Commissioner of Income Tax vs Jaipur Jewellers (Exports)

The Assessing Officer in his assessment order had made three additions of the following nature:

(a) The GP ratio was taken at 29.25 per cent as against 17 per cent given by the assessee and on that basis addition of Rs. 15,76,504 was made.

(b) Addition of Rs. 11,58,598 was made against unexplained credit entries in the bank account.

(c) Addition of Rs. 1,38,77,174 on the ground that the sum was on account of sundry creditors wrongly shown.

The assessee filed an appeal against this order of the Assessing Officer. The CIT (Appeals) vide its judgment dated 28-3-2005 partly allowed the appeal of the assessee. The addition of Rs. 15,76,504 was reduced to Rs. 3,00,000. The CIT (Appeals), while doing so, accepted the explanation of the assessee that the GP ratio of 29 per cent in earlier years was because of the reason that assessee had sold the jewellery, in those years, at the counter of the five star hotel whereas for the assessment year in question there was no local sale and the sale was by export of jewellery where the profit margin is lesser. CIT (Appeals), in these circumstances, concluded that GP ratio would be different and lesser when the jewellery is exported as against the sale in a five star hotel. This finding is sustained by the ITAT. It is a pure finding of fact and no question of law arises.

So far as the addition for unexplained credit entries with Banks, the CIT(A) deleted the same as the same was duly assessed for another assessee. The only submission of the learned Counsel for the appellant is that the assessee never disclosed that the earlier firm had been dissolved and new firm had been established and this fact, for the first time, was brought by the assessee before the CIT (Appeals) and CIT (Appeals) accepted the same as a truth without verifying as to whether earlier firm had been dissolved and new firm had come into existence. She submitted that no necessary documents evidencing the creation of the new partnership were not even looked into by the CIT (Appeals) or ITAT. On our repeated queries made to the learned Counsel as to whether this ground was raised before the ITAT while challenging the order of the CIT (Appeals) or not, Ms. Prem Lata Bansal was not able to point out any such ground having been raised before the ITAT. When such a plea was not taken before the ITAT, it is not permissible for the revenue to take this plea, for the first time, in this appeal, that too when the appeal is maintainable only on the substantial question of law. On the contrary, we find from the reading of the impugned order of the ITAT that as per the assessee, the fact that assessee was newly constituted firm and the business of the firm as now carried on is different than the business carried on by the erstwhile firm, was specifically argued and this was not even rebutted by the representative of the revenue who appeared before the ITAT. This can be seen from para 12 of the impugned order of the ITAT. On that basis, ITAT observed as under:

After considering the rival submissions, we do not find any infirmity in the order of the learned CIT(A). Though at the first instance the Assessing Officer was not aware of the fact as to whom the money belongs being the deposit in the bank account. However, when this fact was brought to the notice of the Assessing Officer, the Assessing Officer has not been able to controvert the finding that the money do not belong to the present assessee. Accordingly, no addition could be made in the hands of the present assessee. Addition of Rs. 11,58,598 was therefore, rightly deleted by the learned CIT(A).

On the addition of Rs. 38,77,174 we find that the ITAT has sustained the findings of the CIT(A) that the amounts payable to the creditors have been acknowledged by the assessee in its books and the liability pertains to the amount payable by the erstwhile firm being now taken over by the assessee, and that various creditors were paid and were being paid off by the assessee. The ITAT therefore held that so long as there is no cessation of liability by writing back the same, no addition can be made u/s 41(1). This clearly pertains to the finding of facts.

According to us, all the findings relate to the pure question of facts and no question of law arises. We, accordingly, dismiss this appeal with costs of Rs. 5,000 to be paid in Delhi High Court Mediation and Conciliation Centre.