Delhi High Court

Commissioner Of Income Tax-Xi vs Rama Krishna Jewellers on 26 September, 2014

Author: Sanjiv Khanna

*        IN THE HIGH COURT OF DELHI AT NEW DELHI

+                                         Reserved on : 29th August, 2014
                                       Date of decision: 26th September, 2014

                                INCOME TAX APPEAL 455/2014

         COMMISSIONER OF INCOME TAX-XI                  ..... Appellant
                     Through Mr. N.P. Sahni, Sr. Standing Counsel
                     with Mr. Nitin Gulati, Jr. Standing Counsel.

                     Versus
         RAMA KRISHNA JEWELLERS                   ..... Respondent

Through Dr. Rakesh Gupta, Advocate.

                            INCOME TAX APPEAL 456/2014

         COMMISSIONER OF INCOME TAX-XI                  ..... Appellant
                     Through Mr. N.P. Sahni, Sr. Standing Counsel
                     with Mr. Nitin Gulati, Jr. Standing Counsel.

                     Versus
         RAMA KRISHNA JEWELLERS                   ..... Respondent
                     Through Dr. Rakesh Gupta, Advocate.

                                INCOME TAX APPEAL 457/2014

         COMMISSIONER OF INCOME TAX-XI                  ..... Appellant
                     Through Mr. N.P. Sahni, Sr. Standing Counsel
                     with Mr. Nitin Gulati, Jr. Standing Counsel.

                     Versus
         RAMA KRISHNA JEWELLERS                   ..... Respondent
                     Through Dr. Rakesh Gupta, Advocate.

                                INCOME TAX APPEAL 458/2014

         COMMISSIONER OF INCOME TAX-XI                        ..... Appellant


                             Through Mr. N.P. Sahni, Sr. Standing Counsel
                            with Mr. Nitin Gulati, Jr. Standing Counsel.

                     Versus
         RAMA KRISHNA JEWELLERS                   ..... Respondent
                     Through Dr. Rakesh Gupta, Advocate.

                            INCOME TAX APPEAL 459/2014

         COMMISSIONER OF INCOME TAX-XI                  ..... Appellant
                     Through Mr. N.P. Sahni, Sr. Standing Counsel
                     with Mr. Nitin Gulati, Jr. Standing Counsel.

                     Versus
         RAMA KRISHNA JEWELLERS                   ..... Respondent
                     Through Dr. Rakesh Gupta, Advocate.

                            INCOME TAX APPEAL 460/2014

         COMMISSIONER OF INCOME TAX-XI                  ..... Appellant
                     Through Mr. N.P. Sahni, Sr. Standing Counsel
                     with Mr. Nitin Gulati, Jr. Standing Counsel.

                      Versus
         RAMA KRISHNA JEWELLERS                    ..... Respondent
                      Through Dr. Rakesh Gupta, Advocate.
         CORAM:
         HON'BLE MR. JUSTICE SANJIV KHANNA
         HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

SANJIV KHANNA, J.:

This common decision will dispose of the aforestated income tax

appeals filed by the Revenue relating to assessment years 2000-01 to 2004-

05 and 2006-07. As the issues involved are similar, we are disposing of the

appeals by this order, though the facts of each individual year have been

noticed.

2. The respondent-assessee, a partnership firm, was at the relevant time

engaged in jewellery business. The assessee was subjected to search and

seizure operation under Section 132 of the Income Tax Act, 1961 („Act‟,

for short) on 20th January, 2006. Residential premises of the partners were

also searched. Assessment proceedings under Section 153A of the Act

were initiated followed by issuance of notice by the Assessing Officer for

filing true and correct return of total income. The assessee vide his letter

dated 22nd March, 2007 stated that the returns as filed according to the

following table be treated as filed in response to notice under Section 153A

of the Act:-

                       Assessment Year             Return filed
                                               Date         Amount (Rs.)
                            2000-01         31/10/2000        32,030/-
                            2001-02         31/10/2001        52,560/-
                            2002-03         31/10/2002        69,225/-
                            2003-04         28/11/2003        68,258/-
                            2004-05         01/11/2004       1,79,879/-
                            2005-06         31/10/2005       1,82,762/-
                            2006-07         31/10/2006     2,26,15,330/-

3. For the purpose of record, we note that the assessment year 2005-06

is not subject matter of the present appeals and is a subject matter of ITA

461/2014. In ITA 461/2014 relating to assessment year 2005-06, we have

issued notice on the addition made by the Assessing Officer of

Rs.1,74,17,828/- for unaccounted sales and Rs.99,88,104/- on account of

unaccounted purchases.

Disallowance of 50% expenditure/payments to contractors

4. The first issue raised in the present appeals relates to disallowance of

50% of expenditure as declared or shown on account of „making charges‟

paid to Karigars. The details of the said expenditure as declared in the

respective assessment years and the ad hoc disallowance made by the

Assessing Officer of 50% are as under:-

                                      Total Payments       Ad hoc disallowance
     Assessment
                ITA No.              made to Karigars     made by AO (50% of
        Year
                                     (as claimed) (Rs.)   charges claimed) (Rs.)

      2000-01               457/14      3,26,439/-              1,63,220/-
      2001-02               456/14      4,88,831/-              2,44,415/-
      2002-03               459/14      6,87,174/-              3,43,587/-
      2003-04               455/14      6,79,915/-              3,39,957/-
      2004-05               460/14      7,56,881/-              3,78,440/-
      2006-07               458/14      11,57,837/-             5,78,918/-

5. The Assessing Officer held that the assessee had not furnished

details of expenses towards „making charges‟ inspite of letter dated 6th

December, 2007. It was observed that the said making charges were partly

paid in cash and vouchers with complete address of the Karigars to whom

payments were made, were not furnished. Accordingly, 50% disallowance

should be made. It may be noted that the assessment order under Section

153A of the Act was passed on 28th December, 2007, i.e. shortly after the

assessee was asked to furnish the aforesaid details. The Commissioner of

Income Tax (Appeals) deleted the said additions after the assessee had

filed relevant details, documents and confirmations. The assessee had

stated that as a jeweller, it was normal and customary to pay „making

charges‟, in cash. The making charges were merely 2% of the sales and per

se, very reasonable. It was stated that the makers, i.e. karigars were

persons of meagre means and their addresses were not readily available

and had to be ascertained. The assessment proceedings were being

undertaken for seven years at the same time and voluminous details,

figures and confirmations were asked for and had to be furnished. The

Commissioner of Income Tax (Appeals), in view of the evidence and

submissions, asked for a remand report from the Assessing Officer and

thereafter observed that no specific defect could be pointed out. In the

earlier years also, „making charges‟ had been accepted. The addition made

was ad hoc and assumptuous. The aforesaid finding has been affirmed by

the Income Tax Appellate Tribunal („Tribunal‟, for short).

6. Revenue submits that additional evidence should not have been

taken on record. We do not agree that the said submission raises a

substantial question of law. The Commissioner of Income Tax (Appeals),

after applying his mind and after perusal of the remand report, both before

and after admitting the evidence, had decided the issue in favour of the

respondent-assessee. The Assessing Officer in the remand report could not

point out and controvert the documents and details provided. Genuineness

of the documents was not doubted. The similar expenditure had been

allowed in the earlier years also. The finding being factual, we do not find

any reason to interfere with the order passed by the Tribunal. The

submission that the Tribunal has not gone into specific details and,

therefore, the impugned order requires interference, is without merit. The

Revenue was appellant before the Tribunal and should have pointed out the

defects in the reasoning given by the Commissioner of Income Tax

(Appeals) with reference to specific documents and papers or the inquiries

made by them. No such attempt, it is apparent, was made by the Revenue.

Additions under Section 68 of the Act and other additions

7. The second addition made by the Assessing Officer was under

Section 68 of the Act on account of unexplained cash credits. It would be

appropriate and proper to deal with the figures and the details involved

separately for each assessment year. We shall also examine other additions

made and subject matter of each appeal.

ITA No. 457/2014 - Assessment year 2000-01

8. The Assessing Officer made an addition of Rs.26,67,188/- under

Section 68 of the Act. The Commissioner of Income Tax (Appeals) deleted

the addition of Rs.24,84,868/-, received from M/s Sheenu Finance

Company, while addition of Rs.1,82,320/- made on account of credit

received from Rekha Goyal was upheld. The assessee, before the

Commissioner of Income Tax (Appeals), had filed several details and

pointed out that one Kewal Garg was proprietor of both M/s Sheenu

Finance Company as well as M/s Gold Craft. They filed copy of the ledger

of M/s Sheenu Finance Company for the relevant period. The additional

evidence was accepted on record as it was submitted that the confirmations

were asked by a questionnaire dated 6th December, 2000 and the

assessment was made on 28th December, 2000. Bulky information,

confirmation and evidences were required to be furnished at a short notice.

Due to paucity of time and the fact that many cases were taken up

simultaneously, relevant details and confirmations could not be furnished.

The said additional evidences were then furnished to the Assessing Officer

for his comments, who in the remand report, given by the Deputy

Commissioner of Income Tax, Central Circle-XXIII, stated that in view of

the additional evidence furnished, credit/loan was genuine. Accordingly,

the said addition was deleted.

ITA No. 456/2014 - Assessment Year 2001-02

9. Addition under Section 68 of the Act on account of unverified or

unexplained cash credit of Rs.1,00,000/- was made on account of credit

from Raju Bhutani. The Assessing Officer observed that there were

unsecured loans of Rs.54,61,535/-, which were asked to be explained.

Confirmations and details were filed to account for the said loans except

for two unsecured loans of Rs.1,00,000/- each from Ashok Kumar Khanna

and Raju Bhutani. Their addresses and Permanent Account Numbers

(PAN) also were not furnished. Details with regard to Ashok Kumar

Khanna, including the copy of his bank statement, the factum that the

amount was returned on 31st March, 2003 by way of cheque, were noticed.

In the subsequent remand report, the Assessing Officer observed that the

loan from Ashok Kumar Khanna appeared to be genuine. Thus this

addition was deleted. It is noticeable that in respect of cash credit of

Rs.1,00,000/- from Raju Bhutani, the addition made by the Assessing

Officer has not been deleted. The appeal filed by the Revenue on the

assumption that the addition made in the case of Raju Bhutani is deleted, is

factually wrong and incorrect.

ITA 459/2014 (Assessment Year 2002-03)

10. Addition of Rs.10,14,947/- was made under Section 68 of the Act on

account of failure to substantiate and file confirmation of loans from

Shyam Arora of Rs.3,00,000/-, Suman Girdhar of Rs.2,64,947/- and M/s

Ashish Impex of Rs.4,50,000/-. For the reasons noted earlier, the

Commissioner of Income Tax (Appeals) took on record the additional

evidence after calling for remand report, in respect of credit from Shyam

Arora, Suman Girdhar and M/s Ashish Impex. Shyam Arora had sent a

copy of statement of accounts including his income tax return which was

accepted by his Assessing Officer. Similarly, in case of Suman Girdhar,

the loan was taken on interest and tax was deducted at source on the

interest paid. Bank statement of Suman Girdhar establishing availability of

funds, income tax return, etc., were filed. Confirmation of M/s Ashish

Impex, PAN, bank statement and income tax returns were also filed. The

Assessing Officer, in the remand report accepted that the aforesaid loans

were genuine. In these circumstances, addition of Rs.10,14,947/- was

deleted and the said order has been affirmed by the Tribunal.

ITA 455/2014 (Assessment Year 2003-04)

11. In this year, addition of Rs.10,00,000/- was made on account of

unverified, undisclosed and unsecured loan from Renu Pruthi as this could

not be substantiated by producing confirmation, etc. before the Assessing

Officer. However, the Commissioner of Income Tax (Appeals) accepted

the application for taking on record the additional evidence after recording

the reasons set out and noticed earlier. The respondent assessee had placed

on record, copy of PAN card and confirmation from Renu Pruthi. She was

an income tax assessee and acknowledgment of return was filed. In the

second remand report, the Assessing Officer observed that the

creditworthiness of Renu Pruthi had not been proved as she had returned

income of Rs.1,74,535/- only. The Commissioner of Income Tax

(Appeals), however, recorded that the assessee had made payments of

Rs.1,07,400/- on 20th March, 2003 and Rs.38,821/- on 28th March, 2003.

The Commissioner of Income Tax (Appeals) examined the copy of

accounts and held that it has been established that Renu Pruthi had

sufficient opening balance of Rs.10,38,921/- and no fresh amount was

received during the year. The Assessing Officer in the remand report had

not commented on the said aspect. The Commissioner of Income Tax

(Appeals) recorded that the loan had not been received in the year under

assessment and deleted the said addition of Rs.10,00,000/-. Aggrieved,

Revenue had preferred an appeal before the Tribunal, but apparently no

evidence was put on record by the Revenue to contend that the loans were

raised in the assessment year. Hence, we see no reason to interfere or say

anything on this aspect.

12. Another ground raised relates to addition of Rs.7,00,000/- on

account of unexplained capital credited in the account of Mukta

Chaudhary, a partner of the assessee firm. The Assessing Officer held that

the genuineness of the transaction, creditworthiness of Mukta Chaudhary to

make the said contribution to the capital account was not established. He

observed that the father of Mukta Chaudhary, i.e. R.C. Dandona had made

a gift of Rs.25,00,000/- and she had received another gift of Rs.40,000/-

from her uncle H.C. Dandona., but the total amount of credit to her capital

account was Rs.32,40,000/-, and, therefore addition of Rs.7,00,000/- was

made. The Commissioner of Income Tax (Appeals) has deleted addition of

Rs.5,00,000/-, and not the entire addition of Rs.7,00,000/- as has been

wrongly stated in the grounds of appeal filed before us. Several contentions

were raised before the Commissioner of Income Tax (Appeals) including

the legal submission that the addition should not be made in the hands of

the assessee firm but in the hands of the individual partner. Mukta

Chaudhary had enclosed and filed evidence/material in the form of bank

statement, acknowledgment of income tax return in which she had declared

and accounted for the investment in the capital account of the assessee

firm. She had received another gift of Rs.5,00,000/- from her father and

evidence in that regard was enclosed. In the second remand report, the

Assessing Officer accepted that, Mukta Chaudhary had made payments

towards capital account by way of two cheques of Rs.2,00,000/- and

Rs.5,00,000/-, and she had established that Rs.5,00,000/- was gifted to her

by her father but in respect of Rs.2,00,000/- confirmation and details were

not filed and the said amount remained unexplained. Accordingly, the

Commissioner of Income Tax (Appeals) deleted addition of Rs.5,00,000/-,

and confirmed addition of Rs.2,00,000/-. The said decision has been

affirmed by the Tribunal.

ITA No. 460/2014 (Assessment Year 2004-05)

13. Assessing Officer made an addition of Rs.2,62,292/- as representing

unexplained and unsecured credit of Rs.1,07,200/- given by Anita Saini

and Rs.1,55,092/- given by Naresh Girdhar for failure to file confirmation,

bank account statement, etc. The assessee had submitted that Rs.40,000/-

was received from Naresh Girdhar during the year and Rs.1,10,000/- was

the opening balance, and he had filed confirmation of Naresh Girdhar, his

bank statement, acknowledgment of income tax return to substantiate the

same. Respondent assessee also claimed that the Assessing Officer had

issued summons to Naresh Girdhar who had appeared and confirmed the

loan. The Commissioner of Income Tax (Appeals) observed that this was

factually correct and addition in relation to Naresh Girdhar was deleted, but

addition in case of unsecured loan given by Anita Saini of Rs.1,07,200/-

has been affirmed. We notice that it has been wrongly stated in the ground

of appeals that addition of Rs.1,07,200/- also stands deleted.

14. Another addition of Rs.5,26,446/- was made by the Assessing

Officer on account of discrepancy in the total weight of jewellery

purchased as shown in the party wise list, viz. the jewellery weight as

mentioned in Form 3CD. The Assessing Officer held that there was a

difference of 957.173 gms. Before the Commissioner of Income Tax

(Appeals), it was explained that the total weight of jewellery purchased

was 81,423.292 gms, whereas as per the tax audit report the jewellery

purchased was shown as 80,466.118 gms. The jewellery purchased was

old gold which was converted into ornaments and, therefore, there was

weight loss. The purchase details given related to old gold, whereas in the

books of account net weight of the ornaments was shown. It was further

stated that there was no evidence to show sale of jewellery outside the

books. Without prejudice and in the alternative, it was submitted that the

respondent assessee had surrendered Rs.2,50,00,000/- and as corollary,

addition on account of undisclosed sale should not be made. The

Commissioner of Income Tax (Appeals) observed that the Assessing

Officer in the remand report had not made any adverse comments on the

arguments put forth and, therefore, he accepted the statement of the

assessee and hence addition of Rs.5,26,446/- was deleted. The

Commissioner of Income Tax (Appeals) has also observed that this

addition has to be considered along with surrender of Rs.2,50,00,000/-

made in the subsequent year on account of excess gold found during the

search. The aforesaid finding has been affirmed by the Tribunal. Looking

at the amount involved and the remand report which was submitted, we are

not inclined to interfere with the finding recorded by the Tribunal. It is

factual. However, we record that this would not affect and should not be

construed as a positive finding by the High Court on question of

telescoping surrender of Rs.2,50,00,000/- and the impact or effect thereof.

We have issued notice in ITA No. 461/2014 relating to the Assessment

Year 2005-06 and this order will not be considered as final and binding on

the said question.

ITA No. 458/2014 (Assessment Year 2006-07)

15. As noticed above, the assessee for this year had filed income tax

return of Rs.2,26,15,330/- in response to notice under Section 153A.

16. The Assessing Officer made an addition of Rs.32,34,250/- under

Section 68 of the Act as confirmations, bank accounts statements, income

tax returns of the persons who had given unsecured loans were not brought

on record. The Assessing Officer noticed that as per the balance sheet, the

respondent assessee had shown unsecured loans and was asked to furnish

confirmation, copy of bank statement and returns of the said creditors.

Some details were furnished but copy of income tax returns and bank

statements in respect of Ruma Bhutani (Rs.2,00,000/-), Karuna Nagpal

(Rs.5,00,000/-) and Sneh Arora (Rs.15,00,000/-) was not made available to

verify their creditworthiness. Besides, confirmations were not furnished

from Komal Gaba (Rs.2,00,000/-), Kapil Gaba (Rs.1,00,000/-), Rajinder

Gaba (Rs.1,00,000/-), Rajinder Kr. Gaba (HUF) (Rs.4,09,212/-) and Anita

Saini (Rs.2,25,038/-). Accordingly, addition of Rs. 32,34,250/- was made.

The Assessing Officer noticed that interest had been paid to Ruma Bhutani,

Karuna Nagpal and Sneh Arora but the said expenditure was disallowed.

In the present appeal, disallowance of interest has not been made subject

matter of challenge.

17. The Commissioner of Income Tax (Appeals), for the reasons stated

earlier, admitted additional evidence on record after calling for remand

report. It was pointed out that on the interest paid, tax was deducted at

source and the copies of the bank statements etc. were brought on record.

The confirmation of Ruma Bhutani, Karuna Nagpal, Komal Gaba, Kapil

Gaba, Rajinder Gaba and Rajinder Kumar Gaba (HUF) had been filed. The

Assessing Officer, after examining and verifying the documents, observed

that the claim appeared to be genuine. The Commissioner of Income Tax

(Appeals) in view of the statement made in the remand report by the

Assessng Officer accepted the genuineness of the credit to the extent of

Rs.15,09,212/-.

18. In the case of Sneh Arora, copy of her return and statement of

income in the assessment year 2006-07 were placed on record and it was

noticed that she had been paid Rs.1,77,041/- but she had not shown any

interest in her return for the assessment year 2006-07. The Assessing

Officer in the remand report had observed that Rs.15,00,000/- may be

undisclosed income of the assessee. It was noticed that during the year in

consideration, only Rs.1,00,000/- had been received from Anita Saini. It

was also observed that confirmation of Anita Saini had not been brought on

record. The Commissioner of Income Tax (Appeals) deleted the addition in

the case of Sneh Arora after noticing the facts observing that confirmation

had been filed, bank statement and copy of her income tax return had also

been filed. She had accepted the factum that she had given the loan.

However, the Commissioner of Income Tax (Appeals), had confirmed

addition of Rs.1,00,000/-, as no confirmation had been filed in the case of

Anita Saini. The balance amount represented the opening balance of the

earlier year. Thus, in all addition of Rs.1,17,838/- was confirmed and the

balance addition of Rs.31,16,412/- was deleted.

19. The Commissioner of Income Tax (Appeals) observed that the

Assessing Officer in the remand report had not given any adverse comments

on the evidence produced. Non-declaration or failure of Sneh Arora to show

that interest would not prove that the loan was not genuine. In the absence of

any other reason mentioned by the Assessing Officer, the addition was

deleted. It is noteworthy that Sneh Arora had been identified and had duly

confirmed having given the loan. We notice that a part payment had also been

made to her.

20. In the grounds of appeal raised by the Revenue in the Assessment Year

2006-07, another issue raised relates to the bills for exhibition expenses of

Rs.1,23,225/-. It is stated that the bills by themselves would not establish that

the expenses were incurred wholly and exclusively for business. Confirmation

from Sercon India Pvt. Ltd. for payment of Rs. 1,23,225/- for participating in

the Delhi Gold Festival exhibition was filed. However, no evidence had been

furnished in respect of balance amount of Rs.10,933/-, and, therefore, the said

disallowance should be upheld.

21. The contention of the Revenue is that the aforesaid addition has not

been examined and dealt with by the Tribunal in the impugned order. We do

not know whether this aspect was argued before the Tribunal or not,

especially in view of the remand report of the Assessing Officer in which he

had accepted that the exhibition expenditure to the extent of Rs.1,23,225/-

stands proved and established. Nevertheless, in case Revenue is of the

opinion that this matter was argued and has not been adjudicated, it is open

to them to file an application under Section 254(2) before the Tribunal. If

any application is filed, the same will be considered and decided in

accordance with law.

22. It is apparent from the aforesaid discussion that the issues raised in the

present appeals are factual and this Court while exercising appellate

jurisdiction under Section 260A of the Act is not an appellate Court for facts

reprise. Factual findings can be challenged only on the ground that the factual

findings recorded are perverse or relevant evidence has not been considered or

irrelevant material has been relied. In such cases, pleadings in this regard

have to be specific, erudite and the should indicate clearly the error or

mistake. This Court in CIT versus Sunaero Limited [2012] 345 ITR 163, at

page 187, regarding perversity of a decision of the Tribunal, has observed:-

" A factual decision is perverse if the authority has acted without any evidence or on view of facts, which cannot be reasonably entertained. A perverse finding is one, if it is arrived at without any material or if it is arrived at or inference is made on material, which would not have been accepted or relied upon by a reasonable person conversant with the law. If the finding is based upon surmises, conjectures or suspicion and is not rationally possible. A factual conclusion is regarded as perverse when no person duly instructed or acting judicially could act upon the record before him, have reached the conclusion arrived at by the tribunal/authority"

23. In the present case the Assessing Officer in the second remand report

on several accounts/additions accepted that the additional evidence placed

on record was sufficient to show that the transactions were genuine and

addition could not be sustained. In spite of second remand report, Revenue

has preferred appeals on even issues or amounts, which were accepted as

genuine. In respect of other amounts/transactions, not accepted by the

Assessing Officer in the remand report, we have referred to the findings

recorded by Commissioner of Income Tax (Appeals) in favour of the

respondent-assessee and observed why and for what reason we do not think

the said findings can be treated as perverse or based upon no material or

evidence. Further, Revenue was aggrieved by the order passed by the

Commissioner of Income Tax (Appeals) and was the appellant before the