M/s Hazari Lal Kesri Chand, New Delhi v. ACIT, New Delhi

ITA 1006/DEL/2011 | 2006-2007
Pronouncement Date: 24-02-2012 | Result: Partly Allowed

Appeal Details

RSA Number 100620114 RSA 2011
Bench Delhi
Appeal Number ITA 1006/DEL/2011
Duration Of Justice 1 year(s) 1 day(s)
Appellant M/s Hazari Lal Kesri Chand, New Delhi
Respondent ACIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 24-02-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 24-02-2012
Date Of Final Hearing 05-01-2012
Next Hearing Date 05-01-2012
Assessment Year 2006-2007
Appeal Filed On 23-02-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI A.N. PAHUJA ITA NO. 1006/DEL/2011 ASSTT. YR: 2006-07. HAZARI LAL KESRI CHAND VS. ACIT CIR. 29(1) 1421 CHANDNI CHOWK NEW DELHI. DELHI-110006. PAN/GIR NO. AAFH0269C (APPELLANT) ( RESPONDENT ) APPELLANT BY : SHRI K. SAMPATH ADV. RESPONDENT BY : SHRI R.I. S. GILL CIT(DR) O R D E R PER R.P. TOLANI J.M : THIS IS ASSESSEES APPEAL AGAINST CIT(A)S ORDER DA TED 22-12-2010 RELATING TO A.Y. 2006-07. FOLLOWING GROUND ARE RAIS ED: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE T HE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN: 1. SUSTAINING THE ACTIONS OF THE ASSESSING OFFICER IN INITIATING THE PROCEEDINGS UNDER SECTION 153A OF THE INCOME TAX ACT 1961 AND PASSING ORDER U/S 143(3) OF THE ACT AT INCOME OF RS. 4 44 35 046/- AGAINST RETURNED INCOME OF RS. 4 16 35 046/-. 2. IN MAKING AN ADDITION OF RS. 17 59 048/- ON ACCOUNT OF ALLEGED UNACCOUNTED STOCK ON THE BASIS OF DURING THE COURSE OF SEARCH PROCEEDINGS. 3. IN CONFIRMING THE ACTIONS OF THE ASSESSING OFFIC ER IN MAKING ADDITIONS UNDER THE HEAD CAR EXPENSES AND TELEPHONE EXPENSES TO THE EXTENT OF RS. 1 25 120/- AND RS. 25 000/- RESPECTIVELY. ITA 1006/DEL/11 HAZARI LAL KESRI CHAND 2 2. BRIEF FACTS ARE: THE ASSESSEE IS A PARTNERSHIP F IRM CONSISTING OF TWO PARTNERS VIZ. KESRI CHAND JAIN & HIS SON ALOK LOD HA. IT DEALS IN MANUFACTURING AND EXPORT OF JEWELLERY. SEARCH AND S EIZURE OPERATIONS WERE CARRIED OUT AT ASSESSEES BUSINESS AND RESIDENTIAL PREMISES ON 9-12-2005. CONSEQUENT TO SEARCH NOTICES U/S 153A OF THE I.T. ACT WERE ISSUED. DURING THE COURSE OF SEARCH ASSESSEE DISCLOSED AN AMOUNT OF RS. 4 CRORES IN RESPECT OF DISCREPANCIES OF STOCK AND CASH FOUND AT HOME AN D OFFICE. THE ASSESSEE OFFERED THIS AMOUNT TO TAX AND PAID THE DUE TAX THE REON. 3. AO HOWEVER MADE THE ADDITION IN QUESTION; ON C ONFIRMATION THEREOF BY CIT(A) ; AGGRIEVED ASSESSEE IS BEFORE US. 4. LD. COUNSEL FOR THE ASSESSEE PLEADS THAT THE ASS ESSED INCOME OF RS. 4 44 35 046/- AS AGAINST THE RETURNED INCOME OF RS . 4 16 35 046/- INCLUDES THE ADDITION OF RS. 6.50 LACS ADDED IN RESPECT OF W RIST WATCHES FOUND FROM THE RESIDENTIAL PREMISES OF PARTNERS. THE ASSESSED INCOME IS CHALLENGED BY THE ASSESSEE THUS IN EFFECT THE ASSESSEES APPEA L CHALLENGES FOLLOWING THREE ADDITIONS: (I) ON ACCOUNT OF WRIST WATCHES RS. 6.50 LACS FOUND FROM PARTNERS RESIDENCE. (II) UNACOUNTED STOCK FOUND DURING RS. 17 59 048/ - THE COURSE OF SEARCH (III) CAR & TELEPHONE EXPENSES RS. 1 25 120 + 25 000 4.1. IT IS PLEADED THAT THE AMOUNT OF RS. 4 CRORES WAS SURRENDERED BY THE ASSESSEE COVERING THE DEFICIENCIES IN THE STOCK INV ENTORY AND EXCESS CASH AS UNDER: AMOUNT CONSIDERING EXCESS STOCK INVENTORY RS. 3.70 CRORES EXCESS CASH RS. .30 CRORES TOTAL: RS. 4.00 CRORES ITA 1006/DEL/11 HAZARI LAL KESRI CHAND 3 4.2. THE SURRENDER IN RESPECT OF EXCESS STOCK WAS M ADE BY THE ASSESSEE KEEPING IN VIEW THE DISCREPANCIES FOUND IN THE PHYS ICAL INVENTORY PREPARED BY THE DEPARTMENT WHICH WAS MADE BY THREE INDEPEND ENT VALUERS FOLLOWING FAIR MARKET VALUE METHOD. THE ASSESSEES STOCK VALU ATION WAS ON THE BASIS OF CUSTOM APPRAISAL METHOD PRESCRIBED BY THE CUSTOMS AUTHORITIES. AO HOWEVER WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND MADE THIS ADDITION. 4.3. IN RESPECT OF WATCHES FOUND FROM THE PARTNER S RESIDENTIAL PREMISES INSTEAD OF ADDING THE SAME IN HIS HANDS THE AO ADD ED THE SAME AS UNEXPLAINED INCOME OF THE FIRM THOUGH ASSESSEE DID NOT DEAL IN WATCHES. THE AO ALSO MADE DISALLOWANCE OF RS. 3 12 801/- & RS. 7 9 369/- RESPECTIVELY ON ACCOUNT OF PERSONAL USE OF CAR AND TELEPHONE. 4.4. AGGRIEVED ASSESSEE PREFERRED FIRST APPEAL BEF ORE THE CIT(A) WHO CONFIRMED THE ADDITIONS IN RESPECT OF UNEXPLAINED S TOCK AND WRIST WATCHES AND RESTRICTED THE ADDITIONS ON ACCOUNT OF CAR AND TELEPHONE EXPENSES TO RS. 1 25 120/- AND RS. 25 000/- RESPECTIVELY. 5. LEARNED COUNSEL FOR THE ASSESSEE CONTENDS THAT A SSESSEE DOES NOT DEAL IN WATCHES AND THE VALUE OF WATCHES FOUND FROM THE RESIDENCE OF THE PARTNER HAS BEEN ADDED TO ASSESSEES INCOME. SINCE THESE WA TCHES WERE NEITHER RECOVERED FROM ASSESSEES BUSINESS PREMISES NOR IT DEALS IN WATCHES THE ADDITION AT BEST COULD HAVE BEEN MADE IN THE HANDS OF THE PARTNER AND NOT THE ASSESSEE. THEREFORE THE ADDITION DESERVES TO BE DE LETED. 5.1. APROPOS THE ADDITION ON ACCOUNT OF VALUATION O F STOCK LD. COUNSEL CONTENDS THAT VALUATION OF JEWELLERY IS ALWAYS A VE RY ESTIMATE ORIENTED SUBJECT. AT THE TIME OF SEARCH THE STOCK FOUND FROM THREE DIFFERENT BUSINESS PREMISES OF THE ASSESSEE WAS REFERRED TO THREE DIFF ERENT VALUERS ONE AT EACH PREMISE. THE STOCK COMPRISED OF GOLD DIAMONDS PRE CIOUS AND SEMI- ITA 1006/DEL/11 HAZARI LAL KESRI CHAND 4 PRECIOUS STONES JEWELLERY ETC. THE TOTAL ESTIMATED VALUATION WORKED OUT BY THE THREE VALUERS ON MARKET VALUE BASIS CAME TO R S. 14 78 31 840/-. IT WAS STATED AT THE TIME OF THE SEARCH THAT THE FIVE ITEM S IN THE VALUATION REPORTS AGGREGATING TO RS. 16 39 743/- BELONGED TO THE PART NERS AND THEIR FAMILY MEMBERS WHICH WERE LYING FOR THE PURPOSE OF SOME RE PAIRS OR MINOR ADJUSTMENTS IN BUSINESS PREMISES. ON THE BASIS OF T HIS ESTIMATION VALUE OF STOCK FOUND AT THE BUSINESS PREMISES WAS ROUGHLY WO RKED OUT AS UNDER: PARTICULARS AMOUNT (RS.) TOTAL VALUE OF STOCK AT THREE LOCATIONS AT THE TIME OF SEARCH (BASED ON THE MARKET RATES AS ON THE DATE OF THE SEARCH) 16 25 14 399 LES: STOCKS BELONGING TO RELATIVES (AS EXPLAINED ABOVE AT SL. NO. 1) 16 39 743 LESS: EXCESS VALUATION OF LOOSE DIAMONDS AS COMPARED TO THE PURCHASE INVOICES 25 16 650 LESS: EXCESS VALUATION OF STOCK DUE DIFFERENCE IN VALUATION AS PER DEPARTMENTAL VALUERS AND CUSTOM APPRAISERS. 1 05 26 166 NET VALUE OF STOCKS BASED ON MARKET PRICES 14 78 3 1 840 5.2. THE STOCK AS PER THE BOOKS OF THE ASSESSEE WAS WORKED OUT TO RS. 10 90 72 972/-. THE ASSESSEE MADE A DISCLOSURE OF R S. 4 CRORES OUT OF WHICH RS. 3.70 CRORES WAS TOWARDS THE DISCREPANCIES IN S TOCK INVENTORIES AS FOUND FROM THE BOOKS AND DEPARTMENTAL INVENTORY. THE SURR ENDER WAS OFFERED AS UNDER: STOCK AS PER BOOKS OF A/C RS. 10 90 72 972 SURRENDER AS UNEXPLAINED STOCK RS. 3 70 00 000 TOTAL RS. 14 60 72 792 5.3. THE SAME WAS ACCEPTED BY THE DEPARTMENT AT THE TIME OF SEARCH. THE STOCK INVENTORY PREPARED BY DEPARTMENT WAS BASED ON 3 VALUATIONS PREPARED ON MARKET VALUE BASIS AS AGAINST THE ASSESSEES VA LUATION BASED ON CUSTOM ITA 1006/DEL/11 HAZARI LAL KESRI CHAND 5 APPRAISAL METHOD. LOOKING THE ELEMENT OF MARGIN OF ERROR IN VALUATION ASSESSEE OFFERED A SURRENDER OF RS. 3.70 CRORES TO TAKE CARE OF THE DIFFERENCE IN INVENTORIES WHICH WAS ACCEPTED BY THE DEPARTME NT AT THE TIME OF SEARCH. 5.4. THE DIFFERENCE OF RS. 17 59 048/- WHICH WORKS OUT AROUND 1% IN VALUATION WAS ATTRIBUTABLE ONLY TO THE VALUATION DIFFERENCE. THERE IS NO REFERENCE TO FINDING NEW STOCK ITEM IN THE DEPARTME NTAL INVENTORY. THIS BEING PURELY A MARGINAL VALUATION DIFFERENCE NO AD DITION SHOULD BE MADE. 5.5. CIT(A) IN PARA 5.18 WHILE CONFIRMING THE ADD ITION HAS OBSERVED AS UNDER: THERE HAS NOT BEEN ANY MERIT IN THE SUBMISSION OF THE ASSESSEE REGARDING THE OVER VALUATION AS THE SAME WAS EXAMIN ED BY THE AO AND WAS ALLOWED DURING THE COURSE OF ASSESSMENT. THERE MAY BE SOME ELEMENT OF DOUBT REGARDING THE VALUATIO N OF STOCK AND THE MANNER OF PREPARING THE TRADING ACCOUNT TO FIND OUT THE EXCESS OR SHORTAGE OF STOCK AS PER THE BOOKS OF ACC OUNTS. BUT IT IS NOT FAIR AND PROPER FOR THE ASSESSEE TO KEEP ON CHALLENGING THE SAME AT EVERY STAGE PARTICULARLY THE VALUATION OF D IAMOND AS THE ASSESSEE HSS BEEN TRYING TO TAKE THE ADVANTAGE OF T HE SITUATION OF THE VALUATION BY THE DEPARTMENTAL VALUERS DURING TH E COURSE OF SEARCH AND THE SAME JEWELLERY BEING VALUED BY THE C USTOM AUTHORITIES AT THE TIME OF EXPORT OF THE JEWELLERY. THE METHOD OF VALUATION BY THE CUSTOM AUTHORITIES MAY NOT BE SO S CIENTIFIC AS THE VALUATION IS DONE BY THE ASSESSEE HIMSELF ON W HICH THE CUSTOM AUTHORITIES RELY AND THEY JUST PUT THEIR MAR K OF APPROVAL OF THE VALUATION BY THE ASSESSEE HIMSELF. MOREOVER HOW IT CAN BE ENSURED AND AUTHENTICATED THAT IT IS THE SAME JE WELLERY AND DIAMOND WHICH WAS VALUED BY THE DEPARTMENTAL VALUER S DURING THE COURSE OF SEARCH WHICH HAS BEEN CLAIMED TO BE V ALUED BY THE CUSTOM AUTHORITIES AS THE CUSTOM AUTHORITIES DO NOT MAKE THE VALUATION OF THE JEWELLERY WITH THEIR OWN DEPARTMEN TAL VALUERS. EVEN IF THE DESCRIPTION OF THE DIAMOND AND JEWELLER Y MAY BE SAME BUT IT CAN NEVER BE AUTHENTICATED THAT IT IS T HE SAME DIAMOND WHICH WAS VALUED BY THE DEPARTMENTAL VALUER S AND THE SAME WAS BROUGHT BEFORE THE CUSTOM AUTHORITIES. IN THE CASE OF DEPARTMENT THE VALUATION OF THE JEWELLERY IS DONE BY ITA 1006/DEL/11 HAZARI LAL KESRI CHAND 6 INDEPENDENT VALUERS WHO ARE IN THE PANEL OF THE DE PARTMENT AND THESE VALUERS ARE NOT THE EMPLOYEES OF THE DEPARTME NT AND SO THERE IS NO QUESTION OF ANY BIAS BY THE VALUERS AGA INST THE ASSESSEE. SO I DO NOT FIND ANY MERIT IN THE SUBMISS ION OF THE ASSESSEE REGARDING THE OVER VALUATION OF THE JEWELL ERY. THE AO HAS ALLOWED THE NECESSARY RELIEF AND THE DEPARTMENT AHS ALSO MORE OR LESS ACCEPTED THE FINDING OF THE AO AND NO PROCEEDINGS HAS BEEN INITIATED AGAINST THE ASSESSEE. 5.6. THUS THOUGH IT HAS BEEN ACCEPTED BY CIT(A) TH AT THERE MAY BE SOME ELEMENT OF DOUBT ABOUT VALUATION BETWEEN THE ASSESS EES WORKING BASED ON CUSTOM AUTHORITIES AND INDEPENDENT VALUERS NEVERTH ELESS ADDITION HAS BEEN RETAINED WITHOUT APPRECIATING THIS FACT AND GIVING ANY PROPER BASIS. IT IS PLEADED THAT 1% MARGINAL DIFFERENCE BEING OCCASION ED ONLY BY THE ESTIMATED VALUATION BASED ON FAIR MARKET VALUE AND THE ASSESSEE HAVING ADOPTED ONE OF THE POSSIBLE METHOD OF VALUATION I.E . ADOPTED BY CUSTOM AUTHORITIES THE ADDITION DESERVES TO BE DELETED. 5.7. IT IS VEHEMENTLY PLEADED THAT THE ASSESSEE UN LIKE MANY OTHER ASSESSEES HAS NEITHER RETRACTED NOR RUN AWAY FROM THE DISCLOSURE AND HAS DULY OFFERED THE AMOUNT OF RS. 4 CRORES AND PAID AC TUAL TAXES THEREON WITHOUT CLAIMING ANY EXTRA BENEFIT OF DEPRECIATION OR OTHER METHODOLOGIES USED TO REDUCE TAX LIABILITY. 5.8. APROPOS THE ADDITIONS ON ACCOUNT OF CAR AND TE LEPHONE EXPENSES IT IS PLEADED THAT THE SAME EXCESSIVE IN NATURE. 6. LEARNED DR IS HEARD WHO SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 7. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. APROPOS ADDITION ON ACCOUNT OF WATCHES WE F IND MERIT IN THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE. IT H AS NOT BEEN DISPUTED THAT ASSESSEE DOES NOT DEAL IN THE SALE OF WATCHES. THEY WERE FOUND FROM THE RESIDENTIAL PREMISES OF THE PARTNERS AND NOT THE AS SESSEES BUSINESS PREMISES. ITA 1006/DEL/11 HAZARI LAL KESRI CHAND 7 IN OUR CONSIDERED VIEW THE ADDITION IN RESPECT OF THE WATCHES IN THE HANDS OF THE ASSESSEE IS NOT CALLED FOR AND THE SAME AT THE BEST COULD BE CONSIDERED IN THE HANDS OF PARTNER. IN VIEW THEREOF WE ARE INCLI NED TO DELETE THIS ADDITION. 7.1. APROPOS THE SECOND ADDITION ON ACCOUNT OF DIFF ERENCE IN VALUATION OF STOCK IT IS NOT DISPUTED THAT THE STOCK INVENTORY WAS PREPARED AT THREE DIFFERENT BUSINESS PREMISES AND ESTIMATED VALUE WAS DETERMINED ON THE BASIS OF MARKET VALUATION GIVEN BY THREE DIFFERENT VALUER S. ASSESSEE SURRENDERED THE AMOUNT OF RS. 3.70 CRORES IN VIEW OF THE DISCRE PANCIES FOUND IN RESPECT OF STOCK AT THE TIME OF SEARCH. IN OUR VIEW ORDINA RILY THE SURRENDER MADE BY THE ASSESSEE AFTER PREPARATION OF THE STOCK INVENTO RY SHOULD BE ACCEPTED BY DEPARTMENT UNLESS THERE ARE EXTRAORDINARY CIRCUMSTA NCES TO GO BEYOND IT. IN THIS CASE THE STOCK INVENTORY WAS PREPARED AND ASS ESSEE WAS ASKED TO EXPLAIN THE DIFFERENCE. AFTER EXPLAINING PART OF TH E DIFFERENCES ASSESSEE OFFERED AN AMOUNT OF RS. 3.70 CRORES TOWARDS THE EX CESS STOCK FOUND AS PER PHYSICAL STOCK INVENTORY WHICH WAS ACCEPTED BY THE DEPARTMENT AT THE TIME OF SEARCH. IN ORDINARY COURSE ADDITION ON ACCOUNT OF DIFFERENCE IN STOCK AT THE TIME OF ASSESSMENT SHOULD BE RESTRICTED TO THE AMOUNT OFFERED BY THE ASSESSEE OR EXTRAORDINARY REASONS MUST BE POINTED OUT FOR FURTHER ADDITION. IN OUR VIEW SUCH EXTRAORDINARY CIRCUMSTANCE OR GAP IN THE VALUATION HAS NOT BEEN POINTED OUT AS THE EXCESS VALUATION IS NOT ATT RIBUTED TO ANY NEW ARTICLE. THE ASSESSEE HAVING ACCEPTED ITS PART OF SURRENDER AND PAID DUE TAXES THEREON AND THE INVENTORY VALUATION BEING HIGHLY ES TIMATE ORIENTED IT CANNOT BE ASSUMED THAT THE ASSESSEE WILL EXPLAIN THE DIFF ERENCE IN STOCK TO THE LAST RUPEE. THE PLEA RAISED BY THE ASSESSEE THAT IT HAVI NG SURRENDERED THE AMOUNT OF RS. 3.70 CRORES WHICH IS ACCEPTED BY DEPARTMENT THERE WAS NO JUSTIFICATION IN RETAINING FURTHER ADDITION ON THE BASIS OF VALUATION WITHOUT POINTING OUT ANY DIFFERENCE IN ITEM DESCRIPTION OR DETAIL. AS AGAINST THE STOCK ITA 1006/DEL/11 HAZARI LAL KESRI CHAND 8 OF R. 14 CRORES THE DIFFERENCE AS WORKED OUT COMES TO AROUND RS. 17 LACS WHICH CONSTITUTES ABOUT 1% OF THE STOCKS VALUATION . CIT(A) IN HIS ORDER HAS OBSERVED THAT THE EXACT VALUATION OF STOCK IS NOT P OSSIBLE AND IT HAS NOT BEEN CONTROVERTED THAT THE VALUATION IN THE HANDS OF THE ASSESSEE WAS BASED ON THE METHOD ADOPTED BY CUSTOM AUTHORITIES. IN OUR CONSID ERED VIEW THE ADDITION IN STOCK AS WORKED OUT BY THE AO IS NOT BASED ON FI NDING ANY NEW ITEM BUT ON THREE ESTIMATES. THERE ARE NO EXTRAORDINARY REAS ONS TO GO BEYOND THE SURRENDER OFFERED BY ASSESSEE IN RESPECT OF STOCK V ALUATION FOUND AT THE TIME OF SEARCH. IN OUR CONSIDERED VIEW THE ADDITION DOES NOT DESERVE TO BE UPHELD THEREFORE THE SAME IS DELETED. 7.2. APROPOS CAR AND TELEPHONE EXPENSES WE SEE NO INFIRMITY IN THE ORDER OF CIT(A) RESTRICTING IT TO THE DISALLOWANCE MADE I N ACCORDANCE WITH THE PRECEDING YEAR. ASSESSEE HAS NOT DEMONSTRATED THAT THE ADDITION WAS CHALLENGED IN EARLIER YEAR. IN VIEW THEREOF WE SEE NO INFIRMITY IN THE ORDER OF CIT(A) ON THIS COUNT. ACCORDINGLY ORDER OF CIT( A) ON THIS ISSUE IS UPHELD. 8. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN OPEN COURT ON 24-02-2012. SD/- SD/- ( A.N. PAHUJA ) ( R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 24-02-2012. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR ITA 1006/DEL/11 HAZARI LAL KESRI CHAND 9