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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI H. S. SIDHU & SHRI O. P. MEENA
आदेश /ORDER PER O. P. MEENA, AM 1. The above captioned two appeals filed by the Revenue and Cross Objection by the Assessee are directed against the separate orders of learned Commissioner of Income tax (Appeals)-IV, Surat (in short “the CIT (A)”) dated 05.07.2011 and 05.07.2011 pertaining to Assessment Year 2007-08 and 2008-09 respectively, which in turn has arisen from the assessment order passed under section 143(3) read with section 147 dated 29.10.2010 and under section 143(3) dated 29.10.2010
Page 2 of 10 JCIT(OSD) V. Melton Pvt. Ltd. ITA. No’s.2892-2893/AHD/2011 & C.O.No’s.289-290/AHD/2011/A.Y.2007-08 & 08-09 respectively of Income Tax Act,1961 (in short ‘the Act’) by the Assistant Commissioner of Income Tax, Circle- 4, Surat (in short “the AO”).
I.T.A.No.2892/AHD/2011/A.Y. 2007-08 (By Revenue): 2. Ground No.1 relates to the deletion of addition of Rs.22,39,196/- on account of unaccounted investment and Ground No.2 relates to deletion of addition of Rs.11,77,461/- made by the AO on account of G. P. Addition on unaccounted above purchases treated as an unaccounted investment. Hence, both are being considered together.
Succinct facts are that the assessee company is engaged in the business of import of metalized polyester film/yarn and manufacturing of imitation Jari / Kasab and Badla. The return of income was filed on 11.10.2007 declaring total income of Rs.3,97,340/-, which was subsequently revised on 29.03.2008 by which income was increased buyers Rs.40,00,000 due to the disclosure made during the course of survey under section 133A. The assessment was completed under section 143(3) on 20.08.2009 by assessing total income at Rs.45,50,282/-. Thereafter, a search was carried out by the DRI on the entity premises of the assessee on 21.09.2007. Wherein it was observed that the assessee has the imported 30262.99 Kgs., and 27,477.83 Kgs of Metallic Yarn/ Jari/Kasab during A.Y. 07-08 and A.Y. 2008-09 respectively which were undervalued by Rs.3,56,18,201/- and Rs.3,25,98,980/- respectively. This information was passed on to the AO by the DRI. Therefore, a notice under section 148 of the Act was issued on 04.02.2010 for A.Y. 2007-08. During the course of assessment
Page 3 of 10 JCIT(OSD) V. Melton Pvt. Ltd. ITA. No’s.2892-2893/AHD/2011 & C.O.No’s.289-290/AHD/2011/A.Y.2007-08 & 08-09 proceedings, a show-cause notice was issued to the assessee as to why addition on account of undervaluation of goods should not be added to his income. It was explained that no incriminating documents were found from the premises of the assessee and addition was only based on presumption and statement of Shri Pragnesh Jariwala made before DRI. Further, Shri Pragnesh Jariwala has retracted the statement given before DRI. However, the AO did not accept the explanation and worked out the peak on account of unaccounted investment at Rs.62,39,196/- and after allowing deduction of Rs.40,00,000/- of the disclosure made during a survey as included in revised return, made a net addition of Rs.22,39,196/- for A.Y. 2007-08. Similarly, the peak of Rs.76,36,881/- on account of unaccounted investment of Rs.3,25,98,980/- was worked out for A.Y. 2008-09. However, after allowing credit of Rs.10,00,000/- being a disclosure of additional income in survey and included in return of income and considering the peak credit of Rs.62,39,196/- of considered in A.Y. 2007-08, made net addition of Rs.3,97,485/- for the assessment year 2008-09. Similarly, the AO has made the addition of Rs.11,77,461/- on account of undervalued purchases of imported goods of Rs.3,56,18,201/- by concluding that the assessee has undervalued the goods and sold them in cash in open market. Therefore, the AO was of the opinion that profit on such unrecorded sales was required to be taxed. Accordingly, the AO made Gross Profit addition of Rs.11,77,461/- on account of unaccounted investment of Rs.3,56,18,201/- for A.Y. 2007-08 and Gross Profit Rs.6,82,266/- for A.Y. 2008-09 of unaccounted investment of Rs.3,25,98,980/-.
Page 4 of 10 JCIT(OSD) V. Melton Pvt. Ltd. ITA. No’s.2892-2893/AHD/2011 & C.O.No’s.289-290/AHD/2011/A.Y.2007-08 & 08-09 4. Being, aggrieved, the assessee filed an appeal before the Ld. CIT (A). However, the ld. CIT (A) has deleted the addition made by the AO by observing that the AO has not mentioned any independent investigations carried out by him, which lead to the findings of making the addition. He has simply relied upon the information received from the Customs authorities regarding the search action conducted by the officers of the DRI. However, after receiving information from the customs Dept., the AO should have conducted enquiries to satisfy himself of the truth. It, however, appears that no such exercise was done by the AO and thereafter, no independent findings of the AO for reaching to the conclusion that the appellant had made any such unaccounted payments for goods imported from Japan. It is, further seen that DRI has relied upon the statement of Sri Pragnesh Jariwala, and this statement was too retracted by the deponent and the AO has not recorded any statement of the appellant himself. The learned CIT (A) has also supported his view by placing reliance in the case of Vinod Solanki [Civil Appeal No.7407 of 2008] wherein the Honourable Supreme Court has held that evidence brought on record by way of admission statement or completion must be substantially corroborated by the other independent and cogent evidences. Similar view was also expressed by the Honourable Gujarat High Court in the case of Narendra Chandulal alias Babubhai Badgai [Tax Appeal No. 370 of 1999]. Respectfully following the ratio of above decisions, the addition was made solely on the statement recorded by them, which was also later retracted by the deponent, without conducting enquiries and without bringing any corroborative material on
Page 5 of 10 JCIT(OSD) V. Melton Pvt. Ltd. ITA. No’s.2892-2893/AHD/2011 & C.O.No’s.289-290/AHD/2011/A.Y.2007-08 & 08-09 record, the CIT (A) has deleted the aforesaid addition. Similarly, the gross profit addition of Rs.11,77,461/- made on account of undervalued purchases of imported goods of Rs.3,56,18,201/- was also deleted as the addition on account of unexplained investment made on the basis of the allegation of undervaluation of import was deleted. Similarly, on same basis, unaccounted investment of Rs.3,97,485/- and Gross Profit addition of Rs.6,82,266/- on such unaccounted purchases for the assessment year 2008-09 was also deleted.
Being aggrieved, the Revenue has filed this appeal before the Tribunal. The learned D.R. vehemently supported the order of the AO.
On the other hand, the Ld. AR of the assessee filed a copy of the order of Custom, Excise & Service Tax Appellate Tribunal, Mumbai Bench [CESTAT] in the case of the assessee in Appeal No. C/899-901/09 in Order No. A/86514-86516/16/CB dated 17.03.2016 wherein the CESTAT has allowed the appeal of the assessee by holding that the allegation of undervaluation of purchases did not establish. The Ld. AR also filed a copy of the order giving appeal effect to order of CESTAT by the Assistant Commissioner of Customs, CRC-I, JNCH, N.S. III dated 14.02.2018 wherein he has issued/granted the refund of customs duty paid by the assessee on the alleged undervaluation of imported goods under consideration. Therefore, it was contended that the very basis on which the addition was made by the AO is stands deleted by the CESTAT, therefore, the addition based solely on their information does
Page 6 of 10 JCIT(OSD) V. Melton Pvt. Ltd. ITA. No’s.2892-2893/AHD/2011 & C.O.No’s.289-290/AHD/2011/A.Y.2007-08 & 08-09 not survive in the income tax proceedings. Hence, the Ld. CIT(A) has rightly deleted the addition made by the AO.
We have heard the rival submissions and perused the relevant material on record. We find that the AO has made addition based on the information received from DRI wherein it was alleged that the assessee has imported goods from M/s.Brightext Corporation of Japan, which were undervalued by the assessee. However, we observe that the AO has not made any independent enquiries, and solely relied on the information received from custom authorities and treated the undervaluation of imported goods as an unaccounted investment and thereby made peak addition on account of the same. Further, the AO also made a Gross Profit addition by treating the said unaccounted purchases as sales made by the assessee in cash and thereby estimating the gross profit and made the addition accordingly. However, we find that the Ld.CIT(A) has deleted the said addition by observing that the AO has made addition solely on the basis of information from Customs Authorities and the statement of Shri Pragnesh Jariwala director of the assessee company, made before DRI. Further, the deponent has retracted from the said statement. Therefore, the addition made based on information from Customs Authorities, without making any independent enquiries is not tenable in law. Hence, the Ld. CIT (A) has rightly deleted the same. We, further, note that the Ld.CIT(A) has also supported his view by placing reliance in the case of Vinod Solanki [Civil Appeal No. 7407 of 2008] wherein the Honourable Supreme Court held that evidence brought on record by way of admission statement or confessional must be substantially
Page 7 of 10 JCIT(OSD) V. Melton Pvt. Ltd. ITA. No’s.2892-2893/AHD/2011 & C.O.No’s.289-290/AHD/2011/A.Y.2007-08 & 08-09 corroborated by the other independent and cogent evidences. The Honourable Gujarat High Court in the case of Narendra Chandulal alias Babubhai Badgai [Tax Appeal No.370 of 1999] also expressed the similar view. We further observe that Hon`ble Custom, Excise & Service Tax Appellate Tribunal, Mumbai Bench [CESTAT] in the case of the assessee in Appeal No.C/899-901/09 vide Order No.A/86514-86516/16/CB dated 17.03.2016 (PB-8 to 34) has allowed the appeal of the assessee by holding that the allegation of undervaluation of imported goods did not establish and directed the Customs Authority to grant the refund of customs duty collected by them. We also note that the Assistant Commissioner of Customs, CRC-I, JNCH, N.S. III dated 14.02.2018(PB-1 to 7) has passed an order granting the refund of customs duty/ penalty etc. recovered from the assessee on the alleged undervaluation of impugned imported goods, on which the AO has made an addition on account of peak investment and gross profit which are challenged in this appeal before us. In view of these facts and circumstances, we are of the considered view that when the very basis on which the addition was made by the AO is stands deleted by the CESTAT in appeal by the assessee, therefore, the addition based on their information does not survive hence, the issue is covered in favour of the assessee. In view of the foregoing discussions and findings, we hold that the impugned order is unsustainable in in law and therefore, Ld.CIT(A) has rightly deleted the above additions made on account of unaccounted investment and gross profit. In view of this, the Ground Nos.1 and 2 of the appeal of the Revenue are therefore dismissed.
Page 8 of 10 JCIT(OSD) V. Melton Pvt. Ltd. ITA. No’s.2892-2893/AHD/2011 & C.O.No’s.289-290/AHD/2011/A.Y.2007-08 & 08-09 8. In the result, the appeal of the Revenue for A.Y. 2007-08 is dismissed.
I.T.A.No. 2893/AHD/2011/A.Y. 2008-09 (By Revenue): 9. Ground No.1 relates to the deletion of addition of Rs.3,97,485/- on account of the peak of unaccounted investment and Ground No. 2 relates to deletion of addition of Rs.6,82,266/- made by the AO on account of G. P. Addition on account of above purchases treated as an unaccounted investment. Hence, both are being considered together.
We have heard the rival submissions and perused the relevant material on record. Both the parties are agreed that the facts and the additions are identical as made in the assessment year 2007-08 except figures, and therefore, our findings as given in respect of the assessment year 2007-08 in I.T.A.No. 2892/AHD/2014 A.Y. 2007-08 would mutatis mutandis apply to this assessment year also. Therefore, respectfully following the findings as given in the above part of this order for the assessment year 2007-08, by us, the grounds of appeal No.1 & 2 for the assessment year 2008-09 are accordingly, dismissed.
In the result, the appeal of the Revenue for A.Y. 2008-09 is dismissed.
C.O. No’s. 289 & 290/AHD/A.Y. 2007-08 & 2008-09 (By Assessee): 12. Ground No. 1 & 2 of CO No. 289 & 290 relates to confirming addition of Rs.40,00,000/- for A.Y. 2007-08 and Rs.10,00,000/- for A.Y. 2008-09 being disclosure made during survey.
Page 9 of 10 JCIT(OSD) V. Melton Pvt. Ltd. ITA. No’s.2892-2893/AHD/2011 & C.O.No’s.289-290/AHD/2011/A.Y.2007-08 & 08-09
We have heard the rival submissions and perused the relevant material on record. We find that during the course of the survey carried out under section 133A at the business of the assessee, the director of the assessee made disclosure of additional income of Rs.40,00,000/- and Rs.10,00,000/- for the assessment year 2007-08 and 2008-09 respectively. The assessee has filed a revised return of income on 29.03.2008 be by declaring income of Rs.40,00,000/- for the assessment year 2007-08 and also filed an original return of income on 30.08.2008 whereby including disclosure amount of Rs.10,00,000/- for the assessment year 2008-09. Considering the facts that the assessee has himself suo-moto included the disclosure amount in his return of income filed, therefore, the assessee should not have any grievance with regard to the returned income furnished by it. In view of this fact, we do not find any merits in the grounds of appeal raised by the assessee in CO. No.289 and 290. Accordingly, both the grounds of the CO are, therefore, dismissed.
Ground No. 2 & 3 of C.O.No. 289 & 290 relates to the charging of interest under section 234A/B/C and initiation of penalty under section 271(1)(c) of the Act.
We have heard the parties and of the considered opinion that charging of interest under section 234A/B/C is mandatory as held by the Hon`ble Supreme Court in the case of Anjum M.H.Ghaswala 252 ITR 1 (SC). Further, the initiation of penalty proceedings are premature at this
Page 10 of 10 JCIT(OSD) V. Melton Pvt. Ltd. ITA. No’s.2892-2893/AHD/2011 & C.O.No’s.289-290/AHD/2011/A.Y.2007-08 & 08-09 stage, and also of consequential in nature. Therefore, these grounds of appeal are accordingly, dismissed.
In the result, both above CO.No’s.289 & 290 are accordingly, dismissed.
In the result, the appeal of the Revenue appeal for A.Y. 2007-08 and 2008-09 and CO of the assessee for A.Y. 2007-08 and 2008-09 are therefore, dismissed.
The order is pronounced by listing the case on the Notice Board under Rule 34(4) of Income Tax Appellate Tribunal Rules 1963. Sd/- Sd/- (H. S. SIDHU) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat: Dated: 27th Aug, 2019/opm Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat