TBZ NIRMAL ZAVERI,MUMBAI vs. ASST CIT 16(2), MUMBAI

Assessment for A.Y. 2007-08 was completed in the hands of the assessee by the Assessing Officer on 28.8.2009 u/s. 143(3) of the Act. The learned CIT revised the assessment order, vide its order dated 29.3.2012 passed u/s 263 of the Act, wherein he directed the Assessing Officer to make a fresh assessment. Consequent to the same, the Assessing Officer passed a fresh assessment order u/s. 143(3) read with section 263 of the Act on 28.3.2013. The assessee challenged the assessment order so passed by filing the appeal before the learned CIT(A) and the same was allowed in part. Aggrieved by the order passed by the learned CIT(A), both the parties have filed appeal before us. In addition to the above, the assessee has also filed an appeal challenging the revision order passed u/s. 263 of the Act. All these appeals were heard together and are being disposed of by this common order, for the sake of convenience.

The appeal filed by the assessee challenging the revision order passed u/s 263 of the Act is barred by limitation by 637 days. The only reason submitted by the assessee for delay is that the assessee’s erstwhile tax consultant did not advice on filing the appeal and only when a new legal consultant was pointed, he advised the assessee to file appeal challenging the revision order. The above said reason is not convincing to us and accordingly we decline to condone the delay. Accordingly, the appeal of the assessee in is dismissed in limine.

In the appeal filed by the assessee challenging the order passed by the learned CIT(A), the assessee is aggrieved by the learned CIT(A) in not admitting the additional evidences filed by the assessee in respect of addition of legal and 3 M/s. TBZ Nirmal Zaveri professional fees made by the Assessing Officer. In the appeal filed by the Revenue, relief granted by the learned CIT(A) in respect of additions relating to unaccounted sales and unaccounted purchases are being challenged by the Revenue.

Facts relating to the above said issues are discussed in brief. The assessee is engaged in business of manufacture and sale of gold jewellery, diamond and colour stone studded jewellery. Present assessment order was passed by the Assessing Officer to give effect to the revision order passed by the learned CIT u/s. 263 of the Act. From the quantity details of raw materials furnished by the assessee, it was noticed that consumption of “gold” was shown at 172782.86 grams. However, the actual quantity of finished goods manufactured out of the above said gold worked out to 142578.36 grams only and the same resulted in difference of 30240.50 grams (172782.86 - 142578.36). The Assessing Officer initially took the view that the above said difference represents gold sold outside the books or it may be a case of inflation of purchases. When questioned, the assessee submitted that there was typographical error in furnishing the quantity details of finished goods, i.e. in case of 18 carat Stone studded jewellery, the quantity details pertaining to the stone alone were given and the quantity details pertaining to gold were inadvertently omitted to be given. The assessee furnished correct version of stone studded jewellery as given below : Item Opening Purchase Manufactured Sales Closing Shortage stock stock /excess 18 kt (in cts) 3011.49 1444.28 1783.10 3465.93 2772.94 0.00 (in gms) 30738.27 7892.66 42055.76 60598.95 20087.74 0.00 The Assessing Officer did not examine the details so furnished by the assessee and instead he proceeded to compute the ratio of “stones” to “gold” in respect of opening stock, purchase manufacture etc. as detailed below: Item Opening Purchase Manufactured Sales Closing Shortage stock stock /excess 18 kt (in cts) 3011.49 1444.28 1783.10 3465.93 2772.94 0.00

The Assessing Officer noticed that the ratio of stones to gold worked out to 23.59 times in case of manufactured goods and accordingly took the view that the same cannot be accepted. Accordingly, the Assessing Officer took the view that the assessee has manipulated the details to suit its convenience. The Assessing Officer particularly referred to following statement relating to sales furnished by the assessee:

The Assessing Officer also called for the stock statement furnished by the assessee to the bank. The Assessing Officer worked the average cost of diamond, colour stones, gold and silver declared to the bank and applied the same to the quantity of raw materials (stones, diamond, gold and silver) purchased by the assessee during the year. The value of purchases worked out to ` 24.11 crores. The Assessing Officer noticed that the assessee has declared purchases at ` 24.10 crores in the profit and loss account. In the quantity statement, the assessee had also shown purchase of finished goods. Since the value of purchases shown in the profit and loss account was equivalent to the value of purchase of raw materials worked out by the Assessing Officer as discussed above, the Assessing Officer took the view that the assessee has suppressed purchases of finished goods. Accordingly, the Assessing Officer worked out the suppressed value of purchase of finished goods at ` 65,01,324/- and treated the same as undisclosed purchases. Accordingly, he added the same to the total income of the assessee.

The Assessing Officer also noticed that the assessee incurred a sum of ` 20,77,576/- as legal and professional fees paid to M/s. Quardant Communications Ltd. Since the assessee did not furnished certain details called for by him, the Assessing Officer disallowed the above said expenses.

In the appellate proceedings, the learned CIT(A) deleted the additions relating to undisclosed sales and undisclosed purchases. The learned CIT(A), however, declined to admit the additional evidence with regard to legal expenses and accordingly confirmed the addition made by the Assessing Officer. Aggrieved by the order passed by the learned CIT(A), both the parties have filed the appeal challenging the order passed by the learned CIT(A) on the issues decided against each of them.

We shall first take up the appeal filed by the assessee. As stated earlier, the AO disallowed legal and professional fee only for want of certain evidences. We notice that the assessee filed those evidences before Ld CIT(A), but the first appellate authority declined to admit them. We notice that the AO had asked for IT return copy and financial statements of M/s Quardant Communication, to whom the assessee had paid the legal and professional fee. It is quite natural that it may take some time, since the assessee herein had to obtain those details from the above said party. Hence, in the interest of natural justice, we are of the view that the additional evidences should be admitted and this issue needs to be re-examined. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to examine this issue afresh by duly considering the additional evidences and such other information and explanations that may be furnished by the assessee before him. Thereafter, the AO may take appropriate decision in accordance with the law.

We shall now take up the appeal filed by the revenue. The first issue relates to undisclosed sales. At the time of hearing, the Ld A.R reiterated that the difference has arisen on account of typographical error occurred in not entering the quantity details of gold relating to stone studded jewellery. In this connection, we prefer to extract following observations made by the AO at page 7 of the assessment order:- “From the aforesaid details submitted by the assessee, it is clear that the actual sales of assessee are just 19648.29 grams of 18Kt Gold, which gives a multiple of 6.53 times to the weight of diamond at 3007.54 cts, hence within the range of 5 to 10 times as discussed above. However, the assessee has included 40950.66 grams of 18Kt Gold in its sales quantity in the nature of “Issue to karigar/breaking/remaking/melting/ setting without assigning any value thereto, which quantity is completely unexplained, as the assessee has claimed 100% yield of finished goods in its tax audit report. Even assuming that some shortage could be there in the manufacturing process, the quantity of such shortage of 40950.66 gms against the total manufactured quantity of just 42055.76 gms as per assessee’s own submissions is clearly a fabrication of whole facts, just to match the quantities.

Hence, in our view, what is required to be explained by the assessee is the details relating to 40950.66 gms of gold issued to Karigars etc, which was shown at Zero value. In the quantity details relating to finished goods, the sales quantity is shown at 60598.95 grams, which consist of following items:-

Hence, what is required to be proved by the assessee is that it has included 40950.66 grams of gold at NIL value in the manufactured items of jewellery also. If the assessee is able to show the same to the satisfaction of the AO, in our view, no addition is called for as presumed by the AO. Since this fact requires verification, we are of the view that the same needs to be set aside to the file of the AO. Accordingly we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO for the purpose of verifying the contentions of the assessee that the 40950.656 grams of gold, which was shown at NIL value in Sales was included in the manufactured items also at NIL value. If the contentions of the assessee were found to be correct, we direct the AO not to make any addition on account of unaccounted sales. If it is found otherwise, the AO may make appropriate decision in accordance with the law. The assessee is also directed to furnish necessary details to the AO in this regard.

The next issue contested by the revenue relates to the unaccounted purchase of finished goods. We notice that the assessing officer has made his own computation on the basis of statement of stock given to the bank and accordingly came to the conclusion that there is unaccounted purchase of finished goods. We notice that the assessing officer did not examine the quantity details of raw materials and finished goods furnished by the assessee by referring the books of accounts. The question of making own estimate, in our view, would arise only if the AO finds faults and deficiencies in the books of account and consequently come to the conclusion that the quantity details furnished by the assessee is not reliable. Before the AO, the assessee has submitted that the stock statement furnished to the bank is a provisional one and the value shown therein was average value. We notice that the AO did not examine the said explanation at all. Under these set of facts, we are of the view that the Ld CIT(A) was justified in coming to the conclusion that the AO has computed the value of undisclosed purchases on surmises and conjectures. Accordingly we are of the view that the Ld CIT(A) was justified in 9 M/s. TBZ Nirmal Zaveri deleting the impugned addition relating to undisclosed purchases and accordingly we uphold the same.

In the result, the appeal filed by the assessee in is dismissed. The appeal of the assessee in ITA No.3676/M/2014 is treated as allowed. The appeal of the revenue is treated as partly allowed.