Income Tax Appellate Tribunal - Chennai
Acit, Chennai vs Naresh Prasad Agarwal, Chennai on 27 June, 2018
-1- ITA Nos. 1447, 1448, 1988,
1989, 1449 to 1455, 1485 to 1491/17.
आयकर अपील य अ
धकरण, 'ए' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' BENCH : CHENNAI
ी एन.आर.एस. गणेशन, या यक सद य एवं
ी अ ाहम पी. जॉज$, लेखा सद य के सम& ।
[BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND
SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER]
आयकर अपील सं./I.T.A. Nos.1447 & 1448/CHNY/2017
नधा रण वष /Assessment years : 2011-12 & 2012-2013.
Shiv Sahai & Sons (I) Ltd, The Deputy Commissioner of
1, Narasima Dasari Lane, Vs. Income Tax,
60/61, NSC Bose Road, Central Circle III(1)
Chennai 600 079. Chennai 600 034.
आयकर अपील सं./I.T.A. Nos.1988 & 1989/CHNY/2017
नधा रण वष /Assessment years : 2011-12 & 2012-2013.
The Assistant Commissioner Vs. Shiv Sahai & Sons (I) Ltd,
of Income Tax, 1, Narasima Dasari Lane,
Central Circle III(1) 60/61, NSC Bose Road,
Chennai. Chennai 600 079.
[PAN AANCS 9453R]
I.T.A. Nos.1449, 1450, 1451, 1452, 1453, 1454 & 1455/CHNY/2017
Assessment years : 2006-07, 2007-08, 2008-09, 2009-10, 2010-11,
2011-12, 2012-2013.
Shri. Naresh Prasad Agarwal, Vs. The Deputy Commissioner of
1, Narasima Dasari Lane, Income Tax,
60/61, NSC Bose Road, Central Circle III(1)
Chennai 600 079. Chennai 600 034.
:- 2 -: ITA Nos. 1447, 1448, 1988,
1989, 1449 to 1455, 1485 to 1491/17.
I.T.A. Nos.1485, 1486, 1487, 1488, 1489, 1490, 1491/CHNY/2017
Assessment years : 2006-07, 2007-08, 2008-09, 2009-10, 2010-11,
2011-12, 2012-2013
The Assistant Commissioner Vs. Shri. Naresh Prasad Agarwal,
of Income Tax, 1, Narasima Dasari Lane,
Central Circle III(1) 60/61, NSC Bose Road,
Chennai. Chennai 600 079.
m
[PAN AADPA 8553H]
(अपीलाथ)/Appellant) (*+यथ)/Respondent)
Assessee by : Shri. N. Muralikumaran, Advocate
& Shri. Siddharth Mehta, C.A.
Department by : Shri. D. Prabhu Mukunth Arun
Kumar, Junior Standing Counsel.
सन
ु वाई क तार ख/Date of Hearing : 09-05-2018
घोषणा क तार ख /Date of Pronouncement : 27-06-2018
आदे श / O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER:-
Appeal of the assessee Shri. Nagesh Prasad Agarwal is directed against an order dated 28.03.2017 of ld. Commissioner of Income Tax (Appeals)-19, Chennai for assessment years 2006-07 to 2012-2013. Revenue has also filed appeals for all these years against the very same order. Apart from these, there are appeals filed by :- 3 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
another assessee named M/s. Shiv Sahai & Sons (India) Ltd, which is against an order dated 02.05.2017 of very same ld. Commissioner of Income Tax (Appeals) for assessment years 2011-2012 and 2012- 2013. Revenue has filed appeals for these years against this order as well. Since all the appeals and cross appeals are based on same set of facts, these appeals are disposed off through a consolidated order.
2. Before adverting to the grounds taken by the assessee and revenue in these appeals, it will be appropriate to encapsulate the related facts. Assessee, Shri. Naresh Prasad Agarwal was the proprietor of a business concern called M/s. Shiv Sahai & Sons, trading in gold and silver bullion. Prior to this, he was trading in jewellery. However, in all the previous years relevant to impugned assessment years, assessee was doing only bullion business. In September, 2010, the business hitherto before run as proprietorship was taken over by a limited company called M/s. Shiv Sahai & Sons (India) Ltd. Assessee and his son Shri. Ganesh Agarwal were directors of the latter company. Main location of the business of the assessee was in Chennai. It had branches in Salem, Coimbatore, Trichy, Madurai, Jaipur, Ahmedabad and Indore. Key personnel conducting the business were assessee and his son Shri. Ganesh Agarwal. Assessee :- 4 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
Shri. Naresh Prasad Agarwal had originally filed his returns for impugned assessment years, declaring following income.
Assessment year Amount
2006-07 27,34,700
2007-08 60,20,920
2008-09 2,65,78,640
2009-10 5,10,37,770
2010-11 5,73,77,152
2011-12 1,95,28,380
2012-13 (4,53,089)
Assessee M/s. Shiv Sahai & Sons (India) Ltd, had filed its return for the impugned assessment years declaring following income.
Assessment year Amount
2011-12 1,25,51,610/-
2012-13 3,37,17,950/-
3. There was a search under section 132 of the Income Tax Act, 1961 (in short the ''Act'') in the premises of the assessees on 06.01.2012 and what has been termed as a follow-up search on :- 5 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
02.03.2012. Pursuant to the search, notices u/s.153A of the Act, were issued. In the returns filed pursuant to such notice, income returned by the assessee Shri. Naresh Prasad Agarwal were as under:-
Assessment year Amount
2006-07 27,34,698
2007-08 60,20,917
2008-09 2,65,78,640
2009-10 5,10,37,774
2010-11 5,73,77,154
2011-12 4,75,43,369
Income shown by assessee M/s. Shiv Sahai & Sons (India) Ltd in the returns filed pursuant to such notice were as under:-
Assessment year Amount
2011-12 (2,58,88,090)
Assessment year 2012-2013 being the assessment year relevant to the previous year in which search was conducted, assessment proceedings were under Section 143(3) of the Act. For all the other years, :- 6 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
proceedings for assessment which are under challenge before us, were u/s.153A r.w.s. 143(3) of the Act.
4. During the search a hard disk which containing books of accounts of the assessee and two diaries numbered as ANN/SSK/SSS/ B & D/S-46 and ANN/VJ/ Diary/GA/S-1 were seized. Statements were recorded from Shri. Naresh Prasad Agarwal u/s.132(4) of the Act. During the course of pursuant assessment proceedings, assessees produced books of accounts, in a pen drive. These books were maintained in tally software. Assessee also furnished a print out of cashbook. When assessee was required to produce purchase invoices and sales bills, it produced such bills only for the previous relevant to assessment year 2011-2012, that too only for Chennai, Salem and Coimbatore branches. Ld. Assessing Officer on verification of the sales bills issued by the assessee, found that bills raised for cash sales were at rates below the rates fixed by Madras Diamond and Jewellery Merchants Association (hereinafter ''Association''). Quantum of sale of gold and silver bullion, done by the assessee during the relevant previous years were prepared by the ld. Assessing Officer. Such data as compiled by the ld. Assessing Officer read as under:-
:- 7 -: ITA Nos. 1447, 1448, 1988,
1989, 1449 to 1455, 1485 to 1491/17.
Amount in Crores
SHIV SAHAI & SONS Shiv Sahai & Sons India
Ltd
Description 06-07 07-08 08-09 09-10 10-11 11-12 11-12 12-13
GOLD
Sales 567 2229 3159 5079 9371 4263 11464 16860
GP Amount 1.63 1.87 0.97 (6.38) 11.5 (7.12) 14.79
GP rate 0.29 0.08 0.09 (0.13) 0.12 (0.17) 0.13
SILVER
Sales 129 191 466 635 750 623 929 1702
GP Amount (0.89) 1.16 (0.63) 8.03 0.82 5.73 (19.37)
GP rate (0.69) 0.61 (0.14) 1.26 0.11 0.92 (2.08)
5. Bulk of the purchases made by the assessee were from
M/s.Metals and Minerals Trading Corporation (hereinafter ''MMTC'') and M/s.State Trading Corporation (hereinafter ''STC''). For effecting purchases, assessee deposited the price of the gold and silver bullion required with MMTC in advance. MMTC placed such sum in fixed deposits with banks. On the security of such fixed deposits, MMTC issued letters of credit for importing gold. Payments due on the :- 8 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
imports were made through these letters of credit. Later these credits were squared up by MMTC using the proceeds of the fixed deposits. From the interest earned on such fixed deposits, M/s. MMTC met the expenses relating to the import and shared the surplus with assessee and its other customers. Credits received by the assessee, as share of such surplus was known as buyers credit.
6. As already mentioned at para 4 above, Ld. Assessing Officer found that assessee was selling gold and silver bullion in cash, at rates below the market rate fixed by the Association. Ld. Assessing Officer analyzed the sales effected by the assessee and classified it into three categories. These were cash sales, sales to jewelers and sales to others. As per the ld. Assessing Officer, though assessee mentioned only two categories of sales i.e. cash and credit sales, in its books, what was termed by the assessee as credit sales were sales to jewelers and sales to others. Ld. Assessing Officer required the assessee to explain why it sold bullion in cash, at rates lower that its sales to jewelers. As per the ld. Assessing Officer rates at which assessee sold in cash was lower than the rates at which sales were made to jewelers and there was no good reason for such variance. Ld. Assessing Officer also pointed out to the assessee that diaries seized at the time of search mentioned bullion bookings at :- 9 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
rates higher than the rate at which cash sales were made. Ld. Assessing Officer further brought to assessee's notice rates furnished by another bullion dealer named M/s. Riddhi Siddhi Bullion, based in Mumbai, which were more than the rates at which assessee had sold bullion in cash. Reply of assessee was that what were mentioned in the diary were the rates for 0.999 purity gold whereas what were sold by it was 0.995 purity gold. Further, as per the assessee it could quote a lower rate for cash sales, considering the buyers credit received from MMTC. Assessee also stated that it was following London Bullion Market (hereinafter ''LMB'') for fixing rates and not following association rates. As per the assessee the rates were moving every minute and was never static. According to the assessee, it made its own calculation and adjustment for import duties and other expenses while fixing the rates.
7. However, ld. Assessing Officer did not buy any of the above arguments of assessee. He rejected assessee's contention that lower rates for cash sales, were due to buyer credits or due to rate difference on account of disparity in purity. Ld. Assessing Officer also did not accept the contention of the assessee that it was guided by LMB rates. According to the ld. Assessing Officer, the categories of billings done by the assessee were as under:-
:- 10 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
''(a) Cash bills sales made by collecting cash which is entered in the cash book. Names of customers are not recorded in these bills.
(b) Bills in the names of Jewellers sales bills issued in the name of Jewellers by taking money otherwise than by cash. e.g. RTGS, bank transfer, etc.
(c) Others -- sales bills containing only the names and stations of purchasers, or blank Bills or with the word credit/cheque sales, etc, For which cash has not come into the cash book directly. e.g direct deposit of cash in assessee's bank account, etc. -
Further, as per the ld. Assessing Officer, assessee himself had stated that payments were made by its customers before delivery and there were no credit sales in its line of business. Thus, according to ld. Assessing Officer, assessee itself never made any distinction between sale for cash and sales to jewelers. As per the ld. Assessing Officer, sales to jewelers though classified by the assessee as credit sales, were not actually credit sales, but sales against receipts through bank. Relying on the statement of one Shri. Vijayababu who was working as a sales clerk of the assessee, ld. Assessing Officer came to a conclusion that the business of the assessee was personally controlled by the assessee and his son and they had purposefully kept their employees oblivious of the rates at which gold was sold. Further, as per the Ld. Assessing Officer, Sales Tax authorities had issued a show cause notice on 24.02.2012, pointing out the rate disparity between sales effected in cash and sales made to jewelers. According to the :- 11 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
ld. Assessing Officer, apart from the above anomalies, assessee also paid commission to few brokers, which indicated higher profit margin than what was admitted in the books of accounts. Further, as per the ld. Assessing Officer, assessee had knowingly desisted from producing the diary for years prior to assessment year 2011-2012. Conclusions of the ld. Assessing Officer with regard to the sales effected by the assessee, as appearing at para 7.18 of his order is reproduced hereunder:-
''(i) Assessee has not replied to the ADIT (lnv.)'s letter dated 28-5-2012 furnishing instances of billing below Association rate
(ii) Assessee has misled the Dept. regarding Sales Tax show cause notice
(iii) Assessee has misled the Dept. regarding high --low selling rates
(iv) Assessee has not produced the diary for 5 years including for 2012
(v) Assessee has furnished limited billing data, in non-
analysable format, during the last fortnight of March
(vi) Assessee has manipulated the allocation of expenses in A.Y. 2009-10 to prevent probe into gross loss in gold
(vii) Assessee has manipulated in preparing the bill-diary matching chart for July 2011
(viii) Assessee is manipulating its sales bills to circumvent the provisions of Sec.139A
(ix) Sales Tax authorities have found that his method of raising the tax invoice is defeating the object and reasons of introduction of Tamil Nadu Value Added Tax Act :- 12 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
(x) Sales Thx authorities have found that his GP is less than normal GP in bullion trade
(xi) Sales Tax authorities have found that his selling rates are below purchase rates
(xii) The Accounts Manager in Salem has admitted that no bills are issued for cash sales
(xiii) For sales in branches, bills are prepared in Chennai
(xiv) Customers in Salam have to call up Mr. Ganesh Agarwal if they want bills
(xv) Customers in Chennai have to wait till the billing clerk comes at 11-30 am, to get the bill for the purchases they have made earlier through Mr. Ganesh Agarwal who comes at 9.00 am.
(xvi) The rates at which commission is paid for sales are much more than his own profit rates (xvii) Many cash bills meant for customers issued months ago were found in office and seized (xviii) It was admitted that the uncollected customers bills will be filed along with the office copy (xix) Assessee has not replied to the instance of raising a bill for Rs.990099 dated 16-12- 2008 when the Association rate was Rs. 1193000.
(xx) Assessee has not replied to the four bills raised with Zero values listed in the statement u/s 131 on 12-3-2014. (xxi) Since only businessmen make the cash bill purchases from the assessee they do not require the bills to claim them as purchases since it would then be entirely disallowed u/s 40A(3).
(xxii) There is no difference while fixing the rates for cash sales and credit sales (sales to jewellers and others) (xxiii) There is no system in the office by which the billing clerk can know what is the cash collected for each and every cash bill prepared by him.
:- 13 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
(xxiv) Billing clerk prepares the bill as and when required by Shri. Ganesh Agarwal and at the rates informed by Shri. Ganesh Agarwal.
(xxv) When there is no difference between the selling rates for cash bills and bills to jewelers there is no reason for the huge difference between the average billing rate for jewelers and cash bills''.
8. Ld. Assessing Officer thereafter concluded that four options were available to him and listed them as under:
(i) Reject the books and estimate gross profit.
(ii) Make a gross profit addition.
(iii) Disallow the loss claimed for the years where such claim
was made.
(iv) Make an addition for suppression of sales on account of
lower billing on cash sales for assessment years 2006-07 to assessment year 2009-2010.
9. Out of the above, ld. Assessing Officer chose to follow the last mentioned method, for assessment years 2006-07 to assessment year 2009-10. For assessment year 2011-12, in the case of M/s.Shiv Sahai & Sons (India) Ltd, ld. Assessing Officer chose the third method. There were no addition for suppression of sales in the hands of the assessee Shri. Naresh Prasad Agarwal for assessment year 2010-11, 2011-12 and 2012-13 or in hands of the assessee M/s.Shiv Sahai & Sons (India) Ltd for assessment year 2012-13. Computation :- 14 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
of sales suppression as made by the ld. Assessing Officer read as under:-
Asst. Year Average Average Average Cash bill Others bills rate of bills rate of cash rate of amount is amount is in the bills others lower by lower by names of jewelers (per kg) 2006-07 646020 643795 644877 2225 1143 2007-08 920719 915575 917248 5144 3471 2008-09 1028939 946440 930829 82499 98110 2009-10 1227703 1201087 1192193 26616 35510 COMPUTATION OF SUPPRESSION IN SALES A.Y Cash Bills Others Total difference Diff. Qty Difference Diff. Qty Difference from amount from amount amount jewell jewellery ery rate rate 06-07 2225 4782 10639950 1143 39 44577 10684527 07-08 5144 20190 103857360 3471 124 430404 104287764 08-09 82499 23670 1952751330 98110 495 48564450 2001315780 09-10 26616 28618 761696688 35510 395 14026450 775723138 2892011209 :- 15 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
10. Ld. Assessing Officer thereafter made a close analysis of the books of accounts of the assessee and found that it was receiving cash advance from its customers on booking bullion and crediting such money to an account called bullion margin account. As per the ld. Assessing Officer, huge sums of money were received by the assessee from its customers, as advance which were deposited by it in its bank account and thereafter transferred to accounts of MMTC/STC for purchasing bullion. When bullion was received and delivered to the customers the bullion margin account was debited and sales credited. Such sales were done either on the same day as receipt of cash or on immediately subsequent days when bullion was received from MMTC. As per the ld. Assessing Officer, assessee, though it recorded the cash receipts from its customers, did not reveal the identity of the customer. Further, as per the ld. Assessing Officer, identity of the buyer was not available in the cash bills as well. According to ld. Assessing Officer, whatever remained as balance in the bullion margin account at each year-end was fully liquidated by crediting the sales account. Anomalies noted by the ld. Assessing Officer as it appear at para 8.5 of his order are reproduced hereunder:-
''8.5 When this account was further analyzed certain interesting facts came to light:
(i) cash brought in on a single day went upto 21.5 crores (on 25-1-2011). But the narration is simply "Bullion Margin account.
:- 16 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
(ii) the cash brought in was not immediately or in the subsequent days adjusted. It remained in the account for very long periods. e.g from 24-1-2011 to 31-1-2011 a sum of Rs.69.12 crores cash was brought in. Out of this, 68.72 crores was adjusted from 1-2-2011 to 7-3-2011. But before 7-3-2011 further 39.99 crores cash was brought in from 4-2-2011 to 5-3-
201 1 and part of it could have also been adjusted within the figure of 68.72 crores
(iii) Generally on 31st March the, moneys remaining were adjusted. But on 31-3- 2012 (in the hands of company) huge sum of Rs.17,38,74,036, which was outstanding, was withdrawn. But that day's sales was only Rs,14,87,77,889.
(iv) Some days even negative balance was seen in the account, E.g on 11-11-2010 it shows a negative balance of 54.93 lakhs and it goes up to 7.42 crore negative balance on 25-31-2010''.
11. Ld. Assessing Officer put the assessee on notice as to why credits in the bullion margin account for impugned assessment years, should not be considered for addition u/s.68 of the Act. Summary of the peak credits in such bullion margin account prepared by the ld. Assessing Officer read as under:-
Asst. Year Total credits Highest increase over Date of highest in the year Balance last year balance 2006-07 643867143 77969000 NA 18.06.2005 2007-08 2320305797 218876558 140907558 01.01.2007 2008-09 2497679137 310424595 91548037 21.03.2008 2009-10 5062727648 362670511 52245916 23.08.2008 2010-11 6377436056 696890948 334220437 28.11.2009 2011-12 3589304039 4262789094 Nil 31.08.2010 :- 17 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
Ld. Assessing Officer proposed to make addition for the incremental increase in peak bullion margin account, on an year to year basis, and such amounts proposed for addition were as under:-
Asst. Year Addition u/s.68 2006-07 77969000 2007-08 140907558 2008-09 91548038 2009-10 52245916 2010-11 334220437 Total 696890948
12. Reply of the assessee was that the bullion margin money advances were always converted to cash sales and what was credited in the such account was part consideration for sale and not a loan or advance. Assessee also stated that it was not possible to maintain records like name, address and PA number for each of its customers since there were no credit sales. As per the assessee it was not obliged to do so under law and was also not practicable. According to the assessee, money received from its clients, credited to bullion :- 18 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
margin money account had to be considered only as sales and not as credit. As per the assessee, such amounts were fully reflected in sales, and there was no occasion to make an addition u/s.68 of the Act.
13. However, ld. Assessing Officer was not impressed by the above arguments. Ld. Assessing Officer refused to accept the explanation given by the assessee and held that amounts listed at table in para 11 above were unexplained cash credits u/s.68 of the Act. Specific reasons mentioned by the ld. Assessing Officer appear at para 8.9 of his order and these are reproduced hereunder:-
''8.9 The reply was considered. The reply is vague and does not answer any of the questions asked in the statement recorded u/s 131 from Shri. Naresh Prasad Agarwal or in the pre assessment notice which are as under:
(i) Huge amounts of cash were brought in on a single day. Single day's inwards went upto 21.5 crores (on 25-1 -2011). But the narration is simply 'Bullion Margin account It has been admitted that no other records were maintained for this account.
The assessee has not answered as to how without any customer-wise break-up for this amount he will adjust the amount when the customer comes again after 2 or 3 days and pays the balance.
(ii) The cash brought in was not immediately or in the subsequent days adjusted. It remained.in the account for very long periods. e.g from 24-1-2011 :- 19 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
to 31-1-2011 a sum of Rs.69.12 crores cash brought in. Out of this, 68.72 crores was adjusted from 1-2-2011 to 7-3-2011. 'F3Lbef.g(e 7-3-2011 further 39.9o7s cash was brought in from 4-2-2011 to 5-3-2011 and part of t could have also been adjusted within the figure of 68.72 crores. If It is Customers' money how they will wait for so long without collecting the gold bars when its price also fluctuates heavily. The assessee has not explained as to how he will be able to adjust the money paid by each and every customer if he comes after one month or more than one month without maintain any record.
(iii) Generally on 31 March the moneys remaining were adjusted. But on 31-3-2012 (in the hands of company) huge sum of Rs,17,38,74,036, which was outstanding, was withdrawn. But that day's sales was only Rs.14,87,77,889. The assessee did not explain as to how he allowed all his customers to get refund of the money advanced by them for purchase of gold on a single day. In fact in his statement he replied that the refunds are very rare.
(iv) The assessee has not explained as to how there can be negative balance in the customers' advance account. E.g on 11-11-2010 it shows a negative balance of 54.93 lakhs and it goes up to 7.42 crore negative balance on 25-11-2010''.
14. Nevertheless, ld. Assessing Officer allowed telescoping such peak credits with the suppression in sales worked out by him, for assessment years 2006-07 to 2009-2010.
15. Ld. Assessing Officer also harboured a doubt that assessee was not fully accounting the credit notes issued by MMTC and was :- 20 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
charging expenses in its account in the guise of debit notes issued by M/s. MMTC. Assessee was given a copy of its account in the books of MMTC for previous years relevant to assessment years 2007-08 to 2012-2013 and was required to reconcile it with its own books. Assessee thereupon through its letter dated 18.03.2014 submitted to the ld. Assessing Officer that a number of debit/credit notes claimed to have been issued by MMTC during the previous year relevant to assessment years 2006-07, 2007-08 and 2008-09 were never received by it. Further, as per the assessee, such notes issued by MMTC were arbitrary in nature and was so issued only with an ulterior intention of showing huge dues from the assessee to MMTC. Assessee also submitted that there were large number of entries which were reversed by MMTC in their books, without any narration. As per the assessee, if what was stated by the MMTC was true, huge amounts would have been due to it from MMTC, whereas MMTC had raised a demand of J12 Crores as due from assessee before the Joint Director of Income Tax, J89 Crores as due from assessee before CBI and J170 Crores as due from the assessee before Hon'ble Jurisdictional High Court.
16. However, ld. Assessing Officer was of the opinion that he could not be saddled with an onus to reconcile the difference between :- 21 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
books of the assessee and that of M/s. MMTC. He rejected all the objections of the assessee, and made additions for credit notes not accounted by the assessees. Such additions in the case of the assessee Shri. Naresh Prasad Agarwal were as under:-
Assessment Year Amount
2007-08 16,64,45,906
2008-09 49,78,94,044
2009-10 34,92,26,800
2010-11 72,74,17,770
In the hands of the assessee M/s. Shiv Sahai & Sons (India) Ltd, the addition came to J19,64,38,107/- for assessment year 2011-12 and J35,79,23,486/- for assessment year 2012-2013. Latter amount was termed by the ld. Assessing Officer as interest due from M/s. MMTC to the assessee, not accounted by it.
17. Apart from the above, there were additions for exchange rate fluctuation of J7,53,46,987/- for assessment year 2008-09 which was an expenditure claimed by the assessee, allegedly based on oral instruction from M/s. MMTC. There was also an addition for :- 22 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
J4,93,69,063/- for suppression of 30 kg of gold in closing stock for assessment year 2010-2011, claimed to have been not supplied by M/s. MMTC, against a particular bill. There were also disallowance for diversion of interest bearing funds towards interest free loans, disallowance u/s.40(a)(ia) of the Act, disallowance for want of evidence for 80G donations, disallowance for personal usage of cars, disallowance u/s.40A(3) of the Act, addition for want of confirmation from loan creditors, disallowance for unpaid liabilities u/s.43B of the Act, disallowance for interest on TDS/Service Tax, disallowance of salary, addition for unexplained investments in properties for various years and addition for low drawings.
18. In the hands of the assessee M/s. Shiv Sahai & Sons (India) Ltd, apart from the disallowances/ additions of the nature mentioned in the preceding para there were additions for sundry debtors reflecting negative balance for want of confirmation, disallowance for VAT payment and an addition for under valuation of closing stock for assessment year 2012-2013. Summary of the additions /disallowance made by the ld. Assessing Officer are reproduced in the table hereunder:-
- 23 - ITA Nos. 1447, 1448, 1988,
1989, 1449 to 1455, 1485 to 1491/17.
ASSESSEE :NARESH PRASAD AGARWAL ASSESSEE- M/s. SHIV SAHAI
& SONS (India) Ltd
Cross appeals & ITA 1449 & ITA 1450 ITA 1451 ITA 1452 ITA 1453 & ITA 1454 & ITA 1455/17 & ITA 1447/17 ITA 1448/17
assessment years 1485/17 &1486/17 &1487/17 &1488 /17 1489/17 1490/17 1491 & 1988/17 & 1989/17
A.Y. 06-07 A.Y. 07-08 A.Y.08-09 A.Y.09-10 A.Y.10-11 A.Y.11-12 A.Y.12-13 A.Y.11-12. A.Y.12-13 Assessment u/s. 153A 153A 153A 153A 153A 153A 143(3) 153A 143(3) r.w.143(3) r.w.143(3) r.w.143(3) r.w.143(3) r.w.143(3) r.w.143(3) r.w.143(3) Income returned in 27,34,698 60,20,917 2,65,78,640 5,10,37,774 5,73,77,154 4,75,43,369 NA (-) return pursuant to 2,58,88,090 NA 153A Income as per regular 27,34,700 60,20,920 2,65,78,640 5,10,37,770 5,73,77,152 1,95,28,380 (4,53,089) 1,25,51,610 3,37,17,950 return Additions:-
1.Claim of Loss 19,35,05,195 disallowed ---- ---- ---- ---- ---- ---- ---- ----
2. Peak credit in 7,79,69,000 14,09,07,558 9,15,48,037 5,22,45,916 33,42,20,437 ---- ---- 77,07,76,868 ----
bullion margin money account - increase from preceding year
3. MMTC credit notes 16,64,45,906 49,78,94,044 34,92,26,800 72,74,17,770 ---- ---- 19,64,38,107 38,79,23,486 not accounted by ----
assessee
4. Pro-rata Interest on 3,72,452 38,90,061 16,49,846 59,71,343 59,54,533 5,69,97,153 29,48,676 5,88,000 5,88,000 diversion of interest bearing funds
5. Sundry debtors with ---- ---- ---- ---- ---- ---- ---- 4,31,50,000 ---- negative balance -
without confirmation
6. Donations 2,51,000 5,001 ---- ---- ---- ---- ---- 10,000 ----
7. Section 43B ---- ---- ---- 44,51,445 ---- ---- ---- 4,11,563 ----
disallowance
:- 24 -: ITA Nos. 1447, 1448, 1988,
1989, 1449 to 1455, 1485 to 1491/17.
8. Closing stock ---- ---- ---- ---- 4,93,69,063 ---- ---- 19,00,874 ----
valuation difference
9. Legal expense, ---- ----
vehicle expenses, 5,38,516 6,37,593 ---- ---- 11,22,638 99,884 10,91,095
interest Commission
u/s.40(a)(ia)
10. Loans without ---- ---- 25,00,000 ---- 3,03,35,736 ---- ---- ---- 30,00,000
confirmation
----- ----- ----- ---- ----
11. Suppression of sale 1,06,84,527 10,42,87,764 200,13,15,780 77,57,23,138
12. Insufficient 6,80,000 5,80,000 7,00,000 3,30,000 ----- ----- 4,30,000 ---- ----
drawings
13. Personal use of 1,71,724 1,45,966 2,22,362 1,89,007 1,60,657 1,36,558 ----- ---- ----
cars
14. Sec. 40A(3) 57,850 2,37,420 1,47,186 17,68,301 41,393 65,000 ----- ---- ----
disallowance for cash
payments
15.STC reconciliation / ----- 1,64,05,327 5,60,42,731 7,17,55,285 ----- ----- ----- ---- ----
credit notes not
accounted.
16.Exchange rate ----- ----- 7,53,46,987 ----- ----- ----- ----- ---- ----
fluctuation debit on
oral instruction
17.Unexplained ----- ----- ----- 6,14,540 ----- 23,67,150 ----- ---- ----
investment in property
18.Interest on TDS, ----- ----- ----- ----- 18,393 24,436 7,240 ---- ----
VAT, Service Tax
19 Salary/ PF/ Bonus ----- ----- ----- ----- ----- 4,09,277 ----- ---- ----
50% disallowed
- 25 - ITA Nos. 1447, 1448, 1988,
1989, 1449 to 1455, 1485 to 1491/17.
19. Aggrieved, both the assessees moved in appeal before ld. Commissioner of Income Tax (Appeals). Ld. CIT(A) dealt with the appeal of the assessee Shri. Naresh Prasad Agarwal on the following lines:-
20. On the issue of addition for suppression of sales and rejection of loss, ld. Commissioner of Income Tax (Appeals) held in favour of the assessee. Reason why ld. Commissioner of Income Tax (Appeals) held in favour of the assessee as it appears in paragraphs 14 to 17 of his order is reproduced hereunder:-
''14. The issue is considered and analyzed carefully. The assessee has submitted the books of maintained by him for all the years. The said books have in fact been seized by the department during the course of search conducted. These are the same books submitted by the assessee year on year for audit. The book results have been accepted by the department for all these years after due verification for some of the years. The assessee has submitted his books for statutory audit and has submitted the audit reports under section 44AB of IT Act. If the AO had any definite reasons for doubting the audited books he could have subjected the books for special audit. This has not been done. Instead, the AO has picked some holes in the books and has arbitrarily accepted the book results for some years rejecting the book results for other years. The AO has accepted profits and rejected losses. This selective pick and choose approach is not proper. Moreover, the assessee has submitted the orders of sales tax authorities accepting the book results declared by the assessee.
15. The assessee runs a large business with high value transactions. The turnover figures run into several thousand crores year on year. It would not be possible for the assessee also to run a business without proper maintenance of books at least for his own purpose. Without this internal control mechanism, the whole edifice of assessee's business would :- 26 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
collapse under its own weight. If the books maintained for IT purposes are not the authentic ones, then the assessee should have been found maintaining any other set of 'parallel' set of books of accounts. This is precisely the purpose for which a search action u/s 132 is conducted. After two searches in the premises of the assessee the search party has not found any parallel set of books.
16. The AO has come to a conclusion that the assessee has been under selling bullion for extra cash which is not reflected in the books of accounts. The assessee has given detailed explanations for why the selling rate could be lesser than the invoice purchase rate on account of various discounts and schemes from suppliers as well as on account of interest earned on substantial margin money deposits. In this large turnover based business, the assessee has demonstrated that instead of losing money for interest on operating capital, the assessee has been earning interest on surplus operating capital enjoyed on account of peculiar nature of business. The net of credits received for margin moneys left with supplier (M/s MMTC) has also helped the assessee to sell his goods at rates less than the invoice purchase price. The AO has not understood this crucial aspect and has forced himself to come to a wrong conclusion.
17. The AO has computed a large amount of surplus undeclared profits for several years and has disallowed losses for some years. This would amount to the assessee understating his profits by several hundreds of crores. However, having conducted search in the premises of the assessee on two occasions, the search party has been unable to detect any concealed assets/wealth/cash of the assessee. The detection of escaped assets of the assessee is in lakhs of rupees where as the addition to returned incomes is in hundreds of crores. This high pitched nature of addition cannot be seconded. The additions to the returned incomes have not been supported by strong evidence as well as corresponding matching assets. The addition of profits and rejection of losses has been based on surmises, conjectures and guess work. The computation of undeclared profits and rejection of losses as per paragraphs 7.20 and 7.22 of the assessment order is deleted. Assessee's grounds of appeal are allowed on this issue''.
:- 27 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
21. On the issue of cash credits (bullion margin money accounts), ld. Commissioner of Income Tax (Appeals) upheld the order of the ld. Assessing Officer with the following observations:-
''The objections filed by the assessee are noted. The assessee has explained the practice of accepting cash advances for cash/credit sales made. The advances/part-sale-considerations are accepted on day 1 whereas the sales/delivery was made on day 3 or day 4. Based on the advances received, the assessee would further place orders from his suppliers, procure the same on day 3 or day 4 and handover the gold bullions to the purchaser while collecting the balance consideration. However, the assessee did not want to part with the names and addresses of the buyers. This leaves a crucial link in accounting exposed. The assessee ought to have maintained names and addresses of all the persons to whom cash sales are made. The assessee has the responsibility of providing the names and addresses of persons from whom margin monies have been accepted and pending to be squared up. The AO has specifically called for the same and has been refused by the assessee. The assessee has also made an attempt to circumvent providing names and addresses of margin money advance payees on the last day of the financial year also. The assessee has achieved this by booking the margin money outstanding against corresponding sales made on the last day of the financial year. To this extent, the assessee would have understated the presumed closing stock as on the last day of the financial year for all the years. The duty cast on the assessee to maintain names and addresses of the margin money advance payees and declare the same cannot be condoned. I am of the considered view that the onus of proving the credits in the margin money account lies with the assessee. The AO is correct in bringing the peak cash credit for five assessment years as below:-
Asst. Year Addition u/s.68 2006-07 77969000 2007-08 140907558 2008-09 91548038 2009-10 52245916 2010-11 334220437 Total 696890948 :- 28 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
The addition brought to tax u/s.68 of the I.T. Act for the five assessment years is sustained on account of detailed reasons given as above.
22. Nevertheless, ld. Commissioner of Income Tax (Appeals), while confirming the addition made u/s.68 for bullion margin money account, allowed telescoping of such addition with the accounted sales of the assessee, since it had squared up the bullion margin account by correspondingly increasing its sales.
23. Viz-a-viz addition made for difference in credit/debit notes of MMTC accounted by the assessee, ld. Commissioner of Income Tax (Appeals) though he confirmed such addition directed the ld. Assessing Officer to recompute the amount by netting the aggregate value of the credit notes with the aggregate value of the debit notes issued by M/s. MMTC. Directions given by the ld. Commissioner of Income Tax (Appeals) as it appear at para 26 of its order is reproduced hereunder:-
''26. The submissions made by the AR are considered. The action of the AO in bringing the incomes arising to the assessee on account of credit/debit notes by M/s MMTC is completely justified. The Department cannot take note of credit notes ignoring the existence of debit notes. As per the remand report dated 19.12.2017, the AO has clarified that only credit notes were considered. The assessee has pleaded before the undersigned that if at all the AO is considering adopting accounts provided by M/ s MMTC, and :- 29 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
then it should be adopted in full. The AO cannot blow hot and cold at the same time. The assessee is following a mercantile system of accounting and as such the incomes arising on account of net of credit and debit notes should be offered to tax year on year on the basis of receipt of credit/debit notes. The receivables arising to the assessee on account of credit notes are set off against the liabilities arising on account of debit notes received. The credit notes as well as debit notes are very much on record and have been documents submitted before arbitrator as well as High Court of Madras in the dispute between assessee and M/ s MMTC. The AO is directed to give relief to the liabilities arising to the assessee on account of debit notes and set off the same against the incomes receivable as per the credit notes raised by M/s MMTC. The AO shall compute the net of credit notes over and above the debit notes and bring only the net amount for taxation. The assessee gets partial relief on this account''.
24. Viz-a-viz, addition made for exchange fluctuation loss of J7,53,46,987/- in assessment year 2008-09, ld. Commissioner of Income Tax (Appeals) upheld the order of the ld. Assessing Officer. He was of the opinion that assessee was unable to produce any evidence for any instruction received from M/s. MMTC in this regard.
25. On the addition of J4,93,69,063/-for difference in closing stock, ld. Commissioner of Income Tax (Appeals) confirmed the order of the ld. Assessing Officer noting as under:-
''Difference in closing stock (AY.2010-11):
In your letter dated 5.3.2012 to the ADIT(Inv), you have admitted, in para 4, that as against 50438 kg gold for which MMTC issued bills, the quantity received was only 50405 kg and that 30 kg, gold was still to be received as on 31.3.2010. Vide questionnaire u/s.143(1) dated 27.1.2014 served on 29.1.2014 you were requested to furnish closing stock :- 30 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
inventory (branch-wise) and the method and the ba.sis for the valuation. But vide your reply dated 10.3.2014 you have merely reproduced the closing stock figures in the return. In the absence of required details it is not possible to verify whether the 30kg stock was included in your closing stock figures. Hence it is proposed to make and addition of Rs. 4,93,69,063 @ Rs. 1645635 per kg at which rate purchase of 5121 kg gold from MMTC was entered in your item register on 31.3.2010.
Vide its reply assessee requested as under:
There are no mistakes or error in recording the correct figures of stock that has come in. The error pointed out is only typing error in the bill quantity raised. There is no extra addition in purchase or in closing stock. Hence this addition may kindly be dropped".
No evidence was produced in support of its claim. The addition is made as proposed''.
The Assessee had been given an opportunity to explain the said difference in closing stock. However, the assessee has not been able to explain the same. The Assessing Officer has also confirmed the inability of the assessee to explain the same as per remand report forwarded. Considering the same, this amount of ₹4,93,69,063/- is upheld as addition sustained for a.y. 2010-2011.
26. On the addition made for diversion of interest bearing funds, to provide interest free loans, ld. Commissioner of Income Tax (Appeals) held that assessee had substantial capital built over various years and was also having substantial interest free advances available with it. As per the ld. Commissioner of Income Tax (Appeals) there was nothing on record to show that any interest bearing funds were diverted for giving any interest free loans or for making any :- 31 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
investments. Observations of the ld. Commissioner of Income Tax (Appeals) on this issue were as under:-
''32. This merits of the issue are examined. During the course of assessment, the assessee has explained in as many details that the loans given were business advances and that the assessee has had very substantial own capital as well as interest free advances received. The details of advances given without interest as well as advances received without interest are given by the AO as under.
Asst. Year Total of Total of interest
investments and free advances
interest free received.
advances given
2006-07 1,19,68,000 10,02,87,876
2007-08 2,43,35,309 11,38,61,202
2008-09 1,37,48,719 40,31,39,884
2009-10 4,97,61,208 176,36,06,437
2010-11 4,96,21,125 103,71,82,314
2011-12 47,49,76,293 52,55,17,515
2012-13 2,45,72,314 10,82,92,320
The assessee has also had substantial own capital over the years. As seen above, the assessee is well within his lending capacity to advance monies without charging interest out of own capital as well as interest free advances received. The disallowance of interest has been done cursorily without taking note of interest debited for corresponding years, the net amount of advances made as well as fund flow statement of the assessee. Considering the same, the disallowance of interest would be unjustified. The interest disallowed for all the years is deleted''.
:- 32 -: ITA Nos. 1447, 1448, 1988,
1989, 1449 to 1455, 1485 to 1491/17.
27. Viz-a-viz, the additions made for low drawings, ld.
Commissioner of Income Tax (Appeals) upheld the order of the ld.
Assessing Officer.
28. On the disallowance made by the ld. Assessing Officer for want of deduction of tax at source, ld. Commissioner of Income Tax (Appeals) sought a remand report from the ld. Assessing Officer. In the remand report, ld. Assessing Officer stated as under:-
After considering the payments of interest covered by form 15G, the following interest payments are still disallowable u/s.40(a)(ia) Name of the loan creditor Interest paid without TDS/form 15G Babitha Agarwal 6648 Nilesh Kothari 35,358 Pushpa Devi Agarwal 58,998 Sunil Kumar Gupta 39,299 Total 1,40,303 Based on the remand report, ld. Commissioner of Income Tax (Appeals) restricted the disallowance u/s.40(a)(ia) of the Act to J1,40,303/- for assessment year 2006-07, while confirming such disallowance for assessment years 2007-08, 2010-11 and 2011-2012.
:- 33 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
29. On the disallowance made for personal use of two cars, ld.
Commissioner of Income Tax (Appeals) was of the opinion that such disallowance was not warranted considering the vast nature of the business of the assessee.
30. On the disallowance made u/s.40A(3) of the Act, ld. Commissioner of Income Tax (Appeals) confirmed the order of the ld. Assessing Officer. According to the ld. Commissioner of Income Tax (Appeals), assessee was unable to demonstrate any exceptional reason for incurring expenditure in cash in excess of the limits laid down under the said section.
31. Vis-à-vis the addition made for unexplained loan creditors, which is relevant for assessment years 2008-09 and 2010-2011, ld. Commissioner of Income Tax (Appeals) was of the opinion that assessee could not produce any confirmation. He specifically noted the failure of the assessee, in the following word, while confirming the order of the ld. Assessing Officer.
''Though called for vide notice u/s. 142(1) served on 4.2.2014 you have not yet furnished the confirmation letters from the following new loan creditors.
(i) Mecotronics P Ltd (2 crores)
(ii) Rama L.Makwani (250042).
The loan amounts are proposed to be added for want of confirmation letters.
:- 34 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
2. Though called for vide notice u/s. 142(1) served on 29.1.2014 you have not yet furnished the confirmation letters from trade debtors from whom advances were claimed to have been received and outstanding on 3Js March.
(i) Subramani (21085736)
(ii) Sarangapani (7650000)
(iii) Ravi (1600000).
The loan amounts are proposed to be added for want of confirmation letters.
No reply was furnished. Disallowances are made as proposed above.
During the course of remand report as well as during the course of appellate proceedings before the undersigned, the assessee has not been able to confirm the loan creditors and other creditors claimed. Considering the same, the unsubstantiated loan creditors and other creditors are brought to tax as unexplained credits u/s.68 of the IT Act for the A.Y. 2010-2011''.
32. On the disallowance under section 43B of the Act for non remittance of TDS J52,956/- and taxes J43,98,489/- aggregating J44,51,445/-, ld. Commissioner of Income Tax (Appeals) was of the opinion that assessee was unable to produce any evidence even in the remand proceedings. He confirmed such disallowance.
33. For the disallowance of J18,393/- being interest on TDS debited the assessment year 2010-2011, interest on service tax J24,436/- debited in assessment year 2011-2012 and VAT of J7,240/-
:- 35 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
debited in assessment year 2012-2013, ld. Commissioner of Income Tax (Appeals) confirmed the order of the ld. Assessing Officer noting that these were penal in nature.
34. Viz-a-viz, disallowance made for 50% of salary, PF, ESI and bonus claimed for assessment year 2011-2012, ld. Commissioner of Income Tax (Appeals), while deleting such disallowance noted that business activity of the assessee run as proprietorship though taken over by M/s. Shiv Sahai & Sons (India) Ltd, continuity of business could not be doubted.
35. Viz-a-viz addition of J23,67,150/- made for assessment year 2011-2012 and J6,14,540/- made for assessment year 2009-2010 for unexplained investments in property, ld. Commissioner of Income Tax (Appeals) held that such investment were not reflected in the balance sheets of the assessee for the respective years, and thus remained unexplained.
36. Ld. Commissioner of Income Tax (Appeals) also confirmed the order of the ld. Assessing Officer disallowing the claim for carry forward loss on sale of shares of J.4,54,814/- for assessment year 2010-2011 and J19,44,450/- for assessment year 2012-2013, with the following observations:-
:- 36 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
''41. The AO has also disallowed loss on sale of shares of Rs.4,54,814 for AY.2010-11 and Rs.19,44,450 for AY.2012-13 and has not allowed cay forward of loss. The assessee has not produced any evidence to the contrary in the appeal proceedings. Considering the same, the disallowance of loss claimed is sustained''.
37. Order of the ld. Commissioner of Income Tax (Appeals) in the appeal of M/s. Shiv Sahai & Sons (India) Ltd, also went on similar lines as in the case of Shri. Naresh Prasad Agarwal. Ld. Commissioner of Income Tax (Appeals) deleted the rejection of loss of J2,58,88,090/- claimed by the assessee for assessment year 2011- 2012 while upholding the addition of J77,07,76,868/- u/s.68 of the Act for unexplained credits in bullion margin money account. He allowed the claim of the assessee for telescoping the latter addition with its sales. Manner in which ld. Commissioner of Income Tax (Appeals) dealt with other additions/disallowances made in the hands of M/s. Shiv Sahai & Sons (India) Ltd are explained in the succeeding paras.
38. On the addition made for reconciliation difference in the account of the assessee with M/s. MMTC, ld. Commissioner of Income Tax (Appeals), while upholding the order of the ld. Assessing Officer in this regard directed him to give relief for debit notes issued by M/s. MMTC. These directions were similar to those made by him in the case Shri. Naresh Prasad Agarwal also.
:- 37 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
39. For assessment year 2011-12, one other issue raised by the assessee M/s. Shiv Sahai & Sons (India) Ltd before the ld. Commissioner of Income Tax (Appeals) was on an addition of J4,31,50,000/- made for negative balance in sundry debtor's account. These were in the name of four persons listed hereunder:-
01. Sampath,,Trichy (1,70,00,000)
02. Sundar, Trichy (1,05,50,000)
03. Thangamani, Trichy (56,00,000)
04. Veeramani, Trichy (1,00,00,000) Ld. Commissioner of Income Tax (Appeals) called for a remand report from the ld. Assessing Officer. Ld. Assessing Officer stated as under in his remand report:-
''As regards the addition of Rs.4,31,55,000 it was made because the credit balances in the names of the above four persons were shown under the group 'sundry debtors" and nor "sundry creditors" or 'loan creditors" and even though the confirmation letters from these parties were called for they were not furnished during the course of assessment proceedings. Even now the confirmation letters have not been produced. These huge amounts were shown as opening credit balances as on 1.4.2011 and they were adjusted against sales only on 11.4.2011 r 12.4.2014, i.e. 11 or 12 crs. The assessee did not furnish the ledger account copies for the FY. 2010-11 to see on what dates these amounts were actually credited in their name. No person will pay cash In advance and wait for 12 or more days to receive the gold. Only if their addresses are furnished the following points can be verified
(a) Whether the parties are assessed to tax or not
(b) 1f purchased for business purposes -- whether the persons had so much cash balance in their books of account, and if so, whether the sources for the same are genuine.
:- 38 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
(c) If purchased for personal purposes. the sources for the same and whether they are reflected in WT returns.
(d) Whether the actual flow of cash has happened directly from the persons concerned or not By not furnishing the confirmation letters and withholding the identity of these four persons, the assessee is preventing the Department from getting its due taxes( IT and WT) from them if the money really belongs to them. Therefore the additions may be upheld".
Ld. Commissioner of Income Tax (Appeals) after examining the remand report held that assessee failed to give the whereabouts of the four persons in whose name the negative balances were appearing. Ld. Commissioner of Income Tax (Appeals) thus upheld the addition.
40. Viz-a-viz, claim of donation, ld. Commissioner of Income Tax (Appeals) noted that assessee was unable to produce any certificate as required u/s.80G of the Act from the recipient. He confirmed such disallowance.
41. Viz-a-viz, disallowance made for VAT shown as payable, ld. Commissioner of Income Tax (Appeals) held that assessee could not furnish any evidence for remittance of such VAT payable as on 31.03.2011. He confirmed the disallowance.
:- 39 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
42. Viz-a-viz, addition made for suppression of closing stock relevant for assessment year 2011-2012, ld. Commissioner of Income Tax (Appeals) noted that ld. Assessing Officer had not made a detailed analysis of the stock value. He held as under at paras 38 & 39 of his order:-
''38 This issue was taken up with the assessee. Vide letter dated 20.10.2014, the assessee has submitted as under.
"Addition on account of difference in closing stock value:
The Ld. AO added huge amount ft the 'due of the dosing stock based on the value of the last purchase made without appreciating the fact that the closing stock value would be decided based on cost of market value whichever is low on the closing date. We could not provide the market closing rate during the course f assessment proceedings due to dearth in true, however we have now provided all the details to prove that the value adopted by us is correct and based on the accounting policy we follow. The comments on the same is expected from the assessing officer on this also".
39. The addition made to the value of closing stock is considered. The AO has taken the purchase made of 3251 Kgs a n 31.3.2011 as against the closing stock of 24,500 Kg of gold declared a closing stock inventory. The purchase values of the balance stock on dates prior to 31.3.2011 are not a available. The assessee has been continuously maintaining the same method ft r valuing stock as in cost or market value whichever is lower. The notings of the AO are cursory and full facts of the issue are not explained. No detailed aa1ysis of the stock value has been made. The AO has accepted the method of stock valuation of the same business for all the earlier and later years. The explanation given by the assessee has also not been countered. Considering the s me, it is viewed that any variation to the stock value given by the assessee is not warranted. In view of the same, the addition on account of variation in closing stock value to the extent of Rs.19,00,874 is deleted''.
:- 40 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
43. Viz-a-viz, vehicle maintenance expenditure of J2,67,095/- disallowed for want of deduction of tax at source, ld. Commissioner of Income Tax (Appeals), based on the remand report of the ld. Assessing Officer deleted such disallowance. On disallowance of legal expense of J8,24,000/- made for the same reason, ld. Commissioner of Income Tax (Appeals) again based on a remand report of the ld. Assessing Officer restricted the disallowance to J8,01,500/-.
44. On the addition of J30,00,000/-, considered as an unsubstantiated loan from one Shri. Pista Bai, ld. Commissioner of Income Tax (Appeals) sought a remand report from the ld. Assessing Officer. Said remand report stated as under:-
"An addition of Rs.30,00,000 was resorted to since the assessee did not file a confirmation letter from this loan credit as the amount was shown as outstanding as on 31.3.2012.
The assessee has furnished a letter along with ledger extract explaining that originally M/s. Shiv Sahai & Sons had advanced an amount of Rs.30,00,000 to Pista Bai on 1.4.2009. Subsequently, Pista Bai is shown to have repaid this amount in two instalments on 3.6.2011 and 14.6.2012 during the FY.2011-12 to M/s. Shiv Sahai & Sons (I) Ltd. The assessee submits that since Pista Bai who was a debtor to M/s. Shiv Sahai & Sons had subsequently become a creditor to M/s. Shiv Sahai & Sons (I) Ltd.
But since the transaction was squared off on 14.6.2011, Pista Bai cannot be a creditor in the books of M/s. Shiv Sahai & Sons( lndia) Ltd. as on 31.3.2012. Since she continues to be a creditor in the books of M/s. Shiv Sahai & Sons (India) Ltd as on 31.3.2012, it is submitted that the Hon'ble CIT(A) may uphold the action of the AO in treating this credit entry as unexplained ".
:- 41 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
Ld. Commissioner of Income Tax (Appeals) held that assessee had properly explained the credit entries, since such entries only squared up the debit balance in the name of the said person appearing in the books of the proprietorship earlier running the business.
45. In the backdrop of above, we first take up the appeals and cross appeals of the assessee Shri. Naresh Prasad Agarwal. First of the impugned assessment years is assessment year 2006-07 and the grounds taken by the assessee are reproduced hereunder:-
1. The order of Commissioner of Income Tax (Appeals)
- 19 is against the facts of the case and principles of nature justice.
2.The learned CIT (A) erred in adopting the accounts as provided by Mls. MMTC.
3.The learned CIT (A) failed to understand the fact that there were huge errors in the statement of accounts as provided by M/s.MMTC and the erroneous accounts as provided by M/s. MMTC cannot be considered as the basis for finalization of appellant's accounts.
4.The learned CIT (A) failed to appreciate the fact that both the appellant and M/s. MMTC were disputing each other and that the matter was pending before Hon'ble Madras High Court.
5.The learned CIT(A) erred in upholding the adhoc drawings fixed by the learned assessing officer.
6.Margin money addition: The learned CIT(A) failed to appreciate the fact that the amounts collected in margin :- 42 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
account represented part sale consideration these were received from prospective buyers and on receipt of the balance the margin money was accounted as sales. The learned CIT(A) though provided relief from double taxation but failed to understand the fact that names, address, and other KYC norms was not applicable for sales below 2 lakhs and hence the appellant did not maintain the same, hence confirming the addition on account of unexplained credits is bad in law. For these and other grounds that may be adduced during the course of hearing, it is hereby prayed that the arbitrary additions and disallowances may kindly be deleted and thus render justice.
46. Ground No.1 among the above grounds, is general needing no specific adjudication.
47. Ld. Counsel for the assessee submitted that grounds 2 to 4 were not relevant for assessment year 2006-07 since there were no addition made for difference in credit notes in that year. Accordingly, these grounds are dismissed as ill conceived.
48. Adverting to ground No.5, ld. Counsel for the assessee submitted that adhoc drawings for personal expenditure fixed by the ld. Assessing Officer was without considering the facts and circumstances of the case. According to him, there were only four members in assessees family and drawings shown by the assessee were sufficient for meeting the personal expenditure.
:- 43 -: ITA Nos. 1447, 1448, 1988,
1989, 1449 to 1455, 1485 to 1491/17.
49. Per contra, ld. Departmental Representative strongly
supported the order of the ld. Commissioner of Income Tax (Appeals).
50. We have considered the rival contentions and perused the orders of the authorities below. Drawings shown by the assessee for the years in which additions were made for insufficiency were as under:-
Name 2006-07 2007-08 2008-09 2009-10 2012-13 Naresh Prasad 135475 170556 195505 558725 377263 Agarwal Ganesh Agarwal 48000 113699 69138 70000 244120 Munni Devi 48000 48000 54000 54000 60000 Babitha Agarwal 48000 48000 54000 66000 84000 Total 279475 380255 372643 748725 765383 Claim of the assessee is that the above drawings were sufficient for meeting the living cost of its family. Addition proposed by the ld.
Assessing Officer which was confirmed by the ld. Commissioner of Income Tax (Appeals) was J6,80,000/- for assessment year 2006-07.
In our opinion, nothing was brought on record by the ld. Assessing Officer to justify how he considered the drawings shown by the assessee to be inadequate. Claim of the assessee that his family consisted of only four persons was not rebutted by the Revenue. Only conclusion that can be drawn is that the addition was made on a :- 44 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
surmise. These assessments, having been done pursuant to a search u/s.153A of the Act, there was no scope for such addition. We therefore delete the additions made for inadequate drawings. Ground No.5 of the assessee stands allowed.
51. Alluding to ground No.6, ld. Counsel for the assessee submitted that what was added u/s.68 of the Act represented the cash sales of the assessee. According to him, there was no KYC requirement for cash sales, during the impugned assessment years. Contention of the ld. Authorised Representative was that there was no necessity to record the name of the customer or his PA Number. As per the ld. Authorised Representative, there were no credit sales in the line of the business done by the assessee. According to him, margin money collected from customers when they placed orders were all part of the sale consideration. As per the ld. Authorised Representative, when customers paid such margin money a small chit noting the amount, was issued. In the evening of the day or the day after, when delivery of bullion was made, the slips were returned by the customer and the balance cash due on the sale, was received from the customer. As per the ld. Authorised Representative, taxing the peak credit in bullion margin would be equivalent to taxing the gross sales. According to him, on the closing date of every financial year, :- 45 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
the amounts standing under bullion margin money account was transferred to the sales account. This entry by itself, as per the ld. Authorised Representative, proved the nature of the transaction. According to him, Section 68 of the Act had no applicability when money was received on sale of goods. Contention of the ld. Authorised Representative was that KYC norms being not applicable for the cash sales, since the value of the related transaction did not transgress the limits under the said norms, as long as cash receipts were duly accounted as sales, an addition u/s.68 of the Act would result in double addition.
52. Per contra, ld. Departmental Representative strongly supporting the orders of the lower authorities submitted that once assessee credited cash in its books, whatever be the nomenclature, it was bound to record the name of the person who advanced the money and to prove the source. Contention of the ld. Departmental Representative was that assessee was having no records to show the details or source of the persons from whom the money was received. Contention of the ld. Departmental Representative was that profits suppressed by underpricing its sales, was ploughed back as bullion margin money. According to him, additions made by the lower authorities were only for the peak in such bullion margin money :- 46 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
account. As per the ld. Departmental Representative, if Section 68 of the Act was strictly applied, every receipt of margin money, for which assessee failed to give any confirmation or details, an addition ought have been made. As per the ld. Departmental Representative, ld. Commissioner of Income Tax (Appeals) was justified in confirming the additions made under Section 68 of the Act. Nevertheless, as per the ld. Departmental Representative, ld. Commissioner of Income Tax (Appeals) fell in error in allowing telescoping of such peak bullion margin money, with the recorded sales. As per the ld. Departmental Representative, telescoping was already allowed by the ld. Assessing Officer, against suppressed sales. Ld. Departmental Representative pointed out that Department, in its appeal was assailing the direction given by the ld. Commissioner of Income Tax (Appeals) for setting off the peak in bullion margin money with the disclosed sales of the assessee.
53. We have considered the rival contentions and perused the orders of the authorities below. Contention of the assessee is that its modus operandi of operation required it to accept cash as margin when customers placed order and this was squared up when bullion was supplied to the customer later in the day or next few days. As per the assessee, bullion was always supplied to the customer either by :- 47 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
the end of the very same day or within a few days from the receipt of advance. Further, as per the assessee, considering the volume of transactions it was not possible for it to maintain separate record for each buyer. Relevant observation of the ld. Assessing Officer has been reproduced by us at para 11, supra. Ld. Assessing Officer found negative balance in bullion margin account at least on two days viz 11.11.2010 and 25.11.2010 to the tune of J54.93 lakhs and J7.42 Crores. As per the ld. Assessing Officer, these were not properly explained by the assessee. Asessee had all along stated that it was not indulging in any credit sales but doing only cash sales. There is no dispute that money standing in credit in the bullion margin account was consistently transferred to sales. Commissioner of Income Tax (Appeals) has recognized this when he allowed set-off of peak credit bullion margin account with the accounted sales of the assessee, though Department is aggrieved on such set- off. There is also no dispute that there was no balance in the bullion margin money account at the end of any financial year, since all credits in such account stood transferred to sales. Books of accounts of the assessee relied on by the Assessing Officer, for making the assessments under Section 153A of the Act, were the same as produced by the assessee during original assessment proceedings. It was not a set of parallel books maintained by the assessee. Incriminating documents relied upon by the ld.
:- 48 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
Assessing Officer, which has been referred by ld. Commissioner of Income Tax (Appeals) at para 5 of his order, are only two diaries numbered as ANN/SSK/SSS/ B & D/S-46 and ANN/VJ/ Diary/GA/S-1. These records did not go counter to the books of accounts, except for the rate difference in cash sales, when compared to the rates mentioned in the seized diary. The seized diaries pertained to calendar years 2010 and 2011, and there was no seizure of any diaries for earlier or subsequent year. Assessee's assertion that there were no diaries for earlier years were never disproved by the Revenue. If at all such diaries were there for the earlier years, in every probability it would have been found at the time of search. Revenue has not pointed out anything in the seized diaries which could help reach a conclusion that margin money received from customers for bullion were wholly unexplained credits. Presumption under Section 132(4A) of the Act can support the claim of the assessee that bullion margin money was only a part consideration received for its sales. The entries transferring the sums standing in credit in the bullion margin money account to sales account were never found to be bogus nor rejected by Revenue. All these, in our opinion indicate that credits in bullion margin money account could have been part of sale consideration.
:- 49 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
54. Section 68 of the Act is which apposite here is reproduced hereunder:-
''Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year''.
The lacunae in the explanation offered by the assessee was its inability to give the identity of each of its customers. However, explanation of the assessee that receipts were nothing but part consideration received for sales has not been found incorrect. In the facts and circumstances, we cannot say that the explanation given by the assessee was unsatisfactory. Though Section 68 of the Act was rightly invoked considering the failure of the assessee to give the identity of its customers, who gave advance in cash, and purchased in cash, such addition has to be restricted to extent it is not reflected in sales. Taxing the credits in bullion margin money account and sales, would be equivalent to taxing the same amount two times. Hence, Section 68 of the Act, in our opinion can be invoked only for those amounts which are not reflected in sales. Thus, while holding that the ld. Commissioner of Income Tax (Appeals) was justified in confirming the addition for credits in bullion margin money account, we direct the :- 50 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
ld. Assessing Officer to rework such addition by excluding margin money credits, to the extent accounted in sales, in the same financial years. In the result, ground No.6 of the assessee is partly allowed.
55. Now, we take up appeal of the Revenue for assessment year 2006-2007.
56. Grounds taken by the Revenue are reproduced hereunder:-
''1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.
2. The learned CIT(Appeals) erred in deleting the addition of Rs. 1,06,84.527/- made towards suppression of sale amounts of gold bullion made by the AO, in the assessment order passed u/s 143(3) r.w.s 153A of the Income Tax Act, 1961, for A.Y 2006-07 in the assessee's case.
2.1 The Id.CIT(A) ought to have appreciated the fact that the assessee has deliberately under invoiced its cash sales made to buyers without bills as compared with sales made to jewellers with bills resulting in huge difference between the two when both the sales were made in cash.
2.2. The learned CIT(A) erred in allowing relief on the ground that the AO has not subjected the books of account to special audit, overlooking the modus operandi of the assessee, discussed in detail in the assessment order, and also the reasons recorded by the AO for non-rejection of books of account in para 7.19 of the assessment order for A.Y 2011-12, on the basis of which, addition was made in the assessment order for A.Y. 2006-07 in the assessee's case.
2.3. The learned CIT(A) is not justified in allowing relief on the basis of sales tax orders submitted during the appeal proceedings as an additional evidence, without giving an opportunity to the AO under Rule 46A of the IT Rules, 1962.
2.4. Having held that parallel set of books of accounts were not found in the assessee's case, the learned CIT(A) ought to have appreciated that in the modus operandi employed :- 51 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
by the assessee there is no need for "parallel" set of books since the exact quantum of suppression of cash sales amount and the amount introduced in bullion margin account was known only to the assessee or his son and the fact of suppression of cash sales was entirely within their knowledge 2.5. The learned CIT(A) having deleted the addition by accepting the explanation of the assessee as to why the selling rate could be lesser than invoice purchase rate when the real issue at hand was why the selling rate as per cash bills was less than that of selling rate as per bills to jewellers (to be accounted by purchasers) when there is no difference between them while fixing the rates as per seized diaries and as admitted by the assessee u/s 131 that "in bullion trade there is no credit sales in the normal meaning" (with higher margin when compared to cash sales) 2.6 The Id.CIT(A) ought to have appreciated the various circumstantial evidences and facts gathered by the AO in the form of obtaining the rates from various Registered Professional Jewellers' Associations, the Sales Tax Authorities as well as from the sworn statements of the assessee's staff to prove the fact of deliberate suppression of sales by the assessee through such non-genuine business transactions and ought to have confirmed the addition made in the assessment for A.Y 2006-07 in this case.
3. The learned CIT(A) erred in directing the AO to reduce the "sales accounted towards margin money in the corresponding years" while confirming the addition of Rs. 7,79.69,000/- made by the AO u/s 68 of the I.T Act, towards peak credit on account of margin money received by the assessee. in the assessment for A.Y 2006-07 in the assessee's case 3.1 The Id.CIT(A) ought to have appreciated that while computing the peak credit (as per detailed working sheets, for the AY.s 2006-07 to. 2010-11 annexed to the assessment order for AY 2011-12) the adjustments have already been taken into account by the AO and there is no double addition as claimed by the assessee.
3.2. The Id.CIT(A) has erred in directing to allow relief from the sales without appreciating that the peak credit addition made is towards unexplained credits introduced i.e for the :- 52 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
reasons that no details from whom received etc were furnished by the assessee with respect to such buyers from whom the amounts were stated to have been received. 3.3. The Id.CIT(A) ought to have appreciated that the fact that the said amounts were also accounted for as sales, does not absolve the assessee from the liability of proving the source of such credits irrespective of whether the same were adjusted against sales or any other transactions thereafter upon such receipt.
4. The Id. CIT(A) erred in deleting the disallowance of proportionate interest of Rs.3,72,452/- on the interest bearing funds diverted for interest free advances, made by the AO, in the assessment order passed u/s 143(3) r.w.s. 153A of the IT Ad for the AY. 2006-07 in the assessee's case.
4.1 Having held that the assessee was well within his lending capacity to advance monies without charging interest out of own capital as well as interest free advance received, the Id. CIT(A) ought to have appreciated that the assessee has not furnished the details of the availability of interest free funds as on the date of making the interest free advance.
5. The learned CIT(A) erred in deleting the disallowance of car maintenance expenses of RS.171 ,724/- made by the AO, towards personal nature involved, in the assessment order passed u/s 143(3) r.w.s. 153A of the IT Act for the AY.
2006-07 in the assessee's case, on the ground that considering the vast business of the assessee, the disallowance of expenses incurred towards running and maintenance of cars appears unwarranted.
5.1 The Id.CIT(A) ought to have appreciated that the assessee himself had admitted to using the cars for personal benefit in his sworn statement u/s 131 of IT Act, recorded on 12-3-2014 and therefore ought to have upheld the disallowances made towards this account.
6. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored''.
:- 53 -: ITA Nos. 1447, 1448, 1988,
1989, 1449 to 1455, 1485 to 1491/17.
57. Grounds No.1 and 6 are general needing no specific
adjudication.
58. Adverting to ground No.2, ld. Counsel for the Revenue submitted that assessee had effected cash sale of bullion at a rate below the association rates for the impugned assessment years. As per the ld. Departmental Representative, there was deliberate under invoicing of cash sales and there was no justification for selling at a rate lower than the rate at which sales were made to jewellers. As per the ld. Departmental Representative, ld. Commissioner of Income Tax (Appeals) placed undue reliance on sales tax assessment orders produced by the assessee, which was never produced before the ld. Assessing Officer. According to him, there was clear violation of Rule 46A of the Income Tax Rules, 1962 as well. Further, as per the ld. Departmental Representative, assessee had deliberately avoided production of diaries for years prior to assessment year 2011-2012. Such diaries as per the ld. Departmental Representative, indicated the rates to be higher than what were billed for cash sales. According to him, assessee's books did not reflect the actual transactions. There were a number of defects pointed out by the ld. Assessing Officer.
Contention of the ld. Departmental Representative was that ld. AO
had carefully verified the rates at which assessee sold gold to
:- 54 -: ITA Nos. 1447, 1448, 1988,
1989, 1449 to 1455, 1485 to 1491/17.
jewelers and found it to be higher than the rate at which cash sales were effected. As per the ld. Departmental Representative, no good reason was shown by the assessee for selling bullion in cash at a rate which was J5/- to J10/- lower per gram when compared to the sales to jewellers. As per the ld. Departmental Representative, assessee had in his statement given to the ld. Assessing Officer, acknowledged that there were no credit sale in bullion trade and no differential rates were ever applied. In such a scenario, as per the ld. Departmental Representative, the ld. Assessing Officer had many options available with him, including the option of rejecting the books and making an addition for gross profit. However, according to him, ld. Assessing Officer had opted to apply the rate charged by assessee on its sales to jewelers, on its across the counter sales, for quantifying the suppression. Contention of the ld. Departmental Representative was that this was the most appropriate method which could be used, for computing the suppression in sales under the facts and circumstances of the case. As per the ld. Departmental Representative, ld. Commissioner of Income Tax (Appeals) fell in error in deleting the additions which were correctly worked out by the ld. Assessing Officer.
59. Per contra, ld. Authorised Representative, strongly supporting the order of the ld. Commissioner of Income Tax (Appeals) :- 55 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
submitted that books relied on by the ld. Assessing Officer for making the additions were the very same which were produced by the assessee before the ld. Assessing Officer during the course of original assessment proceedings. According to him, there were no incriminating materials found at the time of search. As per the ld. Authorised Representative, re-computation of profit was made by the ld. Assessing Officer purely on surmises. Ld. Authorised Representative submitted that assessee was not following association rate for selling bullion but was following LMB with adjustments for exchange rate difference, import duty etc. According to him, sales made to jewelers based on cheques received from them, required a couple of days atleast for collection, whereas across the counter cash sales brought in immediate realization of money. This as per the ld. Authorised Representative, always encouraged the assessee to offer slightly lower rates for cash sales.
60. Adverting to the difference between rates mentioned in the diary and rate charged for cash sales, ld. Authorised Representative submitted that LMB rates noted in the diary was for 0.999 purity gold, whereas gold traded by the assessee was of 0.995 purity. According to him, bullion trading was different from other business and assessee could not share all the secrets with its employees. As :- 56 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
per the ld. Authorised Representative, employees were given information based on the need to know principle. Vis-à-vis the argument of the ld. Authorised Representative that sales tax assessment orders relied on by the ld. Commissioner of Income Tax (Appeals) was never placed before the ld. Assessing Officer, submission of the ld. Authorised Representative was that sales tax assessments were not the sole reason for Commissioner of Income Tax (Appeals) deleting the addition. According to him, it was considered only as a collateral evidence. Ld. Authorised Representative pointed out sales bills 1107 & 1117 dated 12.08.2010 and 397 and 614, dated 3.12.2010, which reflected sales in cash at rates more than what was charged to jewelers. Thus, according to him, finding of the ld. Assessing Officer was incorrect. Further, as per the ld. Authorised Representative, ld. Assessing Officer fell in error in relying on a statement taken from one of the employees, while making this estimated addition. According to the ld. Authorised Representative, ld. Commissioner of Income Tax (Appeals) was justified in deleting the addition made for suppression of sale.
61. We have considered the rival contentions and perused the orders of the authorities below. Method adopted by the ld. Assessing Officer for calculating the alleged suppression in cash sales, has been :- 57 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
reproduced by us at para 9 above. There are four main reasons cited by the ld. Assessing Officer for disbelieving the rate at which cash sales were effected by the assessee. These are higher rate charged to jewelers, rates being lower than Association rates/ rates quoted by M/s. Riddhi Siddhi Bullion, Mumbai, rates noted in seized diary being higher and the deposition of Shri. Vijayababu who stated that the proprietor kept all matters regarding rates to himself and never shared it with his employees. Let us take these one by one. Rates charged for cash sales, as per assessee, were lower since they discounted the buyers margin and followed LMB rates. We find there were a number of instances where assessee had charged lesser on its jewellery customers than for cash sales. Invoice number 8861, dated 26.07.2010 placed at PB 30 and invoice number 941, dated 26.07.2010, placed at PB 31 are example. Former is a cash bill and rate per kg of gold is shown as J18,81,188.12, whereas latter is a credit bill and rate per kg is shown as J18,21,782.18. Similar invoices with lower rate for cheque sale is available for 12.08.2010 also (PB pages 45 & 46). Assessee as well as Assessing Officer are one in that assessee had no credit sale and what was termed as credit sales were sale to jewellery for which payments were received by cheque or through bank. That apart realization of money on cheque sales do have a time lag which can stretch to a couple or more days and there :- 58 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
is nothing which stopped the assessee from incentivizing cash sales, since such sales brought in immediate cash. There is also nothing on record to show that assessee's claim of following LMB rates were incorrect. It is the choice of the seller whether to follow association rate or LMB or rates followed by another bullion dealer or a rate which it thought best fit for it, considering the nature of its business. Revenue cannot force an assessee to sell his product at a particular rate. Coming to the notings in the diary, admittedly the diaries seized were of calendar years 2010 and 2011. It is an admitted position that no other diaries were found at the time of search nor any evidence brought in by the Revenue that there indeed were any diaries for earlier years, against assessee's assertion that no such diaries were there for earlier years. Thus the rates mentioned in the diary even if presumed as correct would have been relevant for assessment year 2010-2011 and assessment year 2011-2012. Admittedly, there were no additions for suppression of sales for both these years. No doubt there could have been a spill over of three months of the calendar year 2010 for assessment year 2009-2010. However, this also in our opinion will not justify extrapolating the rates mentioned in the diary to an earlier or subsequent year. Now coming to statement given by Shri. Vijayababu one of the employees of the assessee, what has been stated by him is reproduced hereunder:-
:- 59 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
02 Please identity yourself.
Ans.2 I am Vijayababu, presently working as Tally Clerk in M/s.Shiv Sahai & Sons (India) Ltd.. I was working in the same capacity in Mls. Shiv Shai & Sons since March, 2007. I am a BBA graduate, having passed from Madras University My contact /Jo.044-42277404 (office) 9710318570 (mobile) .. My e-meii id is vijaybabujames @ yehoo.com.
03 Please tell me about your nature of work and the work of your colleagues in your office.
A3 I am preparing the sale bills. There is only one computer for preparing sale bills. Either myself or Smt. Sumithra, Accountant; will prepare the sale bills. No other person will prepare the bills. We are preparing the sale bills for Chennai, Salem, Coimbatore, Madurai end Trichy. For other branches outside Tamilnadu, sale bills are not prepared from our office at Chennai. The sale bills are prepared in a software which we call "Shiv package". Accounts are not prepared in this package. I am not preparing the accounts. Smt. Sumithra is doing the accounts. Smt. Thulasi is the Accounts Assistant assisting Sl17t. Sumithra. Sbri. Mahendran and Shri. Srinivasan are in cash section. They receive the cash from the customers. Shri. Ashok Kumar Gupta is in Charge for strong room where gold bars are stored. There are no separate persons for delivery of gold. It will be handed over either by Shri. Ashok Kumar Gupta himself er by cash section officials.
Q. 4 What are the working hours for you and for Smt.. Sumithra .A. 4 For billing section the working hours are 11-30 a.rn, to 9-00 p.m For accounts Q 5. When will the directors (or earlier the proprietor) come and leave?
A 5 Shri. Ganesh sir or Shri. Naresh sir will normally come at 9-00 a.m. and leave at 4.00pm :- 60 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
Q 5 What are the working hours during which a customer can come any gold bars A The customers can come and buy gold bar when Shri. Genesh sir is available in office.
Q. 6 Please tell me the step by step procedure when a customer comes to buy gold bar A. 6 .The customers will meet Shti. Ganesh Agarwal, Director. They will get a slip from the Director as to the amount of cash to be paid. They will go to the cash counter and pay the cash. The cashier will count the cash in front of the customer using the cash counting machine. The cashier will go to Khazana, which is near the Manager's table, and take the gold bar and hand over to tile customer. No signature will be taken against delivery of the gold. Khazana is an iron chest, kept near Manager's table from where the gold bars will be taken and delivered to the customers. Any remaining unsold bars will be stored in the strong room after closure of business for the day.
Q. 7 There are 4 separate categories of bills for each branch with bill numbers starting with 1 on 1st April.
1. For gold - cash bill 2 For gold - credit bill
3. For silver- cash bill
4. For Silver- credit bill.
Q. 8 How will you know as to which type of bill to be prepared, and for which branch?
A. 8 Shri. Ganesh Sir or Shri. Neresh sir or Shri. Ashok Sir call me over phone and ask me to prepare a bill for a particular branch - Chennai, Coimbatore, Salem, etc. They will also tell whether it is a cash bill or credit bill. In case of credit bill, name of the buyer will also be told. Then I will prepare the bill. Manager will sign the bill. Two copies of cash and credit bill will be taken. Both the copies of credit bills will be handed over to Manager along with one acknowledgement form. He will hand over to the customer (messenger from (he Jeweller) who will bring back one copy and the :- 61 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
acknowledgement for receipt of gold after impressing the seals of his company.
Q. 9 Please tell me about the bills prepared for other branches:
A. 9 When Ganesh sir asks me to prepare - the bill for other branches I will prepare and I will send a mail through team-viewer.
Q.9 Please tell about the bills prepared by you today A. 9 I would have prepared about 40 bills, all of them for Salem branch cash bill. Shri. Ganesh sir told me to prepare the bills. Approximately 200 kg @ about RS.44500 The bills will normally be sent by mail. The bills were prepared me at about 3.00pm. The mail was not sent till I left office today.
0.10. Please tell me about preparation of cash bills at Chennai A 10 Two copies will be prepared - one for the customer and one for us. No signature will be obtained from the customer in the bill as in the case of credit bill.
Q.11. I am reminding you that you are on oath. At what point of time do you prepare the cash bill for Chennai office. What do you then do with the bill.
A.11 When Shri. Ganesh Sir asks me to prepare the bill I will prepare the bill. I will collect the signature of the Manager and will hand over the bill if the customer comes and asks for bill. But all customers do not ask for bill.
Q.12 What do you do with the bills whicfl,f1le:QlfsJomers do not ask for?
A 12 From the year 2013, I am not taking two copies of cash bill. Only for credit bill two copies are taken. Only when the customers asks i will take a print out.
:- 62 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
I will take out pit a daily statement of bills.
Q. 12 Before 2013 what were you doing with the customer's copy which were not collected by them.
A 12 Both copies will be filed together Q.13 I am showing you a statement given by Shri. M. Jayaprakash, Accounts Manager in your Salem branch on 6·1·2012. Please sign in page 3 in token of having read the statement. In his reply to Q.2, he has slated, in page 3, that '' for cash purchase no bills are issued by our company. What do you say?
A 13 I was preparing cash bills for Salem branch. I was also sending them by mail. Probably he would not have taken printout of the bill. Even yesterday Salem branch called at 5.00 pm and asked for a cash bill. Ganesh Sir laid me at about 4.00 p.m. to prepare cash and credit bills. I prepared the credit bill at 4-30 pm and mailed it. I prepared the cash bill at
5.00 pm only after getting (he call from Salem. So whenever the customer at Salem wants the cash bill they will call Shri. Ganesh sir who will in turn ask me to prepare the bill.
Q 14. In your reply to 0.5 you have stated that Shri Genesh: sir will come at 900 A.M.. You or Smt. Sumithra comes only at 11-30. That means that for sales made between 9.00 am and 11-30 a.m. bills will be prepared only after 11-30 am. Is it rnot A 14 Yes. Only after we reach office, Shri. Ganesh sir will ask either me or in my absence Smt. Sumithra to prepare the bill. So if any sales were made before 11- 30 am the customers who want bills will wait and collect it.
0.15 In your reply to Q.8 you have stated that you will get instructions over phone from Shri. . Ganesh sir or Shri. Neresh sir or Shri. Ashok sir for preparation of bills. Will he tell the quantities, rates and amounts?
:- 63 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
A 15 He will tell only the quantity and the rate. Amounts will come in the billing package Q 16. Is there any system in your office by which you know what is the cash collected for each and every cash bill prepared by you.
A. 16 There is no system. If Shri. Ganesh Sir asks me to prepare the bill I will prepare the bill. Shri. Vijayababu has nowhere stated the assessee was selling bullion in cash at lower rates and it was done for suppression of income. There is strength in the argument of the assessee that in the nature of its trade, information and data were shared on ''need to know'' basis. Thus in our opinion none of the reasons cited by the Assessing Officer would justify the substitution of rates for cash sales with the average rates for jeweller over the year. As already mentioned by us, the soft copy of the books of accounts found at the time of search was not a parallel set of account but were only regular accounts maintained by the assessee, based on which it was filing its regular returns. We are therefore of the opinion that ld. Commissioner of Income Tax (Appeals) was justified in deleting the addition made for suppression in sales. In the result, ground No. 2 of the revenue is dismissed.
:- 64 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
62. Vide its ground No.3, grievance of the Department is that ld. Commissioner of Income Tax (Appeals) fell in error in directing the ld. Assessing Officer to reduce the peak credit in bullion margin money account with the sales accounted by the assessee.
63. We have at para 61 above upheld the order of the ld. Commissioner of Income Tax (Appeals) deleting the addition for suppression in cash sales. Since the credits in Bullion margin money account were transferred as sales, ld. Commissioner of Income Tax (Appeals) directed the Assessing Officer to reduce the peak credit considered for addition under Section 68 of the Act, from sales accounted by the assessee. As mentioned by us at para 53 and 54 above, it is an undisputed position that credits in bullion margin money account were generally transferred to sales account. Addition of credit in bullion margin money account has been sustained by us, only to the extent not transferred/accounted in the sales. Otherwise, it will result in double addition of the same amount. In such circumstances, we are of the opinion that ld. Commissioner of Income Tax (Appeals) was justified in giving direction to set off of credit in bullion margin money account with sales accounted by the assessee, so that double addition was avoided. Ground No. 3 of the Revenue is dismissed.
:- 65 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
64. Vide its ground No.4, grievance of the Revenue is that ld. Commissioner of Income Tax (Appeals) deleted the disallowance for interest free advances made by the assessee.
65. We have considered the rival contentions and perused the orders of the authorities below. What was held by the ld. Commissioner of Income Tax (Appeals) on this issue has been reproduced by us at para 26 above. He has given a clear finding that assessee had more than sufficient own funds for giving the interest free advances. When assessee was having sufficient own funds, we cannot say that any interest bearing funds were diverted for giving interest free advances. That apart, ld. Departmental Representative was unable to show what were the interest bearing funds that were held by the assessee which were diverted. We do not find any reason to interfere with the finding of the ld. Commissioner of Income Tax (Appeals) in this regard. Ground No.4 of the Revenue is dismissed.
66. Adverting to ground No.5, ld. Departmental Representative submitted that ld. Commissioner of Income Tax (Appeals) deleted the disallowance made for personal use of car despite assessee admitting such use.
:- 66 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
67. We have considered the rival contentions and perused the orders of the authorities below. Ld. Commissioner of Income Tax (Appeals) had deleted this disallowance with a finding that business of the assessee was vast. Ld. Assessing Officer on the other hand had made the disallowance for personal use of cars based on the admission of the assessee. We are of the opinion that ld. Assessing Officer was justified in making such disallowance since it was made on an admission of the assessee. Order of ld. Commissioner of Income Tax (Appeals) on this issue is set aside and the disallowance made by the ld. Assessing Officer is reinstated. Ground No.5 of the Revenue is allowed.
68. Now we take up the cross appeals Mr.Naresh Prasad Agarwal for assessment year 2007-08, in that order:-
69. Grounds taken by the assessee are reproduced hereunder :
1. The order of Commissioner of Income Tax (Appeals)-19 is against the facts of the case and principles of nature justice.
2. The learned CIT (A) erred in adopting the accounts as provided by M/s.
MMTC.
3. The learned CIT (A) failed to understand the fact that there were huge errors in the statement of accounts as provided by M/s. MMTC and the erroneous accounts as provided by M/s. MMTC cannot be considered as the basis for finalization of appellant's accounts.
:- 67 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
4. The learned CIT (A) failed to appreciate the fact that both the appellant and MIs. MMTC were disputing each other and that the matter was pending before Hon'ble Madras High Court.
5. The learned CIT(A) erred in upholding the adhoc drawings fixed by the learned assessing officer.
6. STC: The learned CIT(A) failed to appreciate the fact that appellant had duly recorded the credit notes from STC on receipt of the same in the assessment year 2010-11 and hence not providing relief to this while confirming the addition has resulted in double addition.
7. Margin money addition: The learned CIT(A) failed to appreciate the fact that the amounts collected in margin account represented part sale consideration these were received from prospective buyers and on receipt of the balance the margin money was accounted as sales. The learned CIT(A) though provided relief from double taxation but failed to understand the fact that names, address, and other KYC norms was not applicable for sales below 2 lakhs and hence the appellant did not maintain the same, hence confirming the addition on account of unexplained credits is bad in law.
Ground No.1 is in general, needing no specific adjudication.
70. Adverting to Grounds No.2 to 4, ld. AR submitted that lower authorities went by the version of M/s.MMTC while taxing the net credit based on their creditor notes. As per the ld.AR, the ld. Assessing Officer took a view that the assessee had not accounted many of the credit notes issued by the M/s.MMTC and was charging :- 68 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
expenses incurred by M/s.MMTC purportedly on behalf of the assessee, without any debit note being issued by M/s.MMTC. Contention of ld.A.R was that there was an on-going dispute between the assessee and M/s.MMTC on reconciliation of balances, credit notes and debit notes issued by M/s.MMTC. As per the ld.AR, M/s.MMTC had arbitrarily issued debit as well as credit notes, which was impossible to reconcile. Many of these credit notes of M/s.MMTC, as per the ld.AR, were never received by the assessee. Contention of the ld.AR was that Ld.CIT(A) had confirmed this addition despite assessee pointing out accounting all the credit notes on which tax was deducted at source. As per the ld.AR, the difference in the balances as shown in the accounts of the M/s.MMTC and in the books of assessee, was due to the credit notes and debit notes issued by M/s.MMTC without any basis.
71. Continuing his submissions ld.AR pointed out that MMTC officials were under investigation by C.B.I for fraudulent maintenance of their accounts. As per the ld. Authorised Representative, CBI had arraigned the assessee Shri. Naresh Prasad Agarwal also as an accused for frauds perpetuated by the officials of M/s. MMTC but Hon'ble Jurisdictional High Court through its judgment dated 17.04.2017 in Criminal Original Petition No.21438 of 2014 and Criminal Revision Petition No.1991 of 2015 had discharged him from :- 69 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
the proceedings, finding no evidence against Shri. Naresh Prasad Agarwal. As per the ld. Authorised Representative, this judgment also confirmed falsification of accounts by MMTC officials. Hence according to him, credit notes issued by such officials based on fraudulent and falsified accounts would not result in accrual of any income to the assessee. Further as per the ld. Authorised Representative, many of the credit notes issued by M/s. MMTC, mentioned in their letters dated 28.12.2011 & 14.02.2013 related to the earlier assessment years, entries for which were entered by M/s.MMTC in their books for financial year 2011-12. As per the ld.AR, the Ld.CIT(A), though he directed the ld. Assessing Officer to reduce the value of debit notes from the value of credit notes, fell in error, in confirming the addition without taking cognizance of the appointment of Arbitrator on differences between M/s.MMTC and the assessee. Relying on a Memorandum of understanding dated 02.04.2008 entered by the assessee with M/s.MMTC, ld.AR submitted that it contained clear stipulation under which they were to supply bullion to the assessee. As per the ld.AR, assessee had preferred an Arbitration Petition invoking clause-11 of the MOU. Contention of the ld.AR was that M/s.MMTC had delivered lower quantity of gold than what were mentioned in the delivery note and invoice, which proved the fraudulent nature of its transactions. Relying on paper book page-14, which is a part of the :- 70 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
Arbitration claim statement filed by the assessee under the Arbitration And Conciliation Act, 1996, ld.AR submitted that assessee had sought direction from Arbitral Tribunal for giving details of all the transactions, as well as various debit notes and credit notes issued by M/s.MMTC. Referring to a few of Debit notes issued by M/s.MMTC placed at pages 32-33 of paper book and few of Credit notes issued by M/s.MMTC placed at pages 45 to 49 of paper book, ld.AR submitted that narration in these notes were vague. As per the ld.AR, narration in many of the debit notes were "claim recoverable- pending reconciliation" and in many of the Credit Notes "Reserve for bad and doubtful debts" Submission of the ld.AR was that nothing could be made out from these Debit & Credit notes, and assessee could not be put in peril, for difficulties in reconciling the accounts of the assessee in the books of M/s.MMTC with that of M/s.MMTC in books of assessee. Ld.AR placing reliance on a letter dated 28.03.2014 from assessee addressed to the ld. Assessing Officer, submitted that all these facts were brought to the notice of ld. Assessing Officer, but still the ld. Assessing Officer took the aggregate value of credit notes and subjected it to an addition. As per the ld. Authorised Representative, ld. Commissioner of Income Tax (Appeals) fell in error in confirming the addition for credit notes without appreciating the facts.
:- 71 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
72. Per contra, ld.DR strongly supporting the order of Ld.CIT(A), insofar as it confirmed the addition for credit notes issued by M/s.MMTC, to the extent not accounted by the assessee, submitted that very existence of the credit notes indicated assessee's right to recover such amounts mentioned therein from M/s.MMTC. Assessee, as per the ld. DR, in the alternative could set off such credits from its dues to M/s.MMTC. Hence, according to him, aggregate value of the credit notes, not accounted by the assessee was rightly considered for the addition by the ld. Assessing Officer, and confirmed by Ld.CIT(A). However, according to him, Ld.CIT(A) fell in error in directing the A.O to set off the aggregate value of debit notes while calculating the addition. As per the ld. DR, both credit as well as debit notes were considered by the ld. Assessing Officer while calculating the addition required for unaccounted credit notes. Submission of the ld. Departmental Representative was that ld. Assessing Officer had mistakenly stated the addition to be aggregate of credit notes alone in the remand report. Hence, as per the ld. Departmental Representative value of debit notes having already been deducted, direction of ld. Commissioner of Income Tax (Appeals) in this regard was superfluous.
:- 72 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
73. We have heard the rival submissions. What was held by the Ld.CIT(A) on the question of credit notes subject to addition has been reproduced by us at para 23 above. There is no case for the Revenue that assessee was maintaining more than one account in the name of M/s.MMTC in its books. It is also not probable that M/s.MMTC was having more than one account in the name of the assessee in its books. Thus, all entries relating to transactions entered by the assessee with M/s.MMTC had to be reflected in these accounts. The effect of non accounting of credit / debit notes issued by M/s.MMTC, if it was legitimately done, would result in a difference in the balances as per M/s.MMTC account and as per the assessee's account. Claim of assessee all along was that a number of credit notes were not received by it and if the aggregate of credit notes were considered, than huge amounts would have been due from M/s.MMTC to the assessee whereas it was vice-versa. What we find is that the Arbitration proceedings were initiated by the assessee against M/s.MMTC, in which allegations are there on various counts like difference on amounts received as buyer's credit, on quantity of gold delivered, on excess payment made by the assessee, on legitimacy of various debit and credit notes issued by M/s.MMTC etc. Relevant paras of this petition is reproduced here under:
:- 73 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
"11.The Claimants state that the Respondent has indulged in the following among other malpractices/deficiencies, to the determent of the Claimants:
a. During the period 2009-10, the Claimants received Delivery Notes for 50,438 Kgs., of Gold, but the actual deliveries were only for 50,403 Kgs., of Gold. There was a deficit of 35 Kgs., Based on today's price, it works out to `10,95,00,000/-.
b. Excess invoiced (generally) and specifically:
i) On 31/01/2011 vide invoice No.d109/003907/di-I the Respondent raised an invoice for `21,15,38,550/-, whereas the actual transaction was only for `2,18,31,555/-. Excess invoice raised by respondent was for `18,97,06,995/-.
ii) On 22/04/2010 vide invoice No.#d109/00344/di-I vide raised an invoice for `5,10,85,532/-, when the acual transaction was only for `1,37,00,000/-. Excess invoice raised by Respondent was for `3,73,85,532/-.
iii) Total excess invoice made was for `22,70,92,527/-
(`18,97,06,995 + `3,73,85,532)"
"13. As detailed above, the excess funds of Claimants retained by the Respondnet are 58,78,00,000/-(Rupees Fifty Eight Crores Seventy Eight Lakhs only), which the Respondnet is liable to pay the Claimants along with interest. The Claimants provide the day- to-day details of the Bullion purchases, eschange rate of US Dollar fixed with the Respondent/ their Bankers and payments made by the Claimants vide cheques. The details available and being filed herewith are:
a. Bullion Purchased andForex fixed for the years 2009-10, 2010- 11 & 2011-12 b. Payments made for the Bullion purchased for the years 2008-
09, 2009-10, 2010-11 and 2011-12 c. Quantity of Bullion received by the Claimants from the Respondent for the years 2009-10, 2010-11 & 2011-12."
"e. The Claimants seek appropriate orders from this Hon'ble Tribunal directing the Respondent to submit the accounts it has for each transaction it had with the Claimants regardingthe so called Buyer's Credit facility along with the other details listed herein after. Once the Respondent submits the accounts and other details, Claimants will check and reconcile the accounts and records that may be submitted by the Respondent with the accounts and records maintained by the :- 74 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
Claimants. Only if the accounts and details as requested herein are submitted by the Respondent, it will be possible to arrive at the amount which is due by the Respondnet to the Claimants because all the details are in the total exclusive knowledge and possession of the Respondent only."
"16. Respondent by its mail dated 28th Dec.,2011, sent one further debit note and two credit notes towards interest on loan against deposits for the financial years 2008-09, 2009-10 and 2010-11. The Debit Note No.AR09/001110/DN-11 dated 28.12.2011 was for 3 `5,76,47,862/-; the Credit Note No.AR09/000265/CN-11 dated 28.12.2011 was for `1,24,72,384/-; and the Credit Note No. AR09/000266/CN-11 dated 28.12.2011 was for `61,59,901/-. The Respondent demanded the Claimants to pay an amount of `33,90,15,577/-(Rupees Thirty Three Crores Ninety Lakh Fifteen Thousand Five Hundred Seventy Seven Only) under the Debit Note after adjusting the amounts payable to the Claimants under the credit notes (i.e. `35,76,47,862/- minus `1,24,72,384/- minus `61,59,901/-) along with 18% interest per annum. As per the note, given at the bottom of the said debit note, it is allebged that it is related to interest on loan against fixed deposits purportedly paid to the banks and purportedly not debited & recovered from the Claimants during the year 2008-09. Obviously the Debit Note is baseless, untenable, highhanded, illegal and barred by limitation. Additionally, the amount debited was again under the A.C Head "HOR suspense Account" of the Respondent. As stated earlier, no copy of the alleged "HOR suspense Account" was ever furnished to the Claimants. It was not known how the amount, which was related to the interest on loan against fixed deposits and pertaining to a period which was more than 3 years old was suddently debited to the Claimants' account in December 2011. As stated elsewhere, the Claimants never opened any fixed deposits and it is the obligation of the Respondents to open fixed deposits, that too in the name of the Respondent. Only the Respondent could avail loans if any, depending on the necessity of the Respondent. The Claimants had nothing to do with the fixed deposits nor did it authorize any loan to be taken against any fixed deposit. As the Claimants were not the fixed deposit holders, it was impossible for the Claimants to avail any loan on the basis of the fixed deposits. The Respondent is exclusively responsible, liable and answerable regarding each and every transaction."
M/s.MMTC had filed an appeal, assailing the arbitration. Bickerings between M/s.MMTC and the assessee reached Hon'ble Madras High Court :- 75 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
and their Lordships in O.S.A No.244 of 2014, through judgment dated 28.10.2014 took note of these disputes. Para-12 of the judgment reads as under:-
"12. Insofar as the first two respondents are concerned, they moved an application u/s.8 of the Arbitration and Conciliation Act, 1996, alleging arbitration agreement inter se the parties in the Memoradum signed bythe parties. The Memorandum of understanding dated 02.04.2008 contains clause 11 as under:-
11. any dispute or difference whatsoever arising between the 'Seller' and 'Customer' out of or relating to the construction, meaning, scope, operation or effect of this sale fpruchase agreement or the validity or the breach threrof shall be settled through arbitration in accordance with Rules of Arbitration of the Indian Council of Arbitration and the Award made in the pursuance thereof shall binding on the parties. The venue of arbitration shall be Chennai."
"25. We are, thus, of the view that mere allegation of fraud against the third respondent, with some splatterings of allegations against the first two defendants/respondents, would not result in the case being made unfit for adjudication before the agreed mode of Arbitral Tribunal. In fact, even the appallant understood it in the same way, till suddenly the 'U' turn arose, as noticed by us aforesaid.:
74. M/s.MMTC did not stop here but preferred to move Hon'ble Apex Court against the judgment of Hon'ble jurisdictional High Court.
Their Lordships in this appeal numbers as Civil Appeal No.11148 of 2017 held as under:-
"The Parties agree that the plaint in the suit betreated as claim of the appellants and the claim petition filed by the respondents :- 76 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
before the Arbitrator be treated as counter claim. The said documents will be furnished by the appellant to the learned Arbitrator within a period of two weeks from today. The venue of the arbitration can be at place convenient to the Arbitrator. However, the seat of the Arbitrator will be taken to be at Chennai. The Arbitrator will be at liberty to take any expert assistance."
75. We also find that assessee was chargesheeted by CBI for connivance with officials of M/s. MMTC in falsifying their accounts and causing wrongful loss to them. Assessee had challenged this before Hon'ble Jurisdictional High Court. Hon'ble Jurisdictional High Court while quashing the proceedings clearly held that the dispute between assessee and MMTC was civil in nature and approved arbitration proceedings initiated under clause 11 of MOU dated 02.04.2008. What was held by their lordships in the judgment dated 17.04.2017 in Criminal Original Petition no. 21243 of 2014 and Criminal Revision case No.1191 of 2015 is reproduced hereunder:-
''213. The Memorandum of Understanding dated 02.04.2008 and clause 11 thereof would clearly indicate that the entire transaction is civil in nature. It is to be noted that the MMTC Ltd., Chennai had also filed a Civil Suit in C.S.No.249 of 2013, which is still pending on the file of this Court for recovery of certain amounts from the petitioners and the first accused. If a business decision had resulted in loss even as per the prosecution case, (as found in the charge sheet in the middle of page No.5) it would be in the account of the customer. Claiming the same, debit notes were raised by MMTC Ltd Chennai and arbitration proceedings were initiated by M/s. Shiv Sahai and Sons. . All the above facts would clearly indicate and prove that the entire transaction which took place between MMTC :- 77 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
Ltd., and M/s. Shiv Sahai and Sons are completely civil in nature.
214. This Court takes the risk of repetition, that in the charge sheet the loss towards foreign exchange was quantified as Rs.36.02 crores, the interest on Loan against Fixed Deposit which was not passed on the customer was fixed as Rs.36.18 crores, and a loss of a sum of Rs.18.42 crores was fixed towards usance of LC charges. The total amount thus covered under the charge sheet is Rs. 90.52 crores. However, it seems that there are a lot of variations with reference to the quantum of loss shown in the First Information Report as well as in the charge sheet.
215. A cursory reading of the averments of page no.6 of the charge sheet which runs over the next page would go to show that out of 132 bullion consignments eight buyer s credit resulted in gain but, major number of consignments during the relevant period resulted in loss.
216. It could be seen from document No. 51 which is a tour report, that there was an acute man power shortage and the report suggested to engage sufficient man power to complete the task and to reconcile all the imports of bullion. The report of M/s.Purushothaman and Company, Auditors for the year ending 31st March, 2009 would also go to show that the internal mechanism needs to be strengthened and proper utilisation of the BTS Software to account the bullion trading to be done effectively.
217. As rightly argued by Mr. Muralikumaran, learned counsel for the petitioner, the prosecution did not produce even a single scrap of paper to show that Mr.V.Gurumoorthi was either authorised person or the only person authorised to make deposits and to take loans from foreign banks.
218. It is therefore clear that it is the duty of the prosecution to put forth some documents such as Board s resolution, its guidelines, norms and authorisations pertaining to making of deposits and availing of loans from the deposits for the purpose of making out a prima facie case. In the absence of such documents, it can easily be presumed that the prosecution has miserably failed to make out a prima facie case as against the petitioners.
219. On careful examination of the materials placed before this Court, this Court finds that there is no investigation on the line as to how, crores and crores of deposits were made in banks out of the sale proceeds without paying the suppliers and how loans :- 78 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
were taken and how the banks were chosen for deposits as well as for taking loans and why for the serious lapses no bank officials were made liable?. Moreover, no documents were produced by the respondent-police (CBI) which led to the making of deposits and taking of loans.
220. Even as per the Special Audit Report, the entire problem was due to the placing of fixed deposits for a longer period. It could be seen from page no.66 of the Special Audit Report which proceeds to say that the Fixed Deposits as well as LADs were in excess to the extent of Rs.776 crores/Rs.885crores.
221. The Investigating Officer has miserably failed to find an answer for the question:
''as to whether the allocation of duties and responsibilities including the delegation of powers at various levels of management is fair/proper/justifiable and the same have been adequately defined by the prosecution?
222. This Court from the related materials is able to find that the Comptroller and Auditor General of India came down heavily on MMTC Ltd., pointing out that there was failure to adhere to the instructions and non-realisation of dues on the avoidable loss towards interest.
223. On perusal of the averments made in the first information report as well as in the charge sheet this Court is of considered view that M/s.Shiv Sahai and Sons had resisted the claim made by M/s. MMTC Ltd., Chennai and ultimately, if, in the arbitration, it is proved that the loss occurred to MMTC Ltd., Chennai was due to the negligence on the part of the officials of MMTC Ltd., they would be held liable independently. As discussed in the beginning paragraphs of this Order, there is no legality or genuineness in the complaint.
224. As contemplated under Section 233A of the Companies Act, the Special Audit can be appointed only by the Central Government. This , so called Special Audit was not appointed by the Central Government nor by the Comptroller and Auditor General of India In so far as the case on hand is concerned, as could be seen from the reply given for the RTI, by the Comptroller and Auditor General of India, the so called Special Audit Report was not placed before the Comptroller and Auditor General of India for his comments and observations.
225. It could be seen from the report of the Comptroller and Auditor General of India, that the matter was reported to the Ministry in March 2013 and it is stated that the reply is awaited.
:- 79 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
The report of the Comptroller and Auditor General of India will be a very crucial issue as to how, the Ministry wanted the matter to be dealt with because under Section 619A read with Section 233A sub clause 6 of the Companies Act, the Central Government is empowered to take action on such reports.
226. The Special Audit Report says that the maintenance of accounting system is improper. There was inadequate strength at the official level for maintaining the accounts with reference to the financial transactions.
227. On a careful perusal of the entire records placed before this Court, it is found that no incriminating materials are available as against the petitioners to show that they had indulged in the practice of fraud in connivance with the Mr. V. Gurumoorthi (1st accused). The allegations of fraud were made only against the first accused Mr.V. Gurumoorthi and not against the petitioners. It is to be noted that even as per the prosecution case, the first accused Mr.V.Gurumoorthi in connivance and in collusion with the petitioners had fudged the accounts and caused loss to the MMTC Ltd., Chennai From this language, it could be easily understood that no serious allegations of fraud were made against the petitioners because the petitioners could not have had access to the accounts maintained by the MMTC Ltd., Chennai as they were supposed to have handled only by the officials of MMTC Ltd., Chennai.
228. A perusal of the entire charge sheet it would go to show that no prima facie case is made out as against the petitioners to continue the prosecution. Even if the case against the petitioners is allowed to proceed further by way of trial, the chance of conviction would be bleak.
229. It is to be noted that taking into consideration the entire allegations made in the charge sheet, this Court is of firm view that all the allegations are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the petitioners.
230. With reference to Section 120B IPC, it provides punishment of criminal conspiracy. Section 120A IPC defines the term criminal conspiracy . The opening portion of the First Information Report reads that during the period from 2007 to 2010 at Chennai and at other places Mr. S.Gurusamy (A1 as per FIR),former Chief General Manager, South Zone, MMTC Ltd., Chennai Regional Office, Chennai, Mr. V.Gurumurthy (A- 2 as per FIR), former General Manager (Finance & Accounts), MMTC Ltd., Chennai Regional Office, Chennai and unknown officials of MMTC Ltd., Regional Office, Chennai had entered :- 80 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
into a criminal conspiracy with Mr. N.P.Agarwal, (A3 as per FIR) Proprietor M/s.Shiv Sahai and Sons and with unknown officials of Union Bank of India Main Branch, Chennai to cheat the MMTC Ltd.,in the matter of bullion trading through buyers Credit Scheme.
231. Conspiracy in terms of Section 120B of the Code is an independent offence. The ingredients of criminal conspiracy as laid down by the Apex Court in R.Venkatakrishnan V CBI (2009 11 SCC 737):AIR 2010 SC 1812: 2009 (11) SCALE 102:
(2009) 13 SCR 762 are:
(i) an agreement between two or more persons;
(ii) the agreement must relate to doing or causing to be done either
(a) an illegal act;
(b) an act which is not illegal in itself but is done by illegal means.
In Lennart Schussler vs Director of Enforcement, New Delhi (1971 ) 1 SCJ 199): (1971) 1 33 Mad LJ (SC 33), the Apex Court has held that :
''The gist of the offence under Section 120A is that agreement between two or more persons to do or cause to be done an illegal act or a legal act by illegal means subject to the proviso that the agreement does not except agreement to commit offence, amount to a conspiracy unless it is followed by an overt act done by one or more persons in pursuance of such an agreement. An agreement to do an illegal act which amounts to a conspiracy will continue as long as the members of the conspiracy remain in agreement and as long as they are acting in accord and in furtherance of the object for which they entered into the agreement.' '
232. In the charge sheet it is stated that during the period 2008- 2009 A1 to A3 (as per charge sheet) (1) Mr.V.Gurumurthy, former General Manager (Finance & Accounts), MMTC Ltd., Chennai Regional Office, Chennai and unknown officials of MMTC Ltd., Chennai Regional Office, Chennai (2) Mr. N.P.Agarwal, Proprietor M/s.Shiv Sahai and Sons and (3) Mr. Ganesh Agarwal (A3 as per charge sheet) had entered into a criminal conspiracy at Chennai and other places to do or cause to be done certain illegal acts., viz., to cheat MMTC Ltd., Chennai (A Government of India Undertaking) in the matter of purchase of gold under the Buyer s Credit Scheme.
233. One can easily infer and understand the contradiction and inconsistency between the First Information Report and the charge sheet with reference to the alleged offence of conspiracy.
:- 81 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
234. As seen from the First Information Report, the check period is 2007to 2010. As per the charge sheet, the check period is 2008-2009. When the First Information Report itself says that Mr. S.Gurusamy, former Chief General Manager, South Zone, MMTC Limited Chennai, Regional Office, Chennai along with Mr. V.Gurumurthy, former General Manager (Finance & Accounts), MMTC Ltd. ,Regional Office, Chennai had entered into a criminal conspiracy with Mr. N.P.Agarwal, (A3 as per FIR), Proprietor M/s.Shiv Sahai and Sons, the prosecution, suddenly takes an U turn in the charge sheet by deleting the name of Mr.S.Gurusamy, former Chief General Manager, South Zone, MMTC Ltd., Regional Office, Chennai and included the name of Mr. Ganesh Agarwal in the category of conspirators.
235. The place and the period where and when the alleged criminal conspiracy took place have not been clearly identified. The prosecution has not come forward with a definite case of conspiracy. This Court has thoroughly discussed about this in the earlier paragraph of this Order. Having taken into consideration of all the relevant facts and circumstances with reference to the alleged criminal conspiracy, this Court is of considered view that no concrete and clinching evidence is available to indict the petitioners to say that they had committed the offence of conspiracy, because the ingredients for making out a case of conspiracy are not available in this case.
236. In the absence of any clinching and unassailable evidence to charge the petitioners with Section 120B IPC this Court finds that no prosecution under Section 120A IPC could be launched against the petitioners to punish them under Section 120B IPC.
237. As indicated above, in the First Information Report, the prosecution says that Mr. Mr. S.Gurusamy, former Chief General Manager, MMTC Limited Chennai and Mr. V.Gurumurthy, had entered into a criminal conspiracy with Mr. N.P.Agarwal, (A3 as per FIR), Proprietor M/s.Shiv Sahai and Sons to cheat MMTC Ltd., Chennai, whereas in the charge sheet the prosecution says that Mr. V.Gurumurthy had entered into a criminal conspiracy with Mr. N.P.Agarwal and Mr. Ganesh Agarwal to cheat MMTC Ltd., Chennai.
238. In this connection a question that arises for the consideration of this Court is who had actually committed the offence of criminal conspiracy?
Section 415 of IPC is relating to the offence of cheating. It reads that :
:- 82 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
''whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to cheat''.
Explanation A dishonest concealment of facts is a deception within the meaning of this section Section 416 IPC deals with Cheating by personation Section 417 IPC is the penal provision for cheating. It reads that whoever cheats shall be punished with imprisonment of either description for a term which may extend to one year, or with fine, or with both. Section 418 IPC deals with Cheating with knowledge that wrongful loss may ensue to person whose interest offender is bound to protect.
Section 420 deals with Cheating and dishonestly inducing delivery of property. It enacts as under: '' whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.
Simple cheating is punishable under Section 417 IPC, but where there is delivery or destruction of any property or alteration or destruction of any valuable property resulting from the act of a person deceiving this section (420 IPC) comes into operation. For an offence under this Section, it must be proved that the complainant parted with his property acting on a representation which was false to the knowledge of the accused and that the accused had a dishonest intention from the outset. (See Moharik Ali s case (1958 SCR 328: AIR 1957 SC 857) The offence under Section 420 IPC has the following essentials:
(i) There must be deception i.e. the accused must have deceived some one:
(ii) That by the said deception. The accused must induce a person:
(a) to deliver any property; or
(b) to make, alter or destroy the whole or part of the valuable Security or anything :- 83 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
which is signed or sealed and which is capable of being converted into a valuable property;
(iii) That the accused did so dishonestly.
239. For a person to be convicted under Section 420 IPC, it has to be established not only that he has cheated someone but also that by doing so he has dishonestly induced the person who was cheated to deliver any property etc., The alleged deceit when arises out of breach of business contract which was purely civil transaction, it does not create any criminal liability. This principle is laid down in Vinar Ltd., V Chenab Textile, 1989 Crl.L.J. 1858 (J & K)
240. In the given case on hand, as it is seen from the final report, that in pursuance of the conspiracy A1 to A3 had speculated in Indian rupee-US Dollar Foreign Exchange fluctuation and they had intentionally omitted to take forward cover for the purchases made and availed foreign exchange loan under Buyer s Credit Scheme and thereby caused wrongful loss of Rs.113.38 crores to the MMTC Ltd., Chennai and corresponding wrongful gain to the petitioners. In order to substantiate these allegations no substantial or adequate grounds are available against the petitioners. Admittedly, the transaction between the complainant MMTC Ltd., and the petitioners is a commercial transaction. In the absence of proof of conspiracy and the criminal intention to cheat the MMTC Ltd., it could not be heard to say that the petitioners have committed the offence of cheating. Everything is borne out by records as stated in the Special Audit Report. The failure, on the part of the officials of MMTC Ltd., to maintain proper accounting system could not rise to the commission of any offence much less the offence of cheating. Therefore, the alleged charges leveled against the petitioners under Section 120B r/w Section 420 IPC are liable to be quashed, as no case of cheating is made out.
241. The next charge levelled against the petitioners is under Section 477A IPC. At the outset, this Court would say that the charge under Section 477A of IPC as well as under Section 13(2) r/w 13(1)(d) of Prevention of Corruption Act, 1988 could not be made against the petitioners, as they are not concerned with this offence. The reason why is that the offence under Section 477A IPC is relating to falsification of accounts and the offence under Section 13(1)(d) of Prevention of Corruption Act, 1988 is relating to criminal misconduct by a public servant.
:- 84 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
Section 13(1)(d) of Prevention of Corruption Act, 1988 enacts that a public servant, if said to commit the offence of criminal misconduct,
(a) .
(b) .
(c) .
(d) if he,
(i) by corrupt or illegal means, obtains for himself or for any other person any valuable thing or pecuniary advantage; or
(ii) by abusing his position as a public servant, obtains for himself or for any other person any valuable thing or pecuniary advantage; or
(iii) while holding office as a public servant, obtains for any person any valuable thing or pecuniary advantage without any public interest;
The offence under Section 13(1)(d) of Prevention of Corruption Act, 1988 certainly cannot be connected with the petitioners because Mr. N.P.Agarwal (A2) being the proprietor of M/s.Shiv Sahai and Sons is one of the parties to the Memorandum of Understanding, dated 02- 04-2008. The MMTC Ltd., is also one of the parties. However, the third accused Mr. Ganesh Agarwal is not a party to the contract. Since the petitioners are third parties to the administration of MMTC Ltd., the offences under Sections 477A and Section 13(1)(d) of the Prevention of Corruption Act, 1988 cannot be linked with them. Section 13(2) of the Prevention of Corruption Act, 1988 is the penal provision for the offences under Section 13(1)(a)(b)(c)(d)&(e) of the Prevention of Corruption Act, 1988. Therefore, since they are not connected with the above said charges under Section 13(1)(d) of the Prevention of Corruption Act, 1988 they cannot be punished even if the charge is proved against them under Section 13(2) of the said Act.
242. For the foregoing reasons the charges under Section 477A IPC and Section 13(2),r/w 13(1)(d) of the Prevention of Corruption Act, 1988 would not be attracted as against the petitioners, as no prima facie case is made out against them''.
:- 85 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
Thus, in our opinion, there is much strength in the argument of the assessee that credit and debit notes issued by M/s. MMTC could not be taken at face value and could have been raised by them to cover-up their own misdeeds.
76. That apart, as pointed out by the ld.AR, debit notes as well as credit notes issued by M/s.MMTC were vague and carried narrations like 'claim pending reconciliation', 'reserve for bad and doubtful debts', 'incompletion of VTS under ERP software system', 'exchange rate difference', 'notional entries passed as per AS-11' etc. However, these credit/debit notes do not show how assessee became entitled for the credit or assessee was bound by the debits. In such a situation, in our opinion, assessee could not have been saddled with the onus of reconciling the differences in accounts. No way, it can be said that credit notes were assessee's income or debit notes, were assessee's expenses. The outcome of the arbitration proceedings, in our opinion will have a great bearing on the quantum of reconciliation difference for which assessee, if at all is liable. In such circumstances, we are of the opinion an addition for difference in accounting credit and debit notes could not have been made for impugned assessment years. Even if there is some income arising to the assessee, it will crystallized only in the year in which the arbitration proceedings reach a finality.
:- 86 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
Revenue may, if it choose, take cognizance of the Arbitral award, in the year in which the arbitration is complete and proceed according to law. We therefore set aside the additions made for credit /debit notes and differences in reconciliation with M/s. MMTC for the impugned assessment year. Ground 2 to 4 of the assessee is allowed.
77. in its ground No.5, the grievance raised by assessee is on additions made by the ld. Assessing Officer for inadequate drawings, which was confirmed by the Ld.CIT(A). Similar ground has been raised by the assessee in its appeal for assessment year 2006-07 also as Ground No.5. We have already held at para 50 that such additions were not warranted in the facts and circumstances of the case. Addition for impugned assessment year also stands deleted. Ground No.5 of the assessee is allowed.
78. Vide its ground No.6, assessee is aggrieved on an addition of `1,64,05,327/- for difference in M/s.State Trading Corporation (M/s.STC) account. On a perusal of the impugned assessment order, we find that the ld. Assessing Officer had made this with the following narration.
"for the detailed reasons discussed in the assessment order of even date for assessment year 2011-12, a disallowance of :- 87 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
`1,64,05,327/- is made towards income from M/s.STC for this year credited in assessment year 2010-11".
Contention of ld. Authorised Representative, before us is that there was nothing in the assessment orders as to the reason why the addition was made On a perusal of the assessment order for assessment year 2011-12, we find that there is no discussion whatsoever regarding any reconciliation difference or income from STC credited in assessment year 2010-11 or in any other year. No doubt ld. Departmental Representative has pointed out para No.8.1 of the assessment order which according to him hints on such income from M/s. STC. Said para is reproduced hereunder:-
''The assessee's business is such that he has to pay the cost of the gold bars in advance to MMTC/ STC/ Other banks. Huge sums of money are required to be paid to MMTC/STC/ banks through banking channel. That is the reason why, as admitted by Shri. Naresh Prasad Agarwal, there is no credit sales in his business as per normal commercial meaning. Individuals or jewelers have to pay the cost of god in advance either by cash or by account transfer or RTGS. Availability of adequate cash/bank balance is an absolute necessity to purchase the gold bars''.
We do not find anything in the above para to show what was the nature of the income sought to be added as from STC. Discussion in the assessment order for assessment year 2011-12 is only on :- 88 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
difference with regard to M/s.MMTC credit/debit notes and reconciliation. The order of Ld.CIT(A), also does not deal with any issue regarding addition made by the ld. Assessing Officer for income from M/s.STC. Only conclusion we can reach is that the addition made by the ld. Assessing Officer was purely on a surmises. The said addition stands deleted. Ground No.6 of the assessee is allowed.
79. In its ground No.7, grievance raised by assessee is on the addition made for bullion Margin Money account. This issue has been considered by us at para Nos.53 & 54 above order in relation to Ground No.6 raised by the assessee in its appeal for assessment year 2006-07. For the very same reasons as mentioned in these paras, we give similar directions here also. Ground No.7 of the assessee is partly allowed.
80. Now we take up cross-appeal of the Revenue for assessment year 2007-08. Grounds taken by the Revenue are reproduced hereunder :-
1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.
2. The learned CIT(Appeals) erred in deleting the addition of Rs. 10,42,87,764/- made towards suppression of sale amounts of gold bullion made by the AO, in the assessment order passed u/s 143(3) r.w.s 153A of the Income Tax Act, 1961. for A.Y 2007-08 in the assessee's case.
:- 89 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
2.1 The ld.CIT(A) ought to have appreciated the fact that the assessee has deliberately under invoiced its cash sales made to buyers without bills as compared with sales made to jewellers with bills resulting in huge difference between the two when both the sales were made in cash.
2.2. The learned CIT(A) erred in allowing relief on the ground that the AO has not subjected the books of account to special audit, overlooking the modus operandi of the assessee, discussed in detail in the assessment order, and also the reasons recorded by the AC for non-rejection of books of account in para 7.19 of the assessment order for A.Y 2011-12, on the basis of which, addition was made in the assessment order for A.Y. 2007-08 in the assessee's case.
2.3. The learned CIT(A) is not justified in allowing relief on the basis of sales tax orders submitted during the appeal proceedings as an additional evidence, without giving an opportunity to the AO under Rule 46A of the IT Rules, 1962.
2.4. Having held that parallel set of books of accounts were not found in the assessee's case, the learned CIT(A) ought to have appreciated that in the modus operandi employed by the assessee there is no need for "parallel" set of books since the exact quantum of suppression of cash sales amount and the amount introduced in bullion margin account was known only to the assessee or his son and the fact of suppression of cash sales was entirely within their knowledge.
2.5. The learned CIT(A) having deleted the addition by accepting the explanation of the assessee as to why the selling rate could be lesser than invoice purchase rate when the real issue at hand was why the selling rate as per cash bills was less than that of selling rate as per bills to jewellers (to be accounted by purchasers) when there is no difference between them while fixing the rates as per seized diaries and as admitted by the assessee u/s 131 that "in bullion trade there is no credit sales in the normal meaning" (with higher margin when compared to cash sales).
2.6 The ld.CIT(A) ought to have appreciated the various circumstantial evidences and facts gathered by the AO in the form of obtaining the rates from various Registered Professional Jewellers' Associations, the Sales Tax Authorities as well as from the sworn statements of the assessee's staff to prove the fact of deliberate suppression of sales by the assessee through such :- 90 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
non-genuine business transactions and ought to have confirmed the addition made in the assessment for A.Y 2007-08 in this case.
3. The learned CIT(A) erred in directing the AO to reduce the "sales accounted towards margin money in the corresponding years" while confirming the addition of Rs. 14,09,07,558/- made by the AO u/s 68 of the I.T Act, towards peak credit on account of margin money received by the assessee. in the assessment for A.Y 2007-08 in the assessee's case.
3.1 The ld.CIT(A) ought to have appreciated that while computing the peak credit (as per detailed working sheets for the A.Y.s 2006-07 to 2010-11 annexed to the assessment order for AY 2011-12) the adjustments have already been taken into account by the AO and there is no double addition as claimed by the assessee.
3.2. The ld.CIT(A) has erred in directing to allow relief from the sales without appreciating that the peak credit addition made is towards unexplained credits introduced i.e for the reasons that no details from whom received etc were furnished by the assessee with respect to such buyers from whom the amounts were stated to have been received.
3.3. The ld.CIT(A) ought to have appreciated that the fact that the said amounts were also accounted for as sales, does not absolve the assessee from the liability of proving the source of such credits irrespective of whether the same were adjusted against sales or any other transactions thereafter upon such receipt.
4. The Id. CIT(A) erred in directing the AO to take into account the debit notes as well while arriving at the net of credit notes issued by Metals and Minerals Trading Corporation (MMTC) for taxation in the assessment for A.Y 2007-08 in the assessee's case.
4.1 The ld.CIT(A) ought to have appreciated that the addition made in the assessment order for A.Y 2007-08 in the case of the assessee, was based on the findings of the AO in para 9.3 of the assessment order u/s 143(3) r.w.s 153A of the IT Act for A.Y 2011-12 in the assessee's own case, which clearly establishes that the debit notes were taken into consideration while arriving at the net of credit notes.
:- 91 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
4.2 The ld.CIT(A) ought to have appreciated that as per the chart of reconciliation furnished by the assessee during the course of assessment proceedings, the net of credit notes (i.e., total amount of credit notes minus total amount of debit notes) issued by MMTC was higher than the net income (i.e. income minus expenses) from transactions with MMTC as per assessee's books of account and since, this difference (excess) was not accounted in the books of account of the assessee, the addition was made in the assessment for A.Y 2007-08 in the assessee's case.
5. The Id. CIT(A) erred in deleting the disallowance of proportionate interest of Rs.38,90,061/- on the interest bearing funds diverted for interest free advances, made by the AO, in the assessment order passed u/s 143(3) r.w.s. 153A of the IT Act for the A.Y. 2007-08 in the assessee's case.
5.1 Having held that the assessee was well within his lending capacity to advance monies without charging interest out of own capital as well as interest free advance received, the Id. CIT(A) ought to have appreciated that the assessee has not furnished the details of the availability of interest free funds as on the date of making the interest free advance.
6. The learned CIT(A) erred in deleting the disallowance of car maintenance expenses of Rs.1,45,9661- made by the AO, towards personal nature involved, in the assessment order passed u/s 143(3) r.w.s. 153A of the IT Act for the A.Y. 2007-08 in the assessee's case, on the ground that considering the vast business of the assessee. the disallowance of expenses incurred towards running and maintenance of cars appears unwarranted. 6.1 The ld.CIT(A) ought to have appreciated that the assessee himself had admitted to using the cars for personal benefit in his sworn statement u/s.131 of I.T Act, recorded on 12-03-2014 and therefore ought to have upheld the disallowances made towards this account.
7. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.
:- 92 -: ITA Nos. 1447, 1448, 1988,
1989, 1449 to 1455, 1485 to 1491/17.
81. Grounds Nos.1 & 7 are in general, needing no specific
adjudication. Ground No.2 is similar to ground No.2 raised by the Revenue for assessment year 2006-07. We have already held at para 61 above, that Ld.CIT(A) was justified in deleting the sales suppression estimated by the ld. Assessing Officer. For the very same reasons mentioned therein, we dismiss ground No.2 of the Revenue.
82. Ground No.3 of the Revenue assails the direction of the Ld.CIT(A) to reduce the peak bullion margin money amount from the sales accounted by the assessee. We have at para 63 above, in relation to a similar ground, raised by Revenue for assessment year 2006-07, held that the directions given by Ld.CIT(A) was justified, since otherwise there will be duplication. Accordingly Ground No.3 of the Revenue is dismissed.
83. Ground No.4 of the Revenue assails the direction of the Ld.CIT(A) to reduce the value of debit notes also while taxing the aggregate of credit notes. We have already held at paras 73 to 76 above, in relation to assessee's grounds Nos.2 to 4, that there could have been no addition for such reconciliation differences considering the disputes between the assessee and MMTC. Since the addition as such has been deleted by us, the directions given by ld. Commissioner :- 93 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
of Income Tax (Appeals) in this regard has become superfluous. In the result, Ground No.4 of the Revenue is dismissed as infructuous.
84. Ground No.5 raised by the Revenue for the impugned assessment year is similar to its ground 4 for assessment year 2006- 07, which assails the deletion of disallowance made by the ld. Assessing Officer for pro-rata interest on the interest bearing funds diverted for interest given free advances. We have already held at para 65 above, that the disallowance was not warranted. For the very same reasons mentioned thereon, we uphold the order of the CIT(Appeals) deleting such disallowance. Ground No.5 of the Revenue stands dismissed.
85. In its ground No.6, Revenue assails the deletion of disallowance of J1,45,966/- for personal use of car. This issue has also been dealt by us in Revenue's appeal for assessment year 2006- 07 against its ground No.5. We have already held at para-67 above, that such disallowance was rightly made by the ld. Assessing Officer based on the admission of the assessee and ld. Commissioner of Income Tax (Appeals) fell in error in deleting it. The addition is re- instated. Accordingly, ground No.6 of the Revenue is allowed.
:- 94 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
86. Now, we take up the cross-appeals of the assessee and the Revenue for assessment year 2008-09 in that order.
87. Grounds taken by the assessee are reproduced hereunder:-
1. The order of Commissioner of Income Tax (Appeals)- 19 is against the facts of the case and principles of nature justice.
2. The learned CIT (A) erred in adopting the accounts as provided by M/s. MMTC.
3. The learned CIT (A) failed to understand the fact that there were huge errors in the statement of accounts as provided by M/s. MMTC and the erroneous accounts as provided by M/s.
MMTC cannot be considered as the basis for finalization of appellant's accounts.
4. The learned CIT (A) failed to appreciate the fact that both the appellant and M/s. MMTC were disputing each other and that the matter was pending before Hon'ble Madras High Court.
5. The learned CIT(A) erred in upholding the adhoc drawings fixed by the learned assessing officer.
6. The learned CIT (A) erred in not providing relief on account of exchange fluctuation which was accounted for by the appellant based on the debit notes issued by M/s. MMTC, while on the contrary he had directed the AO to consider both debit notes and credit notes, thus resulting in double addition on same account.
7. STC: The learned CIT(A) failed to appreciate the fact that appellant had duly recorded the credit notes from STC on receipt of the same in the assessment year 2010-11 and hence not providing relief to this while confirming the addition has resulted in double addition.
8. Addition on account of Trade Debtors (with credit balance) and loan creditors -- (Duraikannu) - The learned CIT(A) failed to understand the fact that the parties reflected in sundry debtors having credit balance where part sale consideration. These parties were subsequently transferred to sales account. The learned CIT(A) allowed the claim of appellant on account of margin money but failed to consider these parties thus resulting in double addition.
:- 95 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
9. Margin money addition: The learned CIT(A) failed to appreciate the fact that the amounts collected in margin account represented part sale consideration these were received from prospective buyers and on receipt of these margin money was accounted as sales.
The learned CIT(A) though provided relief from double taxation but failed to understand the fact that names, address, and other KYC norms was not applicable for sales below Rs.2/- lakhs and hence the ap0t did not maintain the same, hence confirming the addition on account of unexplained credits is bad in law.
88. Out of the nine grounds, Ground No.1 is general, requiring no specific adjudication.
89. Grounds 2 to 4 are similar to grounds Nos.2 to 4 raised by the assessee in its appeal for assessment year 2007-08. It assails the order of Ld.CIT(A) confirming the addition made for credit notes issued by M/s.MMTC not accounted by assessee. We have already held at para 73 to 76 above that the addition was not justified and deleted such addition. Reasons for taking this view has also been stated in these paras. Accordingly, grounds 2 to 4 of the Assessee is allowed.
90. Ground No.5 of the assessee for the impugned assessment year is similar to its ground 5 raised for assessment year 2006-07, assailing the addition made for low drawings. We have already held at para 50 that such addition was not warranted in the facts and :- 96 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
circumstances of the case. Accordingly, the addition for impugned assessment year is also deleted. Ground No.5 of the assessee is allowed.
91. Vide its ground No.6, assessee assails an addition of J7,53,46,987/- made for exchange rate fluctuation debited in its account based on alleged instructions from M/s.MMTC.
92. Ld.AR submitted that debit for exchange fluctuation loss was made based on instructions from M/s.MMTC. As per the ld.AR, such expenditure was reversed in assessment year 2011-12. Contention of ld.A.R was that there were ongoing dispute between M/s.MMTC and the assessee with regard to various entries passed by M/s.MMTC in assessee's account and the matter was being considered by the Arbitral Tribunal. Ld.A.R submitted that it was premature at this stage to disallow exchange fluctuation of J7,53,46,987/- debited by the assessee under instructions from M/s.MMTC. Contention of ld.A.R was that the Ld.CIT(A) confirmed the disallowance without considering the submissions made by the assessee.
93. Per contra, ld.D.R supported the orders of ld. Assessing Officer and Ld.CIT(A).
:- 97 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
94. We have heard the rival submissions and perused the orders. Dispute between M/s.MMTC and the assessee on reconciliation difference, credit/debit notes isused by M/s.MMTC are all under arbitral proceedings before the Arbitral Tribunal. As mentioned above at para 73 to 76 above, in relation to assessee's appeal for assessment year 2007-08, there were a number of debit /credit notes, which did not give any meaningful narration. If M/s.MMTC had charged on the assessee, exchange fluctuation loss of J7,53,46,987/-, it would definitely appear in the account of the assessee with M/s.MMTC. We have already held that ld. Assessing Officer can take a wholesome view considering the reconciliation differences, if any, between the assessee and the M/s.MMTC,once the Arbitral Tribunal reaches its conclusion, in the year which such proceedings are complete. Assessee in our opinion could not have claimed such amount in the impugned assessment year when all along its argument was that credit/debit notes issued by M/s. MMTC were fraudulent. Lower authorities were in our opinion, justified in disallowing the claim. Ground No.6 of the assessee is dismissed
95. Ground No.7 of the assessee for the impugned assessment year which assails the addition for credits from STC stands is similar to ground No.6 of its appeal for assessment year 2007-08. We have held :- 98 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
at para-78 above that the addition was without any basis. The addition stands deleted for the impugned assessment year also. Ground No.7 of the assessee is allowed.
96. Vide its Ground No.8, grievance raised by the assessee is regarding an addition of `25/- lakhs for want of confirmation from a creditor, named Duraikannau.
97. We have perused the orders and heard the rival submissions. Ld. Assessing Officer had required the assessee to file a confirmation letter from Duraikannau for the sum of J25 lakhs claimed to have been received from him. Assessee was unable to file any such confirmation letter. We find that assessee was given a number of opportunity during the course of assessment proceedings and also in the remand proceedings for substantiating the credit. It seems, assessee could not produce any evidence before the ld. Assessing Officer. In such situation, we are of the opinion that the Ld.CIT(A) was justified in confirming the addition of J25 lakhs. Ground No.8 of the assessee stands dismissed.
:- 99 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
98. Ground No.9 for the impugned assessment year assails the addition made for bullion margin money u/s.68 of the Act. Similar ground No.6 raised by the assessee in its appeal for assessment year 2006-07 stands adjudicated by us at paras 53 & 54 above. We give similar directions for impugned assessment year also. Ground number 9 stands partly allowed.
99. Now we take up the Revenue's appeal for assessment year 2008-09.
100. Grounds 1 & 7 are general needing no adjudication. Grounds 2 to 6 taken by the Revenue are similar to grounds 2 to 6 taken by it for the assessment year 2007-08. Directions given by us at paras 61, 63, 83, 65 and 67 for assessment years 2006-07 & 2007-08 will mutatis mutandis apply here also. Accordingly, ground 6 is allowed, whereas its grounds 2,3,4 & 5 are dismissed.
101. Now, we take up cross-appeals of the assessee and the Revenue for assessment year 2009-10, in that order.
102. Grounds taken by the assessee in its appeal are reproduced hereunder:-
:- 100 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
''1. The order of Commissioner of Income Tax (Appeals)- 19 is against the facts of the case and principles of nature justice.
2. The learned CIT (A) erred in adopting the accounts as provided by M/s.MMTC.
3. The learned CIT (A) failed to understand the fact that there were huge errors in the statement of accounts as provided by M/s.MMTC and the erroneous accounts as provided by M/s. MMTC cannot be considered as the basis for finalization of appellant's accounts.
4. The learned CIT (A) failed to appreciate the fact that both the appellant and M/s. MMTC were disputing each other and that the matter was pending before Hon'ble Madras High Court.
5. The learned CIT(A) erred in upholding the adhoc drawings fixed by the learned assessing officer.
6. STC: The learned CIT(A) failed to appreciate the fact that appellant had duly recorded the credit notes from STC on receipt of the same in the assessment year 2010-11 and hence not providing relief to this while confirming the addition has resulted in double addition.
7. Margin money addition: The learned CIT(A) failed to appreciate the fact that the amounts collected in margin account represented part sale consideration these were received from prospective buyers and on receipt of these margin money was accounted as sales.
The learned CIT(A) though provided relief from double taxation but failed to understand the fact that names, address, and other KYC norms was not applicable for sales below 2 lakhs and hence the appellant did not maintain the same, hence confirming the addition on account of unexplained credits is bad in law''.
103. Out of the above, Ground No.1 is general, needing no specific adjudication.
:- 101 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
104. Grounds Nos.2 to 4 of the assessee are similar to its grounds Nos.2 to 4 of its appeal for assessment year 2007-08. We have already held at para 73 to 76 above that the addition for credit notes from MMTC was unjustified and deleted it. Grounds Nos.2 to 4 of the Assessee for assessment year 2009-10 are allowed.
105. Ground No.5 of the assessee for the impugned assessment year is similar to its ground 5 of its appeal for assessment year 2006-07. We have already held at para 50 above that addition for low drawings was not warranted under the facts and circumstances of the case. Ground No.5 of the assessee is allowed..
106. Ground No.6 of the assessee assails an addition for M/s.STC Credit notes. Similar issue has been raised by the assessee as Ground No.6 in its appeal for assessment year 2007-08. We have at para-78 deleted such addition. For very same reasons mentioned in the said para, addition made for impugned assessment year is also deleted. Ground No.6 of the assessee is allowed.
107. Ground No.7 of the assessee is similar to its ground No.6 in its appeal for assessment year 2006-07. We have dealt with this issue at paras 53 & 54 supra. Similar directions are given here also. Accordingly, Ground 7 of the assessee is partly allowed.
:- 102 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
108. Now we take up the cross-appeal of the Revenue for assessment year 2009-10. Grounds taken by the Revenue is reproduced hereunder :-
1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.
2. The learned CIT(Appeals) erred in deleting the addition of Rs. 77,57,23,138/-made towards suppression of sale amounts of gold bullion made by the AO, in the assessment order passed u/s 143(3) r.w.s 153A of the Income Tax Act, 1961, for A.Y 2009-10 in the assessee's case.
2.1 The ld.CIT(A) ought to have appreciated the fact that the assessee has deliberately under invoiced its cash sales made to buyers without bills as compared with sales made to jewellers with bills resulting in huge difference between the two when both the sales were made in cash.
2.2. The learned CIT(A) erred in allowing relief on the ground that the AO has not subjected the books of account to special audit, overlooking the modus operandi of the assessee, discussed in detail in the assessment order, and also the reasons recorded by the AO for non-rejection of books of account in para 7.19 of the assessment order for A.Y 2011-12, on the basis of which, addition was made in the assessment order for A.Y. 2009-10 in the assessee's case.
2.3. The learned CIT(A) is not justified in allowing relief on the basis of sales tax orders submitted during the appeal proceedings as an additional evidence, without giving an opportunity to the AC under Rule 46A of the IT Rules, 1962.
2.4. Having held that parallel set of books of accounts were not found in the assessee's case, the learned CIT(A) ought to have appreciated that in the modus operandi employed by the assessee there is no need for "parallel" set of books since the exact quantum of suppression of cash sales amount and the amount introduced in bullion margin account was known only to the assessee or his son and the fact of suppression of cash sales was entirely within their knowledge.
2.5. The learned CIT(A) having deleted the addition by accepting the explanation of the assessee as to why the selling :- 103 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
rate could be lesser than invoice purchase rate when the real issue at hand was why the selling rate as per cash bills was less than that of selling rate as per bills to jewellers (to be accounted by purchasers) when there is no difference between them while fixing the rates as per seized diaries and as admitted by the assessee u/s 131 that "in bullion trade there is no credit sales in the normal meaning" (with higher margin when compared to cash sales) 2.6 The ld.CIT(A) ought to have appreciated the various circumstantial evidences and facts gathered by the AO in the form of obtaining the rates from various Registered Professional Jewellers' Associations, the Sales Tax Authorities as well as from the sworn statements of the assessee's staff to prove the fact of deliberate suppression of sales by the assessee through such non-genuine business transactions and ought to have confirmed the addition made in the assessment for A.Y 2009-10 in this case.
3. The learned CIT(A) erred in directing the AO to reduce the "sales accounted towards margin money in the corresponding years" while confirming the addition of Rs. 5,22,45,916/- made by the AO u/s 68 of the 1.1 Act, towards peak credit on account of margin money received by the assessee. in the assessment for A.Y 2009-10 in the assessee's case.
3.1 The ld.CIT(A) ought to have appreciated that while computing the peak credit (as per detailed working sheets for the A.Y.s 2006-07 to 2010-11 annexed to the assessment order for AY 2011-12) the adjustments have already been taken into account by the AD and there is no double addition as claimed by the assessee.
3.2. The ld.CIT(A) has erred in directing to allow relief from the sales without appreciating that the peak credit addition made is towards unexplained credits introduced i.e for the reasons that no details from whom received etc were furnished by the assessee with respect to such buyers from whom the amounts were stated to have been received.
3.3. The ld.CIT(A) ought to have appreciated that the fact that the said amounts were also accounted for as sales, does not absolve the assessee from the liability of proving the source of such credits irrespective of whether the same were adjusted against sales or any other transactions thereafter upon such receipt.
:- 104 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
3.4 The learned CIT(A) ought to have taken note that out of total peak credit of Rs.69,68,90,948 for 5 assessment years (AY 2006-07 to 2010-11) confirmed by him, the peak credit amount in the A.Y 2009-10 has not been separately added but telescoped into the additions on account of suppression of cash sales figures in that year and the ld.CIT(A) ought to have given a direction that consequent to the deletion of addition on account of sales suppression, the telescoped amount of peak credit for A.Y 2009-10 is to be treated as confirmed additions:
4. The Id. CIT(A) erred in directing the AD to take into account the debit notes as well while arriving at the net of credit notes issued by Metals and Minerals Trading Corporation (MMTC) for taxation in the assessment for A.Y 2009-10 in the assessee's case.
4.1 The ld.CIT(A) ought to have appreciated that the addition made in the assessment order for A.Y 2009-10 in the case of the assessee, was based on the findings of the AD in para 9.3 of the assessment order u/s 143(3) r.w.s 153A of the IT Act for A.Y 2011-12 in the assessee's own case, which clearly establishes that the debit notes were taken into consideration while arriving at the net of credit notes.
4.2 The ld.CIT(A) ought to have appreciated that as per the chart of reconciliation furnished by the assessee during the course of assessment proceedings, the net of credit notes (i.e., total amount of credit notes minus total amount of debit notes) issued by MMTC was higher than the net income (i.e. income minus expenses) from transactions with MMTC as per assessee's books of account and since, this difference (excess) was not accounted in the books of account of the assessee, the addition was made in the assessment for A.Y 2009-10 in the assessee's case.
5. The Id. CIT(A) erred in deleting the disallowance of proportionate interest of Rs.59,71,343/- on the interest bearing funds diverted for interest free advances made by the AD, in the assessment order passed u/s 143(3) r.w.s. 153A of the IT Act for the A.Y. 2009-10 in the assessee's case. 5.1 Having held that the assessee was well within his lending capacity to advance monies without charging interest out of own capital as well as interest free advance received, the Id. CIT(A) ought to have appreciated that the assessee has not :- 105 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
furnished the details of the availability of interest free funds as on the date of making the interest free advance.
6. The Ld.CIT(A) erred in deleting the disallowance of car maintenance expenses of Rs.1,89,007/- made by the A.O, towards personal nature involved, in the assessment order passed u/s.143(3) r.w.s. 153A of the I.T.Act for the A.Y 2009- 10 in the assessee's case, on the ground that considering the vast business of the assessee the disallowance of expenses incurred towards running and maintenance of cars appears unwarranted.
6.1 The Ld.CIT(A) ought to have appreciated that the assessee himself had admitted to using the cars for personal benefit in his sworn statement u/s.131 of the I.T Act, recorded on 12.03.2014 and therefore, ought to have upheld the disallowances made towards this account.
109. Ground 1 is general needing no adjudication. Effective grounds 2 to 6 of the Revenue are similar to its grounds 2 to 6 in its appeals for assessment years 2007-08 & 2008-09. The grounds have been dealt at para 61, 63, 83, 65 and 67 above. For the very same reasons mentioned in these paras, ground number 6 is allowed, whereas its ground 2, 3, 4 & 5 are dismissed.
110. Now, we take up cross-appeals of the assessee and the Revenue for assessment year 2010-11, in that order.
111. Ground number 1 of the assessee is general. Grounds Nos.2 to 4 and 5 are similar to its grounds Nos.2 to 4 and 5 for assessment years 2007-08, 2008-09 & 2009-10. These grounds have been dealt :- 106 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
with at paras 73 to 76 and para 50 and the additions have been deleted. Accordingly, these grounds are allowed for impugned assessment year also.
112. Vide its ground No.6, assessee assails an addition of `4,93,69,063/- for difference in closing stock.
113. The ld.A.R submitted that the assessee had not received 30 Kg. gold out of a quantity of 50,405 Kg. gold sold and billed by M/s.MMTC. As per the ld.A.R, assessee had received only 50,405 Kg. gold from M/s.MMTC whereas the bills issued by M/s.MMTC should aggregate to 50,438 Kg. Contention of ld.AR was that lower authorities disbelieved the claim of assessee and held that there was a shortage of 30 Kg. in the stock of assessee. As per the ld.A.R, short delivery of gold was one of the issues on which assessee was pursuing arbitration remedies. Reliance was placed on Clause-11 of the Agreement entered on 02.04.2008 with M/s.MMTC, filed before the Arbitral Tribunal, placed at page-14 of the paper book. According to him, the question whether there was any shortage of gold in closing stock was intrinsically connected to reconciliation with M/s.MMTC. As per the ld.AR, it was therefore premature to make an addition for shortage of gold.
:- 107 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
114. Per contra, ld.DR supported the order of lower authorities.
115. We have considered the rival submissions. What was stated by the ld. Assessing Officer in the assessment order with regard to shortage of gold is reproduced hereunder:-
"Difference In closing stock (AY.201 0-11):
In your letter dated 5.3.2012 to the ADIT(Inv), you have admitted, in para-4, that as against 50438 kg gold for which MMTC issued bills, the quantity received was only 50405 kg and that 30 kg, gold was still to be received as on 31.3.2010. Vide questionnaire u/s.143(1) dated 27.1.2014 served on 29.1.2014 you were requested to furnish closing stock inventory (branch-wise) and the method and the basis for the valuation. But vide your reply dated 10.3.2014 you have merely reproduced the dosing stock figures in the return. In the absence of required details it is not possible to verify whether the 30kg stock was included in. your closing stock figures. Hence it is proposed to make and addition of Rs.4,93,69,063 @ Rs.1 645635 per kg at which rate purchase of 5121 kg gold from MMTC was entered In your item register on 31.3.2010.
Vide its reply assesses stated as under:
There are no mistakes or error in recording the correct figures of stock that has come in. The error pointed out is only typing error in the bill quantity raised. There is no extra addition in purchase or in closing stock. Hence this addition may kindly be dropped'.
No evidence was produced in support of its claim. The addition is made as proposed."
What was held by Ld.CIT(A) on assessee's appeal has been reproduced at para 25 above. At para 11 of the claim statement filed by the assessee before Arbitral Tribunal , part of which has been :- 108 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
reproduced by us at para-73 above, the claim regarding shortage of delivery of gold has been raised by the assessee. It is claimed by assessee in the arbitral proceedings that assessee received only 50405 Kg gold against delivery notes of 50,438 Kg gold. There is thus much strength in the argument of the ld.A.R that this is also a reason for the reconciliation difference between the assessee and the M/s.MMTC, and a clear indication of anomalies in the books of M/s. MMTC. At para 73 to 76 above, in relation to ground Nos.2 to 4 of the assessee we have already deleted the addition made for credit notes and reconciliation difference. We are of the opinion that the question of any shortage in stock is also intrinsically connected with the reconciliation difference between assessee and MMTC and can be considered only in the year the arbitral proceedings reach its logical conclusion. Addition in the impugned assessment year was not justified. Such addition stands deleted. Ground number 6 is allowed.
116. Vide its ground No.7, assessee is aggrieved on an addition of `3,03,35,736/- made for want of confirmation on credit balance in trade debtors account.
117. We have perused the orders and heard the rival submissions. Credit balance for which the addition was made appeared in the accounts of following trade debtors.
:- 109 -: ITA Nos. 1447, 1448, 1988,
1989, 1449 to 1455, 1485 to 1491/17.
a) Subramani 2,10,85,736/-
b) Sarangapani 76,50,000/-
c) Ravi 16,00,000/-
Assessee could not file any confirmation letters either before the A.O or before the ld. CIT(A). Even during remand proceedings assessee failed to substantiate the credit. Contention of ld.A.R before us is that balances in such creditors account was transferred to sales and hence addition ought not have been done. We are unable to appreciate this argument. Assessee having introduced credits in the name of these three persons in its accounts, was obliged to provide confirmation and substantiate orders. At no point of time, assessee claimed it as part of advance received for any cash sales and similar to Bullion margin money. Thus, onus resting on the assessee, was not discharged. We are of the opinion that addition was rightly done by the lower authorities. We find no reason to interfere with the orders of lower authorities. Ground No.7 stands dismissed.
118. Through its ground No.8, assessee assails the addition for peak in bullion margin money u/s.68 of the Act. This issue stands adjudicated by us at para 53 to 54 above in relation to its appeal for assessment year 2006-07. Similar directions are given here also. Ground number 8 of the assessee is partly allowed.
:- 110 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
119. Now, we take up cross appeal of the Revenue for assessment year 2010-11. Grounds 1 & 6 are general, needing no adjudication.
120. Ground No.2 raised by the Revenue is similar to its ground No.3 for assessment year 2006-07. For reasons given at para 63 above, we dismiss this ground.
121. Ground No.3 raised by the Revenue is similar to its Ground No.4 for assessment year 2007-08. For reasons given at para 83, we dismiss this ground.
122. Ground No.4 raised by the Revenue is similar to its Ground No.4 for assessment year 2006-07. For reasons given at para 65 above, we dismiss this ground of the Revenue.
123. Ground No.5 raised by the Revenue is similar to its ground No.5 for assessment year 2006-07. For reasons given at para 67 above, we allow this ground of the Revenue.
124. Now, we take up the cross-appeals of the assessee and the Revenue for assessment year 2011-12.
125. Assessee in its appeal has taken altogether seven grounds of which Ground No.1 is general in nature, requiring no specific adjudication.
:- 111 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
126. Grounds Nos.2 to 4 and 5 of the assessee are similar to its grounds Nos.2 to 4 and 5 for assessment year 2007-08, 2008-09 and 2009-10. These grounds have been dealt by us at paras 73 to 76 and para 50 above. For reason mentioned in these paras, we delete the additions. Ground 2 to 4 and 5 are allowed.
127. Vide its ground No.6, assessee assails an addition of `23,67,150/- made for unaccounted investments in a property at Tiruporur.
128. Ld. Assessing Officer during the course of assessment proceedings found that assessee's son Shri Ganesh Agarwal had executed on 11.08.2010 four sale deeds bearing Nos.5745 to 5748 of 2006 in favour of assessee. The plots transferred were bearing Nos.292, 299, 335 & 336 and were located at Pudupakkam village, Tiruporur. Payments were made at the rate of `7,20,000/- per plot. Ld. Assessing Officer was of the opinion that the cost of one plot came to `7,84,800/-, if stamp duty also was considered. In the fixed asset schedule filed along with the return for the impugned assessment year, assessee had declared value of property at Tiruporur at `7,89,050/- only. This being equivalent to the cost of one plot, ld. Assessing Officer took a view that the balance payments made for :- 112 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
acquiring three of the four plots were not explained. Ld. Assessing Officer considered a sum of `23,67,150/- as unexplained investments. Appeal of the assessee before the Ld.CIT(A) on this issue, did not meet with any success.
129. Now, before us, ld.A.R submitted that the addition was not warranted since payments were made through bank accounts. According to him, bank account of assessee reflected the payments and therefore investments stood well explained.
130. Per contra ld.DR supported the order of lower authorities.
131. We have heard the rival submissions and read the orders carefully. It is clearly noted by the ld. Assessing Officer that Balance sheet of assessee's proprietorship business tallied with its bank account with ICICI Bank. Obviously, assessee had shown payments made for 3 out of 4 plots, as utilized for some purpose other than acquisition of the plots. Ex-consequenti payments made for 3 plots stood unexplained. We are therefore, of the opinion that lower authorities were justified in considering the cost equivalent of three plots as unexplained investment of the assessee. We do not find any reason to interfere with the order of lower authorities. Ground No.6 of the assessee stands dismissed.
:- 113 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
132. Ground No.7 of the assessee assailing the addition made for peak in bullion margin money account is similar to its ground No.6 for assessment year 2006-07. We have already adjudicated this issue at para 53 & 54 above. Similar directions are given here also. Accordingly, Ground No.7 of the assessee is partly allowed.
133. Now, we take up appeal of Revenue for assessment year 2011-12.
134. Revenue has taken altogether four grounds of which Grounds Nos.1 & 4 are general, needing no specific adjudication.
135. Vide it ground Nos.2, Revenue assails deletion of disallowance of proportionate interest for diversion of interest bearing funds for giving interest free advances. This ground is similar to its ground No.4 in its appeal for assessment year 2006-07. We have for reasons mentioned at para 65 above, confirmed the order of ld.CIT(A), deleting such addition. Accordingly, ground No.2 of the Revenue is dismissed.
136. Ground No.3 of the Revenue assails deletion of disallowance made for personal use of cars. This issue has also been dealt by us in Revenue's appeal for assessment year 2006-07, wherein the order of :- 114 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
the ld. Assessing Officer has been re-instated. For reasons mentioned at para 67 above, we set aside the order of the CIT(Appeals) and re- instate the disallowance made by the ld. Assessing Officer for the impugned assessment year also. Accordingly, ground No.3 of the Revenue is allowed.
137. Now, we take up the cross-appeals of the assessee and the Revenue for assessment year 2012-13, in that order.
138. Assessee in its appeal has taken altogether six grounds of which Ground No.1 is general in nature, needing no specific adjudication.
139. Grounds Nos.2 to 4 and 5 of the assessee are similar to grounds Nos.2 to 4 and 5 in its appeal for assessment year 2007-08. We have already dealt with Grounds 2 to 4 and ground 5 at paras 73 to 76 and 50 above and deleted the addition. Such additions stand deleted here also. Accordingly, these grounds are allowed.
:- 115 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
140. This leaves us with ground No.6, which assails addition made by the Assessing Officer u/s.68 of the Act for Bullion Margin money account. This ground is similar to ground 6 in assessee's appeal for assessment year 2006-07. The issue has been considered by us at para Nos. 53 to 54 above. Similar directions are given here also. Accordingly, ground No.6 of the assessee is partly allowed.
141. Now, we take up the cross-appeal of the Revenue for assessment year 2012-13.
142. Revenue has taken altogether three grounds of which Ground Nos.1 & 3 are general, needing no specific adjudication.
143. Vide its ground No.2, Revenue assails deletion of an addition of `29,48,676/- being proportionate interest for diversion of interest bearing funds for giving interest free advances. This ground is similar to Revenue's ground No.4 in its appeal for assessment year 2006-07. We have held at para 65 above that ld.CIT(A) was justified in deleting this addition. Accordingly, ground No.2 of the Revenue is dismissed.
144. Having covered the entire gamut of appeals in relation to the assessee, Shri Naresh Prasad Agarwal now we move on to the appeals :- 116 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
of the assessee, M/s.Shiv Sahai & Sons (I) Ltd., for assessment years for assessment year 2011-12 & 2012-13.
145. First we take up the cross-appeals of the assessee and the Revenue for assessment years 2011-12, in that order.
146. As already mentioned by us at para 2 above, M/s.Shiv Sahai & Sons (I) Ltd., had taken over the bullion trading business of the proprietorship concern owned by Mr.Naresh Prasad Agarwal in September, 2010, and was continuing the same business, earlier done by Mr.Naresh Prasad Agarwal. The business in its entirety was conducted by the Shri Mr.Naresh Prasad Agarwal and his son Shri Ganesh Agarwal. The assessments of this company for impugned two assessment years were also done, pursuant to the search conducted in its premises on 06.01.2012 and 02.03.2012.
147. Grounds taken by the assessee for assessment year 2011-12 are reproduced hereunder:-
''1. The order of Commissioner of Income Tax (Appeals) - 19 is against the facts of the case and principles of nature justice.
2. The learned CIT (A) erred in adopting the accounts as provided by M/s. MMTC.
3. The learned CIT (A) failed to understand the fact that there were huge errors in the statement of accounts as provided by M/s. MMTC and the erroneous accounts as provided by M/s.
:- 117 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
MMTC cannot be considered as the basis for finalization of appellant's accounts.
4. The learned CIT (A) failed to appreciate the fact that both the appellant and M/s. MMTC were disputing each other and that the matter was pending before Hon'ble Madras High Court.
5. The learned CIT(A) failed to understand the fact that the parties reflected in sundry debtors having credit balance where part sale consideration. These parties were subsequently transferred to sales account. The learned CIT(A) allowed the claim of appellant on account of margin money but failed to consider these parties thus resulting in double addition.
6. Margin money addition: The learned CIT(A) failed to appreciate the fact that the amounts collected in margin account represented part sale consideration these were received from prospective buyers and on receipt of the balance the margin money was accounted as sales.
The learned CIT(A) though provided relief from double taxation but failed to understand the fact that names, address, and other KYC norms was not applicable for sales below 2 lakhs and hence the appellant did not maintain the same, hence confirming the addition on account of unexplained credits is bad in law''.
148. Out of the above six grounds, ground No.1 is general, needing no specific adjudication.
149. Through its grounds 2 to 4, assessee assails the addition made based for reconciliation difference and unaccounted credit notes vis-à-vis its transactions with M/s. MMTC. Similar ground has been raised by the assessee, Shri Naresh Prasad Agarwal also in his appeals for assessment years 2007-08 to 2010-11 (ITA Nos.1450 to :- 118 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
1453/CHNY/2017). We have already held at paras 73 to 76 above that the addition were not warranted under the facts and circumstances of the case. For the reasons mentioned in these paras, we delete the addition in the hands of this assessee also. Grounds 2 to 4 of the assessee are allowed.
150. Ground Nos.5 of the assessee assails an addition made for credit balance in sundry debtors account.
151. Books account of assessee reflected credit balances in the following debtors account.
Rs.
Sampath,Trichy 1,70,00,000
Sundar,Trichy 1,05,50,000
Thangamani,Trichy 56,00,000
Veeramani,Trichy 1,00,00,000
4,31,50,000
Ld. Assessing Officer considered the above credits as unexplained, since assessee could not file any confirmation nor give any details on the above credit balance. Assessee's appeal before the Ld.CIT(A) did not meet with any success. Ld.CIT(A), noted that assessee was unable to furnish any evidence in support of the credits even during the remand proceedings. Now before, us ld.A.R submitted that the amounts were adjusted against the sales on 11.04.2011 & 12.04.2011. As per the ld.A.R, the credit balances were part of sale and transferred :- 119 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
to sales. Hence, according to him, a separate addition could not be made for it.
152. Per contra, ld.DR supported the order of lower authorities.
153. We have heard the rival submissions. Ld. Assessing Officer in his remand Report dated 19.12.2014 stated that assessee had furnished ledger extracts for all the above four parties. However as per the ld. Assessing Officer, delivery of goods to these persons were made after an unduly long period of time. According to him, mere furnishing of ledger extracts were not sufficient to justify the credit balance. What we find is that the claim of the assessee that these creditors were purchasers of gold, and supplies were made to them in April, 2012 has not been found to be incorrect or false. The transactions ought not have been disbelieved just for the delay in supplying the goods. Assessee having shown that sales were effected to clear the credit in debtors account, in our opinion, an addition ought not have been made. Such addition stands deleted. Accordingly, Ground No.5 of the assessee is allowed.
:- 120 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
154. Vide its Ground No.6, assessee assails the addition made u/s.68 of the Act for peak credit in bullion margin money account. Similar ground has been raised by the assessee, Shri Naresh Prasad Agarwal in his appeals for assessment years 2006-07 to 2012-13 ( ITA Nos.1449 to 1455/CHNY/2017). We have adjudicated this issue at paras 53 to 54 above. Similar directions are given here also. Accordingly, ground No.6 raised by the assessee is partly allowed.
155. Now we take up appeal of Revenue for assessment year 2011-12.
156. Revenue has taken altogether six grounds of which Grounds No.1 & 6 are general, needing no specific adjudication.
157. Vide its ground No.2, Revenue assails the direction of the Ld.CIT(A) to accept the loss claimed by the assessee for the impugned assessment year.
158. Assessee had claimed loss of `19,35,05,195/- for the impugned assessment year. Ld. Assessing Officer, citing a reason that cash sales made by the assessee were at rates lower than sale of bullion to jewelers, considered the account of assessee, as not reliable.
:- 121 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
In the case of Mr.Naresh Prasad Agarwal, ld. Assessing Officer had calculated suppression in sales, by substituting the rates adopted for cash sales with the rates applied for sale to jewelers, and made additions for assessment years 2006-07 to 2009-10. Ld.CIT(A) on appeals of the said assessee for those years had deleted such additions. In Revenue's appeals for those assessment years in the case of Shri Naresh Prasad Agarwal, (ITA No.1485/Chny/2017 to 1488/Chny/2017) vide para 61 above, we have already upheld order of Ld.CIT(A) deleting the addition made by the ld. Assessing Officer. For the very same reasons mentioned in these paras, we are of the opinion that Ld.CIT(A) was justified in allowing the claim of loss. Ground No.2 of the Revenue is dismissed.
159. Vide its ground No.3, Revenue is aggrieved on the direction of Ld.CIT(A) to reduce peak credit amount in bullion money margin account from the accounted sales of the assessee. Ld. Assessing Officer had allowed set off of the peak in bullion margin money account with suppression in sales. We have already held in relation to the appeal Shri Naresh Prasad Agarwal for assessment year 2006-07 to 2009-10, at para 61 that ld. Commissioner of Income Tax :- 122 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
(Appeals) was justified in deleting the addition made for estimated suppression sales. We have also held that ld. Commissioner of Income Tax (Appeals) was justified in allowing the claim of set off of credit in bullion money margin account with accounted sales for reasons given by us at para 63 above. We therefore do not find any reason to interfere with the order of the Ld.CIT(A) in this regard. Ground No.3 of Revenue stands dismissed.
160. Vide its Ground No.4, Revenue is aggrieved on the direction of the Ld.CIT(A) to consider debit notes also, while aggregating the credit notes issued by M/s.MMTC for addition.
161. We have already held in the appeal of Shri Naresh Prasad Agarwal, where similar additions have been assailed, that such addition for credit notes and reconciliation difference with M/s. MMTC was premature and ought not have been done for impugned assessment years at para 73 to 76 above. At para 83, we have dealt with the issue of set-off of debit notes also. In line with our observation at para 83 above, we hold the ground raised by the :- 123 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
Revenue to be infructuous. Ground No.4 of the Revenue is dismissed.
162. Vide its ground No.5, Revenue assails the direction of the Ld.CIT(A) to delete proportionate interest of `5,88,000/-, for diversion of interest bearing funds for giving interest free advances. We have already held at para 65 above, in relation to the appeal of Department in the case of Shri Naresh Prasad Agarwal for assessment year 2006-07 (ITA Nos.1485/Chny./2017) that there was no reason to make any disallowance for proportionate interest, considering the substantial interest free fund available with the assessee. Accordingly, we are of the opinion that Ld.CIT(A) was justified in deleting the addition of `5,88,000/-. Ground No.5 of the Revenue stands dismissed.
163. Now, we take up the cross-appeals of the assessee and the Revenue for assessment year 2012-13, in that order.
164. Assessee in its appeal has taken altogether five grounds, of which Grounds No.1 is general, needing no specific adjudication.
:- 124 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
165. Grounds Nos. 2 to 4 of the assessee for the impugned assessment year are similar to grounds Nos.2 to 4 in its appeal for assessment year 2011-12. For the reasons mentioned in para 149 read alongwith paras 73 to 76, we delete the addition. Grounds 2 to 4 are allowed.
166. Ground No.5 of the assessee assails the addition made for peak credit in bullion margin money account. This is similar to ground No.6 of assessee's appeal for assessment year 2011-12. We have adjudicated this issue at para 154 read along with paras 53 & 54 above. Similar directions are given here also. Accordingly, Ground No.5 of the assessee is partly allowed.
167. Now, we take up appeal of Revenue for assessment year 2012-13.
168. Revenue has raised altogether five grounds of which Grounds Nos.1 & 5 are general, needing no specific adjudication.
:- 125 -: ITA Nos. 1447, 1448, 1988,
1989, 1449 to 1455, 1485 to 1491/17.
169. Vide its Ground No.2, Revenue assails the direction of the
Ld.CIT(A) to consider debit notes also while taxing the aggregate
value credit notes raised by M/s.MMTC on the assessee. Similar ground have been raised by the Revenue as ground 4 in its appeal for assessment year 2011-12. For the very same reasons mentioned at para 161 above, we dismiss this ground.
170. Vide its Ground No.3, Revenue is aggrieved on direction of the Ld.CIT(A) to delete proportionate interest of `5,88,000/- for interest bearing funds diverted for giving interest free advances. This ground is similar to Ground No.5 raised by the Revenue for assessment year 2011-12. We have already held at para 162 above, that there was no reason to make any disallowance for proportionate interest considering the substantial interest free fund available with the assessee. Ground No.3 of the Revenue stands dismissed.
171. Through its Ground No.4, Revenue assails deletion of an addition for a credit balance of `30 lakhs in the account of one Mrs.Pista Bai.
:- 126 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
172. We have heard the rival submissions and perused the orders. Findings of Ld.CIT(A) with regard to the addition made for credit balance in the name of Mrs.Pista Bai appearing at para-42 of his order, has been reproduced by us at para 44 above. Ld.CIT(A) has noted that the amounts received from Mrs.Pista Bai were repayment of earlier advance of `30 lakhs given by Mr.Naresh Prasad Agarwal, when the business was run as a proprietorship concern. The latter transactions were reflected in the accounts of the proprietorship concern. Hence, it was only a repayment of a debt by a debtor. Once the business was taken over by the assessee company, any repayment of debt by a debtor will not create a fresh credit but will only square off the debt. We do not find any reason to interfere with the order of the CIT(Appeals) . Accordingly, Ground No.4 of the Revenue stands dismissed.
173. To summarize the result, appeals of the assessee in the case of Shri Naresh Prasad Agarwal for assessment years 2006-07, 2007-08, 2008-09, 2009-10, 2010-11, 2011-12 & 2012-13 are partly allowed. Appeals of the Revenue in the case of Shri Naresh Prasad Agarwal for assessment years 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 and 2011-12 are partly allowed, whereas its appeal for :- 127 -: ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.
assessment year 2012-13 is dismissed. Appeals of assessee M/s.Shiv Sahai & Sons (India) Ltd., for assessment years 2011-12 & 2012-13 are partly allowed whereas those of the Revenue for the very same years are dismissed.
Order pronounced on Wednesday, the 27th day of June, 2018, at Chennai.
Sd/- Sd/-
(एन.आर.एस. गणेशन)) (अ ाहम पी. जॉज$)
(N.R.S. GANESAN) (ABRAHAM P. GEORGE)
या यक सद य/JUDICIAL MEMBER लेखा सद य/ACCOUNTANT MEMBER
चे नई/Chennai
दनांक/Dated:27th June, 2018
KV
आदे श क # त$ल%प अ&े%षत/Copy to:
1. अपीलाथ(/Appellant 3. आयकर आयु)त (अपील)/CIT(A) 5. %वभागीय # त न-ध/DR
2. #.यथ(/Respondent 4. आयकर आयु)त/CIT 6. गाड फाईल/GF