2020 (2) TMI 74 - AT - Income Tax

Tribunal Invalidates Assessments, Emphasizes Proper Jurisdiction & Material Consideration

Jypore Manufacturing Jewellers (P) Ltd. Versus The JCIT (OSD) Central Circle- 3 Jaipur And The ACIT Central Circle- 3 Jaipur Versus Jypore Manufacturing Jewellers (P) Ltd.

Jypore Manufacturing Jewellers (P) Ltd. Versus The JCIT (OSD) Central Circle- 3 Jaipur And The ACIT Central Circle- 3 Jaipur Versus Jypore Manufacturing ... Issues Involved:1. Legality of proceedings under Section 153A and 153C.2. Validity of trading additions and gross profit (GP) rate applied by the Assessing Officer (AO).3. Valuation of unaccounted jewelry stock.4. Legitimacy of the income declared from unaccounted business.5. Rejection of books of accounts and estimation of GP from regular business.Issue-wise Detailed Analysis:1. Legality of Proceedings under Section 153A and 153C:The search was conducted on a locker, leading to proceedings under Section 153A, which were later dropped and re-initiated under Section 153C without proper satisfaction being recorded. The Tribunal noted that the original notice under Section 153A was issued without a valid warrant or search on the assessee. Furthermore, no satisfaction was recorded while completing 153A assessments in the case of Modi group, and there was no assessment in the case of Shri Govind Dev. The Tribunal held that assessments under Sections 153A and 153C are independent and mutually exclusive. Consequently, the assessments framed were deemed untenable and bad in law, as supported by judicial precedents such as Jindal Stainless Ltd. and Shital Prasad Kharag Prasad.2. Validity of Trading Additions and GP Rate Applied by AO:The AO applied a GP rate from regular business to unaccounted business without considering the distinct business operations. The Tribunal noted that the AO did not find any defects in the accounts of unaccounted transactions prepared by the assessee. The GP rate from unaccounted business was lower due to faster turnover and lesser GP, which was justified by the assessee. The Tribunal held that the AO's approach was arbitrary and based on presumptions, thus the additions were not justified.3. Valuation of Unaccounted Jewelry Stock:The AO valued the unaccounted jewelry stock at market rate, whereas the assessee valued it at cost. The Tribunal agreed with the assessee, stating that the jewelry should be valued at cost as per settled accounting principles. Consequently, the valuation adopted by the assessee was upheld.4. Legitimacy of the Income Declared from Unaccounted Business:The assessee provided complete records of year-wise and transaction-wise accounts of unaccounted income, which were not disputed by the AO. The Tribunal noted that the AO did not offer any adverse comments on these accounts. The GP from unaccounted business was justified by the assessee, and the Tribunal held that the profits declared should be accepted, as the incriminating material should be considered in totality.5. Rejection of Books of Accounts and Estimation of GP from Regular Business:The AO rejected the books of accounts and estimated the GP from regular business without pointing out any serious defects. The Tribunal noted that the regular trading results were already subject to appeals, and no incriminating material was found during the search. The Tribunal held that the rejection of books and estimation of GP were not justified, as the AO did not provide any specific basis for the higher GP rate applied.Conclusion:The Tribunal allowed the appeals filed by the assessee and dismissed those filed by the revenue. The assessments under Sections 153A and 153C were held to be invalid, and the additions made by the AO were deleted on both legal and merit grounds. The Tribunal emphasized the need for proper jurisdiction and objective consideration of incriminating material in search assessments.