DCIT CEN CIR 22, MUMBAI vs. CHAINS CORNER JEWELLERY (I) P.LTD, MUMBAI

These are cross appeals, by Revenue and the assessee, directed against the order of CIT(Appeals)-39, Mumbai dt. 14.2.2013 for Asst. Year 2010-11.

2 M/s. Chains Corner Jewellery (I) Pvt. Ltd. & 2558/Mum/2013

2.1 The assessee is a company engaged in the business of trading in gold jewellery. A survey u/s 133A of the Income Tax Act, 1961 (in short ‘the Act’) was carried out at the assessee’s business premises on 23.11.2009. The survey was subsequently converted into search action u/s 132 of the Act. In the course of search total unaccounted cash amounting to Rs.1,51,24,395/- was found, out of which an amount of Rs. 1,47,00,000/- was seized and certain other discrepancies were found in the stock of gold ornaments. In the statement recorded u/s 132(4) of the Act dt. 24.11.2009 from one of the directors of the assessee company, Shri Prakash K. Jain, he stated in answer to question no. 19 thereof that the assessee is offering the following income of Rs. 1,47,15,000/- (comprising unaccounted cash of Rs. 1,47,00,000/- and Rs. 15,000/- on account of cash salary paid to Motilal Lodha) over and above the regular income.

2.2 Subsequently, the assessee filed the return of income for Asst. Year 2010-11 on 4.10.2010 admitting income of Rs. 1,91,54,710/-, which included the aforesaid admission of undisclosed income represented by seized unaccounted cash, etc. amounting to Rs. 1,47,15,000/-. However, in the course of assessment proceedings, the assessee submitted that the seized cash cannot be considered as undisclosed income and that it is only the element of gross profit that is embedded in the cash sales that is exigible to tax. The AO rejected the assessee’s contentions for the reasons given in the order of assessment and proceeded to complete the assessment u/s 143(3) of the Act vide order dt. 26.12.2011 determing the income of the assessee at Rs. 2,07,40,704/- as against the returned income of Rs. 1,91,54,710/-, in view of an addition of Rs. 15,85,994/- on account of deficit stock.

3 M/s. Chains Corner Jewellery (I) Pvt. Ltd. & 2558/Mum/2013 2.2 Aggrieved by the order of assessment dt. 26.12.2011 for Asst. Year 2010-11, the assessee preferred an appeal before the CIT(Appeals)-39, Mumbai. The ld. CIT(A) disposed off the assessee’s appeal vide order dt. 14.2.2013 allowing the assessee partial relief; wherein (i) the addition of Rs.15,85,994/- on account of deficit stock was deleted and (ii) the assessee’s claim that only the profit embedded in the cash seized amounting to Rs.1,47,00,000/- is to be taxed was rejected.

Revenue’s appeal for Asst. Year 2010-11 in 4.1 The grounds raised in Revenue’s appeal are as under :

“On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition amounting to Rs. 15,85,994/- on account of deficit of stocks without appreciating the fact that the addition was made on the basis of statement on oath at the time of search of Shri Prakash K. Jain, Director of the company.”

4.2 At the outset, it is noticed that the disputed amount/issue in this appeal is only Rs. 15,85,994/- and the tax effect of this amount is less than the monetary limit of Rs. 10 lacs. As per the latest CBDT Circular no. 21 of 2015, dt. 10.12.2015, the new monetary limit for filing of appeals by the Department have been issued, whereby the tax effect for filing of appeals before the ITAT has been prescribed at Rs. 10 lacs. In the said circular it

4 M/s. Chains Corner Jewellery (I) Pvt. Ltd. & 2558/Mum/2013 has been specifically clarified that the said instructions will apply retrospectively to all pending appeals. Accordingly, the appeal filed by the Department is not maintainable and is dismissed in limine.

Assessee’s appeal for Asst. Year 2010-11 in 6.1 In this appeal, the assessee has raised the following grounds :

“1. Addition u/s. 69A - Alleged unaccounted income Rs. 1,47,15,000/- a) The ld. CIT (A) erred in conforming the addition u/s. 69A for an amount of Rs. 1,47,15,000/- without appreciating and not considering the basic submission of the Appellant that it is the element of profit based on the average G/P of the past five years (as offered) which is required to be taxed. Therefore, the addition for entire amount as represented by accumulated cash sales is not justified and the component of profit may be taxed. b) The ld. CIT(A) has failed to appreciate that for every sales there has to have a corresponding purchase. Non- consideration of the basic fact amounts to misapplication of factual reasoning; therefore alleged addition u/s. 69A may be deleted. c) Without prejudice to above, incomplete books of account before the yearend (23.11.2009) not an opportune ground to raise suspicion and make the addition of entire unaccounted cash which is not the Appellant's undisclosed income. d) Without prejudice to above, the burden is on Revenue to bring in sufficient materials on record that the Appellant is involved in any unlawful activity for generating the alleged unaccounted black money otherwise than the Appellant's genuine cash sale of jewellery. e) Without prejudice to above, no addition could be made merely on the basis of statements. As the Assessing officer had not adhered to the 5 M/s. Chains Corner Jewellery (I) Pvt. Ltd. & 2558/Mum/2013 guidelines outlined by CBDT vide its instruction No. 286/2/2003 - IT (Inv) dated 10.03.2003, the alleged addition may be deleted. f) The ld. CIT(A) erred in not appreciating that the strict rules of Sec. 69A is not applicable to the facts of your Appellant as the Appellant had not explained the source of money but it had recorded its purchases in its books. As the presence of word “may” in sec. 69A does not amount to “shall” the ld. CIT(A) officer failed to exercised the deeming provision positively, therefore, the addition may be deleted.

2. Levy of penal Interest u/s. 234B and 234C The Appellant, on merits, denies its liability to penal interest.

3. The Appellant craves leave to add, amend or alter all or any of the above Grounds of Appeal.”

7. Ground no. 1 (a to f) - Unaccounted cash – Rs. 1,47,15,000 7.1 The facts, as emerge from the record, are that the assessee operates its business from two premises, i.e., Shop no. 9, Kapadia building, Zaveri Bazar and Shop no. 115, 195/197, Mahavir Market, Zaveri Bazar, Mumbai. A search and seizure action u/s 132 of the Act was carried out at the assessee’s premises at Shop no. 115, Mahavir Market on 23.11.2009 and survey u/s 133A of the Act at Shop no. 9, Kapadia Building on the same day. The survey at Shop no. 9 was later on converted into a search u/s 132 of the Act. Unaccounted cash amounting to Rs. 1,47,00,000/- was seized from the assessee’s premises at Shop no. 115, Mahavir Market. As per the statement recorded u/s 132(4) of the Act on 24.11.2009, the Director of the assessee, Shri Prakash K. Jain in answer to question no. 19 submitted that the assessee company is offering the cash seized as additional income of Rs.1,47,15,000/- for taxation in the year under consideration over and above the regular income. In accordance with this disclosure of additional income, the assessee filed its return of income for A.Y 2009-10 declaring income of 6 M/s. Chains Corner Jewellery (I) Pvt. Ltd. & 2558/Mum/2013 Rs. 1,91,54,710/- which is inclusive of the aforesaid disclosure of Rs.1,47,15,000/-. In the course of assessment proceedings, the assessee came up with the claim that the cash seized cannot be considered as undisclosed income and it is only the profit embedded in the cash sales that is required to be taxed. The AO rejected the claims put forth by the assessee and completed the assessment on this issue of seized cash in accordance with the return of income filed by the assessee wherein the assessee had offered additional income of Rs. 1,47,00,000/- in respect of seized cash. On appeal also the ld. CIT(A) rejected the assessee’s claims on this issue.

7.2.1 The ld. AR for the assessee was heard at length on the grounds raised by the assessee on this issue at sr. no. 1(a) to (f). In these grounds at (a), (b) and (f) the assessee contends that the ld. CIT(A) erred in confirming the addition of Rs. 1,47,15,000/- u/s 69A of the Act, when actually only the component of gross profit therein requires to be taxed after taking into account the corresponding purchase. It is also contended that section 69A of the Act is not applicable to its case as the purchases corresponding to the unaccounted sales is recorded in the assessee’s books of account. In the grounds raised at (c) to (e) the assessee contends that, without prejudice to the other grounds, the burden is on the revenue to bring material on record to establish that the assessee engaged in unlawful activity to generate unaccounted income other than the assessee’s genuine sale of jewellery. It is also contended that the AO ought not to have made any additions based on statements as per the guidelines laid down in CBDT instructions (supra) and therefore the addition is to be deleted.

7.2.2 Before us, the ld. AR for the assessee reiterated the submissions put forth before the ld. CIT(A), where also similar grounds of appeal were 7 M/s. Chains Corner Jewellery (I) Pvt. Ltd. & 2558/Mum/2013 raised as have been raised before us. The ld. AR submitted that whatever could be taxed in respect of seized cash of Rs. 1,47,00,000/- was only the gross profit element. It was submitted that since the cash found pertains to cash sales, the corresponding purchases have been entered in the books of account. It is submitted that in these circumstances, what should be taxed is the gross profit in respect of the seized cash, which can be applied at the assessee’s average GP rate of the last three/four years. It is submitted that the statement given in the course of search/survey by Shri Prakash K. Jain and other Directors should be read in their entirety. In support of the assessee’s submissions that only GP is to be taxed in respect of cash sales, reliance was placed on the following judicial decisions :

(1) 49 ITD 177 (Mum) Balaji Textiles Ind. P. Ltd. (2) 254 ITR 259 (SC) Swastik Oil Traders (3) 252 ITR 476 (Guj) DCIT v. Adinath Industries (4) 247 ITR (St) 35 Adinath’s SLP rejected 7.3 Per contra, the ld. DR emphatically supported the orders of the authorities below. The ld. DR submitted that the grounds raised and the averments therein (supra) are identical to those raised before the ld. CIT(A) and rejected by her. It was argued by the ld. DR that no addition of Rs.1,47,15,000/- u/s 69A of the Act had been made by the AO in the order of assessment as wrongly contended by the assessee. The computation of income would show that the only addition/disallowance to the returned income was in relation to deficit stock amounting to Rs. 15,85,994/-. In respect of the assessee’s submission that the burden was on revenue to bring material on record to establish that the assessee was generating unaccounted money, the ld. DR submitted that the survey and search action at the assessee’s premises on 23.11.2009 and 24.11.2009 resulted in seizure of 8 M/s. Chains Corner Jewellery (I) Pvt. Ltd. & 2558/Mum/2013 unaccounted cash of Rs. 1,47,00,000/- that admittedly was not recorded in the assessee’s books of account and is admittedly black money. Coming to the averments of the assessee that the AO had not adhered to CBDT’s instruction no. 286/2/2003 dt. 10.3.2003, the ld. DR submitted that as directed therein, the AO has followed the same and has relied on the evidences/materials gathered during the search/survey operations, i.e., the cash found, while framing the impugned assessment order. It is submitted that in respect of the cash seized, it is the assessee company’s Director, Shri Prakash Jain himself who had admitted in his statement on 23.11.2009 that it was unaccounted cash of the assessee and that the same is offered for taxation in the year under consideration over and above the regular income. It is in keeping with this statement of the director that the assessee filed its return of income for Asst. Year 2010-11, almost a year later on 4.10.2010 declaring income of Rs. 1,95,54,710/- that included the unaccounted cash seized amounting to Rs. 1,47,00,000/-. It is submitted that the grounds raised by the assessee are just self serving afterthought and do not controvert the findings of the authorities below and prayed that the impugned order of the ld. CIT(A) on this issue be upheld.

7.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the submissions made, details filed and pronouncements cited by the ld. AR. Admitted facts are that the assessee company, engaged in the business of trading in jewellery, had its premises searched u/s 132 of the Act and surveyed u/s 133A of the Act on 23.11.2009 which was later on converted to search. In the course of these operations, total cash amounting to Rs. 1,51,24,395/- was found, out of which after allowances for available cash book cash balance of Rs.4,29,250/-, the balance amounting to Rs. 1,47,00,000/- was seized. It is a 9 M/s. Chains Corner Jewellery (I) Pvt. Ltd. & 2558/Mum/2013 fact on record that according to the statements recorded u/s 131 and 132(4) of the Act on 23.11.2009 and 24.11.2009 of Shri Prakash K. Jain, a Director, it was stated that the assessee company is offering undisclosed income of Rs.1,47,00,000/- (comprising unaccounted cash of Rs. 1,47,00,000/- and Rs.15,000/- on account of cash salary paid to Shri Motilal Lodha) over and above its regular income for Asst. Year 2010-11.

7.4.2 In this regard we have perused the copies of the statements of the Directors on record. It is a matter of record that when confronted by the search party in respect of the cash found, Shri Prakash Jain in statement on oath recorded on 24.11.2011 has confirmed in answer to question no. 8 that out of the total cash found amounting to Rs. 1,51,24,395/-, cash balance as per books of account is only Rs. 4,29,250/- and the remaining amount of Rs.1,47,00,000/- is not accounted for in the assessee’s books of account and offered the same for taxation as additional income. This was also confirmed by the same Director in his statement recorded u/s 131 of the Act on 24.11.2009. It is in keeping with the aforesaid statements and disclosures/admissions made that the assessee filed the return of income for Asst. Year 2010-11 on 4.10.2010 in response to notice u/s 153A of the Act, declaring total income of Rs. 1,91,54,710/- which admittedly included the additional income of Rs. 1,47,00,000/- on account of undisclosed unaccounted cash seized which is not accounted for in the assessee’s books of account.

7.4.3 It is only almost two years later, in the course of assessment proceedings that the assessee vide letter dt. 18.10.2011 addressed to the AO sought to retract from the statements on oath given by the Directors on 23.11.2009 and 24.11.2009 and a year after the return of income filed by it

10 M/s. Chains Corner Jewellery (I) Pvt. Ltd. & 2558/Mum/2013 for Asst. Year 2010-11 on 4.10.2010 admitting the same unaccounted income on account of undisclosed/unaccounted cash of Rs.1,47,00,000/- which was not accounted in the assessee’s books of account. In the course of assessment proceedings, the assessee in the submissions before the AO came up with a new claim that instead of treating the entire unaccounted seized cash as income, only the profit element of the sales should be treated as income and brought to tax by applying the gross profit rate. These new arguments put forth by the assessee were, in our considered view, rightly rejected by the AO as they were bereft of any material evidence to buttress the claim.

7.4.4 We find that, on appeal, similar arguments put forth by the assessee were rejected by the ld. CIT(A) holding as under at paras 5.3 to 5.5 of her order :-

“5.3 I have given thoughtful consideration to the matter. Evidently a search action was carried out at shop no. 115 and from the said premises cash totaling Rs. 1.48 crores was detected, and cash of Rs. 1.47 crores was thereafter seized by the Department. The statement of the Directors were recorded under s. 132(4) of the Act. It is pertinent to refer to the said statements as recorded in order to arrive at a decision. A statement under oath under s. 132(4) was recorded on 24.11.2009 at the premises of shop No. 15 during the course of search from Shri Prakash K. Jain, one of the two Directors. It is seen from the statement therein that he has stated that (Qn.3) he is a B.com graduate and had proceeded to answer the queries as raised as shown hereunder.- “Q.19. Do you have anything else to say? Ans. As stated earlier, our company M/s. Chains Corner Jewellery (P) Ltd., is offering the following income for taxation for FY 2009-10 over and above the regular income.

Unaccounted cash 1,47,00,000 Cash Salary of Mr. Motilal Lodha 15,000 Total 1,47,15,000

11 M/s. Chains Corner Jewellery (I) Pvt. Ltd. & 2558/Mum/2013

Thus were are offering a sum of Rs. 1,47,15,000/- as additional income for taxation for F. Y 2009-10. The above offer is voluntarily given with the view not to litigate and to buy peace of mind and with the request that no penalty/prosecution proceedings are initiated against our company/ individuals.”

5.4 It follows that Shri Prakash Jain who is a commerce graduate, admitted that cash was generated out of unaccounted sales, and also offered the same for taxation so as to avoid litigation and to purchase peace. It therefore transpires that Shri Prakash Jain was well aware of the admission made by him when the Department confronted him with the huge amount of unaccounted cash, he willingly offered the said cash, as income, so as to purchase peace. It cannot be said that he was not aware of the intent and transport of his offer. A commerce graduate is well aware of the distinction between "turnover" and "'income". Knowing full well this distinction, he had offered the seized cash as income for the impugned year. It was in keeping with this voluntary admission that in response to notice under s. 153A that appellant suomotto offered the said cash as income and paid taxes thereon. The search was carried out on 23.11.2009, the appellant filed the return of income in response to notice under s. 153A on 4.10.2010, in the said return the appellant disclosed Rs.1,47,15,000/- as additional income and paid taxes thereon. It is much later, i.e. after issue of notice under s. 143(3) that the appellant puts forth a contention that only the GP on the unaccounted sales as disclosed is required to be taxed. This clearly amounts to a retraction on the part of the appellant that is not permissible in law. Certainly there is no dispute that the appellant had offered the unaccounted sales at its income in order to cover up all its omissions and commissions. The fact of presence of huge amount of cash clearly does point to the premise that the appellant had been indulging in unaccounted sales over a period of time. It was against the background that it had made the admission of offering the unaccounted sales as income for the captioned year. That being so, the appellant is estopped from taking the plea now that since it had stated that the source of cash was sales, only the GP is to be taxed, and that too after having offered the sum to tax as additional income in the return filed in response to notice under s. 153A.

5.5 It is an admitted fact that the appellant had offered the unaccounted cash as income in the statement recorded under s. 132(4) of the Act on 12 M/s. Chains Corner Jewellery (I) Pvt. Ltd. & 2558/Mum/2013

24.11.2009. Clearly such a statement was .not given under any mistaken belief of act or law as is evidenced by the subsequent action of the appellant in disclosing the said amount as income in the return filed in response to notice under s. 153A. There is no case that the statement was made under duress. The appellant chose to retract the statement given voluntarily, after disclosing the same as additional income in the return filed, which certainly denotes that the contentions subsequently raised are not genuine. It appears that the retraction is in consequence to advice received later. The Apex Court in C. Sampat Kumar vs. Enforcement Office AIR 1998 SC 16 had observed that when a person to whom summon is issued, gives his statement in writing and signs it, such a statement is voluntary. In the of case of Rameshchandra & Co. vs. CIT (1987) 168 ITR 375(Bom) it was held that the assessee could have not grievance if the taxing authority taxes him in accordance with the voluntary statement under s. 132(4). In the case of the appellant it is not as though his statement was wrongly recorded or that he made it under a mistaken belief of fact or law. If it were so, he ought to have been made an application for rectification of the same to the authority concerned, who passed the order based upon the statement. When no such case has been made under a mistaken belief of fact or law and the statement being a voluntary one, there is no scope for the appellant to challenge the correctness of the assessment.”

7.4.5 On an appreciation of the facts on record, we are inclined to concur with the findings of the authorities below in rejecting the assessee’s claim that only the profit element of the unaccounted cash seized should be brought to tax. It is the contention of the assessee that since the unaccounted cash seized is earned out of unaccounted sales of jewellery, the corresponding purchases are reflected in its books of accounts. In this context we have carefully perused the orders of the authorities below and the material on record and find that except for making this claim, the assessee has failed to bring on record any cogent material evidence of such unaccounted purchases being recorded in the books of account. If the assessee’s claim is to be believed, that only the purchases corresponding to the unaccounted cash sales of jewellery are recorded in its books of account,

13 M/s. Chains Corner Jewellery (I) Pvt. Ltd. & 2558/Mum/2013 then the assessee should have had excess stock as per its books of account which is not the situation in the case on hand.

7.4.6 On a perusal of the grounds raised, we find that they are identical to those raised before the ld. CIT(A) and rejected by her. We also do not find any merit with the contentions of the assessee in grounds raised that the AO made an addition of Rs. 1,47,15,000/- u/s 69A of the Act which requires to be deleted. As submitted by the ld. DR, a perusal of the order of assessment for Asst. Year 2010-11 dt. 26.12.2011 shows that the only addition to the returned income is in respect of deficit stock of Rs. 15,85,994/-. With respect to the contention that the burden is on revenue to bring sufficient material on record to establish that the assessee is generating black money other than genuine sale of jewellery, we find that this contention also lacks merit as the search and survey actions conducted at the assessee’s premises on 23.11.2009 and 24.11.2009 resulted in seizure of unaccounted undisclosed cash of Rs. 1,47,00,000/- that the Directors of the assessee company admitted was unaccounted undisclosed money which were not recorded in the assessee’s books of account. We also do not find any merit in the assessee’s contention that the AO had not adhered to the CBDT’s Instruction No. 286/2/2003 dt. 10.3.2003. On perusal thereof and the material on record it is seen that the AO has followed the directions therein by relying on evidences/material gathered in the course of search/survey, i.e., the cash found/seized, while framing the impugned order of assessment.

7.4.7 Taking into consideration the facts and circumstances of the case as discussed above from paras 7 to 7.4.5 of this order (supra), we are of the view that there is absolutely no merit in the grounds raised by the assessee in respect of the seized cash of Rs. 1,47,00,000/- being taxed only to the extent

14 M/s. Chains Corner Jewellery (I) Pvt. Ltd. & 2558/Mum/2013 of G.P thereon. In our view it has been clearly established by the factual matrix of the case and the corroboration thereof by the assessee’s own acceptance of the same in the sworn statements recorded from Directors on 23.11.2009 and 24.11.2009 that the cash seized was unaccounted and the declaration of the same cash of Rs. 1.47 crores as undisclosed income, unaccounted in the assessee’s books of account in its return of income for Asst. Year 2010-11 filed on 4.10.2010 almost a year later. The fresh claim made before the AO from the time of filing letter dt. 18.10.2011 almost two years after the search and almost a year after filing the return of income for Asst. Year 2010-11 is, in our view, a self serving afterthought and contention which is bereft of any material evidence. In this view of the matter, and finding no reason to interfere with the findings of the ld. CIT(A) on this issue, we uphold the impugned order of the ld. CIT(A) and consequently dismiss the grounds at sr.no. 1(a) to (f) (supra) raised by the assessee.

15 M/s. Chains Corner Jewellery (I) Pvt. Ltd. & 2558/Mum/2013

Order pronounced in the open court on 27th January, 2016.