TMI Blog2010 (2) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition not justified - Tax Appeal No. 2186 of 2009 - - - Dated:- 23-2-2010 - PUJ K. A., RAJESH H. SHUKLA , JJ JUDGMENT K. A. Puj J.- The appellant-assessee has filed this tax appeal, under section 260A of the Income-tax Act, 1961, for the assessment year 2000-01, proposing to formulate the following substantial questions of law for determination and consideration of this court. (i) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the addition of Rs.17,50,00,000 as unexplained expenditure under section 69C ? (ii) Whether on the facts and in the circumstances of the case, there was any evidence before the Tribunal to hold that the assessee had incurred unexplained expenditure of Rs. 17,50,00,000 in purchase of rough diamonds and/or whether such finding is perverse ? (iii) Whether on the facts and in the circumstances of the case, the addible amount ought to have been the peak investment of Rs.72,91,666 and not the alleged purchase of Rs. 17,50,00,000 throughout the year ? (iv) Whether on the facts and circumstances of the case, the Tribunal ought to have sent the matter back to the Commissioner of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,42,061.53 5. The Assessing Officer noted that, as against this, the consumption of rough diamonds was shown at 4,30,701.14 carats. There was an excess consumption of rough diamonds by 1,40,000 carats as against the rough diamonds available at 3,42,061.53 carats. The appellant-assessee was asked to explain the difference in the consumption of rough diamonds with reference to the audit report and the figure reported in the submission. The appellant-assessee has given its explanation that it was only a typographical error and the actual consumption of the rough diamonds during the year is only at 2,90,701.14 carats. The appellant-assessee submitted a correction certificate to the Assessing Officer. The Assessing Officer recorded the statement of the auditor under section 131 of the Act onFebruary 12, 2004, in which, the auditor admitted to have committed the typing mistake by the typist. The Assessing Officer recorded the statement of Shri Himmatbhai Kheni, partner of the appellant, onMarch 3, 2004. The partner pointed out that the actual consumption of rough diamonds was 2,90,701.14 carats, tallies with manufacturing jhangds, stock and consumption register of rough di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt the other opening and closing figures. After recording this finding, he deleted the addition of Rs. 17,50,00,000 made by the Assessing Officer under section 69C of the Act. 7. Being aggrieved by the order of the Commissioner of Income-tax (Appeals), the Revenue has preferred an appeal before the Income-tax Appellate Tribunal and the Tribunal vide its order dated September 11, 2009, reversed the order of the Commissioner of Income-tax (Appeals) and held that the Commissioner of Income-tax (Appeals) was not correct in deleting the addition made by the Assessing Officer. The excess consumption of rough diamonds represents only the purchase of the rough diamonds outside the books of account of the assessee. 8. The appellant-assessee has contended before the Tribunal that the entire addition, being the addition of unexplained expenditure, will be allowable under section 28 and/or under section 37 of the Act. The Tribunal rejected the said contention of the appellant with the aid of the proviso to section 69C of the Act. The appellant-assessee has also contended before the Tribunal that the alleged purchases were not made by the appellant at one stroke but throughout the year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure is 2,90,701.14 carats and not 4,30,701.14 carats. He further submitted that the books of account which were audited and on the basis of which, this audit report was prepared and produced before the Assessing Officer, showed the consumption figure of 2,90,701.14 carats only and, therefore, there was no iota of doubt that 4,30,701.14 carats was a typographical mistake. He has further submitted that the Tribunal has done gross injustice to the appellant by importing in the matter sub-judice affairs of M/s. Kantilal and Co. Limited, as if, M/s. Kantilal and Co. Limited was the assessee before the Tribunal and its affairs were the affairs of the appellant-assessee. Mr. Shah, therefore, submitted that the order of the Tribunal was unjust and contrary to the evidence on record and it was based on non-application of mind and it being perverse, deserves to be quashed and set aside. 10. Mr. M. R. Bhatt, learned senior counsel appearing with Mrs. Mauna M. Bhatt, learned standing counsel, for the Revenue, on the other hand, has supported the order passed by the Tribunal. He has submitted that the appellant made the submission before the Assessing Officer and furnished the percentage of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entries in the seized papers were not accounted in the regular books of account. He has further submitted that the assessee was carrying out its activities outside the books of account, which is clear from the fact that the appellant-assessee has thrown out the box of floppies seized during the course of search, which contains the unaccounted business transaction of the assessee, during the course of verification in the post search inquiry in the presence of Shri Himmatbhai Kheni, one of the partners and his employees. He further submitted that a criminal case was lodged immediately on the misconduct of the appellant-assessee and the investigation by the police is still going on in this case. 13. Mr. Bhatt further submitted that the Tribunal has also endorsed that the conduct of the appellant-assessee was not proper right from the beginning and all the time they tried to interrupt the ongoing assessment proceedings by the Department by obstructing the discharge of duties of the officers and staff by way of threat and coercion. 14. Mr. Bhatt further submitted that section 139(5) of the Act allows an assessee to rectify, in case there is a mistake being found in the retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee in the audit report and submission filed during the course of assessment proceedings. There is no reporting of 4,370.45 carats and the appellant assessee has failed to reconcile the same with the value of purchase of rough diamonds shown. He has, therefore, submitted that the state of affairs of the appellant-assessee is not at all reliable and should be rejected. 17. In rejoinder, Mr. Shah, while clarifying some of the issues raised by Mr.Bhatt, submitted that, whatever the yield was shown in all the years, i.e., the assessment year 1999-2000 to the assessment year 2003-04, except the assessment year 2001-02, is accepted by the Department in the assess- ment orders passed under section 143(3) of the Act. He has, therefore, submitted that if 11.89 per cent. yield of the assessment year 2002-03 is acceptable to the Department, what is the objection to higher yield of 15.64 per cent. in the assessment year 2001-02. He has further submitted that the method of calculating the yield has not been adopted by the Department in any of the years, except the assessment year 2001-02. The yield which is shown by the assessee is not decreasing, on the contrary it is increasing. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CC 49 ; (4) Dharmarajan v. Valliammal, AIR 2008 SC 850 ; (5) Dnyanoba Bhaurao Shemade v. Maroti Bhaurao Marnor, AIR 1999 SC 864 ; and (6) Hero Vinoth (Minor) v. Seshammal, AIR 2006 SC 2234 21. Having heard the learned counsel Mr. J. P. Shah for the appellant and Mr. M. R. Bhatt, the learned senior counsel for the respondent and having gone through the orders passed by the authorities below as well as the pleadings of the parties and the documents produced before the court, we are of the view that the moot question to be decided by the court is as to whether the alleged consumption of excess stock is merely a typographical error or as to whether the appellant-assessee has, in fact, purchased rough diamonds outside the books of account and whether the provisions of sec- tion 69C of the Income-tax Act, 1961 are rightly invoked by the Assessing Officer by treating such excess consumption as unexplained expenditure incurred by the appellant-assessee for purchase of rough diamonds. The Commissioner of Income-tax (Appeals) has held that it is merely a typographical error whereas the Tribunal has not accepted the assessee s theory of being it a typographical error. Since th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,061.53 carats. Out of opening stock + purchases = 1,01,995.17 carats + 2,40,066.36 = 3,42,061.53 carats i.e. consumption + rejections = 2,90,701.14 + 26,555.00 = 3,17.256.14 carats were reduced. The correct figure of consumption of rough diamonds is 2,90,701.14 carats while making subtractions also the figure of 2,90,701.14 carats was considered. The only mistake occurred is the typing mistake by a typist of the auditors. The typist typed wrong figure of 4,30,701.14 carats instead of the correct figure of 2,90,701.14 carats. The auditor has also submitted a correction certificate to the Assessing Officer. The Assessing Officer recorded the statement of the auditor under section 131 of the Act onFebruary 12, 2004, in which the auditor admitted to have committed the typing mistake by his typist. The Assessing Officer recorded the statement of Shri Himmatbhai Mohanbhai Kheni, partner of the appellant, onMarch 3, 2004. The partner pointed out that the actual consumption of 2,90,701.14 carats tallied with manufacturing jangads, stock and consumption register of rough diamonds, labour register and manufacturing bills of polished diamonds sent from Surat office to Mumbai office. 24. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted that after receipt of notice under section 142(1) of the Act datedDecember 15, 2003, pointing out the different consumption figure in his annexure D to Form No. 3CD of M/s. M. Kantilal Exports. On the basis of the figure of con- sumption submitted by M/s. Kantilal Exports to the Assessing Officer onAugust 5, 2003, he carried out the verification with his records of audit. During the course of audit, he obtained copies of manufacturing register and labour register. He had also obtained the details of total yearly purchase, consumption and stock of rough diamonds. He verified the figure of consumption with these details kept on his records during the course of audit as well as with the copy of pencil written annexure D kept on his records. He confirmed from his records that the correct figure of consumption of rough diamonds is 2,90,701.14 carats. He also admitted that he carried out the investigation as to how the wrong figure of consumption of 4,30,701.14 carats was typed and thereafter he found that the mistake was committed by the typist. He further admitted in his affidavit that his statement dated February 12, 2004, was recorded by the Assessing Officer under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal is not corrected in this tax appeal. We are, therefore, of the view that the typing error in annexure D of Form No. 3CD of the tax audit report is committed by the typist of the auditor, the consumption of rough diamonds was deducted at 2,90,701.14 carats in annexure D. The figure of 4,30,701.14 carats was never deducted. If the figure of 4,30,701.14 carats is deducted from the total opening stock + purchases = 3,42,061.53 carats, the annexure D would have shown negative stock, which does not appear in annexure D. The closing stock of 24,805.39 carats in annexure D is a conclusive proof of deduction of 2,90,701.14 carats as consumption. All manufacturing records, stock records and cost records as per the books of account of the appellant reveal the consumption of 2,90,701.14 carats. The yield working given in the assessment order is not correct in view of yield is always calculated on chadel rough , i.e., makable diamonds. On dust, i.e., rejections yield cannot be calculated because polished diamonds manufactured from rejections is nil because of no diamond/gem contents in rejections. 28. In the above view of the matter and the finding recorded by us, we are of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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