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2011 (6) TMI 906 - ITAT PUNE

2011 (6) TMI 906 - ITAT PUNE - TMI - ITA No. 801/PN/2006, ITA No. 820/PN/2006, ITA No. 894/PN/2006 - Dated:- 6-6-2011 - SHRI I.C.SUDHIR, JM AND SHRI G.S.PANNU, AM Appellant by : Shri S.U. Pathak, Respondent by : Shri Hareshwar Sharma, CIT DR ORDER Per I.C.Sudhir, JM ITA No. 801/PN/2006 (Block Asstt. Year 01/04/96 to 24.10. 2002) The assessee has questioned common first appellate order on following grounds. 1. The learning CIT(A) erred in law and on the facts in confirming the following additions .....

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CIT(A) erred in law and on the facts in enhancing undisclosed income to the extent of ₹ 10,00,000/- on account of alleged initial investment for making unaccounted sales. 2. We have heard and considered the arguments advanced by the parties in view of the orders of the lower authorities, material available on record and the decisions relied upon. 3. Ground No.1 Regarding Ground no.1 facts in brief are that the assessee was subjected to search action wherein on physical verification shorta .....

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these observations that there was a shortage in the physical quantity vis-à-vis the quantity recorded in the books and therefore A.O. was justified in holding that assessee must have sold the items outside the books. 4. Learned AR objected these additions with the submissions that admittedly there was shortage in the quantity of silver, diamonds and silver articles. However, there is no evidence with the A.O. that the assessee has sold the shortage items outside the books. He submitted t .....

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by the A.O. Learned A.R. further submitted that assessee has returned the undisclosed business profits of ₹ 2.70 crores as against which the undisclosed profits determined on the basis of the seized papers by the A.O., amounted to ₹ 2,2,81,206/- . Accordingly, even if the addition on account of shortage of stock was justified, the assessee s returned profits being much higher than the profits determined by the Special Auditor/ A.O. covers the above additions and hence these addition .....

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dering the above submissions we find substance in the argument of Learned AR that the additions in question were not warranted, especially when the assessee has shown undisclosed business profits at ₹ 2.70 Crores in its return of income against which the undisclosed business profits determined on the seized papers by the A.O. amounted to ₹ 2,02,81,206/-. Thus, undisputedly the addition of ₹ 5,23,568/- made on account of shortage was not justified when the assessee s returned pr .....

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unt of the transactions with Shri. H.Kumar Gems International has been questioned by the assessee. The Learned AR contended that the Learned CIT(A) inadvertently has not given any reasoning either in support or against the addition. He referred page no. 69 of the first appellate order, wherein the Learned CIT(A) has only stated that this point is dismissed for stastical purposes. The Learned AR submitted that excess amount of gold was found in the stock during the course of search. H. Kumar Gems .....

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der, we find that the learned CIT(A) has discussed the case of the assessee in para no. 15.7 of the first appellate order. He has also referred the documents filed by the assessee in support of his submissions that gold was received prior to date of search. About reliance of the assessee on sales invoices and the vouchers seized during the course of search which was reflected in the panchanama, the Learned CIT(A) has also mentioned the submissions of the assessee that the purchases from Ahmedaba .....

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ing order supported with reasons. We thus in the interest of justice remand the matter to the file of the CIT(A) for fresh adjudication of the issue after affording an opportunity of being heard to the parties. The ground no.2 is accordingly allowed for statistical purposes. 10. Ground No.3 Regarding ground no.3, the relevant facts are that the A.O. estimated the turnover for various years in block period. For financial years 1996-97 to 1998-99 , the turnover has been estimated on the basis of l .....

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ing additions on account of initial investment in the first year i.e. Financial Year 1996-97. The learned CIT(A) held that there must be some initial seed capital invested by the assessee for carrying out the undisclosed business. He held that for first three years, the turnover has been estimated at ₹ 50 lakhs, ₹ 75 lakhs, and ₹ 1 Crore. The Learned CIT(A) accordingly considered the turnover as estimated initial investment of ₹ 10,00,000/- as reasonable for the above est .....

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7; 1 lakh to ₹ 2 lakhs. Therefore, estimation of ₹ 10 lakhs is on very high side. 12. The learned DR on the other hand tried to justify the first appellate order on the issue, he also pointed out that the additional ground in this regard has been raise by the revenue in its cross appeal for the block period in ITA No. 820/PN/06. He submitted that in the said additional ground the contention of the revenue is that the Learned CIT(A) should have made enhancement at a much higher amount .....

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with the submissions that the issue raised in the additional ground is factual in nature and the Tribunal in not a investigating authority to deal with the issue at this stage. In this regard, he placed reliance on the decision of the Tribunal in the case of Raj Kumar Jain V. Asstt. CIT, 208 ITR 22 (3rd Member). 13. The Learned DR further submitted that in the normal course of business the assessee has to maintain the higher amount of stock as compared to the turnover. Therefore, in these unacc .....

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d the high turnover of ₹ 50 lakhs, 75 lakhs and 1 Crore for the financial years 1996-97 to 1998-99 respectively, as estimated by the A.O. He also referred the computation of turnover of ₹ 2 ,02,81,206/- made by the auditor in its report for assessment years 1999-00 to 2002-03 on the basis of Jama Kharcha Panas . 15. The Learned AR on the other hand has re-iterated his submission made before the authorities below in support of ground no.3 hereinabove. He submitted that the addition of .....

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y it is shown that sales were more than purchases. The assessee has been receiving advances from the customers which took care of the purchases and the requirements of cash was also very little. It is reflected from the low opening cash balances on this these days. 16. Regarding the investment of higher amount as contended by the learned DR, the submission of Ld. AR remained that it is totally incorrect for the simple reason that in the course of search, the department would have found the highe .....

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l investment at ₹ 10 lakhs keeping in mind submission of the assessee that the initial investment is required for around first 7 to 15 days for purchases and their other submissions. Since the estimation of initial investment made by the learned CIT(A) based on application of G.P. rate of 12.5 % (generally shown in such business) is reasoned one we are not inclined to interfere there with in absence of any bonafide reason shown by the revenue for making higher addition than ₹ 10 lakh .....

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ting the disallowance of unproved purchases amounting to ₹ 41,07,662/-. 2. On the facts and circumstances of the case and in law the Ld.CIT (A) erred in restricting the addition on account of the undisclosed profit worked out by the Assessing Officer in Para 19 from ₹ 57,11,770/- to 47,41,772/-, by directing to adopt lower average undisclosed income resulting from relief granted at ground 1. 3. On the facts and circumstances of the case and in law the Ld.CIT (A) erred in deleting the .....

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.CIT (A) erred in deleting the addition of ₹ 2,53,32,635/- made on protective basis which has been substantively added in the hands of Shri Prakash Salunke, one of the trusted person of the assessee. The Ld.CIT(A) has failed to appreciate the fact that the issue regarding ownership of documents/ assets seized on the basis of which addition of ₹ 2,55,32,035/- was made is not yet finally settled. The Ld.CIT (A) ought to have followed the ration of the judgment delivered by the Hon ble .....

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ith the issue raised in the additional ground while adjudicating ground no.3 in the above said appeal. The additional ground therein has been rejected. 21. Ground No.1 Regarding Ground no.1 the relevant facts are that the addition of ₹ 41,07,662/- on account of certain purchases made by the A.O. has been deleted by the Learned CIT(A). In the course of search, Jama Kharcha Panas papers were found for A.Ys. 2000-01 to 2003-04. These papers indicated the cash transaction of purchase and sales .....

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.2,02,81,206/- Rs.41,07,662/- Rs.2,43,89,868/- 22. The A.O. noted that names of the various persons are mentioned in the seized papers from whom the assessee had made the purchases. The A.O. asked the assessee to furnish the complete details of names and addresses of various persons. The assessee could not submitted addresses of the persons and accordingly the purchases made from those persons have been disallowed by the A.O. in the absence of the relevant details. The year-wise disallowance tot .....

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d the addition. Against which revenue is in appeal. 24. In support of the ground the Learned DR has basically placed reliance on the assessment order. He submitted that the addition in question could have been deleted by the Learned CIT(A) only if the amount added in the block was included in the declared income. The Learned DR referred the contents of para no.15 page 7 of the assessment order. 25. The Learned AR on the other hand tried to justify the first appellate order on the issue and refer .....

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owed as deduction because the profit on the sales was to the extent of ₹ 2.02 Crores on the sales of little over ₹ 100 Crores. When the A.O. has allowed all other purchases which were also not proved but which were noted on these papers, there was no reason to disallow only a few purchases of ₹ 41.07 Lakhs by pick and choose method. The Learned AR submitted that the assessee has also clarified that the special auditor in his report has not disallowed the above purchases and hen .....

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ine and correct documents u/s. 132(4A) they have to be considered wholly and not in part. In this regard, he Placed reliance on the following decisions with further submissions that seized papers should be considered as a whole and the pick and choose theory should be rejected: (1) Aziende Colori Nazionalli Affini [110 ITR 145], (2) Chandermohan Metha [71 ITD 245], (Pune) and (3) Ramanlal P. Chordia [87 TTJ 713] (Pune). 26. Having gone through the orders of the authorities below and the decision .....

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hat seized documents have to be read as a whole and should be relied upon or rejected in its entirety. The Hon ble Bombay High Court in the case of Aziende Colori Nazionalli Affini [110 ITR 145], has been pleased to hold that the document is to be considered as a whole and the department cannot hold the few entries are correct and few entries are wrong. Similar view has been expressed by the Tribunal of Pune Bench on the above cited decisions in the case of Chandermohan Metha and Ramanlal P. Cho .....

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es on sales amounting to over ₹ 100 Crores. When the A.O. has allowed other purchases noted on those papers, there is no reason to disallow few purchases of ₹ 41.07 lakhs out of notings on the same papers by adopting pick and choose method. We thus are of the view that the Learned CIT(A) has rightly deleted the addition at ₹ 41,07,662/- made on account of certain purchases. Since the first appellate order is comprehensive and reasoned one on the issue, we are not inclined to in .....

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worked out the undisclosed income for the period of 02/11/1999 to 17/09/2002 at ₹ 2,43,89,868/- ( after making the above addition of ₹ 41,07,662/- mentioned in Ground no.1 ) . Thus, per day income was worked out at ₹ 27,070/-. This amount was considered by the A.O. for working out the disclosed income for the period 01/04/1999 to 01/11/1999 and from 18/09/2002 to 24/10/2002 ( period for which the Jama Kharcha Panas were not found) and the total undisclosed income was arrived a .....

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he Learned AR, on the other hand reiterated the submissions made before the Learned CIT(A). 29. Considering the above submissions we find that the issue raised in ground no.2 under consideration is consequential to the issue raised herein above in ground no.1. The undisclosed income for the period for which the Jama Kharcha Panas were not found was worked out at ₹ 57,11,770. As discussed above, the A.O. had worked out the undisclosed income for the period 02/11/1999 to 17/09/2002 for which .....

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of ₹ 41,07,662/- on account of the purchases from a few parties which has been deleted in the findings on ground no. 1 hereinabove. If the said deleted addition of purchases is deducted from the total income for the period for which Jama Kharcha Panas were found the amount will reduced to ₹ 2,02,82,206/- and the per day income works out to ₹ 22,510/- against ₹ 27,070/- (worked out by the A.O.). On the basis of these workings, the Learned CIT(A) held that after deletion of .....

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t find infirmity in the first appellate order in reducing the addition of ₹ 57,11,770/- to ₹ 4,7,49,772/- on the basis of said deletion. The first appellate order in this regard is thus affirmed. The ground no.2 is accordingly rejected. 30. Ground No.3 The relevant facts are that the assessee firm engaged in jewellery business and following average cost method for valuing the stock in the books i.e. it takes average of opening stock and purchases during the year and values the closin .....

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held that there was under value of stock as per books by ₹ 22,06,664/-. Accepting the main submission of the assessee that addition is made beyond the scope of block assessment, the Learned CIT(A) has deleted the addition. 31. In support of the ground the Learned DR has placed reliance on the view taken by the A.O. as discussed above. The Learned AR on the other hand tried to justify the first Appellate order. He reiterated the submissions made before the first appellate authority. 32. Con .....

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the same, decisions were cited which have been reproduced by the Learned CIT(A) at page nos. 32 and 33 of the first appellate order, wherein the Hon ble courts have accepted such average cost method followed by the assessees. Considering these submissions learned CIT(A), in our view has rightly come to the conclusion that there was no reason to reject the method of valuation of stock and the addition made was thus not justified. We also find substance in the observations of the Learned CIT(A) on .....

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2,635/- made on protective basis in the hands of the assessee has been questioned. The relevant facts are that search was conducted on assessees as well as Shri Prakash Salunke. During the course of search certain documents marked as bundle Nos. A-1 to A- 43 were found at the premises of Shri Prakash Salunke, who was engaged in the business of refining gold. Shri Prakash Salunke admitted that bundle no. A-7 to A-9 belonged to him and he also stated that other bundle found with him belonged to Ra .....

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er verification of various seized papers came to the conclusion that disputed bundles belonged to Shri Prakash Salunke and on that basis addition of ₹ 2,53,32,635/- was made on substantive in the hands of the Shri Prakash Salunke. The details of the heads constituting the above amount are in the nature of shares, PPF balances, Insurance premium paid, FDs etc. etc. of Shri Prakash Salunke and his family members. The A.O. with a view to protect the interest of the revenue also made same addi .....

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ke. Papers related to assessee were found from premises of Shri Prakash Salunke. These papers were related to loan and share transactions. In his statements, Shri Prakash Salunke confessed that money came from Shri Anil Ranka for investment in loan and shares. Under these background, the A.O. was justified in making the assessment on substantive basis in the case of Shri Prakash Salunke and on protective basis in the assessee s hand in the interest of the revenue. The Learned DR further submitte .....

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iven any plausible reason in support of the addition in question made on protective basis in the hands of the assessee. The disputed documents seized from Shri Prakash Salunke indicate financial affairs of Shri Prakash Salunke, these documents contain details of investments in shares, made in the name of the Shri Prakash Salunke, details of fixed deposits in the name of Shri Prakash Salunke s family members and also loans given in the market, PPF and insurance etc. have been paid in his cases on .....

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the Learned CIT(A) has also mentioned that Shri Prakash Salunke tried to destroy the most valuable documents found during the search which clearly indicates that the documents pertain to him only. He submitted that it is also worth noting that the documents admitted by the assessee that these are pertaining to it, were kept separately in the sports bag and these documents were not in the handwriting of Shri Prakash Salunke. The Learned AR further submitted that the assessee firm had cross-examin .....

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im. The seized documents that Jama Kharcha Panas for the period from 02/11/99 to 17/09/11 does not have any noting that cash has been given by Ranka Jewellers to Shri Salunke and given loans as claimed by Shri Salunke. The notings of the seized papers which were owned by the Ranka Jewellers are in the handwriting of partners and employees of the Ranka Jewellers and the seized papers in respect of transactions of Shri Salunke are written by him only. He submitted that in the course of assessment .....

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t the addition in question has been made by the A.O. on protective basis in the hands of the assessee and on substantive basis against Shri Prakash Salunke on the basis of seized documents marked as. A-1 to A-6, A-10, A-11 and A-35, ownership of which remained in dispute. Shri Prakash Salunke stated that these documents belonged to Ranka Group whereas the assessee denied its ownership over those documents. Explanation of the assessee in this regard remained that disputed documents were seized fr .....

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nts were not in the handwriting of Shri Prakash Salunke. We are of the view that when disputed documents admittedly found in the exclusive possession of Shri Prakash Salunke then as per presumption u/s. 132(4A), the said documents unless sufficiently rebutted, are presumed to be belonging to Shri Prakash Salunke. Shri Prakash Salunke has not produced any evidence to indicate that the disputed documents belong to the assessee. Thus in our view Shri Prakash Salunke has not been able to rebut the p .....

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to assess the income on the basis of such documents even protectively in the hands of the assessee. Considering these materials aspects of the issue, we are of the view that Learned CIT(A) has rightly come to the conclusion that the addition of ₹ 2,53,32,635/- made on the protective basis in the hands of the assessee is not justified and he has thus rightly denied the addition. We thus find no reason to interfere with the first appellate order in this regard. The same is upheld, the groun .....

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03/- by treating undisclosed assets not belonging to the appellant, and ₹ 95,330/- by way of accrued interest are improper and not based on the facts prevailing in the case. The additions so made be deleted. 2. On the facts and circumstances prevailing in the case as per provisions of law, it be held that, transactions recorded in page No. 8 of Annexure No :1 do not represent the transactions of the appellant and it further be held that assessee has discharged the burden of presumption u/s .....

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provisions of the Act. the additions so made be deleted. 39. Ground No.1 & 2 In these grounds grievance of the assessee is that the authorities below have erred in assessing the income of the assessee at ₹ 2,59,50,620/- by treating the same as undisclosed income in place of ₹ 43,88,583/-. We have already discussed the facts of the case hereinabove as search action was taken place at the premises of the assessee as well as of Ranka Jewellers. From the premises of the assessee seve .....

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(NSCs, KVPs) 3,19,000 1,84,000 40. Out of these seized materials about which the main objection of the assessee remained that all the investments were made by him at the instruction of Shri Anil Ranka of Ranka Jewellers and it was their money. The incriminating documents and valuables which were kept in a sports bags found during the course of search at assessee s premises were accepted by M/s. Ranka Jewellers as belong to them. So far remaining annexures and the valuable attached to them are co .....

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a small person and the assessee had discharged its burden against the addition made under presumption u/s. 132 (A) of the Act against him. The addition made on the basis of seized documents specially page 8 on annexure A-1 is not justified as transactions mentioned therein do not pertain to assessee. Hence, the additions made to the return of income be deleted. The Learned AR submitted that the reasons assigned for making the addition to the return of income at ₹ 1,14,66,603/- by treating .....

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ocuments were found. He submitted that there is no denial on the part of the assessee but in absence of any corroboratory evidence, the entire addition cannot be made in the hands of the assessee ignoring his objection that these documents belong to M/s. Ranka Jewellers and these were written at their instruction only. 42. The Learned DR on the other hand tried to justify the first appellate order on the issue. He submitted that undisputedly the incriminating documents were found during the cour .....

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635/- made in the hands of Ranka Jewellers on the protective basis on the basis of similar documents found with Shri Prakash Salunke, (the present assessee) has been questioned. We have dealt with the issue and adjudicated it with this finding that there is noting on record to show that the amount in question was Benami of M/s. Ranka Jewellers to make addition of the said amount as undisclosed income on protective basis in the hands of M/s. Ranka Jewellers. The action of the Learned CIT(A) in th .....

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unke while incriminating documents for which the ownership is in doubt are admittedly in the handwriting of Shri Prakash Salunke. It is also worth noting that the assessing officer has noted contradiction in the statements given by Shri Prakash Salunke. The assessing officer has summarized these statements to show that Shri Prakash Salunke has been shifting his stand on the incriminating documents seized from his place for which ownership was disputed by him. Though these documents have been wri .....

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se the identity of the persons whose names appeared in the seized materials. The assessing officer on the other hand tried to identify some of the names with members of the family of Shri Prakash Salunke. There was no any documents found during the course of search to suggest that investment in the market and in the shares was being done by the assessee on behalf of the Ranka Group. Under these circumstances, we are of the view that the Learned CIT(A) has rightly come to the following conclusion .....

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aterials also indicate loans given in the market. The appellant knows the identity of such persons and it is admitted that the loans have been given through him. His clarification that the loans are against cash given to him by the Ranka group is not proved by the search action as no evidence has been found in the course of search indicating the same. The Assessing Officer has used these evidences in form of seized materials to compute the undisclosed income and the same is in accordance with th .....

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