Income Tax Appellate Tribunal - Bangalore
Dcit, vs M/S Paresh Exports Pvt. Ltd.,, on 9 December, 2016
ITA.251 & 252/Bang/2013 Page - 1
IN THE INCOME TAX APPELLATE TRIBUNAL
BENGALURU BENCH 'C', BENGALURU
BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER
AND
SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER
I.T.A Nos.251 & 252/Bang/2013
(Assessment Years : 2003-04 & 2005-06)
Deputy Commissioner of Income Tax,
Central Circle -1(4), Bengaluru .. Appellant
v.
M/s. Paresh Exports (P) Ltd,
No.104, 1st floor, 56th Center Point,
Residency Road, Bengaluru 560 025 .. Respondent
PAN : AAACP8236G
Assessee by : None
Revenue by : Shri. Sanjay Kumar, CIT -III
Heard on : 28.09.2016
Pronounced on : 09.12.2016
ORDER
PER S. JAYARAMAN, ACCOUNTANT MEMBER :
These appeals are filed by Revenue against the common order of the CIT (A), Mysore, dt.09.11.2012, for the a. ys. 2003-04 and 2005-06.
02. None appeared from the assessee. The DR is heard.
03. The facts in brief are that M/s Paresh Exports Pvt Ltd is in the business of trading in bullion. A search and seizure operation was conducted on the assessee on 28/1/2005, several incriminating ITA.251 & 252/Bang/2013 Page - 2 documents were found and seized. A notice u/s 153A was issued on 18.4.2005 in respect of ays 2003-04 & 2005-06 and the assessment orders were passed u/s 153A rws 143(3) on 25.6.2007. The assessee filed appeals before the CIT(A) , Mysore and the CIT (A) disposed them in ITA Nos 159 & 158/ACIT,CC-1(4)/ B'lore/07-08 dt 09.11.2012. Against those orders, the Revenue filed these appeals. The grounds of appeal related to the a y 2003-04 are extracted as under:
Ground No 1 :
Assessee's Modus operendi is that the assessee, M/s Paresh Exports Pvt Ltd is controlled by Mr. M. Parvez, who happens to be the MD of the ITA.251 & 252/Bang/2013 Page - 3 concern. It is in the business of trading in bullion. Gold is imported from foreign suppliers through M/s PEC Ltd, a Government undertaking. Orders are placed on foreign suppliers through M/s PEC Ltd. Thereafter, gold is purchased by two methods as under :
Consignment method:- Foreign suppliers make sales to M/s PEC Ltd who in turn sells the gold and makes payment after receiving the same from M/s Paresh Exports Pvt Ltd.
Letter of credit method:- M/s PEC Ltd on behalf of M/s Paresh Exports Pvt Ltd opens a letter of credit or LC with a bank. On the strength of the LC, a foreign supplier makes delivery of gold to M/s PEC Ltd. Customs duties and Sales tax are borne by M/s PEC Ltd and are recovered from M/s Paresh Exports Pvt Ltd. Gold is kept at the locker maintained by M/s PEC Ltd at IDBI Bank. As and when payments are made by M/s Paresh Exports Pvt Ltd, gold is released from the locker. M/s Paresh Exports Pvt Ltd is allowed to make payments through Fixed Deposits ( FDs). The FDs are made in such a way that on maturity, its value would match the value of gold. Sometimes M/s Paresh Exports Pvt Ltd is allowed to make payment by cheque which M/s PEC Ltd further turns into FDs. These FDs are kept by M/s PEC till maturity of LCs. Further, M/s Paresh Exports Pvt Ltd is also allowed to take control of FDs by making payment at any point before LCs mature. Thus , the FDs are therefore held as security by M/s PEC Ltd until the actual payment is made.
04. During the assessment proceedings for ay 2003-04, the AO found that M/s Paresh Exports Pvt Ltd while accounting for its purchases took the total value of payments based on final invoice raised by M/s PEC. Further, it came to light that the face value of the FDs was lower than the actual payments due, apart from the fact that FDs were just kept a security which were always returned to the assessee once actual payment is ITA.251 & 252/Bang/2013 Page - 4 made . Therefore, the AO came to the conclusion that these FDs were in fact assets acquired by the assessee and hence the interest received thereon needed to be taken as assesee's income. The AO examined details and the data culled from impounded materials. A detailed breakup of interest received by assessee has been brought out in a table in page 4 of the assessment order. A difference of Rs. 1,11,97,808/- as interest income was discovered for AY 2003-04 as compared to admitted interest income of Rs. 87.78 lakh in the return . Therefore, a show cause notice dated 18/6/2007 was served on the assessee. In reply, the assessee merely stated that interest income on FDs belonged to M/s PEC. The, assessee did not substantiate this claim with any documentary evidence. On the contrary , the assessee discarded the issue by stating that such interest income belonged to M/s PEC.
(Pages 3-4 of AO's order). On an appeal , the CIT(A) sought remand report from the AO and found that there was no evidence to conclude that the assessee had not accounted interest income to the tune of Rs.1,11,97,808/-. It was further held that addition Rs.1,11,97,808/- was not based on facts but merely on the DDIT (Inv)'s report. Therefore, he deleted that addition of Rs. 1,11,97,808/-.
05. The DR submitted as under :
a. the assessee had made FDs as security for purchase of gold from M/s PEG. These FDs were made in such a way that on maturity, its value would match the cost of gold. Therefore, these FDs acted as a security until the actual payment was made by the assessee to M/s PEG.
b. FDs were assets acquired by assessee and hence interest received/ accruing thereon is an income of the assessee.
c. Rs. 1.99 crore was the total interest received during AY 2003-04. The assessee had disclosed Rs. 87.78 lakh as interest income in its Return. After giving credit to the said ITA.251 & 252/Bang/2013 Page - 5 amount, Rs. 1,11,87,808/- was found to be undisclosed.
d. The TDS certificates filed by assessee along with return of Income revealed that it had earned an interest income of Rs.1,01,72545/- on which Tax was Deducted at Source. This fact was ignored by Ld CIT(A).
e. Furthermore, as per assessee's agreement with M/s PEG, 'interest on Fixed Deposit realized from bank shall be to the account of M/s Paresh Exports Pvt. Ltd .
Therefore , considering the above facts and circumstances, the DR submitted that the interest on FDs are definitely an income earned by the assessee but it has not disclosed it in its return . The AO has correctly brought it to tax. It is therefore requested that the AO's action on this count be upheld and the CIT (A)'s order be annulled.
06. We have considered the above submissions. It is clear from the above that as per TDS certificates , the assessee has earned an interest income of Rs. 1,01,72,545/-but it has admitted Rs. 87.78 lakh only as interest income in its Return. Thus, this issue requires verification & reconciliation and hence we set aside this issue to the AO . The AO after giving adequate opportunity to the assessee would decide this matter in accordance with law.
07. Ground no2 : The AO found that there was a negative cash balance of Rs. 5,57,19,892/- . On being asked to explain, the assessee stated that entire sales and purchases made on different dates during the month of March 2003 were entered on ITA.251 & 252/Bang/2013 Page - 6 31/3/2003 on a consolidated basis, which resulted in a negative cash balance in the books. The assessee ,however , deposited Rs.4,00,00,000/- in cash in Citi Bank on 29.3.2003 whereas as per books the cash balance was negative. It is pertinent to note that despite the fact that there was negative cash balance in its books, the assessee had unaccounted cash which was deposited in its bank. Considering all these facts the AO concluded that Rs. 5.57.19,891.65/- (which was the peak cash as on 29/3/2003) was unaccounted cash of the assessee and accordingly made an addition.
08. The CIT(A) after considering normal trading pattern of the assessee prior and subsequent to March, the remand report and the purchase statement obtained from PEC Ltd etc held that if purchases and sales were entered as and when they took place, the negative cash balance would not have arisen. Relying on the ratio of human probabilities of the Hon' Supreme Court judgment in the case of CIT vs Durga Prasad More 82 ITR 440, the CIT(A) deleted the addition.
09. The DR submitted that the Ld CIT(A) by applying the test of probability concluded that the probability of sales, though made on different dates in March 2003 were entered only on 31/3/2003 is more than likely than the probability that entire sales of March 2003 were actually made on 31/3/2003. In this connection , the DR submitted that the conclusion drawn by the Ld. CIT(A) based on 'probability' is unacceptable as it is not based on facts. The fact is that ITA.251 & 252/Bang/2013 Page - 7 there was a negative cash balance which appeared throughout the month of March 2003 which continued upto the end of the month. These facts have not been dealt at length by the CIT(A) who on conjectures and surmises drew the conclusion that 'probability' of sales made on different dates being entered on 31/3/2003 is higher . Moreover the CIT(A) has also not looked into the fact that a lthough the re was no cash ba lance in its books, the asse ssee had unaccounted cash which was deposited in CITI Bank. It is therefore submitted that the AO has correctly made an addition on the peak balance as appearing on 29/3/2003.
10. We have considered the above submissions. It is clear from the above that the CIT (A) has examined this issue and drawn due conclusion. The Revenue has not brought any material to assail such conclusion and hence we confirm the decision of the CIT (A).
11. Ground No 3 : During the course of search , certain cash bills were found which contained details of date of sale, quantity of sale and value of sale made. On verification, it was found that many of them were not entered in the cash book. Since sales were made in cash, corresponding entry in the cash books should have been made . On being asked to explain the reasons as to why and how entry was not made, Sh. Parvez, the MD could not give a satisfactory explanation. The total discrepancies noticed as per seized material amounted to Rs.
ITA.251 & 252/Bang/2013 Page - 8 8,03,22,560/- between 3/7/2002 & 25/9/2002. These bill books were serially numbered from 1 to 48 and were on running dates and submitted by the assessee itself. Therefore, the question of any entry being missed out or being found in another book would not arise. Since the assessee failed to provide any satisfactory explanation, the AO added of Rs. 8,03,22,560/- as unaccounted sales.
12. Before the CIT(A), the assessee contended that it had sold gold through its agent M/s Spectra Investments and that entire turnover had been accounted for and that addition made by AO amounted to double addition. It also contended that entire purchase was from one entity M/s PEC and therefore there was no possibility of unaccounted purchases and since quantity could be tallied, unaccounted sales would not arise. A remand report was called from the A O who reported that sales made through M/s Spectra Investments remained unexplained as the turnover reflected as per the cash book does not reflect the sales as per bill book of M/s Spectra Investments. The CIT(A) held that the turnover made by M/s Spectra Investments on behalf of the assessee exceeded the cash turn over of the appellant at Rs.7.06 crore as against Rs. 8.03 crore adopted by AO. The CIT(A) held that entire turnover cannot be made as an addition and only the GP has to be added. According to the CIT(A) , the GP @ 0.15% on excess turnover of Rs. 7.06 crore works out to Rs. 1,05,913/- , which ought to have been assessed ITA.251 & 252/Bang/2013 Page - 9 instead of the entire turnover. Further, the CIT (A) worked out the initial investment to procure gold in respect of the unaccounted sales at Rs.12,10,000/-. Thus, the CIT(A) confirmed notional profit and initial investment totaling to Rs. 13,15,913/- and deleted the balance of Rs. 7.90 crore .
13. In this connection, the DR submitted that the CIT(A) has ignored the comments of the AO in the remand report dated 28/9/2010. The evidence relied upon by the AO in para 6, page 9 of the report states that cash bills accounted in the books of accounts and those alleged to have been made by assessee's agent M/s Spectra Investment bears the signature of the same person. Therefore, the CIT(A) should have confirmed the unaccounted sales in totality. It is submitted that the working brought out by the CIT(A) defies any logic. Even, if it were to be accepted that telescoping benefit had to be granted on sale proceeds being rotated to make further sales, the peak investment in sales ought to have been worked out and not initial investment. It is therefore submitted that the AO had correctly brought the unaccounted sales to tax and the hence the addition be upheld.
14. We have considered the above submissions. It is clear from the above that the CIT (A) has examined the issue and found that the turnover made by M/s Spectra Investments on behalf of the assessee exceeded the cash turn over of the assessee at Rs.7.06 crore as against Rs. 8.03 crore adopted by AO. He found ITA.251 & 252/Bang/2013 Page - 10 the % of GP in this line of business .He has held that what to be taxed in such situation is only the profit element and not the entire turnover as the deduction for the cost of goods has necessarily to be allowed. Then he found that the initial cost of investment necessary for achieving the turn over as under :
" Now the question of initial investment necessary for achieving this turnover arises. The seized material denotes that the transactions thro Spectra Investment span from July 2002 to September 2002. The first date on which the sales made by Spectra Investments exceed the cash sales as shown in the appellant's books is on 25/07/2002. The excess turnover on 25/07/2002 comes to Rs 12,11,000/=.The cost of purchase to procure the gold necessary to effect the sale of Rs 12,11,000/ = is to be taken as initial investment. After allowing for a gross profit margin of 0.15%, the cost of goods would @ 99.85% for each sale bill would come to Rs 12,09,183/- say Rs.12,10,000/-.
The amounts of the notional profit and the initial investment together represents undisclosed income and the total of these comes to Rs. 13,15,913/-".
This being so, the Revenue has not brought any material to assail the above findings and hence we confirm the decision of the CIT(A).
15. Ground no 4 : The AO made an addition of Rs.7.82 crore on account of purchase of 1000TT Bars on the ground that the assessee had suppressed sales in the closing stock to the extent of 1000 IT bars. This was also brought to the knowledge of CIT(A) by the AO in his remand report.
ITA.251 & 252/Bang/2013 Page - 11
16. However the CIT (A) was of the opinion that this addition will have a revenue neutral effect as the assessee has to book purchase of 1000 TT bars and the show the same as closing stock. He also held that M/s PEC Ltd had stated in a letter dated 28/5 2010 that it had supplied 14,100 TT bars which tallies with the books of the assessee.
17. In this connection, the DR submitted that the CIT(A) erred in holding that if purchase of 1000 TT bars is taken into account for the year ending 31/3/2003, the same should be reflected in purchase account and closing stock account and that the overall effect would be revenue neutral by ignoring the fact that this particular purchase of 1000 TT bars although booked in the purchase account was not recorded in the closing stock for the period ending 31/3/2003. It is also important to note that the assessee had not shown sale of these I000TT bars in its sales account neither has the assessee accounted for this purchase in the ne xt financial ye ar as se en in the asse ssment orde r. On page 10 of the assessment order, the assessee in his sworn statement had stated that the purchase and sale of 1000 IT bars had not been accounted for and that revised figures with return would be filed. Therefore, according to the assessee purchase of 1000 gold bars amounting to Rs. 7,82,95,007/- had not been accounted for nor the sales is accounted in its books. It is therefore submitted that the AO had correctly brought to tax these unaccounted purchase and sales and the same may hence be confirmed.
ITA.251 & 252/Bang/2013 Page - 12
18. We have considered the above submissions. The relevant portion of the CIT (A) order is extracted as under :
" The assessing officer in his order of assessment has held that the appellant had purchased 1,000 TT Bars valued at Rs. 7,82,95,007/= and the same was not accounted. The appellant has objected to the same on the g r o u n d t h a t t h e s a i d q u a n t i t y o f 1 , 0 0 0 T T B a r s w a s d e l i v e r e d t o t h e appellant by M/s. PEC Ltd., only in the month of April, 2003 i.e. during the assessment year 2004-05 and the same has been duly accounted for by appellant in that relevant year and this fact has been stated in a sworn statement during the search proceedings itself.
The appellant further states that M/s. PEC Ltd., has during the search proceedings itself written a letter to the learned Additional Director of Income-tax [Inv], Bangalore vide their letter dated 02/02/2005 clarifying that the 1,000 TT Bars i.e. 500 TT Bars was delivered on 03/04/2003 and another 500 TT Bars was delivered to the appellant only on 04/04/2003. A copy of the said letter dated 02/02/2005 is also filed with the submissions. Thus, it is amply clear from the letter that M/s. PEC Ltd., had given a wrong statement earlier and brought out the correct picture by their letter dated 02/02/2005 which clearly demonstrates that there are no unaccounted purchases."
The assessing officer in his remand report dated 28/09/2010 has at page 10 to 12 of his report stated as under:
"Assessee's submission is not acceptable and contrary to the facts of the case. Since the assessee has already booked the purchases of Bullion to the extent of 4000 TT Bars and assessee has already made the payment for the purchases of entire 4000 TT Bars. Just because assessee received the delivery of only 3000 TT Bars, assessee cannot account just 3000 TT Bars as purchases and postpone the booking of other 1000 TT Bars to the month of April 2003. The correct position should have been assessee should have booked entire 4000 TT Bars as purchases in the month of March 2003 itself. The 1000 TT Bars even though not ITA.251 & 252/Bang/2013 Page - 13 delivered but can be considered as the goods in transit.
The assessee's argument that the 1000 TT Bars received during the month of April 2003 i.e. next financial year [F. Y. 2003-04] is also not correct because during the F. Y. 2003- 04 assessee has accounted only 2200 KG Bars as purchases and he has not included 1000 TT Bars in addition to the 2200 KG Bars as claimed by the assessee. Hence, the assessee's argument is not based on the facts. It is very clear that assessee had suppressed the closing stock to the extent of 1000 TT Bars during the F. Y. 2002-03 relevant to the A. Y. 2003-04 and hence the corresponding value of closing stock suppressed [1000 TT Bars] amounting to Rs. 7,82,95,0071- needs to be added back as income in the A. Y. 2003-04."
Firstly going by the above observations of the assessing officer, it is clear that the appellant has to book purchase of 1000 TT bars and show the same as Closing stock. If the observation of the A.O is given effect to the result would be revenue neutral as the purchase amount would get set off by the same amount of closing stock.
The assessing Officer had called for certain, clarification from M/s. PEC Ltd., during the remand proceedings on this issue and M/s. PEC Ltd., vide its letter dated 28/05/2010 addressed to the assessing officer has categorically stated that the total supplies made by M/s. PEC Ltd., to the appellant for the assessment year 2003-04 and the same is 14,100 TT Bars, w h ic h cl e a r ly ta l l ie s wi t h qu a nt i ty p u rc h ase d a s pe r t he boo ks o f the appellant.
It can also be seen from the very same statement of sales made by M/s. PEC Ltd., that it has actually delivered / issued to the appellant 500 TT bars on 03/04/2003 and 500 U Bars on 04/04/2003 thus in all totaling to 1000 U Bars, which the A.O has erroneously treated as unaccounted purchase of A.Y.2003-04.
In view of the above facts this addition of Rs. 7,82,95,007/- made on account of unaccounted purchase of gold bar is deleted."
ITA.251 & 252/Bang/2013 Page - 14
19. From the above, it is clear that the CIT(A) has not properly appreciated the facts stated by the AO in his remand report dt 28.9.2010. Since this issue this issue requires verification & reconciliation we set aside this issue to the AO . The AO after giving adequate opportunity to the assessee would decide this matter in accordance with law.
20. Ground no 5 : The AO made an addition of Rs. 80,24,028/- on account of exchange fluctuation earned by the assessee through three invoices dated 20th August 2002, 20th December 2002 and 31st march 2003.
21.The assessee filed a letter from M/s PEC Ltd dated 10/6/2010 showing ledger extracts of exchange in the books of M/s PEC which revealed a net gain of Rs. 14,63,540/-. The CIT (A) held that the assessee had incurred a net loss on account of exchange difference and deleted the entire addition.
22. In this connection, the DR submitted that the CIT(A)'s decision is unacceptable on the account of the following:-
1. It has been brought in the assessment order that through these three invoices the assessee had earned an income Rs. 80.24 lakh
2. It is seen that the assessee had purchased 4000 TT bras of gold on 7/6/2002 and it had received a credit of Rs.9,92,540/- towards exchange difference through remittance.
ITA.251 & 252/Bang/2013 Page - 15
3. As per Accounting Standards 11, any gain due to fluctuating foreign exchange rates has to be treated as revenue in nature which shall form part of income
4. The CIT (A) has not brought out how the assessee had incurred a net loss.
23. Therefore, the DR submitted that the addition made by the AO is as per facts and the same kindly be upheld.
24. We have considered the above submissions. The relevant portion of the CIT (A) order is extracted as under :
"The assessing officer has added a sum of Rs.80,24,028/- as exchange gain difference, to the extent not reflected in its return filed, earned by the assessee, for the assessment year 2003-04 . The appellant disputed this addition on the ground that exchange ' difference has been accounted as informed by PEC Ltd, as the appellant comes to know of the same only through PEC Ltd."
The A.O. in page 2 of his remand report dated 28/09/2010 has stated as under:
"During the enquires it has been noticed that there were certain discrepancies and disagreement with the DDIT[Inv] regarding the estimation of income under the head difference in exchange gain for the A. Y. 2003-04. Hence the issue has been referred back to investigation wing for further clarification. The report will be submitted after getting a clarification."
In the second report dated 01/03/2011 it is stated as under:
"At the time of post search enquires the information was collected from M / s. P EC L td ., re gardi ng the sale of gold ba rs and the consideration received from the assessee. Based on the information received from M/s. PEC Ltd an amount of Rs 18,24,208/- was added as income on account of ITA.251 & 252/Bang/2013 Page - 16 difference of exchange for the A. Y. 2003-04 in the search assessment order.
The assessee in his submission made to the Honorable CIT[A]-VI, Bangalore has contended that even though the assessee has received certain exchange gains he has also suffered certain exchange losses and the assessing officer has not take into account both exchange gain and loss. Hence the addition made is not correct.
Before submitting this remand report as directed by the CIT[A]-VI reference was made to M/s. PEC Ltd., regarding the total amount credited to the assessee's account as difference of exchange. M/s. PEC Ltd., in their reply dated 10.06.2010 has given the ledger extracts of difference of exchange of the assessee in the books of accounts of M/s. PEC Ltd., as per which the net amount of gain of Rs 14,63,5401- under the head difference of exchange [Copy of the letter from M/s. PEC Ltd is annexed [Annexure - 1] . Hence the total addition under the head difference of exchange is only to the extent of Z 14,63,5401- and not 18,24,2081- as estimated by the DDIT/1nvj in her appraisal report."
A s s u bm i t t e d b y t h e a p p e l l a n t I t i s c l e a r f r om t h e a p p r a i s a l r e p o r t s submitted by the assessing officer that at the time of passing the order there was no bas is to m ake the addi tio n e xce pt the re port of D DI T ( iv ) which at b e s t c o u l d b e a n o t e raising suspicion that income could have e s c a p e d a sse s sm e nt . W ha t i s re qu i re d to b r ing a n am ou n t to ta x i s h a rd fa ct s a n d e vide nces in support of the same and not me re suspicions. T he e nquiry to a r r i v e a t a c o r r e c t p i c t u r e h a s actually commenced during appellate proceedings. It is further submitted that going by the ledger account copy of the appellant in the books of PEC Ltd, which has been furnished by PEC Ltd to the assessing officer during the course of remand proceedings it is clear t h a t t h e r e i s n o credit given to the account of the appellant in r e s p e c t o f Exchange Difference during the entire year ended 3 1.03.2003 and hence no addition can be made on this account. Further it is also clear from the ledger e x t r ac t fo r t he y .e 3 1/ 3/ 2 0 0 4, t h a t t he a p pe l l an t is c re di te d wi t h a s um of 3,87,991/- on 16/03/2004 and debited with a s u m o f R s .4 ,66 ,161/ - towards difference in ITA.251 & 252/Bang/2013 Page - 17 e x c h a n g e . T h u s it c a n n o t b e s a i d t h a t i n c om e f r o m difference in exchange pertaining to A.Y. 2003-04 has actually been credited in the subsequent year. If the entries of the subsequent year are considered i t i s c l e a r t h a t t h e a p p e l l a n t has only incurred a net loss on account of exchange difference and not e arne d any income. It is only appropriate that the ledger extracts of the account of the appellant in the books of PEC Ltd be re lie d upon in orde r to de te rm ine whe the r the appe llant has actually bee n credited or debited on account of exchange differences.
Thus the addition of Rs. 80,24,0287/- made on this count is deleted."
25. From the above it is clear that the CIT (A) has not properly appreciated the facts stated by the AO in his remand report dt 01.03.2011. Since this issue this issue requires verification & reconciliation we set aside this issue to the AO . The AO after giving adequate opportunity to the assessee would decide this matter in accordance with law.
26. Thus, the grounds of appeal related to a y 2003-04 are treated as partly allowed.
I.T.A No 252/Bang/2013 AY. 2005-06 :
27. The grounds of appeal related to the a y 2005-06 are extracted as under:
ITA.251 & 252/Bang/2013 Page - 18 28. Ground no 1- The AO made an addition of Rs. 6,00,13,928/-
holding that the assessee has short accounted interest income . On an appeal, CIT(A) called for a remand report and after examining it held that the ledger extract of the account copy of the assessee in the books of PEC Ltd is to be considered to arrive out the correct amount of income earned by the assesseee on the FDs from PEC Ltd and on such basis found that the assessee earned interest income of Rs.5,74,91,439/-but admitted in its books at Rs.5,45,45,971/- only and hence confirmed the addition at Rs.29,45,468/-only. Since the Revenue has not brought any material to assail the conclusion of the CIT (A), we confirm the decision of the CIT(A).
29. Ground no 2- Sh. Parvez , MD of the assessee in a statement recorded under oath had stated that he had sold 85 bars of gold on 28.1.2005 which happened to be the day of search. He changed his stance when it was noticed that M/s PEC had not issued the said 85 bars by stating that he had taken an advance of Rs.4 crore prior to 27.1.2005. He did not prove the identity of the customers from whom he had claimed ITA.251 & 252/Bang/2013 Page - 19 that an advance was taken. Therefore, the AO concluded that the said 85 bars were purchased from unaccounted funds and made an addition of Rs.5,02,20,000/- as unaccounted investment in purchase and sale of 85 Kgs of gold u/s 69.
30. Before CIT(A) , the assessee stated that it had purchased 33 bars from M/s PEC Ltd which was sold on 27.1.2005 and it was accounted in its books. This is contrary to the findings of AO who on page 7 of the assessment order stated that the no books were maintained by the assessee.
31. In this connection, the DR submitted that the CIT(A) erred merely relying on the assessee's claim that 33 bars were purchased from PEC on 27/1/2005 and that 85 bars delivered subsequently to him was shown as closing stock whereas the A O has brought out the fact that no books were maintained by the assessee. Also the CIT (A) failed to take into consideration the fact that the assessee has not proved the identity, credit worthiness of the so called customers who the assessee claimed had given the so called advance.
32. In the light of the above, it is submitted that the CIT(A) is not justified in deleting the addition and it is therefore prayed that AO's action may be upheld.
ITA.251 & 252/Bang/2013 Page - 20
33. We have considered the above submissions. The relevant portion of the CIT (A) order is extracted as under :
" The appellant has submitted that on the day of search the officials who conducte d se arch in the prem ises had forcibly taken a stateme nt from the managing Director of the appellant company to the effect that the appellant has made an unaccounted purchased 85 Kgs of Gold and sold the same. The Subsequently during the course of proceedings before the investigating authorities, the Managing Director of the appellant company , i n h i s statement on 07.04.2005 has retracte d the statement made on 28.01.2005 that the statement was give n wrongly pertaining to 85 Kgs of gold K G bars and stated that he had purchased only 33 Kgs of gold KG bars from M/s. PEC Ltd. , Bangalore and sold the s am e on 27/ 01/ 2 00 5 and t hat both purchase and sale of 33 kgs are duly accounted for in the books of accounts and that there are no unaccounted purchases or sales.
During the course of remand proceedings M/s. PEC Ltd have furnished the details of supplies made to the appellant and also the stock of Gold lying with them on 27/01/2005. The statement of M/s. PEC Ltd., denotes that the stock of bullion purchased by the appellant from M/s. PEC Ltd., on 27/01/2005 is 33 Kgs and that they held 85 kgs as closing stock. Thus the entire 85 Kgs is actually found to be in the custody of M/s. PEC Ltd., as on the date of search and the same delivered to the appellant subsequently.
In view of the above facts this addition of Rs. 5,02,20,000/- on account of alleged unaccounted purchases and sales made under section 69 is deleted ".
34. Thus, it is clear that the CIT (A) examined the materials furnished during remand proceedings and arrived the above conclusion. This being so, the Revenue has not brought any material to assail the above findings and hence we confirm the decision of the CIT (A).
ITA.251 & 252/Bang/2013 Page - 21 35. Ground no 3 : During the search, Rs. 28.45 lakhs cash was
found and out of which Rs.27,00,000/-was seized . The AO made an addition of Rs.27,00,000/- u/s 69A . The CIT (A) deleted the addition since the assessee stated that there was a cash balance of Rs. 2.62 crore as per books as on 28/1/2005.
36. In this connection , the DR submitted that the CIT (A) had erred in deleting the addition on account of the fact that the following issues were not taken into consideration:-
a. The assessee did not offer any explanation before the AO with regard to the seized cash.
b.The assessee had not given any detail as to how it arrived at the cash in hand amounting to Rs.2.62 crore as on 28/1/2005.
c. In his sworn statement Sh. Parvez MD stated that books were not available either at his residence or office and that he had no explanation regarding cash found during search and seizure operation.
37. We have considered the above submissions. Before the CIT (A), the assesseee pleaded that it had cash on hand as per its books as on 28.01.2005 at Rs.2,62,65,903.77/-and therefore it cannot be said that the appellant is in possession of unexplained cash. The CIT (A) called for a remand report and the AO was silent on this issue. He held that the fact remains that the very cash book with which the AO relied upon to conclude the assessments show a cash balance of Rs.2,62,65,903.77/- as on the date ITA.251 & 252/Bang/2013 Page - 22 of search and this fact has not been denied or controverted by the AO and hence the CIT (A) deleted the addition. Thus, the Revenue has not brought any material to assail the conclusion of the CIT (A), we confirm the decision of the CIT (A).
38. Thus, the grounds of appeal related to a y 2005-06 are dismissed .
39. In the result, the Revenue's appeal for ay 2003-04 is treated as partly allowed & the appeal for ay 2005-06 is dismissed. Order pronounced in the open court on 9th December, 2016.
Sd/- Sd/-
(VIJAY PAL RAO) (S. JAYARAMAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
MCN*
Copy to:
1. The assessee
2. The Assessing Officer
3. The Commissioner of Income Tax
4. The Commissioner of Income Tax (A)
5. DR
6. GF, ITAT, Bangalore
By Order
Assistant Registrar