2016 (1) TMI 802 - AT - Income Tax

Tribunal favors assessee, stresses fair process, credible evidence, rejects revenue appeals, partly allows assessee appeals

M/s Tribhovandas Bhimji Zaveri (Delhi) Pvt. Ltd. Versus Asstt. Commissioner of Income Tax, Central Circle 9, Mumbai and Vica-Versa

The Tribunal's judgment provided relief to the assessee on multiple fronts, emphasizing procedural fairness, the necessity of credible evidence for ... Confession of additional income during the course of search and seizure and survey operation - Held that:- The very fact that the surrender was made in odd hours, that too after grilling the assessee for almost four days, would only take us to the conclusion that the assessee should have been pressurized to offer additional income, without which the search team was not ready to conclude the search proceedings. It is further stated that the search was concluded immediately after the surrender of ₹ 6.00 crores. A careful perusal of the assessment order would show that the assessing officer has not brought on record any corroborative material to support the surrender of ₹ 6.00 crores. Hence, in our view, there is merit in the claim of the assessee that the above said surrender of ₹ 6.00 crores was made only on account of alleged excess stock. In the instant case, the Ld CIT(A) has given a clear finding that the alleged excess stock pointed out by the search officials has since been reconciled by the assessee. It is also pertinent to note that the assessing officer did not make any addition on account of alleged excess stock, meaning thereby, he was also satisfied with the reconciliation statement furnished by the assessee. We have already taken the view that the admission of ₹ 6.00 crores is related to the alleged excess stock found during the course of search. We have also noticed that the assessee has reconciled the difference in stock, meaning thereby, the assessee has rebutted the admission made by it, which was under pressure and mistaken belief. In the instant case, we have already held that the conduct of the proceedings shows that the search team has put up pressure upon the assessee and further the assessee was under mistaken belief that there was actually excess stock. Hence the assessee has agreed to surrender ₹ 6.00 crores under the mistaken belief that there was alleged excess stock. The assessee has maintained books of account and further the alleged difference in stock has been duly reconciled. Thus we are of the view that the Ld CIT(A) was justified in deleting the addition - Decided in favour of assessee Unexplained investment u/s 69 - Held that:- the transactions noted down in the pocket diary could possibly be in the nature of trade transactions only. Since the assessee has not discharged the presumption and further since the assessing officer has failed to substantiate the addition as unexplained investment, in our view, this issue could be resolved only via media. We have noticed that the transactions noted down in the diary could possibly be in the nature of trade transactions. In that case, it may be possible to infer that the assessee might not have accounted these transactions in the books of account. Under these set of facts, in our view, the possible view could be that the assessee might have also sold the gold jewellery noted down in the pocket diary without recording the same in the books of account. Though there is no supporting evidence in support of the above said inference, in the absence of proper explanations from the assessee and also in the absence of proper case being made out by the AO, we have no other option but to proceed on the inference cited above. In this back ground, in our view, this issue could be resolved by estimating the gross profit that would have been earned on sale of the above said jewelleries. The assessee has furnished details of sales and gross profit ratio in page 34 of the paper book. We notice that the assessee has declared gross profit rate of 8.69% in AY 2009-10. Accordingly, we are of the view that the gross profit on ₹ 62,21,950/- computed @ 9% should be assessed in respect of the transactions noted down in the diary and the same works out to ₹ 5,59,975/- or say ₹ 5,60,000/- (rounded off). Accordingly, we modify the order of Ld CIT(A) on this issue and direct the AO to restrict the addition to the above said sum of ₹ 5,60,000/- on this issue. - Decided in favour of assessee in part Addition made on “unaccounted sales” - CIT(A) converting the addition made by the AO from “unaccounted sales” into “unexplained stock” - Held that:- Since the documentary evidences furnished by the assessee in support of claim of receipt of goods on sale or return basis have not been controverted by the tax authorities, in our view, the explanation of the assessee should be accepted. In the reconciliation statement prepared by the assessee, the assessee has arrived at excess stock of 685.650 grams. During the course of arguments, the Ld A.R submitted that the weight of physical gold was measured by the search team themselves and hence there is always possibility of weight difference. Accordingly it was submitted that the excess stock of 685.650 grams, which work out to 0.7% of the physical stock could be the result of weight difference or on account of other minor factors like beeds, alloys, tie slips etc. In our view, there is merit in the said explanations of the assessee that the above said minor difference should be ignored, in the facts and circumstances of the case. On legal grounds also, we find merit in the contentions of the assessee. The Ld CIT(A) while altering the head of income and also in enhancing the addition has violated the provisions of sec. 251(2) of the Act in not providing opportunity to the assessee. In view of the foregoing discussions, we do not find merit in the decision of Ld CIT(A) and accordingly direct the assessing officer to delete the addition directed to be made by the Ld CIT(A). - Decided in favour of assessee Issues Involved:1. Unexplained investment u/s 69 for Assessment Year 2009-10.2. Unaccounted sales for Assessment Year 2010-11.3. Enhancement of value of jewellery by Ld CIT(A) for Assessment Year 2010-11.4. Deletion of income surrendered by the assessee in the statement given u/s 132(4) of the Act for both Assessment Years 2009-10 and 2010-11.Detailed Analysis:1. Unexplained Investment u/s 69 for Assessment Year 2009-10:The assessee challenged the addition of Rs. 62,21,950/- as unexplained investment based on a pocket diary found during the search. The diary contained entries related to 'Naresh Gupta' and other financial notations. The assessee disowned the diary, asserting it did not belong to them. The AO, however, inferred that the entries represented purchases of gold jewellery. The CIT(A) upheld the AO's decision, citing the presumption under sec. 132(4A) of the Act. The Tribunal, while acknowledging the presumption, found that the entries likely represented trade transactions and not unexplained investments. Consequently, the Tribunal directed the AO to assess the gross profit on the transactions noted in the diary at 9%, amounting to Rs. 5,60,000/-.2. Unaccounted Sales for Assessment Year 2010-11:The AO treated the difference in the physical stock of gold jewellery (93051.300 grams) and the book stock (95365.600 grams) as unaccounted sales, resulting in an addition of Rs. 31,77,094/-. The assessee provided a reconciliation statement, which the AO rejected. The CIT(A) partially accepted the reconciliation, acknowledging certain items not considered by the search officials but rejected the claim of jewellery received on a sale or return basis. The CIT(A) reclassified the addition as unexplained investment u/s 69A, enhancing it to Rs. 40,31,668/-. The Tribunal found that the documentary evidence provided by the assessee was not adequately considered by the tax authorities and accepted the reconciliation, directing the deletion of the addition.3. Enhancement of Value of Jewellery by Ld CIT(A) for Assessment Year 2010-11:The CIT(A) enhanced the value of jewellery by Rs. 8,54,574/- without providing an opportunity to the assessee as mandated under sec. 251(2) of the Act. The Tribunal found this enhancement unjustified and directed the deletion of the addition, emphasizing the need for adherence to procedural fairness and natural justice.4. Deletion of Income Surrendered by the Assessee in the Statement Given u/s 132(4) of the Act for Both Years:The revenue appealed against the CIT(A)'s deletion of Rs. 2.00 crores and Rs. 4.00 crores for AY 2009-10 and 2010-11, respectively, which were surrendered by the assessee during the search. The AO argued that the surrender was voluntary and independent of the alleged excess stock of diamonds. The assessee contended that the surrender was made under duress and was linked to the alleged excess stock. The Tribunal found that the search operations, which lasted four days, likely exerted undue pressure on the assessee, making the surrender involuntary. The Tribunal also noted that no other incriminating material was found during the search. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the additions, finding the surrender linked to the alleged excess stock and made under duress.Conclusion:The Tribunal's judgment provided relief to the assessee on multiple fronts, emphasizing the importance of procedural fairness, the need for credible evidence to support additions, and the non-conclusiveness of statements made under duress during search operations. The appeals filed by the revenue were dismissed, and the appeals by the assessee were partly allowed for AY 2009-10 and fully allowed for AY 2010-11.