2009 (6) TMI 656 - AT - Income Tax

Addition - Reassessment - Business income or accommodation entry - Applications for admission of the additional grounds - assessee filed return of income on 31st Oct. 1998 declaring income of Rs. 73, 180 from business of sale and purchase of gold jewellery - It appears that the bank account has not been considered while declaring return income - it was contended that the entire accommodation entry activities were actually carried out on the behest of Shri V.K. Umat of Umat & Associates and that the returns were filed merely to create paper records to give an impression that genuine jewellery business - AO initiated the reassessment proceedings for the asst. yr. 1998-99 - AO on the basis of the entries in the bank account observed that the return filed by the appellant was too low as compared to substantial transactions appearing in the bank account of the appellant. In these circumstances the AO rightly came to a prima facie belief of escapement of income in the hands of the appellant As regards the reopening of assessment proceedings for the asst. yrs. 1999-2000 to 2002-03 no contention was raised before us by the learned Authorised Representative even though specific ground has been raised challenging the validity of the initiation of proceedings under s. 147 of the IT Act - The case of the appellant squarely falls in Expln. 2 to s. 147 of the Act which provides that where no return of income is furnished even though the assessee has taxable income such case would be a case of deemed escapement of income - Held that proceedings initiated by the AO under s. 147 of the IT Act for the various asst. yrs. 1998-99 to 2002-03 is valid and there was no error in the order of the CIT(A) upholding the same whether on the facts and the circumstances of the case it can be held that the appellant was during the relevant year engaged in jewellery business or not - IT Department has conducted enquiry from various sellers of the jewellery and based on the same the learned Authorised Representative for the appellant vehemently contended that every seller had confirmed having sold jewellery to M/s Vishnu Jewellers the proprietary concern of the appellant - On a careful perusal of the statement of Shri Vijay Gupta we note that the said person in his statement stated that he worked with Umat & Associates from April 2000 to February/March 2002 and also stated names of various other concerns with whom he has worked as part-time accountant - Held that there are substantial evidences available on record to establish the fact that the appellant was actually engaged in jewellery business and was not providing accommodation entries as has been alleged by the Revenue authorities - the evidences placed before us supports the case of the assessee that the assessee Shri Rishi Grover was actually carrying on jewellery business under its proprietary concern M/s Vishnu Jewellers during the relevant year - Decided in favor of the assessee

Issues Involved:
1. Validity of the reassessment proceedings under section 147 of the IT Act.
2. Determination of whether the assessee was engaged in genuine jewelry business or merely providing accommodation entries.
3. Validity and reliance on statements recorded by the Dy. Director of IT (Inv.) under section 131(1) of the IT Act.
4. Admissibility and consideration of additional evidence and documents.

Detailed Analysis:

1. Validity of the Reassessment Proceedings under Section 147 of the IT Act:
The AO initiated reassessment proceedings for multiple assessment years based on information regarding substantial transactions in the assessee's bank account, which were not commensurate with the declared income. The Tribunal upheld the validity of the reassessment proceedings, citing the Supreme Court's decision in Rajesh Jhaveri Stock Brokers (P) Ltd., which allows reopening of assessments based on a prima facie belief of income escapement. The Tribunal found that the AO had sufficient cause to believe that income had escaped assessment, thus validating the reassessment proceedings.

2. Determination of Whether the Assessee was Engaged in Genuine Jewelry Business or Providing Accommodation Entries:
The Tribunal examined various pieces of evidence, including the assessee's tax returns, sales-tax registration, rent agreements, and statements from multiple individuals. It was found that the assessee had filed returns showing income from jewelry business, had a registered shop, and was recognized by the Sales-tax Department as a jewelry dealer. The Tribunal noted that the assessee had made substantial purchases from registered dealers and that these transactions were confirmed by the sellers. The Tribunal concluded that the assessee was genuinely engaged in the jewelry business, rejecting the AO's claim that the assessee was merely providing accommodation entries.

3. Validity and Reliance on Statements Recorded by the Dy. Director of IT (Inv.) under Section 131(1) of the IT Act:
The Tribunal addressed the validity of statements recorded by the Dy. Director of IT (Inv.), noting that such statements are only valid if recorded in connection with a pending proceeding or pre-search enquiry under section 132 of the IT Act. The Tribunal found that no such proceedings were pending at the time the statements were recorded, rendering them invalid. Additionally, the Tribunal noted that the assessee's confessional statements were retracted and allegedly obtained under coercion, thus lacking evidentiary value. The Tribunal cited multiple judgments, including Vinod Solanki and K.T.M.S. Mohd., to support the principle that retracted statements, especially those obtained under duress, cannot be relied upon without corroborating evidence.

4. Admissibility and Consideration of Additional Evidence and Documents:
The Tribunal admitted additional grounds and evidence submitted by the assessee, which included bills of bullion purchases from SBI and other relevant documents. The Tribunal found that these documents were crucial for establishing the genuineness of the assessee's business transactions and should have been considered by the CIT(A). The Tribunal directed the AO to compute the assessee's income based on the net profit rate declared in the returns, considering the additional evidence.

Conclusion:
The Tribunal concluded that the assessee was genuinely engaged in the jewelry business and not in providing accommodation entries. The reassessment proceedings were upheld as valid, but the reliance on invalid and retracted statements was rejected. The Tribunal directed the AO to recompute the income based on the genuine business transactions and additional evidence provided by the assessee. The appeals were partly allowed in favor of the assessee.

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