IT : Value of diamond jewellery received by assessee from family members and partners only for exhibition and covered under VDIS could not be added to assessee's income as unexplained investment in jewellery
IT : Surcharge under section 113 is mandatory
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[2013] 38 taxmann.com 215 (Allahabad)
HIGH COURT OF ALLAHABAD
Commissioner of Income-tax-I, Lucknow
v.
Raj Jewellers*
Sibghat Ullah Khan AND DR. SATISH CHANDRA, JJ.
IT Appeal No. 82 of 2008†
JULY 9, 2013
I. Section 69 of the Income-tax Act, 1961 - Undisclosed investment [Jewellery covered under VDIS] - Block period 1-4-1990 to 16-1-2001 - Assessee-firm dealing in manufacturing and sale of jewellery participated in jewellery exhibition where a search was conducted upon it - On basis of material, Assessing Officer made addition on ground of unexplained investment in diamond jewellery - On appeal, both appellate authorities observed that said jewellery was received by assessee from partners and family members only for exhibition and same had been declared under VDIS or in wealth tax return before date of search - Further, assessee's contention that diamond jewellery was remade after receiving gold from one 'T' was substantiated by a bill for labour charge and entries in books of account maintained by assessee before date of survey/search - Whether, on facts, addition for undisclosed investment was to be deleted - Held, yes [Para 8] [In favour of assessee]
II. Section 113 of the Income-tax Act, 1961 - Block assessment in search case - Tax in case - Whether surcharge under section 113 is mandatory and same is applicable with retrospective effect - Held, yes [Para 11] [In favour of revenue]
CASE REVIEW
CIT v. Rajiv Bhatara [2009] 310 ITR 105/178 Taxman 285 (SC) and CIT v. Suresh N. Gupta [2008] 297 ITR 322/166 Taxman 313 (SC) (para 11) followed.
CASES REFERRED TO
Karnani Properties Ltd. v. CIT [1971] 82 ITR 547 (SC) (para 6), CIT v. R.M.L. Malhotra [2010] 35 DTR 160 (All.) (para 6), CIT v. Smt. Usha Tripathi [2001] 249 ITR 4/116 Taxman 838 (All.) (para 6), Kamala Ganapathy Subramaniam v. CED [2002] 253 ITR 692/121 Taxman 615 (SC) (para 9), CIT v. Rajiv Bhatara [2009] 310 ITR 105/178 Taxman 285 (SC) (para 11) and CIT v. Suresh N. Gupta [2008] 297 ITR 322/166 Taxman 313 (SC) (para 11).
D.D. Chopra for the Appellant. S.K. Garg for the Respondent.
ORDER
Dr. Satish Chandra, J. - Present appeal has been filed by the department under Section 260-A of the Income Tax Act, 1961, against the judgment and order dated 30.04.2007 passed by the Income Tax Appellate Tribunal, Lucknow, in I.T.A. No.563/Luc/2003 for the Block Period 01.04.1990 to 16.01.2001.
2. On 14.07.2009, a Coordinate Bench of this Court has admitted the appeal on the following substantial questions of law:—
| "(i) | Whether on the fact and circumstances of the case Income Tax Appellate Tribunal was correct in deleting the addition made by the Assessing Officer on account of unexplained investment in diamond jewellery when the anomaly between the item wise tally of diamonds so found at the time of survey/search operation and that declared under the Voluntary Disclosure of Income Scheme, 1997, remained unexplained. | |
| (ii) | Whether on the fact and circumstances of the case Income Tax Appellate Tribunal was justified in deleting the surcharge levied under section 113 of the Act by holding that the insertion of proviso to Section 113 of the I.T. Act by the Finance Act, 2002 w.e.f. 01.06.2002 was not clarificatory in nature in view of the decision of the Hon'ble Supreme Court in the case of CIT v. Suresh N. Gupta reported in 297 ITR, page 322 and also the order of this Hon'ble Court dated 21.02.2008 passed in CIT (Central), Kanpur v. Lakhan Lal Ahuja, Lucknow in ITA No.121 of 2006." |
3. The brief facts of the case are that the assessee is a partnership firm dealing in manufacturing and sale of jewellery. From 13-15.January, 2001, an exhibition of jewellery was held in Taj Hotel in the name of "Swarn Sanbandh", where 16 jewellers, including the assessee have participated. On 15.01.2001, a survey was conducted against all the participants of the exhibition including the assessee. Regarding the assessee, the survey action was converted into the search and seizure operation. The said search and seizure operation was carried out at the residential and business premises of the assessee. On the basis of the material, finally, the A.O. has made an addition for Rs.47,00,190 on account of unexplained investment in diamond jewellery. But the CIT(A) as well as the Tribunal had deleted the said addition. Still not being satisfied, the department has filed the present appeal.
With this background, Sri D.D. Chopra, learned counsel for the department has justified the action of the A.O. He submits that the assessee was asked to explain diamond holdings. In reply, the assessee stated that diamonds in question were covered under VDIS, declared in the earlier year and also included a purchase from Surat. The assessee had produced a receipt from M/s Aashi Diamond, Surat and also a voucher book with 7 vouchers filled up, showing receipt of diamonds from family members and the partners of the assessee and its transferred from M/s Trubhuwan Dass Bhim Ji Zavery of Pune for being set in gold. The gold sent by Javery Brothers, was entered in the stock register. The A.O. stated that explanation given by the assessee was not convincing.
4. Learned counsel further submits that the diamonds allegedly received from family members were neither entered in the stock register nor shown in the stock register on its return from Javery Brother as incoming stock of the firm. Therefore, diamonds found were not reflected in the books of the account maintained by the assessee. Learned counsel also submits that the value of diamonds was evaluated by the approved departmental valuer which is far more than what could have reasonably been attributed to the diamonds purported to have been declared during VDIS. There was no description regarding VDIS that from where the said jewellery is said to have been acquired. According to the learned counsel, individual items of the jewellery declared under VIDS, 1997 in different names contain entirely different number of pieces of diamond than the number of pieces claimed to have been actually received for remaking. So, the jewellery found during the survey/ search was not a part of the jewellery declared under VDIS by the family members. He also submits that diamond jewellery set in gold received from Tribhuwan Dass Bhim Ji Zavery on the date of exhibition, was not the same jewellery as the said jewellery belonged to the partner and family members. It was not entered in the stock register. Lastly, he justified the A.O. order.
5. On the other hand, Sri S.K. Garg, learned counsel for the assessee justified the appellate orders. For this purpose, he read out the Tribunal order, where it was observed that:—
"there is no mention in any of the documents so seized giving description of quality of diamond jewellery or studded diamond in pieces. In the declaration as well as in the wealth tax statement and also in the vouchers issued by the assessee and also vouchers received from Tribhuwan Dass Bhim Ji Zavery, diamond weight was given in ct. and no number of pieces were indicated. Similarly, in case of purchase of diamond from M/s. Asshi Diamond of 100.25 ct., number of pieces of diamond are not stated. Considering the issue before us in the light of the above facts, we are of the considered view that the Ld. CIT(A) has rightly held that diamond jewellery weighing 427.29 cts. Studded with gold is the same jewellery which was received by the assessee from its partners and family members and said jewellery was declared by them under VDIS, 1997 besides declaration of 78 cts. By Sri Ramesh Chandra Gupta in his wealth tax return before the date of search."
6. Further, learned counsel read out the order of the CIT(A), where it was observed that:—
"Despite the fact that no unaccounted diamond jewellery was found, the learned Assessing Officer made the addition on the ground that the appellant disclosed the value as on 01.04.1987 under the VDIS' 1997, the assesses in general understated the value of the assets disclosed and paid nominal income-tax. If the appellant has also taken advantage of the loopwhole in the VDIS' 1997 scheme, the department cannot make addition on this ground, when the quantum of diamond jewellery diamond tallied. For computing undisclosed income one has to look into the cost of investment and not the market price of the assets. The learned Assessing Officer was wrong in determining the market price for computing undisclosed income. As all the transactions were recorded books of account in the regular course of business, the question of computing any undisclosed income does not arise. Consequently, the addition of Rs.47,00,190 is deleted."
He also submits that the appellate authorities have given the concurrent findings as per the ratio laid down in the case of Karnani Properties Ltd. v. CIT [1971] 82 ITR 547 (SC). The findings of the appellate authorities are relevant. He also relied on the ratio laid down in the case of CIT v. R.M.L. Malhotra [2010] 35 DTR 160 (All.) and CIT v. Smt. Usha Tripathi [2001] 249 ITR 4/116 Taxman 838 (All.).
7. We have heard both the parties at length and gone through the material available on record including the written submissions, it is an undisputed fact that the partners and family members have enjoyed the immunity by filing the declaration under VDIS, 1997. The partners and family members had given the jewellery to the assessee firm only for exhibition. The assessee firm, soon after receiving the jewellery had issued the vouchers. It is pertinent to mention that in the exhibition, no jewellery was put for sale, it was only to display. If any customer likes, he may place the order and the similar jewellery can be prepared. Thus, on the counter, there was no sale.
8. The vouchers were seized during the course of search, so the genuineness of the vouchers can not be questioned. The Tribunal in its order has given the details of the vouchers after examining the same as well as the wealth tax statement of the partners. Both the appellate authorities have observed that diamond jewellery weighing 427.29 cts. studded with gold is the same jewellery which was received by the assessee from partners and family members and the said jewellery was declared by them under VDIS or in wealth tax return before the date of survey/search. Further, assessee's contention that diamond jewellery was remade after receiving the gold from M/s Tribhuwan Dass Bhim Ji Zavery, is substantiated by a bill for labour charge and the entries in regard thereto was also found recorded in the books of account maintained by the assessee before the date of survey/search as mentioned by the Tribunal.
9. Needless to mention that the Tribunal is final fact finding authority as per the ratio laid down by the Hon'ble Apex Court in the case of Kamala Ganapathy Subramaniam v. CED [2002] 253 ITR 692/121 Taxman 615. When it is so, then we find no reason to interfere with the impugned orders passed by the appellate authorities and the same are hereby sustained along with the reasons mentioned therein.
10. The answer to the first substantial question of law is in favour of the assessee and against the department.
11. Regarding the second substantial question of law, it may be mentioned that in the case of CIT v. Rajiv Bhatara [2009] 310 ITR 105/178 Taxman 285 (SC) as well as in the case of CIT v. Suresh N. Gupta [2008] 297 ITR 322/166 Taxman 313, Hon'ble Supreme Court observed that:—
"the surcharge under Section 113 of the Act is mandatory and is applicable with retrospective effect"
When it is so, then we set aside the impugned orders passed by the appellate authorities and restore the order of the A.O. in this regard.
12. The answer to the second substantial question of law is in favour of the revenue and against the assessee.
13. In the result, the appeal is partly allowed.
Regards
Prarthana Jalan
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