set aside by restoring that of the AO.
7. Replying to the above, Ld. counsel of the assessee supported the conclusion of the CIT(A) and submitted that the assessee had furnished complete evidence in support of availability of cash of Rs.25,75,000/- which was seized by the Central Excise Authorities, before the AO during assessment proceeding. The Ld. counsel of the assessee vehemently contended that the Assessing Officer did not appreciate the explanation and evidences of the assessee and proceeded to make the addition u/s 69A of the Act without any reasonable basis and justified reasoning. Supporting the conclusion of the CIT(A), Ld. counsel of the CIT(A) strenuously contended that the AO was not able and intended to make necessary verification and examination and merely 6 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 on this basis the explanation and evidence of the assessee cannot be rejected at threshold. Ld. Counsel of the assessee further drawn our attention at Para 5.1 and 5.2 of the impugned order and submitted that the explanation and the evidence submitted by the assessee properly appreciated and considered by the CIT(A) while granting relief to the assessee on this issue, therefore, the addition was rightly found to be not sustainable by the CIT(A).
8. On careful consideration of the above submissions at the very outset, we note that the Assessing Officer firstly proceeded to dispute amount of cash seized as unexplained money of the assessee on the basis of that advanced money received on account of sale/purchased of property are always routed through account payee cheque/draft. On this conclusion of the AO, we are an agreement with the finding of the CIT(A) that no law of the land requires intending purchaser to pay the advance money to the seller through account payee cheque only. In this situation, explanation of the assessee cannot be rejected merely on the ground that the advanced amount said to be received by the assessee on account of agreement to sale of property was in cash. On the factum advance received by the assessee of Rs.12.50 lakh from M/s JMW (India) Pvt. Ltd. we note that there was written agreement of sale between the assessee and the said purchasers M/s JMW (India) Pvt. Ltd. and this fact was confirmed by the Director of the company before the authorities below. Since the property was pre occupied by the sister of the assessee who could not be 7 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 vacated, therefore, the deal was cancelled and the said intended purchasers company had taken its advanced money back. In this situation, transaction cannot be held as fake transaction. It is pertaining to note that both the parties viz. the assessee and M/s JMW (India) Pvt. Ltd. had confirmed having entered into this agreement and the intending purchasers had been examined by the AO during assessment proceeding. We further find ourselves in agreement with the institution of the CIT(A) that when the Director of the company was asked to produce books of account which were submitted on 21.08.2006 but the AO did not entertained in the Director of the said company and did not verify books of account. In this situation, the AO wrongly hold that the said purchasers did not produce the books of account and thus the treatment and source of the said advanced could not be independently verified.
9. We are also an agreement with the contention of the assessee that M/s JMW (India) Pvt. Ltd., and M/s J.V. Industries (P) Ltd. , father and brothers of the assessee are separately assessed to income tax and merely because the transaction occurred between two companies having Directors who are relating to each cannot be doubted without bringing out any adverse material to support this fact that actually there was no transactions and amounts were credited to justify the amount of cash seized during the action of the Central Excise Authorities. At the same time, in view of above, noted facts we hold that the AO was not justified in holding that because the brother and father of the 8 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 assessee are the Directors in M/s JMW (India) Pvt. Ltd and M/s JV Industries (P) Ltd. Hence, explanation of the assessee after thought because there is no bar of having property transactions between the family members or blood relative of the Income Tax Act or any other provision of the effective legislation. The assessee stand before the AO was that the said agreement with the said company was cancelled on the account of his family to get property from his sister, which was not accepted by the AO by holding that past history/conduct of the assessee clearly established that the assessee was complete command and authority to get the property vacate. We are unable to see any valid reason or cause supporting this action of the AO.
10. Per contra, the explanation offered by the assessee that the assessee was under genuine and bona fide belief that he shall ask his sister to vacate the property she shall vacate the said property but when his sister came to know that the assessee is going to sale the said property then she had requested to the assessee to sale the said property to her only and keeping in view the relationship of their sister, the assessee could not deny her request and therefore, the agreement to sale was cancelled. The explanation offered by the assessee was wrongly rejected by the AO and the CIT(A) rightly considered the said explanation and we are unable to see any perversity or infirmity or any other valid reason to interfere with the same. The CIT(A) rightly considered the evidence submitted by the assessee to support this fact that the property 9 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 was possessed by his sister Smt. Pratibha Jain and her residence at 9/89, Shastri Gali, Vishwas Nagar, Shahdara, Delhi. It is pertaining to mention that undisputedly the ration card was issued by the civil supply authorities in March, 1998 which is a self speaking and reliable evidence and proof about the residential status of Smt. Pratibha Jain in the said property from the operative part of the impugned order we observed that the CIT(A) deleted the addition with the following disallowances and conclusion:-
"I have considered the written submission on behalf of the appellant, the findings of the Assessing Officer and the facts on record. The main contention of the appellant is that complete evidences in support of the availability of cash of Rs.25,75,OOOJ- were furnished before the Assessing Officer. The contention of the appellant and the supporting evidences furnished on behalf of the appellant have not been rebutted by the Assessing Officer. Simply because the Assessing Officer was not able to make necessary verification, the explanation of the assessee cannot be rejected. In these circumstances, I am of the considered view that the Assessing Officer had made the addition of Rs.25, 75,0001- to the income of the assessee simply on the basis of presumption and assessee has been able to establish that the amounts received from (a) Mls l.M.W. India (P) Ltd., and Sh. Vinod Kumar lain against agreements of sale of the house properties situated at 9/89 & 911 00, Shastri Gali, Viswas Nagar, Shahdra, Delhi-ll0032 & (b) from Mls lain Metal Works under debit to the proprietor's capital accounts were available before the date of survey by the central excise Department conducted on 22.02.2004 and there was sufficient cash balance in the possession of the appellant on the date of survey. It is observed that the observations and findings of the Assessing Officer have been satisfactorily rebutted on behalf of the appellant."
11. On the basis of foregoing discussion, we reach to a logical conclusion that the Assessing Officer was not justified in making addition u/s 69A of the 10 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 Act by treating the seized cash as unexplained money of the assessee. On careful consideration of the assessment order and impugned order of the CIT(A), we have no hesitation to hold that the Assessing Officer did not appreciate the explanation and evidence submitted by the assessee rather he ignored some important facts which were self speaking and the same were rightly considered and noted by the CIT(A) while granting relief to the assessee and in deleting the impugned addition of Rs.25.75 lakh made by the AO u/s 69A of the Act. Accordingly, Ground No. 2 to 2.2 of the Revenue are dismissed and view taken by the CIT(A) in this regard.
Gound No.3 of the Revenue and sole ground of the cross objection of the assessee
12. It would be appropriate to address the legal objection of the Ld. DR that the C.O. No.64/Del/2013 of the assessee is time barred as the assessee received notice of hearing for 05.12.2011 and several notices subsequently, but the cross objections were filed on 04.04.2013, which are time barred in view of provision of Section 253(4) of the Act. The Ld. DR drawn our attention towards appeal and cross objection filed and submitted that the Revenue filed its appeal on 03.10.2011 and the case was fixed for hearing on 05.12.2011 and notice for the said first hearing was served upon the assessee, but the despite of due service of notice the assessee did not file any cross objection within stipulated time period, therefore, the objection filed by the assessee after lapse 11 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 of prescribed limitation period are time barred and the same may kindly be dismissed.
13. Replying to the above, Ld. counsel of the assessee drawn our attention towards applications of the assessee first dated 28.02.2012, second application dated 03.10.2012, third application dated 22.02.2013 and fourth application dated 05.03.2013 and submitted that neither any notice for the date and hearing for 05.12.2011 nor the copy of Form 36 along with grounds raised by the Revenue has been over served upon the assessee. The Ld. Counsel further pointed out that the assessee noted from the cause list that the appeal of the Revenue was fixed for hearing on 05.12.2011before 'G' Bench and soon after that the assessee filed an application before the Assistant Registrar, ITAT, New Delhi on 28.02.2012 requesting to provide copy of Form No.36 along with grounds of appeal raised by the Revenue. Ld. counsel vehemently contended that after several efforts and four applications, assessee got the copy of Form No.36 along with grounds of appeal raised by the Revenue on 13.03.2013 and after perusing the same the assessee decide to file cross objection and the same were filed on 04.04.2013 within prescribed time limit as per Section 253(4) of the Act. Ld. counsel further pointed out that Section 253(4) of the Act enable the assessee to file cross objection, if any, not against the notice but against Form No.36 and grounds raised by the Revenue and when neither the notice nor copy of the Form No.36 and grounds of the Revenue were supplied to the 12 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 assessee along with notice then the assessee was not able to file its cross objection without Form No.36 and grounds of the Revenue.
14. On careful consideration of above submission, it would be appropriate to reproduce the provision of Section 253(4) of the Act which reads as under:-
"The Assessing] Officer or the assessee, as the case may be, on receipt of notice that an appeal against the order of the Deputy Commissioner (Appeals)] or, as the case may be, the Commissioner (Appeals)] has been preferred under sub- section (1) or sub- section (2) by the other party, may, notwithstanding that he may not have appealed against such order or any part thereof, within thirty days of the receipt of the notice, file a' memorandum of cross- objections, verified in the prescribed manner, against any part of the order of the Deputy Commissioner (Appeals)] or, as the case may be, the Commissioner (Appeals)], and such memorandum shall be disposed of by the Appellate Tribunal as if it were an appeal presented within the time specified in sub- section (3)."
15. On vigilant perusal and reading of Section 253(4) of the Act, we note that the Assessing Officer or the assessee, as the case may be, may file cross objection within thirty days of the receipt of the notice against the order of the first appellate authority or any part thereof and such cross objection shall be disposed of by the Tribunal as if it were an appeal filed within prescribed limit as time specified in sub Section (3) or sub Section 3A of Section 253 of the Act. We also note that this enabling provision provides a right to the opposite party against whom appeal have been preferred either by the AO or by the assessee not withstanding that he may not have filed any appeal against such order or any part thereof.
13 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013
16. The main essence of this provision is that the time limitation of thirty days would be reckoned from the date of receipt of notice enabling the respondent to file memorandum of cross objection against first appellate order or any part thereof. Meaning thereby prescribed time would start when the notice would be served upon the assessee. At this juncture, we are of the considered opinion that in our humble understanding, the notice would not be completed if copies of Form No.36 and grounds of the appellant are not enclosed thereto because without seeing Form No.36 and grounds of the appellant the respondent would not be able to file his cross objection against the order or any part of the order.
17. In the present case, from careful perusal of the appeal record of ITA No.4396/Del/2011 viz. appeal of the Revenue, we note that the appeal was filed on 03.10.2011 and case was fixed for first hearing on 05.12.2011. From the record, we also see that no notice was issued to the assessee for the first date of hearing that was 05.12.2011 and the assessee approached the Assistant Registrar of ITAT, New Delhi firstly on 28.02.2012 and requested to provide copy of Form No.36 along with grounds of appeal raised by the Revenue. The assessee subsequently filed reminder/applications on 03.10.2013, 22.02.2013 and 05.03.2013 with the same request which was finally redressed on 13.03.2013 when the Assistant Registrar, ITAT, Delhi directed to provide copy of grounds of appeal to the assessee. In pursuance to last application dated 14 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 05.03.2013 admittedly assessee filed cross objection on 04.04.2013. In this situation, we are of the view that when the assessee has established that no notice along with copies of Form No.36 and grounds of appeal of the Revenue were served upon the assessee and the assessee could get copies of Form No.36 and grounds of the Revenue after restless efforts only on 13.03.2013 then the time limit prescribed in Section 253(4) of the Act would be reckoned only after receipt of complete notice along with copies of Form No.36 and grounds of appeal of the Revenue which is on 13.03.2013 in the present case. Hence, thus cross objection filed on 04.04.2013 cannot be alleged and held as time barred. Accordingly, legal objection of the Revenue is dismissed.
18. Now, we proceed to decide the Ground No.3 of the Revenue and the sole ground of cross objection of the assessee as both related to the same issue. The Ld. Departmental Representative submitted that the CIT(A) has erred in deleting the addition of Rs.5,00,000/- out of an addition of Rs.6,77,000/- made by the AO on account of understatement of sale consideration of the property situated at 9/100, Shastri Gali, Vishwas Nagar, Shahdra, Delhi. Ld. DR pointed out that the Assessing Officer rightly observed that payment of alleged gift by Mrs. Kaushalya Jain to Shri Ashish Jain and subsequent transfer of money by Shri Ashish Jain to present assessee who in turn had used the money to repay advance was nothing but a still modus operandi to pay adequate consideration for purchase of property by concealing the actual payment of enhanced 15 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 purchase consideration of Rs.5,00,000/- as gift. The Ld. DR strenuously contended that the assessee had very cleverly avoided his tax liability on account of capital gain on sale of said property. The DR further contended that the said amount of Rs.5,00,000/- which was ultimately reached to the assessee from his sister Mrs. Kaushalya Jain, the purchaser of property, in garb of gift is the understatement of sale consideration declared by the assessee and therefore, the same was rightly treated as undisclosed income of the assessee by the AO.
19. The Ld. DR also contended that the assessee shown sale of property No.9/100 Shastri Gali, Vishwas Nagar, Delhi with a consideration of Rs.8,00,000/- of which long term capital gain was also declared but as per report of Assistant Valuation Officer dated 17.10.2006 the fair market value of the said property was valued at Rs.9.77 lakh. The Ld. DR further contended that the assessee filed implausible and unsustainable explanation which was rightly dismissed by the Assessing Officer after detailed deliberation and the AO correctly treated the same amount as undisclosed income of the assessee which has not been declared by him in his return of income. The Ld. DR further took us through paragraph no.7.1 and 7.2 of the impugned order and submitted that the CIT(A) restricted the addition to Rs.1.77 lakh and deleted the part addition of Rs.5,00,000/- without any justified reason and basis and therefore, the impugned order in this regard may be set aside by restoring that of the AO.
16ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013
20. The Ld. counsel of the assessee replied that the AO has failed to adduce any evidence on record in support of understatement of sale consideration by the assessee in respect of addition of Rs.5,00,000/-. Ld. counsel further submitted that the CIT(A) wrongly held that estimate of Assistant Valuation Officer has not been controverted by the assessee with any sustainable explanation and acceptable evidence. The Ld. counsel further drawn our attention towards Page 23 of the assessment order and submitted that the assessee furnished detailed explanation before AO vide reply dated 05.11.2006 which was wrongly dismissed by the AO without any justified reason. The Ld. counsel submitted that the property which was sold to Mrs. Jain was already occupied by her as the tenant and she ultimately purchased the said property, hence, the property could have fetched less consideration then the fair market value prevailing at the time of transaction.
21. The Ld. counsel further pointed out that Assistant Valuation Officer rejected the arguments of the assessee without affording the due opportunity of hearing to the assessee to explain the position, therefore, the addition of Rs.1.77 lakh made by the AO and upheld by the CIT(A) is not sustainable without bringing out any material or evidence against the assessee to show that the assessee had actually received over and above payment of Rs.1.77 lakh from the purchaser which was not accounted for in the books of account of the assessee. Besides, aforesaid arguments supporting the cross objection, the Ld. 17 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 counsel of the assessee also submitted that the Assessing Officer made addition of Rs.5,00,000/- by taking hyper technical approach on the imaginary facts which was rightly deleted by the CIT(A). Ld. counsel further pointed out that the Assessing Officer could not brought any evidence or material to support this allegation of understatement of sale consideration by the assessee of Rs.5,00,000/-, therefore, the impugned order in this regard is correct. The Ld. counsel finally submitted that the addition of Rs.1.77 lakh upheld by the CIT(A) is not sustainable and the same should be deleted allowing the cross objection of the assessee.
22. Ld. DR also placed rejoinder to the aforesaid submission of the assessee and submitted that the assessee did not produce any evidence before the Assistant Valuation Officer in the form of rent agreement, rent receipt, details of court cases on account of unauthorized occupation, therefore, the assessee could not establish that the property was already pre occupied by the tenant who ultimately purchase the said property and therefore, the assessee got less consideration then the fair market value. The Ld. DR finally submitted that the order of the AO is quite justified and the same should be restored.
23. On careful consideration of above submission, we note that the CIT(A) granted relief for the assessee with the following observations and conclusion:-
"7.1 I have considered the written submission on behalf of the appellant, the findings of the Assessing Officer and the facts on record. It 18 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 has been the case of A.O. that the consideration shown by the appellant was not the real consideration, but this has been done without bringing on record any evidence direct or inferential in support of the same. It is a trite law that the onus to prove otherwise than the fact lies on the person who alleges. It has been consistently held by the courts or laws that it is for the Revenue to establish that there has been an understatement of consideration by the assessee & the consideration actually received is more than the one disclosed before the tax authorities. In case the Revenue wants to make out a case that the assessee had received more consideration then it should have basic material and evidence in its hands which suggest that the consideration exceeded the amount shown in the document. Reliance is placed on the decisions of the Supreme Court in CIT v. George Henderson Co Ltd(1967) 66 ITR 622(SC), CIT v . Gillanders Arbuthnot & Co (1973) 87 ITR 407(SC), K.P. Varghese v. ITO(1981) 131 ITR 597(SC), CrT V. Shivakami Co. (P) Ltd. (1986) 159 rTR 71 (SC) and CIT Vs. Godawari Corpn. Ltd. (1993) 200 ITR 567 (SC), wherein it has been held that unless there is evidence that more than what was stated, was received no higher price or value can be taken to be the basis for computation of capital gains. Reliance is also placed on the decisions of the jurisdictional High Court of Delhi in CIT V. Gulshan Kumar (Decd.) (2002) 257 ITR 703 (Del.) & CIT V. Naresh Khattar HUF (2003) 261 ITR 664 (Delhi) , CIT V. Smt. Sushi la Devi (2002) 256 ITR 179 (Delhi) and CIT v. Smt. Nilofer I. Singh (2009) 221 CTR 277/(2009) 176 Taxman 252/(2008)14 DTR 108. These decisions make it more than clear that the expression 'the full value of consideration' as contemplated in section 48 of the Act does not have any reference to the market value but only to the consideration referred to in the sale deeds or other supporting evidences as the sale price of the assets which have been transferred.
7.2 In the instant case, the Asstt. Valuation Officer had estimated the fair market value of the impugned property at Rs.9,77,000/-, as if the property was vacant and without any encumbrance. It is also observed that the A.O. has issued show cause notice to the assessee for making addition of Rs.1,77,000/- (Rs.9,77,000/- - Rs.8,00,000/-) as undisclosed income. However, the addition has been made to the extent of Rs.6,77,000/- by treating a gift of Rs.5,00,000/- as part of sale consideration in respect of the impugned property situated at 9/100, Shastri Gali, Viswas agar, Shahdra, Delhi- 110032. It is also observed that the A.O. has failed to adduce evidence on record in support of understatement of the sale consideration by the assessee in respect of the addition of Rs. 5,00,000/-. However, the estimate made by the Asstt. Valuation Officer has also not been rebutted by the appellant with any explanation or evidence. In view of the aforesaid discussion, the AO is directed to adopt the sale consideration ofthe impugned property at the figure 19 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 of Rs.9,77,000/- as estimated by the Asstt. Valuation Officer against the value of Rs.8,00,000/- shown by the appellant. Hence, the addition of Rs.1,77,000/- is confirmed and that of Rs.5,00,000/- is deleted. As a result, ground No. 4 is partly allowed."
24. In view of above and on careful perusal of the relevant part of the assessment order on this issue, we note that when the Assessing Officer noted that the assessee has shown consideration of Rs.8,00,000/- only from property bearing no.9/100 Shahdra Delhi then transaction was referred to the Valuation Officer for ascertaining the correct/fair market value of the property sold. The Assessing Officer, on receipt of report vide dated 17.10.2006 of the Assistant Valuation Officer raised a query to the assessee showing his attention as to why the balance of Rs.1.77 lakh may not be treated as undisclosed income resulted by understatement of sale consideration. The assessee submitted that the property was sold by a person who was already pre occupied as tenant, therefore, he could get less consideration in comparison to the fair market value. Under above noted fact, we are of the view that the assessee has not disputed the valuation of Assistant Valuation Officer which was Rs.9.77 lakh.
25. The main contention of the assessee is that the property was sold to a person who was already under occupation of the property and, therefore, the consideration was less in comparison to the fair market value but the assessee did not submit any rent agreement, rent receipt, court case documents before the Assistant Valuation Officer. From careful reading of assessment order as 20 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 well as order of the CIT(A) he further observed that the assessee has not submitted any evidence in support of this contention that the property was sold to a person who was already occupying the property in issue as tenant and there were court cases and other dispute under which the property was sold to the person who was already in possession of the property and, therefore, the assessee got less consideration in comparison to the fair market value. In this situation, we are an agreement with the conclusion of the authorities below, the estimate made by the Assistant Valuation Officer has not been demolished and rebutted by the assessee with the quite plausible explanation or acceptable evidence, therefore, view taken by the Assessing Officer and upheld by the CIT(A) is justified and we are unable to see any infirmity or any other valid reason to interfere with the same on account of addition of Rs.1.77 lakh made by the AO.
26. At the same time, we further observed that the Assessing Officer made addition of Rs.5,00,000/- by treating a gift of Rs.5,00,000/- as a part of sale consideration in respect of impugned property. The CIT(A) observed that AO has failed to adduce cogent evidence and record in support of understatement of sale consideration by the assessee in respect of said addition of Rs.5,00,000/-. The Ld. counsel of the assessee has placed reliance on the judgments of Hon'ble Apex Court in the cases of CIT Vs. George Henderson Co. Ltd. reported in (supra), CIT Vs. Gillanders Arbuthoot & Co (Supra), K.P. 21 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 Varghese Vs. ITO (Supra), CIT Vs. Shivakami Co. (Supra) and CIT Vs. Godawari Corpn. Ltd. (Supra) and ratio of these decisions is that unless there is evidence that more than what was stated in the sale deed, was received no higher price or value can be taken to be the basis for computation of capital gains. In the present case, the CIT(A) rightly noted that Assessing Officer had failed to bring any evidence against the assessee to establish of record that there was understatement of sale consideration by the assessee by Rs.5,00,000/- which was received by the assessee in the garb of gift in the name of Shri Ashish Jain son of assessee. Accordingly, Ground No.3 of the Revenue and sold ground of cross objection being devoid of merits are dismissed.
Ground No.4 of the Revenue
27. The Ld. DR Departmental Representative submitted that the AO observed that the assessee had received a payment of Rs.5,00,000/- from M/s J.V. Industries Pvt. Ltd on the query of the AO, the assessee vide his reply dated 18.09.2006 explained that Rs.5,00,000/- were received from M/s J.V. Industries Pvt. Ltd. and paid to M/s JMW (India) Pvt. Ltd. on 19.03.2004 as repayment of advance. The Assessing Officer held that explanation of the assessee was false and it transpires that the assessee had used his income from undisclosed source to the extent of Rs.5,00,000/- for repayment of advance to 22 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 M/s JMW (India) Pvt. Ltd. . The Ld. DR contended that the AO after holding so correctly held that no payment has been received by the assessee from M/s J.V. Industries Pvt. Ltd. and the amount of Rs.5,00,000/- was rightly added to the total income of the assessee. Ld. DR further pointed out that the CIT(A) deleted the said addition without any basis and cogent reason, therefore, the impugned order may be set aside by restoring that of the AO on this issue.
28. The Ld. counsel of the assessee supporting the impugned order replied that the Assessing Officer ignored some important fact, material and evidence which was properly explaining and supporting the stand of the assessee on this issue. The Ld. counsel further submitted that the assessee had declared long term capital gain to the extent of Rs.3,47,817/- on the sale of 10,000 shares of M/s J.V. Industries Pvt. Ltd and the repayment of advance was made out of receipt of Rs.5,00,000/- on sale of aforementioned shares of M/s J.V. Industries Pvt. Ltd to M/s Nirman Securities Ltd. The Ld. counsel of the assessee further pointed out that the assessee had received sale consideration of Rs.5,00,000/- on 18.03.2004 through account payee cheque and this fact was rightly gets and considered by the CIT(A) while granting relief to the assessee.
29. From careful consideration of rival submission and perused the relevant material placed on record before us, from the vigilant reading of impugned order we note that the CIT(A) after considering detailed reply of the assessee 23 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 on this issue and facts on record granted relief to the assessee with the following observation and conclusion:-
"8.1 I have considered the written submission on behalf of the appellant, the findings of the Assessing Officer and the facts on record. The findings of the A.O, do not appear to he based on correct appreciation of facts. It was explained on behalf of the appellant during the assessment proceedings that it had sold the shares of M/s J.V. Industries (P) Ltd. to M/s Nirrnan Securities Ltd. and had received the sale consideration of Rs.5,00,000/- on 18.03.2004 through account payee cheque. On perusal of the bank statement relating to the savings bank account No.38694, it is found that an amount of Rs.5,00,000/- has been received on 18.03,2004. It is also observed that the appellant has declared long terms capital gain to the extent of Rs.3,47,817/- on sale of 10000 shares of M/s J.V. Industries (P) Ltd. It was further explained on behalf of the appellant that the repayment of advance was made out of the above receipts of Rs.5,00,000/- on sale of the aforementioned shares of Mls J.V. Industries (P) Ltd. In view of the facts stated above, it can be fairly concluded that the assessee was able to satisfactorily explain the source of repayment of advance against sale agreement. Hence, it is held that the addition of Rs.5,00,000/- on account of unexplained sources of repayment of advance against sale agreements is not sustainable on facts and in law and the same is deleted. As a result, Ground of appeal No. 6 is allowed."
30. In view of above, from the assessment year, we note that the Assessing Officer observed that the assessee had received amount of Rs.5,00,000/- from M/s J.V. Industries Pvt. Ltd. The Assessing Officer observed from the details submitted by the assessee and vide reply dated 08.09.2006 along with explanation that credit and debit entries appearing in the saving bank account of the assessee shows that no amount was received by the assessee M/s J.V. Industries Pvt. Ltd. and the AO had made the impugned addition to the taxable 24 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 income of the assessee from operative part of the impugned order on this issue and reply of the assessee which was reproduced in Para 8 of the impugned order, we note that the assessee submitted all the related facts and offered Rs.3,47,817/- as long term capital gain on the sale of 10,000 shares of M/s J.V. Industries Pvt. Ltd. We further observed that by way of submitting confirmation of the purchasers, Bank account and other details the explanation of the assessee remain uncontroverted that the 10,000 shares of M/s J.V. Industries Pvt. Ltd. were sold to M/s Nirman Securities Ltd. who in turn made payment of Rs.5,00,000/- to the assessee as sale consideration through vide Cheque No.043132 dated 17.03.2004, confirmation from M/s Nirman Securities Ltd. is available at page 34 of paper book of the assessee. We further note that this fact also remain uncontroverted that as per saving Bank account entries the assessee had received Rs.5,00,000/- on 18.03.2004 from M/s Nirman Securities Ltd. on account of sale of said shares along with covering letter dated 18.09.2006 and the payment was received through account payee cheque. Ld. counsel of the assessee further submitted that there was typographical mistake in the covering letter, therefore, confusion arose in the mind of AO which resulted into impugned addition. The Ld. Counsel finally submitted that it is undisputed that the assessee had received Rs.5,00,000/- through Account Payee Cheque No.043132 dated 17.03.2004, on 18.03.2004 from M/s Nirman Securities Ltd. as sale consideration against sale at 10,000 25 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 shares of M/s J.V. Industries Ltd. and such transaction was recorded in the books of account of the assessee and assessee had shown long term capital gain of Rs.3,47,817/- on this transaction which was also offered to tax in the return of income of the assessee for AY 2004-05.
31. In view of above, we are of the considered view that the confusion arose before the AO due to incompleteness in the facts and details submitted before the AO which were subsequently explain by way of filing details submission, statement of Bank account and other relevant details during first appellate proceedings. Admittedly, the assessee offered long term capital gain to the extent of Rs.3,47,817/- on the sale of 10,000 shares of M/s J.V. Industries Pvt. Ltd. which were sold to M/s Nirman Securities Ltd. and the assessee received sale consideration through account payee cheque which was also credited to his saving Bank account. Under above noted facts and circumstances, we are an agreement with the conclusion of the CIT(A) that the assessee satisfactorily explained the source of Rs.5,00,000/- and its further used for repayment of advance against sale agreement and in this situation addition made by the AO was rightly deleted by the first appellate authority. We are unable to see any infirmity or any other valid reason to interfere with the impugned order in this regard and we upheld the same. Accordingly, Ground No.4 of the Revenue being devoid of merits is dismissed.
26 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013
Ground No.5
32. Apropos Ground No.5, the Ld. Departmental Representative submitted that the Assessing Officer made an addition of Rs.5,00,000/- in the hands of the assessee by rightly holding that Shri Ashish Jain was a minor and he had no assessable income during the period under consideration. The Ld. DR further pointed out that, despite of adequate opportunities, Smt. Kaushalya Jain did not respond to the summon issue to her u/s 131 of the Act and in this situation the AO rightly held that impugned amount was actually given by her to the assessee through his minor son Shri Ashish Jain as a part of undisclosed sale consideration of the property sold to her by the assessee in the garb of gift. The Ld. DR also contended that the said transaction of gift was not independently or directly approved by Smt. Kaushalya Jain. The Ld. DR vehemently contended that the said explanation of the assessee was not tenable because on the one hand, the assessee claimed that he is having a dispute with his sister Mrs. Kaushalya Jain which led to the cancellation of agreement with Shri Vinod Kumar Jain and on the other hand, it was submitted that the son of the assessee Shri Ashish Jain had received a amount of Rs.5,00,000/- as gift from that sister of the assessee viz. Mrs. Kaushalya Jain who was alleged to occupying his property against the wishes of the assessee. The Ld. DR finally contended that in the totality of the facts and circumstances, the Assessing Officer was right in dismissing the explanation of the assessee and making 27 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 addition in this regard to the total income of the assessee. Ld. DR further pointed out that the CIT(A) deleted the said addition without any justified reason or basis, therefore, impugned order may be set aside by restoring that of the AO on this issue.
33. The Ld. counsel of the assessee supporting the impugned order submitted that when a minor is assessed to income and he is considered an entity for the purpose of taxation then a gift received from his aunt out of natural love affection through account payee cheque cannot be held as bogus or untenable. The Ld. counsel of the assessee submitted that in totality of the facts and circumstances and in the light of supporting evidence it was not fair on the part of the AO to presume that the assessee repaid property advance of Rs.5,00,000/-to Shri Vinod Kumar Jain out of his undisclosed sources. The Ld. counsel vehemently contended that when the assessee submitted entire details and explanation supporting with documentary evidence before the AO and established this fact that Shri Ashish Jan actually received a gift of Rs.5,00,000/- from Mrs. Kaushalya Jain and this amount was further given as loan by Shri Ashish Jain to the assessee then onus shifted on the Assessing Officer to bring out that entire evidence and transaction of gift was a same transaction and assessee made repayment of advance to Shri Vinod Kumar Jain out of his own income from undisclosed sources. Ld. counsel further pointed out that the Assessing Officer has not made any verification either from the 28 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 bank account of Shri Ashish Jain, Mrs. Kaushalya Jain and the assessee and from the Assessing Officer of Smt. Kaushalya Jain who was also assessed to income tax. Ld. counsel for the assessee finally contended that the Assessing Officer made addition without properly considering an appreciating the explanation and evidence of the assessee and the same were rightly considered by the first appellate authority and the CIT(A) rightly held that impugned addition was not sustainable in law.
34. On careful consideration of above submission from the impugned order, we note that the CIT(A) grant relief to the assessee with the following observation and conclusion:
"9.1 have considered the written submission on behalf of the appellant, the findings of the Assessing Officer and the facts on record. I have also examined the evidences furnished by the appellant. The assessee received a loan of Rs.5,00,000/- from his son Ashish Jain which was confirmed by him (Ashish Jain). Smt. Kaushalaya Jain also confirmed that she had given a gift of Rs.5,00,000/- to her nephew, Ashish Jain out of natural love & affection. The payments were made by account payee cheques. In view of these pieces of evidence, it was not fair on the part of the Assessing Officer to presume that the assessee repaid property advance of Rs. 5,00,000/- to Shri Vinod Kumar Jain out of undisclosed sources. The burden of proving this fact was on the Assessing Officer and the Assessing Officer has not made any verification either from the the bank or from the ward/ circle where Smt. Kaushalaya Jain was assessed to income-tax. Under the circumstances, addition of Rs. 5,00,000/- on account of unexplained sources of repayment of advance to Shri Vinod Kumar Jain against sale agreements is not sustainable on facts and in law and the same is deleted. As a result, Ground of appeal No.8 is allowed."29 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013
35. In view of above, at the very outset, we are of the view that the crux of dispute is that the Assessing Officer picked up repayment of property advance Shri Vinod Kumar Jain by the assessee during the period under consideration amounting to Rs.5,00,000/-. When the Assessing Officer asked the assessee to explain the source, the assessee replied that he received loan of Rs.5,00,000/- from his minor son Shri Ashish Jain and the source of amount in the hands of Shri Ashish Jain was a gift from his aunt Smt. Kaushalya Jain. The assessee submitted all related documents, bank account, bank statement confirmation etc. before the AO to establish the creditworthiness of the donor and genuineness of the transaction. But this explanation was rejected by the AO in view of bitter relation between the assessee and Smt. Kaushalya Jain due to dispute about a property of the assessee which was in possession of Smt. Kaushlaya Jain against the willingness of the assessee.
36. At this juncture, firstly, we are of the considered view that when all details about the transaction of gift between Smt. Kaushalya Jain to Shri Ashish Jain and loan from Ashish Jain to the assessee has been explained by way of detailed explanation and supporting relevant evidence such as Bank statement confirmation of the respective party and explaining all facts then onus was obviously shifted to the Assessing Officer to controvert explanation and evidence submitted by the assessee to support his stand. On vigilant reading of the relevant part of the assessment order in this context, we note that 30 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 the Assessing Officer dealt this issue at Pages 27 to 29 of the assessment order wherein it was held that the explanation of the assessee in this regard is not acceptable and it is inferred that assessee has used his income from undisclosed sources to the extent of Rs.5,00,000/- for repayment of advance to Shri Vinod Kumar Jain.
37. When we analyzed the conclusion of the CIT(A) on this issue we observed that the CIT(A) held that the Assessing Officer has not made any verification either from the Bank or from the ward/circle where Smt. Kaushalya Jain was assessed to income tax and the AO has not discharged its onus proving this fact which was shifted by the assessee by way of filing detailed explanation and supporting evidence. In totality of the facts and circumstances discussed above, we note that the Assessing Officer adopted a subjective approach with a pre determined mind that the assessee made repayment of advance to Shri Vinod Kumar Jain amounting to Rs.5,00,000/- out of his income earned from undisclosed sources. Then the Assessing Officer with an intention to establish said subjective conclusion picking up loan transaction between assessee and his minor son Shri Ashish Jain and verified and examined the source of source in the hand of Shri Ashish Jain. The AO further observed and noted that minor son of assessee viz. Shri Ashish Jain received a gift of Rs.5,00,000/- from his aunt i.e. Sister of the assessee Smt. Kaushalya Jain. The Assessing Officer could not brought out any allegation or 31 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 fact about the creditworthiness of Smt. Kaushalya Jain and genuineness of the transaction of gift from Smt. Kaushalya Jain to Shri Ashish Jain. When the Assessing Officer could not found any adverse material or evidence to doubt the creditworthiness of Smt. Kaushalya Jain and genuineness of the transaction of the gift then he proceeded to take assistance from this fact that there were harsh relation between the assessee and her sister Smt. Kaushalya Jain due to possession of some property against the Will of the assessee. Noticing this fact, the AO held that in these circumstances, in no situation would an illegal occupant give a gift to the son of the person whose property she was forcibly occupying and not vacating leading to cancellation of purported agreement to sale in respect of said property.
38. On these observations and finding of the AO, we are of the view that obviously gifts out of love and affection are given to the relatives and bitterness between the donor and donee creates doubt or suspicion over the genuineness of the transaction but in this context, we cannot ignore the contention of the Ld. counsel of the assessee that illegal occupation Smt. Kaushalya Jain gave a impugned gift to the minor son of assessee out of love and affection and with an intention to improve the veracity of relation and to clear all the clouds which spread over the relation between the families of real brother and sister due to property dispute. The facts can be evaluated and analyzed in both the ways either as stated by the Ld. DR or as contended by the 32 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 Ld. counsel of the assessee but for making addition in this issue the evaluation of relation cannot be held as sole criteria. It is a well settled proposition when on facts two views are possible then the view in favour of the assessee must be given weight and preference. Since we have already held that the Assessing Officer could not brought out any material fact or allegation to create any doubt over the genuineness of transaction of gift and creditworthiness of the donor Smt. Kaushalya Jain, therefore, bitterness of the relation cannot be a sole criteria for making addition in this regard.
39. In our considered view when the amount of gift was routed through banking channels from donor Smt. Kaushalya Jain to donee Shri Ashish Jain which was further advanced as loan to the assessee, then it may also be presumed that the gift was given by Smt. Kaushalya Jain to the minor son of the assessee out of love and affection and also to clear the clouds and bitterness in the relations between with her brother i.e. the assessee. Under above noted facts and circumstances, we have no hesitation to hold that the CIT(A) after considering the detailed submission of the assessee rightly concluded as in Para 9.1 at Page 27 of the impugned order, as reproduced hereinabove, that the addition of Rs.5,00,000/- on amount of unexplained source of repayment of advance to Shri Vinod Kumar Jain against the sale agreement is not sustainable. We are unable to see any infirmity, perversity or any other valid 33 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 reason to interfere with the same. Accordingly Ground No.5 of the Revenue is dismissed.
Ground No.6
40. Apropos Ground No.6, Ld. DR submitted that the CIT(A) has erred in dleting the addition of Rs.3,00,000/- made by the AO on account of unaccounted receipt of cash claimed to have been received from Sheel Kumar Jain. The Ld. DR took us through relevant operative part of the assessment order and submitted that during the course of assessment proceeding the AO noted that the assessee had entered into another agreement to sale the property no.9/100, Shahdra, Delhi on 07.04.2003 with Shri Sheel Kumar Jain and had received an advance of Rs.2,00,000/- in cash on 07.04.2003 and Rs.1,00,000/- in cash on 07.05.2003. The Ld. DR strenuously contended that the total of sale value was agreed to Rs.9,00,000/- and balance was agreed to be paid by the purchasers Shri Sheel Kumar Jain in the installment of Rs.1,00,000/- per month and on receipt of entire amount the property was to be got vacated by the assessee from his sister and registry was to be executed in favour of Shri Sheel Kumar Jain. The Ld. DR further pointed out since the said receipt of cash of Rs.3,00,000/- could not be independently verified, therefore, the assessee was asked to explain the situation by way of order sheet noting dated 09.11.2006 and assessee filed reply vide dated 13.11.2006 by stating that the advance 34 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 money had been repaid by the assessee to Shri Sheel Kumar Jain on 19.12.2003 in cash out of withdrawal made form M/s Jain Metal Works under debit to his capital account, therefore, the same may be accepted as explained.
41. The Ld. DR further pointed out that the modus operandi of the assessee was that whenever the assessee was in need of money an agreement in regard to property no.9/100 Shahdara was executed to raise funds but in fact said agreement were nothing but a device to convert assessee own income from undisclosed source in the funds/capital. The Ld. DR further submitted that the said receipts submitted by the assessee were not signed by the alleged purchasers Shri Sheel Kumar Jain and there were no independent evidence to show that money has been returned by the assessee to Shri Sheel Kumar Jain. The Ld. DR submitted that the assessee miserably failed to discharge his onus to explain the source/creditworthiness/genuineness of the alleged receipt of Rs.3,00,000/- from Shri Sheel Kumar Jain hence the same was rightly added to the total income of the assessee.
42. Supporting impugned order the Ld. counsel of the assessee replied and took us through operative Para 10 & 10.1 of the impugned order and submitted that when Shri Sheel Kumar Jain was expired on 02.11.2005 then it was impossible for the assessee to produce him before the Assessing Officer. Ld. counsel contended that the assessee submitted all the relevant document and 35 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 supporting evidences which were not controverted or rebutted by the Assessing Officer and simply because the Assessing Officer was not intended to make necessary verification then explanation and evidences of the assessee cannot be rejected at threshold. The Ld. counsel of the assessee further pointed out that the assessee submitted his capital account before the authorities below which was self speaking that the assessee withdrew Rs.3,00,000/- from his capital account with his proprietary firm M/s Jain Metal Works and the capital account of the assessee was debited with the same amount which was withdrawn on 19.12.2003. The Ld. Counsel submitted that the Assessing Officer made a subjective addition without any basis and without considering the explanation and supporting the evidence of the assessee which was rightly deleted by the CIT(A) after proper appreciation of the fact, supporting evidence and explanation of the assessee.
43. On careful consideration of above submission, we note that when admittedly Shri Sheel Kumar Jain was expired on 02.11.2005 prior to finalization of assessment order on 19.12.2006 then it was not possible for the assessee to produce Late Shri Sheel Kumar Jain during assessment proceeding. The Assessing Officer could have verified the factum of repayment of advance to Shri Sheel Kumar Jain by examining and verifying the statement of accounts inter alia the capital account of the assessee with his sole proprietary firm M/s Jain Metal Works but instead of making any further enquiry examination or 36 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 verification the Assessing Officer rejected the explanation and supportive evidence of the assessee at the threshold that without making any enquiry examination of verification and proceeded to make addition of Rs.3,00,000/- without bringing doubt any sustainable allegation or incriminating material against the assessee and the same was rightly deleted by the first appellate authority with the aforesaid disallowances and conclusion. We decline to interfere of the conclusion of the CIT(A) on this issue and hence Ground No.6 of the Revenue being devoid of merit is dismissed.
Ground No.7 & 7.1 of the Revenue
44. The Ld. DR supporting the action of the AO submitted that the books maintained by the assessee were deficient as they do not reflect the true and correct particular of the income of the assessee company. The Ld. DR further pointed out that the Assessing Officer after detailed deliberations rightly held that the assessee intentionally under declared/understated/suppressed his income in his books of account, therefore, the same were rightly rejected by the AO. The Ld. DR further drawn our attention towards Paragraph (10a) (10d) of the assessment order and submitted that there was substantial decrease in the GP ratio of the assessee in the F.Y. 2003-04 relevant to AY 2004-05 and since the books of account of the assessee do not reflect the true and correct particulars of the income of the assessee then the Assessing Officer was quite 37 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 justified in making enhancement of income of the assessee by adopting average GP rate of preceding assessment years and in making addition of Rs.16,96,788/-. The Ld. DR vehemently contended that during the first appellate proceeding the CIT(A) deleted the said addition without any justified reason merely on the ground that the books of accounts and financial results of the assessee cannot be rejected only on the sole basis that particulars expenses claimed by the assessee remain unverified. The Ld. DR submitted that there was a sharp decrease in the GP rate of the assessee in the financial period under consideration in comparison to immediately previous three years. The Ld. DR pointed out that when the books of account was rejected then the Assessing Officer was quite justified in making addition of the differences calculated on the basis of GP rate average of immediately preceding three assessment year which came to 4.1% and the impugned addition was made as per provision of the Act. The Ld. DR challenging the conclusion of the CIT(A) submitted that the CIT(A) was not justified in dismissing the rejection of books of account and deleting the impugned addition made by the AO on account of low GP ratio. Therefore, the impugned order may be set aside by restoring that the AO.
45. The Ld. counsel of the assessee submitted a copy of the Form 3CB of M/s Jain Metal Works, a proprietary firm of the assessee, for the financial year ended on 31.03.2004 and submitted that the Assessing Officer was not correct in rejecting the books of account and financial results of the assessee merely 38 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 because some expenses claimed by the assessee could not be verified. The Ld. counsel vehemently contended that in this situation when the expenses of assessee are not found to be verifiable then the Assessing Officer may disallow the same and he is empowered to make addition in this regard but entire books of account and financial results therefrom cannot be rejected at the threshold simply on this patty reason. Ld. counsel of the assessee further submitted that when the financial result of the assessee are supported with the audited report prepared by the competent auditor u/s 44AB of the Act then sharp decrease in the GP rate due to extraneous reasons beyond control of the assessee does not attracted any addition in any manner. The Ld. counsel of the assessee submitted that there were huge fluctuations in the rates of metal in the metal market during the financial period under consideration. The Ld. counsel also submitted that when the books of account of the assessee and financial results therefrom are sustainable then the Assessing Officer is not empowered to make any addition on the basis of low GP rate.
46. On careful consideration of above, we note that the CIT(A) had granted relief for the assessee dismissing the rejection of books and deleted the impugned addition made by the AO on account of low GP rate which read as under:-
"11.1 I have considered the written submission on behalf of the appellant, the findings of the Assessing Officer and the material placed on 39 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 record. The crux of the matter revolves around rejection of assessee's books of accounts by the Assessing Officer. In the case of Dhakeswari Cotton Mills Ltd. V. CIT (1964) 26 ITR 775 (SC) the Hon'ble Supreme Court had decided that once the books of accounts of the assessee are rejected then the profit has to be estimated on the basis of proper material available. However, the A.O. is not entitled to make a pure guess & make estimation without reference to any evidence or any material at all. There must be something more than mere suspicion to support such addition. The Hon'ble Supreme Court has reconfirmed the earlier stand in the case or CIT Vs. K.Y. Pilliah & Sons (1967) 64 ITR 411 (SC), where it has been decided that any lump sum add back to the trading result if found justified must be done in proper exercise of discretion objectively & judiciously on the basis of relevant material. Regarding the' Assessing Officer being not satisfied about the correctness or completeness of the assessee's accounts, the Calcutta High Court's judgment in the case of Ashoke Refractories (I') Ltd. V. CIT [2005] 279 ITR 457 is relevant. In the said case. the Hon'ble High Court held that in order to reject the accounts, the Assessing Officer has to come to an opinion that the income cannot be properly deduced from the accounts so maintained. In order to arrive at such conclusion, it must be shown thatthe Assessing Officer has taken into consideration relevant factors and not omitted to consider the material before him.
11.2 In the light of the above proposition, if the facts of the instant case are examined, it may be seen that the rejection of the books of accounts was done without any finding on the 'correctness or completeness' of the books of account. In view of the above and in my considered opinion, the rejection of the books of account, while accepting the books as correct and complete, is an invalid assumption of jurisdiction by the Assessing Officer as he did not dispute the method of accounting followed by the assessee and compliance of the accounting standard. The main reasons for making trading addition are that according to the AO, the appellant has not been able to adequately justify the significant and alarming drop in G.P. rate in the year under appeal as compared with the preceding assessment years. The Assessing Officer has not pointed out any specific defect or discrepancy in the books of accounts. Admittedly, the assessee had been maintaining regular Books of Account, which were duly audited by independent Chartered Accountants. The accounts which are regularly maintained in the course of business and arc duly audited, free from any qualification by the auditors, should normally he taken ns correct unless there are adequate reasons to indicate that they are incorrect or unreliable. The onus is upon the Assessing Officer to show that either the books of Account maintained by the assessee were incorrect or incomplete or method of accounting adopted by him was such 40 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 that true profits of the assessee cannot be deduced therefrom. It is also significant to mention that the record of production was checked by the Directorate General of Central Excise Intelligence which carried out search and seizure operation on the premises of M/s Jain Metal Works, the proprietorship concern of the appellant on 22.02.2004 and there has not been any adverse comments from the said Central Excise authorities. All these materials show that the production results as indicated in the books of account could not be disregarded without any clinching adverse evidences. In the instant case there are no such evidences and the appellant has not suppressed any production or sale. It is also not the case of the Assessing Officer that the expenses claimed by the appellant were not verifiable. Even if it is assumed that any particular expense claimed by the assessee remained unverified, the Assessing Officer could have disallowed that particular expense. But, that by itself cannot be a ground for rejection of accounts as a whole. In this context, reliance is placed on the decision of Delhi High Court in CIT vs Paradise Holidays (2010) 195 Taxman 291 (Del): 48 DTR (Del)
349. 11.3 The assessing authority has to look into the substance of the situation and decide the matter in such a manner that neither is put to unreasonable liability nor the assessee is subjected to unreasonable hardship. No doubt it is not only the right but also the duty of the Assessing Officer to consider whether or not the books disclosed the true state of accounts and the correct income can be deduced therefrorn. But these rights and duty have to be exercised in such a manner and have to be based on cogent reasons and sufficient material. The reasons given by the Assessing Officer in this case on the facts and circumstances is demonstrated, as. erroneous by the assessee. Rejection of books of account should not be done light heartedly as held by the Kerala High Court in the case of St. Teresa's Oil Mills v. State of Kerala [1970] 76 ITR 365 and by the Assam High Court in the case of Tolaram Daga v. CIT [1966] 59 ITR 632. Accounts regularly maintained in the course of business have to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable and incorrect. The AO has to prove satisfactorily that the books of accounts are unreliable or incorrect or incomplete before he can reject the accounts and this can be done by showing that important transactions are omitted or if proper particulars and vouchers are not forthcoming or the accounts do not include entries relating to a particular class of business. When a return is furnished and accounts are put in support of that return, the accounts should be taken as the basis for assessment. They should not be rejected because they are complicated. The procedure of the Assessing Officer is of judicial nature and in making the assessment he should proceed on judicial principles. If 41 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 evidence is produced by the assessee in support of its return it should be accepted unless it is rebutted by admissible evidence and not by mere hearsay.
11.4 Thus for all these reasons and as the assessee has produced sufficient material justifying its claim and as it has repelled the contentions advanced by the Assessing Officer with cogent material and evidence, I am of the considered view that on the facts and in the circumstances of the case, the Assessing Officer was not justified in making the addition of Rs.16,96,788/- by applying G.P. rate of 4.1%. The addition on account of trading to the extent of Rs.16,96,788/- i-s, therefore, directed to be deleted. As a result, Grounds of appeal No. 12 and 13 are allowed."
47. On careful consideration of above, we note that the CIT(A) demolished the rejection of books of account by the AO by relying on the judgment of the Hon'ble Delhi High Court in the case of CIT Vs. Paradise Holidays (supra). From vigilant reading of relevant operative part of the impugned order, we note that the Assessing Officer proceeded to reject books of account on the basis of his observations in Para 5 to 8 of the assessment order and held that books of account maintained by the assessee or are deficient as they do not reflect the true and correct particulars income of the assessee company. From careful reading of the assessment order, we note that the Assessing Officer had not issued any show cause notice to the assessee showing that he is intended to reject the books of account and financial results therefrom. Undisputed and admittedly the books of account of the assessee were audited by the competent Auditor and the Auditor submitted audit report u/s 44AB of the Act in Form 3CB before the authorities below which was not disputed in any manner by the Assessing Officer.
42 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013
48. From entire facts and circumstances of the present case, we also note that originally the proceedings were started after raid by the Central Excise Department at the business premises of the assessee wherein cash of Rs.25.75 lakh was seized and finally Central Excise Department could not make out any case on the basis of seized cash which was subsequently requisitioned by the Income Tax Authorities and proceeding u/s 153A of the Act were initiated. From Para 9 of the assessment order, we clearly see that the Assessing Officer rejected the books of account merely on the basis of his conclusion in Paras 5 to 8 of the assessment order and the assessee was not afford due opportunity of hearing as per provisions of Section 145(3) of the Act before rejecting the books of account and financial results of the assessee. In this situation, we are an agreement with the conclusion of the CIT(A) when the books of account cannot be rejected merely because some transactions or claimed expenses could not be verified and this allegation itself cannot be ground for rejection of books of account and financial results of the assessee as a whole. As per provision of Section 145(3) of the Act, the Assessing Officer is empowered to reject the books of account and financial results of the assessee if he is not satisfied about the correctness or completeness of the accounts of the assessee or where the method of accounting prescribed in sub section (1) has not been regularly followed by the assessee or the income has not been computed in accordance standards notified under Sub section (2) of the Act. It is relevant to 43 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 note that before rejection of books of account it is incumbent upon the Assessing Officer to allow opportunity of hearing for the assessee to satisfy the Assessing Officer explaining the correctness and completeness of the accounts and financial results submitted before him.
49. In view of above, we have no hesitation to hold the Assessing Officer reject the books of account of the assessee without any valid reason and without following due procedure as per provision of the Act and without any justified and cogent basis and the rejection of books of account AO was rightly dismissed by the CIT(A). Turning to the issue of addition of Rs.16,96,788/- applying difference of GP rate of 4.1% calculated on the basis of average of GP rate of immediately preceding three assessment years, we note that since the rejection of books of account have not been found to be sustainable then the Assessing Officer cannot be held as justified in making the addition by applying difference in GP rate of 4.1% on the basis of average of preceding three years and addition in this regard cannot be held as sustainable and in accordance with law in absence of justified and reasonable basis.
50. We are agree with the view taken by the CIT(A) that the AO has to prove satisfactorily that the books of account are unreliable or incorrect or incomplete before rejection of books of account and financial results of the assessee. We further observe that the Assessing Officer is mot empowered to 44 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 reject books of account of the assessee only by saying that important transactions are omitted and proper particulars and vouchers and other supportive evidence are not supporting the entries and transactions entered into books of account. We are also agree with the conclusion of the CIT(A) that when audit report is submitted and accounts are placed in support of the return then the accounts should be taken as the basis for framing assessment and they cannot be rejected merely because either complicated or some narration and entries are not verifiable from the other relevant material. In this situation, instead of rejecting books of account and financial results of the assessee Assessing Officer may proceed to make disallowances and additions on that particular issue but rejection of entire books of account and financial results cannot be held as justified. We are of the considered opinion that if explanation, evidence or any material is submitted by the assessee in support of its return then it should be accepted after due examination and verification and unless the same is controverted or rebutted by the cogent admissible evidence by the AO arbitrary addition by taking 4.1% difference is not correct. We, therefore, are of the considered opinion that considering the G.P. rate of the earlier three years the G.P. rate of 5% of turnover would be most appropriate and justified. Hence, we direct the AO to adopt 5% of G.P. rate and calculate the disallowance accordingly. Accordingly, Ground Nos. 7 & 7.1 of the 45 ITA No. 4396/Del/2011 C.O. No. 64/DEL/2013 revenue are restored to the file of the AO for the limited purposes as directed above.
51. In the result, appeal of the Revenue is partly allowed on Ground nos. 7 & 7.1 and cross objection of the assessee is dismissed.
The decision is pronounced in the open court on 06th July, 2015.
Sd/- Sd/-
(R.S. SYAL) (CHANDRAMOHAN GARG)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 06th July, 2015.
Aks/-
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar, ITAT, New Delhi
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