TaxTMI 
TaxTMI 
2007 (7) TMI 333
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....r section 143(1)(a) of the Income-tax Act without any adjustment. The business premises of the assessee were subsequently surveyed under section 133A on 14-6-1999 in the course of which the statement of the assessee was recorded. Relevant portions of the said statement have been reproduced in the assessment order. In his statement, the assessee, inter alia, stated that he has received a gift of Rs. 13,25,000 from one person whose name was stated to be Shri Kishan Punjabi which he subsequently changed by stating that the aforesaid gifts were received from three persons, namely, Shri Kishan Sanmukhdas Punjabi, Shri Jeetu Gulab Lalwani and Shri Mohan Vatumal Mikhwani. According to the Assessing Officer, the assessee pleaded complete absence of knowledge regarding whereabouts of the two donors namely Shri Jeetu Gulab Lalwani and Shri Mohan Vatumal Mikhwani while he could not give any satisfactory reply regarding the whereabouts of Shri Kishan Punjabi. The Assessing Officer also noticed that none of the donors had any close relationship with the assessee who were claimed to be near friends. In addition to the aforesaid issue, the Assessing Officer also noticed that the assessee had not ....
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.... assessment year under appeal and hence the case of the assessee would squarely fall under the main provisions of section 147 of the Income-tax Act and not under the proviso to section 147 of the Income-tax Act. Sufficient materials existed on record for issuing the impugned notice. The Assessing Officer has recorded the reasons in conformity with law while issuing the impugned notice. The reasons recorded by him are specific, definite, and relevant to the matter under dispute. The return of income filed by the assessee was accepted without any scrutiny and hence it cannot be said that the Assessing Officer had expressed his opinion while processing the return of income under section 143(1). In our view, the assumption of jurisdiction by the Assessing Officer under the main provisions of section 147 meets all the requirements of law. We, therefore, confirm the order of the CIT(A) in this behalf. 9. In taking the aforesaid view, we are supported by the judgment of the Hon'ble Supreme Court in Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500 in which the Hon'ble Supreme Court has explained the law as under: "16. Section 147 authorizes and permits the Assessin....
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....r his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words, if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to re-open the assessment. It is, however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso." 10. The action of the Assessing Officer in issuing the impugned notice is thus in conformity with the law laid down by the Hon'ble Supreme Court in the aforesaid case. The ld. CIT(A) has rightly upheld the action of the Assessing Officer in this behalf. His order in this behalf is well reasoned and is in conformity with the Jaw. Ground No. 1 taken by the assessee is dismissed. 11. Ground Nos. 2, 3 and 4 taken by the assessee read as under: "B. Disallowance of Gift - Rs. 13,25,000 2. The ld. CIT(A) erred in confirming t....
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....er section 133A on 14-6-1999 in the course of which a statement of the assessee was recorded. In the said statement the assessee was asked about the gifts received during the year under appeal along with the nature and source thereof. The questions put to him and the answers given by him read as under: "Q.13 Please give details of gifts received during the assessment year 1994-95 of Rs. 13,25,000? Ans. In 1993, I had received gifts of Rs. 13,25,000 from one Shri Kishan Punjabi who is N.R.I. Q.15 Please give the details and mode of gift received from Shri Kishan Punjabi. What is your relation with Shri Kishan Punjabi? Where at present Shri Kishan Punjabi is staying? Ans. I had received gift of Rs. 13,25,000 by cheque from Shri Kishan Punjabi and perhaps two other persons. At present, I do not remember their names. Kishan Punjabi is my friend. He is staying in Thane (E). I do not know his exact address or telephone number. I can produce this man in your office in a day or two, if he is in India." 13. Statement of the assessee was again recorded on oath on 26-9-1999 in the course of which he stated as under: "Q.1 Please give the details of gifts received by you during the financ....
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....three persons who have given gifts to you? Ans. I do not know their addresses. I shall furnish the addresses afterwards. Kishan Punjabi is staying in Thane (E) and the other two persons are staying in Pune. I will also give the telephone numbers of those persons." 14. The Assessing Officer took note of all the materials on record including the explanation given by the assessee and held that the alleged gifts were not genuine. He has given following, amongst others, reasons for coming to the aforesaid conclusion: (a) All the three donors have filed identically worded declarations of gift which, in the ordinary course of human conduct, were not possible as all the three donors were neither related to each other nor had common addresses in India and, therefore, they had no occasion to prepare identically worded declarations. The Assessing Officer has pointed out that the donors resided at Pune and Thane. On the basis of the aforesaid material, he has concluded that it would be too much of coincidence that declarations made on different dates and places would carry identical narrations unless all of them were asked to put their signatures on identically worded declarations at the in....
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....oming from either of them in this behalf. He, therefore, inferred that the said account was apparently used for hawala transactions involving Sangli Bank Ltd. and Rupi Co-operative Bank Ltd. 17. As regards the gift of Rs. 10 lakhs allegedly obtained from Shri Kishan Punjabi, the Assessing Officer noted that the assessee was a paid employee. He referred to the salary slip for the month of April 1999 filed by the assessee showing monthly salary of 12,267 Dirhams out of which the entire amount of 12,267 was deducted leaving behind net salary at Nil. The Assessing Officer inferred that the salary of Kishan Punjabi was not sufficient enough to enable him to pay gift of Rs. 10 lakhs to the assessee. Besides, he held that the gifts allegedly received from Shri Kishan Punjabi were not genuine. 18. In view of the aforesaid facts, the Assessing Officer held as under: "12. On careful consideration of the above facts on records, it prima facie appeared that the claim of gifts was suspicious and, therefore, requiring the assessee to produce the donors personally to investigate the matter further. Despite a number of opportunities given to the assessee as discussed above, the assessee failed ....
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....adequate return gifts. In the case of assessee, these appears only one way traffic i.e., receiving huge gifts and that too of money and in odd figures like Rs. 85,000, Rs. 2,40,000 etc. On totality of the facts and circumstances of the case and after considering the position of law, I hold that the credit entries by way of alleged gifts are not satisfactorily proved within the meaning of section 68 of the Act and, therefore, the same is treated as unexplained and added to the total income of the assessee." 19. Aggrieved by the aforesaid order, the assessee filed an appeal before the CIT(A). Ld. CIT(A) however agreed with the Assessing Officer with the following observations: "19. A perusal of these submissions shows that nothing more than making a reference to the documentary evidences filed before the Assessing Officer has been done in support of appellant's case. But the evidence does not prove the source of the amounts, much less that they were gifted to the appellant. These submissions made on behalf of the appellant thus do not answer the issues raised by the Assessing Officer in his assessment order, namely, those reproduced as points (a) to (d) of para No. 13 above. 20. F....
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....nt status. (k) When the relationship between the appellant and Shri Punjabi is too remote, how giving of gift could be established. 21. In the course of appellate proceedings, through office note dated 30-12-2003, the representative of the appellant were asked to file the details of the amounts sent by the alleged donors to their own families during the same period when such alleged gifts were made by them to the appellant. The case has been heard four times thereafter. However, such details have not been furnished even till the date of passing this order. This also speaks volumes about the genuineness of the so-called gifts received by the appellant. 22. It can, therefore, be said that it is not as simple as matter of Assessing Officer's making the addition merely because the alleged donors were not produced before the Assessing Officer, as the representative of the appellant would like me to believe. As stated above, it is a far more serious matter in which the issues raised by the Assessing Officer still lack proper explanation on part of the appellant. I also wish to bring on record my appreciation for the good investigative work done by the Assessing Officer in this case. ....
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.... Kishan Punjabi could not have been disregarded in the absence of any contradictory evidence in view of the decision in Mehta Parikh & Co. v. CIT [1956] 30 ITR 181 (SC). According to him, Shri Kishan Punjabi appeared before the Assessing Officer on 5-12-2001 before the Assessing Officer but his statement could not be recorded, as the Assessing Officer was busy with some other matter on that day. He further submitted that Shri Kishan Punjabi had confirmed of having made gifts to other relatives in his statement recorded on 9-9-1999. 22. The ld. counsel for the assessee further submitted that the assessee has all along been stating that the amounts recorded in his books of account represented gifts which he subsequently explained by establishing the identity and financial capacity of the donors as also the genuineness of the gift before the Assessing Officer and the CIT(A). He contended that the addition made by the Assessing Officer treating the impugned gifts as unexplained cash credits was not sustainable. 23. In support of his case, the ld. counsel for the assessee has placed reliance on the following decisions: (i) Smt. Bhagwati Devi v. ITO [1993] 47 ITD 58 (Cal.). (ii) Atma....
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....year. In Sumati Dayal v. CIT [1995] 214 ITR 801 (SC) it has been held that where any sum is found credited in the books of the assessee for any previous year it may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. The Hon'ble Court has further held that in such a case there is prima facie evidence against the assessee, viz., the receipt of money, and if he fails to rebut the said evidence it can be used against him by holding that it was a receipt of an income nature. As stated earlier, it is not in dispute that the assessee has credited a sum of Rs. 13.25 lakhs in his books for the previous year relevant to the assessment year under appeal. He has also attempted to offer an explanation regarding the nature and source of the aforesaid cash credit. The Assessing Officer has held that the explanation offered by the assessee is not satisfactory and consequently brought the amount of cash credit to the charge of income-tax under section 68. On first appeal, the ld. CIT(A) has confirmed the order of the Assessing Office....
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....e made by instruments issued by foreign banks and credited to the respective account of the assessee by negotiation through a bank in India. Most of the cheques, in that case, sent from abroad were drawn on the Citibank, N.A. Singapore. The Assessing Officer held that the gifts though apparent were not real and accordingly treated all those amounts, which were credited in the account books of the assessee as their income applying section 68 of the Income-tax Act. The Hon'ble Supreme Court held that in cases where the explanation offered by the assessee about the nature and source of the sums found credited in his books is not satisfactory, there is prima facie evidence against the assessee, viz., the receipt of money and that the burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assessee that it was receipt of an income nature. The Hon'ble Court further observed: "May be the money came by way of bank cheques and was paid through the process of banking transaction but that itself is of no consequence." 29. Tested on the aforesaid parameters, the learned CIT(A), in our opinion, has rightly confirmed the order of the Assessing Offic....
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....their names. Kishan Punjabi is my friend. He is staying in Thane (E). I do not know his exact address or telephone number." In his statement recorded on 29-6-1999, the assessee states that Shri Kishan Punjabi is his friend for last 10 years and that he has met him at his shop though in the same statement he pleads ignorance regarding the whereabouts of Shri Kishan Punjabi. When the matter reaches before this Tribunal, the assessee contends that "Mr. Punjabi's father and the appellant's father were known to each other since 1930 when they were residents of Pakistan": para 6(a) of the Fact Sheet filed by the assessee before the Tribunal. There is apparent contradiction in the stand taken by the assessee in this behalf. The assessee files salary slip of Shri Kishan Punjabi for the month of April 1999 before the departmental authorities and also before us though the gift was allegedly made in financial year 1994-95. The salary drawn by him in April 1999 cannot establish his financial capacity in financial year 1994-95. It is cardinal principle of law of evidence that the best evidence to establish a case should be filed at the earliest possible time. Nothing prevented the assessee or S....
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....his witness to be followed by his cross-examination and as Shri Kishan Punjabi expressed his inability to remain in the office, further opportunity was granted as per the order sheet noting dated 10-12002 in which the assessee was, given time up to 22-2-2002 to produce the donors on any day before me. However, during this period of 42 days, the assessee has not been able to produce any of the donors before me." 31. The assessee filed an affidavit of Shri Kishan Punjabi dated 22-1-2001 before the Assessing Officer but did not produce Shri Kishan Punjabi for examination in spite of the aforesaid opportunities given by the Assessing Officer. Having not produced Shri Kishan Punjabi for examination by the Assessing Officer after filing his affidavit, the assessee cannot contend that the Assessing Officer was not justified in rejecting the affidavit. Failure of the assessee to produce Shri Kishan Punjabi and other two donors for examination and the availability of other materials on record were sufficient enough for the Assessing Officer to reject the affidavit of Shri Kishan Punjabi and to draw adverse inference. The Assessing Officer has thus rightly rejected the affidavit of Shri Kis....
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....erty Act defines gift as "the transfer of certain existing movable or immovable property made voluntarily and without consideration......" Thus, in order to constitute a valid gift the transfer of property should be voluntary and without consideration. An act of transfer is voluntary if it is unconstrained by interference or not impelled by outside influence. In the case before us, all the declarations of gift are identically worded. They have been made by three different persons residing at three different places. They are neither related inter se nor with the assessee. Identically worded declarations of gift would not have been possible unless they were constrained by interference or impelled by outside influence either at the instance of the assessee or of a person acting on his behalf. Similarly, the amounts deposited in the bank accounts of the donors either on the same day or a few days before the gifts were made also demolishes the theory that the gifts were unconstrained by interference and not impelled by outside influence. The fact that all the three gifts of large sums of money were made simultaneously or within a short period would also suggest that they were constraine....
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....alf. The story of gift set up by the assessee is unacceptable as it is contrary to the preponderance of probabilities and common course of human conduct. The CIT(A) has rightly decided the issue against the assessee. We confirm his order. Ground Nos. 2, 3 and 4 are dismissed. 34. Ground Nos. 5, 6, 7 and 8 read as under: "C. Addition on account of under valuation of stock - Rs. 1,08,893 5. The ld. CIT(A) erred in confirming the addition of Rs. 1,08,893 arising out of alleged under-valuation of stock disregarding the consistently followed method of 'net realizable value' where the conversion charges are duly taken into account. As the rates are published by the bullion market everyday, therefore, the alleged addition may be deleted. 6. The ld. CIT(A) failed to appreciate that net realizable value method is the universally accepted method. As appellant's valuation is in accordance with the rate published by the bullion market which takes into account all conversion charges, there is no notional charges as has been alleged, hence, the addition is not justified. 7. Without prejudice to above, any change of method should apply to both opening and closing stock. There can't be partia....
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....d the matter thoroughly and held as under: "41. Thus the foregoing also shows that the accounts prepared by the appellant are not reliable. This is so because for valuing his stock of 22 cts. ornaments, the appellant not only adopts the weight at a flat rate (i.e., a purchase of 100 gms. of 24 cts. of gold adds 10.500 gms. of 22 cts. in stock) but also adopts the labour charges not on actual basis but on the basis of rate published by the bullion market. The labour charges debited in appellant's books of account (where, according to him, charges are also paid for converting 24 cts. gold into 22 cts.) therefore, would be different from those adopted from the bullion market. In this way, the labour charges adopted for valuation of stock and those actually paid for conversion would never tally. As stated above, this query was put to the representative of the appellant but has not been answered. Further, even after accepting all the explanations given by the appellant, he was not able to reconcile/explain the difference of 0.210 gms. in his accounts howsoever negligible the amount may be. Under the circumstances, the action of the Assessing Officer in applying the proviso to section 1....
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....CIT(A) reduced the addition to Rs. 3,73,265 by following a derivative method to reach the labour charges for conversion of gold from 24 ct. to 22 ct. However, it is felt that the method followed by the Assessing Officer is to be preferred to the derivative method as the former is based on the actual method of labour charges." 38. Aggrieved by the aforesaid order, the assessee is in appeal before this Tribunal. 39. In support of the appeal, the ld. counsel for the assessee submitted that the assessee had been consistently valuing closing stock of gold ornaments at net realizable value which was also accepted by the Department. According to him, the only dispute was regarding addition to the value of closing stock on account of addition of making charges to the base rate of the gold. He submitted that the designs of ornaments keep on changing frequently with the result that the assessee is required to maintain huge stock of ornaments and hence they need to be melted and new ones prepared. He argued that the aforesaid aspects made it difficult for the assessee to recover making charges and, therefore, the assessee did not include them in the valuation of closing stock. His alternati....
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....3,265 may be deleted. 3. The ld. CIT(A) ought to have appreciated that the appellant follows this method of valuation consistently for many years. In appellant's one case, the Tribunal had deleted the same addition in respect of under-valuation of closing stock in the earlier year. Therefore, the addition of Rs. 3,73,265 is uncalled for and may be deleted." 44. Department has taken the following grounds of appeal: "1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in holding that the assessee had shown the value of closing stock of 22 carat gold ornaments at Rs. 4,126 per 10 gms. 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) failed to notice that the assessee had taken the rate of 24 carat gold at Rs. 4,126 per 10 grams and had calculated the value of 22 carat gold at Rs. 3,779 for 10 grams and multiplying the same with the quantity of gold ornaments at 20509.110, the value was worked out at Rs. 77,51,254. 3. On the facts and in the circumstances of the case and in law the ld. CIT(A) failed to appreciate that the above value of 22 carat gold was further required to be increased by the manufacturing wages....