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TMI Blog2012 (11) TMI 618X X X X Extracts X X X X X X X X Extracts X X X X ..... ances of the case and in law, the Hon'ble Commissioner of Income Tax (Appeal) erred in not considering the valuation report in proper perspective. 3. The Hon'ble CIT(A) directed the assessing officer to add gross profit of Rs. 4,73,262/- after giving a opportunity to assessee of being heard. The direction by the CIT(Appeals) amounted to enhancement of assessment without giving an opportunity to the appellant in terms of section 251(2) of the I.T. Act and hence, exceeded his jurisdiction. The directions issued by the Hon'ble CIT(Appeals) to the assessing officer is bad in law. The appellant hereby requests that the direction may please be quashed". 2. Facts of the case, in brief, are that the assessee is a private limited company and is engaged in business of dealing in gold ornaments and jewellery at Baramati, District Pune, under name and style Jyotichand B Saraf & Sons Pvt. Ltd., hereinafter called JBS in short. A search and seizure action under section 132 of the Income Tax Act, 1961 was conducted at the business premises of the assessee situated at Jayashree Complex, Station Road, Pune on 06-11-2001. In the course of search action, physical inventory of stock was taken by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted by Mr. Shantikumar Shah as out of proceeds of unrecorded sales in the above said statement. The CIT also observed that prevailing value of the gold at the time of search was Rs. 4,601.80 per 10 grams as on the date of search. In the return filed value adopted by assessee was only 3,700/- per 10 gram, thus declaring gross profit of Rs.3,80,518/- as against Rs. 4,19,055/- ought to have been declared as per then prevailing value. Consequently, concern Assessing Officer initiated assessment proceedings wherein he refused to accept retraction made by assessee from declaration of undisclosed income of Rs. 50,00,000/- made at the time of search stating that statement recorded u/s.132(4) at the time of search has evidentiary value at par with material found in the course of search. Accordingly, the Assessing Officer proceeded to assess investment made in agricultural land of Rs. 50,00,000/- as undisclosed income of the assessee for block period. Further Assessing Officer observed that value of deficit stock totalling to Rs. 11426.97 grams noticed at the time of search was done @ Rs. 4601.80 per 10 gram, the value of which comes to Rs. 52,58,463/- and the gross profit on the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y assessee vide his letter dated 21-10-2002 was rejected and entire amount of Rs. 50 lakhs declared in the assessment recorded us.132(4) was drawn as undisclosed income of the assessee for block period under consideration. Since the entire unrecorded sale were assessed as undisclosed income no separate addition on account of suppressed gross profit in respect of such unrecorded sales were considered by the Assessing Officer. 4. Matter was carried before the first appellate authority who after considering the various statements put forward on behalf of the assessee dismissed the appeal by observing that Assessing Officer was justified in treating the amount of Rs. 50 lakhs as undisclosed income for the block period. Accordingly addition made on this account was justified and Assessing Officer was also directed to assess the gross profit of RS. 4,73,262/- separately after giving opportunity of being head to the assessee. 5. Before us, stand of the assessee is that CIT(A) erred in confirming the addition of Rs. 50,00,000/- as undisclosed income on account of declaration of income during the course of search action on account of shortage of stock of gold without appreciating the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the search party. The stock of gold ornaments as per physical inventory was 95,056 grams as compared to stock of 1,10,870 grams as per books of account. Therefore, the actual stock found was short by 15,814 grams as compared to stock as per books of account. Mr. Shantikumar Shah, the Director of the assessee brought to the notice of search party that there was theft in shop premises about 6 months back and gold weighing 2,300 grams was stolen for which an FIR has been lodged with Baramati Police Station. Same was brought to the notice of search party. Therefore, the actual shortage of stock was 13,514 grams (15816-2300 grams) the value of which was arrived at Rs. 50,00,000/- considering the market rate of gold Rs. 370 per gram. 8. During the course of search action, statement of Mr. Shantikumar Shah, the Director of the assessee was recorded under section 132(4) of the Income Tax Act, 1961 on 6th November 2001. In response to question No. 27 of the statement, Mr. Shantikumar Shah agreed to declare the unaccounted income of Rs. 50,00,000/- equivalent to sale value of shortage of stock and he further stated that the cash generated from unaccounted sales was invested in purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clare the amount of unrecorded sale Rs.50,00,000 as undisclosed income in the hands of company i.e. J.B.Saraf & Sons Pvt. Ltd. In this connection it humbly submitted as follows 1) We have gone through the Statement of the director Mr.Shantikumar Shah and Panchanama of the jewelry found. In the Panchanama there are several mistake in physical verification of the jewelry. Similarly the valuer has, without application of the mind, determined gross weight and respective net weight of the jewelry. For example jewelry item "Thusi" is a pure gold item and it does not contain any alloys. However, the valuer has considered the net weight at 50% of the gross weight. (Please refer item no.29 page no.2 of the Panchanama). There are several other instances also. Similarly, the gold items in lying in silver section of the shop was not considered in valuing gold jewelry summery. Such differences in jewelry weight are to the tune of 2,087 grams. The details of difference in gross weight and net weight and jewelry lying in silver section are given on separate sheets enclosed herewith. Therefore, actual shortage is 11426.97 grams as follows: a. Shortage 13,514.28 b. Excess weight considered by se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the retraction of the admission in routine manner without applying his mind. The CIT directed the Assessing Officer to make enquiry in respect of investment in purchase of agricultural land and expenses incurred on development of agricultural land at Malad Tal : Daund, Dist. Pune, because the assessee during search action had admitted that the cash generated out of unaccounted sale was invested in the said agricultural lands. 11. Concern Assessing Officer in set aside proceedings instead of verifying investment in agricultural land and development thereof, made various presumptions and made additions of Rs. 50,00,000/- as undisclosed income in addition to the gross profit of Rs. 4,01,321/- declared by the assessee in the return. Similarly, the Assessing Officer made addition of Rs. 92,744/- being difference in the gross profit worked out by the assessee on the cost instead of selling price. The Assessing Officer completed the assessment u/s.158BC (c) r.w.s. 263 on 12th December 2006. 12. The assessee preferred the appeal before concern CIT(A) against assessment order. Meanwhile the assessee challenged jurisdiction of CIT to pass the revisionary order under section 263 before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Thirty Four Lacs Fourty Six Thousand Six Hundred and Sixty Seven only). To the best of my knowledge the valuation of above agricultural land is correct. Sd/- Shri C.T.Ganpule Govt. Approved Agrl. Land Valuer Regd. No.CAT/II/427 of 1997" In this background it was stated on behalf of assessee that the valuation report in respect of agricultural lands revealed that the assessee did not make any undisclosed investment in the agricultural land. In fact the assessee had acquired the agricultural land for the consideration of Rs. 34,51,575/- in the calendar year 2000 as detailed on page 72 of paper book same is reproduced below: SR DATE OF DOCUMENT TYPE OF DOCUMENTS IDENTIFICATION SHIWAR AREA UNDER DOCUMENTS IN HECTORS CONSIDERATION NAME 1. 25.05.00 Sale Deed 678/11 & 12 Malad 03.03 & 03- 02 375000 Padamkumar J Shah & Sushma Shah 2. 25.05.00 Sale Deed 311 Malad 1.23 490000 Padamkumar J Shah & Sushma Shah Sirishkumar J Shah & 7 Shah members 3. 25.05.00 Sale Deed 678/13 Malad 2.01 280325 Padamkumar J Shah & Sushma Shah Sirishkumar & Mangal Shah 4. 25.05.00 Sale Deed 678/05 & 6 Malad 01.53 & 01.34 350000 Swapnil Shah, Kaushal Shah Shatikumar, Shobha S Shah, Rohit Shah 5. 25. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. President Industries (2002) 258 ITR 654 (Guj.) held that Tribunal was justified in holding that entire undisclosed sale could not be added as income of assessee. Addition could be made only to the extent of estimated profit embedded in sale for which net profit was to be adopted. Similar view was taken by ITAT Pune Bench in Janata Tiles Vs. ACIT 66 TTJ (Pune) 695. The Jodhpur ITAT Bench in ACIT Vs. Rasana Industries 114 TTJ (Jodh.) 283 has held that when the stock is found short the addition could be made to the extent of GP involved therein. Only profit element can be subjected to tax and not the entire sales. 16. Addition of Rs. 50,00,000/- has been made solely on the basis of statement of the director of the assessee company Mr.Shantikumar J Shah without corroborating the same with the material unearthed by search. We find force in the submission of the Ld. Counsel for the assessee that the statement was given under the mistaken belief of law that suppressed sale is undisclosed income instead of the gross profit earned from the suppressed sales. The department has not brought on record any corroborative evidence so as to establish undisclosed income having been invested in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... belief of law and fact. Jodhpur ITAT Bench in Maheshwari Industries Vs. ACIT 81 TTJ 914(JD) has held that additions should be considered on merits rather than on the basis of the fact that the amount was surrendered by the assessee. It is settled legal position that unless the provision of statute warrant or there is a necessary implication on reading of section that the principles of natural justice are excluded, the provision of section should be construed in manner incorporating principles of natural justice and quasi judicial bodies should generally read in the provision relevant section a requirement of giving a reasonable opportunity of being heard before an order is made which will have adverse civil consequences for parties effected. 18. The Revenue authorities have relied heavily on the proposition that once the assessee makes admission he cannot go back from his own stand unless any evidence is furnished to show that the admission was obtained under coercion or threat or pressure. Hon'ble Allahabad High Court in case of Dr. SC Gupta Vs. CIT 248 ITR 782 (All) wherein assessee surrendered additional income in the statement recorded during the course of survey action but re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding to said valuation cost of agricultural land has been stated to be Rs.34,46,667/- which is close to total value of agricultural land purchased by members of family. The case of the assessee is that the statement has been given under the mistaken belief of law appeals to common sense. 20. The concern CIT initiated the revision proceedings u/s.263 of the Income Tax Act on the ground that the Assessing Officer has accepted the retraction of the statement without verification of investment made in the agricultural land at Boribel, Malad, Tal. Daund, Dist. Pune. In the order u/s. 263 the CIT directed the Assessing Officer to make enquiry on the issue of undisclosed investment made in acquisition and development of agricultural land on account of which the director of the assessee has made declaration of undisclosed income. There is nothing on record to suggest that any evidence was found in the course of search action or post search enquiries to the effect that the assessee has made any investment over and above sale price detailed above with regards to agricultural land transaction in question. There is also nothing on record to suggest that any enquiry has been made by Revenue a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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