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Income Tax Officer, Ward 4(1), New Delhi Vs. Shri Sushil Kumar Jain, Prop. M/s Jain Metal Works 9/104, Shastri Gali, Vishwas Nagar, Shahdara, Delhi- 110032
July, 07th 2015
           IN THE INCOME TAX APPELLATE TRIBUNAL
                 DELHI BENCH : `G : NEW DELHI

        BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER
                            AND
       SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER

                            ITA No.4396/Del /2011
                         Assessment Year : 2004-2005

Income Tax Officer,            Vs.         Shri Sushil Kumar Jain,
Ward 4(1),                                  Prop. M/s Jain Metal Works
New Delhi                                   9/104, Shastri Gali, Vishwas
                                            Nagar, Shahdara, Delhi- 110032

                              CO No.64/Del /2013
                          (In ITA No.4396/Del/2011)
                         Assessment Year : 2004-2005

Shri Sushil Kumar Jain,        Vs.          Income Tax Officer,
Prop. M/s Jain Metal Works                  Ward 4(1),
9/104, Shastri Gali, Vishwas Nagar          New Delhi
Shahdara, Delhi- 110032


(PAN AAFPJ 5870 N)



     (Appellant)                             (Respondent)

                      Date of Hearing      : 07.04.2015
                      Date of Pronouncement : 06.072015

                   Assessee by :      Sri Ramesh Chandra, CIT DR
                   Respondent by:    Sri C.S. Anand, Advocate
                                                                ITA No. 4396/Del/2011
                                                                 C.O. No. 64/DEL/2013




                                   ORDER

PER CHANDRA MOHAN GARG, JUDICIAL MEMBER

1.    This appeal of the Revenue and cross objection of the assessee have been

directed against the order of the CIT(A)-VII, New Delhi dated 11.07.2011 in

Appeal No. 120/2006-07 for AY 2004-05.

2.    Ground Nos. 1 & 2 of the Revenue are general in nature, which need at

no adjudication. Remaining grounds of the Revenue for adjudication reads as

under:-

"2.   On the facts and in the circumstances of the case, the Ld CIT(A) has
      erred in deleting the addition of Rs. 25,75,000/- made by the AO under
      section 69A of the I T Act, 1961.
2.1   The learned CIT(Appeals) has erred in ignoring the finding of the AO
      that the evidence and explanation put forth by the assessee in support
      of the sources of cash of Rs. 25,75,000/- seized by the excise authorities
      and repayment of advances received against sale agreements was not
      only clearly an after thought but also inherently defective.
2.2   The Ld CIT(Appeals) has erred in considering the explanation of the
      assessee with respect to each of the purported transaction in isolation
      and not appreciating the effect of the facts of the case in their totality
      and without countering the infirmities, inconsistencies and anomalies
      in the purported evidence discussed by the AO.
3.    On the facts and in the circumstances of the case the Ld CIT(A) has
      erred in deleting the addition of Rs. 5,00,000/- out of an a thon of
      Rs.6,77,000/-- made by the account of under statement of sale
      consideration of property situated at 9/100, Shastri Gali, Vishwas
      Nagar, Shahdara, Delhi.
4.    On the facts and in the circumstances of the case, the Ld CIT(A) has
      erred in deleting the addition of Rs. 5,00,000/- made by the AO on
2
                                                                ITA No. 4396/Del/2011
                                                                 C.O. No. 64/DEL/2013


      account of unaccounted source of repayment of advance against sale
      agreements.
5.    On the facts and in the circumstances of the case, the Ld CIT(A) has
      erred in deleting the addition of Rs. 5,00,000/- made by the AO on
      account unexplained source of repayment of property advance to Shri
      Vinod Kumar Jain.
6.    On the facts and in the circumstances of the case, the Ld CIT(A) has
      erred in deleting the addition of Rs. 3,00,000/- made by the AO on
      account of unaccounted receipt of cash claimed to have been received
      from Sh. Sheel Kumar Jain.
7.    On the facts and in the circumstances of the case, the Ld CIT(A) has
      erred in deleting an addition of Rs.16,96,788/- made by the AO on
      account oflow GP Ratio.
7.1   The Ld CIT(A) has erred in holding that the books of accounts of the
      assessee were rejected by the AO without any finding on the "correct
      or completeness" of the accounts."



3.    The sole ground of cross objection of the assessee reads as under:-

"1.   That on the facts of the case and under the law, the ld. CIT(A) has
      erred in not deleting the addition of Rs.1,77,000/-.
      Ld. AO had replaced the figure of actual sale consideration in respect
      of property bearing no.9/100, Shastri Gali, Vishwas Nagar, Shahdara,
      Delhi-32, declared by the assessee at Rs.8,00,000/- on the basis of Sale
      Deed executed by him, by the figure of Rs.9,77,000/- representing the
      fair market value estimated by the Assistant Valuation Officer."


4.    Briefly stated the facts giving rise to these cases are that during the

course of action on the assessee's business premises on 20.02.2004, the Central

Excise Authorities had found cash amount of Rs.25,75,000/- lying with the

assessee and the same was seized by the Central Excise Authorities.

Subsequently, in due course of process and time, the Central Excise Authorities

3
                                                             ITA No. 4396/Del/2011
                                                              C.O. No. 64/DEL/2013


had failed to make out any case against the assessee or his sole proprietary

concern M/s Jain Metal Works in regard to said cash amount which was seized

from the business premises of the assessee. Later on, the said cash of

Rs.25,75,000/- was requisition by the Income Tax Department on 19.09.2006.

5.    The Assessing Officer issue notice u/s 153A of the Income Tax Act,

1961 (for the short the `Act') to the assessee for AY 2001-02 to AY 2006-07

and thereafter completed reassessment on the returned income for five

assessment years accepted AY 2004-05. Finally, for AY 2004-05, the

reassessment was completed at the income of Rs.65,25,710/- against the

returned income of Rs.7,69,423/-. The Assessing Officer made certain

additions on account of unexplained money u/s 69A of the Act amounting to

Rs.25,75,000/-. Understatement of the sale consideration of proprietary sold

amounting to Rs.6,77,000/- income from undisclosed sources amounting to

Rs.5,00,000/- unexplained receipt of cash from Shri Sheel Kumar Jain

amounting to Rs.3,00,000/- addition on account of no GP rate amounting to

Rs.16,96,788/- much as disallowance of general expenses amounting to

Rs.7,500/-. Aggrieved assessee preferred an appeal before the CIT(A) which

was partly allowed on all the issues except part confirmation of addition of

Rs.1,77,000/- in respect of sale consideration of property bearing No. 9/100,

Shastri Gali, Viswas Nagar, Shahdra, Delhi-32. Aggrieved Revenue, before

this Tribunal with the Ground as reproduced hereinabove and the assessee has
4
                                                               ITA No. 4396/Del/2011
                                                                C.O. No. 64/DEL/2013


also filed cross objection in regard to part confirmation of addition and

dismissal of first appeal by the CIT(A).

Ground nos. 2, 2.1 & 2.2 of the assessee

6.    We have heard rival arguments and perused the relevant material placed

on record, inter alia assessment year, first appellate order of the CIT(A) and

written synopsis of the assessee filed before us. The Ld. Departmental

Representative (DR), supporting the action of the AO submitted that the AO

was quite justified in making addition in regard to the unexplained

money/seized cash of Rs.25.75 lakh u/s 69A of the Act. The Ld. DR further

contended that despite of adequate opportunity were given to the assessee to

submit said original receipt, but the same was not submitted during the

assessment proceeding. The Ld. DR further contended that in fact Shri Sheel

Kumar Jain had not signed any receipt/agreement not even on the date when

the money was returned him by the assessee Shri Sushil Kumar Jain. Ld. AR

further pointed out that in the said receipt/agreement, the assessee had given

conditional undertaking that he will get the property vacate from his sister,

which convinced that he was in complete command and controlled to get the

property vacate. Ld. DR further submitted that the AO rightly observed that the

said agreement was cancelled on account of nonpayment of instrument by Shri

Sheel Kumar Jain and not because the assessee Shri Sushil Kumar Jain could


5
                                                              ITA No. 4396/Del/2011
                                                               C.O. No. 64/DEL/2013


not get the property vacated from his sister. Ld. DR took us through the

relevant part of the assessment order and vehemently contended that the

Assessing Officer established made out that the explanation offered by the

assessee was not satisfactorily with regard to source of cash found in his

possession thus, third limb of Section 69A was satisfied and the seized amount

of cash was correctly added to the total income of the assessee u/s 69A of the

Act as his unexplained money. Ld. DR further pointed out that the CIT(A)

ignored the facts and allegation brought out by the AO and wrongly held that

the conclusion of the AO have been satisfactorily rebutted on behalf of the

assessee. Ld. DR finally prayed that the impugned order on this issue may be

set aside by restoring that of the AO.

7.    Replying to the above, Ld. counsel of the assessee supported the

conclusion of the CIT(A) and submitted that the assessee had furnished

complete evidence in support of availability of cash of Rs.25,75,000/- which

was seized by the Central Excise Authorities, before the AO during assessment

proceeding. The Ld. counsel of the assessee vehemently contended that the

Assessing Officer did not appreciate the explanation and evidences of the

assessee and proceeded to make the addition u/s 69A of the Act without any

reasonable basis and justified reasoning. Supporting the conclusion of the

CIT(A), Ld. counsel of the CIT(A) strenuously contended that the AO was not

able and intended to make necessary verification and examination and merely
6
                                                                  ITA No. 4396/Del/2011
                                                                   C.O. No. 64/DEL/2013


on this basis the explanation and evidence of the assessee cannot be rejected at

threshold. Ld. Counsel of the assessee further drawn our attention at Para 5.1

and 5.2 of the impugned order and submitted that the explanation and the

evidence submitted by the assessee properly appreciated and considered by the

CIT(A) while granting relief to the assessee on this issue, therefore, the

addition was rightly found to be not sustainable by the CIT(A).

8.    On careful consideration of the above submissions at the very outset, we

note that the Assessing Officer firstly proceeded to dispute amount of cash

seized as unexplained money of the assessee on the basis of that advanced

money received on account of sale/purchased of property are always routed

through account payee cheque/draft. On this conclusion of the AO, we are an

agreement with the finding of the CIT(A) that no law of the land requires

intending purchaser to pay the advance money to the seller through account

payee cheque only. In this situation, explanation of the assessee cannot be

rejected merely on the ground that the advanced amount said to be received by

the assessee on account of agreement to sale of property was in cash. On the

factum advance received by the assessee of Rs.12.50 lakh from M/s JMW

(India) Pvt. Ltd. we note that there was written agreement of sale between the

assessee and the said purchasers M/s JMW (India) Pvt. Ltd. and this fact was

confirmed by the Director of the company before the authorities below. Since

the property was pre occupied by the sister of the assessee who could not be
7
                                                                 ITA No. 4396/Del/2011
                                                                  C.O. No. 64/DEL/2013


vacated, therefore, the deal was cancelled and the said intended purchasers

company had taken its advanced money back. In this situation, transaction

cannot be held as fake transaction. It is pertaining to note that both the parties

viz. the assessee and M/s JMW (India) Pvt. Ltd. had confirmed having entered

into this agreement and the intending purchasers had been examined by the AO

during assessment proceeding. We further find ourselves in agreement with the

institution of the CIT(A) that when the Director of the company was asked to

produce books of account which were submitted on 21.08.2006 but the AO did

not entertained in the Director of the said company and did not verify books of

account. In this situation, the AO wrongly hold that the said purchasers did not

produce the books of account and thus the treatment and source of the said

advanced could not be independently verified.

9.    We are also an agreement with the contention of the assessee that M/s

JMW (India) Pvt. Ltd., and M/s J.V. Industries (P) Ltd. , father and brothers of

the assessee are separately assessed to income tax and merely because the

transaction occurred between two companies having Directors who are relating

to each cannot be doubted without bringing out any adverse material to support

this fact that actually there was no transactions and amounts were credited to

justify the amount of cash seized during the action of the Central Excise

Authorities. At the same time, in view of above, noted facts we hold that the

AO was not justified in holding that because the brother and father of the
8
                                                                  ITA No. 4396/Del/2011
                                                                   C.O. No. 64/DEL/2013


assessee are the Directors in M/s JMW (India) Pvt. Ltd and M/s JV Industries

(P) Ltd. Hence, explanation of the assessee after thought because there is no

bar of having property transactions between the family members or blood

relative of the Income Tax Act or any other provision of the effective

legislation. The assessee stand before the AO was that the said agreement with

the said company was cancelled on the account of his family to get property

from his sister, which was not accepted by the AO by holding that past

history/conduct of the assessee clearly established that the assessee was

complete command and authority to get the property vacate. We are unable to

see any valid reason or cause supporting this action of the AO.

10.   Per contra, the explanation offered by the assessee that the assessee was

under genuine and bona fide belief that he shall ask his sister to vacate the

property she shall vacate the said property but when his sister came to know

that the assessee is going to sale the said property then she had requested to the

assessee to sale the said property to her only and keeping in view the

relationship of their sister, the assessee could not deny her request and

therefore, the agreement to sale was cancelled. The explanation offered by the

assessee was wrongly rejected by the AO and the CIT(A) rightly considered

the said explanation and we are unable to see any perversity or infirmity or any

other valid reason to interfere with the same. The CIT(A) rightly considered

the evidence submitted by the assessee to support this fact that the property
9
                                                                 ITA No. 4396/Del/2011
                                                                  C.O. No. 64/DEL/2013





was possessed by his sister Smt. Pratibha Jain and her residence at 9/89, Shastri

Gali, Vishwas Nagar, Shahdara, Delhi. It is pertaining to mention that

undisputedly the ration card was issued by the civil supply authorities in

March, 1998 which is a self speaking and reliable evidence and proof about the

residential status of Smt. Pratibha Jain in the said property from the operative

part of the impugned order we observed that the CIT(A) deleted the addition

with the following disallowances and conclusion:-

      "I have considered the written submission on behalf of the
      appellant, the findings of the Assessing Officer and the facts on
      record. The main contention of the appellant is that complete
      evidences in support of the availability of cash of Rs.25,75,OOOJ-
      were furnished before the Assessing Officer. The contention of the
      appellant and the supporting evidences furnished on behalf of the
      appellant have not been rebutted by the Assessing Officer. Simply
      because the Assessing Officer was not able to make necessary
      verification, the explanation of the assessee cannot be rejected. In
      these circumstances, I am of the considered view that the Assessing
      Officer had made the addition of Rs.25, 75,0001- to the income of
      the assessee simply on the basis of presumption and assessee has
      been able to establish that the amounts received from (a) Mls
      l.M.W. India (P) Ltd., and Sh. Vinod Kumar lain against
      agreements of sale of the house properties situated at 9/89 & 911
      00, Shastri Gali, Viswas Nagar, Shahdra, Delhi-ll0032 & (b) from
      Mls lain Metal Works under debit to the proprietor's capital
      accounts were available before the date of survey by the central
      excise Department conducted on 22.02.2004 and there was
      sufficient cash balance in the possession of the appellant on the
      date of survey. It is observed that the observations and findings of
      the Assessing Officer have been satisfactorily rebutted on behalf of
      the appellant."
11.   On the basis of foregoing discussion, we reach to a logical conclusion

that the Assessing Officer was not justified in making addition u/s 69A of the

10
                                                                 ITA No. 4396/Del/2011
                                                                  C.O. No. 64/DEL/2013


Act by treating the seized cash as unexplained money of the assessee. On

careful consideration of the assessment order and impugned order of the

CIT(A), we have no hesitation to hold that the Assessing Officer did not

appreciate the explanation and evidence submitted by the assessee rather he

ignored some important facts which were self speaking and the same were

rightly considered and noted by the CIT(A) while granting relief to the assessee

and in deleting the impugned addition of Rs.25.75 lakh made by the AO u/s

69A of the Act. Accordingly, Ground No. 2 to 2.2 of the Revenue are

dismissed and view taken by the CIT(A) in this regard.

Gound No.3 of the Revenue and sole ground of the cross objection of the
assessee


12.   It would be appropriate to address the legal objection of the Ld. DR that

the C.O. No.64/Del/2013 of the assessee is time barred as the assessee received

notice of hearing for 05.12.2011 and several notices subsequently, but the cross

objections were filed on 04.04.2013, which are time barred in view of

provision of Section 253(4) of the Act. The Ld. DR drawn our attention

towards appeal and cross objection filed and submitted that the Revenue filed

its appeal on 03.10.2011 and the case was fixed for hearing on 05.12.2011 and

notice for the said first hearing was served upon the assessee, but the despite of

due service of notice the assessee did not file any cross objection within

stipulated time period, therefore, the objection filed by the assessee after lapse
11
                                                                ITA No. 4396/Del/2011
                                                                 C.O. No. 64/DEL/2013


of prescribed limitation period are time barred and the same may kindly be

dismissed.

13.   Replying to the above, Ld. counsel of the assessee drawn our attention

towards applications of the assessee first dated 28.02.2012, second application

dated 03.10.2012, third application dated 22.02.2013 and fourth application

dated 05.03.2013 and submitted that neither any notice for the date and hearing

for 05.12.2011 nor the copy of Form 36 along with grounds raised by the

Revenue has been over served upon the assessee. The Ld. Counsel further

pointed out that the assessee noted from the cause list that the appeal of the

Revenue was fixed for hearing on 05.12.2011before `G ' Bench and soon after

that the assessee filed an application before the Assistant Registrar, ITAT, New

Delhi on 28.02.2012 requesting to provide copy of Form No.36 along with

grounds of appeal raised by the Revenue. Ld. counsel vehemently contended

that after several efforts and four applications, assessee got the copy of Form

No.36 along with grounds of appeal raised by the Revenue on 13.03.2013 and

after perusing the same the assessee decide to file cross objection and the same

were filed on 04.04.2013 within prescribed time limit as per Section 253(4) of

the Act. Ld. counsel further pointed out that Section 253(4) of the Act enable

the assessee to file cross objection, if any, not against the notice but against

Form No.36 and grounds raised by the Revenue and when neither the notice

nor copy of the Form No.36 and grounds of the Revenue were supplied to the
12
                                                                 ITA No. 4396/Del/2011
                                                                  C.O. No. 64/DEL/2013


assessee along with notice then the assessee was not able to file its cross

objection without Form No.36 and grounds of the Revenue.

14.   On careful consideration of above submission, it would be appropriate to

reproduce the provision of Section 253(4) of the Act which reads as under:-

             "The Assessing] Officer or the assessee, as the case may be,
      on receipt of notice that an appeal against the order of the Deputy
      Commissioner (Appeals)] or, as the case may be, the Commissioner
      (Appeals)] has been preferred under sub- section (1) or sub-
      section (2) by the other party, may, notwithstanding that he may
      not have appealed against such order or any part thereof, within
      thirty days of the receipt of the notice, file a' memorandum of
      cross- objections, verified in the prescribed manner, against any
      part of the order of the Deputy Commissioner (Appeals)] or, as the
      case may be, the Commissioner (Appeals)], and such memorandum
      shall be disposed of by the Appellate Tribunal as if it were an
      appeal presented within the time specified in sub- section (3)."
15.   On vigilant perusal and reading of Section 253(4) of the Act, we note

that the Assessing Officer or the assessee, as the case may be, may file cross

objection within thirty days of the receipt of the notice against the order of the

first appellate authority or any part thereof and such cross objection shall be

disposed of by the Tribunal as if it were an appeal filed within prescribed limit

as time specified in sub Section (3) or sub Section 3A of Section 253 of the

Act. We also note that this enabling provision provides a right to the opposite

party against whom appeal have been preferred either by the AO or by the

assessee not withstanding that he may not have filed any appeal against such

order or any part thereof.


13
                                                               ITA No. 4396/Del/2011
                                                                C.O. No. 64/DEL/2013


16.   The main essence of this provision is that the time limitation of thirty

days would be reckoned from the date of receipt of notice enabling the

respondent to file memorandum of cross objection against first appellate order

or any part thereof. Meaning thereby prescribed time would start when the

notice would be served upon the assessee. At this juncture, we are of the

considered opinion that in our humble understanding, the notice would not be

completed if copies of Form No.36 and grounds of the appellant are not

enclosed thereto because without seeing Form No.36 and grounds of the

appellant the respondent would not be able to file his cross objection against

the order or any part of the order.

17.   In the present case, from careful perusal of the appeal record of ITA

No.4396/Del/2011 viz. appeal of the Revenue, we note that the appeal was

filed on 03.10.2011 and case was fixed for first hearing on 05.12.2011. From

the record, we also see that no notice was issued to the assessee for the first

date of hearing that was 05.12.2011 and the assessee approached the Assistant

Registrar of ITAT, New Delhi firstly on 28.02.2012 and requested to provide

copy of Form No.36 along with grounds of appeal raised by the Revenue. The

assessee subsequently filed reminder/applications on 03.10.2013, 22.02.2013

and 05.03.2013 with the same request which was finally redressed on

13.03.2013 when the Assistant Registrar, ITAT, Delhi directed to provide copy

of grounds of appeal to the assessee. In pursuance to last application dated
14
                                                                ITA No. 4396/Del/2011
                                                                 C.O. No. 64/DEL/2013


05.03.2013 admittedly assessee filed cross objection on 04.04.2013. In this

situation, we are of the view that when the assessee has established that no

notice along with copies of Form No.36 and grounds of appeal of the Revenue

were served upon the assessee and the assessee could get copies of Form No.36

and grounds of the Revenue after restless efforts only on 13.03.2013 then the

time limit prescribed in Section 253(4) of the Act would be reckoned only after

receipt of complete notice along with copies of Form No.36 and grounds of

appeal of the Revenue which is on 13.03.2013 in the present case. Hence, thus

cross objection filed on 04.04.2013 cannot be alleged and held as time barred.

Accordingly, legal objection of the Revenue is dismissed.

18.   Now, we proceed to decide the Ground No.3 of the Revenue and the sole

ground of cross objection of the assessee as both related to the same issue. The

Ld. Departmental Representative submitted that the CIT(A) has erred in

deleting the addition of Rs.5,00,000/- out of an addition of Rs.6,77,000/- made

by the AO on account of understatement of sale consideration of the property

situated at 9/100, Shastri Gali, Vishwas Nagar, Shahdra, Delhi. Ld. DR pointed

out that the Assessing Officer rightly observed that payment of alleged gift by

Mrs. Kaushalya Jain to Shri Ashish Jain and subsequent transfer of money by

Shri Ashish Jain to present assessee who in turn had used the money to repay

advance was nothing but a still modus operandi to pay adequate consideration

for purchase of property by concealing the actual payment of enhanced
15
                                                                 ITA No. 4396/Del/2011
                                                                  C.O. No. 64/DEL/2013


purchase consideration of Rs.5,00,000/- as gift. The Ld. DR strenuously

contended that the assessee had very cleverly avoided his tax liability on

account of capital gain on sale of said property. The DR further contended that

the said amount of Rs.5,00,000/- which was ultimately reached to the assessee

from his sister Mrs. Kaushalya Jain, the purchaser of property, in garb of gift is

the understatement of sale consideration declared by the assessee and therefore,

the same was rightly treated as undisclosed income of the assessee by the AO.

19.   The Ld. DR also contended that the assessee shown sale of property

No.9/100 Shastri Gali, Vishwas Nagar, Delhi with a consideration of

Rs.8,00,000/- of which long term capital gain was also declared but as per

report of Assistant Valuation Officer dated 17.10.2006 the fair market value of

the said property was valued at Rs.9.77 lakh. The Ld. DR further contended

that the assessee filed implausible and unsustainable explanation which was

rightly dismissed by the Assessing Officer after detailed deliberation and the

AO correctly treated the same amount as undisclosed income of the assessee

which has not been declared by him in his return of income. The Ld. DR

further took us through paragraph no.7.1 and 7.2 of the impugned order and

submitted that the CIT(A) restricted the addition to Rs.1.77 lakh and deleted

the part addition of Rs.5,00,000/- without any justified reason and basis and

therefore, the impugned order in this regard may be set aside by restoring that

of the AO.
16
                                                               ITA No. 4396/Del/2011
                                                                C.O. No. 64/DEL/2013


20.   The Ld. counsel of the assessee replied that the AO has failed to adduce

any evidence on record in support of understatement of sale consideration by

the assessee in respect of addition of Rs.5,00,000/-. Ld. counsel further

submitted that the CIT(A) wrongly held that estimate of Assistant Valuation

Officer has not been controverted by the assessee with any sustainable

explanation and acceptable evidence. The Ld. counsel further drawn our

attention towards Page 23 of the assessment order and submitted that the

assessee furnished detailed explanation before AO vide reply dated 05.11.2006

which was wrongly dismissed by the AO without any justified reason. The Ld.

counsel submitted that the property which was sold to Mrs. Jain was already

occupied by her as the tenant and she ultimately purchased the said property,

hence, the property could have fetched less consideration then the fair market

value prevailing at the time of transaction.

21.   The Ld. counsel further pointed out that Assistant Valuation Officer

rejected the arguments of the assessee without affording the due opportunity of

hearing to the assessee to explain the position, therefore, the addition of

Rs.1.77 lakh made by the AO and upheld by the CIT(A) is not sustainable

without bringing out any material or evidence against the assessee to show that

the assessee had actually received over and above payment of Rs.1.77 lakh

from the purchaser which was not accounted for in the books of account of the

assessee. Besides, aforesaid arguments supporting the cross objection, the Ld.
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counsel of the assessee also submitted that the Assessing Officer made addition

of Rs.5,00,000/- by taking hyper technical approach on the imaginary facts

which was rightly deleted by the CIT(A). Ld. counsel further pointed out that

the Assessing Officer could not brought any evidence or material to support

this allegation of understatement of sale consideration by the assessee of

Rs.5,00,000/-, therefore, the impugned order in this regard is correct. The Ld.

counsel finally submitted that the addition of Rs.1.77 lakh upheld by the

CIT(A) is not sustainable and the same should be deleted allowing the cross

objection of the assessee.

22.   Ld. DR also placed rejoinder to the aforesaid submission of the assessee

and submitted that the assessee did not produce any evidence before the

Assistant Valuation Officer in the form of rent agreement, rent receipt, details

of court cases on account of unauthorized occupation, therefore, the assessee

could not establish that the property was already pre occupied by the tenant

who ultimately purchase the said property and therefore, the assessee got less

consideration then the fair market value. The Ld. DR finally submitted that the

order of the AO is quite justified and the same should be restored.

23.   On careful consideration of above submission, we note that the CIT(A)

granted relief for the assessee with the following observations and conclusion:-

      "7.1 I have considered the written submission on behalf of the
appellant, the findings of the Assessing Officer and the facts on record. It
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has been the case of A.O. that the consideration shown by the appellant was
not the real consideration, but this has been done without bringing on record
any evidence direct or inferential in support of the same. It is a trite law that
the onus to prove otherwise than the fact lies on the person who alleges. It
has been consistently held by the courts or laws that it is for the Revenue to
establish that there has been an understatement of consideration by the
assessee & the consideration actually received is more than the one disclosed
before the tax authorities. In case the Revenue wants to make out a case that
the assessee had received more consideration then it should have basic
material and evidence in its hands which suggest that the consideration
exceeded the amount shown in the document. Reliance is placed on the
decisions of the Supreme Court in CIT v. George Henderson Co Ltd(1967)
66 ITR 622(SC), CIT v . Gillanders Arbuthnot & Co (1973) 87 ITR 407(SC),
K.P. Varghese v. ITO(1981) 131 ITR 597(SC), CrT V. Shivakami Co. (P) Ltd.
(1986) 159 rTR 71 (SC) and CIT Vs. Godawari Corpn. Ltd. (1993) 200 ITR
567 (SC), wherein it has been held that unless there is evidence that more
than what was stated, was received no higher price or value can be taken to
be the basis for computation of capital gains. Reliance is also placed on the
decisions of the jurisdictional High Court of Delhi in CIT V. Gulshan Kumar
(Decd.) (2002) 257 ITR 703 (Del.) & CIT V. Naresh Khattar HUF (2003) 261
ITR 664 (Delhi) , CIT V. Smt. Sushi la Devi (2002) 256 ITR 179 (Delhi) and
CIT v. Smt. Nilofer I. Singh (2009) 221 CTR 277/(2009) 176 Taxman
252/(2008)14 DTR 108. These decisions make it more than clear that the
expression 'the full value of consideration' as contemplated in section 48 of
the Act does not have any reference to the market value but only to the
consideration referred to in the sale deeds or other supporting evidences as
the sale price of the assets which have been transferred.
7.2 In the instant case, the Asstt. Valuation Officer had estimated the fair
market value of the impugned property at Rs.9,77,000/-, as if the property
was vacant and without any encumbrance. It is also observed that the A.O.
has issued show cause notice to the assessee for making addition of
Rs.1,77,000/- (Rs.9,77,000/- - Rs.8,00,000/-) as undisclosed income. However,
the addition has been made to the extent of Rs.6,77,000/- by treating a gift of
Rs.5,00,000/- as part of sale consideration in respect of the impugned
property situated at 9/100, Shastri Gali, Viswas agar, Shahdra, Delhi-
110032. It is also observed that the A.O. has failed to adduce evidence on
record in support of understatement of the sale consideration by the assessee
in respect of the addition of Rs. 5,00,000/-. However, the estimate made by
the Asstt. Valuation Officer has also not been rebutted by the appellant with
any explanation or evidence. In view of the aforesaid discussion, the AO is
directed to adopt the sale consideration ofthe impugned property at the figure
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of Rs.9,77,000/- as estimated by the Asstt. Valuation Officer against the value
of Rs.8,00,000/- shown by the appellant. Hence, the addition of Rs.1,77,000/-
is confirmed and that of Rs.5,00,000/- is deleted. As a result, ground No. 4 is
partly allowed."


24.   In view of above and on careful perusal of the relevant part of the

assessment order on this issue, we note that when the Assessing Officer noted

that the assessee has shown consideration of Rs.8,00,000/- only from property

bearing no.9/100 Shahdra Delhi then transaction was referred to the Valuation

Officer for ascertaining the correct/fair market value of the property sold. The

Assessing Officer, on receipt of report vide dated 17.10.2006 of the Assistant

Valuation Officer raised a query to the assessee showing his attention as to

why the balance of Rs.1.77 lakh may not be treated as undisclosed income

resulted by understatement of sale consideration. The assessee submitted that

the property was sold by a person who was already pre occupied as tenant,

therefore, he could get less consideration in comparison to the fair market

value. Under above noted fact, we are of the view that the assessee has not

disputed the valuation of Assistant Valuation Officer which was Rs.9.77 lakh.

25.   The main contention of the assessee is that the property was sold to a

person who was already under occupation of the property and, therefore, the

consideration was less in comparison to the fair market value but the assessee

did not submit any rent agreement, rent receipt, court case documents before

the Assistant Valuation Officer. From careful reading of assessment order as
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well as order of the CIT(A) he further observed that the assessee has not

submitted any evidence in support of this contention that the property was sold

to a person who was already occupying the property in issue as tenant and there

were court cases and other dispute under which the property was sold to the

person who was already in possession of the property and, therefore, the

assessee got less consideration in comparison to the fair market value. In this

situation, we are an agreement with the conclusion of the authorities below, the

estimate made by the Assistant Valuation Officer has not been demolished and

rebutted by the assessee with the quite plausible explanation or acceptable

evidence, therefore, view taken by the Assessing Officer and upheld by the

CIT(A) is justified and we are unable to see any infirmity or any other valid

reason to interfere with the same on account of addition of Rs.1.77 lakh made

by the AO.

26.   At the same time, we further observed that the Assessing Officer made

addition of Rs.5,00,000/- by treating a gift of Rs.5,00,000/- as a part of sale

consideration in respect of impugned property. The CIT(A) observed that AO

has failed to adduce cogent evidence and record in support of understatement

of sale consideration by the assessee in respect of said addition of

Rs.5,00,000/-. The Ld. counsel of the assessee has placed reliance on the

judgments of Hon'ble Apex Court in the cases of CIT Vs. George Henderson

Co. Ltd. reported in (supra), CIT Vs. Gillanders Arbuthoot & Co (Supra), K.P.
21
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Varghese Vs. ITO (Supra), CIT Vs. Shivakami Co. (Supra) and CIT Vs.

Godawari Corpn. Ltd. (Supra) and ratio of these decisions is that unless there is

evidence that more than what was stated in the sale deed, was received no

higher price or value can be taken to be the basis for computation of capital

gains. In the present case, the CIT(A) rightly noted that Assessing Officer had

failed to bring any evidence against the assessee to establish of record that

there was understatement of sale consideration by the assessee by

Rs.5,00,000/- which was received by the assessee in the garb of gift in the

name of Shri Ashish Jain son of assessee. Accordingly, Ground No.3 of the

Revenue and sold ground of cross objection being devoid of merits are

dismissed.

      Ground No.4 of the Revenue

27.   The Ld. DR Departmental Representative submitted that the AO

observed that the assessee had received a payment of Rs.5,00,000/- from M/s

J.V. Industries Pvt. Ltd on the query of the AO, the assessee vide his reply

dated 18.09.2006 explained that Rs.5,00,000/- were received from M/s J.V.

Industries Pvt. Ltd. and paid to M/s JMW (India) Pvt. Ltd. on 19.03.2004 as

repayment of advance. The Assessing Officer held that explanation of the

assessee was false and it transpires that the assessee had used his income from

undisclosed source to the extent of Rs.5,00,000/- for repayment of advance to


22
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M/s JMW (India) Pvt. Ltd. . The Ld. DR contended that the AO after holding

so correctly held that no payment has been received by the assessee from M/s

J.V. Industries Pvt. Ltd. and the amount of Rs.5,00,000/- was rightly added to

the total income of the assessee. Ld. DR further pointed out that the CIT(A)

deleted the said addition without any basis and cogent reason, therefore, the

impugned order may be set aside by restoring that of the AO on this issue.

28.   The Ld. counsel of the assessee supporting the impugned order replied

that the Assessing Officer ignored some important fact, material and evidence

which was properly explaining and supporting the stand of the assessee on this

issue. The Ld. counsel further submitted that the assessee had declared long

term capital gain to the extent of Rs.3,47,817/- on the sale of 10,000 shares of

M/s J.V. Industries Pvt. Ltd and the repayment of advance was made out of

receipt of Rs.5,00,000/- on sale of aforementioned shares of M/s J.V. Industries

Pvt. Ltd to M/s Nirman Securities Ltd. The Ld. counsel of the assessee further

pointed out that the assessee had received sale consideration of Rs.5,00,000/-

on 18.03.2004 through account payee cheque and this fact was rightly

gets and considered by the CIT(A) while granting relief to the assessee.

29.   From careful consideration of rival submission and perused the relevant

material placed on record before us, from the vigilant reading of impugned

order we note that the CIT(A) after considering detailed reply of the assessee


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on this issue and facts on record granted relief to the assessee with the

following observation and conclusion:-

        "8.1 I have considered the written submission on behalf of the
      appellant, the findings of the Assessing Officer and the facts on
      record. The findings of the A.O, do not appear to he based on
      correct appreciation of facts. It was explained on behalf of the
      appellant during the assessment proceedings that it had sold the
      shares of M/s J.V. Industries (P) Ltd. to M/s Nirrnan Securities Ltd.
      and had received the sale consideration of Rs.5,00,000/- on
      18.03.2004 through account payee cheque. On perusal of the bank
      statement relating to the savings bank account No.38694, it is found
      that an amount of Rs.5,00,000/- has been received on 18.03,2004. It
      is also observed that the appellant has declared long terms capital
      gain to the extent of Rs.3,47,817/- on sale of 10000 shares of M/s
      J.V. Industries (P) Ltd. It was further explained on behalf of the
      appellant that the repayment of advance was made out of the above
      receipts of Rs.5,00,000/- on sale of the aforementioned shares of Mls
      J.V. Industries (P) Ltd. In view of the facts stated above, it can be
      fairly concluded that the assessee was able to satisfactorily explain
      the source of repayment of advance against sale agreement. Hence,
      it is held that the addition of Rs.5,00,000/- on account of
      unexplained sources of repayment of advance against sale
      agreements is not sustainable on facts and in law and the same is
      deleted. As a result, Ground of appeal No. 6 is allowed."


30.    In view of above, from the assessment year, we note that the Assessing

Officer observed that the assessee had received amount of Rs.5,00,000/- from

M/s J.V. Industries Pvt. Ltd. The Assessing Officer observed from the details

submitted by the assessee and vide reply dated 08.09.2006 along with

explanation that credit and debit entries appearing in the saving bank account

of the assessee shows that no amount was received by the assessee M/s J.V.

Industries Pvt. Ltd. and the AO had made the impugned addition to the taxable
24
                                                                 ITA No. 4396/Del/2011
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income of the assessee from operative part of the impugned order on this issue

and reply of the assessee which was reproduced in Para 8 of the impugned

order, we note that the assessee submitted all the related facts and offered

Rs.3,47,817/- as long term capital gain on the sale of 10,000 shares of M/s J.V.

Industries Pvt. Ltd. We further observed that by way of submitting

confirmation of the purchasers, Bank account and other details the explanation

of the assessee remain uncontroverted that the 10,000 shares of M/s J.V.

Industries Pvt. Ltd. were sold to M/s Nirman Securities Ltd. who in turn made

payment of Rs.5,00,000/- to the assessee as sale consideration through vide

Cheque No.043132 dated 17.03.2004, confirmation from M/s Nirman

Securities Ltd. is available at page 34 of paper book of the assessee. We further

note that this fact also remain uncontroverted that as per saving Bank account

entries the assessee had received Rs.5,00,000/- on 18.03.2004           from M/s

Nirman Securities Ltd. on account of sale of said shares along with covering

letter dated 18.09.2006 and the payment was received through account payee

cheque. Ld. counsel of the assessee further submitted that there was

typographical mistake in the covering letter, therefore, confusion arose in the

mind of AO which resulted into impugned addition. The Ld. Counsel finally

submitted that it is undisputed that the assessee had received Rs.5,00,000/-

through Account Payee Cheque No.043132 dated 17.03.2004, on 18.03.2004

from M/s Nirman Securities Ltd. as sale consideration against sale at 10,000

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shares of M/s J.V. Industries Ltd. and such transaction was recorded in the

books of account of the assessee and assessee had shown long term capital gain

of Rs.3,47,817/- on this transaction which was also offered to tax in the return

of income of the assessee for AY 2004-05.

31.   In view of above, we are of the considered view that the confusion arose

before the AO due to incompleteness in the facts and details submitted before

the AO which were subsequently explain by way of filing details submission,

statement of Bank account and other relevant details during first appellate

proceedings. Admittedly, the assessee offered long term capital gain to the

extent of Rs.3,47,817/- on the sale of 10,000 shares of M/s J.V. Industries Pvt.

Ltd. which were sold to M/s Nirman Securities Ltd. and the assessee received

sale consideration through account payee cheque which was also credited to his

saving Bank account. Under above noted facts and circumstances, we are an

agreement with the conclusion of the CIT(A) that the assessee satisfactorily

explained the source of Rs.5,00,000/- and its further used for repayment of

advance against sale agreement and in this situation addition made by the AO

was rightly deleted by the first appellate authority. We are unable to see any

infirmity or any other valid reason to interfere with the impugned order in this

regard and we upheld the same. Accordingly, Ground No.4 of the Revenue

being devoid of merits is dismissed.


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      Ground No.5

32.   Apropos Ground No.5, the Ld. Departmental Representative submitted

that the Assessing Officer made an addition of Rs.5,00,000/- in the hands of the

assessee by rightly holding that Shri Ashish Jain was a minor and he had no

assessable income during the period under consideration. The Ld. DR further

pointed out that, despite of adequate opportunities, Smt. Kaushalya Jain did not

respond to the summon issue to her u/s 131 of the Act and in this situation the

AO rightly held that impugned amount was actually given by her to the

assessee through his minor son Shri Ashish Jain as a part of undisclosed sale

consideration of the property sold to her by the assessee in the garb of gift. The

Ld. DR also contended that the said transaction of gift was not independently

or directly approved by Smt. Kaushalya Jain. The Ld. DR vehemently

contended that the said explanation of the assessee was not tenable because on

the one hand, the assessee claimed that he is having a dispute with his sister

Mrs. Kaushalya Jain which led to the cancellation of agreement with Shri

Vinod Kumar Jain and on the other hand, it was submitted that the son of the

assessee Shri Ashish Jain had received a amount of Rs.5,00,000/- as gift from

that sister of the assessee viz. Mrs. Kaushalya Jain who was alleged to

occupying his property against the wishes of the assessee. The Ld. DR finally

contended that in the totality of the facts and circumstances, the Assessing

Officer was right in dismissing the explanation of the assessee and making
27
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                                                                  C.O. No. 64/DEL/2013


addition in this regard to the total income of the assessee. Ld. DR further

pointed out that the CIT(A) deleted the said addition without any justified

reason or basis, therefore, impugned order may be set aside by restoring that of

the AO on this issue.

33.   The Ld. counsel of the assessee supporting the impugned order

submitted that when a minor is assessed to income and he is considered an

entity for the purpose of taxation then a gift received from his aunt out of

natural love affection through account payee cheque cannot be held as bogus or

untenable. The Ld. counsel of the assessee submitted that in totality of the facts

and circumstances and in the light of supporting evidence it was not fair on the

part of the AO to presume that the assessee repaid property advance of

Rs.5,00,000/-to Shri Vinod Kumar Jain out of his undisclosed sources. The Ld.

counsel vehemently contended that when the assessee submitted entire details

and explanation supporting with documentary evidence before the AO and

established this fact that Shri Ashish Jan actually received a gift of

Rs.5,00,000/- from Mrs. Kaushalya Jain and this amount was further given as

loan by Shri Ashish Jain to the assessee then onus shifted on the Assessing

Officer to bring out that entire evidence and transaction of gift was a same

transaction and assessee made repayment of advance to Shri Vinod Kumar Jain

out of his own income from undisclosed sources. Ld. counsel further pointed

out that the Assessing Officer has not made any verification either from the
28
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bank account of Shri Ashish Jain, Mrs. Kaushalya Jain and the assessee and

from the Assessing Officer of Smt. Kaushalya Jain who was also assessed to

income tax. Ld. counsel for the assessee finally contended that the Assessing

Officer made addition without properly considering an appreciating the

explanation and evidence of the assessee and the same were rightly considered

by the first appellate authority and the CIT(A) rightly held that impugned

addition was not sustainable in law.

34.   On careful consideration of above submission from the impugned order,

we note that the CIT(A) grant relief to the assessee with the following

observation and conclusion:

      "9.1 have considered the written submission on behalf of the
      appellant, the findings of the Assessing Officer and the facts on
      record. I have also examined the evidences furnished by the
      appellant. The assessee received a loan of Rs.5,00,000/- from his
      son Ashish Jain which was confirmed by him (Ashish Jain). Smt.
      Kaushalaya Jain also confirmed that she had given a gift of
      Rs.5,00,000/- to her nephew, Ashish Jain out of natural love &
      affection. The payments were made by account payee cheques. In
      view of these pieces of evidence, it was not fair on the part of the
      Assessing Officer to presume that the assessee repaid property
      advance of Rs. 5,00,000/- to Shri Vinod Kumar Jain out of
      undisclosed sources. The burden of proving this fact was on the
      Assessing Officer and the Assessing Officer has not made any
      verification either from the the bank or from the ward/ circle where
      Smt. Kaushalaya Jain was assessed to income-tax. Under the
      circumstances, addition of Rs. 5,00,000/- on account of
      unexplained sources of repayment of advance to Shri Vinod
      Kumar Jain against sale agreements is not sustainable on facts and
      in law and the same is deleted. As a result, Ground of appeal No.8
      is allowed."

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35.   In view of above, at the very outset, we are of the view that the crux of

dispute is that the Assessing Officer picked up repayment of property advance

Shri Vinod Kumar Jain by the assessee during the period under consideration

amounting to Rs.5,00,000/-. When the Assessing Officer asked the assessee to

explain the source, the assessee replied that he received loan of Rs.5,00,000/-

from his minor son Shri Ashish Jain and the source of amount in the hands of

Shri Ashish Jain was a gift from his aunt Smt. Kaushalya Jain. The assessee

submitted all related documents, bank account, bank statement confirmation

etc. before the AO to establish the creditworthiness of the donor and

genuineness of the transaction. But this explanation was rejected by the AO in

view of bitter relation between the assessee and Smt. Kaushalya Jain due to

dispute about a property of the assessee which was in possession of Smt.

Kaushlaya Jain against the willingness of the assessee.

36.   At this juncture, firstly, we are of the considered view that when all

details about the transaction of gift between Smt. Kaushalya Jain to Shri

Ashish Jain and loan from Ashish Jain to the assessee has been explained by

way of detailed explanation and supporting relevant evidence such as Bank

statement confirmation of the respective party and explaining all facts then

onus was obviously shifted to the Assessing Officer to controvert explanation

and evidence submitted by the assessee to support his stand. On vigilant

reading of the relevant part of the assessment order in this context, we note that
30
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the Assessing Officer dealt this issue at Pages 27 to 29 of the assessment order

wherein it was held that the explanation of the assessee in this regard is not

acceptable and it is inferred that assessee has used his income from undisclosed

sources to the extent of Rs.5,00,000/- for repayment of advance to Shri Vinod

Kumar Jain.

37.   When we analyzed the conclusion of the CIT(A) on this issue we

observed that the CIT(A) held that the Assessing Officer has not made any

verification either from the Bank or from the ward/circle where Smt.

Kaushalya Jain was assessed to income tax and the AO has not discharged its

onus proving this fact which was shifted by the assessee by way of filing

detailed explanation and supporting evidence. In totality of the facts and

circumstances discussed above, we note that the Assessing Officer adopted a

subjective approach with a pre determined mind that the assessee made

repayment of advance to Shri Vinod Kumar Jain amounting to Rs.5,00,000/-

out of his income earned from undisclosed sources. Then the Assessing Officer

with an intention to establish said subjective conclusion picking up loan

transaction between assessee and his minor son Shri Ashish Jain and verified

and examined the source of source in the hand of Shri Ashish Jain. The AO

further observed and noted that minor son of assessee viz. Shri Ashish Jain

received a gift of Rs.5,00,000/- from his aunt i.e. Sister of the assessee Smt.

Kaushalya Jain. The Assessing Officer could not brought out any allegation or
31
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                                                                  C.O. No. 64/DEL/2013


fact about the creditworthiness of Smt. Kaushalya Jain and genuineness of the

transaction of gift from Smt. Kaushalya Jain to Shri Ashish Jain. When the

Assessing Officer could not found any adverse material or evidence to doubt

the creditworthiness of Smt. Kaushalya Jain and genuineness of the transaction

of the gift then he proceeded to take assistance from this fact that there were

harsh relation between the assessee and her sister Smt. Kaushalya Jain due to

possession of some property against the Will of the assessee. Noticing this fact,

the AO held that in these circumstances, in no situation would an illegal

occupant give a gift to the son of the person whose property she was forcibly

occupying and not vacating leading to cancellation of purported agreement to

sale in respect of said property.

38.   On these observations and finding of the AO, we are of the view that

obviously gifts out of love and affection are given to the relatives and

bitterness between the donor and donee creates doubt or suspicion over the

genuineness of the transaction but in this context, we cannot ignore the

contention of the Ld. counsel of the assessee that illegal occupation Smt.

Kaushalya Jain gave a impugned gift to the minor son of assessee out of love

and affection and with an intention to improve the veracity of relation and to

clear all the clouds which spread over the relation between the families of real

brother and sister due to property dispute. The facts can be evaluated and

analyzed in both the ways either as stated by the Ld. DR or as contended by the
32
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Ld. counsel of the assessee but for making addition in this issue the evaluation

of relation cannot be held as sole criteria. It is a well settled proposition when

on facts two views are possible then the view in favour of the assessee must be

given weight and preference. Since we have already held that the Assessing

Officer could not brought out any material fact or allegation to create any

doubt over the genuineness of transaction of gift and creditworthiness of the

donor Smt. Kaushalya Jain, therefore, bitterness of the relation cannot be a sole

criteria for making addition in this regard.

39.   In our considered view when the amount of gift was routed through

banking channels from donor Smt. Kaushalya Jain to donee Shri Ashish Jain

which was further advanced as loan to the assessee, then it may also be

presumed that the gift was given by Smt. Kaushalya Jain to the minor son of

the assessee out of love and affection and also to clear the clouds and bitterness

in the relations between with her brother i.e. the assessee. Under above noted

facts and circumstances, we have no hesitation to hold that the CIT(A) after

considering the detailed submission of the assessee rightly concluded as in Para

9.1 at Page 27 of the impugned order, as reproduced hereinabove, that the

addition of Rs.5,00,000/- on amount of unexplained source of repayment of

advance to Shri Vinod Kumar Jain against the sale agreement is not

sustainable. We are unable to see any infirmity, perversity or any other valid


33
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                                                                 C.O. No. 64/DEL/2013


reason to interfere with the same. Accordingly Ground No.5 of the Revenue is

dismissed.

      Ground No.6

40.   Apropos Ground No.6, Ld. DR submitted that the CIT(A) has erred in

dleting the addition of Rs.3,00,000/- made by the AO on account of

unaccounted receipt of cash claimed to have been received from Sheel Kumar

Jain. The Ld. DR took us through relevant operative part of the assessment

order and submitted that during the course of assessment proceeding the AO

noted that the assessee had entered into another agreement to sale the property

no.9/100, Shahdra, Delhi on 07.04.2003 with Shri Sheel Kumar Jain and had

received an advance of Rs.2,00,000/- in cash on 07.04.2003 and Rs.1,00,000/-

in cash on 07.05.2003. The Ld. DR strenuously contended that the total of sale

value was agreed to Rs.9,00,000/- and balance was agreed to be paid by the

purchasers Shri Sheel Kumar Jain in the installment of Rs.1,00,000/- per month

and on receipt of entire amount the property was to be got vacated by the

assessee from his sister and registry was to be executed in favour of Shri Sheel

Kumar Jain. The Ld. DR further pointed out since the said receipt of cash of

Rs.3,00,000/- could not be independently verified, therefore, the assessee was

asked to explain the situation by way of order sheet noting dated 09.11.2006

and assessee filed reply vide dated 13.11.2006 by stating that the advance


34
                                                                ITA No. 4396/Del/2011
                                                                 C.O. No. 64/DEL/2013


money had been repaid by the assessee to Shri Sheel Kumar Jain on

19.12.2003 in cash out of withdrawal made form M/s Jain Metal Works under

debit to his capital account, therefore, the same may be accepted as explained.

41.   The Ld. DR further pointed out that the modus operandi of the assessee

was that whenever the assessee was in need of money an agreement in regard

to property no.9/100 Shahdara was executed to raise funds but in fact said

agreement were nothing but a device to convert assessee own income from

undisclosed source in the funds/capital. The Ld. DR further submitted that the

said receipts submitted by the assessee were not signed by the alleged

purchasers Shri Sheel Kumar Jain and there were no independent evidence to

show that money has been returned by the assessee to Shri Sheel Kumar Jain.

The Ld. DR submitted that the assessee miserably failed to discharge his onus

to explain the source/creditworthiness/genuineness of the alleged receipt of

Rs.3,00,000/- from Shri Sheel Kumar Jain hence the same was rightly added to

the total income of the assessee.

42.   Supporting impugned order the Ld. counsel of the assessee replied and

took us through operative Para 10 & 10.1 of the impugned order and submitted

that when Shri Sheel Kumar Jain was expired on 02.11.2005 then it was

impossible for the assessee to produce him before the Assessing Officer. Ld.

counsel contended that the assessee submitted all the relevant document and


35
                                                                 ITA No. 4396/Del/2011
                                                                  C.O. No. 64/DEL/2013


supporting evidences which were not controverted or rebutted by the Assessing

Officer and simply because the Assessing Officer was not intended to make

necessary verification then explanation and evidences of the assessee cannot be

rejected at threshold. The Ld. counsel of the assessee further pointed out that

the assessee submitted his capital account before the authorities below which

was self speaking that the assessee withdrew Rs.3,00,000/- from his capital

account with his proprietary firm M/s Jain Metal Works and the capital account

of the assessee was debited with the same amount which was withdrawn on

19.12.2003. The Ld. Counsel submitted that the Assessing Officer made a

subjective addition without any basis and without considering the explanation

and supporting the evidence of the assessee which was rightly deleted by the

CIT(A) after proper appreciation of the fact, supporting evidence and

explanation of the assessee.

43.   On careful consideration of above submission, we note that when

admittedly Shri Sheel Kumar Jain was expired on 02.11.2005 prior to

finalization of assessment order on 19.12.2006 then it was not possible for the

assessee to produce Late Shri Sheel Kumar Jain during assessment proceeding.

The Assessing Officer could have verified the factum of repayment of advance

to Shri Sheel Kumar Jain by examining and verifying the statement of accounts

inter alia the capital account of the assessee with his sole proprietary firm M/s

Jain Metal Works but instead of making any further enquiry examination or
36
                                                                ITA No. 4396/Del/2011
                                                                 C.O. No. 64/DEL/2013


verification the Assessing Officer rejected the explanation and supportive

evidence of the assessee at the threshold that without making any enquiry

examination of verification and proceeded to make addition of Rs.3,00,000/-

without bringing doubt any sustainable allegation or incriminating material

against the assessee and the same was rightly deleted by the first appellate

authority with the aforesaid disallowances and conclusion. We decline to

interfere of the conclusion of the CIT(A) on this issue and hence Ground No.6

of the Revenue being devoid of merit is dismissed.

Ground No.7 & 7.1 of the Revenue

44.   The Ld. DR supporting the action of the AO submitted that the books

maintained by the assessee were deficient as they do not reflect the true and

correct particular of the income of the assessee company. The Ld. DR further

pointed out that the Assessing Officer after detailed deliberations rightly held

that the assessee intentionally under declared/understated/suppressed his

income in his books of account, therefore, the same were rightly rejected by the

AO. The Ld. DR further drawn our attention towards Paragraph (10a) (10d) of

the assessment order and submitted that there was substantial decrease in the

GP ratio of the assessee in the F.Y. 2003-04 relevant to AY 2004-05 and since

the books of account of the assessee do not reflect the true and correct

particulars of the income of the assessee then the Assessing Officer was quite


37
                                                                 ITA No. 4396/Del/2011
                                                                  C.O. No. 64/DEL/2013


justified in making enhancement of income of the assessee by adopting average

GP rate of preceding assessment years and in making addition of

Rs.16,96,788/-. The Ld. DR vehemently contended that during the first

appellate proceeding the CIT(A) deleted the said addition without any justified

reason merely on the ground that the books of accounts and financial results of

the assessee cannot be rejected only on the sole basis that particulars expenses

claimed by the assessee remain unverified. The Ld. DR submitted that there

was a sharp decrease in the GP rate of the assessee in the financial period under

consideration in comparison to immediately previous three years. The Ld. DR

pointed out that when the books of account was rejected then the Assessing

Officer was quite justified in making addition of the differences calculated on

the basis of GP rate average of immediately preceding three assessment year

which came to 4.1% and the impugned addition was made as per provision of

the Act. The Ld. DR challenging the conclusion of the CIT(A) submitted that

the CIT(A) was not justified in dismissing the rejection of books of account

and deleting the impugned addition made by the AO on account of low GP

ratio. Therefore, the impugned order may be set aside by restoring that the AO.

45.   The Ld. counsel of the assessee submitted a copy of the Form 3CB of

M/s Jain Metal Works, a proprietary firm of the assessee, for the financial year

ended on 31.03.2004 and submitted that the Assessing Officer was not correct

in rejecting the books of account and financial results of the assessee merely
38
                                                               ITA No. 4396/Del/2011
                                                                C.O. No. 64/DEL/2013





because some expenses claimed by the assessee could not be verified. The Ld.

counsel vehemently contended that in this situation when the expenses of

assessee are not found to be verifiable then the Assessing Officer may disallow

the same and he is empowered to make addition in this regard but entire books

of account and financial results therefrom cannot be rejected at the threshold

simply on this patty reason. Ld. counsel of the assessee further submitted that

when the financial result of the assessee are supported with the audited report

prepared by the competent auditor u/s 44AB of the Act then sharp decrease in

the GP rate due to extraneous reasons beyond control of the assessee does not

attracted any addition in any manner. The Ld. counsel of the assessee

submitted that there were huge fluctuations in the rates of metal in the metal

market during the financial period under consideration. The Ld. counsel also

submitted that when the books of account of the assessee and financial results

therefrom are sustainable then the Assessing Officer is not empowered to make

any addition on the basis of low GP rate.

46.   On careful consideration of above, we note that the CIT(A) had granted

relief for the assessee dismissing the rejection of books and deleted the

impugned addition made by the AO on account of low GP rate which read as

under:-

      "11.1 I have considered the written submission on behalf of the
appellant, the findings of the Assessing Officer and the material placed on

39
                                                                ITA No. 4396/Del/2011
                                                                 C.O. No. 64/DEL/2013


record. The crux of the matter revolves around rejection of assessee's books
of accounts by the Assessing Officer. In the case of Dhakeswari Cotton Mills
Ltd. V. CIT (1964) 26 ITR 775 (SC) the Hon'ble Supreme Court had decided
that once the books of accounts of the assessee are rejected then the profit
has to be estimated on the basis of proper material available. However, the
A.O. is not entitled to make a pure guess & make estimation without
reference to any evidence or any material at all. There must be something
more than mere suspicion to support such addition. The Hon'ble Supreme
Court has reconfirmed the earlier stand in the case or CIT Vs. K.Y. Pilliah &
Sons (1967) 64 ITR 411 (SC), where it has been decided that any lump sum
add back to the trading result if found justified must be done in proper
exercise of discretion objectively & judiciously on the basis of relevant
material. Regarding the' Assessing Officer being not satisfied about the
correctness or completeness of the assessee's accounts, the Calcutta High
Court's judgment in the case of Ashoke Refractories (I') Ltd. V. CIT [2005]
279 ITR 457 is relevant. In the said case. the Hon'ble High Court held that
in order to reject the accounts, the Assessing Officer has to come to an
opinion that the income cannot be properly deduced from the accounts so
maintained. In order to arrive at such conclusion, it must be shown thatthe
Assessing Officer has taken into consideration relevant factors and not
omitted to consider the material before him.
11.2 In the light of the above proposition, if the facts of the instant case are
examined, it may be seen that the rejection of the books of accounts was done
without any finding on the 'correctness or completeness' of the books of
account. In view of the above and in my considered opinion, the rejection of
the books of account, while accepting the books as correct and complete, is
an invalid assumption of jurisdiction by the Assessing Officer as he did not
dispute the method of accounting followed by the assessee and compliance of
the accounting standard. The main reasons for making trading addition are
that according to the AO, the appellant has not been able to adequately
justify the significant and alarming drop in G.P. rate in the year under
appeal as compared with the preceding assessment years. The Assessing
Officer has not pointed out any specific defect or discrepancy in the books of
accounts. Admittedly, the assessee had been maintaining regular Books of
Account, which were duly audited by independent Chartered Accountants.
The accounts which are regularly maintained in the course of business and
arc duly audited, free from any qualification by the auditors, should
normally he taken ns correct unless there are adequate reasons to indicate
that they are incorrect or unreliable. The onus is upon the Assessing Officer
to show that either the books of Account maintained by the assessee were
incorrect or incomplete or method of accounting adopted by him was such
40
                                                                ITA No. 4396/Del/2011
                                                                 C.O. No. 64/DEL/2013


that true profits of the assessee cannot be deduced therefrom. It is also
significant to mention that the record of production was checked by the
Directorate General of Central Excise Intelligence which carried out search
and seizure operation on the premises of M/s Jain Metal Works, the
proprietorship concern of the appellant on 22.02.2004 and there has not been
any adverse comments from the said Central Excise authorities. All these
materials show that the production results as indicated in the books of
account could not be disregarded without any clinching adverse evidences.
In the instant case there are no such evidences and the appellant has not
suppressed any production or sale. It is also not the case of the Assessing
Officer that the expenses claimed by the appellant were not verifiable. Even
if it is assumed that any particular expense claimed by the assessee remained
unverified, the Assessing Officer could have disallowed that particular
expense. But, that by itself cannot be a ground for rejection of accounts as a
whole. In this context, reliance is placed on the decision of Delhi High Court
in CIT vs Paradise Holidays (2010) 195 Taxman 291 (Del): 48 DTR (Del)
349.
11.3 The assessing authority has to look into the substance of the situation
and decide the matter in such a manner that neither is put to unreasonable
liability nor the assessee is subjected to unreasonable hardship. No doubt it is
not only the right but also the duty of the Assessing Officer to consider
whether or not the books disclosed the true state of accounts and the correct
income can be deduced therefrorn. But these rights and duty have to be
exercised in such a manner and have to be based on cogent reasons and
sufficient material. The reasons given by the Assessing Officer in this case
on the facts and circumstances is demonstrated, as. erroneous by the
assessee. Rejection of books of account should not be done light heartedly as
held by the Kerala High Court in the case of St. Teresa's Oil Mills v. State of
Kerala [1970] 76 ITR 365 and by the Assam High Court in the case of
Tolaram Daga v. CIT [1966] 59 ITR 632. Accounts regularly maintained in
the course of business have to be taken as correct unless there are strong and
sufficient reasons to indicate that they are unreliable and incorrect. The AO
has to prove satisfactorily that the books of accounts are unreliable or
incorrect or incomplete before he can reject the accounts and this can be
done by showing that important transactions are omitted or if proper
particulars and vouchers are not forthcoming or the accounts do not include
entries relating to a particular class of business. When a return is furnished
and accounts are put in support of that return, the accounts should be taken
as the basis for assessment. They should not be rejected because they are
complicated. The procedure of the Assessing Officer is of judicial nature and
in making the assessment he should proceed on judicial principles. If
41
                                                               ITA No. 4396/Del/2011
                                                                C.O. No. 64/DEL/2013


evidence is produced by the assessee in support of its return it should be
accepted unless it is rebutted by admissible evidence and not by mere
hearsay.
11.4 Thus for all these reasons and as the assessee has produced sufficient
material justifying its claim and as it has repelled the contentions advanced
by the Assessing Officer with cogent material and evidence, I am of the
considered view that on the facts and in the circumstances of the case, the
Assessing Officer was not justified in making the addition of Rs.16,96,788/-
by applying G.P. rate of 4.1%. The addition on account of trading to the
extent of Rs.16,96,788/- i-s, therefore, directed to be deleted. As a result,
Grounds of appeal No. 12 and 13 are allowed."
47.   On careful consideration of above, we note that the CIT(A) demolished

the rejection of books of account by the AO by relying on the judgment of the

Hon'ble Delhi High Court in the case of CIT Vs. Paradise Holidays (supra).

From vigilant reading of relevant operative part of the impugned order, we note

that the Assessing Officer proceeded to reject books of account on the basis of

his observations in Para 5 to 8 of the assessment order and held that books of

account maintained by the assessee or are deficient as they do not reflect the

true and correct particulars income of the assessee company. From careful

reading of the assessment order, we note that the Assessing Officer had not

issued any show cause notice to the assessee showing that he is intended to

reject the books of account and financial results therefrom. Undisputed and

admittedly the books of account of the assessee were audited by the competent

Auditor and the Auditor submitted audit report u/s 44AB of the Act in Form

3CB before the authorities below which was not disputed in any manner by the

Assessing Officer.

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                                                                 ITA No. 4396/Del/2011
                                                                  C.O. No. 64/DEL/2013


48.   From entire facts and circumstances of the present case, we also note

that originally the proceedings were started after raid by the Central Excise

Department at the business premises of the assessee wherein cash of Rs.25.75

lakh was seized and finally Central Excise Department could not make out any

case on the basis of seized cash which was subsequently requisitioned by the

Income Tax Authorities and proceeding u/s 153A of the Act were initiated.

From Para 9 of the assessment order, we clearly see that the Assessing Officer

rejected the books of account merely on the basis of his conclusion in Paras 5

to 8 of the assessment order and the assessee was not afford due opportunity of

hearing as per provisions of Section 145(3) of the Act before rejecting the

books of account and financial results of the assessee. In this situation, we are

an agreement with the conclusion of the CIT(A) when the books of account

cannot be rejected merely because some transactions or claimed expenses

could not be verified and this allegation itself cannot be ground for rejection of

books of account and financial results of the assessee as a whole. As per

provision of Section 145(3) of the Act, the Assessing Officer is empowered to

reject the books of account and financial results of the assessee if he is not

satisfied about the correctness or completeness of the accounts of the assessee

or where the method of accounting prescribed in sub section (1) has not been

regularly followed by the assessee or the income has not been computed in

accordance standards notified under Sub section (2) of the Act. It is relevant to

43
                                                                 ITA No. 4396/Del/2011
                                                                  C.O. No. 64/DEL/2013


note that before rejection of books of account it is incumbent upon the

Assessing Officer to allow opportunity of hearing for the assessee to satisfy the

Assessing Officer explaining the correctness and completeness of the accounts

and financial results submitted before him.

49.   In view of above, we have no hesitation to hold the Assessing Officer

reject the books of account of the assessee without any valid reason and

without following due procedure as per provision of the Act and without any

justified and cogent basis and the rejection of books of account AO was rightly

dismissed by the CIT(A). Turning to the issue of addition of Rs.16,96,788/-

applying difference of GP rate of 4.1% calculated on the basis of average of

GP rate of immediately preceding three assessment years, we note that since

the rejection of books of account have not been found to be sustainable then the

Assessing Officer cannot be held as justified in making the addition by

applying difference in GP rate of 4.1% on the basis of average of preceding

three years and addition in this regard cannot be held as sustainable and in

accordance with law in absence of justified and reasonable basis.

50.   We are agree with the view taken by the CIT(A) that the AO has to

prove satisfactorily that the books of account are unreliable or incorrect or

incomplete before rejection of books of account and financial results of the

assessee. We further observe that the Assessing Officer is mot empowered to


44
                                                                ITA No. 4396/Del/2011
                                                                 C.O. No. 64/DEL/2013


reject books of account of the assessee only by saying that important

transactions are omitted and proper particulars and vouchers and other

supportive evidence are not supporting the entries and transactions entered into

books of account. We are also agree with the conclusion of the CIT(A) that

when audit report is submitted and accounts are placed in support of the return

then the accounts should be taken as the basis for framing assessment and they

cannot be rejected merely because either complicated or some narration and

entries are not verifiable from the other relevant material. In this situation,

instead of rejecting books of account and financial results of the assessee

Assessing Officer may proceed to make disallowances and additions on that

particular issue but rejection of entire books of account and financial results

cannot be held as justified. We are of the considered opinion that if

explanation, evidence or any material is submitted by the assessee in support of

its return then it should be accepted after due examination and verification and

unless the same is controverted or rebutted by the cogent admissible evidence

by the AO arbitrary addition by taking 4.1% difference is not correct. We,

therefore, are of the considered opinion that considering the G.P. rate of the

earlier three years the G.P. rate of 5% of turnover would be most appropriate

and justified. Hence, we direct the AO to adopt 5% of G.P. rate and calculate

the disallowance accordingly. Accordingly, Ground Nos. 7 & 7.1 of the



45
                                                                 ITA No. 4396/Del/2011
                                                                  C.O. No. 64/DEL/2013


revenue are restored to the file of the AO for the limited purposes as directed

above.

51.     In the result, appeal of the Revenue is partly allowed on Ground nos. 7

& 7.1 and cross objection of the assessee is dismissed.

        The decision is pronounced in the open court on 06th July, 2015.

            Sd/-                                       Sd/-
         (R.S. SYAL)                            (CHANDRAMOHAN GARG)
     ACCOUNTANT MEMBER                           JUDICIAL MEMBER



Dated: 06th July, 2015.
Aks/-
Copy forwarded to:

1.      Appellant
2.      Respondent
3.      CIT
4.      CIT(A)
5.      DR
                                               Asst. Registrar, ITAT, New Delhi




46

 
 
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