, ,
IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI
BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
AND RAM LAL NEGI, JUDICIAL MEMBER
/ I.T.A. No. 4828/Mum/2010
( / Assessment Year: 2003-04
M/s. Sunjyot Gems, 908-A / The DCIT,
Panchratna Opera House, Central Circle-22,
Vs.
Mumbai-400 004 Aayakar Bhavan,
Mumbai
/ I.T.A. No. 4803/Mum/2010
( / Assessment Year: 2003-04
The DCIT, / M/s. Sunjyot Gems, 908-A
Central Circle-22, Panchratna Opera House,
Vs.
Aayakar Bhavan, Mumbai-400 004
Mumbai
/ I.T.A. No. 4829/Mum/2010
( / Assessment Year: 2004-05
M/s. Sunjyot Gems, 908-A / The DCIT,
Panchratna Opera House, Central Circle-22,
Vs.
Mumbai-400 004 Aayakar Bhavan,
Mumbai
/ I.T.A. No. 4844/Mum/2010
( / Assessment Year: 2004-05
The DCIT, / M/s. Sunjyot Gems, 908-A
Central Circle-22, Panchratna Opera House,
Vs.
Aayakar Bhavan, Mumbai-400 004
Mumbai
/ I.T.A. No. 5550/Mum/2010
( / Assessment Year: 2005-06
M/s. Sunjyot Gems, 908-A / The DCIT,
Panchratna Opera House, Central Circle-22,
Vs.
Mumbai-400 004 Aayakar Bhavan,
2 M/s. Sunjyot Gems
Mumbai
/ I.T.A. No. 6030/Mum/2010
( / Assessment Year: 2005-06
M/s. Sunjyot Gems, 908-A / The DCIT,
Panchratna Opera House, Central Circle-22,
Vs.
Mumbai-400 004 Aayakar Bhavan,
Mumbai
. / . / PAN/GIR No. :AAKFS 9404Q
( /Appellant) .. ( / Respondent)
/ Assessee by: Shri Madhur Agarwal
/Revenue by: Shri Manjunatha R.
Swamy
/ Date of Hearing
:08.09.2015
/Date of Pronouncement :30.09.2015
/ O R D E R
PER N.K. BILLAIYA, AM:
These appeals by the assessee and the cross appeals by the
Revenue are preferred against the order of the Ld. CIT(A)-39,
Mumbai pertaining to Assessment years 2003-04 to 2005-06. These
bunch of appeals were heard together as common issues are involved
and are disposed of by this consolidated order for the sake of
convenience and brevity.
2. At the very outset, representatives from both the sides agreed
that the facts in issues are identical in the impugned assessment
years in so far as common grievance is concerned therefore, facts of
A.Y. 2003-04 may be taken for consideration for the disposal of the
impugned appeals.
3 M/s. Sunjyot Gems
ITA No. 4828/M/2010-A.Y. 2003-04 Assessee's appeal
3. The first grievance of the assessee relates to the claim that the
Ld. CIT(A) ought to have struck down the assessment order since
there is no prescribed form for furnishing the return u/s. 153A of the
Act.
4. The Ld. Counsel for the assessee did not seriously contest this
ground of appeal and the same is dismissed accordingly.
5. The Ld. Counsel for the assessee did not press ground No. 2,
therefore it is dismissed as not pressed.
6. Ground No. 3 relates to upholding the addition made u/s. 69 of
the Act.
6.1. Rival submissions have been heard at length in the light of the
relevant documentary evidences. We have carefully perused the
orders of the authorities below. The fact of the case are that the
assessee is a partnership firm engaged in the export of diamond and
is also acting as a commission agent in diamonds. A survey action
was conducted on 1.10.2004 u/s. 133A of the Act which was later
converted into a search action u/s. 132 of the Act on 2.10.2004.
During the course of the search action, several incriminating
documents were found and seized vide Annexures A-1 to A-4 of
Panchanama dated 2.10.2004. The assessee was asked to file return
of income by issuing notice u/s. 153A of the Act, in response to which
the assessee filed its return of income declaring income of Rs.
2,31,980/-.
4 M/s. Sunjyot Gems
6.2. While scrutinizing the return of income vis-à-vis the
documents seized during the search proceedings, attention of the
assessee was drawn to page No. 23 to 32 of Annexure-A-1 which is
exhibited at para-3 on pages 2,3 & 4 of the assessment order. The
AO's observation in respect of the exhibit relates to the quantity of
diamond received from Shri Narendra Sanghvi being 3574.35 cts
which pertain to financial years 2002-03 and 2003-04.
6.3. Statement of Shri Ashok Gulechha was recorded on 8.12.2004
wherein specific questions were asked about the entries appearing
on these pages. The relevant portion of the statement of Shri Ashok
Gulechha is at pages 4,5 & 6 of the assessment order.
6.4. Comparing the statement recorded on 8.12.2004 with the
statement recorded on 2.10.2004, the AO opined that on 2.10.2004,
Shri Ashok Gulechha has stated that the diamonds were received
from the suppliers. The defective pieces were given back to the
suppliers for repairing. However, subsequently in his statement on
8.12.2004, Shri Ashok Gulechha has stated that the diamonds
received from the suppliers were given to Shri Narendra Sanghvi,
partner of M/s. Sne'jay Gems for repairing. According to the AO,
there was a contradiction in the two statement given by Shri Ashok
Gulechha.
6.5. The assessee was asked to show cause as to why the above
quantity of diamonds received from M/s. Sne'jay Gems should not be
treated as your unaccounted purchase and brought to tax as your
undisclosed income for the relevant period. The assessee filed a
detailed reply vide its letter dated 22.12.2006. It was strongly
5 M/s. Sunjyot Gems
contended that the assessee is only a middleman/commission
agent/broker and do the job on brokerage and commission basis. It
was explained that the quantity mentioned in the pages 23 to 32 of
Annexure-A1 do not belong to the assessee and is not the property of
the firm/any of the partners of the firm. In support of its
contention/claim, the assessee filed the list of exporters on whose
behalf it had received the diamonds for necessary
repairing/reshaping process to meet the international requirements.
The details of exporters given which read as under:
Sr. Name of principals Cts Commission earned Commission
No.
by (Rs. )
1. Shital Diam 535.94 Sujyot Gems 32872
2. S. Jogani & Co. 371.14 Sujyot Gems 23870
3. Navin Gems 265.02 Sujyot Gems 24557
4. Shreeramkrishna 500.09 Sujyot Gems 32590
Exports
5. Everest Enterprises 185.17 Ashok Kr Gulechha 11894
6. Dharmanandan 679.46 Ashok Kr Gulechha 57941
Diamonds
7. Shital Gems P. Ltd. 679.46 Ashok Kr Gulechha 11159
8. Shital Gems Pvt. Ltd. 196.17 Ashok Kr Gulechha 14619
9. Mani Exports 207.93 Ashok Kr Gulechha 17825
10. Vaghasia Bros 317.58 Ashok Kr Gulechha 17557
11. J Anu Exports P. Ltd. 246.55 Ashok Kr Gulechha 13971
12. D Nitin &Co. 285.53 Ashok Kr Gulechha 21757
13. Shreeramkrishan Export 449.76 Rakesh Malhotra 32218
Total 4462.36 Commission earned 312830
6.6. The assessee further explained that since it is not equipped
with the required machinery for the cutting and polishing, it has
appointed Shri Narendra Sanghvi to carry out the necessary repairing
6 M/s. Sunjyot Gems
under assessee's supervision. The assessee also enclosed the
relevant documents in respect of the exporters (principals) on whose
behalf it had carried out these jobs. From the export bills, it was
explained that such goods were exported to the overseas customer
by its principals. It was further explained that export realization of
such export bills were realized by the principals directly and the
assessee has only earned brokerage/commission.
6.7. The assessee strongly contended that there is no evidence or
statement on the record of the parties stating that the diamonds have
either been purchased directly by the assessee firm/or its partners.
Since the diamonds do not belong to the firm, only brokerage income
in respect of the aforementioned transaction had been recorded.
6.8. The assessee's contention/submission was examined by the AO
in the light of the statement given by Shri Ashok Gulechha. The AO
was of the firm belief that prior to 27.1.2003 and subsequent to
11.8.2003, the assessee has not referred any repairing work to Shri
Narendra Sanghavi. Further, in its return of income from A.Y. 2003-
04 and 2004-05, the assessee has not claimed any repair expenses
towards Sne'jay Gems nor Sne'jay Gems has shown any income by
way of repairing charges. Referring to the statement of Shri
Narendra Sanghavi, the AO observed that in his reply the said Shri
Narendra Sanghavi has categorically stated that he has no business
transaction with Shri Ashok Gulechha. While rubbishing the claim of
the assessee, the AO further observed that the assessee has not
submitted any acknowledgement of the parties from whom it is
claiming to have received the diamonds for repair work. Drawing
support from various judicial decisions referred to at page-1 of his
7 M/s. Sunjyot Gems
order, the AO was convinced that the assessee has grossly failed to
discharge the burden of proof cast upon it and proceeded by making
the addition u/s. 69 of the Act as unexplained investment by taking
the value of stock 1390.70 cts @ 16,600 per cts and made the
addition of Rs. 2,30,85,620/-
7. Aggrieved, assessee carried the matter before the Ld. CIT(A)
and reiterated what has been stated during the course of the
assessment proceedings but failed to convince the Ld. CIT(A).
7.1. However, at the same time the Ld. CIT(A) was of the opinion
that the entire addition made by the AO cannot be sustained. The Ld.
CIT(A) was of the opinion that from the seized material, the
diamonds in possession of the assessee for every 15 days of the
month were as follows:
Period Diamonds purchased
in carrats
16.01.03 to 31-01-03 160.1
01.02.03 to 15.2.03 Nil
16.2.03 to 28.2.03 391.7
1.3.03 to 15.3.03 378.9
16.3.03 to 31.3.03 616.15
01.4.03 to 15.4.03 665.19
16.4.03 to 30.4.03 707.77
1.5.03 to 15.5.03 Nil
16.5.03 to 31.5.03 140.37
01.06.03 to 15.06.03 Nil
16.6.03 to 30.06.03 158.64
8 M/s. Sunjyot Gems
01.7.03 to 15.07.03 452.48
16.7.03 to 31.07.03 134.9
1.08.03 to 15.08.03 719.98
7.2. In the light of the aforementioned details, the Ld. CIT(A) was of
the opinion that the diamonds purchased in the first 15 days of
March, 2003 were sold and that cash is available for purchase from
16.3.03 to 31st March, 2003. From the aforementioned chart, it can
be seen that the maximum quantum of purchases is during 16.3.03 to
31.3.03 which is relevant to assessment year 2003-04 which
according to the Ld. CIT(A) should be considered as `Seed Capital'.
According to the Ld. CIT(A), the Seed Capital has to be assessed in A.Y
2003-04 which comes to Rs. 1,02,28,090/-. Apart from the Seed
Capital, the profit earned from unaccounted sales is estimated at 5%.
The Ld. CIT(A) further directed for making the addition of Rs.
11,54,281/- and finally directed the AO to restrict the addition at Rs.
1,13,82,371/- instead of Rs. 2,30,85,620/-.
8. Aggrieved by this both assessee and the Revenue are in appeal
before us.
9. As mentioned elsewhere, we have heard the rival contentions
at length. The entire additions have been made on the strength of
one register found at the time of search, the contents of which as
mentioned elsewhere are exhibited at para-3 of the assessment
order. It contains the date, Lot. Pieces, outgoing weight, return back
weight, received date, sign and receivers signatures. The return back
weight is less than the outgoing weight which means that after
repairing and doing the necessary work on the diamonds, the return
9 M/s. Sunjyot Gems
back weight is lesser than the weight at the time when the diamond
was given for repair work. Under the head sign, name of Shri
Narendra Sanghavi is mentioned under the head receivers signature
Sunjyot Gems employee is mentioned. It is an undisputed fact that
barring this register, there is nothing found at the time of search
which could suggest that the assessee has purchased diamonds and
the same have been subsequently sold outside the books of account.
This becomes more pertinent and more relevant when we consider
the fact that the assessee was found in possession of 3110.67 carats
of diamonds out of which 1188.59 carats of diamonds were accepted
by the assessee as its undisclosed stock and in respect of the balance,
the AO has accepted the explanation made by the assessee. Thus, the
allegation of the Revenue authorities that the assessee has purchased
diamonds from M/s. Sne'jay Gems ( Shri Narendra Sanghavi), outside
the books of accounts were not found physically at the time of search.
Whatever was found physically was duly explained/accepted as
undisclosed stock. Once the addition has been made in respect of
undisclosed stock at the time of search, further addition would
amount to double addition.
10. During the course of the assessment proceedings, the assessee
had submitted list of exporters on whose behalf it has received the
diamonds for necessary repairing/reshaping process to meet the
international requirements. A remand report was called by the First
Appellate Authority vide letter dated 9.1.2009 which is extracted at
page-8 of the Ld. CIT(A)'s order. The remand report was submitted
by the AO vide letter dated 11.2.2009 which is extracted at para-8.1.
of CIT(A)'s order. In his remand report, the AO has mentioned that
summons were issued to the parties mentioned by the assessee, all
10 M/s. Sunjyot Gems
the summons were served on their address and all the parties have
confirmed the transaction by furnishing necessary documentary
evidences in support of their claim.
10.1. A further remand report was submitted by the AO which is
extracted at para-8.2 of CIT(A)'s order wherein once again the AO
examined the credit worthiness of the parties who have stated to
have given their stock of diamonds for assortment, inspection etc. to
the assessee.
10.2. The First appellate authority once again called for further
report vide letter dated 20.3. 2009 which is extracted at para-9 of
CIT(A)'s order, in response to which the AO submitted a final report
on 26.3.2009 which is extracted at para-10.1 of CIT(A)'s order. In this
final report, the AO observed that all the parties have categorically
stated that "Jangad" which was used for movement of stock of
diamonds as per market practice prevailing in the line of diamond
trade could not be preserved. The AO further observed that the
assessee had earlier given the list of the names of the parties before
the DDI in the course post search enquiries which tally with the list
furnished now. All the exporting parties have in response to
summons u/s. 131 of the Act confirmed that they had given
diamonds for assorting reshaping and repairing to the assessee and
received back the same for export. So far as the credit worthiness of
the parties is concerned, it is pertinent to inform that as reported
vide AO's letter dated 9.3.2009, the parties have submitted copies of
acknowledgement of return of income giving total income offered.
11 M/s. Sunjyot Gems
10.3. Considering the entire factual matrix in the light of three
remand reports of the AO mentioned elsewhere, the undeniable facts
emerged out of this is that the diamonds were belonging to various
exporters and from the remand reports submitted by the AO, it can
be seen that the various exporters have exported their diamonds
through the assessee and have paid commission to the assessee. It is
further seen that the exporters have admitted that they had sent their
diamonds to the assessee for approval. It is worthwhile to mention
here that the date mentioned in the seized document is prior to the
date of export by the exporters which conclusively prove that the
date of export is subsequent to the date mentioned in the seized
materials. For the sake of repetition from the enquiries conducted by
the AO during the remand proceedings, it can be seen that the
exporters have confirmed that they have given the diamonds for
approval. Once again for the sake of repetition, the physical stock
found at the time of search have been duly explained and accepted by
the AO.
10.4. In the light of the discussion made hereinabove, in our
understanding of the facts of the case in hand, we are of the
considered opinion that the impugned addition is uncalled for as the
diamonds do not belong to the assessee. We, therefore, do not find
any merit in the additions made by the AO u/s 69 of the Act and
simultaneously we also do not find any logic in the additions
sustained by the Ld. CIT(A). We, accordingly direct the AO to delete
the entire addition made u/s. 69 of the Act. Ground No. 3 is
accordingly allowed.
12 M/s. Sunjyot Gems
11. Ground No. 4 relates to the levy of interest u/s. 234 B and 234C
of the Act. The levy of interest is mandatory though consequential.
We, accordingly direct the AO to charge interest as per provisions of
the law.
12. In the result, the appeal filed by the assessee is partly allowed.
ITA No. 4803/M/2010 A.Y. 2003-04 Revenue's appeal
13. As mentioned elsewhere in assessee's appeal, the Revenue is in
appeal against the relief given by the Ld. CIT(A) while partially
confirming the addition made by the AO. As we have directed the AO
to delete the entire addition made u/s. 69 of the Act, Revenue's
appeal is dismissed.
ITA No. 4829/M/2010- A.Y. 2004-05 Assessee's appeal
14. Ground No. 1 is identical to ground No. 1 of assessee's appeal in
ITA No. 4828/M/2010 for A.Y. 2003-04. For similar reason ground
No. 1 is dismissed.
15. Ground No. 2 is dismissed as not pressed.
16. Grievance raised vide ground No. 3 is a new set of facts which
relate to the results of survey undertaken in the office of M/s. Anoop
Exports which was a part of searches carried out in the case of
Baradia group of Raipur. These loose sheets formed a virtual cash
book of unaccounted cash transactions from 1.4.2003 to 29.9.2004.
These loose sheets were maintained by Shri Naresh Tukaram
Tandale, Office Assistant of Mumbai Branch of Baradia group, Raipur.
13 M/s. Sunjyot Gems
16.1. The cash received was utilized by Shri Naresh Tukaram
Tandale for making cash purchases of gold ewellery and diamonds
and for meeting day today expenses and for making payments to
various parties as per the instructions of the owners/partners. As
per the details of cash account, it was found that the following
payments were made to Shri Ashok Gulecha partner of M/s. Sunjyot
Gems.
Date of payment Amount (Rs)
07.04.2003 1,00,000/-
08.05.2003 5,56,000/-
14.05.2003 5,00,000/-
25.06.2003 7,00,000/-
02.08.2003 3,50,000/-
17.09.2003 3,00,000/-
19.02.2004 4,00,000/-
29.02.2004 5,00,000/-
05.03.2004 5,00,000/-
17.03.2004 3,00,000/-
08.05.2004 8,00,000/-
27.08.2004 5,00,000/-
06.09.2004 5,00,000/-
Total 60,06,000/-
16.2. Statement of Shri Naresh Tandale was recorded on 30.9.2004
wherein he stated that cash payments were made by him as per the
instructions received from the partners of Baradia Group, Raipur
though he was not aware about the transactions involved.
14 M/s. Sunjyot Gems
16.3. Statement of Shri Ashok Gulecha was also recorded in respect
of the payments received from Shri Naresh Tandale and in his
statement Shri Ashok Gulecha accepted that M/s. Sanjyot Gems
(assessee) had arranged payments from sellers in the diamond
market for Baradia Group of Raipur since heavy discount was offered
for purchases made in cash. He has taken cash from Shri Naresh
Tandale and paid directly to the sellers, for this Shri Ashok Gulecha
was promised brokerage @ 0.25%. The statement of Shri Ashok
Gulecha was found to be in contradiction to the statement given by
Shri Naresh Tandale. The AO was of the opinion that if Shri Ashok
Gulecha, acting as a broker for the purchases made by Baradia group,
he failed to identify any of the sellers from whom purchases were
made, even the claim of brokerage of 0.25% is not supported by any
evidence. The AO was of the firm belief that the cash received by Shri
Ashok Gulecha is nothing but the sale consideration of the sales made
by the assessee firm outside its books of account. As per the seized
documents, the cash receipts pertain to financial year 2003-04 and
2004-05 relating to assessment years 2004-05 and 2005-06
respectively, therefore, the unaccounted cash sales was taken at Rs.
75.56 lakhs and accordingly additions were made in respective
assessment years.
17. The assessee carried the matter before the Ld. CIT(A) but
without any success.
18. Before us, the Ld. Counsel for the assessee vehemently
submitted that the survey operation was conducted at the premises
which belong to the Baradia group which was in connection with
search operation conducted at Raipur. It is the say of the Ld. Counsel
15 M/s. Sunjyot Gems
that the entire addition is made on the basis of loose sheet found at
the time of survey which reflected cash payments by Naresh Tandale
to Shri Ashok Gulecha which has been presumed as sale
consideration for sales made outside the books of account by the
assessee. The Ld. Counsel stated that except for these conjectures
and surmises, there is no evidence to support the allegations made by
the Revenue authorities.
19. Per contra, the Ld. Departmental Representative strongly
supported the findings of the AO.
20. We have given a thoughtful consideration to the orders of the
authorities below. It is an undisputed fact that the loose sheet were
found from the premises belonging to Baradia group. It is also an
undisputed fact that search operations were conducted at the
premises of Baradia Group, Raipur. In his statement, the Office
Assistance of Baradia Group Shri Naresh Tandale stated that he has
been making payments to various parties as per the instructions of
the partners of Baradia group. However, we do not find any
corroborative evidence from the partners of Baradia group which
could conclusively prove that the assessee had made sales to the said
group in lieu of which it has received cash payments from Naresh
Tandale. It can be seen that even Naresh Tandale was unaware of the
fact as to why cash payments are being made to Shri Ashok Gulecha.
The Revenue has not brought any documentary evidence on record
to show that the assessee was indulged in sales outside its books of
accounts. In our considered opinion, the entire addition appears to
be made purely on presumption, surmises and conjectures. The
additions made purely on conjectures and surmises cannot be
16 M/s. Sunjyot Gems
sustained without any supporting corroborative documentary
evidences which in our considered opinion, the Revenue has grossly
failed to bring on record. We, therefore, set aside the findings of the
Ld. CIT(A) and direct the AO to delete the impugned additions based
on the piece of paper found with Naresh Tandale of Anoop Exports.
Ground No. 3 is accordingly allowed.
21. Facts relating to ground No. 4 are same as the facts considered
by us in ground No. 3 in ITA No. 4828/M/10 for A.Y. 2003-04. For
similar reasons and for our detailed discussion therein, the impugned
additions are directed to be deleted. Ground No. 4 is accordingly
allowed.
22. Ground No. 5 relates to the levy of interest u/s. 234B and 234C
of the Act. The levy of interest is mandatory though consequential.
We, accordingly direct the AO to charge interest as per provisions of
the law.
23. In the result, the appeal filed by the assessee is partly allowed.
ITA No. 4844/M/2010 A.Y. 2004-05 Revenue's appeal
24. The grievances of the Revenue relate to the same set of facts
considered by us in ITA No. 4828 & 4803/M/2010 for A.Y. 2003-04.
For our detailed discussion therein, the appeal filed by the Revenue is
dismissed.
ITA No. 5550/M/2010- A.Y. 2005-06 Assessee's appeal
17 M/s. Sunjyot Gems
25. Ground No. 1 is not pressed accordingly it is dismissed as not
pressed.
26. Facts in ground No. 2 are identical to the facts considered by
us in ITA No. 4828/M/10 qua ground No. 3. For our detailed
discussion therein, the impugned addition is directed to be deleted.
27. Ground No. 3 relates to the levy of interest u/s. 234B and 234C
of the Act. The levy of interest is mandatory though consequential.
We, accordingly direct the AO to charge interest as per provisions of
the law.
ITA No. 6030/M/2010 A.Y. 2005-06 Revenue's appeal
28. The grievances of the Revenue relate to the same set of facts
considered by us in ITA No. 4828 & 4803/M/2010 for A.Y. 2003-04.
For our detailed discussion therein, the appeal filed by the Revenue is
dismissed.
29. In the result, the appeals filed by the assessee are partly
allowed and the appeals filed by the Revenue are dismissed.
Order pronounced in the open court on 30th September, 2015
Sd/- Sd/-
(RAM LAL NEGI ) (N.K. BILLAIYA)
/JUDICIAL MEMBER / ACCOUNTANT MEMBER
Mumbai; Dated : 30th September, 2015
. ../ Rj , Sr. PS
18 M/s. Sunjyot Gems
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A)-
4. / CIT
5. , ,
/ DR, ITAT, Mumbai
6. / Guard file.
/ BY ORDER,
//True Copy//
/
(Dy./Asstt. Registrar)
, / ITAT, Mumbai
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