CIT vs Jyotichand B. Saraf and Sons (P.) Ltd.

In this appeal by the revenue for the Block Assessment period from 1996-97 to 2002-03 following questions have been raised for our consideration.

(a) Whether on the facts and in the circumstances of the case and in law the Tribunal did not err in brushing aside the voluntary statement of the Director given u/s. 132(4) of the Income Tax Act, 1961 since retracted, declaring undisclosed income and also its application, without there being any allegation of coercion or undue influence?

(b) Whether on the facts and in the circumstances of the case and in law the Tribunal did not err in accepting the purchase of/agriculture land at book value even though the Director had unequivocally stated in the above statement that cash generated from the unrecorded sales had been applied over and above the investment recorded in the books of account?

(c) Whether on the facts and in the circumstances of the case and in law the Tribunal did not err in not considering the fact that the assessee had credited sales and had also debited the same to the accounts of the family members of the Director, which would clearly prove that not only unaccounted sales had been made by the assessee, the same had also been put to tangible but unaccounted investments?

(d) Whether on the facts and in the stances of the case and in law the Tribunal did not err in virtually allowing the assessee to generate unaccounted cash without making any Payment of taxes thereon?

(e) Whether on the facts and in the circumstances of the case and in law the Tribunal did not err in holding that the gross profit on unrecorded sales already admitted by the assessee should be accepted when such gross profit actually works out to Rs. 4,73,262/- and not Rs. 3,80,518/- admitted in the block return?

(f) Whether on the facts and in the circumstances of the case and in law, the order/direction of the Tribunal which is not based on any facts and evidences and on the contrary is based on mere assumption not perverse?

So far as question (a) to (d) are concerned the relevant facts are that during the course of search under Se Act, stock of gold jewellery was found short by 1.514 grams (net valued at Rs. 50 lacs. In the statement recorded u/s 132(4) of the Act, a Director of the assessee had admitted to the unrecorded sales amounting to Rs. 50 lacs which were invested in purchase and development of agricultural land.

In the Block Assessment Order passed on 26-12-2008 the Assessing officer made addition of Rs. 50 lacs on account of suppressed sales by relying upon the statement of the Director of the assessee.

On appeal filed by the assessee, the CIT(A) upheld the additions made by the Assessing officer.

On further appeal filed by the assessee, the Tribunal by the impugned order deleted the additions. Hence, the present appeal is filed by the revenue to challenge the order of the Tribunal.

According to the Counsel for the revenue as the Director of the assessee admitted to the undisclosed income arising from unrecorded sales, the Tribunal was not justified in deleting the additions made by the Assessing officer based on such statement and the block assessment order being sustained by the CIT(A).

The finding of fact recorded by the Tribunal for deleting the addition of Rs. 50 lacs made by the Assessing Officer and sustained by the CIT(A) is that though the admission made u/s 132(4) of the Act is an important piece of evidence, it is open to the assessee to demonstrate that the admission is contrary to the facts on record.

In the present case, during the course of search admittedly shortage of gold jewellery was noticed from the books maintained by the assessee. Obviously, the shortage would arise, only when the physical stock found is less than the quantity recorded in the books maintained by the assessee. In the absence of any dispute regarding the source of funds for acquisition of gold jewellery recorded in the books of the assessee, the fact that the assessee has not recorded sales of the said gold jewellery would not make the entire unrecorded sale proceeds to be the undisclosed income of the assessee. In other words, the fact that the assessee has sold the gold jewellery recorded in the books at Rs. 50 lacs but failed to record the same in the books, it is only the profit earned from the transaction which would constitute income and not the entire sale proceeds. Therefore, in the facts of the present case, the decision of the Tribunal in accepting the contention of the assessee that irrespective of the erroneous statement of the Director, only the profits from the unrecorded sales were taxable cannot be faulted. In these circumstances, we see no reason to entertain questions (a) to (d).

So far as questions (e) and (f) are concerned, the Tribunal in the impugned order has not determined as to what should be the gross profit earned on the sale of unrecorded sale. The Tribunal has merely recorded that only the profit elements can be subjected to tax and not the entire sales. In these, circumstances, questions (e) and (f) as framed does not arise from the order of the Tribunal. Thus, we see no reason to entertain questions (e) and (f). Accordingly, the appeal is dismissed with no order as to costs.