R.C. Jewellers vs CIT

Dr. Satish Chandra, J.—Both the present appeals have been filed by the assessee u/s 260A of the Income Tax Act, 1961 against the consolidated judgment and order dt. 14-8-2008, passed by the Tribunal, Lucknow in ITA Nos. 496/A11/2000 and 214/Luck/2003, for the block period 10-4-1987 to 14-5-1997.

On 17-10-2008, a Co-ordinate Bench of this court has admitted the Appeal No. 168 of 2008 on the following substantial questions of law:

"(i) Whether on a true and correct interpretation of the provision of section 69 of the Act, the Tribunal was legally correct in holding that the assessee had made investment in purchase of gold ornaments of the value of Rs. 14,01,171, even though the related quantity of gold ornaments had undisputedly been purchased from various parties on credit, duly supported by relevant bills and vouchers as issued by them ?

(ii) Whether on the facts and circumstances of the case, the Tribunal was legally correct and competent to reserve the order of the first appellate authority so as to have the effect of upholding the addition of Rs. 14,01,171 as had been made in the block assessment, by invoking the provision of section 69 of the Act?

(iii) Whether the view taken by the Tribunal, is not vitiated in law as being based solely on caprice, surmises and conjectures, in utter disregard of the relevant material and information that was available on record that had duly been considered by the first appellate authority, while deleting the addition ?

(iv) Whether without there being any positive infirmity in the order of the first appellate authority, the Tribunal was legally correct in reserving his order, by making a new case based on its imagination and that too for the first time ?"

On 17-10-2008, the same Co-ordinate Bench of this court has admitted the Appeal No. 169 of 2008 on the following substantial questions of law:

"(i) Whether on the facts and circumstances of the case particularly that seized material/copies of the seized material were not made available to the assessee, in time, the Tribunal was legally correct in holding that the provisions of section 158BFA(1) are applicable ?.

(ii) Whether on a true and correct interpretation of the provisions of section 132B as are applicable to the assets seized during the course of search/requisition, the assessee could be held to have made any default in payment of taxes, as per the demand raised by the assessing officer and levy of interest thereupon, is valid in the eyes of law?"

The brief facts of the case are that the assessee firm is carrying on the business of sale and purchase of gold and silver jewellery. The assessee firm is also engaged in repair and remaking of old ornaments. On 14-5-1997, a search and seizure operation was carried out at the business premises of the firm and at the residences of the partners. On the basis of seized material, block assessment for the period mentioned above, u/s 158BC, was passed where various additions were made. However, in first appeal, the Commissioner (Appeals) has deleted certain additions. Being aggrieved, the assessee as well as the Department have filed cross-appeals. The Tribunal vide its impugned order has partly allowed the appeal filed by the Revenue and dismissed the appeal filed by the assessee. Not being satisfied, the assessee has filed both the present appeals.

With this background, Sri Sanjeev Sankhadhar, learned counsel for the assessee submits that an addition of Rs. 14,01,171, on account of unexplained/unaccounted jewellery was wrongly made. The said jewellery was found during the search. During the search, total jewellery was found 10,245.590 gms., out of which 6,486.630 gms., was matched in the books of account. Accordingly, balance jewellery i.e. 3,758.860 gms. was seized.

It is also a submission of the learned counsel that the jewellery belongs to six parties of Amritsar. So, the assessing officer has made a reference to the Dy. Director of IT (Inv.), Amritsar, who issued the summons to all the six parties and recorded their statements on various dates and forwarded the same to the assessing officer along with his report dt. 17-5-1999. It is the stand of the assessee that the said jewellery was taken on credit from the six parties of Amritsar.

Learned counsel submits that all the parties are in existence and each of them had confirmed that they have delivered the gold ornaments to the assessee as per vouchers issued by them. These six parties are namely:

(i) Sri Manjeet Singh, proprietor of M/s. Dhunna Jewellers & Co.;

(ii) Sri Surender Singh, proprietor of M/s. Surender Singh & Co.;

(iii) Sri Rajeev Kumar, proprietor of M/s. Sabberwal Brothers;

(iv) Sri DaMnder Singh, proprietor of M/s. Manpreet Jewellers;

(v) Sri Surender Kumar, proprietor of M/s. Hansraj Surender Kumar;

(vi) Sri Jasvinder Singh, proprietor of M/s. Govind Jewellers.

Further, it is a submission of the learned counsel that the assessee has made a claim that each one of them had categorically confirmed having delivered gold ornaments to the assessee. None of the above dealers has been able to prove his creditworthiness. Merely on. the ground of creditworthiness, an addition cannot be made. He read out the statements made by each party of Amritsar. Lastly, he submits that the source of excess stock of gold ornaments was attributable to six parties of Amritsar who had physically delivered the ornaments to the assessee firm and assessee firm itself had not made investment therein, which could be subjected to taxation in its hands u/s 69 of the Act. While deciding the issue, the assessing officer nowhere disputed the source of investment in gold ornaments, over and above the gold ornaments supplied by the six Amritsar parties, and, therefore, the addition representing the value of stock may kindly be deleted. In support of his arguments, he-relied on the ratio laid down in the following cases:

(i) Rajesh Babubhai Damania Vs. Commissioner of Income Tax,

(ii) Rameshchandra M. Luthra Vs. Assistant Commissioner of Income Tax,

(iii) Nirman Textile Mills P. Ltd. Vs. Assistant Commissioner of Income Tax,

(iv) Lanco Packers v. State of Tamil Nadu (1999) 113 STC 40 (Mad); and

(v) N. Sukumaran v. State of Kerala (1999) 113 STC 38.

So, he made a request that the addition of Rs. 14,01,171 may kindly be deleted.

On the other hand, Sri Alok Mathur, learned standing counsel for the Department has justified the impugned order. At the strength of written submission, he submits that entire circumstances including creditworthiness of the six jewellers from Amritsar was considered in detail by the Tribunal. M/s. Dhunna Jewellers & Co. never filed return of income and Sri Manjeet Singh explained that his father had very little income and was not liable to income tax. Sri Mohan Singh was suffering from kidney failure prior to his death and he was surviving on dialysis for the last 3-4 months and could not have travelled so long to deliver gold worth rupees four lakhs to a party at Lucknow specially when the chances for recovery was blink.

M/s. Surinder Singh & Co. did not maintain books of accounts. He claimed that he visited Lucknow along with Sri Mohan Singh but it was not accepted by Dy. Director of IT (Inv.) because Sri Mohan Singh himself was on the deathbed and the transaction was not considered genuine.

M/s. Sabberwal Brothers never found to have any transactions with the assessee in the past and on perusal of their balance sheet for the assessment year 1998-99, it appears that the assessee was not shown as a debtor to the party and therefore, the creditworthiness was not verifiable.

M/s. Manpreet Jewellers was not produced for cross-examination and even though he admitted to have given jewellery to the assessee but it was not recorded in the books.

M/s. Hans Raj Surinder Kumar was also not produced for cross-examination and therefore his version was not believed by the assessing officer.

M/s. Govind Jewellers did not maintain any books of accounts, stock register and also did not have any transaction with the assessee before or after April, 1997 and therefore, his claim that he has given jewellery to the assessee was not believed.

Learned counsel also submits that the Tribunal has considered the fact that during the search, the assessee had given names for Amritsar parties and three Lucknow/Kanpur parties whose jewellery was lying with them but later, during the assessment proceedings, a claim was confined to the six parties of Amritsar only. Further, it is submitted that no document was found during the course of search which could prove that assessee had received jewellery from Amritsar parties. After considering the entire material on record and the statements recorded, including the report of Dy. Director of IT (Inv.), Amritsar, the Tribunal has rightly held that "the credit of gold ornaments shown in the names of six Amritsar parties is not established and therefore, the explanation furnished by the assessee is not found acceptable", and therefore, reversed the order of the Commissioner (Appeals). Lastly, he made a request for the dismissal of the appeals filed by the assessee.

After hearing both the parties and on perusal of the record, it appears that the substantial questions of law admitted by the Co-ordinate Bench prove that it is a dispute pertaining to the question of facts. The creditworthiness is a mixed question of fact and law. In the instant case, the creditworthiness of six parties of Amritsar has already been discussed in detail by the lower authorities including the Tribunal. Finally, it was observed that they were not having the creditworthiness. Most of them are not assessed to tax and even if one or two are assessed to tax, their worth is low, even lower than the jewellery lent by them to the assessee. There is no evidence of genuine transaction with the assessee except in one or two cases. Their records as noted by the assessing officer, do not reflect assessee as debtor. The source of acquiring jewellery in the hands of lenders is not established. Though they might be small-time Karigars making jewellery but it is not believed or at least not established that they are in a position to lend so much of jewellery to the assessee on credit. It appears that new gold ornaments were given and old gold ornaments were taken by the Amritsar parties. So, there is nothing left for squaring up in future.

In the peculiar facts and circumstances of the case, we are not convinced that the Amritsar parties have given jewellery on credit basis to the assessee. No entry was found in the books of account maintained by the assessee or party concerned. Nothing was reflected in the books of account of the six creditors. The Tribunal has observed in its impugned order that the Amritsar parties might have given new jewellery to the assessee in lieu of old jewellery. But it is not convinced that it was given on credit basis.

The Tribunal rightly held that the credit of the gold ornaments by the six Amritsar parties is not established and, therefore, the explanation furnished by the assessee is not found acceptable. When it is so then, there is no reason to interfere with the impugned order passed by the Tribunal. For the purpose, the same is hereby sustained along with reasons mentioned therein.

Another substantial question in IT Appeal No. 169 of 2008, it is pertaining to the addition of Rs. 20,000. During search, at the shop, a cash of Rs. 42,600 was found. It was shown that the same has two components, namely, Rs. 22,600 representing the part of cash in hand as per cash book. So, no addition was made out. However, regarding the remaining Rs. 20,000 it was claimed that the same was deposited by one Sri B.P. Saxena as explained in the statement by Sri Kanhaiya Lai, at the time of search. In the statement recorded during the course of search, Sri Kanhaiya Lai, one of the partners has stated that Rs. 20,000 belonged to one Sri B.P. Saxena who has given for the payment of an air-conditioner to M/s. Air Care. During the course of assessment proceedings, assessee was asked to produce Sri B.P. Saxena for the verification of this fact. In spite of ample opportunities given, neither Sri Saxena was produced nor any other documentary evidence was filed in support of the claim. So, the addition of Rs. 20,000 was made. However, the Commissioner (Appeals) and the first appellate authority have restored the matter to the file of the assessing officer for fresh consideration and the assessing officer has passed fresh assessment order vide its order dt. 13-3-2002, where it was again confirmed.

By considering the totality of the facts and circumstances of the case, it appears that the assessee firm is engaged in the trading of gold items and the gold ornaments and certainly, not in air-conditioners or electrical goods. Sri B.P. Saxena never appeared before the lower authorities. No relationship was established. So, we are of the view that there is no reason why Sri B.P. Saxena would like to give the money. This mystery was never solved.

In these circumstances, we find no reason to interfere with the impugned order passed by the lower authorities where the addition of Rs. 20,000 was sustained.

Regarding the another substantial question of law, it appears that the issue is pertaining to charging of the interest under sections 158BFA(1) and 220(2) of the Act.

It may be mentioned that no authority has power to reduce or waive the interest levied u/s 158BFA for the block assessment as per the ratio laid down in the case of New Punjab Skin Co. Vs. Union of India (UOI) and Others, In other words, the charging of interest is mandatory. When it is so, then grounds taken by the assessee have no merit. The same is hereby rejected.

Thus, both the appeals filed by the assessee have no merit. Hence, the impugned order passed by the Tribunal is hereby sustained along with the reasons mentioned therein.

The answer to the substantial questions of law is in favour of the Revenue and against the assessee.

In the result, both the appeals filed by the assessee are hereby dismissed.