SHRI SUBHASH KUMAR AAHI,SATNA vs. ASSISTANT COMMISSIONER OF INCOME TAX,CIRCLE-SATNA, SATNA

That as on the fact and in position of law, the learned CIT(A)-1, Jabalpur was not justified in confirming the A.O. who made an addition of Rs. 9,52,430/-on account of excess cash found at the time of survey. The addition was based on conjectures and surmises, arbitrary, vague and not sustainable in law hence liable to be deleted.

That as on the fact and in position of law, learned CIT(A) had erred in not appreciating the fact that the cash had been withdrawn from bank within 2 to 5 days before survey but cashbook was not updated with these withdrawals which were self evident from the bank statement and the cashbook found and seized during the survey.

That as on the fact and in position of law, the learned CIT(A) had erred in not appreciating the fact that certain bills pertaining to silver jewellery to the extent of Rs. 5,19,185/- being claimed as excess stock had been remained to be posted in books of account as the books were not updated till the survey but those bills were found and duly acknowledged by the department during the survey.

That as on the fact and in position of law, the learned CIT(A) had erred in not appreciating the fact that the appellant had submitted complete bills and vouchers pertaining to investment on shop which were duly recorded in books of accounts. The Ld. A.O. had neither pointed out any specific defects with regard to these expenditures nor rejected books of accounts. 13 That as on the fact and in position of the law, the Ld. CIT(A)-1, Jabalpur was not justified in confirming the A.O. who made an addition of Rs.23,67,243/- by applying GP ratio on sale of surrender stock of Rs.59,77,887/-. The addition was based on pure guess work, concocts and contrived being excessive, unwarranted and unsustainable in law.

However, learned AO did not accept this retraction by the assessee. He noted that cash books has been updated up to 29.05.2012 and extract of the cash book had been taken on the date of survey, (counter signed by the assessee) which showed the balance of only Rs.50,120/- therefore, it could not be accepted that cash which had been AY 2013-14 Shri Subhash Kumar Aahi withdrawn from the bank a couple of days earlier was available and could explain the excess cash that had been found at the premises. With regard to the retraction on account of undisclosed investment in shop, the learned AO pointed out that the shop was very old and the sum was invested for purchase of it. The construction being very old, the cost of existing construction was nominal. The valuation report was therefore, in respect of construction, renovation and furnishing of the shop and of the total investment of Rs.29,60,000/- only Rs.9,60,000/- was disclosed and it was for this reason the balance amount of Rs.20,00,000/- was surrendered. Therefore, the retraction was without any basis which deserved to be rejected. With regard to the surrender of Rs.54,58,702/-, the learned AO again refused to accept the retraction. He pointed out that within during the course of survey, the assessee had not referred to any old jewellery for repairing belonging to customers. Neither was any evidence produced regarding the claim nor had the valuer in his valuation report mentioned anything about old jewellery pertaining to customer. Furthermore, the assessee had remained silent for more than four months after the survey and the time gap along with the valuation report clearly established that the retraction was untrue and an afterthought to cover up the undisclosed stock. Similarly with regard to the retraction of surrender on account of excess stock of silver jewellery, the learned AO pointed out, that during the course of survey, the assessee had not mentioned anything about unposted bills and the delayed retraction demonstrated that this was only a fabricated story to cover up undisclosed stock. He, therefore, held that the retraction statement is misleading.

Shops and stairs pertaining the ground floor had already been built up, as evident from registry and therefore, assessee had not made any investment on construction of shops and stairs at ground floor.

Construction of DASSA had been made prior to purchase of shop and was evident from the registry.

Cost of shop w/c and stairs of second floor had been built up as evident from registry.

However, the AO once again found faults in the submissions made by the assessee. He held that customers’ old jewellery for remodeling and new jewellery could never been mixed up because the old jewellery was always kept separately and tagged with the name of the owner and usually separately inventoried. He further noted, the extremely short date between the jewellery received from customer, remodeling and the date of which the jewellery were returned to the customer as remodeled jewellery and observed that since these take some time there must have been some amount of old jewellery available with the assessee on the date of survey. But none was found. He further noted that customers’ old jewellery was given to Karigars for remodeling at their own houses and it was not done at the shop. Thus, there was no question of this old jewellery being included in the stock valued by the valuer even if the assessee’s claim were to be accepted. The inventory prepared by the valuer consisted of finished jewellery only and this demonstrated that the entire jewellery as reported by the valuer was the assessee’s own jewellery. He further noted that the assessee had failed to explain the difference in the stock of jewellery and had not said anything about customers’ old jewellery. Therefore, rejecting this submission of the assessee, he made an addition of Rs.54,58,702/- on account of unaccounted gold jewellery.

The assessee being aggrieved with the said dismissal of his appeal and came before us. Shri Sanjay Nema (Advocate) and Shri Ashish Goyal (Advocate) (hereinafter AY 2013-14 Shri Subhash Kumar Aahi known as learned ‘A.Rs.’) representing the case of the assessee submitted that in the case of the assessee, survey u/s. 133A of the Act had been conducted on 30.05.2012 and in the course of that survey, the assessee had surrendered Rs.89,29,000/- on account of various alleged discrepancies, which could not be resolved at the instant moment. However, later on, the assessee ascertained the correct position and or therefore, since the surrender had been made in the absence of credible evidences to suggest suppression of income, the assessee had retracted the said surrender. It was submitted that the impugned order u/s. 250 of the Act passed by the learned CIT(A)-1, Jabalpur was illegal and bad in law. The learned CIT(A) had erred in law not appreciating the fact that gold jewellery to the extent of Rs.54,58,702/-being claimed as excess stock. pertains to the customer who had left the same for remodeling and repairing. The assessee had produced books of account, quantitative stock register bills, job register bills/vouchers/invoices along with diaries and receipt book kept for remodeling of repairing but the addition was still made, ignoring the fact that diaries and receipt books pertaining to jewellery kept for remodeling and repairing had been found and acknowledged during the survey and nowhere had its genuineness being questioned nor was there any allegation that the same was bogus. Furthermore, learned CIT(A) had omitted to consider these facts that there was no evidentiary value of statement recorded u/s. 133A of the Act because Section 133A does not empower any income tax authority to examine any person under oath. Reference was invited to decision of the Hon’ble High Court of Kerala in the case of and ‘Paul Mathews & Sons vs. CIT’ (2003) 263 ITR 101 (Kerala) wherein the Hon’ble High Court had held that the statement recorded u/s. AY 2013-14 Shri Subhash Kumar Aahi 133A of the Act was not given any evidentiary value for the reason that the Officer was not authorized to administrator oath or to take any sworn statement as laid down under law.

Coming to the excess stock of silver weight 15.031 kgs., which the assessee was unable to explain during the course of survey, the assessee submitted that the purchase bills of silver and silver items were found during the course of survey, the first and last bill was duly acknowledged by the survey party. Our attention was invited to pages 110 and 130 of the paper book dated 12.03.2021, which contained purchase bills of silver that had been initialed by the assessee and the Inspector on the date of survey. It was further submitted that these bills have been produced before the AO on 15.03.2016 and the AO had acknowledged the submissions of these bills. There were also placed before the learned CIT(A) vide submission dated 07.03.2019. However, this direct contemporary evidence had been disregarded by these authorities and therefore, the addition confirmed by them was not sustainable. It was submitted that the purchases AY 2013-14 Shri Subhash Kumar Aahi were inadvertently not recorded into books of account but the bills were available before the survey party. In the circumstances, there was no reason to confirm the addition made by disregarding these facts only because the assessee could not explain the stock of silver on the date of survey. Furthermore, omission from entry into the books of the said bills could not be ground to assume unexplained purchases.

On the issue of addition of excess cash of Rs.9,52,430/-, learned AR drew our attention to page 58 of paper book filed on 12.03.2021 which demonstrated that a sum of Rs.11,50,000/- had been withdrawn in three instalments on 24.05.2012, 26.05.2012 and 29.05.2012. The learned AR submitted that the fact of cash availability with the assessee could not therefore doubted in view of this bank statement. However, only because the Accountant had omitted to enter the cash withdrawn from the bank, an impression of excess cash had been created and since the assessee was unable to explain it at the time, he had surrendered the alleged excess cash balance. However, on going through the books that were redrawn, it was discovered that in fact there was no excess cash because the actual balance as per the cash book was not Rs.50,120/- but Rs.10,26,845/- and it was in this context that the surrender had been withdrawn. The learned AR pointed out that had the cash not being withdrawn from the bank, then it could have been alleged that it was unavailable, but the fact of entries in the bank clearly demonstrated that the assessee had the cash in hand and the learned AO had failed to controvert this by showing that the cash had already been entered into cash book or been expended elsewhere. Therefore, there was no basis the sustained the addition made on account of excess cash.

Finally coming to addition of Rs.23,67,243/-, it was submitted that there was no reason to assume that the assessee had sold any part of the gold and silver jewellery/items outside of the books of account and therefore, there could not be any basis for making an addition on account of suppressed sales or on account of suppressed gross profit on this alleged excess stock. The learned AR, therefore, prayed that the same may kindly be deleted.

On the other hand, Shri N.M. Prasad, learned Sr. DR-1, arguing on behalf of Department submitted that on the date of survey, the assessee had been confronted with all the facts and he had voluntarily made a surrender of the amounts on account of unexplained stock of gold jewellery, excess cash found on the date of survey, unexplained stock of silver jewellery, and unexplained investment in the construction of the shop. Thereafter, the assessee had retracted the statement after a very long gap AY 2013-14 Shri Subhash Kumar Aahi i.e. four months.The learned CIT(A) had referred to the judgment of the ITAT Allahabad Bench in the case of ‘DCIT vs. Bhogilal Moolchand’ (Supra) to sho that the time gap between the statement and the interaction of the statement was relevant to decide as to whether, the statement given under mistaken belief or retracted as a convenient part of tax planning. It was submitted that there was no evidence to support the retraction made by the assessee and in the case of ‘Carpenter Classics (Exim) (P) Ltd. v. DCIT, (Supra) the ITAT held that the onus was clearly on the assessee to show that the said declaration was made on misconception of fact and where the assessee had not taken any such action for a period of two and half months there was no valid reason to retract the same. The learned Senior D.R. pointed out that the AO had duly refuted the arguments placed by the assessee, when he pointed out that the old jewellery received from customers is not kept in the shop but handed over to karigars for repair and therefore, the excess stock could not be explained on this account. Furthermore, he had also demonstrated that the books of the assessee were not maintained in the regular course of business, which is why selective entries were made at the choice of the assessee. Since the sales and payments made by the assessee were right up till 29.05.2012, therefore, the excess stock of silver or cash found were clearly unexplained out of the books. Furthermore, the learned DR pointed out that the assessee had not brought any evidence to dispute the accuracy of the valuation report and considering that only Rs.9,60,000/- had been disclosed in the books, the AO had been more generous in allowing a rebate of Rs.5,00,000/-on account of old construction and restricting the addition to Rs.14,22,456/- for the amount which had not being explained AY 2013-14 Shri Subhash Kumar Aahi by the assessee. Finally, the learned DR pointed out that since the AO had determined that there was excess and unexplained stock of jewellery, therefore, it was natural to assume that the said jewellery have been sold and such would have fetched the assessee the same profit that the remaining stock of the assessee would have fetched. Therefore, the AO was justified in estimating the gross profit on such sales at Rs.23,67,243/-. It was, therefore, prayed that the AO order did not require any interference and may be confirmed.

We have duly considered the facts and circumstances of the case and the arguments rendered by both the parties. We observe that it is now established law that a statement given by assessee u/s. 133A does not have any evidentiary value in itself, as it is not statement under oath, and it is not a statement which the authorized office is empowered to take under oath. However, it may have some evidentiary value if it is backed up by credible material evidences. Therefore, it cannot be become the sole basis for making an addition in the hands of an assessee if there are material evidences to show that the statement made may not be correct. It is in this context that we must consider the case of the assessee. During the course of survey, a valuation was done of the jewellery in the premises of the assessee and an excess stock of Rs.54,58,202/- was found, which the assessee could not immediately explain. Therefore, the assessee surrendered the amount. However, it is also true that during the course of the survey, the old jewellery receipt and remodeling register was found, which demonstrated that the assessee was obtaining old jewellery from clients for the purposes of repair and remodeling and it is observed from the submissions made by the assessee that in the AY 2013-14 Shri Subhash Kumar Aahi AY 2012-13, the assessee had earned repairing income of Rs.1,32,660/- from such activity. Furthermore, receipt vouchers found at the time of survey do not leave any room for doubt that old jewellery was being received for repair and remodeling by the assessee as these receipt vouchers were found during the course of survey. This activity of the assessee has not been doubted and, therefore, there is no reason to discard the explanation of the assessee that the excess jewellery belonged to his customers, given to him for repair and remodeling, which was accounted for separately. It is observed that the Valuation Officer valued all jewellery found at the premises and the Department deduced the unexplained stock from such valuation. The Department has refused to consider that the difference in stock may be on account of this jewellery received from customers for repair and remodeling on account of their belief that such jewellery ought to be separately tagged and furthermore that jewellery given for repair and remodeling is usually kept with the karigars and not at the shop. However, we note that in the present case, the assessee has submitted that it had an employee specifically deployed for work of repair and remodeling, by the name of Shri Santosh Kumar and his statement was also recorded during the survey, wherein he accepted that repair and remodeling were was done at the shop and that he did this work. In the circumstances, it is clear that the computation of excess stock without taking into account the contents of the repair and remodeling register, ignores the evidence already on record. In the circumstances, the addition made in this regard cannot be sustained. In view of the same, we delete the addition of Rs.54,58,202/- made on account of alleged undisclosed stock, holding the same is not proved in the absence of consideration of the repair and AY 2013-14 Shri Subhash Kumar Aahi remodeling register, the vouchers for the same and the statement of the concerned employee that was recorded during the survey. The addition is accordingly deleted and Ground Nos. 4 and 5 are accordingly allowed.

Coming to the addition of Rs.9,42,430/- on account of excess cash, we find that neither the AO nor the learned CIT(A) has been able to controvert the evidence submitted by the assessee that just prior to the survey conducted on the assessee’s premises a sum of Rs.11,50,000/- in total was withdrawn by the assessee from the bank in three instalments and the same had not been entered into the cash book of the assessee. Neither have they come up with any finding to show that the said cash was spent elsewhere. In the circumstances, there are good reasons to believe the assessee that the alleged excess cash was only on account of the fact that the withdrawals from the bank have not been entered into the cash book while they remained at the premises and if the same are taken into account, there is in fact no excess cash. Therefore, after considering the same, we deem it fit to delete the addition of Rs.9,52,430/- made on this account and Ground Nos. 6 and 7 of the appeal are accordingly allowed.

With regard to the addition of Rs.5,19,185/- on account of excess stock of silver found at the time of survey, we note that the purchase vouchers relating to the silver were found during the course of survey and the AO has not verified whether the said stock represented by such purchase vouchers have been entered into the concerned stock register or not. In the absence of the same, it is not possible to accept the argument that there was excess stock of silver if the same stood duly explained by the said AY 2013-14 Shri Subhash Kumar Aahi purchase vouchers. The AO has not called in the question these purchases nor held that they were purchased out of undisclosed income. In the circumstances, the addition of Rs.5,19,185/- on account of alleged excess silver jewellery is deleted and ground nos. 8 & 9 are accordingly allowed.

Coming to the issue of addition of Rs.14,22,436/- on account of alleged unexplained investments on the renovation of the shop, we find that the registered sale deed shows that a three storey building was already in existence on the date of purchase and many of the features that have been highlighted by the valuer, as items of expenditure in his valuation report, were already existing in the said building on the date of purchase. We observed that the said valuation report does not make any reference to the fact of a fresh construction or fact that the old building was demolished and fresh building constructed. In fact, the valuation has been done for the entire premises and for estimating cost of construction of the entire building and not for estimating the cost of renovation. The cost of renovation is not separately indicated in the valuation report and therefore, the contention of the AO that the cost of renovation was anything more than what was recorded in the books of the assessee, cannot be accepted. We also observe that the assessee has, during the course of assessment, pointed out that certain features on which costing was done in the valuation report were already in existence in the original building but these have not been refuted by the AO, before dismissing the claims of the assessee. We further observe that the value of the furniture and fixtures have been arrived at on estimated basis, while the assessee has AY 2013-14 Shri Subhash Kumar Aahi purchase bills to demonstrate that, in fact, he purchased the furniture and fixtures at a lesser rate and therefore, the addition of Rs.14,22,456/- made on this account is deleted.

In the light of above facts, we held that no case is made out for calculating with the assessee had made unexplained investment in the repair and renovation of the house property. We further observed that the house property was purchased in the AY 2011- 12 and renovated in the AY 2012-13. Therefore, in any case, there is no case made out for sustaining the addition of Rs.14,22,456/- on account of the alleged unexplained investment in this assessment year. Accordingly, the addition made in this regard is deleted and Ground Nos. 10,11 and 12 are accordingly allowed.

Ground No. 13 pertains to addition made on estimated gross profits of alleged sales of jewellery outside the books of account. We note that since the AO has not been able to prove any excess jewellery on account of his failure to consider the repair and remodeling register that apparently accounted for the alleged unexplained stock and on account of his failure to demonstrate that the bills and vouchers of silver purchases, which have been found during the course of survey, did not satisfactorily explain the silver not recorded in the books, the fact of unexplained stock in itself stands unproved. That being the case and specially because jewellery given for repairs and remodeling cannot be sold, there does not appear to be any basis for concluding that any jewellery was sold outside of the books. In the circumstances, the estimation of gross profit alleged on unproved excess stock is not sustainable. It is accordingly deleted. Ground No. 13 is therefore, allowed.

Ground No. 1 and 2 question of the legality of order. Nothing has been brought on record before us to show that the orders passed by the AO or learned CIT(A) was illegal or bad in law. Therefore, we dismiss these grounds has not maintainable. Ground No. 14 does not require any adjudication.

In the result, the appeal is partly allowed.