TaxTMI 
TaxTMI 
1990 (2) TMI 82
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.... that the same be deleted. 4. Without prejudice to Ground No. 3, the learned CIT(A) erred in not recording any finding on the appellant's contention that the real value of the closing stock was much less than that adopted by the Departmental valuer. 5. The learned CIT(A) erred in confirmed the interest under s. 217 amounting to Rs. 1,08,968 charged by ITO. Your appellant submits that the interest should have been waived and prays that the same be deleted." 2. In asst. yr. 1983-84 the assessee has challenged the disallowance of Rs. 18,200 being salary to Directors made by the ITO which was confirmed by the CIT(A). Thus this ground is similar to ground No. 1 in asst. yr. 1982-83. 3. Ground No. 1 for Asst. yrs. 1982-83 & 1983-84 The salary has been paid to two Directors at the rate of RS. 9,000 each. This has been disallowed by the ITO on the ground that no such salary was paid in the past. Further the assessee has not established the necessity for payment of such salary to the Directors. It has been further mentioned in the assessment of order that no resolution authorising such payment of salary was passed by the Board of Directors, in the absence of which such salary paym....
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....from Shri Chandulal M. Patel of Cambay. In order to examine the genuiness of the aforesaid purchase a statement of Shri Chandulal M Patel was recorded by the ITO on 27th March, 1985. Shri Patel has agreed in the aforesaid that he had sold the aforesaid goods to the assessee company. The ITO, however, did not accept the genuineness of the aforesaid purchase on the ground that Shri Chandulal Patel could not satisfactorily explain the source from which the same had been acquired. Shri Chandulal Patel is a petty dealer in precious and semi precious stones and has income by way of detail on such transactions. The ITO has observed that a petty dealer could not have been held 190 Kg. Of rough emeralds and, therefore, he did not accept the source of acquisition of such rough emeralds by Shri Chandulal Patel. It was further observed by him that the payment received by Shri Patel from the aforesaid company by cheque was encashed on the same date, which, according to the ITO, further proves that the aforesaid goods were not in fact sold by Shri Patel to the assessee company. The CIT(A) observed that in the normal course the transaction would have been accepted, as genuine on the basis of stat....
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....assessee. He further confirmed the receipt of the said sum of Rs. 19,000 by way of cheque. The mere fact that Shri Chandulal Patel is a petty dealer and had withdrawn the amount of Rs. 19,000 from his bank account on the same day when he received the cheque cannot amount to an evidence to prove that the said amount of Rs. 19,000 was given back by Shri Chandula Patel to the assessee company. There is no material or evidence on records to support the wrong suspicion formed by the learned ITO and the CIT(A) in their respective orders. The learned D.R. has alsonot dispted the fact that Shri Chandulal Patel has been treated as a trader in case of M/s. Rasik Jewellers, Bombay. The mere fact that Shri Patel could not, according to the ITO, satisfactorily explain the source where from he got these rough emeralds cannot result in disallowance of the purchase made by the assessee from him. In view of the fact that the supplier had duly confirmed having supplied the aforesaid goods to the assessee and has also confirmed the receipt of a sum of Rs. 19,000 being the purchase price for the aforesaid goods purchased by the assessee company, the disallowance made by the ITO and confirmed by the CI....
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....26th April, 1982, after the date of search, at the rate of Rs. 75 per kg. And have again been shown as returned on 1st July, 1982. He further mentioned in the assessment order that it is not understood why the assessee has shown these gods as having been purchased within the accounting year relevant to asst. yr. 1983-84 and then shown as against returned the first day of the accounting year relevant to asst. yr. 1984-85. According to the ITO the aforesaid circumstances indicated that the 300 kg. Of rough emeralds found on the date of search and valued by the departmental valuer at Rs. 2,98,000 are not the same as were imported by M/s. Kirtikumar & Co. He, therefore, treated the aforesaid sum of Rs. 2,98,000 as unexplained assets found in the possession of the assessee and accordingly taxed the same in asst. yr. 1982-83. 5.2 The CIT(A) confirmed the aforesaid addition and has held that the 300 kg. of rough emeralds found during the course of search were different from the goods which had been claimed to have been imported by M/s. Kirti kumar &Co. M/s. Kirtikumar & Co is a sister concern and it is had really sent these rough emeralds on approval basis to the appellant at Cambay. th....
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....e evidence and material existing on records was again fully satisfied about the correctness of the aforesaid explanations and, therefore, while passing the order under s. 132(5) no addition in respect of the value of aforesaid 300 kgs. of rough emeralds received on jangad from M/s. Kirtikumar &Co. Was made. It as further submitted that the proceedings of search were simultaneously conducted at the premises of M/s Kirtikumar &Co. on the same date and these 300 kgs. Of rough emeralds imported by them were not found at their business premises. The fact that they had sent the aforesaid emeralds on approval basis to the appellant company was corroborated by them during the course of search and is also verifiable from their assessment records. Enquiries were made by the assessing authority of M/s. Kirtikumar & Co. And this fact is verificable from the enquiries made by the assessing authority of that concern at Bombay. As regards entries in the books of account it was pointed out by the learned counsel that question of making any entries of the gods received on jangad does not arise as the transaction of purchase of the said material was yet to be finalised at the time when raid was cond....
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....rald was found in possession of Devanbabu at Cambay on 26th Feb., 1982. The date of search but was not found entered in the assessee's books including the stock book. 2. The assessee explains that the same goods were received from Kirti kumar & Co. Bombay on jangad on 25th Oct., 1981. 3. This emerald of 300 kg. Was purchased by the assessee from M/s. Kirtikumar & Co. On 26th April, 1982 at Rs. 2,85,000. This transaction appear to be one to regularise the unaccounted stock of 300 kg. Which was found from the assessee's premises at Cambay. This purchase is shown in the stock book of Devanbabu of 81-82 at entry No. 37. Kirtikumar & Co. Has issued invoice on 26th April, 1982 on the letter pad, copy is filed. 4. This emerald of 300 kg. Valued at Rs. 2,85,000 was returned by the assessee to Kirtikumar &Co on 2nd July, 1982. In assessee's stock register for 1981-82 this stock is shown at entry No. 25. In remark column it is mentioned goods return 1st July, 1982. The voucher of Devanbabu mentions the date of goods return as 2nd July, 1982 and not 1st July, 1982. Kirtikumar & Co. has shown this transaction in their books on 2nd July, 1982. 5. Kirtikumar sold 300kg emerald to Taj J....
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....ng of the same goods at the same price to M/s. Taj Jems create strong suspicion about the genuineness and correctness of this aforesaid transactions. The goods found during the course of search were not the same which were imported by Kirtikumar &Co. And which are stated to have been sent on approval basis to the assessee company. He further submitted that the 300 kgs of rough emeralds of Kirtikumar & Co. were of Brazilian origin as per the purchase invoice appearing at page 165 of the paper book whereas the jangad memo found during the course of search, which appears at page 14 of the paper book does not show that the rough emeralds found during search were of Brazilian origin. The learned D.R., therefore, strongly urged that in view of the detailed reasons recorded in the orders of the ITO and the CIT(A) the aforesaid addition deserves to be confirmed. 5.5. We have carefully considered the rival submissions and have also gone through the orders passed by the authorities below. We have also carefully examined all the papers submitted in the paper books of both the parties to which our attention was drawn during the course of hearing. Statement under s. 132(4) of Shri Babubhai al....
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....he course of search in his statements recorded under s. 132(4) and he also produced the delivery memo dated 25th Oct., 1981 at the spot on the first day of the search on 26th Feb., 1982. The contents of such documents found during the course of sudden search and the facts stated in the aforesaid statements deserves weightly consideration. Keeping in view the aforesaid evidence in the form of statement on oath under s. 132(4) and the jangad memo, the authorised officers were apparently satisfied about the nature of possession and source of the stock of aforesaid rough emeralds found during the search and, therefore, the same was not seized. The same matter was examined during the course of proceedings under s.132(5) by the IAC (Asst.) He issued a show cause notice dated 17th May, 1982, inter alia, requiring the assessee to prove the nature of possession and the source of acquisition of the aforesaid rough emeralds found during the course of search. The assessee once again submitted the aforesaid explanations before the IAC(Asst) and the later passed an order under s.132(5) after considering all such material and evidence existing on records and he did not include the value of afores....
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....of rough emeralds could not have been carried in a car according to them and the subsequent entries of its purchases by the assessee and return thereof to Kirtikumar & Co. And subsequent transaction made by Kirtikumar & Co. with respect to the aforesaid 300 kgs. Of rough emeralds created serious doubts about in the genuineness of this transaction. The strange coincidence or doubt about the fact that the goods in question could not have been carried in a car cannot amount to evidence or proof admissible in law justifying the rejection of the valid explanations given by the assessee which was consistently the same rights from the inception, i.e., from the date of the search. The assessee's contention is clearly supported by statements recorded during the course of search and by the jangad memo produced during the course of search. The authorised officers were apparently satisfied about the nature of possession and source of the aforesaid goods and, therefore, they had not chosen to seize the same. Again during the course of proceedings under s. 132(5) the assessee's contention was accepted by the assessing authority after due examination and scrutiny in relation to this point. This s....
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....He therefore, did not accept the assessee's request for getting the made by the ITO. The CIT(A) has not at all specifically discussed the addition of Rs. 22,614 made with respect to seized assets at Bombay. He, however, confirmed the entire addition made by the ITO. 6.3 The learned counsel for the assessee submitted that the appellant had furnished a detailed statement explaining the stock position found on the date of search compared with stock register and movement of goods on jangad. The appellant also produced the stock register before the ITO. Most of the stocks represent items of opening stock and, therefore, there is no question of any discrepancies. It was further submitted that the accounts for the year ended on 30th June, 1981 were duly audited on 4th Dec., 1981. the notes to the audited accounts clearly show the position of opening stock, purchases made and losing stock, etc. Most of the items seized at the time of search on 26th Feb., 1982 were out of the closing stock. As regards the three lots of mixture rough emerald and rough rubies as per valuation report prepared by the valuer of the department at the time of search appearing at Sl. Nos. 8, 9 and 16 of such valu....
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....r the assessee also briefly explained the aforesaid items found and seized at Cambay as under: Addition made in order Remarks 120 Difference is on account of weighment separated samples. However, total cts. tallies. 4,660 Bill dated 10th Feb., 1982-this was not entered in stock Register on 26th Feb., 1982. 1,615 Those items are not available in PM/VR 5,400 Tallies with items of Rubies 750 Bill Dt. 10th Feb., 1982-This was not entered in stock Register on 26th Feb., 1982 10,000 No specific description of goods- addition seems to be on estimate base. 1,03,360 Highly over valued-according to appellant it should be reduced and its value is approx. Rs. 10,000 only. 1,25,905 The learned counsel for the assessee, therefore, urged that the aforesaid addition of Rs. 1,48,519 consisting of the value of alleged unexplained items of seized assets found and seized at cambay and Bombay deserves to be deleted as the said addition have been made without accepting the assessee's request for getting the same revalued or for allowing the assessee to have it valued by some other registered valuer and also because the authorities have not properly appreciated the facts explained ....
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.... seized Bombay the ITO has not stated a word that the assessee was required to explain these items totalling to Rs. 22,614 out of stocks seized at Bombay. It, therefore, appears that the said addition has been made without providing any reasonable opportunity to the assessee. This view is further supported by the fact that the CIT(A) in his order has not discussed about the aforesaid addition of Rs. 22,614 made with regard to the stocks found and seized at Bombay. The assessee has submitted general submissions about the over valuation of the entire items of stocks seized by the department. The assessee also made general submissions that all the stocks found during the course of search are verifiable from the stock registers and the other explanations relating to movement of goods on jangad, etc. However, no specific submissions with regards to aforesaid addition of Rs. 22,614 was made by the learned counsel for the assessee during the course of hearing. 6.6 Before considering the merit of the addition of the entire amount of Rs. 1,48,519 in respect of items seized at Cambay and Bombay, it is necessary to consider the assessee's arguments regarding refusal of its request to get th....
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....d be allowed. Such repeated requests made by the assessee during the investigation stage with the DDI and during proceedings under s. 132(5) and under s. 143(3) were not accepted by the departmental authorities and the addition was made on the basis of valuation made the CIT(A) also in his written submission dated 7th January, 1985 and in the second written submission that it should be accorded permission and facilities to get the seized stocks valued by a competent registered valuer. It is now well settled law that where an authority makes an order in exercise of a quasi-judicial function it must observe rules of natural justice in the conduct of the enquiry. The ITO before placing reliance on the report of the departmental valuer with regard to valuation of the seized items, which have been added as assessee's income, ought to have afforded an opportunity to assessee to produce evidence in rebuttal of the said valuation report of the departmental valuer on which ITO has placed reliance and has based his judgment. He also ought to have given an opportunity to the assessee and should have provided all the required facilities for getting the seized items valued by the registered val....