TMI Blog2007 (7) TMI 333X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(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 correctly va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment 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 Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 financial year 1994-95? Ans. I had received gift of Rs. 13,25,000 during the financial year 1994-95. I am submitting here three copies of gift deeds. Q.2 What is your relationship with Kishan Sanmukhdas Punjabi, Jeetu Gulab Lalwani and Mohan Vatumal Mikhwani? When you have came to contact with the above persons and till today what is the status of the relationship and what are the whereabout of the above persons, if known to you? Please give the physical feature of these persons. Ans. Shri Kishan Sanmukhdas Punjabi is my friend since last 10 years. I met him at my shop. Whenever he comes to India he also meets me at my shop. At present, I do not know his whereabout - he may be in India or in Dubai His height will be 5.8" he is wearing spects and is of whitish colour. Shri Je ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey 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 instance of the assessee or persons acting on his behalf with ulterior motive. (b) Shri Kishan Punjabi allegedly gifted Rs. 5 lakhs each in quick succession, i.e., 25-4-1994 and 11-7-1994 which, according to the Assessing Officer, were quite abnormal. (c) The gifts allegedly made by Shri Jeetu Lalwani and Mohan Mikhwani were surprisingly in odd figures, namely, Rs. 2,40,000 and Rs. 85,000. (d) The signature of Shri Mohan Vatumal Mikhwani on the declaration of gift was apparently different from his signature on the photocopy of the passport filed by the assessee before him. (e) The assessee did not produce the donors despite various opportunities given to him. 15. As regards the gifts allegedly received from Shri Mohan Vatumal Mikhwani through cheque issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shan 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 to produce the donors. However, he failed to do so even on the last occasion when he was allowed time of 42 days to produce the witness on any working day as per his convenience. Since the assessee has failed to produce his witnesses being the alleged donors, I am left with no alternative but to decide the issue in accordance with the law. This brings me to the provision of section 68 of the Act which squarely cast onus on the assessee to prove satisfactorily credit entries appearing in his books of account. Since the amount of gifts have been credited to the assessee's capital account, he is supposed to discharge the primary onus by proving identity of the party, his capacity to give money and the genuineness of transaction. For this purpose, it is for h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence 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. Further, the following issues raised by the Assessing Officer have remained unanswered even till now: (a) In case of the alleged donor, Shri Kishan Punjabi, his pay slip and other facts stated in the assessment order, do not show that he is highly paid employee having salary that would enable him to gift such a huge amount. (b) There were unexplained credits of Rs. 2,74,236 and Rs. 2,73,117 on 12-7-1994, the date on which a gift of Rs. 5 lakhs was made by Shri Punjabi to the appellant. (c) The bank account of another alleged donor, Shri Jeetu Gulab Lalwani, through which the alleged gift was received by the appellant, was not a Non-Resident External Account (NRE A/c.) in which the deposit was made not from foreign remittances in foreign currency b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '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. 23. Keeping all the facts in view, I completely agree with the Assessing Officer that the source of the so-called gifts claimed to have been received by the appellant have not been proved and are not genuine. The amount of Rs. 13,25,000 was, therefore, rightly added back by the Assessing Officer. The addition is upheld." 20. Aggrieved by the order of the CIT(A), the assessee is now in appeal before this Tribunal. In support of appeal, the ld. counsel for the assessee has invited our attention to the factual aspects of the case, which we have already narrated above, and submitted that the gifts received by the assessee from the aforesaid three persons were genuine. He submitted that the gift of Rs. 10 lakhs, received from Shri Kishan Pun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ablishing 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) Atmaram J. Manghirmalani (HUF) v. Ninth ITO [1998] 67 ITD 289, 298 (Mum.) (SMC). (iii) Dy. CIT v. Ramdeo Kumar [2004] 140 Taxman 102 (Jodh.) (Mag.). (iv) CIT v. R.S. Sibal [2004] 269 ITR 429 (Delhi). (v) Murlidhar Lahorimal v. CIT [2006] 280 ITR 512, (516 and 517) (Guj.). (vi) A. Rajendran v. Asstt. CIT [2006] 155 Taxman 364 (Mad.). (vii) CIT v. Mrs. Sunita Vachani [1990] 184 ITR 121, 122 (Delhi). (viii) CIT v. Smt. P.K. Noorjahan [1999] 237 ITR 570 (SC). 24. In reply, the ld. Departmental Representative supported the orders passed by the Assessing Officer and the ld. CIT(A). 25. We have heard the parties. Both the parties have referred to and relied upon several authorities in the course of their submissions. The decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akhs 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 Officer in this behalf by his well reasoned order. Our adjudication is, therefore, limited to the issue as to whether the departmental authorities have correctly rejected the explanation given by the assessee regarding the nature and source of the aforesaid cash credit. 26. In order to decide as to whether the impugned gifts in the present case are genuine or not, one has to look not only at the documents produced but also at the surrounding circumstances. In this connection, we may fruitfully notice and reproduce the following observations made by the Hon'ble Supreme Court in CIT v. Durga Prasad More [1971] 82 ITR 540: "It is true that an apparent must be considered real until it is shown that there are reasons to believe tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Officer treating the impugned cash credits as unexplained under section 68 of the Income-tax Act. The assessee himself has recorded cash credit of Rs. 13.25 lakhs in his books of account. It was his case that he had received gift of Rs. 10 lakhs from Shri Kishan Punjabi and remaining Rs. 3.25 lakhs from other two persons. Receipt of such large sum of money as gift from unrelated persons happens quite rarely and if it happens at all, it may happen, if one is so lucky, once or twice in his life. It is quite unlikely and against the ordinary course of human conduct that a person will suddenly receive not only one but three gifts and that too of such large sums in quick succession from three different and unrelated persons and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Shri Kishan Punjabi from filing a salary slip for the relevant period, i.e., financial year 1994-95 as that would have clearly established the financial position of Shri Kishan Punjabi but that was not done and there is no explanation before us as to why that was not done. There is no evidence on record to show that Shri Kishan Punjabi was a highly paid employee in the relevant period in which he had allegedly made the impugned gift. Then there were unexplained credits of Rs. 2,74,236 and Rs. 2,73,117 on 12-1-1994, i.e., the date on which gift of Rs. 5 lakhs was allegedly made by Shri Kishan Punjabi to the assessee. Similar is the position with regard to the gifts allegedly received from two other donors. These aspects h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 Kishan Punjabi. In Smt. Gunwantibai Ratilal v. CIT [1984] 146 ITR 140 (MP) (SLP rejected by the SC), it has been held: "Now, an affidavit is a piece of evidence, which, along with other material on record, has to be taken into consideration by the Tribunal before arriving at a finding. The decisions relied on by the assessee are distinguishable on facts. These decisions lay down that when there is no material on record to disprove the veracity of a statement made in an affidavit, a finding arrived at ignoring that statement, would be a, finding based on no evidence or a finding which no person acting judicially could have arrived at. In Mehta Parikh Co. v. CIT [1956] 30 ITR 181, the Supreme Court found that the find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 constrained by interference or impelled by outside influence. Voluntariness is a natural instinct, which can arise only between closely related persons. Such relationship is absent between the donors and the assessee in the case before us. This aspect of the matter further strengthens the case of the Department that the gifts are not genuine. 33. The learned counsel is right in his submission that the donors are identifiable and the impugned gifts have been received through cheques. But they are not by themselves sufficient to establish the genuineness of the impugned gifts if one has to have a look at the surrounding circumstances and the materials brought on record by the Department in this case. Focus of section 68 is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition 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 partial application only to closing stock. 8. Without prejudice to above, if addition is confirmed the consequential adjustment in next year's opening stock may be directed to be allowed." 35. The assessee is engaged in trading and manufacturing of gold ornaments. While examining the Tax Audit Report filed along with the return of income, the Assessing Officer noted as under: "Opening stock 10729.700 gms. Purchases 22522.300 gms. (24 ct.) Sales 7361.960 gms. Closing Stock 14890.040 gms. Note: closing stock valued as on 31st March, 1995 is 15574.200 gms. i.e., 684.160 gms. more than as the calculation shown above as the purchase are made at 24 cts. and sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepting 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 145(1) in this case was correct and the same is upheld. 42. Now coming to the quantum of addition, it is noted that the Assessing Officer has made an addition of Rs. 9,07,045 on account of under valuation of closing stock. The amount added represents the entire labour charges spent by the appellant during the year. However, after accepting that these labour charges included various other types of labour expenses besides those spent for converting the 24 ct. gold into 22 carat gold jewellery e.g., repair charges of customer's jewellery etc. and giving the finding that only some part of the labour charges must necessarily relate to the manufactured items lying in the closing stock, it was not justified on part of the Assessing Officer to have added to the income of the appellant, the entire labour expenses. In his report, the Assessing Officer has stated that the appellant had purchased 3300 gms. of primary gold of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 alternative prayer was that the closing stock taken this year should be directed to be taken as opening stock next year in case the order of the CIT(A) is upheld. 40. In reply, the ld. Departmental Representative supported the order of the Assessing Officer and of the CIT(A). 41. We have heard the parties. Perusal of para 2 of the order passed by the CIT(A) for assessment year 1998-99 shows that the representative for the assessee appearing before him had submitted that the assessee had been valuing the closing stock after including the labour charges consistently in the past. It is thus clear that the closing stock has got to be valued at the rate equal to that of 22 carat of gold and labour charges. Be whatever it may, it is not in dispute that the assessee has been valuing the stock at net realizable value, which obviously would include not only the price of 22 carat of gold but also the making charges. For pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 determined by the Assessing Officer at Rs. 500 per 10 grams. Thus, the Assessing Officer was correct in making an addition of Rs. 10,25,455 being manufacturing wages not considered in the closing stock. 4. 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 considered manufacturing wages at Rs. 418 per 10 grams and thereby erred in granting relief of Rs. 6,52, 190." 45. In the course of the assessment proceedings, the Assessing Officer noticed from the Tax Audit Report that the assessee was valuing his stock at net realizable value. He verified the position of stock for the year under appeal and noticed that the assessee has valued the closing stock of 22 carats of gold ornaments at Rs. 77,51,254 giving average rate of Rs. 4,126 per 10 grams without including the labour charges. The Assessing Officer took note of the labour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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