Commissioner Of Income Tax Jaipur-Ii Jaipur v. M/S Jypore Manufacturing Jewellers (P) Ltd. Plot

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 139 / 2016 Commissioner of Income TAx Jaipur-II Jaipur ----Appellant Versus M/S Jypore Manufacturing Jewellers (P) Ltd. Plot No. 1 & 2, RatanShikha Building, Near Gokhle Park, Janta Colony, Jaipur ----Respondent Connected With D.B. Income Tax Appeal No. 148 / 2016 Commissioner of Income TAx Jaipur-II Jaipur ----Appellant Versus M/S Jypore Manufacturing Jewellers (P) Ltd. Plot No. 1 & 2, RatanShikha Building, Near Gokhle Park, Janta Colony, Jaipur ---Respondent D.B. Income Tax Appeal No. 149 / 2016 Commissioner of Income TAx Jaipur-II Jaipur ----Appellant Versus M/S Jypore Manufacturing Jewellers (P) Ltd. Plot No. 1 & 2, RatanShikha Building, Near Gokhle Park, Janta Colony, Jaipur ---Respondent _____________________________________________________ For Appellant(s) : Mr. R.B. Mathur with Mr. Prahansh Sharma & Mr. Ankit Poply For Respondent(s) : Mr. Gunjan Pathak with Ms. Ishita Rawat _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 12/12/2017 1.In these appeals common questions of law and facts areinvolved, hence, they are decided by this common judgment. 2.By way of these appeals, the appellant has assailed thejudgment and order of the Tribunal whereby the Tribunal hasallowed the appeals of the assessee and dismissed the appeals ofthe department. 3.This Court while admitting the matters framed followingquestions of law:- In DBITA No. 139/2016 “1. Whether in the facts and circumstances ofthe case the ITAT was justified in law inmentioning of wrong provisions i.e. 153Ainstead of 153C will vitiate the proceedings.” 2.Whether in the facts and circumstances of thecase the ITAT was justified in law in thedeleting the trading addition of Rs. 3732242/-made by the Assessing Officer withoutappreciating the facts of the case as broughtout by the lower authorities.” In DBITA No. 148/2016 “1. Whether in the facts and circumstances of thecase the ITAT was justified in law in mentioning ofwrong provisions i.e. 153A instead of 153C willvitiate the proceedings.” 2.Whether in the facts and circumstances of thecase the ITAT was justified in law in the deletingthe trading addition of Rs. 4998340/- made by theAssessing Officer without appreciating the facts ofthe case as brought out by the lower authorities.” In DBITA No. 149/2016 “1. Whether in the facts and circumstances of thecase the ITAT was justified in law in mentioning ofwrong provisions i.e. 153A instead of 153C willvitiate the proceedings.” 2.Whether in the facts and circumstances of thecase the ITAT was justified in law in the deletingthe trading addition of Rs. 11260845/- made bythe Assessing Officer without appreciating thefacts of the case as brought out by the lowerauthorities.” 4.Counsel for the appellant Mr. Mathur has taken us tothe order of the AO wherein it has been observed asunder:- “On the other hand Sh. Radha Mohan Agarwal,Director M/s Jypore Jewellery ManufacturingPvt. Ltd. 1 & 2, Ratan Shikha, Near GokhalePark, Janta Colony, Jaipur filed a letter dated10/09/2009 before the investigation wing ofthe Department claiming the ownership of thecontents of the locker of his company. Hisstatement were recorded on 23/09/2009 and25/09/2009 u/s 131 of the Income Tax Actand in the statement he admitted on oath thatthe locker no. 1004 searched was hired byhim and the documents/ assets were admittedproperty of the company. 4.Counsel for the appellant Mr. Mathur has taken us tothe order of the AO wherein it has been observed asunder:- “On the other hand Sh. Radha Mohan Agarwal,Director M/s Jypore Jewellery ManufacturingPvt. Ltd. 1 & 2, Ratan Shikha, Near GokhalePark, Janta Colony, Jaipur filed a letter dated10/09/2009 before the investigation wing ofthe Department claiming the ownership of thecontents of the locker of his company. Hisstatement were recorded on 23/09/2009 and25/09/2009 u/s 131 of the Income Tax Actand in the statement he admitted on oath thatthe locker no. 1004 searched was hired byhim and the documents/ assets were admittedproperty of the company. In view of the above stated facts theproceedings initiated in the name of Shri Ramand Sh. Govind Dev have been dropped beinginfructuous. On the other hand proceedingsu/s 153C of the Act is initiated in the case ofM/s Jypore Jewellery Manufacturing Pvt. Ltd. 1& 2, Ratan Shikha, Near Gokhale Park, JantaColony, Jaipur (PAN: ) whichsatisfies the terms of issue of notice underthat section. 4.3. In compliance to this notice a letter wasfiled by the A/R of the assessee stating asunder:- “With reference to above and your notice dated19.07.2011 we would like to submit that ourreturn filed u/s 153A dated 22.03.2010 betreated as return filed in compliance to yournotice dated 19.07.2011 u/s 153C of theIncome Tax Act, 1961. We are also requestedto you that our all earlier reply/submissions betreated filed in compliance to notice u/s 153Cof the Income Tax Act, 1961.” 7. Statement of Sh. Radh Mohan Agarwal, directorof the company was recorded on 25/09/2009,02/12/2009 u/s 131 of the IT Act, 1961. In thestatement recorded on 02/12/2009 he stated asunder:- iz-7 vkius iz’u la[;k 6 ds mRkj esa dgk Fkk fd eSa tks dkxt vkSj Locker la[;k 1004 ls cjken gq, Fks mudk o"kZokj dkxtksa dh Photocopy izkIrdjus ds i’pkr~ crk ikÅ¡xkA vkidks papers dh Photo CopiesmiyC?k djk nh xbZ gSA Ñi;k vki viuh v?kksf"kr vk; dh Year wisebifurcation nsosaA m-7 gka eSaus Seized Documents dh Photo copies izkIr dj yhgSaA eSaus igys vius c;kuksa esa 1-50 crores :i;s dh v?kksf"kr vk; Lohdkjdh FkhA vc eSaus vius Seized Documents dh Copies Hkyh Hkkafrns[k yh gSA bUgsa ns[kus ds ckn eSa viuh v?kksf"kr vk; :i;s 2 djksM (twocrores) Lohdkj djrk gwaA ftldk o"kZokj fooj.k eSa vius i= fnukad02@12@09 ds lkFk izLrqr dj jgk gwaA fofr; o"kZ 2006&07 esa esjh QeZ dkNet Profit Rs.21396/- o"kZ 2007&08 esa R. 1231754/-, o"kZ2008&09 esa Rs.4391086/- o o"kZ 2009&10 esa Rs.1888254/-vkrk gS] bl izdkj dqy Net Profit bu pkj o"kksZa esa Rs.7532490/-vkrk gSaA ckdh Rs.12467510/- dh vk; eSa fofr; o"kZ 2009&10 esaSurrender djrk gwaA bl izdkj esjh dqy v?kksf"kr vk; :i;s 2 djksMgksrh gS ftl ij eSa vk;dj pqdk nwaxkAiz-8 vkius tks v?kksf"kr vk; Åij crkbZ gS mldk fuos’k vkius fdl izdkj lsfd;k gSA m-8 eSaus :i;s 93]63]209@&] Jewellery esa fuos’k fd;k FkkA ckdh10636791@& :i;s esjs ikl Cash ds :i esa FksA bl izdkj dqy 2djksM :i;s gksrs gSA The jewellery found in the locker was result ofunaccounted business business all the details ofunaccounted transactions were foun d in the samelocker. Since the assessee was not maintaining anysystematic purchase details. He was only recordingunaccounted sales figure. Therefore, the stockdetails can not be worked out from the seizeddocuments but without having unaccounted stockhow the unaccounted sales can be possible.Therefore, the stock found in the locker is result ofunaccounted business done by the assessee. Estimation of profits- The reason explained for decline in G.P. rate asdiscussed in para 10 above is unsubstantiated andthe reply submitted is not supported bycorroborative evidence. The assessee during theyear under consideration has carried onunaccounted business in large proportion. Thedetails of accounted for and unaccounted turnoveris furnished as under:- Estimation of profits- The reason explained for decline in G.P. rate asdiscussed in para 10 above is unsubstantiated andthe reply submitted is not supported bycorroborative evidence. The assessee during theyear under consideration has carried onunaccounted business in large proportion. Thedetails of accounted for and unaccounted turnoveris furnished as under:- Nature of BusinessTurnoverProfitAccounted for business3617663810983115Unaccounted for business105604291642616 (Excluding office expenses of Rs. 410862) The G.P. of accounted for and unaccounted turnovertaken together at Rs. 4,67,37,067/- works out to Rs.1,26,25,731/- on which G.P. rate is worked out @27.01%. After taking into consideration the facts andcircumstances of the case and G.P. rate declared @36.9% in preceding assessment year 2007-08 onturnover of Rs. 3.57 Crores, the G.P. rate for the yearunder consideration is estimated @ 35% of the totalturnover of Rs. 4,67,37,067/-. The estimated G.P. isworked out to Rs. 1,63,57,973/-. After deducting the G.P.declared by the assessee at Rs. 1,26,25,731/- thedifference of Rs. 37,32,242/- is added to income of theassessee.” 5.He has also taken us to the order of CIT(A) wherein it has been observed as under:- “The AO has applied the G.P. rate of 35% on thetotal turnover (both accounted and unaccounted) ofRs. 4,67,37,067/- stating that assessee hasdeclared G.P. rate of 36.9% in A.Y. 2007-08 andmade addition of Rs. 37,32,242/-However, theassessee has pointed out that as regarding theaccounted turnover of the assesse was 3,61,76,638on which gross profit of 1,09,83,115 was declaredshowing the G.P. rate of 30.36%. The books ofaccounts have been maintained as regarding theregular turnover of the assessee which include cashbooks, bank book, journal, ledger, bills andvouchers and stock register. These books have beenaudited and audit report has been submitted. Thesame were produced before the AO and AO hasmerely mentioned that no stock register andquantitative details have been maintained. However,it was pointed out in the letter dated 22.12.2011 tothe AO that the complete quantitative details inrespect of purchase, sales, closing stock for theregular transactions have been recorded in thebooks and stock register. Further, the assesseeexplained that as regarding the accountedtransaction, the turnover of the assessee hasincreased from Rs. 3.58 crores in A.Y. 2007-08 toRs. 3.61 crores in A.Y. 2008-09 leading to decreasein the profit margin from 36.89% to 30.36%. Eventhen, the same is better than A.Y. 2004-05 to A.Y.2006-07 (chart supra). From above it is apparent that as far as regular books of accounts for theaccounted turnover are concerned, G.P. results arereasonable. The AO has not pointed out anydiscrepancy in the books maintained by theassessee in respect of accounted turnover and thereis no reason to reject the G.P. rate in respect oftransactions recorded in the regular books ofaccounts. Accordingly, the addition made byincreasing the G.P. rate of 30.36% to 35% inrespect of accounted turnover of Rs. 3,61,76,638 isdeleted. that as far as regular books of accounts for theaccounted turnover are concerned, G.P. results arereasonable. The AO has not pointed out anydiscrepancy in the books maintained by theassessee in respect of accounted turnover and thereis no reason to reject the G.P. rate in respect oftransactions recorded in the regular books ofaccounts. Accordingly, the addition made byincreasing the G.P. rate of 30.36% to 35% inrespect of accounted turnover of Rs. 3,61,76,638 isdeleted. As regarding unaccounted turnover of the businessof Rs. 1,05,60,429, the assessee has shown thegross profit Rs. 16,42,616 as mentioned by the AO,thereby giving the G.P. rate of 15.55%. Theassessee has pointed out that said working hasbeen done based on the seized documents foundfrom the locker during search. It was observed thatas per the assessee’s own reply dated 22.12.2011that assessee was not maintaining any systematicpurchase details and he was only recordingunaccounted sales figure therefore stock detailscannot be worked out from the seized documents.Further, it cannot be said that G.P. rate in thesimilar line of trade can vary from 30.36% inrespect of recorded transactions and drops down to15.55% in respect of unaccounted transactions.From above, it is seen that assessee’s G.P. rateshown by the assessee is not reliable. Also, theassessee’s unaccounted turnover is not more thanthe recorded turnover in the books of accounts.Accordingly, G.P. rate of 30.36% as shown in therecorded transaction is applied in case ofunaccounted transactions of the assessee on thesales of Rs. 1,05,60,429 which gives the G.P. of Rs.32,06,146. Out of the same, assessee has alreadydeclared gross profit of Rs. 16,42,616. Accordingly,addition of the balance amount of Rs. 15,63,530 isconfirmed.” 6.He further contended that the Tribunal while considering the matter has observed as under;- “2.11. As regards the GP rate application on regularturnover, has the assessee is maintaining all thebooks of accounts including cash book, bank books,journal book. Ledger, bills & voucher and stockregister along with their supporting as prescribedu/s 44AA of the Income Tax Act, 1961. the books of accounts are maintained on mercantile system ofaccounting. The books of accounts are audited. Theauditors have not made any adverse remarksregarding the maintenance of the books ofaccounts. The trading results of the assessee arereflected in the following table:- A.Y.Turnover1Gross ProfitG.P. Rate2008-09631766381098311530.36%2007-08358230891321634436.89%2006-0740047615701594517.52%2005-0620996585626831929.85%2004-0525826192741802128.72%2003-041413500832.02% “2.11. As regards the GP rate application on regularturnover, has the assessee is maintaining all thebooks of accounts including cash book, bank books,journal book. Ledger, bills & voucher and stockregister along with their supporting as prescribedu/s 44AA of the Income Tax Act, 1961. the books of accounts are maintained on mercantile system ofaccounting. The books of accounts are audited. Theauditors have not made any adverse remarksregarding the maintenance of the books ofaccounts. The trading results of the assessee arereflected in the following table:- A.Y.Turnover1Gross ProfitG.P. Rate2008-09631766381098311530.36%2007-08358230891321634436.89%2006-0740047615701594517.52%2005-0620996585626831929.85%2004-0525826192741802128.72%2003-041413500832.02% 2.18.We have heard the rival contentions andperused the material available on record. Aproposthe validity of assessments we find that originalnotice was issued u/s 153A and there as neitherany warrant or search on assessee. Similarly whileissuing notice u/s 153C no satisfaction in thisbehalf in the case of Modi group nor there was anyassessment in the case of Shri Govind Dev as the153A proceedings were dropped in that case. Thesatisfaction recorded by AO initiating 153C is silentregarding the pending proceeding initiated u/s153A by notice dt. 29.12.2009 in the case of theassessee. The proceedings though purported to beinitiated u/s 153C the assessments are completedu/s 153A rws 143(3) as evidenced by therespective orders of ld. AO and CIT(A). this leads toa legal situation where during the pendency of153A proceedings notice u/s 153C is issued. Tofurther confound the situation the proceedings arepurported to be continued u/s 153C but theassessments are completed u/s 153A despiteconsciously dropping the notice u/s 153A. We findmerit in the argument of ld. Counsel thatassessments u/s 153A and 153C are independentand mutually exclusive, an assessment cannot beframed in continuation of both notices and similarlycannot be concluded u/s 153A if proceedings areundertaken u/s 153C. In view of the facts,circumstances and judicial precedents cited above we hold that impugned assessments are untenableand bad in law. Our view is fortified by Jindalstainless steel ltd. and Shital Prasad Kharag Prasad(supra). 2.19. Apropos merits also we are of the view thatregular trading results of the assessee’s businesswere already subject matter of appeals, there wasno search on his show room, and therefore, noincriminating material was found. By estimating theGP from regular business ld. AO has reviewedsettled position without any incriminating materialin this behalf, which is not permissible in searchassessments. In view thereof we delete theadditions made in respect of estimation of GP fromregular business. we hold that impugned assessments are untenableand bad in law. Our view is fortified by Jindalstainless steel ltd. and Shital Prasad Kharag Prasad(supra). 2.19. Apropos merits also we are of the view thatregular trading results of the assessee’s businesswere already subject matter of appeals, there wasno search on his show room, and therefore, noincriminating material was found. By estimating theGP from regular business ld. AO has reviewedsettled position without any incriminating materialin this behalf, which is not permissible in searchassessments. In view thereof we delete theadditions made in respect of estimation of GP fromregular business. 2.20. Apropos the income declared fromunaccounted business it has not been disputed thatassessee filed complete record of year wise andtransaction wise accountes of material found in thelocker. No adverse comments have been offered byld. AO in this behalf. Regarding comparativelylesser GP from unaccounted business than regularbusiness assessee offered proper reasons whichhave not been even considered by AO. The GP hasbeen enhanced not based on any objectiveconsiderations but by summarily relying onestimated GP of regular business. In our consideredview the incriminating material should consideredin totality and when assessee has submittedcopious accounts for incriminating material itcannot be discarded summarily as done by ld. AO.Since there is no rebuttal in respects of accounts ofunaccounted income furnished by the assessee, theprofits declared deserve to be accepted in givenfacts and circumstances. Similarly it is not disputedthat value of stock of jewelry found from lockerwas taken by ld. AO on market price whereas asper settled accounting principles same should havebeen valued at cost. Consequently, valuationadopted by assessee is to be adopted. Thus theadditions in question deserve to be deleted onmerits also.” 7.Counsel for the respondent has supported the order of theTribunal and contended that notice u/s 153A was not followed byproceedings u/s 153C. In that view of the matter, proceedingsinitiated was without any basis or search by the present appellant. 8.He has also taken us to provision of Section 292 B of theIncome Tax Act and contended that in view of the decision ofAllahabad High Court in case of Commissioner of Income Tax vs.Shital Prasad Kharag Prasad reported in (2006) 280 ITR 0541wherein it has been held as under:- “8. We have independently examined the findingsof the Tribunal on the question of issuance of avalid notice under Section 148 of the Act and itsservice on Shri B.D. Agarwal, who represented ShriJ.B. Gupta. It is not in dispute that Shri J.B. Guptahad died on 13th Aug., 1974. Therefore, noticeunder Section 148 of the Act could not be validlyserved on Shri B.D. Agrawal on 27th Aug., 1976.The authority of Shri B.D. Agrawal came to an endipso facto on 13th Aug., 1974, on account of deathof Shri J.B. Gupta. It is settled law that service of avalid notice under Section 148 is the foundation forthe initiation of reassessment proceedings and acondition precedent for the validity of the notice.The further fact is that the notice under Section148 was not served on the adult members of thefamily who were in existence at the time of thepartition of the joint Hindu family. Filing of thereturn in consequence of illegal service of notice onShri B.D. Agrawal will not validate thereassessment proceedings. A Full Bench decision ofthis Court rendered under Section 21 of the U.P.Sales Tax Act which is in pari materia of Section147 of the Act says no. This has been so held inLaxmi Narain Anand Prakash v. CST 1980 UPTC125. In this case the High Court has relied uponnumber of cases relating to service ofreassessment notice under the IT Act includingBhagwan Devi Saraogi and Ors. v. ITOMANU/WB/0117/1975 : [1979]118ITR906(Cal) andquoted following passage from it : "If the authority concerned does not acquirejurisdiction in absence of a valid notice beingserved, the entire proceedings will be withoutjurisdiction and void and even the consent on thepart of the assessee would confer no jurisdiction onthe'ITO'."The Kerala High Court in P.N. Shashi Kumar andOrs.v.CITMANU/KE/0130/1987:[1988]170ITR80(Ker) has held that the issue of a notice under Section 148 of the IT Act, 1961, is acondition precedent to the validity of anyassessment order to be passed under Section 147of the Act. It is also settled law that if no suchnotice is issued or if the notice is invalid or is not inaccordance with law or is not served on the properperson in accordance with law, the assessmentwould be illegal and without jurisdiction. The noticeshould specify the correct assessment year andshould be issued to particular assessee. The noticeissued to the assessee in that case did not specifythe capacity in which it was issued to one S,whether as individual or as "principal officer" or asa member of association or BOI. The assessmentwas completed by the ITO in the status of an AOPconsisting of S and some others. It was held thatbefore assessing an AOP, notice should beaddressed to the "principal officer" or a "member"thereof as required by Section 282(2)(c), whichwas not done. Such a fundamental infirmity, it washeld, could not be called a "technical objection" ora mere irregularity; such vital infirmity could not becured or obliterated by placing reliance on Section292B. A Division Bench of this Court in the case of MadanLal Agrawal v. CIT MANU/UP/0353/1982 :[1983]144ITR745(All) has held that a noticecontemplated by Section 148 is a jurisdictionalnotice for initiating proceedings for making anassessment under Section 147 and any defect inthat notice cannot be cured by any thing done bythe ITO subsequently. A vague notice is an invalidnotice and in such a case vagueness cannot beremoved by reference to the other documents onthe record. If a notice itself is otherwise bad in law,invalidity thereof cannot be cured by any act of theassessee to whom the said notice is issued. 9. In view of above, the Tribunal has rightly heldthat Section 292B of the Act will have noapplication to the facts of the present case. Thesaid section condones the invalidity which arisesmerely by reason of any mistake, defect oromission in a notice, if in substance and effect, it isin conformity with or according to the intent andpurpose of the Act. The notice in question was notserved on all the adult members of the family, asrequired under Section 283(1) of the Act. Thismistake goes to the very root of the matter. It isfairly settled that an assessing authority getsjurisdiction to reopen a concluded assessment only after serving a valid notice on the assessee. Anotice contemplated under Section 148 of the Act isa jurisdictional notice and is not curable underSection 292B of the Act, if it was not served inaccordance with the provisions of the Act.” 9.The initiation u/s 153C is bad in law and to get advantage ofSection 292B of the Income Tax Act. 10.We have heard counsel for both the sides. 11.The argument u/s 292B was not considered and canvassedbefore the Tribunal. In that view of the matter, taking intoconsideration overall view and more particularly looking to the factthat the Tribunal has traveled beyond the pleadings and has notcorrectly given the finding while reversing the view taken by theCIT(A), we are of the opinion that the matters be remitted back tothe Tribunal to reconsider the issue afresh after hearing both thesides on all questions of law and facts. Therefore, the order of theTribunal is quashed and set aside. The matters are remitted backto the Tribunal. 12.Both the parties will appear before the Tribunal on 3[rd]January, 2018 and thereafter, the Tribunal will decide the mattersafresh. 13.The appeals stand allowed. (VIJAY KUMAR VYAS), J. 11.The argument u/s 292B was not considered and canvassedbefore the Tribunal. In that view of the matter, taking intoconsideration overall view and more particularly looking to the factthat the Tribunal has traveled beyond the pleadings and has notcorrectly given the finding while reversing the view taken by theCIT(A), we are of the opinion that the matters be remitted back tothe Tribunal to reconsider the issue afresh after hearing both thesides on all questions of law and facts. Therefore, the order of theTribunal is quashed and set aside. The matters are remitted backto the Tribunal. 12.Both the parties will appear before the Tribunal on 3[rd]January, 2018 and thereafter, the Tribunal will decide the mattersafresh. 13.The appeals stand allowed. (VIJAY KUMAR VYAS), J. (K.S. JHAVERI), J. A.Sharma/19-21