Income Tax Appellate Tribunal - Jaipur
Khandaka Jain Jewellers, Jaipur vs Department Of Income Tax on 1 October, 2015
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM
vk;dj vihy la-@ITA No. 997/JP/2013
fu/kZkj.k o"kZ@Assessment Year : 2008-09.
Assistant Commissioner of cuke M/s Khandaka Jain,
Income Tax, Circle-2, Vs. Jewellers, Haldiyon Ka
Jaipur. Rasta, Johari Bazar, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AAEFK 1438 L
vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Shri Raj Mehra (JCIT)
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Madhukar Garg (C.A.)
lquokbZ dh rkjh[k@ Date of Hearing : 15/09/2015.
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 01/10/2015.
vkns'k@ ORDER
PER T.R. MEENA, A.M.
This is an appeal filed by the revenue against the order dated 05/09/2013 of the learned C.I.T.(A)-I, Jaipur for A.Y. 2008-09. The effective grounds of appeal are as under:-
"(i) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) was justified in reducing the trading addition to Rs. 5,60,827/- even after upholding rejection of books U/s 145(3).2 ITA No. 997/JP/2013
ACIT Vs M/s Khandaka Jain
(ii) Whether on the facts and in the circumstances of the case and in law the ld CIT(A) was justified in deleting disallowance of interest of Rs. 9000/- made by the A.O.
(iii) Whether on the facts and in the circumstances of the case and in law the ld CIT(A) was justified in deleting the addition of Rs. 7,68,872/- made on account of excessive interest payment to the persons covered by Section 40(A)(2)(b), which was made after recording cogent reasons."
2. The first ground of the revenue's appeal is against reducing the trading addition of Rs. 5,60,827/- even after upholding the rejection of books U/s 145(3) of the Income Tax Act, 1961 (hereinafter referred as the Act). The assessee firm is engaged in the business of manufacturing and trading of gold and silver ornaments. The assessee filed return of income on 31/10/2008 declaring total income of Rs. 13,09,040/-. The case was scrutinized U/s 143(3) of the Act. The assessee has produced books of account and details as desired by the Assessing Officer, which was examined by him. The ld. Assessing Officer has observed as under:- 3 ITA No. 997/JP/2013
ACIT Vs M/s Khandaka Jain
1. Assessee has shown purchase of Rs. 2,25,38,086/- from URD (unregistered dealers) out of total purchase of Rs.
4,47,89,444/-. Such URD purchase is not having proper bills, only self made vouchers are available. PAN, address of such sellers is also not available.
2. Quantitative & qualitative stock of diamond & precious stones are not maintained.
3. Assessee following LIFO method which is not acceptable as per accounting standard.
4. Regarding stock register for gold, no bifurcation of finished and unfinished goods and cost thereon is mentioned.
5. Schedule of audit report says that "assessee has not maintained vouchers of some of the expenditure but looking to the nature of business as explained by the assessee.
6. Assessee is no maintaining record for consumption of old gold/silver purchased and that of new one.
On the basis of above discrepancy, the ld Assessing Officer proposed to reject the books of account U/s 145(3) of the Act, which was replied by the assessee after considering the assessee's reply. He held that the assessee had shown huge amount of URD purchases (Unregistered Dealer), however, they were not supported by proper bills. No details of 4 ITA No. 997/JP/2013 ACIT Vs M/s Khandaka Jain sellers, their address and PAN had been maintained on such vouchers. In absence of these basic primary details, these purchases remained unverifiable and unauthentic. The assessee had not been maintaining quantitative and qualitative details of diamonds and precious and semi precious stones. Considering the fact that quality of stones and diamonds makes huge variation in prices, no qualitative details leaves stock nothing but mere estimation. Moreover, the assessee was not maintaining even quantitative detail of diamonds and stock. The assessee had followed LIFO method which was not acceptable as per accounting standards. Mere plea of the assessee that he was regularly following certain method, did not justify any method which is not acceptable as per accounting standards. Further the assessee was not maintaining proper records/details for expenses. As auditor has also pointed out the fact that the assessee has failed to maintained proper record for expenditure. In view of the above finding of the Assessing Officer, expenditure claimed by the assessee remained unverifiable. Accordingly he applied Section 145(3) of the Act and rejected the book result. He relied on the following case laws:-
(i) Amiya Kumar Roy & Brothers Vs. CIT 206 ITR 306 (Cal.)
(ii) Ram Chandra Singh Ramnik Lal Vs. CIT (Patna) 42 ITR 780.
(iii) Ratan Lal Om Prakash 132 ITR 640.5 ITA No. 997/JP/2013
ACIT Vs M/s Khandaka Jain
(iv) Ram Krishan Poongalia 184 CTR 448 (Raj.)
(v) Navasivayam Chettiar (S.N.) Vs. CITY (1960) 38 ITR 579 (SC).
Ld Assessing Officer further observed that once the books of account of the assessee was rejected the profit of the assessee was to be estimated, however, this estimation should have the basis which is fair and scientific. One such basis for estimation of profit can be trading results shown by the assessee in the preceding year. However, past history of the case has been that of rejection of books of account, thereby cannot be adopted as basis for estimation. Considering the facts and circumstances of the case as mentioned above by the Assessing Officer, he applied G.P. rate @ 14% against the declared G.P. rate of 13.20%. Thus he made addition of Rs. 5,60,827/- in the income of the assessee.
3. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had allowed the appeal by observing as under:-
"The first to fourth grounds of appeal are against the trading addition of Rs. 5,60,827/- made by invoking the provisions of Section 145(3) and holding that in respect of URD purchases they are not supported by proper bills. This ground of appeal are squarely covered in favour of the appellant by virtue of the order of the Hon'ble ITAT, Jaipur Bench, Jaipur in Appeal No. 6 ITA No. 997/JP/2013 ACIT Vs M/s Khandaka Jain 426/JP/2009, ITA No. 375/JP/2010 & ITA No. 627/JP/2010 dated 30/09/2010 in the appellant's own case for A.Y. 2006-07 & 2007-08 wherein similar additions was deleted. There being no change in the material facts and the legal position. This disallowance is deleted on the basis of the said order of the Hon'ble ITAT, Jaipur. The appellant succeeds on this ground."
4. Now revenue is in appeal before us. The ld DR vehemently supported the order of the Assessing Officer and reiterated the arguments made in his assessment order that the assessee had not maintained qualitative and quantitative details of stock. There was URD purchases for which no addressee, confirmation, PAN number have been furnished by the assessee during the course of assessment proceedings. Therefore, ld Assessing Officer rightly applied Section 145(3) of the Act and rejected the book result. He was also fair to apply G.P. rate of 14% as disclosed by the assessee @ 13.2%. Therefore, he prayed to confirm the order of the Assessing Officer.
5. At the outset, the ld AR of the assessee has argued that it is a covered issue as identical additions were made by the ld Assessing Officer in A.Y. 2006-07 and 2007-08. The Hon'ble ITAT Jaipur Bench, Jaipur in ITA No. 426/JP/2009 for A.Y. 2006-07, ITA No. 375/JP/2010 for A.Y. 2007-08 & ITA No. 627/JP/2010 for A.Y. 2007-08 order dated 30/09/2010 7 ITA No. 997/JP/2013 ACIT Vs M/s Khandaka Jain has allowed the appeal by observing that, it is not necessary that rejection of books is made by the Assessing Officer, there must be some additions in the income of the assessee.
6. We have heard the rival contentions of both the parties and perused the material available on record. The assessee has shown G.P. rate @ 13.2% on total sale of Rs. 6.86 crores as against the G.P. rate @ 13% on sale of Rs. 6.82 crores in immediate preceding year. The assessee has maintained day to day stock register of gold and silver ornaments but not maintained the stock register for diamond jewellery, this constitutes 5.6% of total turnover. The assessee had not made any purchase from URD but made purchase from customer who are bringing their old ornaments for sale at assessee's shop and normally the jewellery is either being converted/remade or new jewellery is being purchased by them. The assessee has only finished goods, therefore, the assessee is not required to maintain stock register of unfinished stock. The assessee had followed LIFO method of closing stock since number of years and no addition had been made by the ld Assessing Officer in past on this ground and same has been followed by the assessee consistently. The Coordinate Bench had already considered the identical facts and circumstances of the case in assessee's own case in A.Y. 2006-07 and 2007-08 and dismissed 8 ITA No. 997/JP/2013 ACIT Vs M/s Khandaka Jain the revenue's appeal. Therefore, we find no reason to intervene in the order of the ld CIT(A), accordingly, which is upheld.
7. The second ground of the revenue's appeal is against deleting the disallowance of interest or Rs. 9000/-. The ld Assessing Officer observed that the assessee had provided interest free advance to Shri Satish Kumar Khandaka at Rs. 3 lacs. The assessee firm has taken secured and unsecured loan and claimed interest expenses on it. The ld Assessing Officer gave reasonable opportunity of being heard on this issue, which has availed by the assessee. As per Assessing Officer, the assessee could not explain satisfactorily the reason that why it had not charged interest on the advances of Rs. 3 lacs after relying on various cases of Hon'ble High Court. He disallowed 12% interest on day to day basis and addition of Rs. 9 lacs was made, which was deleted by the ld CIT(A) that the addition has been made by the Assessing Officer in a routine end perfunctory manner without bringing on record any material to justify the addition.
8. Now the revenue is in appeal before us. The ld DR has supported the order of the Assessing Officer and reiterated the arguments given by the Assessing Officer in his assessment order. At the outset, the ld AR of the assessee relied upon the finding of the ld CIT(A). The total advance 9 ITA No. 997/JP/2013 ACIT Vs M/s Khandaka Jain given to Shri Satish Kumar Khandaka of Rs. 3 lacs, the assessee is having much higher interest free funds available with it. The opening capital of partner was Rs. 1,10,07,513/- and the closing capital was Rs. 2,11,28,032/-. As per terms and conditions of the partnership deed, interest has been paid to the partner Shri Sant Kumar Khandaka and Smt. Suman Agarwal on an amount of Rs. 10 lacs only and whatever amount available in excess of Rs. 10 lacs is interest free. During the year under consideration, the assessee firm had earned book profit at Rs. 33,64,115/- which is much more than the interest free amount of Rs. 3 lacs. The ld Assessing Officer has not established any nexus between the interest bearing borrowings and interest free advances. Therefore, he prayed to confirm the order of the ld CIT(A).
9. We have heard the rival contentions of both the parties and perused the material available on the record. The partners of the firm had sufficient interest free funds including profit earned during the year. Therefore, no notional interest disallowance can be made by the Assessing Officer in absence direct nexus between the interest bearing fund and interest free advances. Thus, we confirm the order of the ld CIT(A).
10ITA No. 997/JP/2013
ACIT Vs M/s Khandaka Jain
10. The third ground of the revenue's appeal is against deleting the addition of Rs. 7,68,872/- made on account of excessive interest payment to the persons covered U/s 40(A)(2)(b) of the Act. The ld Assessing Officer observed that the assessee had paid interest @ 18% to the persons specified U/s 40(A)(2)(b) of the Act, which is found excessive to the Assessing Officer and held that reasonable rate of interest @ 12%. The ld Assessing Officer gave reasonable opportunity of being heard on this issue. After considering the assessee's reply, he disallowed the interest of Rs. 7,68,872/- and paid to the relative covered U/s 40(A)(2)(b) of the Act.
11. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had allowed the appeal by observing as under:-
"The sixty ground of appeal are against the addition of Rs. 7,68,872/- U/s 40(A)(2)(b). This ground of appeal are squarely covered in favour of the appellant by virtue of the order of Hon'ble ITAT, Jaipur Bench, Jaipur in Appeal No. 426/JP/2009, ITA No. 375/JP/2010 and ITA No. 627/JP/2010 dated 30/09/2010 in the appellant's own case for A.Y. 2006-07 and 2007-08 wherein similar additions was deleted. There being no change in the material facts and the legal position. This disallowance is deleted on the 11 ITA No. 997/JP/2013 ACIT Vs M/s Khandaka Jain basis of the said order of the Hon'ble ITAT, Jaipur. The appellant succeeds on this ground."
12. Now the revenue is in appeal before us. The ld DR has vehemently supported the order of the Assessing Officer. At the outset, the ld AR of the assessee has submitted that the burden U/s 40(A)(2)(b) of the Act is on the revenue to prove that expenditure incurred by the assessee is not reasonable for which he relied on the decision of Hon'ble ITAT, Jaipur Bench in the case of ITO Vs. Vimal Kumar Jain reported in XXXVII Tax World 63 and in the case of Goverdhan Prasad Singhal Vs. ITO reported in XXXX Tax World 175 wherein the Hon'ble ITAT has held that the interest rate of 18% to be reasonable in respect of assessment years 2004-05 and 2005-06. The similar additions were made in A.Y. 2006-07 by the Assessing Officer wherein the assessee had paid interest @ 18% to family members and the Assessing Officer disallowed interest in excess of 6.75% on which rate loan was taken from the bank. A disallowance of Rs. 7,65,855/- was made. The ld CIT(A) had deleted the disallowance against which an appeal was preferred by the department before the Hon'ble ITAT and the Hon'ble Tribunal vide their order dated 30/09/2010 held that there was no infirmity in the order of the ld CIT(A) and interest @ 18% was held to be justified. He placed reliance on the decision of 12 ITA No. 997/JP/2013 ACIT Vs M/s Khandaka Jain Hon'ble Rajasthan High Court in the case of CIT Vs. Udaipur Distillery Company Limited reported in 316 ITR 426 wherein it has been held by the Hon'ble High Court that where lower authorities have allowed deduction in respect of disallowance made U/s 40(A)(2)(b) of the Act on the ground that in earlier years deduction has been allowed and in order to maintain consistency, no interference was required to be made in allowing deduction. The disallowance which was made U/s 40(A)(2)(b) of the Act which was deleted by the CIT(A) and ITAT was held to be justified. Therefore, he prayed to confirm the order of the ld CIT(A).
13. We have heard the rival contentions of both the parties and perused the material available on the record. The assessee paid interest to the close person covered U/s 40(A)(2)(b) of the Act @ 18%, which was restricted by the Assessing Officer @ 12%. In A.Y. 2007-08 similar disallowances were made and assessee challenged the appeal before the ld CIT(A), who had allowed the appeal, which was challenged by the revenue before the ITAT. The Coordinate Bench vide order dated 30/09/2010 passed in ITA Nos. 426/JP/2009, 375/JP/2010 and ITA No. 627/JP/2010 for A.Y. 2006-07 and 2007-08 has observed as under:-
"After hearing the rival contentions and on perusal of the materials available on record, we noted that for paying lower 13 ITA No. 997/JP/2013 ACIT Vs M/s Khandaka Jain rate of interest to the bank, there was several types of charges and cost incurs in respect of bank loans. The bank is giving loan only on security which involves formalities like hypothecation and pledge of goods. Thus the ld. CIT(A) has rightly considered the rate of interest of 18% as reasonable and as per prevailing market conditions. Therefore, interest paid to the family members of the partners is reasonable and in this regard reliance is placed on the decision of ITAT Jaipur Bench in the case of ITO Vs. Vimal Kumar 37 TW 63 wherein it has been held that disallowance under the provisions of Section 40A(2)b) cannot be made out of interest payment to family members without establishing excessiveness or unreasonableness of the rate of interest. Reliance has further been placed on the order of this bench in the case of Goverdhan Prasad Singhal Vs. ITO 40 TW 175. In the said case, the Tribunal has held the interest rate of 18% to be reasonable in respect of assessment years 2004- 05 and 2005-06. Therefore, in view of the facts and circumstances of the case, we find no infirmity in the order of the ld CIT(A). Thus ground No. 2 of the revenue is dismissed."
The facts and circumstances of the case are similar to A.Y. 2006-07 and 2007-08, therefore, by respectfully following the order of the Coordinate Bench on identical issue, we dismiss the revenue's appeal on this ground. 14 ITA No. 997/JP/2013
ACIT Vs M/s Khandaka Jain
14. In the result, the revenue's appeal is dismissed. Order pronounced in the open court on 01/10/2015.
Sd/- Sd/-
¼yfyr dqekj½ ¼Vh-vkj-ehuk½
(Laliet Kumar) (T.R. Meena)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Tk;iqj@Jaipur
fnukad@Dated:- 01st October, 2015
Ranjan*
vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- The ACIT, Circle-2, Jaipur.
2. izR;FkhZ@ The Respondent- M/s Khandaka Jain, Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No.997/JP/2013) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar