Income Tax Appellate Tribunal - Delhi
Bhagwati Agencies (P) Ltd., New Delhi vs Department Of Income Tax on 9 February, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : A : NEW DELHI
BEFORE SHRI G.E. VEERABHADRAPPA, HON'BLE VICE PRESIDENT
AND
SHRI I.P. BANSAL, JUDICIAL MEMBER
ITA No.2587/Del/2010
Assessment Year : 2005-06
Income Tax Officer, Vs. M/s Bhagwati Agencies (P) Ltd.,
Ward 2 (4), Room No.381, C-118, East of Kailash,
CR Building, New Delhi - 65.
New Delhi.
PAN : AABCB4163F
(Appellant) (Respondent)
Assessee by : Shri R.S. Ahuja, CA
Revenue by : Mrs. Pratima Kaushik, Sr.DR
ORDER
PER I.P. BANSAL, JUDICIAL MEMBER
This is an appeal filed by the revenue. It is directed against the order of the CIT (A) dated 9th February, 2010 for assessment year 2005-06. The grounds of appeal read as under:-
1. In the facts and circumstances of the case, the decision of Ld. CIT (A) deleting the addition of Rs.1,00,00,000/- on account of unexplained cash credits is not acceptable as the CIT (A) has not appreciated the facts that the assessee would not be able to sell the gold bars before taking the delivery of the same from bank and that the assessee never disclosed the name of the customers from whom advances were received for purchase of gold bars and deposited in the bank.
2. In the facts and circumstances of the case, the decision of Ld. (A) deleting the addition of Rs.5,61,152/- being 0.5% of turnover, is not acceptable as Assessing Officer had factually demonstrated in the assessment order that transaction as shown by the assessee company in its books of account did not actually take place.2 ITA No.2587/Del/2010
3. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground (s) of appeal at any time before or during the hearing of this appeal.
2. The assessee is engaged in the business of trading of gold and bullions. During the course of assessment proceedings, it was noted by the Assessing Officer that the assessee had made all the sales in cash. The assessee was required to adduce evidence regarding sales by producing the names and addresses of the parties to whom the sales exceeding ` 5 lacs were made. In response, the assessee filed copies of sale bills, purchase bills from SBI Gold Cell and the details of stock. The perusal of the sale bill, bank statement of the assessee revealed that cash of ` 1 crore was deposited on 28th January, 2005. The assessee was asked to explain the same. The source was explained to be cash sales totaling to ` 1,28,46,200/- from invoices 1 to
11. The Assessing Officer observed that the said explanation of the assessee is false on the basis of sequence of events. The main contention of the Assessing Officer is that with the help of the said deposit of ` 1 crore, the available credit balance in the bank account was ` 1,35,55,100/- and upon deposit only the bank had issued Gold Delivery Order for 21 kgs. Of gold bar for an amount of ` 1,25,75,897/-. Thus, the main case of the Assessing Officer is that the deposit in the bank account was a step ahead of the sale made by the assessee on the same date. Therefore, the Assessing Officer treated the said amount of ` 1 crore as unexplained deposit in the bank account and made the addition accordingly.
3. So as it relates to the second addition of Rs.5,61,152/-, the Assessing Officer disbelieved the sales made by the assessee on the ground that these sales are made in cash to unidentified small buyers and, therefore, sham. He doubted the business activity of the 3 ITA No.2587/Del/2010 assessee on the ground that most of the sales have been made by the assessee from its Karol Bagh office on Monday and Monday is a closed day in the market of Karol Bagh. Similarly, referring to the office of the assessee situated in Kucha Mahajani, Chandni Chowk, the Assessing Officer found that as per Inspector's report, there was no such office and, in these circumstances, the Assessing Officer rejected the books of the assessee u/s 145 (3) and adopted 5% net profit of the gold purchased during the year which was to the tune of ` 11,22,30,544/- and assessed an income of ` 5,61,152/-.
4. Before CIT (A) it was submitted by the assessee that making sale in cash is usual feature of the business activity of the assessee and the same has been accepted by the courts even and reference was made to the decision of Hon'ble Delhi High Court in the case of M/s Jindal Dyechem Industries Pvt. Ltd. vs. Sales Tax Officer in Writ Petition (Civil) No.17166 of 2004 dated 7th July, 2005. It was submitted that chronology of events happened on any business day are as under:-
I. Assessee receives demand from the customers via informal communication links e.g. telephone or, by personal meetings. II. Assessee raises the bills to the customers and receives cash from them.
III. The aforesaid cash is received in the bank premises.
IV. He deposits the cash in his bank account.
V. Bank marks lien on the said money and issues a Delivery
Order.
VI. Bank delivers the gold to the assessee.
VII. Assessee simultaneously delivers the gold to the buyers in the
bank premises, on the same day.
4 ITA No.2587/Del/2010
5. It was further submitted that the assessee derives the following advantages of the above strategy adopted for a transaction:-
I. Security to the Buyers because they pay money in the bank. II. Safe for both the buyer and seller because it is a guarded atmosphere.
III. Safe for seller because issue of Counterfeit Currency is taken care off - bad notes returned there and then.
IV. Buyers feel secure about quality of Gold because the assessee gets delivery of sealed units of Gold in the Bank and these are immediately delivered to the buyers. There is absolutely no possibility of tampering with the quality of Gold. V. There is no holding risk for Both Buyer and Seller in terms of price fluctuation etc.
6. It was further submitted that there is no requirement in the law to state the name and address of the purchaser on the sale bill for cash sale and the requirement, if any, put by Section 50 (5) of VAT Act, 2005 is with regard to transaction which are made in the course of inter-State trade or commerce. The CIT (A) has accepted the said submission of the assessee and has deleted the addition. The department is aggrieved, hence, in appeal.
7. After narrating the facts and relying upon the order of Assessing Officer it was pleaded by Ld. DR that the assessee remained unable to explain the deposit made with the bank before delivery of gold by the bank and, therefore, the Assessing Officer had added the said amount as unexplained credit in the bank. Ld. DR submitted that the amount of deposit in the bank was cash and it was not from the sale of gold bars made in cash. The explanation given by the assessee was false and was not satisfactory and it is in these circumstances the Assessing Officer was right in treating the cash credit appearing in the books of 5 ITA No.2587/Del/2010 account of the assessee as unexplained income. He submitted that the CIT (A) has wrongly granted relief to the assessee by accepting the submission of the assessee and, therefore, his order should be set aside and that of Assessing Officer be restored. Arguing for ground No.2, it was submitted by him that the Assessing Officer was right in making the addition of 0.5% of the turnover as assessable income of the assessee and Ld. CIT (A) has wrongly deleted the same.
8. On the other hand, relying upon the order of CIT (A), it was pleaded by Ld. AR that after appreciation of facts, Ld. CIT (A) has rightly held that addition on account of unexplained deposit and addition on account of estimation of profit was not called for and, relying upon the findings recorded by CIT (A), he submitted that departmental appeal has no merits.
9. We have carefully considered the rival submissions in the light of the material placed before us. It was the case of the assessee that the gold being a precious item, the assessee find out the customers and take them to the premises of the bank where the amount payable to the assessee in consideration of gold was first deposited in the bank account of the assessee for release of gold and the delivery of gold was made then and there. The assessee has not furnished the name and addresses of such buyers. However, he has relied upon the decision of Hon'ble Delhi High Court in the case of Jindal Dyechem Industries Pvt. Ltd. vs. Sales Tax Officer (supra). Relying on that decision, it is the case of the assessee that to make sale in the item of gold is a usual business practice and it is the case of the assessee that that practice has been accepted by Hon'ble Delhi High Court in the aforementioned case. If the contentions of the assessee are considered as recorded in para 4 of this order, then, it can be said that depositing cash received from prospective customer in the bank 6 ITA No.2587/Del/2010 account cannot be a ground to hold the transactions as false. The reasons stated by the assessee regarding the sequence of the transactions appears to be normal and cannot be rejected on the face of it. If a person does not have the money to take the delivery of goods, then, he can approach the prospective buyers to pay the money first and then deliver the goods and that is what in the present case has been done. The Assessing Officer has accepted the sales as well as the purchase of the assesse as the same have not been disturbed by him and it can be seen that no addition on account of either sale or purchase has been made doubting the turnover of the assessee. The purchases made by the assessee are supported by the invoices issued by the bank. It has not been shown that any extra purchases have been made by the assessee. Therefore, it cannot be said that unexplained deposits made by the assessee in the banks were not belonging to the prospective customers who have purchased the said gold from the assessee. Therefore, we do not find any material to assail the findings of CIT (A) according to which it has been held that deposits of ` 1 crore in the bank account of the assessee to purchase the gold for delivery in turn to the prospective customers was explained. Therefore, we uphold the deletion of ` 1 crore made by the CIT (A).
10. Now, coming to the next issue regarding estimation of profit, it has already been observed that there is no defect found by the Assessing Officer in the sale and purchases of the assessee as no addition has been made on that account. Therefore, it is not a fit case where provisions of Section 145 (3) can be attracted. Therefore, we are of the opinion that CIT (A) has rightly deleted this addition also and we decline to interfere.7 ITA No.2587/Del/2010
11. In view of the above discussion, we find no merit in the appeal filed by the revenue and the same is dismissed.
The order pronounced in the open court on 04.11.2010.
Sd/- Sd/-
[G.E. VEERABHADRAPPA] [I.P. BANSAL]
VICE PRESIDENT JUDICIAL MEMBER
Dated, 04.11.2010.
dk
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
TRUE COPY
By Order,
Deputy Registrar,
ITAT, Delhi Benches