COMMISSIONER OF INCOME TAX-I. vs. M/S. SHREE MUKT JEWELLERS

O/TAXAP/661/2007 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 661 of 2007

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI Sd/-

and HONOURABLE MR.JUSTICE K.J.THAKER Sd/-

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? No 2 To be referred to the Reporter or not ? No 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? No 5 Whether it is to be circulated to the civil judge ? No ================================================================ COMMISSIONER OF INCOME TAX-I.....Appellant(s) Versus M/S. SHREE MUKT JEWELLERS....Opponent(s) ================================================================ Appearance: MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1 MR RK PATEL, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and Page 1 of 9

O/TAXAP/661/2007 JUDGMENT HONOURABLE MR.JUSTICE K.J.THAKER

Date : 12/12/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE K.J.THAKER) 1. By way of this Appeal, the Revenue has preferred this Appeal feeling aggrieved by the order passed by the Income Tax Appellate Tribunal accepting the Appeal of the Assessee. 2. The brief facts as they cull out from the record are as follows :- In the course of assessment proceedings, the Assessing Officer examined the rate of valuation of closing stock of gold ornaments, but did not examine whether the entire quantity of stock available with the assessee was reflected in the closing stock. In the closing stock statement, the assessee had reduced 1254.840 grams of gold stock under the description 'customer's gold'. It is the case of the assessee that the Assessing Officer never enquired into the genuineness of the claim that this stock of gold did not belong to the assessee and belonged to some identifiable customers. It is further the case of the assessee that the Assessing Page 2 of 9

O/TAXAP/661/2007 JUDGMENT Officer did not enquire into the quantity of gold stock shown in the hypothecation statement furnished to Swaminarayan Co-op. Bank Ltd., according to which the quantity of gold stock hypothecated to the Bank was 22468.55 gms, giving a difference of 1271.09 gms. The CIT accordingly cancelled the order of the Assessing Officer with a direction to examine these aspects de novo. On appeal by the assessee, the Tribunal held that the assessee had specifically excluded the quantity of customer's stock in the details submitted before the Assessing Officer. Based on this, the Appellate Tribunal had concluded that there was no error in the order of the Assessing Officer which could provide basis for invoking Section 263. 3. While admitting this Appeal, the following question of law was raised :- “Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in setting aside the order of the CIT u/s. 263 by holding that there was no error in the relevant order of the Assessing Officer, without appreciating the fact that Page 3 of 9

O/TAXAP/661/2007 JUDGMENT the Assessing Officer had not gone into the genuineness of the claim regarding customer's stock and nor carried out reconciliation between the stock shown in the books and that declared to the bank in the hypothecation statement?” 4. Going to the facts, it is an admitted position of fact that the Tribunal has given a finding of fact in Paragraphs 4 and 5, which reads as follows :- “4. We have heard the parties, and perused the material on record as well as case law cited. The law in the matter is clear; in order to be subject to reversionary jurisdiction of the CIT, an order is to be erroneous, resulting in prejudice to the Revenue. The error can be of an incorrect assumption of fact or incorrect application of law. If the matter, after consideration, has been accepted by the Assessing Officer, adopting an particular view, simply because another view is possible, would not make it fit for invocation of section 263. In the present case, the Assessing Officer, on verification of the assessee's stock record, found it to include the customer's goods accepted by it against orders received in the regular course of its business. The same stood excluded from the valuation of its closing stock as at the year end. Page 4 of 9

O/TAXAP/661/2007 JUDGMENT The assessee, however, while returning the figures of its stock to its bankers, from whom overdraft facility against stock stood enjoyed, reported a higher borrowing capacity to its bank. However, the relevant stock has been confirmed to be of the customers, and not of the assessee itself. We fail to understand as to how the same can be taken to be a part of the assessee's stock-in- trade, and thus, income (u/s. 69/913). In Coimbatore Spinning & Weaving Co. (supra), Hon'ble Madras High Court only held that such a practice should be discountenanced; the onus on the assessee to prove that the investment is, in fact, his, is heavy lest an adverse inference becomes sustainable in law. The two decisions relied upon by the Ld. CIT, in fact, do not support his impugned order. In CIT vs. M.M. Khambatwala 198 ITR 144 (supra), it stands held that only because the issue involved is a debatable one, would not be preclude it from being subject to supervisory

jurisdiction

of section 263. In that case, the Assessing Officer (AO) had taken a view by upholding the assessee's claim(s) without showing as to how be found it acceptable, so that there was nothing to show a correct application of law. The case of Gabriel India Ltd. (supra), in fact, supports the assessee's case in as much as Page 5 of 9

O/TAXAP/661/2007 JUDGMENT there is nothing to show that the order passed is not in accordance with law. As explained by the court in this case, only as the L'd. CIT thinks that the order ought to have been elaborately written or held as different view, would not make it a order fit for revision u/s. 263. There must be some material to show that the tax correctly leviable as escaped assessment. In the present case, the bank statements were found to be in agreement with the assessee's stock record which included the customer's gold, and it acceptance as only incident to the assessee's trade. Further, details of the same stood called for, furnished and examined. In fact, the total of the customer's gold, at 1255 grams, out of total stock of 22307 grams as on 31.02.2000, is too nominal to support a practice of the assessee of engaging inflating its stock to avail ineligible credit from its bank, i.e. as inferred by the Ld. CIT has, in our opinion, not correctly

inferred,

an examination of the record, that there

was

insufficient discharge of onus by the assessee, or an incorrect appreciation of facts by the Assessing Officer, so as to make his order as not accordance with the law. 5. We are, in view of the foregoing,

not

inclined

to interfere with the order of the Page 6 of 9

O/TAXAP/661/2007 JUDGMENT Assessing Officer and set aside the impugned order.” 5. A similar view on the which the Tribunal has based its judgment is in the decision in the case of Commissioner of Income-tax v. Arvind Jewellers reported in [2002] 124 Taxman 615 (Guj.), which has attained finality. Paragraph 7 of the said judgment reads as under :- “7. Coming to the facts of the present case, it is the finding of fact given by the Tribunal that the assessee has produced relevant material and offered explanation in pursuance of the notices issued under section 142(1) as well as section

143(2)

and

after considering those materials and explanation, the ITO has come to a definite

conclusion.

The Commissioner did not agree with the conclusion reached by the ITO. Section 263 does not empower him to take action on these facts to arrive at the conclusion that the order passed by the ITO is erroneous and prejudicial to the interest of the revenue. Since the material was there on record and the said material was considered by the ITO and a particular view was taken, the mere fact that different view can be taken, should not be the basis for an action under section 263 and it cannot be held to be Page 7 of 9

O/TAXAP/661/2007 JUDGMENT justified.” While dismissing the Special Leave Petition filed the Department challenging the judgment dated 19.07.2002 in Income Tax Reference No.174/1989 reported in 259 Income Tax Reports 502 wherein this Court had held that as the material was there on record, such material was considered by the income tax officer and an appropriate view was taken. The mere fact that a different view could be taken should not be a basis for an action under Section 263 of the Act. The said decision more particularly paragraph 6 wherein this Court relied on the decision of the Apex Court in the case of Malabar Industrial Company Limited, we are unable to persuade ourselves to take a different view in this matter. We are fortified in our view by the decision of the Apex Court in the case of CIT vs. R.K. Construction in Special Leave Petition No.8967/2009 wherein the decision of this Court in the case of Commissioner of Income-tax-III v. R.K. Construction Co. reported in [2008] 175 Taxman 165 (Guj.) has been approved by the Apex Court. 6. Therefore, the submissions made by Page 8 of 9

O/TAXAP/661/2007 JUDGMENT learned Advocate Mr. K.M. Parikh that the order is erroneous cannot be accepted. The decisions cited in the memo of Appeal would not help the Revenue. 7. Therefore, we hold that the Tribunal was right in its view and the question in the Appeal which has been posed for our consideration is answered in the affirmative, i.e. in favour of the Assessee and against the Revenue. Sd/- (K.S. JHAVERI, J.) Sd/- (K.J. THAKER, J) CAROLINE Page 9 of 9