BHAGYAARMA GEM & JEWELLERY PRIVATE LIMITED,RAIPUR vs. INCOME TAX OFFICER, WARD 4(1), RAIPUR

1. The present appeal filed by the assessee company is directed against the order passed by the CIT(Appeals)-II, Raipur, dated 28.11.2019, which in turn arises from the order passed by the A.O. u/s.143(3) of the Income-tax Act, 1961 (for short ‘Act’), dated 23.12.2016 for A.Y. 2014-15. The assessee has assailed the impugned order on the following grounds of appeal before us:

The directors of the assessee company had placed on record their respective “affidavits” dated 25.03.2019 wherein it is, among other things, stated by them that the survey officials had, in the course of the survey conducted u/s.133A of the Act, coerced them for making a disclosure of undisclosed income aggregating to Rs.1.10 crore in their respective individual hands and had, recorded their statements the contents of which were beyond their understanding. It is further stated that though they tried to explain the source of their respective investments to the survey officials, they had forcefully obtained the disclosures while recording their statements during survey action. To sum up, by filing the affidavits, the directors had retracted from the respective disclosure of undisclosed income made by them in their statements recorded during the survey proceedings.

We have perused the deposition of the directors mentioned above in their respective “affidavits” in the backdrop of the observations of the lower authorities. As noticed by us hereinabove, the A.O while framing assessment

Considering the aforesaid factual position, the facts stated by the directors in their “affidavits”, as mentioned above, do not inspire any confidence. Not only have the directors in their respective statements offered the amount mentioned above as their undisclosed income and agreed to pay tax on the same, but as observed by us hereinabove, Shri Haresh Kumar Advani, thereafter in the course of the assessment proceedings, had in his

Succinctly stated, the assessee company which trades in silver/gold jewellery and is a franchisee of M/s. Asmi Jewellery (Gitanjali Group Entity) had e-filed its return of income for A.Y.2014-15, declaring an income of Rs. Nil. Subsequently, the case of the assessee company was selected for scrutiny assessment u/s. 143(2) of the Act.

Survey proceedings u/s.133A of the Act were conducted on the assessee company on 11.10.2023. No books of account were found in the course of the survey proceedings. Survey officials came across unexplained investment aggregating to Rs.1.10 crore, as under:

Statements of the directors of the assessee company, viz. Shri Haresh Kumar Advani, Smt. Tamanna Advani and Smt. Mansi Advani were recorded u/s.131 of the Act, wherein they disclosed Rs.1.10 crore concerning the discrepancies mentioned above in stock, franchisee fee, and furniture. The directors, in their respective statements recorded in the course of survey proceedings, had stated as under :

In his statement recorded u/s.131(1) of the Act dated 11.10.2013, he stated that the aforesaid initial investment of Rs.1.03 crore (supra) comprised of, viz. (i) his share of investment: Rs.33 lac; and (ii) the balance investment that was sourced out of funds of the shareholders of M/s. Top Flow Property Pvt. Ltd., Kolkata (i.e., the earlier name of the assessee company): Rs. 70 lac. On being queried as to how the funds were received from the shareholder above, it was stated by him that he and the other two directors, viz. Smt. Tamanna Advani and Smt. Mansi Advani had given cash to a person at Raipur, which, thereafter, was routed back to the coffers of the assessee company through RTGS/Cheques. In his reply to Question No.4, he categorically admitted that the investment of Rs.70 lac (supra) with the assessee company was the undisclosed income of his and the other two directors, viz. Smt. Tamanna Advani and Smt. Mansi Advani. Elaborating

It was stated in her statement recorded during survey proceedings u/s.133A of the Act that she had invested Rs.20 lacs with the assessee company. On being queried as to why the amount of Rs.20 lacs which she did not reveal in her income tax return, may not be treated as her undisclosed income, it was admitted by her that the said amount was her undisclosed income garnered during the F.Y. 2013-14. Also, it was categorically stated by her that the aforesaid undisclosed income of Rs.20 lacs would duly be offered for tax.

During the course of assessment proceedings, it was observed by the A.O. that the assessee company had not offered the undisclosed income of Rs.1.10 crore for tax in its return of income for the year under consideration. The A.O. summoned Shri Haresh Kumar Advani, director of the assessee company, and recorded his statement u/s.131 of the Act. Shri Haresh Kumar Advani controverting the allegation that was earlier raised before the A.O, that his statement was recorded under pressure which had resulted in the surrender of additional income, therein, fairly admitted that neither there was any force or coercion on the part of the department in the course of survey proceedings nor the amount that was surrendered was retracted. On the contrary, Shri Haresh Kumar Advani once again provided the bifurcated

Observing that though the director of the assessee company had both in the course of survey proceedings and in his statement recorded u/s.131 of the Act had admitted the surrendered income of Rs.1.10 crore, but had not offered the same for tax during the year under consideration, the A.O made an addition of the entire amount to the returned income of the assessee company. Also, it was observed by the A.O. that cash of Rs.4.73 lacs was found during survey proceedings, out of which an amount of Rs.4.64 lacs was related to the recorded sale transactions. As regards the balance amount of Rs.9000/-, the assessee though claimed that the said discrepancy was due to the sales returns, but the A.O did not find favor with the explanation above and made an addition of Rs.9000/- to the assessee’s returned income. Accordingly, the A.O. vide his order passed u/s.143(3) of the Act dated 23.12.2016 determined the income of the assessee company at Rs.1,10,09,000/-.

Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without success. The CIT(Appeals), finding no infirmity in the view taken by the A.O, had upheld the same by observing as under:

The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.

We have heard the ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions.

Admittedly, it is a fact borne from the record that discrepancies of Rs.1.10 crore (supra) were found in the survey proceedings conducted on 11.10.2013. As stated by the Ld. AR, assessee company had commenced its business only a few days back prior to the survey, i.e., w.e.f. 07.10.2013. On being queried about the unexplained investment in stock/franchisee fee/furniture, it transpires from the record that the respective directors of the assessee company, viz. Shri Haresh Kumar Advani, Smt. Tamanna Advani and Smt. Mansi Advani had, in their statements, admitted that the said investment was sourced out of their respective undisclosed income, which they had categorically offered for tax for the year under consideration as under:

Shri Haresh Kumar Advani (i) Rs.33 lacs : Investment that he claimed to have been made with the assessee company, which in turn was stated to have been sourced from M/s. Sai Traders (Old firm) and out of his account (savings), which, without supporting evidence, was offered by him as his undisclosed income for the year under consideration. (ii) Rs.37 lacs (out of Rs.70 lacs) : He stated that the amount of Rs.70 lacs was sourced out of funds received from shareholders of M/s. Top Flow Property Pvt. Ltd., Kolkata (i.e. erstwhile name of the assessee company). On being queried as to how the amount of Rs.70 lac was received from the shareholders, he stated that he a/w. remaining two directors viz. Smt. Tamanna Advani and Smt. Mansi Advani, had given cash to some person belonging to Raipur, which amount was thereafter received back in the coffers of the assessee company through RTGS/Cheque.

Smt. Tamanna Advani (i) Rs.20 lacs: It was categorically stated by her in her statement recorded during the survey proceedings that she had invested in two tranches, viz. (i) investment towards capital: Rs.13 lacs; and (ii) investment towards furniture of the assessee company: Rs.7 lacs. On being queried about the source of the abovementioned amount of Rs.20 lacs (supra), she stated that the same was speculation profit that she had earned during the year under consideration. As she could not substantiate the source of her income described above, the said amount was offered by her as undisclosed income for the year under consideration, i.e., F.Y.2013-14, on which she had agreed to pay the corresponding amount of tax.

On a careful perusal of the statements of the directors of the assessee company, viz. Shri Haresh Kumar Advani, Smt. Tamanna Advani and Smt. Mansi Advani; and statement of Shri Haresh Kumar Advani recorded u/s. 131 of the Act by the A.O. during the assessment proceedings, it transpires that income of Rs.1.10 crore (supra) was admitted by them as their respective undisclosed income (as culled out by us hereinabove). In sum and substance, the directors, as mentioned above, on being queried about the source of investment of Rs.1.10 crore, had in unequivocal terms stated that the same was sourced out of their respective undisclosed income, viz. (i) Shri Haresh Kumar Advani: Rs.70 lacs; (ii) Smt. Tamanna Advani: Rs.20 lacs and (iii) Smt. Mansi Advani: Rs.20 lacs. The respective directors disclosed Rs.1.10 crore (supra) qua the undisclosed income they garnered during the year under consideration and not in the hands of the assessee company. The A.O. had grossly erred in observing that the assessee company had disclosed Rs.1.10 crore during the survey proceedings. As noticed by us hereinabove, it is not 19 Bhagyaarna Gems & Jewellery Pvt. Ltd. Vs. ITO, Ward-4(1)

In our considered view now, when the source of the investment towards unexplained stock/franchisee fee/furniture was duly explained to have been made out of the investment made by the directors, as admitted by them in their respective statements, though out of their undisclosed income, the same cannot be held as an unexplained investment in the hands of the assessee company. Our conviction above is fortified on a perusal of Section 69 of the Act, which therein contemplates that it is only when the assessee does not explain the nature and source of the investments; or the explanation offered by him is not in the opinion of the A.O satisfactory, the value of the investment may be deemed to be the income of the assessee of such financial year. As the aforesaid factual position that had been canvassed by the directors of the assessee company, i.e., investments towards unexplained stock/franchisee

As observed by the Hon’ble Supreme Court in the case of ITO vs. Ch. Atchaiah (1966) 218 ITR 239 (SC), the Income Tax Officer can and must tax the right person and the right person alone. The Hon’ble Apex Court observed that the “right person” means the person who is liable to be taxed, according to law, concerning a particular income. It was further observed that the expression “wrong person” is used as the opposite of the expression “right person.” Based on its observation above, the Hon’ble Apex Court had concluded that merely because a wrong person is taxed concerning a particular income, the A.O. is not precluded from taxing the right person concerning that income.

Based on the aforesaid settled position of law, we believe that now when the respective directors, viz. Shri Haresh Kumar Advani, Smt. Tamanna Advani and Smt. Mansi Advani had, in the course of survey proceedings, admitted their undisclosed income aggregating to Rs.1.10 crore (supra), which had sourced the investment towards stock/franchisee fee/furniture of the 21 Bhagyaarna Gems & Jewellery Pvt. Ltd. Vs. ITO, Ward-4(1)

We, thus, in terms of our observations above, are of the considered view that the amount of Rs.1.10 crore (supra) was liable to be looked into by the A.O in the hands of individual directors for the reason that they had duly admitted the same as their undisclosed income for the year in question. Considering the aforesaid factual position, the A.O. is directed to bring to tax the aforementioned undisclosed income of Rs.1.10 crore (supra) as per extant law in the hands of the directors, viz. Shri Haresh Kumar Advani, Smt. Tamanna Advani and Smt. Mansi Advani as per Section 150 of the Act. Thus, the Ground of Appeal No.1 raised by the assessee is allowed in terms of our observations above.

We shall now deal with addition of Rs.9000/- made by the A.O. as unrecorded cash found during survey proceedings. As observed by us hereinabove, cash in hand of Rs.4,73,000/- was found during survey proceedings on 07.10.2013. On being queried, the assessee claimed that the same was sourced from the sales up to the survey date. As the sale bills till 07.10.2013 aggregated to Rs.4,64,000/-, the A.O. called for an explanation regarding the source of the balance amount of Rs.9000/-. In reply, it was claimed by the assessee that the deficit as per sale bills was on account of sale returns. As the assessee had failed to fortify his claim, the A.O. added the amount mentioned above of Rs.9000/ to the returned income of the assessee.

As the Ld. AR for the assessee had failed to come forth with any explanation concerning the addition mentioned above of Rs.9000/- sustained by the CIT(Appeals); therefore, we uphold the same. Thus, the Ground of appeal No.2 raised by the assessee is dismissed in terms of our observations above.

As the Ld AR has advanced no contention regarding Ground of Appeal No.3, i.e., concerning his claim that the CIT(Appeals) had passed the order without affording proper opportunity to the assessee company, the same is 23 Bhagyaarna Gems & Jewellery Pvt. Ltd. Vs. ITO, Ward-4(1)

Ground of appeal No.4, being general in nature, is dismissed as not pressed.

In the result, the appeal of the assessee is partly allowed in terms of our aforesaid observations.