The Hon'ble Mr.Justice NOOTY. RAMAMOHANA RAO AND The Hon'ble Dr. Justice ANITA SUMANTH TAX CASE (APPEAL) No.842 of 2005 Commissioner of Income Tax, Chennai .. Appellant Versus Shri S.V.Sreenivasan, 10, Srinivasaraghavan Street, R.S. Puram, Coimbatore .. .. Respondent Appeal under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal, Madras 'D' Bench dated 31.1.2005 in IT SS A No.98/Mds/2004.
For Appellant .. Mr.T.R.Senthil kumar Senior Standing Counsel For Respondent ..Mr.S.Sridhar
JUDGMENT
(Judgment of this Court was delivered by ANITA SUMANTH, J.)
1. This appeal is filed at the instance of the Revenue challenging an order of the Income tax Appellate tribunal (in short ‘Tribunal’) dated 3.1.2005 relating to the block period 1.4.1995 to 13.09.2001.
2. The substantial questions of law raised and admitted for consideration of this court are as follows;
(i) Whether on facts and in the circumstances of the case, the Tribunal was right in deleting additions made in the block assessment on the ground that no material was found at the time of search, when the assessee himself had admitted to the undisclosed income?
(ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in deleting additions made in the block assessment on the ground that no opportunity to cross-examine was granted, when no such opportunity was ever sought at any time?
(iii) Whether on the facts and circumstances of the case the Tribunal was right in ignoring the statements recorded from the assessee, his wife, and mother admitting that the two women had no sources of income and the amounts were undisclosed income of the assessee?”
3. The assessee is in the business of manufacturing, testing and carrying out job work in relation to gold and jewellery. Search and seizure action in terms of Section 132 of the Income Tax Act (in short ‘Act’) was conducted on 13.9.2001. Incriminating documents, books of accounts, jewellery and other assets were found and seized. Statements were recorded from various persons in terms of Section 132(4) of the Act. Pursuant to notice under section 158 BC of the Act, an assessment for the block period 1.4.1995 to 13.9.2001 was framed in terms of Chapter XIV B of the Act. Various additions and disallowances were effected that were carried in appeal before the first appellate authority, who, after detailed consideration of the same, dismissed the appeal of the assessee, vide order dated 25.6.2004. The matter was carried in appeal before the Income tax Appellate Tribunal at the instance of the assessee and was partly allowed by the Tribunal giving way to the present appeal at the instance of the Commissioner of Income Tax before us.
4. We have heard Mr.T.R. Senthilkumar, learned Standing Counsel for the CIT and Mr.S.Sridhar, learned counsel for the assessee/respondent. Adverting to substantial question (i), a tabulation of the additions have been circulated, being, cash introduced in capital account, Capital and credits in the accounts of M/s.RRR Testing, Net profit, various credits and consequential interest payments and on- money paid on purchase of land. The provisions of s.158 BB require that undisclosed income is to be computed solely on the basis of evidence found as a result of search or requisition of books of accounts or other documents and such other materials or information as are available with the assessing officer and relatable to such evidence. On a query from the Bench, the learned Standing counsel fairly states that the additions are based only on the returns of income filed by the wife as well as various other entities that were available with the department and are not relatable to seized material. The additions thus fail and have been rightly deleted by the Tribunal.
5. The addition of an amount of Rs.7,68,420/- arises from a difference in valuation viv-a-vis the assessee and the departmental valuer and is, again, not relatable to search material. In view of the aforesaid, substantial questions No.(i) and (iii) extracted above are liable to be answered against the Revenue and in favour of the assessee.
6. In the course of search, the department found and seized gold and diamonds from the business premises of the assessee at Coimbatore. We are concerned in this appeal to the addition relating to 5102.300 gms of gold and 336.189 carats of diamonds. We first deal with the aspect of seized gold. At the time of search, when questioned, the assessee offered the gold as unaccounted investment. Thereafter, in the course of assessment, he advanced an explanation to the effect that the gold was, in fact, received for manufacturing jewellery from an entity by the name and style of M/s.Ganga Jewellers on 10.8.2001. He produced a confirmation letter dated 10.5.2002 to this effect issued by the proprietor of M/s.Ganga Jewellers. To verify the authenticity of the transaction, a commission was issued by the assessing authority to the Additional Director of Income tax (Investigation) (I), Hyderabad. It was noted at the time of verification that the said Ganga jewellers has itself commenced business of jewellery only on 3.9.2001. Thereafter as per the assessee, the jewellery was manufactured and returned to Ganga jewellers on 19.3.2003. The assessing officer sought copies of the receipt vouchers, but was informed by the assessee that he had misplaced the same. He was also requested to produce the proprietor of Ganga Jewellers for examination and verification of the transaction, but expressed his inability to do so. The sequence of events, according to the assessee, is as follows;
- receipt of stock by the assessee from Ganga Jewellers on 10.8.2001
- Entry of gold by assessee in its books on 15.9.2001
- return of jewellery after manufacture by the assesee to Ganga Jewellers on 19.3.2003.
7. The admitted position was thus that neither the receipt vouchers, nor the proprietor of Ganga Jewellers could be produced before the department. Then there’s the delay of more than one month in recording the receipt of jewellery in its books and the abnormal period of more than 1 ½ years taken to return the jewellery to Ganga Jewellery, all leading to the conclusion that all is not well. The report of the Inspector also brought to light the statement of Sri.Misrimal on 27.7.2003 to the effect that entries in support of the assesee's version of the transaction in the books of Ganga Jewellers were made only by way of accommodation and were not genuine. The statement of Sri Misrimal was shown to the appellant, who merely expressed surprise as to the contents thereof, but made no request for cross- examination.
8. The tribunal, after consideration of the aforesaid facts, curiously concludes that the failure of the assessing officer to afford an opportunity of cross-examination was fatal and proceeded to delete the addition in full. This conclusion of the Tribunal is not justified in the facts and circumstances as noted by us. It is relevant to note that the present assessment emanates from a search where gold and diamonds have been found and seized. It is incumbent upon the assessee to tender an explanation about the same. The explanation tendered has to be credible and bonafide, in the absence of which, the burden placed on the assessee would not stand discharged. In view of the elements noted by us above, being the unexplainable difference between the time of alleged receipt of gold from Ganga Jewellers and the date of accounting for the same as well as the retention of the gold with the assessee for more than 1 ½ years till the time of return to M/s Ganga Jewellers and in the light of the fact that the assessee could not produce even basic documents such as receipt vouchers, we believe that this burden has not been discharged.
9. The Commissioner of Income tax Appeals has dealt with the matter in a proper manner setting out the facts and appreciating them in the right perspective, taking note of the relevant factors pointed out in the earlier part of this order. We, thus reverse the order of the tribunal on this account and restore the order of the Commissioner of Income tax (appeals) to the effect that the explanation tendered by the assesee is a mere after thought to explain the excess unaccounted jewellery found on the date of search.
10. The second aspect of substantial question of law No.(ii) relates to 338.57 carats of diamonds found in the course of search. The assessee’s accountant was examined at the time of search, who confirmed that apart from the diamonds seized, another 100 carats of diamonds had been given to gold smiths for manufacturing jewellery. The total quantity of diamonds available was thus confirmed to be 438.59 carats.
11. A statement recorded from the assessee on 16.09.2003 admits the aforesaid position, except to an extent of 21 carats that were duly accounted for. The assessee explained the excess diamond stock of 417.59 carats (438.59 – 21 cts) stating that 175 carats were received by him on approval basis from an entity by the name of M/s. Brijesh Enterprises, Surat. A confirmation letter from the proprietor was filed. It is relevant to note that the aforesaid explanation was tendered only in the course of assessment, whereas the assesee admitted the unaccounted stock in statements recorded at the time of search. In order to verify the above claim, the assessing officer issued a commission to the DIT (Inv) Ahamedabad and the consequent verification report confirmed that there was no person or entity available at the address furnished by the assessee. The entity was thereafter located elsewhere and a statement recorded on 22.8.2003 from the proprietor to the effect that the transactions stated to have taken place were only by way of accommodation for which he had received commission duly offered by him to tax. He also admitted to have issued a letter of confirmation upon request of the assesee confirming the make-believe transaction, for which he received commission.
12. The report as well as the statement of the proprietor of Brigesh Enterprises were shown to the assessee for response. As in the case of the unexplained gold, the assessee merely expressed his surprise at the statement issued by the proprietor. He further modified his earlier statement contending that out of the 175 carats of loose diamonds received by him, 54.63 carats had been returned on 27.1.2002 and the balance of 120.37 carats were still in his possession. The assessing authority sought a copy of the entrustment slip for the alleged receipt of diamonds in August 2001 through the accountant, but, according to the assessee, it was unavailable.
13. On the basis of this sequence of events, the assessing authority concluded that neither the transaction nor the explanation tendered were bonafide. A sum of Rs.67,75,398/- was added as an undisclosed income, confirmed by the CIT (A) and reversed by the tribunal on the ground that the addition was made solely based on the statements of the proprietor of M/s. Brijesh Enterprises and his accountant and since the statements were not shown to the assessee and an opportunity of cross examination not afforded, the addition was liable to be deleted on the basis of violation of principles of natural justice. We find no justification, whatsoever, for the conclusion of the Income tax Appellate tribunal on this ground.
14. The sequence of facts as narrated above would make it clear that the explanations tendered by the assessee have been made several months after the time of search. This, coupled with the fact that primary documents such as the entrustment slips have not been produced, lead us to believe that the explanation tendered is a mere after thought. We also note the statement of the proprietor of Brijesh Enterprises who confirms that the transaction was not bonafide, but an accommodation for commission. No opportunity has been sought to cross examine the proprietor and in any event, this aspect of the matter is merely incidental and in addition to the overwhelming evidence already available to disprove the verision of events adduced by the assessee. The totality of circumstances support the conclusion that the assessee has failed to discharge the burden cast upon him to explain the diamonds in his possession.
15. The order of the commissioner of income tax (appeals) at page 11.5 has noted the aforesaid sequence as elaborated by us, in confirming the addition. We may also mention that the assessee appears to have, on 15.4.2002, retracted the sworn statements dated 13.09.2001, 7.9.2001 and 3.11.2001. The retraction has not been accepted on the ground that it is made after inordinate delay and is not supported by any material contrary to the facts set out in the sworn statements. We would endorse that view.
16. Reliance is placed by the learned counsel for the respondent/assesee on the judgement of the Supreme Court in the case of M/s.Andaman Timber Industries vs. Commissioner of Central Excise, Kolkata-II, dated 2.9.2015. The rationale of the judgment is to the effect that where an assessment is made on the basis of statements of third parties, it is incumbent upon the adjudicating authority to furnish such statements to the assessee for rebuttal.
17. Per contra, reliance is placed by the learned Standing Counsel for the Department on the judgment of the Supreme Court in the case of Income Tax Officer vs. M. Pirai Choodi [(2012) 20 taxmann.com 733 (SC)]. The Income Tax Department challenged an order of the Madras High Court setting aside an order of assessment on the ground of violation of natural justice. The Supreme Court concluded that if at all there had been a violation of the principles of natural justice, a direction could have been issued for cross examination of the concerned witnesses, but that by itself would not justify the setting aside of the assessment order in entirety. In both cases cited, an opportunity was specifically sought for cross examination which has not been done in the present case. We have taken the view that the plea taken is only an afterthought and the aforesaid cases are thus distinguishable on this ground.
18. In any event, the statements of Sri.Misrimal and Sri.Hemendra K.Jhaveri, proprietor of M/s Brijesh enterprises are, but one spoke in the entire wheel and the totality of the events that transpired have to be taken into consideration. Viewed in this light, the conclusion of the Tribunal on this account is unsustainable. Substantial question number (ii) is thus answered against the assessee and in favour of the department.
19. In conclusion, substantial questions (i) and (iii) are answered in favour of the assessee and against the revenue and substantial question No. (ii) is answered in favour of the revenue and against the assesee.
[N.R.R.,J.] & [A.S.M.,J.] 24.03.2017 Index: Yes/No Internet:Yes/No msr NOOTY. RAMAMOHANA RAO, J AND Dr.ANITA SUMANTH,J
TAX CASE (APPEAL) No.842 of 2005
24.03.2017 http://www.judis.nic.in