Income Tax Appellate Tribunal - Rajkot
Shri Pankaj Chimanlal Lodhiya, Rajkot vs The Deputy Commissioner Of Income Tax, ... on 9 October, 2018
आयकर अपील य अ
धकरण, राजकोट यायपीठ, राजकोट ।
IN THE INCOME TAX APPELLATE TRIBUNAL
RAJKOT BENCH, RAJKOT
सव ी राजपाल यादव या यक सद य एवं olhe vgen] ys[kk lnL;,
lnL; के सम ।
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND
SHRI WASEEM AHMED, ACCOUNTANT MEMBER
ITA Nos. 160 & 161/Rjt/2018
िनधा रण वष / Assessment Years : 2008-09 & 2009-10
Shri Pankaj Chimanlal The DCIT,
Lodhiya, Vs. Central Circle -2,
Prop. Shreeji Trading Co., Rajkot.
10- Shaligram Complex,
Bhupendra Road,
Opp. Diwanpara Police
Chowki, Rajkot.
IT(SS)A Nos. 92 & 93/Rjt/2018
िनधा रण वष / Assessment Years : 2008-09 & 2009-10
The DCIT, Shri Pankaj Chimanlal Lodhiya,
Central Circle -2, Vs. Prop. Shreeji Trading Co.,
Rajkot. 10- Shaligram Complex,
Bhupendra Road, Opp.
Diwanpara Police Chowki,
Rajkot.
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAMPL 3903 F
अपीलाथ /
अपीलाथ (Appellant) (%&यथ' / Respondent)
Assessee by : Shri Mehul Ranpura & Harish
Ranpura, A.R.
Revenue by : S Shri Jitender Kumar, CIT-D.R.
सुनवाई क तारीख / Date of Hearing : 13/08/2018
घोषणा क तारीख / Date of Pronouncement: 09/10/2018
ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018
Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals)
A.Ys 2008-09 & 2009-10
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आदे श / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
These cross-appeals by the assessee and Revenue are directed against the separate orders of the Commissioner of Income-Tax (Appeals)-11, Ahmedabad dated 26-03-2018, 27-03-2018 for Assessment Year 2008-09 & 2009-10
2. First, we take up Revenue's appeal in IT(SS)A No.92/Rjt/2018 for Assessment year 2008-09. Revenue has raised following grounds of appeals:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in restricting the addition of Rs.32,40,46,529/- to Rs.3,04,61,096/- made on account of income earned out of /credit entries fn undisclosed foreign Bank account.
2. On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in restricting the addition of Rs.32,40,46,529/- to Rs.3,04,61,096/- by holding that the foreign bank account of the assessee is a trading account and profit thereon should be taxed instead of the amount of peak credit made therein.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 3,77,42,710/- made on account of unexplained credit entries of various concerns/third parties In Standard Bank, London's.
4. On the facts and In the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.3,77,42,710/- by holding that the other entries are not posting error even though Ld. CIT(A) has mentioned only one entry as posting error.
ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10 -3-
5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.3,78,49,800/- made on account of unmatched entries in STCSH account.
6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.9,01,43,236/- made on account of unexplained credit entries In unallocated Gold / Silver account of STCSH.
7. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.2,40,77,958/- made on account of cash / Premium payment reflected in STCSH Account.
8. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.1,04,88,591/- by making disallowance of Interest u/s.36(1)(iii) of the Act.
9. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.79,37,455/- by making disallowance of Hedging Loss.
10. On the facts and In the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.79,37,455/- without considering the facts that MCX was noticed as recognized exchange only w.e.f. 22/5/2009.
11. On the facts and in the circumstances of the case and in law, the ld CIT(A) ought to have upheld the order of the AO.
12. It is, therefore, prayed that the order of the ld CIT(A) be set aside and that of the AO be restored to the above extent."
3. The first issue raised by the Revenue in the ground no. 1 & 2 is that ld. CIT(A) erred in restricting the addition made by the AO to Rs. 3,04,61,096.00 from Rs. 32,40,46,529.00 on account of income earned out of undisclosed foreign bank account.
4. Briefly stated facts are that the assessee is an individual and engaged in the business of trading in bullion. A Search & seizure ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10 -4- operation under section 132 of the Act was carried out at the residential and business premises of the assessee on 20/05/2013. During the course of search operation, various incriminating document, storage media (Hard Disc), etc. were recovered and seized.
4.1 Assessee filed ROI in response to the notice issued u/s 153A of the Act declaring total income of Rs. 2,66,44,980.00 only.
4.2 The Investigation wing of the Income Tax Department retrieved storage media and recovered the data including the documents as detailed under:
1) A remittance slip dated 16-2-2012 of Standard Bank which proves that assessee is having two bank account one in standard bank UK a/c no 13446 and another in the national bank (RAK bank), UAE a/c no. 0025332626002. This remittance slip also shows the transfer of $ 100000 from UK to UAE bank account of the assessee.
2) A demand notice of due margin call for $ 1,02,869.00 dated 20/5/2013 from Standard Bank.
3) Various HTML documents related to trading on Metals Web platform of the standard bank based at London.
4.3 The Investigation wing during and post-search proceedings recorded the statement of the assessee u/s 132(4) of the Act on various occasions. The assessee in response to the questions raised in the ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10 -5- statement recorded under section 132(4) of the Act on 23-06-2013 and 3- 07-2013 replied as under:
i. The impugned bank accounts are in his name, but the accounts were opened and operated by a company based in Dubai, UAE namely "Vin gold LLC" belonging to Shri Mehul Nandha.
ii. He is merely a sales executive of the company who provides consultancy services to "Vin gold LLC".
iii. He has given a letter of authority to a person Shri Vishal Patadia- an employee of Shri Mehul Nandha at the time of bank account opening to operate the above bank account.
iv. The assessee used to get the user id & password from Shri Mehul Nandha of the impugned accounts for the verification of the transactions only and after that he (Shri Mehul Nandha) used to change the ID & password immediately.
4.4 The assessee for every question raised by investigation wing reiterated the same reply as discussed above.
4.5 The Investigation wing further issued summon u/s 131(1A) of the Act requiring the assessee to furnish the phone numbers, email ID of Vingold LLC, Mehul Nandha and Vishal Patadia and letter of authority given to Vishal Patadia. However, assessee failed to provide any information/details to the investigation wing.
ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10 -6- 4.6 The Investigation wing during the post-search proceedings detected the foreign bank accounts of the assessee from the various seized documents as detailed under:
Sr. Bank Account No./Name Bank Name Country No. 1 STCSH(Precious LON) Standard Bank Singapore 2 134496/Pankj(Precious Standard Bank UK LON) 3 Pankaj C Lodhiya A/c. RAK Bank UAE No.025332626002 4 'Vin Gold LLC' Standard UAE Chartered Bank 4.7 The Investigation wing made a request to Foreign Tax & Tax Research (FT & TR) Division of Income Tax Department for the details in respect of such foreign bank accounts to the Respective Revenue authorities. In response to the reference, the Revenue authorities Singapore supplied following accounts details:
SR. Account Name / Number Bank Period Page No. NO .
1. STCSH (Precious LON) Standard Bank, 02.01.2008 1 to 219 Cash Ledger Statement Singapore to 29.09.2014
2. STCSH (Precious LON) Metal Standard Bank, 02.01.2008 1 to 178 Ledger Statement (Gold) Singapore to 29.09.2014
3. STCSH (Precious LON) Metal Standard Bank, 14.01.2008 1 to 25 Ledger Statement (Unallocated Singapore to Gold) 13.05.2011 ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10 -7-
4. STCSH (Precious LON) Metal Standard Bank, 24.04.2008 1 to 37 Ledger Statement (Silver) Singapore to 12.11.2014
5. STCSH (Precious LON) Metal Standard Bank, 25.04.2008 1 to 8 Ledger Statement (Unallocated Singapore to Silver) 30.12.2009
6. PANKAJ (Precious LON) / Standard Bank, 02.01.2008 1 to 130 134496 Cash Ledger Statement UK to 11.09.2013
7. PANKAJ (Precious LON) / Standard Bank, 02.01.2008 1 to 278 134496 Metal Ledger UK to Statement - Gold Margin a/c. 26.06.2013
8. PANKAJ (Precious LON) / Standard Bank, 08.01.2008 1 to 51 134496 Metal Ledger UK to Statement - Silver Margin a/c. 26.06.2013
9. PANKAJ (Precious LON) / Standard Bank, 31.10.2008 1 to 2 134496 Metal Ledger Statement - UK to Platinum Margin a/c. 26.06.2013 4.8 In response to the reference, the Revenue authorities of UAE supplied the following accounts details:
No. Account Type Account Number Period
1. Current Account 0025332626001** 08.06.2012 to
06.05.2014
2. Current Account 0025332626002 17.08.2010 to
06.05.2012
**No transaction is appearing in the account.
4.9 An application is also filed to settlement commission where the assessee submitted a memorandum of understanding (MOU) between ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10 -8- him and Mehul Nandha. The assessee contended that as per MOU he (assessee) is entitled only for 10% of profit earned by Mehul Nandha. Accordingly, the assessee filed the audited financial statement of VIN GOLD related to all these transactions. Further, the assessee on the basis of these financial statements offered income @10% of total for each year. The details of the income offered before the settlement commission stands as under:
Assessment Year Additional Income (Rs.)
2008-09 11,00,000
2009-10 1,00,000
2010-11 19,00,000
2011-12 9,00,000
2012-13 38,00,000
2013-14 1,00,000
2014-15 17,22,08,720
Total 18,01,08,720
However settlement commission rejected the application on the ground that no full and true disclosure is made of the income declared and the manner in which such income has been derived was not furnished properly.
4.10 During the course of assessment proceeding, the AO noted certain inconsistencies between the evidences gathered and replies of the ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10 -9- assessee. These inconsistencies as observed by the AO are numerated below :
a) The evidences retrieved during search show the active participation of assessee in accessing the foreign banks accounts & trading out of India though the assessee denies.
b) The assessee admitted the signature on the remittance slip as discussed above but claims to have given a letter of authority to Vishal Patadia who has not been produced yet.
Thus it is clear that there is contradiction in the submission of the assessee.
c) There is no personal or capital gain tax in Dubai except for foreign oil companies. Therefore there is no reason for Mr. Mehul Nandha to use the name of the assessee.
d) Further, there is not any kind of incentive for using a third person's name for trading or opening a bank a/c. Then why one would borrow another person's name when he is not getting any incentive at all. On the contrary Mehul Nandha will have risk of siphoning off money as well.
e) On being questioned by the investigation wing why entries are not reflecting in books of the assessee, it was claimed by the assessee that all the transactions belong to Vingold. Therefore all the entries are recorded by Vingold.
f) On question for the production of the books of Shri Mehul Nandha, the assessee submitted that as per UAE law there is no requirement to maintain any books of accounts. ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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g) He was asked by the investigation wing to provide username & password of the Metals Web platform which was used to access the website last time, but he simply denied that they keep changing the ID, password.
h) The assessee is very renowned name in his field, therefore it is not expected from him that he would enter into any such transaction which would not yield result and still required his time, energy and his legal name.
i) The fact that there is no need to maintain the books of accounts in Dubai proves that no need for companies to engage in activities with someone else's name.
j) There was not any co-operation from the side of the assessee before the investigation wing as he made the same reply for all the queries except the email id of vingold LLC which was provided during the post search inquiries. The assessee has not filed any other information which was required from him by the Investigation wing.
4.11 Based upon above noted inconsistencies, the AO issued a detailed show-cause notice to assessee dated 18/05/2017. The AO in the show cause notice also mentioned working of peak credit which he intended to add as unaccounted income of assessee.
4.12 The assessee in his reply for the above show cause made submissions vide dated 25/05/2007 which can be summarized as under:
1) The accounts supplied by Revenue Authorities of Singapore are not at all bank accounts. But these are transactions statements ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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/cash ledger statement of transaction in derivatives, i.e. Future & Option, forward contract and intraday transaction. Thus what should be taxed is the profit derived from these transactions and not the peak credit thereof. Assessee also contended that he is unable to understand working of peak addition and request to explain the same.
2) It was undisputedly accepted by the investigation wing and also settlement commission in various notice/report that the transactions in this account are in nature of trading on metal- web portal of the standard bank.
3) The concept of peak credit is only applicable in case of bank accounts. It is requested to AO to provide bank statement from which peak credit can be calculated.
4) The assessee also contended that the bank accounts are in his name but these were operated by Mehul Nandha and the same was explained earlier. The reason for agreeing to get the accounts opened in his name in foreign banks was that there are strict norms relating to experience, net worth, business expertise, extent of work done in bullion over the years. He had regular business of physical purchase with standard bank. So it was easy for the assessee to open an account in his name.
5) All the signature were made as per instruction/guidance of Shri Mehul Nandha otherwise he would not have been able to open bank accounts. Merely the assessee made declaration/ consent before the bank does not automatically make him the owner of impugned account and transactions therein.
ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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6) The audited financial statements, MOU, CA certificate, confirmation of Mr. Nandha in respect of trading activities carried out by him through impugned accounts were filed. Therefore the profit from these transactions should be taxed and not peak credit.
7) Nothing has been transferred by the assessee from India and received back in India. More than 18 months have elapsed and no adverse comments/view on accounts submitted by the assessee pointed out by the department. This implies trading result is acceptable.
8) Interest income from the account of UK bank account is also recorded in books of accounts of Shri Mehul Nandha.
9) The assessee also explained that the transactions are showing derivative trading in the statement received from foreign authorities of Singapore and these are not bank accounts. The explanation of the assessee stands as under:
STOCK/COMMODITY BROKER/PLATFORM BANK ACCOUNT EXCHANGE STANDARD BANK (RAK BANK) LONDON STOCK EXCHANGE (METALS WEB PLATFORM) Provides market for derivative (Future, Options, Forward contract of Gold, Silver and Platinum). Statement is given in Quantity of metal purchased and sold - Named as Metal Ledger Statement.
Value of contract purchased and sold (corresponding to the quantity reflected in Metal Ledger Statement) is debited / credited to trading account maintained with Standard bank, i.e. Cash Ledger Statement ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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Fund inflow in the Cash ledger statement for the purpose of margin is received from third parties. Fund outflow from the Cash ledger statement is made either to third parties or to the bank account with RAK Bank, Dubai.
However, the AO disagreed with the submission of the assessee on the grounds as detailed under:
i) All the documents confirmed that these transactions are in the name of assessee.
ii) The MOU is not registered or made on stamp paper. The MOU was not produced or filed before two foreign banks or any other authority, government or otherwise.
iii) Assessee claimed that the account was opened in Standard Bank in his name to save Mehul Nandha from stringent margin requirement. However, on perusal of banking limit credit application, no discussion is found regarding margin requirement.
iv) Assessee did not provide any information about how he came in contact with Mehul Nandha and for how many years he is acquainted with him.
v) Foreign authority while providing data nowhere mention transaction recorded therein represent transaction in derivatives.
Similarly, other details like mode & time of settlement, terms & conditions between "Metals Web" are not known therefore the AO concluded that it is difficult to believe that these transactions are derivative transaction.
ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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vi) The audited financial statement submitted by assessee is not reliable. These accounts are prepared on the basis of applicable requirement of IFRS in UAE while in India there is certain requirement of audit report which is not done in the present case.
vii) Assessee has not submitted any documentary evidence regarding what kind of services he had provided to Vin gold LLC. Further assessee has not clarified/ submitted whether consultancy income has been received in cash or cheque and if received in cheque in which bank account the same has been credited.
viii) In the audited financial statement of Dubai, certain administrative expenses have been claimed which can't be allowed as TDS provisions need to be verified.
4.13 Apart from above, the AO also noted some key questions and found them still unanswered as detailed under :
"The key questions which are still unanswered is:-
a. How far is this certificate sacrosanct?
b. Whether the entire entries appearing in the Cash Ledger and Metal Ledger, received by this office through FT&TR Division from the Inland Revenue Authorities, Singapore has been taken care of or not?
c. How have the entries been made, and how has the income been recognized?
d. What about the initial funds and sources of the same? e. What are the genuineness of such huge claim of administrative expenses, when there are absolutely no evidence of them having been incurred?
f. How far is the loss for F.Ys 2012-13 and 2013-14 justifiable and how such loss has been arrived at?"
ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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4.14 In view of above the AO concluded that the assessee failed to explain the Dr. and Cr. entry of this account. It is also not clear which type of account is this. To arrive at a logical conclusion the only option left to work out the peak to tax the undisclosed income. In view of above the AO applied peak credit theory and calculated the undisclosed income of Rs. 32,40,46,529.00 and added to the total income of the assessee.
5. Aggrieved, assessee preferred an appeal to ld. CIT(A). The assessee before the ld CIT(A) submitted that he filed MOU with Mehul Nandha, confirmation of Mehul Nandha, audited financial statements, passport etc. of Mehul Nandha & Vishal Patadia, certificate of incorporation & shareholding pattern of Vin gold LLC to justify that the transactions belong to Mehul Nandha.
5.1 The assessee again filed second confirmation on letterhead of vin gold, confirmation of depositors in the accounts to AO but he disregarded the evidences and alleged that transactions do not belong to Mehul Nandha. Assessee also reiterated the submissions which were placed before AO.
5.2 The assessee also submitted that MOU not registered or not made on stamp doesn't make any difference. It fulfills all the requirement of Indian Contract Act. Further the same was not submitted to any authority as it was a confidential agreement.
ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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5.3 The assessee accordingly contended that the detail/ accounts/ MOU/ confirmations are at par with the affidavit. All these documents cannot be rejected without critical examination and countering it by positive evidence. Further, Nandha was never summoned. The assessee was also never asked to produce him. Regarding this the assessee also relied on certain judgment in support of his where the impugned was decided in his favor.
5.4 The assessee without prejudice to above submitted that these are derivative trading transactions. Therefore the profit earned by the assessee on such transactions should be taxed and not the peak credit balance.
5.5 The assessee also contended that there was trail of whole transactions available to the AO, but he ignored the same without adducing any specific reason and applied the peak credit balance to determine the income.
5.6 It is a trite law that peak theory is applicable only when the credit & debit entries of transactions are not identifiable and no plausible explanation is available.
ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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5.7 Assessee before the ld. CIT-A also explained a transaction dated 10/09/07 demonstrating the calculation of the profit from the derivative transactions which is reproduced as under:
"It may be seen from the extract of statements attached at page 18 to 27 that above sale contract of 1606.0000 Ounces of Gold is settled as under:
Date Nature of Quantity Value USD
Forward Ounces
Contract
10/09/2007 Sale 1606.0000 10,70,137.22
01/11/2007 Purchase (482.3600) (3,77,157.51)
05/11/2007 Purchase (642.4000) (5,09,615.92)
07/11/2007 Purchase (321.2000) (2,57,843.30)
14/11/2007 Purchase (160.6000) (1,28,945.74)
Net Loss on Settlement Nil (2,03,425.25)
As may kindly be seen from the above set of transactions that though highest credit balance in the cash ledger settlement at one point of time was USD 10,70,137.22, but, ultimately on settlement of the contract, Mr. Nandha has undergone loss of USD 2,03,425.25 and thereby, NIL positive credit balance."
5.8 The assessee also claimed that the peak credit shall provide the absurd result as evident from the working given below:
"The fact that balance appearing is running account on a particular day can never give correct picture and bound to give absurd results, is lucidly explained with the following example. Date Particulars Debit (Rs.) Credit (Rs.) Balance (Rs.) 01.04.2010 Margin Money 0 1,00,000 1,00,000 02.04.2010 Forward Sale -1 0 1,00,00,000 1,01,00,000 05.04.2010 Margin Money 0 2,00,000 1,03,00,000 08.04.2010 Forward Sale - II 0 2,00,00,000 3,03,00,000 ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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10.04.2010 Forward Purchase - 1 1,01,00,000 0 2,02,00,000 15.04.2010 Forwarded Purchase -II 1,95,00,000 7,00,000 16.04.2010 Balance 7,00,000
(i) Margin Money introduced is Rs. 3,00,000/- [1,00,000 + 2,00,000]
(ii) Loss on Forward Sale-1 is Rs.1,00,000/- [1,00,00,000 -1,01,00,000]
(iii) Profit on Forward Sale-II is Rs.5,00,000/- [2,00,00,000 -
1,95,00,000]
(iv) Net Profit is Rs. 4,00,000/- [5,00,000-1,00,000]
(v) Closing Balance 7,00,000/- [Net Profit + Margin Money] In above case, if highest credit as on 08.04.2010 at Rs. 3,03,00,000/- is considered as peak balance and treated as ones' income, it will definitely give absurd results as it is only a figure of forward sale without considering the forward purchase."
5.9 Considering above the assessee contended that the AO willfully remained silent on the above example given during the assessment proceedings.
5.10 Therefore, the presumption of the AO for determining the undisclosed income is merely based on suspicion, arbitrary without rebuttal of working, one-sided & against the natural justice.
5.11 The assessee also submitted that in the proceedings before settlement commission, investing wing and assessing officer, the fact was admitted that the a/c was linked to metals web derivative a/c for trading.
ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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The reasoning for the same is given by the assessee before the CIT-A which stands as under:
"The above contention of the appellant has also been accepted by the Department at various stages of proceedings, which is summarized hereunder:
Ld. Pr. CIT at para 4a on page no.4 of the interim Rule-9 report dated 11.09.2015 furnished before Hon'ble ITSC On close observation of the foreign bank account statements obtained through FT&TR Division of the CBDT, New Delhi, it is noticed that the bank accounts are linked to the trading accounts on Metals Web Platform and there are several non settlement entries which show that the applicant has credited or debited the accounts through other bank accounts. Hence the peak credit for each One of the foreign accounts as worked out financial year wise, though, it is a vague and prima facie working, in the absence of any details / information / co-operation from the applicant should be considered in computing the income of the applicant. (Page).
Ld. Pr. CIT at para 4.1 on page no. 17 of Rule-9 report furnished before Hon'ble ITSC 4.1 It is seen that, there is Gold Margin account, silver margin account and Metals Web Trading / ledger account for carrying out trading in Metals Web Platform of Standard Bank, London. (Page).
Ld. Pr. CIT at para 9.1 on page no. 18 of Rule-9 report furnished before Hon'ble ITSC 9.1 The applicant was actively participating in the transactions of online trading right from the date of opening of bank account. (Page) The AO at page no. 7 of the assessment order categorically explained the various terms related to the derivative trading business, i.e., Initial Margin, Variation Margin, Cash Account Balance, Margin Call Amount etc. ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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At para 2.3 onwards on page no. 8 to 11 of the assessment order, the AO observed that-
2.3 Three HTML documents about the trading on the Metals Web platform of the Standard Bank were found from the digital forensic analysis of seized hard drives. It was found that Shri Pankaj Lodhiya's name appeared as the user for trading on Metals Web platform. Metals Web platform is the portal of the Standard Bank, for trading in precious metals. Using Metals Web, customers of Standard Bank can trade LME (London Metal Exchange) products, such as aluminum, gold,_silver, copper, nickel, tin and zinc, directly on the LME during Asia time. The platform provides traders with an intuitive and flexible trading screen. Key functionality includes access to multiple markets and instruments from one screen, real-time profit and loss, multi-exchange spreading and one-click scalping, protection of orders and integrated charting...
...From the perusal of the documents it is emerges that the trading is being regularly done by the assessee as Pankaj Lodhiya and the latest entries are of May 17th 2013 (Friday), i.e., last working day before the launch of the search on May 20' (Monday).
...As the documents contained multiple entries of sale and purchase, it is gathered from the HTML documents that the running balance figures in negative represent the money payable to the bank.
2.4 After the recovery of these incriminating materials from the digital data seized, it was clear that the assessee, as an individual regularly trading on the Metals Web platform...
Also vide para 6.0 on page no. 42 of the assessment order (conclusion part), the AO observed that-
a) The digital evidence forensically retrieved from the computer backup shows the active participation of the assessee in accessing the foreign banks and trading out of India."
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5.12 The assessee also claimed that the conclusion of AO 'difficult to believe as derivative transaction' is totally in contradiction from the fact as stated above. It is strange to note that he concluded as 'difficult to believe as derivative transaction' even though the entire set of accounting of such transaction is on record which was explained more than three times during the assessment proceedings.
5.13 It was also contended that it is beyond doubt that the transaction and business was carried out by Mehul Nandha in Dubai, thus there is no question for deduction of the TDS on the expenses claimed in the audited financial statement.
5.14 The transactions were carried out in UAE then books are also made as per applicable law. Therefore no question arises for preparing tax audit report as per the law prevailing in India.
However, the ld. CIT(A) disregarded the contention of the assessee and confirmed the order of AO in part. The ld. CIT(A) while deciding the issue has broken the contentions of assessee in three parts as detailed under:
"(i) Beneficial owner of the account no. 13446 / PANKJ with Standard Bank was Shri Mehul Nandha. The appellant was merely a name lender in order to facilitate Shri Mehul Nandha to open the trading account for consideration of 10% share in the profit realized from the trading activities.
(ii) Nature of transactions in the Standard Bank's account is of derivative trading of Gold, Silver and Platinum. However, AO ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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treated the same as banking transactions and made high-pitched addition.
(iii) What has to be taxed is the percentage of profit or income resulting from the business transactions carried out through standard bank's trading account. However, the AO made addition of the peak credit balance (excluding non-settlement entries)."
First Contention The ld. CIT(A) observed that the assessee failed to explain if the account was operated by Mehul Nandha then why remittance slip and other files were found from his hard disk. Besides other recovered deleted data such as HTML files of statements proves beneficial owner is the assessee himself.
On perusal of the entire signed document, it is revealed that assessee is the beneficial owner of all the accounts.
The contention of assessee that AO was opened to cross-examine Shri Mehul Nandha is not tenable as he is a non-resident and residing in UAE since long. Thus there was no jurisdiction of the AO.
During the post search investigation, the assessee has not filed the copy of the MOU despite repeated opportunity provided to him.
It all proves that the assessee himself is a beneficial owner of all the accounts as discussed above.
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Second Contention The ld. CIT(A) observed that CIT in his report u/s 245D and P.CIT under rule 9 observed that assessee had foreign bank accounts at UAE and Singapore which were used for trading in derivative. Further, all the records and net settlement entries clearly shows it is a derivative trading account.
Accordingly the ld. CIT-A held that once it is concluded that this is derivative trading, then the question of taxing the undisclosed income based on peak credit theory does not arise.
Third Contention The ld. CIT(A) observed that AO did not find any defect in audited financial statement filed by the assessee. Thus the profit of Rs. 1,04,61,096/- shown in it will be the quantum of profit for taxable income.
The ld. CIT-A further observed that the assessee failed to explain the initial money invested in the business. Therefore the ld. CIT-A assumed on ad-hoc basis such investment from undisclosed source for 2,00,00,000.00 and accordingly added the same and deleted the rest of the addition.
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6. Being aggrieved by order of ld. CIT(A) both Revenue and assessee are in appeal before us. The Revenue is in appeal against the deletion made by the ld. CIT(A) for Rs. 29,35,85,433/- whereas, the assessee is in appeal against the confirmation of the addition by the Ld. CIT(A) for Rs.3,04,61,096/-.
The assessee has raised the following grounds of appeal:
3.0 The ld. CIT(A) erred on facts as also in law in retaining addition of Rs.1,04,61,096/- being profit from derivative trading done by one Shri Mehul Nandha in foreign account named PANKJ (13446) with Standards Bank. The addition retained is totally unjustified and uncalled for and deserves to be deleted and may kindly be deleted.
3.1 The Ld. CIT(A) erred on facts as also in law in making addition of Rs.2,00,00,000/- on the alleged ground that the appellant failed to explain the source of initial investment made for carrying out the business of derivative trading through Standard Bank. The addition made without any notice of enhancement and without any basis, merely on suspicion is totally unjustified and uncalled for which deserves to be deleted and may kindly be deleted.
7. The ld. DR before us submitted that the assessee being the owner of the bank accounts should have calculated the profit of such undisclosed business and declared the same in the income tax return. However, the assessee failed to do so. Thus in the absence of any books of accounts, the AO correctly calculated the income from undisclosed business based on the peak credit theory.
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7.1 The audited financial statements filed by the assessee showing the profit of Rs. 1,04,61,096.00 cannot be relied upon due to the effect that these are not prepared as per the accounting practice prevailing in India. Therefore the same needs to be ignored for working out the profit from the undisclosed business of the assessee.
8. On the other hand, the learned AR before us filed several paper books as detailed under:
1. Paper Book No. 1 part (i) pages 1 to 176 2. Paper Book No. 1 part (ii) pages 1 to 185 3. Paper Book No. 2 part (i) pages 1 to 124 4. Paper Book No. 2 part (ii) pages 125 to 384 5. Paper Book No. 2 part (iii) pages 385 to 477 6. Paper Book No. 3 part (i) pages 1 to 215 7. Paper Book No. 3 part (ii) pages 216 to 393 8. Paper Book No. 3 part (iii) pages 394 to 4638.1 The ld. AR further submitted that there was no question of working out the profit based on the peak credit theory. The AO was in possession of derivative statements showing the purchases and sales.
Therefore only the profit element at the most can be added to the total income of the assessee.
8.2 The learned AR further submitted that the addition on account of initial investment had been made merely on the ad-hoc basis. There was no information available with the lower authorities suggesting that the ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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assessee has made any initial investment. Therefore the addition of the same is not sustainable.
Both the parties relied on the order of authorities below as favorable to them.
First we take up Revenue's ground of appeal in ITA 92/Rjt/2018
9. We have heard the rival contentions and perused the materials available on record. The facts as discussed above are not in dispute. Therefore, we are not inclined to repeat the same for the sake of brevity.
In the instant case, the first issue is whether transactions & A/c's belong to assessee or Mehul Nandha.
9.1 In this regards we note that the HTML files found and statement of trading in derivatives retrieved clearly states that assessee was actively engaged in trading and transactions were also done by him only. The password of metal web platform where trading was carried out were also not given by assessee to the income tax authorities which makes the case of the Revenue strong.
9.2 The MOU was also not given by him at investigation wing. It was submitted only to settlement commission which clearly shows this is a ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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concocted story of the assessee. As MOU is on plain paper, therefore, its authenticity is also doubtful. Furthermore, it cannot be authenticated whether it was made in the year 2007 as contended by the assessee.
9.3 The assessee also neither produced Mehul Nandha before AO nor offered to produce him at the time of assessment proceedings. Later on the assessee before the ld. CIT (A) contended that the AO should have cross examined him which was not possible for AO as it was not in his jurisdiction as per the provision of income tax which extends only to the whole of India. The assessee himself should have produced him before the AO or at least should have offered to produce him before the AO if it was not within the power of AO.
9.4 Only confirmation of Mehul Nandha is not sufficient to prove that assessee is not beneficiary of the transactions.
9.5 Further, Mehul Nandha will also not get any incentive in tax law nor in any other law why he would borrow any one's name and pay 10% of its profit and that too on a very high risk of siphoning off money.
9.6 If these transactions belong to Mehul Nandha why he has prepared financial statements only for this account and not included these accounts in his regular books or in the books of vingold LLC.
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9.7 From the above it is very much clear that beneficial owner of these accounts is only assessee and accordingly he is liable to tax for the same.
9.8 Now the other issue arises whether these accounts are bank accounts or only derivative trading accounts. In this regard, we note that the documents retrieved from the hard disk of Standard Bank clearly record the words Margin Call, Initial Margin and Variation Margin which strongly suggest that the statements are reflecting derivative transactions. It is because these words are used in relation to derivative business transactions. The relevant extract of retrieved document is extracted below :
From: Standard Bank PLC
Standard Bank Add: Precious Metal-Operations
One George Street
# 16-04/05/06
To: Pankaj C Lodhiya
NAME PHONE NUMBER FAX NUMBER
049145 EMAIL
Tel: +65 6232 8947/8916
NotificationFax:
Email:
+65 6533 7754
of Collateral Demand
[email protected] In accordance with the MTA between Standard Bank Plc. and Pankaj C Lodhiya we hereby give notice of the following Cash/Margin call as at Close of Business 2013/05/17 as per the breakdown below. Please advise what action you will be taking to meet this call.
Margin Call
Initial Margin (IM) -221,885.24
Variation Margin (VM) 2,800,589.57
LC/BG/Unallocated Metal Balance 0.00
Cash Account Balance -2,681,572.96
Credit Limit 0.00
Margin Call Amount Due to us USD 102,869
9.9 We further note that the AO in his order has clearly explained the
meaning of margins as detailed under:
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"1. INITIAL MARGIN : The initial margin is the percentage of the purchase price of securities that the investor must pay, either in cash or securities, to open a market position. The percentage varies widely; it will depend on the type of securities being purchased, the market or exchange and the creditworthiness of the investor. In the above case, this amount is USD 221,885.24 which means this amount is payable by Shri Pankaj Lodhiya.
2. VARIATION MARGIN: Variation margin is the additional funds that a broker may request from a client so that the initial margin requirements of his position keep up with any losses. If the client's equity falls below the initial margin requirement when marked to the closing price at the end of each day a margin call will be made. Sometimes referred to as maintenance margin. As per the above document, there is clear-cut involvement of amount as asked by the broker in the Variation Margin of USD 2,800,589.57, as without it no further trading would be done."
9.10 We also note that the AO himself in his order at various placed recorded that the assessee was engaged in the trading Metals Web platform as evident from his observation as detailed under:
"Three HTML documents about the trading on the Metals web Platform of Bank were found from the digital forensic analysis of seized hard ves. It was found that Shri Pankaj Lodhiya's name appeared as the user for trading on Metals Web platform. Metals Web platform is the portal of the Standard Bank, for trading in precious metals. Using Metals Web, customers of Standard Bank can trade LME (London Metals Exchange) products, such as aluminum, gold, silver,] copper, nickel, tin, and zinc, directly on the LME during Asia time."
"Further, not only these HTML documents show the current user as Pankaj Lodhiya they also show three options as PANKJ, STCSH, STSH. From the perusal of the documents it is emerges that the trading is being regularly done by the assessee as Pankaj Lodhiya and the latest entries are of May 17th 2013 (Friday) i.e. last (working day before the launch of the search on May 20th 2013(Monday)."
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"After the recovery of these incriminating materials from the digital data seized, it was clear that the assessee, as an individual regularly trading on the Metals Web platform; he was transferring money from his one foreign bank a/c I (Standard Bank) to another foreign bank a/c (RAK Bank) , through remittances, but none of these transactions were recorded in the books of accounts of the assessee."
9.11 Thus from the above it is very much clear that the AO himself admitted that these papers are related to Metal trading but while concluding held that the assessee failed to explain the entries. Hence the AO further held that there is only option left is to tax the income on peak credit theory.
9.12 We also find that the cash ledger and metal ledgers clearly shows that this is not a bank account rather a derivative trading account with standard bank. Further settlement entries in the cash ledger statements confirm the same.
9.13 From the above it is very much clear it is a derivative trading account and not a bank account. Therefore, in this case, profit element should be taxed and not the peak credit.
9.14 Now the third issue before us is the working of quantum of taxable income. In this case we find that financial statement certified by Chartered accountant and prepared as per IFRS were filed by the assessee during the assessment proceedings.
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9.15 We also note that the ld. CIT-A during the appellate proceedings called for the remand report from the AO vide letter dated 12-2-2018 whether the transactions recorded in the cash & metal ledger statement are of derivative trading or purely banking transaction. This clarification was required due to the fact that the PCIT (Central) has written to the ITSC that these statements are showing trading in derivatives. But the AO in his remand report remained silent and just submitted that these statements are received under DTAA agreements which are confidential. From the remand report, we note that there was no defect pointed out in the observation of the ld. CIT-A by the AO.
9.16 In addition to the above, we also note that the ld. CIT-A has clear given finding that the assessee during the assessment proceedings has clarified the entries reflecting in the statements three times, manner of the profit to be determined from these statements which were tallying with the materials provided by FT & TR division.
From the above it is clear that the AO was furnished sufficient opportunity for his comments/ remarks in the remand report to show whether the cash & metal ledger statements are derivative trading or Bank Transaction but he failed to clarify the same. Similarly, the AO did not point out any defect in the calculation & the determination of profit from these statements as suggested by the assessee during the assessment proceedings. Therefore we are of the view that no further opportunity ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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should be furnished to the Revenue. In this regard we find support & guidance from the case of deputy commissioner of income-tax vs. Abdul Latif reported in 139 ITD 255 where it was held as under:
"...We do not feel to provide second inning to the revenue because the entire facts were before the Assessing Officer and the Assessing Officer made an addition on wrong grounds."
9.17 We also note that the Ld. DR has not brought any defect in the finding of ld. CIT-A. Thus we have no alternate except to confirm the order of ld. CIT-A. Hence we uphold the order ld. CIT-A for the quantum of profit element of Rs. 1,04,61,096/- and thus the ground of appeal of Revenue is dismissed.
Now coming to Assessee ground of appeal in ITA 160/Rjt/2018
10. The grounds of appeal of the assessee involve two components. Firstly, the confirmation of the profit of Rs. 1,04,61,096.00 and secondly the investment in such business for Rs. 2 crores.
10.1 We have already upheld the order of ld. CIT-A confirming the addition of Rs. 1,04,61,096.00 vide Para No. 9.00 of this order. Therefore we dismiss the ground of appeal of the assessee.
Now coming to the other ground of appeal of the assessee for the confirming the addition of Rs. 2 crores on account of investment in the business.
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11. In this case, we note that the learned CIT-A has made the addition of Rs. 2 crores on ad-hoc basis. The learned CIT-A was of the view that the assessee must have made some investment in his undisclosed business therefore, the addition was made.
11.1 However as per the settled law the additions during search proceedings can be made if these are based on incriminating materials. The search proceedings are special proceedings which require the addition in respect of only those items which are supported on the basis of corroborative evidence. In the instant case, we note that there was no corroborative evidence found during the course of search suggesting the addition of Rupees 2 crores on account of investment in the business of the assessee. Therefore in our considered view, such addition without any incriminating material is not sustainable. In holding we find support & guidance from the judgment of the Hon'ble Delhi High Court in the case of CIT Central-III vs. Kabul Chawla reported in (2016) 380 ITR 573 (Del) wherein it was held as under :
"iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material."
v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made.
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The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings.
vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.
vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. Conclusion
38. The present appeals concern AYs, 2002-03, 2005-06 and 2006-
07.On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed.
11.2 Similarly we also place our reliance in the case of PCIT vs. Saumya Construction Pvt. Ltd. reported in 387 ITR 529 where the Hon'ble Gujarat High Court has held as under :
"Section 153A bears the heading 'assessment in case of search or requisition'. From the heading of section 153, the intention of the Legislature is clear, viz., to provide for assessment in case of search and requisition. When the very purpose of the provision is to make assessment in case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition. Thus, while in view of the mandate of sub-section (1) of section 153A in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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year in which the search is conducted or requisition is made, any addition or disallowance can be made only on the basis of material collected during the search or requisition. In case no incriminating material is found, the earlier assessment would have to be reiterated."
11.3 From the above it is clear that there cannot be any addition without finding any incriminating document found during the search. The addition in the case on hand was made by the ld. CIT-A on ad-hoc basis without any incriminating materials.
11.4 There were incriminating documents found during the search in relation the derivative transactions representing the undisclosed business of the assessee. Therefore in such circumstances, only the profit element from such transactions can be added to the total income of the assessee. In this regard, we also find the support and guidance from the judgment of Hon'ble Gujarat High Court in the case of CIT Vs. President industries reported in 258 ITR 654 wherein it was held as under:
"The amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represent the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that the investment by way of incurring cost in acquiring goods which have been sold has been made by the assessee and that has also not been disclosed, the question whether entire sum of undisclosed sales proceeds can be treated as income, answers by itself in the negative."
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11.5 We also rely on the case of Abhishek Corporation reported in Income Tax Reference No. 15 of 2003 wherein the Hon'ble Gujarat high court has held as under:
"In view of the aforesaid legal position that not the entire receipts, but the profit element embedded in such receipts can be brought to tax, in our view, no interference is called for in the decision of the Tribunal accepting such element of profit out of total undisclosed receipt. We therefore uphold the order passed by the Tribunal. Reference stands answered against revenue and in favour of assessee."
11.6 In view of the above, we do not uphold the finding of learned CIT- A. Accordingly, we direct the AO to delete the same. Hence the ground of appeal of the assessee is partly allowed.
12. The next issue raised by the Revenue vide ground no. 3 & 4 in this appeal is that ld CIT(A) erred in deleting the addition of Rs. 3,77,42,710.00 on account of unexplained credit entries.
12.1 The AO during assessment proceedings observed certain credit entries in standard bank account number 13446 of Rs. 3,77,42,710/- from the certain parties as detailed under :
F.Y. 2007-08 Date Details Credit(USD) Conversion Total rate of USD in INR 08/01/2008 DEEPU 99213.5 39.27 3896114.1 JEWELLERS 09/01/2008 DEEPU 99213.5 39.29 3898098.4 JEWELLERS 14/01/2008 CASH 557988.64 39.29 21923374 ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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RECEIVED 26/03/2008 SHREEJI 199928.35 40.14 8025124 INTL 37742710 12.2 The AO requested the assessee to submit the complete details of these credit entries.
12.3 Assessee vide letter dated 06/07/2017 submitted that the information during settlement proceeding has already been furnished along with sample confirmation from such parties who have given these loan to Mehul Nandha who is the person enjoyed such fund.
12.4 However, the AO disagreed with the submission of the assessee on the ground that assessee is only reiterating the same story that he is not operating the same bank. Furthermore, as per the settlement commission, the confirmation from the party ,i.e. Deepu Jewellers is defective.
12.5 AO also held that these credit entries are unexplained and made addition u/s 69A for Rs. 3,77,42,710/- to the total income of the assessee.
13. Aggrieved, assessee preferred an appeal to ld. CIT(A). The assessee before the ld. CIT(A) submitted that three entries out of total four credit entries were wrongly posted in the statement which were immediately reversed in the statement. Therefore the relevant disputed amount under consideration is only for Rs. 38,98,098/- whereas the AO ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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grossly erred in adding the entire cash credit in his account without the application of mind.
13.1 The assessee also contended that Mehul Nandha had arranged these funds from his associates and friends. He has shown these receipts in the audited financial statement as creditors filed during the assessment proceedings. The confirmation from these parties has also been filed during the assessment proceedings.
13.2 The ld CIT(A) after considering submissions of the assessee deleted the addition made by AO by observing as under:
"From the above, it is seen that entries of USD 99,213.50 dated 08.01.2008, USD 5,57,988.64 dated 14.01.2008 and USD 1,99,928.35 dated 26.03.2008 credited to the cash ledger statement are immediately reversed without any further application of said funds. It is also seen that against the reversal entry of USD 5,57,988.64 dated 14.01.2008, the narration mentioned is "Posting Error". Therefore, the appellant had not benefitted by the said funds credited to the cash ledger statement and hence, the plea of the appellant that the said entries should not be added in the working is to be accepted as it clearly mentioned in the account itself that these credits were immediately reversed being an error. On account of this, addition made by the AO in respect of credit entries of USD 8,57,130.49 equivalent to Rs.3,38,44,612 is deleted.
10.2 In respect of credit entry of USD 99,213.50 in the name of "Deepu Jewellers", the AR stated that the appellant had furnished confirmations from the depositor before Hon'ble Settlement Commission and also before the AO confirming that they have lent funds to Mehul Nandha. Copy of said confirmation is also enclosed with the written submissions made to this office. Further, during the course! of appellate proceedings, AR relied upon the comments of Pr. CIT in his Rule-9;
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report dated 18.12.2015 submitted before Hon'ble Settlement Commission, which as under:
"16.1 The competent authority, UAE, Dubai, has supplied the bank statement of M/s. Deepu Jewellers, LLC Dubai alongwith its KYC documents. As per the documents, the following persons are the share holders In the company.
a. Mr. Abdulla Ramadan Moosa b. Mr. Kishore Ratilal Dhakan c. Mr. Deepak Ratilal Dhakan 16.2 As per the KYC information received from Foreign Tax Authorities, the applicant is not the owner/beneficiary of M/s. Deepu Jewellwers LLC."
The AR argued that as the Pr.CIT was having sufficient documents in respect of M/s. Deepu Jewellers LLC-that is, KYC data, bank statement etc., it cannot be said that funds credited into the cash ledger statement by M/s. Deepu Jewellers LLC is flown from the appellant or is in the nature of unexplained credit. The above contention of the AR of the appellant is accepted as the AO was having sufficient documents in form of KYC Data and bank statement of the depositor namely M/s. Deepu Jewellers LLC. Further, learned Pr. CIT categorically reported on the basis of data supplied by FT&TR Division that as per the KYC information, the appellant is not the owner or beneficiary of M/s. Deepu Jewellers LLC. Under the said facts and circumstances, it cannot be said that the appellant failed to explain the source of funds credited by M/s. Deepu Jewellers LLC into the impugned cash ledger statement. Therefore, in respect of funds credited by M/s. Deepu Jewellers LLC in the cash ledger statement, the same is treated as explained and hence, addition made by the AO of USD 99,213.50 equivalent to Rs. 38,98,098 is deleted. This ground of appeal is allowed."
13.3 Being aggrieved by order of ld. CIT(A) Revenue is in appeal before us.
14. Both the parties relied on the order of authorities below as favorable to them.
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15. We have heard the rival contentions and perused the materials available on record. On perusal of the cash ledger statement, it is evident that three out of four entries credited has been reversed in the very next entries on page no 105 & 106 of paper book-1 part (ii) of the statement. Thus in our considered view, the question of the addition of these three entries do not arise.
15.1 The only entry left is from M/s Deepu jewellers LLC which was not reversed in the statement amounting to Rs. 38,98,098.40. In this regard we note that the Revenue authorities of Dubai has supplied bank statement, KYC data of Deepu Jewellers, documents of such entity which reveals that assessee is not the owner or beneficiary of M/s Deepu jewellers LLC. Therefore, it is clear that the fund has flown from third party and money does not belong to assessee and on the same basis the ld. CIT-A deleted such addition.
15.2 However we note that the assessee has filed the confirmation from M/s Deepu Jewellers justifying that he has taken loan from the party. However, we note that the AO made the addition on the basis of ITSC order u/s 245D(4) of the Act wherein it observed as under :
"Only two confirmations of Deepu Jewelers LLC and sanaman Electronics have been filed by the applicant as late as 8/02/2016. However, in these circumstances, even the details of the transactions are not given."
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15.3 Thus the AO was of the view that the confirmation from M/s Deepu Jewellers was defective as far as the complete address was not mentioned as well as the details of the transaction was not furnished. However, we note that there was the complete address of M/s Deepu Jewellers in its confirmation as detailed under:
"From:
Deepu Jewellers LLC The Gold Centre, Al Khor Street, Al Ras, P.O. Box No.1172, Dubai U.A.E. January 22, 2016"
15.4 Thus the finding of the AO is incorrect that there was no address of M/s Deepu Jewellers in its confirmation. However, it is an undisputed fact that there was no detail of the transactions in the confirmation filed by it. On perusal of cash ledger statement, we further note that there were frequent transactions showing both debit & credit entries of M/s Deepu Jewellers in the year under consideration and subsequent years. Therefore in our view, such amount is either reflecting the trading transaction of sale & purchase or loan receipts & payments. If it represents the sale & purchase transaction then only the profit element can be added to the total income of the assessee.
15.5 In case it represents the loan receipts & payments transaction then nothing can be added to the total income of the assessee. It is because the AO was in his possession of the basic details of M/s Deepu Jewellers, i.e. ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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KYC documents along with the confirmation and the bank statement of M/s Deepu Jewellers. Thus the onus is on the Revenue to prove that the transactions with the assessee of M/s Deepu Jewellers were representing the income of the assessee.
15.6 Regarding the element of the profit, we have already upheld the order of the ld. CIT-A vide Paragraph No. 9 of this order. Therefore there cannot be a further addition on account of the profit element in the transactions between the assessee and M/s Deepu Jewellers.
Further, the business nature of assessee is also not of providing consultancy etc. Thus we hold that the amount received by the assessee represents the loan as contended by him. Therefore, we uphold the decision of ld. CIT-A, accordingly we dismiss the appeal of Revenue.
16. The 3rd issue raised by the Revenue in ground No. 5 is that the ld. CIT-A erred in deleting the addition made by the AO on account of unmatched entries in STCSH statement of Rs. 3,78,49,800/-.
16.1 The AO during assessment proceedings observed that in respect of STCSH (Precious LON) ledgers supplied by the Revenue Authority of Singapore is a specific account of M/s Shreeji trading Co which is a proprietary concern of the assessee. The account contains certain transaction made by the assessee for importing the gold through the state ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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trading corporation a Government of India Enterprise. The entries in cash ledger are in USD while in metal ledger entries are in "Troy Ounce" i.e. (1 T/oz=31.1348grams) 16.2 The AO vide letter dated 16/01/2017 requested assessee to furnish explanation of entries in these ledgers.
16.3 Assessee submitted reconciliation of these entries wherein the AO found some discrepancies. As per AO, there were differences between data in STCSH accounts and data submitted by the assessee. Therefore AO asked assessee vide letter dated 16/06/2017 to explain these discrepancies.
16.4 Assessee furnished reconciliation of sample entries. These same sample entries were also submitted before investigation wing, in the application to settlement commission and also during the proceeding before settlement commission. The assessee filed the sample entries only, though the AO asked to submit complete reconciliation of entries.
16.5 The assessee before the AO repeatedly stated that STCSH account is related to state trading corporation. Therefore he has his limitation to explain all the entries. However, AO noted that HTML document shows three user pankaj, STCSH, STSH. This STCSH account was sent by Singapore authority along with account no. 13446 (pankaj). All this ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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clearly indicate that the assessee had accessed STCSH online account and all transactions in this account are carried out by assessee. As per the AO this was the reason that assessee did not share username and password of this account with the investigation wing.
16.6 The AO also issued notice u/s 133(6) to state trading corporation. Till the finalization of assessment AO could not receive full replies. From the partial replies, the AO observed that airway bill no. mentioned in the book of state trading corporation is also appearing in the STCSH account. Therefore, AO directed the assessee to furnish the airway bill no. wise reconciliation in terms of quantity.
16.7 The assessee in his reply explained the meaning of dr./cr. entries in metal and cash ledger statements which read as under:
Metal Ledger Statement Cash Ledger Statement Debit in the metal ledger statement Debits in the cash ledger denotes the quantity of metal that is statement denote the value of released by SBL to STC for supply of metal in USD that is to be paid the same to M/s. Shreeji Trading Co. on account of lifting of quantity by STC at the instance of M/s.
Shreeji Trading Co.
Credits in the metal ledger statement Credits in the cash ledger refers to the quantity of metal that is statement are the payment lifted (may be in tranches) by STC at made by STC to SBL in USD in the instance of M/s. Shreeji Trading respect of the quantity lifted for Co. supply it to M/s. Shreeji Trading Co.
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16.8 Assessee also submitted reconciliation again highlighting some reversal entries which is reproduced as below:
SHREEJI TRADING CO.(PROP. PANJAK C. LODHIYA) Airway Bill Wise reconciliation of Release and Lifting F.Y. 2007-08 / A.Y. 2008-09 Date Airway Bill T/Oz T/Oz Ref.No. Date as Quantity Metal No. Reversal of STC per bill in T/Oz Ledger Invoice of STC Page No. 04-02-08 7419643724 1279.6 A591 07-02-08 7419643724 A590 05-02-08 159.95 5 7419643724 A589 04-02-08 479.85 4 7419643724 A598 22-02-08 159.95 8 06-02-08 7419643724 959.7 A593 11-02-08 7419643724 A592 11-02-08 319.9 5 7419643724 A591 07-02-08 639.8 5 08-02-08 7419643724 639.8 08-02-08 7419643724 319.9 A593 11-02-08 13-02-08 7419643724 319.9 A594 14-02-08 7419643724 A593 11-02-08 959.7 6 14-02-08 7419643724 159.95 A594 14-02-08 319.9 6 15-02-08 7419643724 319.9 A596 19-02-08 18-02-08 7419643724 319.9 A596 19-02-08 19-02-08 7419643724 319.9 A597 20-02-08 319.9 7 20-02-08 7419643724 159.95 A596 19-02-08 799.75 7 04-03-08 7419643724 159.95 A576 05-03-08 159.95 8 07-03-08 7419643724 159.95 A577 10-03-08 159.95 8 11-03-08 7419643724 159.95 A578 12-03-08 159.95 9 14-02-08 7419643724 479.85 A595 15-02-08 479.85 7 12-03-08 7419643724 159.95 A579 13-03-08 159.95 9 13-03-08 7419643724 159.95 A580 14-03-08 159.95 9 18-03-08 7419643724 159.95 A581 19-03-08 159.95 10 19-03-08 7419643724 159.95 A582 19-03-08 159.95 9 20-03-08 7419643724 319.9 A584 25-03-08 479.85 10 20-03-08 7419643724 319.9 A583 20-03-08 319.9 10 ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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25-03-08 7419643724 479.85 A585 26-03-08 479.85 10
26-03-08 7419643724 319.9 A587 28-03-08
27-03-08 7419643724 159.95 A586 27-03-08 159.95 11
28-03-08 7419643724 319.9 A588 31-03-08 319.9 11
28-03-08 7419643724 159.95 A587 28-03-08 479.85 11
19-03-08 7419643724 159.95 A584 25-03-08
Total 7997.5 7997.5
SHREEJI TRADING CO.(PROP. PANJAK C. LODHIAY) Airway Bill Wise reconciliation of Release and Lifting F.Y. 2008-09 / A.Y. 2009-10 Date Airway Bill T/Oz T/Oz Ref.No. Date as Quantity Metal No. Reversal of STC per bill of in T/Oz Ledger Invoice STC Page No. 04-04-08 16021867613 321.48 C40 15-04-08 321.48 13 30-05-08 16021867613 321.48 47 15-07-08 321.48 20 06-06-08 16021867613 803.7 33 19-06-08 803.7 19 17-06-08 16021867613 803.7 32 09-06-08 803.7 18 10-07-08 16021867613 160.74 48 11-07-08 160.74 20 31-07-08 16021867613 321.48 45 31-07-08 321.48 22 14-07-08 16021867613 1607.4 -
28-07-08 16021867613 2411.1 -
28-07-08 16021867613 482.22 46 29.07.08 482.22 21
08-08-08 16021867613 2089.62 55 26.08.08 2089.62 25
06-08-08 16021867613 1607.40 54 11.08.08 1285.92 23
16021867613 53 07.08.08 321.48 23
14-07-08 16021867613 321.48 31 04.06.08 321.48 17
Total 7233.3 7233.3
16.9 AO also noted from perusal of above mentioned reconciliation that assessee has made the claim of some reversal entries. AO did not find reversal of these entries in books of STC in the submission of STC till the date of order.
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16.10 An entry dated 08/02/08 was reversed on the same day in STCSH account. The AO held that as per explanation of dr /cr entries submitted by the assessee is that each Dr. entry in the metal ledger is quantity released by SB and each Cr. entry is quantity lifted by assessee. From this it is logical to assume that these entries were for released and lifted of quantity of gold and appropriated by assessee. Accordingly, the AO added entry of 639.8 t/Oz, i.e. 19.9 kg and reversed dated 08/02/08 as unexplained money u/s 69A.
16.11 In these reconciliations the AO also noted that there are certain entries in the STCSH account which were matched by assessee through multiple bills of different dates and periods.
16.12 AO opined that as per the standard procedure of agencies importing bullion there should be a separate bill for each purchase because rates are decided for each indent/lot wise.
16.13 The Entry of 639.8 t/Oz, i.e. 19.9 kg dated 16/01/2008 was not reflecting in the books of assessee for the year under consideration on the same date. In the reconciliation submitted by the assessee corresponding entries for the above entry was showing in multiple bills of multiple dates. Following the above AO added entry of 639.8 t/Oz i.e. 19.9 kg dated 16/01/2008 as unexplained money u/s 69A. Accordingly, the AO ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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made the total addition of total 39.8 kg taking rate of Rs. 951000/ kg i.e. Rs. 3,78,49,800 u/s 69A of the Act as unexplained money.
17. Aggrieved, assessee preferred an appeal to ld. CIT(A) where the issue was raised in two separate ground. First for reversal entry dated 08/02/08 and second for separate bill matching for entry dated 16/01/08 in STCSH account. Accordingly the ld. CIT-A also decided the issue in two different Paragraphs. However before us revenue raised this issue in single ground.
17.1 For the first reversal entry dated 08/02/2008 assessee before the ld. CIT(A) submitted that in the metal and cash ledger statement client name is state trading corporation, which proves that the transactions are between STC and SB for appellant. Further if reversal entries are not reflecting in STC books he has nothing to do in this regard as he has no control over the books of STC.
17.2 Assessee also submitted that it was already explained to AO that he made the payment in INR to STC and STC made payment in USD to SB which has also been reconciled. There were no variances or discrepancies in it.
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17.3 Assessee has submitted the whole terminology and modus operandi relating to transaction with SB through STC which is reproduced here.
"(i) However in this connection, for the sake of brevity, definition / literal meaning of some technical terms / phrases, parties involved in the transactions and modus operand! / flow of transaction in general are summarized as under:
A. Words and Phrases:
• Indent : An official order or requisition for goods. • Airway Bill : Is a receipt issued by International airline for goods and evidence of the contract of carriage but it is not document of title to the goods.
• Deliverych : Document authorising the vaulting agency / logistic partner to allow the holder to lift goods as mentioned in the challan on showing the challan.
B. Parties Involved:
• Appellant : Shreeji Trading Co., - Purchaser of bullion from STC.
• STC : State Trading Corporation - Importer of Gold • SB : Standard Bank-Supplier/ Exporter of Bullion • Courier : Bricks, G4s, Rhenus - Logistic and vaulting agencies C. Modus operandi :
(i) Request letter to place an Indent with SB is given by appellant to STC for import of bullion.
(ii) On receipt of such request, STC Informed SB to supply consignment of bullion as per indent. - No involvement of Appellant
(iii) Rates and custom duty are decided between appellant, STC and SB.
(iv) SB transfers its stock / sends bullion through their logistic supply chain / courier who generates AIRWAY bill for shipment and carry goods to destination - No involvement of Appellant.
(v) Still Ownership rests with Standard Bank only.
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(vi) On arrival of bullion, generally STC collects customs duty from the appellant for clearance purpose. Ownership of that bullion is still lies with SB / logistic partner / vaulting agency as per their understanding. No Involvement of Appellant.
(vii) Thereafter, as per requirement appellant in form STC for purchase and supply of bullion out of above stated bullion.
(viii) STC raise invoice in INR which includes cost of bullion as per rate decided, insurance, freight, customs duty and all other applicable charges. Generally STC also mentions the rate in USD to be paid by them to SB with quantity of gold.- No involvement of Appellant
(ix) Appellant makes payment as per Invoice in INR to STC. (x) In turn STC pays consideration in favour of SB in USD.
(xi) On receipt of such payment SB issues Delivery Order on STC as well as logistic / vaulting agency for allowing lifting of gold to STC or as per the instruction / order of STC. -o involvement of Appellant.
(xii) Thereafter, STC issues DO / delivery challan to appellant, for lifting of gold from vaulting agency."
17.4 Apart from it assessee draws the ld. CIT-A's attention to metal ledger statement where it can be clearly seen that entry has been reversed in the very next entry.
17.5 For the next entry dated 16/01/08 which is reconciled by assessee through multiple bills. The assessee contended before ld. CIT-A that invoices were generated and issued by STC and each such invoices contain details like invoice no., delivery note no., quantity, rate, custom duty etc. 17.6 Copy of purchase account and account of STC is also on record which after verification AO found multiple bills on different dates issued ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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by STC is recorded and tallied. As regard to standard procedure adopted by the canalizing agency again it is reiterated that the assessee has no control over it and STC is undertaking of the Government of India to import precious metals in India.
17.7 The ld CIT(A) agreed with the contention of the assessee and deleted the addition made by AO for both the entries.
17.8 For first reversal entry dated 08/02/2008 the ld. CIT-A found entire purchases were duly supported by airway bill except some entries due to reversal in the STCSH ledger on the same date and it is just because of cancellation of order. After placing an order, sometimes, the order is cancelled, and corresponding entries are passed in cash and metal ledger nullifying the effect of order entries.
17.9 The ld. CIT-A held that no corresponding incriminating data/ evidence of unaccounted purchases could be brought on record suggesting that these are unaccounted transactions made by the assessee.
17.10 The ld. CIT-A also found that reconciliation statement submitted by assessee is correct and entry of 639.8 t/oz dated 08/02/08 is reversed on the same day as the order was cancelled. Accordingly the ld. CIT-A deleted the addition made by AO.
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17.11 For the next entry dated 16/01/08 which is reconciled by assessee through multiple bills, the ld. CIT-A held that the order for the bullion is released by SB as per availability of funds, sometimes order is not lifted in one lot due to the scarcity of fund or due to low demand. Thus the order is lifted by the assessee in multiple lots. Accordingly STCSH issue multiple invoices. It does not mean that order lifted by multiple lot/invoices denotes unaccounted transactions. Further, there is nothing on record to show that the raising of multiple bills represents the unaccounted transaction of the assessee. Accordingly the ld. CIT-A deleted the addition.
17.12 Being aggrieved by order of ld. CIT (A) Revenue is in appeal before us.
18. Both the parties relied on the order of authorities below as favorable to them.
We have heard the rival contentions and perused the materials available on record. In the instant case, it is a fact on record that the cash ledger statement is not a bank account and both the parties have not doubted on it. It is an account of bullion imported by assessee from SB through state trading corporation. This fact is also accepted by AO.
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18.1 In respect of first reversal entry dated 08/02/08, on the perusal of STCSH ledger it can be seen entry dated 08/02/08 is reversed on the same day which is not doubted by the AO as well. The only basis of disallowance made by AO is explanation given by assessee of dr/cr entries in cash and metals ledger.
18.2 According to which each Dr. entry in the metal ledger is quantity released by SB and each Cr. entry is quantity lifted by the assessee. Since the order entry and reversal entry thereof was debited and credited in the metal ledger, AO treated it as normal order and released entry. The logic of AO is ridiculous as the transaction is reflecting in normal course of business. If one makes sales return though his sales will be counted just because in sales ledger it is reflecting.
18.3 AO should have seen the effect of these Dr. and Cr. entries in whole and not just by catching the words of assessee. Very next reverse entry after the order entry means the above original order entry is nullified either by reason of cancellation of the order or by any other reason.
18.4 In respect of second entry dated 16/01/08 which is reconciled by assessee through multiple bills AO made this addition only because assessee in respect of some entries in metal ledger submitted reconciliation in his book on the basis of multiple invoice/ date of issue.
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AO while doing so stated that canalizing agency importing bullion should follow the procedure of separate bill of each purchase for issuing of invoice because rates are decided individually for each indent/lot.
18.5 On the other hand assessee contended that invoice is raised by STC and raising invoice is not in his hands. Therefore whatever invoice is raised by STC he has duly recorded in his books which AO also have not doubted. This is the reason STC issues multiple invoices because assessee sometimes lifts the bullion from port in parts due to shortage of funds and lack of demand etc. 18.6 The AO in his order observed that as per standard procedure a separate bill for each purchase should be issued by the canalizing agencies i.e. state trading corporation as the rate is decided for each indent/lot. However AO did not mention whether it is his procedure which he wants agencies to follow or it is the procedure laid down under any law or it is a common practice which is being followed by other importing agencies or whatever it is best known to AO.
However in each case addition made by AO will not sustain. It is because the AO himself found the airway bill no. wise entries which were reconciled and found correct. Thus there is no question of making the addition only on this basis that STC should not have issued the multiple bills. Further, there is nothing more on the record which indicates that ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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these multiple invoices amounts to unaccounted transaction of assessee. Therefore we uphold the order of ld. CIT(A) and dismiss the appeal of Revenue.
19. The 4th issue raised by the Revenue in ground No. 6 is that the ld. CIT-A erred in deleting the addition of Rs. 9,01,43,236/- made on account of unexplained credit entries in the unallocated gold/silver account of STCSH.
19.1 The assessing officer during the assessment proceeding directed the assessee to explain the entries in respect of STCSH (Precious LON) metal ledger statement (unallocated Gold) and STCSH (Precious LON) metal ledger statement (unallocated silver) received from Singapore revenue authorities.
19.2 The assessee in his reply dated 27th June 2017 explained the meaning of debit and credit entries in these statements which are as under:
Credit in Unallocated Gold in Debit in Unallocated Gold or Silver Silver Ledger Statement Credit in unallocated gold/silver On finaltsation of the location for ledger statement pertain to the delivery of goods, the entry quantity of metal appropriated to previously made is reversed by M/s Shreeji Trading Co. debiting the exact quantity of Through The State Trading metal that was earlier credited Corporation of India (STC) but and therefore as and when the as we are transecting with location for final delivery is various locations of STC at one confirmed , the credit entry made ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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time , sometimes the final earlier gets nullified by debiting
location of delivery of the goods the same and the final effect of
is not decided. Therefore, as the which is given in metal ledger
destination of the goods is not statement
yet decided the same is kept
under the head of unallocated
metal ledger statement.
19.3 The AO again issued a final show cause notice to explain these entries.
19.4 The assessee in his reply dated 06th July 2017 contended that all the entries in unallocated gold & silver accounts have been duly explained. Thus it is not clear whether any further clarification/information is required or show cause is issued to make the addition and accordingly, assessee requested the AO to clarify the above confusion so that required submission may be filed.
However AO disregarded the contention of the assessee and observed that assessee could not explain entries in unallocated metal ledger statement matching with entries in the metal ledger statement. The AO also observed that the view taken by the assessee that setting off of the entries has no effect is not in line with settled accounting principles.
19.6 AO also observed that corresponding entries of unallocated statement are also recorded in cash ledger statement. The AO on analyzing the narration of entries in cash ledger statement found that ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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there are different trade numbers as sale and purchase transactions which were denoted by 'S' and 'P' respectively.
19.7 The AO held that assessee claimed these unallocated gold and silver quantity has been finally delivered. Therefore, assessee ought to have explained these entries by showing in his books of account but the same were not found in his books of account during the year under consideration.
19.8 Accordingly, the AO made the addition of Rs. 5,89,63,46,541/- i.e. 94.78784 kgs of gold, of the total entries appearing in the statement considering them as sale and purchase discussed as above.
20. Aggrieved, assessee preferred an appeal to ld. CIT(A) where the assessee objected on the rate taken by AO for working out the impugned addition. Accordingly, the CIT(A) sought clarification from the AO to justify the rate taken by him. In response to such notice, AO replied that he has passed the rectification order dated 27th February 2018 wherein the addition was reduced to Rs. 9,01,43,236.00 only in the order passed under section 154 of the Act. Thus CIT(A) adjudicated this ground only for Rs. 9,01,43,236/-.
20.1 During the appeal proceeding before the CIT(A), the assessee made submissions which can be summarized as under:
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(1) The assessee has not made any payment to STC. Similarly, STC also did not make any payment to SB for this unallocated gold/silver.
(2) A reconciliation statement explaining the allocation of gold/silver from unallocated gold/silver is submitted which is verifiable and self-explanatory.
(3) Revenue has nowhere mentioned in data providing along with various notices issued that unallocated gold/silver metal ledger statement are unaccounted and assessee carried bogus transaction with SB.
(4) All the relevant data were on record such as invoices issued by STC, airway bill wise reconciliation which is verifiable and where no discrepancies were found.
(5) AO himself admitted that corresponding Dr/Cr entries has been entered in cash ledger.
(6) These transactions are temporary and get settled by actual release and subsequent lifting of the goods. For this trail an annexure 'A' is also submitted.
20.2 The ld CIT(A) agreed with the contention of the assessee and observed that in the statement of unallocated gold/silver each entry is reversed on the same date for the same quantity. Even the metal ledger statement shows "CLIENT NAME: STATE TRADNG CORPORATION INDIA (SHREEJI TRDG CO, RAJKOT)."
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20.3 The ld. CIT(A) also observed that AO's inference that each and every entry of unallocated metal ledger statement matching with that of metal ledger statement on that particular date and place is not explained, is practically not possible as unallocated gold/silver is not being purchased by the assessee. Further, it is subsequently released and lifted which is duly supported by bills issued by the STC in favor of assessee.
20.4 The ld. CIT(A) also observed that once the destination of these unallocated gold and silver is decided the assessee, these become parts of total purchases. Then there is no need for a separate nomenclature. The airway bills and purchase invoices issued by STC includes these unallocated gold and silver.
20.5 The ld. CIT(A) also asked a remand report from the AO to comment on the assessee's plea that each and every entry of unallocated gold is tallied with the books where invoices issued by STC is recorded.
20.6 The AO in his remand report contended that if the un-allocation of gold and silver is done regularly in business by assessee, then it should be in all the year. However the ld. CIT(A) disregarded the contention of AO and held that addition on the same issue is made in assessment year 2008-09, 2009-10, 2010-11 by AO therefore, contention of AO in remand report is not tenable.
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20.7 The ld. CIT(A) also observed in his order that the term is unallocated and not unaccounted cannot be termed as unaccounted purchase of assessee otherwise it will also be termed unaccounted sales of SB through STC which is a Government of India enterprise. Accordingly, CIT(A) deleted the addition of Rs. 9,01,43,236/- made by AO.
Being aggrieved by order of ld CIT(A) Revenue is in appeal before us.
21. Both the parties before us relied on the order of authorities below as favorable to them.
22. We have heard the rival contentions and perused the materials available on record. In the instant case the AO made the addition on the basis of entries found in the STCSH (Precious LON) metal ledger statement (unallocated Gold) and STCSH (Precious LON) metal ledger statement (unallocated silver) received from Singapore revenue authorities. As per the AO, the corresponding entries of these statements are also showing in cash ledger but assessee did not record these entries in his books.
22.1 Assessee in his submission to AO explained the meaning of dr/cr entries in these ledgers and also submitted annexure 'A' which is also submitted before us in Paper book-1 part (ii) at page no.126. In this ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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annexure, assessee tried to match that how entries of metal ledger statement are only appearing in unallocated ledger statement (gold & silver) which is later released by SB and lifted by appellant therefore, it is included in the normal purchase and does not need to record separately in the books. It is worth to mention here that although this annexure was available with AO however, he chose to remain silent on this annexure in his order. Further, the AO also did not mention any deficiency in Annexure 'A' in his order.
22.2 On perusal of this annexure we find that plea of the assessee that entries in the unallocated statement are only temporary and as soon as the location of delivery is finalized the entry has been reversed is tenable as assessee has matched entries of metal ledger statement with entries appearing in unallocated ledger statement (gold & silver). It can be seen in Annexure 'A' that entries of metal ledger statements in same quantity are appearing and then in the very next entry is reversed. Similarly, in the cash ledger statement, the corresponding entry of metal ledger statement unallocated statement in the same amount appears in cash ledger statement and the reversed entry of unallocated statement also appears in the cash ledger statement.
22.3 As these transactions are carried out by the assessee with SB through STC, in our opinion, it is not possible to enter into such ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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transaction which is unaccounted for appellant as in this case it would also be an unaccounted transaction of STC.
22.4 Further, AO also did not find any deficiency in Annexure 'A' and he could not bring any materials on record which shows that these transactions are unaccounted, he even could not bring any material on record or factual case of unaccounted purchase in his remand report submitted before the ld. CIT(A). Therefore we uphold the order of ld. CIT(A) and dismiss the appeal of Revenue.
23. The 5th issue raised by the Revenue in ground No. 7 is that the ld. CIT-A erred in deleting the addition of Rs. 2,40,77,958/- made on account of cash/premium payment reflected in STCSH account.
23.1 The AO during the assessment proceedings noted in cash ledger statement that the assessee has made payments as premium on different dates besides the payment for purchases. The details of the payment for such entries stand as under:
Sr. Date Amount USD Rate USD Total
No.
1 14.01.2008 1,39,044.54 39.16 54,44,984.186
2 14.01.2008 1,39,044.54 39.16 54,44,984.186
3 16.01.2008 2,90,364.80 39.30 1,14,11,336.640
4 24.01.2008 8,672.40 39.39 3,41,605.836
5 30.01.2008 9,517.03 39.24 3,73,448.257
6 30.01.2008 7,437.67 39.24 2,91,854.171
7 06.03.2008 8,672.40 40.14 3,48,110.136
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8 25.03.2008 10556.70 39.94 4,21,634.598
Total 6,13,310.08 2,40,77,958.012
23.2 On a question by the AO about the nature of these entries, the assessee failed to make any reply to the satisfaction of the AO. Therefore the AO treated such payment amounting to Rs. 2,40,77,958.00 as undisclosed income under section 69A of the Act and added to the total income of the assessee.
24. Aggrieved assessee preferred an appeal to learned CIT-A. The assessee before the learned CIT-A submitted that the transactions as discussed above are between the standard bank and the STC which are recorded in the books of STC.
24.1 STC has made these payments to the standard bank which subsequently was duly recovered from the assessee in the invoices raised by STC against the assessee. The assessee during the assessment proceedings has submitted this reconciliation explaining all the entries before the AO. However, the AO without pointing out any defect in the submission of the assessee has made the addition on the ground that the assessee failed to furnish the necessary details.
24.2 The learned CIT (A) considering the submission of the assessee deleted the addition made by the AO by observing as under:
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"14.2 The assessment order and the written submission have been carefully perused. According to the AO, the premium found mentioned in the ledger is over and above the purchase price paid by the appellant and is not recorded in the books of the appellant. He therefore held that the premium has been made out of unexplained sources and made the addition thereon. On the other hand, the AR contended that, this is included in the bill raised by the Standard Bank ltd., on STC in USD and subsequently by STC upon the appellant in INR. The AO failed to appreciate that, the premium is appearing in the same account wherein the purchases are recorded. If the purchases are accounted for, then obviously the premium would also be accounted for. The premium being clubbed in the purchase cost and in the invoice raised by the Standard Bank Ltd and STC, has been met by through bank. Hence, the question of treating premium as unexplained fails to survive, merely because, this is not recorded under separate This is an expenditure and payment made through bank. Any prudent businessman would record this expenditure. There is no logic in not recording the same in the books. It is clubbed in the total purchases and hence, there is no separate mention. Secondly, the Cash ledger statement of STCSH also shows the amount of premium charged by Standard Bank Ltd, Singapore. The appellant also produced a copy of invoice. In the said invoice there is mention of cost of goods and the premium charged. This is clearly reconcilable. Therefore, vide this office letter dated 12.2.2018, the AO was asked to verify the factual position, as stated by the appellant. The AO filed reply dated 28.2.2018 as under:
"During the course of assessment proceedings it is noticed that the assessee has made cash payments and premium charges on various dates. Since these payments have been made over and above the amount of purchases, by the assessee and also considering to the fact that these entries are not explained by the assessee i.e., un reconciled, the amount involved therein was brought to tax.
Further, while providing the data of unallocated metal ledger statement, the concerned Revenue Authority has not put such a version which has been put forth by the assessee. In absence of the same, the version of the assessee is not acceptable."
From the above reply it can be seen that, the AO had only pressed the events leading to the addition, without carrying out a single ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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verification. He also relied upon the fact that, this version of the appellant on the issue, has not been mentioned by the Revenue Authorities, Singapore while forwarding the information. However, it is also a fact that, no clarification was sought by the Department. On the other hand, the AR has, with documentary evidence in the form of bills raised by Standard Bank Ltd., Singapore and State Trading Corporation, a government enterprise, established that the said premium is included in the purchases and forming part of the invoice and hence, duly recorded in the books of the appellant, although not under a separate head. There is no difference in the value of total purchase price entered into regular books of the appellant (including premium) and the price shown in the Ledger statement STCSH (where premium is shown separately). Hence, the addition made on this ground, is deleted."
24.3 Being aggrieved by order of learned CIT-A, the revenue is in appeal before us.
25. Before us, both the parties relied on the order of authorities below as favorable to them.
26. We have heard the contentions and perused the materials available on record. In the instant case, the addition was made by the AO on the ground that the assessee has made payments besides the purchases. As such the AO found that there were seven payment entries on various dates reflecting in the cash ledger statement which were not connected with the purchases. The AO also did not find the submission made by the assessee satisfactory regarding these entries. Therefore the AO made the addition.
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26.1 However, on perusal of the order of learned CIT-A, we note that a remand report was called from the AO on the reconciliation filed by the assessee during the appellate proceedings. The copy of the reconciliation statement is placed on page 17 of the paper book-1 part (ii). However, the AO repeated the finding of his assessment order in his remand report without pointing out any defect in the reconciliation statement filed by the assessee.
26.2 The Learned DR for the revenue has also not brought anything contrary to the finding of learned CIT-A. Therefore we are inclined not to disturb the finding of the learned CIT-A. Hence this ground of appeal of the Revenue is dismissed.
27. The 6th issue raised by the Revenue in ground number 8 is that the learned CIT-A erred in deleting the addition for the Rs. 1,04,88,591/- on account of interest expenses under section 36 (1)(iii) of the act.
27.1 The assessee during the year has claimed interest expenses as detailed under:
Particulars Amount (Rs./-)
Bank Charges/Commission 1333047.21
Vijay Com Co.op Bank DD Interest 54975.00
RNSB CC Interest 7085091.00
Union Bank OD 2263902.00
Unsecured Loan Interest 1084623.00
Car Loan Interest 170405.87
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27.2 However, the AO during assessment proceedings observed that the assessee has own sufficient capital exceeding Rs. 30 crores. Therefore the AO was of the view that the interest expenses have not been incurred in connection with the business of the assessee. Accordingly, the AO made the disallowance of Rs. 1,04,88,591/- excluding the amount of bank charges and car loan interest. Thus the AO added a sum of Rs. 1,04,88,591/- to the total income of the assessee.
28. Aggrieved assessee preferred an appeal to learned CIT-A. The assessee before the learned CIT-A submitted that the interest was paid to the banks on the loans which were utilized for the business.
28.1 The learned CIT(A) after considering the submission of the assessee deleted the addition made by the AO by observing as under:
"19.2 Submission of the appellant and assessment order has been carefully considered. As per section 36, the following expenses are to be disallowed:-
a. Those which are not revenue in nature.
b. Those which are not incidental to business or are personal in nature c. Those not actually incurred or not incurred during the year The expenditure incurred and claimed in P&L account falls in none of the above category. The AO nowhere established that funds of the appellant were diverted for his personal purposes. Nor was it established that the expenses were not part of the business of the appellant and that the expenses did not pertain to the year under consideration. In fact, even the addition made of peak has been deleted supra. The appellant is a trader of bullion having substantial turnover and hence, financial charges are part and parcel of his business. It can only be disallowed if there is any irregularity. Only on the premise that the appellant has fund and there is no need for him to raise fund and ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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thus pay interest, is only hypothetical. Addition merely on the basis of a surmise, fails to survive. The appellant has incurred the expense in the course of his business and as per the need of the business, the evidence of the same are on record and there is no irregularity on the part of the appellant. In view of the above, the above disallowance made by the AO is deleted. This ground of appeal is allowed."
Being aggrieved by the order of learned CIT-A, the Revenue is in appeal before us.
29. Both the parties before us relied on the order of authorities below as favorable to them.
30. We have heard the rival contentions and perused the materials available on record. At the outset, we note that the AO has not brought anything on record during the assessment proceedings suggesting that the assessee has diverted interest-bearing fund to any non-business transactions. Therefore the addition was made by the AO on the basis of his surmise and conjecture. Accordingly, we find no reason to disturb the finding of learned CIT-A. Hence the ground of appeal of the revenue is dismissed.
31. The 7th issue raised by the revenue in ground number 9 and 10 is that learned CIT-A erred in deleting the addition made by the AO for the Rs. 79,37,455/- on account of hedging loss.
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31.1 The assessee in the year has claimed loss of Rs.79,37,455/- on account of "loss on hedging of metal on MCX". However, the AO during the assessment proceedings observed that such loss is in the nature of speculation. The opinion of the AO was based on the facts that MCX stock exchange Ltd was recognized by the Central government vide its notification number 46/2009 dated 22/05/2009. The impugned loss pertains to the assessment year 2008-09. Therefore, the assessee cannot take the benefit of the proviso (d) of section 43(5) of the Act. Accordingly, the AO disallowed the same treating such loss as speculation in nature.
31.2 Aggrieved assessee preferred an appeal to learned CIT-A where he submitted that the same hedging loss was also considered by revenue during the regular assessment and after due verification, it was allowed.
31.3 Assessee also contended that for the same hedging loss reopening under Sec. 147 of the Act also has been initiated by the department where the same was found allowable again. Therefore, when the issue has already been considered and allowed to assessee by the Revenue then further disallowing the same is not correct.
31.4 Further the assessee also contended that he deals in gold and bullion, and entered into these transactions to avoid the probable loss to ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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him from fluctuation of prices of bullion and gold therefore, this hedging loss should be allowed to them.
31.5 Assessee before Ld. CIT-A also relied on the judgment of the Honorable Gujarat High Court in the case of Jayesh Rai Chand Shah reported in 29 taxmann.com 151.
31.6 The learned CIT-A after considering the submission of the assessee deleted the addition made by the AO by observing as under:
"20.1 Facts of the case, submission of the appellant and assessment order have been carefully considered. It is seen that, the assessment for the year under consideration was reopened on this very ground and the AO vide order u/s 143(3) r.w.s. 147 dated 30.03.2013 had found the claim in order and the assessment was finalized accordingly without treating the hedging loss as speculative in nature. Here in the present proceeding, there is neither any change in circumstance nor in position of law. So the matter has already been Said to rest. Even otherwise, the matter is squarely covered by the decision of the Hon'ble Gujarat High Court in the case of Jayesh Raichand Shah [2013] 29 taxmann.com 151 (Gujarat) wherein it was held that: Loss incurred by wholesaler of gold and silver on hedging of metals in commodity exchange so as to insure against price fluctuation, is allowable speculative loss under section 43(5){a). The head notes of the decision reads as under:
Section 43(5), read with section 147, of the Income-tax Act, 1961
- Speculative transaction -Hedging Loss -Assessment years 2007- 08 and 2008-09 - In its returns, assessee, engaged in wholesale business of gold and silver, claimed loss under section 43(5)(a) on hedging of metals in commodity exchange to insure against price fluctuation - Said exchange was recognized in a subsequent year - In assessment it was not case of Assessing Officer that impugned hedging transactions, did not satisfy condition of section 43(5)(a) - Whether any post-assessment attempt on part of Assessing Officer to fall back on conditions required to be ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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satisfied for application of sub-clause (a) would amount to change of reasons recorded for reopening; and any such inquiry would be wholly a fishing inquiry - Held, yes - Whether, therefore, no reopening was to be allowed - Held, yes [Para 42] [In favour of assesses] Therefore, the AO is directed to treat the hedging loss as business loss. This ground of appeal is allowed."
31.7 Being aggrieved by order of learned CIT-A, the revenue is in appeal before us.
32. Both the parties before us relied on the order of authorities below as favorable to them.
33. We have heard the rival contentions and perused the materials available on record. At the outset, we note that the assessee has taken hedging for its business transactions. Therefore he is eligible for deduction under section 43(5)(a) of the Act. In this regard we also place our reliance on the judgment of the Honorable Gujarat High Court in the case of Jayesh Rai Chand Shah reported in 29 taxmann.com 151 wherein it was held as under:
"20. The main contention of the counsel for the petitioner that the reasons recorded do not disclose any belief on the part of the Assessing Officer that income chargeable to tax has escaped assessment still requires to be addressed. In this context, we may recall that the assessee having claimed the hedging loss in two consecutive years, the Assessing Officer has recorded reasons for reopening such a claim on the ground that the same was not allowable in terms of clause (d) of section 43(5) of the Act since MCX was not a recognized exchange till the notification was issued on 22- ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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5-2009. We may notice that the assessee who has been dealing in wholesale of gold and silver ornaments, labour job of gold and silver ornaments and also hedging in metal on commodity exchange, had claimed that while undertaking such hedging, in both the years he suffered certain losses. The case of the assessee is that such loss would be covered in clause (a) of section 43(5) and not clause (d) thereof. To appreciate such controversy, we may take note of the statutory provision. Section 43 defines certain terms relevant to income from profit and gains from business or profession for the purpose of section 28 to 41 unless the context otherwise requires. Sub-section (5) thereof provides for a definition of "speculative transaction". Relevant portion thereof reads as under:-
(5) "speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips:
Provided that for the purposes of this clause -
(a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or
(b) an eligible transaction in respect of trading in derivatives referred to in clause [(ac)] of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognized stock exchange;]
21. From the above provision, it can be seen that "speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity including stocks and shares is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. It is not in dispute that ordinarily the transactions entered into by the petitioner in hedging would fall under such definition of speculative transaction. However, sub-section (5) contains several exclusion clauses under the proviso containing clauses (a) to
(d). Clause (a) of the said proviso excludes a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him. Clause (a) thus covers hedging losses. Clause (d) on the other hand refers to an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 which is carried out in a recognized stock exchange." From the above, it is clear that the assessee has taken hedging transactions against the business transactions which is eligible for the non-speculative business transaction. Therefore we do not find any reason to interfere in the finding of learned CIT-A. Hence this ground of appeal of the revenue is dismissed.
In the result the filed by the Revenue is dismissed.
Now coming to the assessee's ground of appeal in ITA 160/Ahd/2018:
34. The Assessee has raised the following grounds of appeal:
"1.0 The grounds of appeal mentioned hereunder are without prejudice to one another.
2.0 The learned Commissioner of Income-tax (Appeals)-11, Ahmedabad [CIT(A)] erred on facts as also in law in rejecting ground of appeal related to validity of notice issue u/s.143(2) of the Income-tax Act, 1961 [hereinafter referred as to the "Act"]. That on facts as also in law, initiation of action u/s. 153A of the Act is invalid and assessment made on such invalid initiation deserves to be quashed and may kindly be quashed. 2.1 The order passed u/s. 153A of the Act without there being any incriminating material is totally unjustified on facts as also in law and may kindly be quashed.
3.0 The ld. CIT(A) erred on facts as also in law in retaining addition of Rs.1,04,61,096/- being profit from derivative trading done by one Shri Mehul Nandha in foreign account named PANKJ (13446) with Standards Bank. The addition retained is totally unjustified and uncalled for and deserves to be deleted and may kindly be deleted.
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3.1 The Ld. CIT(A) erred on facts as also in law in making addition of Rs.2,00,00,000/- on the alleged ground that the appellant failed to explain the source of initial investment made for carrying out the business of derivative trading through Standard Bank. The addition made without any notice of enhancement and without any basis, merely on suspicion is totally unjustified and uncalled for which deserves to be deleted and may kindly be deleted.
4.0 The Ld. CIT(A) erred on facts as also in law in confirming addition of Rs.5,82,72,750/- made on account of alleged unexplained investment in properties at Ahmedabad and Mumbai. The addition confirmed in total disregards to the facts on record is totally unjustified and uncalled for which may kindly be deleted.
5.0 The Ld. CIT(A) erred on facts as also in law in confirming addition of Rs.10,79,175/- on account alleged deemed rental income in respect of alleged unexplained investment in property at Ahmedabad. The addition confirmed is totally unjustified and uncalled for which deserves to be deleted and may kindly be deleted.
6.0 The Ld. CIT(A) erred on facts as also in law in confirming addition of Rs.1,80,000/- on account alleged deemed rental income in respect property other than self-occupied property. The addition confirmed is totally unjustified and uncalled for which deserves to be deleted and may kindly be deleted. 7.0 The Ld. CIT(A) erred on facts as also in law in confirming disallowance of commission expenses of Rs.3,00,000/- paid to Rajesh Bhatt made by the AO on the alleged ground of non deduction of tax at source. The disallowance confirmed is totally unjustified and deserved to be deleted.
8.0 Your Honor's appellant craves leave to add, amend, alter, or withdraw any or more grounds of appeal on or before the hearing of appeal."
35. The first issue raised by the assessee is general in nature, and hence no separate adjudication is required for the same.
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36. The ld. AR before us has not challenged the validity of the order framed under section 153A of the Act. Therefore we dismiss the ground no. 2 of the appeal of the assessee.
37. The 1st issue raised by the assessee in ground number 3 is that learned CIT-A erred in confirming the addition of Rs. 1,04,61,096 and Rs. 2 crores on account of profit from the undisclosed business and investment in such business.
38. At the outset, we note that the impugned issue has already been adjudicated by us in paragraph number 9.20 and 11.6 of this order along with the Revenue appeal in ITA number 92/AHD/2018. Accordingly, the issue raised by the assessee is partly allowed.
39. The second issue raised by the assessee in ground no 4.0 is that CIT-A erred in confirming the addition of Rs. 5,82,72,750/- made by AO on account of unexplained investment in the properties located at Ahmadabad and Mumbai.
40. The Assessee has made a declaration in KYC documents at the time of opening of the undisclosed foreign bank account. As per the declaration, the assessee was the owner of the following properties:
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1. Apartment in Ahmadabad purchased at USD 150 K equivalent to Rs. 64,74,750.00 which is rented at around USD 25000 per annum equivalent to Rs. 10,79,125.00 p.a.
2. An apartment in Mumbai purchased at USD 1.2 million equivalent to Rs. 5,17,98,000.00 On a question by the AO, the assessee submitted that the declarations in KYC at the time of opening of accounts are totally absurd figure which is far from reality. Such figures were declared to meet the eligibility criteria of the bank to open the bank account.
40.1 However, the AO disregarded the contention of the assessee and made the addition by observing that he duly certifies the declarations made before the banking authority. Further banking executive also certified the same.
40.2 The assessee before the settlement commission stated on oath that assessee opened bank accounts for Shri Mehul Nandha because assessee was able to qualify for margin and net worth requirement. Therefore all the informations furnished in KYC are true. Accordingly AO made the addition of 64,74,750/- + 5,17,98,000/- = 5,82,72,750/- u/s 69A of the Act as undisclosed and unaccounted investments.
41. The aggrieved assessee carried the matter to the ld. CIT-A where assessee submitted that there is no cogent material which proves that ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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declaration made for these investments are true except self-declaration made in KYC.
41.1 The assessee also submitted that value for the above investments is given without any documentary evidence. In-fact the assessee has declared higher value just to increase the net worth in KYC.
41.2 The assessee also claimed that where the addition is proposed under section 69A of the Act by the AO, then the onus in such cases is on the Revenue to prove the undisclosed investment.
41.3 However the ld. CIT-A disregarded the contention of the assessee and confirmed the addition made by AO by observing that assessee himself has made the declaration in the KYC of the bank account. Therefore the onus is on the assessee to prove the source of such investment in such immovable properties.
41.4 Being aggrieved by order of learned CIT-A, the assessee is in appeal before us.
42. Both the parties before us relied on the order of authorities below as favorable to them.
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43. We have heard the rival contentions and perused the materials available on record. We have already mentioned above in Para no. 11.1 that the search proceedings are special proceedings which require the addition in respect of only those items which are based upon incriminating material found during the search and supported by corroborative evidence. However, the AO, in this case, has made the addition for unexplained investment in property at Ahmadabad and Mumbai only by the self-declaration given by assessee in KYC form filed to the bank at the time of opening the bank accounts.
43.1 There is no denying that these self-declarations were gathered during the post-search inquiries but without any corroborative evidence except self-made declarations in this case.
43.2 In this regard, we find that CBDT has issued vide Instruction issued vide F. No. 286/98/2013-IT(Inv.II) dated 18th of December 2014 which reads as under:-
"Instances/complaints of undue influence/coercion have come to notice of the CBDT that some assessees were coerced to admit undisclosed income during Searches/Surveys conducted by the Department. It is also seen that many such admissions are retracted in the subsequent proceedings since the same are not backed by credible evidence. Such actions defeat the very purpose of Search/Survey operations as they fail to bring the undisclosed income to tax in a sustainable manner leave alone levy of penalty or launching of prosecution. Further, such actions show the Department as a whole and officers concerned in poor light.
2. I am further directed to invite your attention to the Instructions/Guidelines issued by CBDT from time to time, as referred above, through which the Boards has emphasized upon the need to ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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focus on gathering evidences during Search/Survey and to strictly avoid obtaining admission of undisclosed income under coercion/undue influence.
3. In view of the above, while reiterating the aforesaid guidelines of the Board, I am directed to convey that any instance of undue influence/coercion in the recording of the statement during Search/Survey/Other proceeding under the IT Act, 1961 and/or recording a disclosure of undisclosed income under undue pressure/coercion shall be viewed by the Board adversely."
43.3 From the above circular it is amply clear that the CBDT has emphasized to its officers to focus on gathering evidences during search/survey operations and strictly directed to avoid obtaining admission of undisclosed income under coercion/ undue influence. Keeping in view the guidelines issued by the CBDT from time to time regarding the statements obtained during search and survey operation, it is undisputedly clear that the lower authorities have not collected any other evidence to prove the ownership of the properties except the KYC documents. Therefore under such facts & circumstances, we are inclined not to uphold the order of authorities below.
43.4 We also note that the AO was aware of the addresses of the properties situated in Ahmadabad and Mumbai, but he did not exercise his power given under the statute i.e. 133(6) and 131 of the Act to unearth the fact. In the cases where the AO proposes addition under section 69A of the Act, the onus lies on the Revenue to prove the undisclosed investment. Regarding this, we find support & guidance from the judgment of Hon'ble Punjab & Haryana High Court in the ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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commissioner of income tax vs. Ravi Kumar reported in 168 Taxman 150 wherein the head notes of the case reads as under:
"Section 69A, read with section 143 of the Income-tax Act, 1961 - Unexplained moneys - Assessment year 1988-89 - Assessee was a jeweller - During a search carried out at his premises, certain gold ornaments, cash and loose slips containing some calculations were found and seized - Assessing Officer applied section 69A and completed assessment by including amounts appearing on slips - Commissioner (Appeals) upheld those additions, but Tribunal deleted same, holding that assessee had discharged onus by explaining that slips contained rough calculations and it was for revenue to prove that same represented transaction of sale of stock-in-hand - Whether since neither possession nor ownership of any jewellery mentioned in slips could be proved, Tribunal was justified in its action - Held, yes"
43.5 Thus respectfully following the above judgment of Punjab & Haryana High court, in our considered view, the AO should have confirmed the same from the respective land record authorities or he should have conducted the physical inquiry through his inspector. Thus the AO can't rely on these self-made declarations in the KYC form when Act has given such ample power to AO. It was the duty of the AO to rebut the contentions of the assessee, i.e. these absurd figures are declared to meet the net worth criteria.
43.6 The AO in his order also mentioned that the foreign banks duly verified these KYC form. However, the AO again has not brought anything on record to clarify that how foreign authorities verified these declarations whether they carried out any physical verification or verified ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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only through the paper filed by the assessee in relation to these properties.
43.7 We also note from the perusal of extract of KYC documents submitted by the assessee that these properties were acquired by the assessee in the year 2005 which falls outside the purview of the block period of assessment. Therefore, the same cannot be charged to tax on account of undisclosed investment.
The relevant extract of the KYC document is reproduced below as under:
"Financial Commentary • According to client, balances in various books total around US$ 7 Million • Income from various buisnesses total around US$ 1.5 million per annum • Fully owns his home in Rajkot purchaes in 2001 at US$ 320k. An apartment in Ahmedabad purchasesd at US$150k which is tenanted at around US$25,000 a year An apartment in Mumbai, near the Nariman Point area purchased at US$1.2 milliion in 2005 Client had verbally mentioned that he bought an office unit in DMCC Dubai.
Most likely there would be other assets not made known to AE • For the bulliion trading, Shreeji Trading Co. was set up and wholly owned by Pankaj himself only. He estimates that the bullion business has given him a profit of around $500k for last year. • For the other business he is in, are family businesses and co-owned with his father and brother as listed below.
Rajkot Galvanizers Pvt. Ltd. - supplies mobile towers to Relieance Communications. They are supposed to be the sole suppliers for Reliance.
Star Barrels Indus Pvt. Ltd. - supplies barrels to Reliance Industries (refinery) ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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Ship Developers - Property development arm. They build an apartmenr block a year and will only sell between 80-85%. The rest will be retained in therei portfolio.
Hotel Orbit Park Inn in Jamnagar - The family is 50% owner of this hotel."
43.8 In view of the above we are inclined to delete the addition made by AO and subsequently confirmed by the ld. CIT-A on this ground. Therefore we direct the AO to delete this addition. In the result, the ground of appeal of the assessee is allowed.
44. The next issue raised by the assessee in ground no 5.0 is that CIT- A erred in confirming the addition of Rs. 10,79,175/- on account of alleged deemed rental income on account of alleged unexplained investment in property at Ahmadabad.
44.1 At the outset we note that we have deleted the addition on account of undisclosed investment in the property located at Ahmadabad vide Para No. 43 of this order. Therefore the addition made by AO on the ground of rental income of such property situated in Ahmadabad is also liable to be deleted. Thus we reverse the order of the authorities below. Accordingly, we direct the AO to delete this addition. In result ground of appeal of the assessee is allowed.
45. The next issue raised by the assessee in ground no 6.0 is that CIT- A erred in confirming the addition of Rs. 1,80,000/- on account of ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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alleged deemed rental income in respect of property other than self- occupied property.
45.1 During the assessment proceeding, AO noted that assessee has more than one residential house property. But the assessee has not declared deemed rental income in respect of his any one of the residential property. Accordingly, AO sought the explanation from the assessee on the same by issuing show cause notice.
45.2 The assessee in his reply admitted for having two residential house properties. Accordingly, the assessee offered a sum of Rs. 84,000/- P.A. as deemed rental income. However, AO considering the locality of such property estimated the deemed rental income at Rs. 15,000/- p.m. aggregating for Rs. 1,80,000.00. Thus the AO made the addition of Rs.1,80,000/- to the total income of the assessee.
46. The aggrieved assessee carried the matter to the ld. CIT-A where assessee made only general submission. Therefore the ld. CIT-A confirmed the addition made by AO.
Being aggrieved by the order of learned CIT-A, the assessee is in appeal before us.
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47. The ld. AR before us submitted that the deemed rental value taken by the AO is excessive and unreasonable.
48. The ld. DR relied on the order of authorities below.
49. Before us also learned AR did not file any evidence suggesting that deemed rent taken by AO is over and above the prevailing market rate in Ahmadabad. In our view fetching rent of Rs.15,000/- per month from the property in Ahmadabad city is not a big deal. Therefore we are inclined to confirm the addition. Accordingly, we dismiss the ground of appeal raised by the assessee.
50. The next issue raised by the assessee in ground no 7.0 is that ld. CIT-A erred in confirming the addition of Rs 3,00,000/- made by the AO on the ground of non-deduction of tax at source on commission paid to Rajesh Bhatt.
50.1 On verification of audited accounts filed by the assessee, the AO noticed that the assessee had paid a commission of Rs. 3,00,000/- to Shri Rajesh Bhatt without deducting TDS. Accordingly, the AO issued a notice to the assessee for his explanation.
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50.2 The assessee in his reply submitted that sales commission had been paid through proper banking channel. The assessee also submitted the ledger account of Shri Rajesh Bhatt and sales commission account.
50.3 AO considering the reply of assessee observed that assessee failed to deduct the TDS on such commission payment and accordingly made the addition of Rs.3,00,000/- and added to the total income of the assessee.
51. The aggrieved assessee carried the matter to the ld. CIT-A where assessee submitted as under:
"(a) During the year under appeal the appellant paid commission of Rs.3,00,000/- to Shri Rajesh Bhatt who assisted the appellant in augmenting sales thus has direct nexus with the sales of the appellant. The payment was made through banking channel.
(b) In this regard the appellant vide para 2 of his letter dated 17.05.2017 submitted that Mr. Rajesh T. Bhatt was paid commission from Bangalore branch, and is in the nature of sales commission which is paid through proper banking channel. Ledger account of Mr. Rajesh T. Bhatt and sales commission account for the F.Y. 2007-08 were also attached with the said reply. AO nothing notices adverse and as such the addition requires to be deleted."
51.1 However, CIT-A confirmed the addition made by the AO by observing as under:
"18.1 The assessment order and the written submission of the AR have been perused. Although the AO failed to establish that the commission expense is not genuine, the disallowance is confirmed, for verification of section 40(a)(ia) as no TDS has been deducted. Hence, the ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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disallowance made of Rs.3,00,000/- stands confirmed for failure to deduct TDS. This ground of appeal is dismissed."
Being aggrieved by order of learned CIT-A, the assessee is in appeal before us.
52. The ld. AR before us submitted that the genuineness of the commission has not been doubted. Therefore the same should be allowed as deduction.
53. On the other hand the ld. DR vehemently supported the order of authorities below.
54. We have heard the rival contentions and perused the materials available on record. At the outset, we note that assessee nowhere in his submission clarifies regarding the non-deduction of TDS on commission paid to Shri Rajesh Bhatt. The assessee only claimed that payment is genuine and made through banking channels. Since assessee failed to deduct the TDS on payment made to Shri Rajesh Bhatt, we uphold the order of CIT-A confirming the addition of Rs.3,00,000.00. Hence the ground of appeal of the assessee is dismissed.
55. In the result, the appeal of the assessee is partly allowed.
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56. In, the combined Result, the appeal of the Revenue is dismissed and the appeal of the assessee is partly allowed.
57. For the assessment year 2009-10 first we take up the grounds of appeal raised by the Revenue in IT(SS) No.93/Ahd/2018:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in restricting the addition of Rs.22,48,40,771/- to Rs.6,,05,002/- made on account of income earned out of /credit entries fn undisclosed foreign Bank account.
2. On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in restricting the addition of Rs.22,48,40,771/- to Rs.6,,05,002/- by holding that the foreign bank account of the assessee is a trading account and profit thereon should be taxed instead of the amount of peak credit made therein.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in restricting the additon of Rs.10,25,63,967/- to Rs.4,04,98,624/-made on account of unexplained credit entries of various concerns/third parties In Standard Bank, London's.
4. On the facts and In the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.20,25,59,582/- made on account of unexplained credit entries In unallocated Gold / Silver account of STCSH
5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.97,41,97,373/- (actually Rs.691,40,79,815/- as per rectification order dated 12-03-2018 u/s 154) made on account of unexplained credit entries in unalloacated Gold/Silver account of STCSH.
6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.3,60,56,792/- made on account of cash / Premium payment reflected in STCSH Account.
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7. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.1,15,82,162/- by making disallowance of Interest u/s.36(1)(iii) of the Act.
8. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.53,50,520/- made on account of undisclosed income which used for purchase of cheques/DDs from M/s. Siddhanathe Enterprise.
9. On the facts and in the circumstances of the case and in law, the ld CIT(A) ought to have upheld the order of the AO.
10. It is, therefore, prayed that the order of the ld CIT(A) be set aside and that of the AO be restored to the above extent."
58. The first issue raised by the Revenue in the ground no. 1 & 2 is that ld. CIT(A) erred in restricting the addition made by the AO to Rs. 6,05,002.00 from Rs. 22,48,40,771.00 on account of income earned out of undisclosed foreign bank account.
59. At the outset, we note that the same impugned issue was also raised by Revenue in the ground of appeals for the assessment year 2008- 09 which we have already adjudicated this issue against the Revenue in paragraph number 9 of this order. Accordingly, the issue raised by the Revenue in this appeal is also dismissed.
60. The next issue raised by the Revenue vide ground no. 3 in this appeal is that ld. CIT(A) erred in restricting the addition made by the AO ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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to Rs. 4,04,98,624.00 from Rs. 10,25,63,967.00 on account of unexplained credit entries from various parties in cash ledger statement.
61. The AO during assessment proceedings observed certain credit entries in standard bank account number 13446 of Rs. 10,25,63,967/- from the certain parties as detailed under :
F.Y. 2008-09 Date Details Credit Conversion Total (USD) rate of USD in INR 01/04/2008 SHREEJI 100000 39.94 3994000 INTL 02/04/2008 SHREEJI 50000 39.98 1999000 INTL 07/04/2008 VINAYAKA 150000 39.93 5989500 OVERSEAS 29/04/2008 SHREEJI 200000 40.22 8044000 INTL 30/04/2008 FR SIM JOO 300000 40.46 12138000 TENG 12/05/2008 SHREEJI 199955 41.68 8334124.4 INTL 14/08/2018 DEEPU 499980 42.82 21409144 JEWELLERS 20/09/2018 DEEPU 399980 43.72 17487126 JEWELLERS 17/09/2018 DEEPU 499980 46.34 23169073 JEWELLERS 102563967
62. The AO requested the assessee to file the complete details of these credit entries.
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63. Assessee vide letter dated 06/07/2017 submitted as under:
"Unexplained credit entries of various concerns / third parties in account referred in (a) above",
(i) As regard the alleged unexplained credit entries of various concerns / third parties in account with Standard Bank, London it is submitted that during the course of settlement proceedings I had furnished detailed submission in response to Rule-9 report along with confirmation / certification from such parties / concerns.
(ii) Also, during the course of assessment proceedings, I have vide reply dated 24.04.2017 have also clarified the above fact which is on record.
This reply was given suo moto to clarify the facts of the case, which is on record.
(iii) No specific query in this regard was ever raised in any of the letter or show cause notice issued by your good self.
(iv) However, the sample confirmations from the persons who accommodate Mehul Nandha by giving loan is on record and were before the hon'ble Settlement Commission, which explicitly proves that said funds were not enjoyed by me and I am not at all beneficiary of the fund. Therefore, no adverse inference can be drawn."
However, the AO disagreed with the submission of the assessee on the ground that assessee is only reiterating the same story that he is not operating the same bank. Furthermore, as per the settlement commission, the confirmation from the party i.e. Deepu Jewellers is defective.
64. The AO also held that these credit entries are unexplained and made addition u/s 69A for Rs. 10,25,63,967/- to the total income of the assessee.
65. Aggrieved, assessee preferred an appeal to ld. CIT(A). The assessee before the ld. CIT-A reiterated the submissions which were made in the previous financial year.
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66. The assessee also contended that Mehul Nandha has arranged these funds from his associates and friends. He has shown these receipts in the audited financial statement as creditors filed during the assessment proceedings. The confirmation from these parties has also been filed during the assessment proceedings.
67. The ld. CIT(A) after considering submissions of the assessee deleted the addition in respect of DEEPU JEWELLERS and upheld the addition in respect of other parties by observing as under:
"10.2 In respect of credit entries of USD 13,99,940 (499980 + 399980 + 499980) in the name of "Deepu Jewellers", the AR stated that the appellant had furnished confirmations from the depositor before HorVble Settlement Commission and also before the AO confirming that they have lent funds to Mehul Nandha. Copy of said confirmation is also enclosed with the written submissions made to this office. Further, during the course of appellate proceedings, AR relied upon the comments of Pr. CIT in his Rule-9 report dated 18.12.2015 submitted before Hon'ble Settlement Commission, which is as under:
"16.1 The competent authority, UAE, Dubai, has supplied the bank statement of M/s. Deepu Jewellers, LLC Dubai alongwith its KYC documents. As per the documents, the following persons are the share holders in the company.
a. Mr. Abdulla Ramadan Moosa
b. Mr. Kishore Ratilal Dhakan
c. Mr. Deepak Ratilal Dhakan
16.2 As per the KYC information received from Foreign Tax Authorities, the applicant is not the owner/beneficiary of M/s. Deepu Jewellers LLC."
The AR argued that as the Pr. CIT was having sufficient documents in respect of M/s. Deepu Jewellers LLC-that is, KYC data, bank statement etc., it cannot be said that funds credited into the cash ledger statement by M/s. Deepu Jewellers LLC is flown from the appellant or is in the nature of unexplained credit. The above contention of the AR of the ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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appellant is accepted as the AO was having sufficient documents in form of KYC Data and bank statement of the depositor namely M/s. Deepu Jewellers LLC. Further, Pr.CIT categorically reported on me basis of data supplied by FT&TR Division that as per the KYC information, the appellant is not the owner or beneficiary of M/s. Deepu Jewellers LLC. Under the said facts and circumstances, it cannot be saiu that the appellant failed to explain the source of funds credited by M/s. Deepu Jewellers LLC into the impugned cash ledger statement. Therefore, in respect of funds credited by M/s. Deepu Jewellers LLC in the cash ledger statement, the same is treated as explained and hence, addition made by the AO of USD 13,99,940 equivalent to Rs. 6,20,65,343/- is deleted. The balance addition of Rs.4,04, 98,624 (10,25,53,967 - 6,20,65,343) are confirmed. This ground of appeal is partly allowed."
Being aggrieved by order of ld. CIT(A), both Revenue & assessee are in appeal.
68. The Revenue is in appeal for the deletion made in respect of Deepu jewellers amounting to Rs. 6,20,65,343.00 whereas the assessee is in appeal against the confirmation of the addition amounting to Rs. 4,04,98624.00 made in respect of remaining parties.
69. The Ld. DR before us submitted that it was the duty of the assessee to explain the credit entries as discussed along with the documentary evidence. But the assessee failed to furnish supporting details except stating that these are the loan entries taken by Shri Mehul Nandha.
70. On the other hand the ld. AR submitted that the loan was taken by Shri Mehul Nandha for his margin money which was repaid within the ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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financial year. The ld. AR in support of his claim drew our attention on the reconciliation statement showing the debit & credit entries which are placed on page 140 of the PB part (i). The relevant extract is reproduced as under:
1-4-2008 To Opening Balance 1,56,497.34
1-4-2008 To LOANS & ADVANCES Receipt 1,00,000.00
2-4-2008 To LOANS & ADVANCES Receipt 50,000.00
7-4-2008 To LOANS & ADVANCES Receipt 1,50,000.00
17-4-2008 By LOANS & ADVANCES Payment 5,800.00
29-4-2008 To LOANS & ADVANCES Receipt 2,00,000.00
30-4-2008 To LOANS & ADVANCES Receipt 3,00,000.00
12-5-2008 To LOANS & ADVANCES Receipt 1,99,955.00
3-7-2008 By LOANS & ADVANCES Payment 5,000.00
14-7-2008 By LOANS & ADVANCES Payment 5,00,000.00
13-8-2008 To LOANS & ADVANCES Receipt 4,99,980.00
20-8-2008 To LOANS & ADVANCES Receipt 3,99,980.00
17-9-2008 To LOANS & ADVANCES Receipt 4,99,980.00
25-9-2008 By LOANS & ADVANCES Payment 5,00,000.00
2-10-2008 By LOANS & ADVANCES Payment 7,50,000.00
25-11-2008 By LOANS & ADVANCES Payment 4,75,000.00
22-12-2008 By LOANS & ADVANCES Payment 63,000.00
30-12-2008 By LOANS & ADVANCES Payment 50,000.00
20-1-2009 By LOANS & ADVANCES Payment 2,00,000.00
25,56,392.34 25,48,800.00
By Closing Balance 7,592.34
25,56,392.34 25,56,392.34
71. Both the ld. DR & AR before us relied on the order of authorities below as favorable to them.
72. We have heard the rival contentions and perused the materials available on record. At the outset, we note that the issue related to credit entries from Deepu Jewellers was also raised by Revenue in grounds of appeal for the assessment year 2008-09 which we have already ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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adjudicated against the Revenue in paragraph No. 15 of this order. Therefore, respectfully following the same the ground of appeal raised by the Revenue is liable to be dismissed.
73. Now coming to the ground of appeal of the assessee, in this regard we note that the AO has invoked the provisions of section 69A of the Act in respect of the credit entries reflected in the cash ledger statement. The provision of section 69A of the Act reads as under:
"69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income 79, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the 80[Assessing] Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income 79 of the assessee for such financial year.]:"
74. A perusal of the above provision reveals that it is applicable when cash, bullion, jewellery or any other valuable article is found in possession of assessee which is not recorded in the books of the assessee. However, in the instant case, nothing was found in possession of assessee therefore in our considered view the provision of section 69A of Act can't be applied in the case on hand.
75. Besides the above, we also note that the AO in the instant case has treated the credit entries as income of the assessee under section 69A of ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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the Act without considering the debit entries as discussed in the reconciliation statement given above. In our view, if the AO is treating the credit entries as income, then the same analogy should be applied to the debit entries.
76. We also note these debit & credit entries are reflecting in the cash ledger statement of the standard bank which is reflecting the business transaction i.e. sale & purchase of derivatives. Thus such transactions at the most can be treated as business transaction and therefore only the profit element is liable to be taxed. In this regard, we further find that the assessee has already shown the business profit derived from the sale & purchase of derivates which has already been added to the total income of the assessee. In this regard, we find support & guidance from the judgment of Hon'ble Gujarat High Court in the case of CIT Vs. President industries (supra). The relevant has already been reproduced herein above.
77. We also note that the provisions of section 68 of the Act should have been applied as there were credit entries found in the books of the assessee which were not satisfactorily explained. But it clear that the addition has been made in accordance to the provisions of section 68 of the Act. However, in our considered view, the character of the addition shall not change merely on the basis of the wrong section quoted by the AO.
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78. Accordingly, in the instant case the onus was on the assessee to prove that the credit entries as discussed above are not representing the income of the assessee on the basis of documentary evidence. But the assessee failed to do so.
79. In view of the above we are inclined to confirm the order of ld. CIT-A for the addition of Rs. 4,04,98,624.00 only. Thus the ground of appeal of the assessee is dismissed.
80. In the result, the ground of appeal of the Revenue is dismissed and the ground of appeal of the assessee is dismissed.
81. The 3rd issue raised by the Revenue in ground No. 4 is that the ld. CIT-A erred in deleting the addition made by the AO on account of unmatched entries in STCSH statement of Rs 20,25,59,582/-.
82. At the outset, we note that the same impugned issue of unmatched entries was also raised by Revenue in the ground of appeals for the assessment year 2008-09 which we have already adjudicated this issue against the Revenue in paragraph number 18 of this order. Accordingly and repectfully following the same, the issue raised by the Revenue is dismissed.
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83. The 4th issue raised by the Revenue in ground No. 5 is that the ld. CIT-A erred in deleting the addition of Rs. 97,41,97,373/- made on account of unexplained credit entries in unallocated gold/silver account of STCSH.
84. At the outset, we note that the same impugned issue was also raised by revenue in the ground of appeals for the assessment year 2008- 09 where we have already adjudicated this issue against the revenue in paragraph number 22 of this order. Accordingly and repectfully following the same, the issue raised by the Revenue is dismissed.
85. The 5th issue raised by the Revenue in ground No. 6 is that the ld. CIT-A erred in deleting the addition of Rs.3,60,56,792/- made on account of cash/premium payment reflected in STCSH account.
86. At the outset, we note that the same impugned issue was also raised by Revenue in the ground of appeals for the assessment year 2008- 09 which we have already adjudicated this issue against the revenue in paragraph number 26 of this order. Accordingly, the issue raised by the revenue is dismissed.
87. The 6th issue raised by the Revenue in ground number 7 is that the learned CIT-A erred in deleting the addition for the Rs. 1,15,82,162/- on account of interest expenses under section 36 (1)(iii) of the act.
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88. At the outset, we note that the same impugned issue was also raised by Revenue in the ground of appeals for the assessment year 2008- 09 where we have already adjudicated this issue against the revenue in paragraph number 30 of this order. Accordingly and repectfully following the same, the issue raised by the Revenue is dismissed.
89. The next issue raised by the Revenue in ground number 8 is that the learned CIT-A erred in deleting the addition for Rs. 53,50,520/- on account of purchases of cheque /DDs from M/s Siddhartha enterprises.
90. There was a survey operation u/s 133A of the Act, carried out at the business premises of M/s Siddhanath Enterprises. During survey, certain informations related to purchase of cheques/DD in lieu of cash by the assessee from M/s Siddhanath Enterprises were found.
91. The details of transactions pertaining to the year under consideration are as under:
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A.Y. 2009- 10 CHEQUE/DD PURCHASED IN Date Cash Given by Amount Cheque No. Bank Name Payable at FAVOUR OF Sahyog Cotton & BF-14 07-Apr-08 Shreeji Trading Co. 84240 386140 RPCL Rajkot oil Industries BF-14 22-Jul-08 Shreeji Trading Co. 88240 816467 INDUSIND Rajkot dev sons products M/s. Shree om trading BF-15 20-Dec-08 Shreeji Trading Co. 87000 202014 GNSB Gondal Corporation balkrishna gin.
BF-15 05-Jan-09 Shreeji Trading Co. 91040 406476 Axis Rajkot Press.I BF-23 08-Jan-09 Shreeji Trading Co. 5000000 40522 Axis Rajkot dd 5350520
92. The AO sought clarification on this issue from the assessee. Accordingly, the assessee vides his letter dated 14/06/2017 submitted that due to some practical difficulties he was not depositing cash to bank directly. Instead he was purchasing cheque/DD in lieu of cash from M/s Sidhhanath Enterprises.
Assessee also explained the entire flow of transaction as detailed under:
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Date Date mentioned in sheet attached to notice is as per the date on which transaction has been recorded in the books of account.
Cash Given By We have given cash to Siddhnath Enterprise and purchased cheque/DD, therefore it is natural that name of Shrreji Trading Co, is appearing.
Amount Amount as per the sheet attached to the notice represents amount of cheque/DD issued by Siddhnath Enterprise which is verificabe from the books of account/cash book.
Cheque No. Cheque No. appearing in the sheet attached to the notice is cheque/DD issued by Siddhnath Enterprise and is veirfiable from the narration put forth in books.
Bank Name Name of the bank appearig in the sheet is the name of that bank from which Siddnath Enterprise has issued cheque/DD in our favour. This fact is verifiable from the Copy of ledger attached. Payable at Centre at which the cheques received in lieu of cash are payable at Rajkot.
Cheque /DD purchased in favour of Name of parties mentioned in the column has no relevance with my transactions with Siddnath Enterprise.
However, AO did disregarded the contention of assessee by observing that assessee could not submit complete contra entries in his books viz a viz in the books of M/s Siddhanath Enterprises. Therefore, the AO held that the assessee has purchased cheques/DD from his undisclosed/unaccounted income. Accordingly, the AO added Rs. 53,50,520/- to the total income of the assessee.
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93. Aggrieved, assessee preferred an appeal to ld. CIT(A) where assessee submitted that he purchased cheque/DD in lieu of cash in the ordinary course of his business and paid due commission after deducting applicable TDS.
94. The assessee also submitted that he had reconciled the majority of the entries related to list of transaction forwarded by the investigation wing. Assessee also contended that the transactions which were not reconciled were not carried out by him. Therefore he had asked AO to allow him to cross-examine the M/s Siddhnath Enterprise in respect of these unmatched entries.
95. Assessee also contended that as AO did not allow him the opportunity of cross examination, he himself approached to M/s Sidhanath enterprises where they confirmed that they have not provided the investigation wing so called list of transaction.
96. A confirmation from M/s Siddhanath Enterprises was also filed by the assessee during appellate proceedings wherein it was clarified by the M/s Sidhanath enterprises that they have only carried out the transaction with the assessee which are appearing in the books of assessee.
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97. The ld. CIT(A) after considering the fact of the case and submission made by the assessee deleted the addition made by the AO by observing as under:
"The appellant further contended that in lieu of cash, cheques/DDs were obtained, which will naturally be shown in the regular books of accounts of the appellant. This confirms that whatever, cheques/DDs do not match with the appellant's books, do not pertain to the appellant, The appellant also filed contra confirmation from M/s. Siddnath Enterprise dated 18.1.2018, which confirm the transactions, as per books of the appellant. On going through the facts of the case that the appellant had transactions with M/S.Siddnath Enterpise and these are reflected in the books of account of the appellant, the DDs/cheques, which do not tallied with the appellant's books do not pertain to the appellant, as cheques/DDs are naturally reflect in bank account of the appellant. It is also a fact that Shreeji Trading is very common name and there may be many more concerns having this name. The appellant also filed counter confirmation from M/s. Siddnath Enterprise, in which transactions with the appellant are confirmed. Keeping in view the discussion above, the additions of Rs.53,50,520/- made by the AO are deleted. This ground of appeal is allowed."
98. Aggrieved by order of ld. CIT (A), Revenue is in appeal before us. The ld. DR & AR before us relied on the order of authorities below as favorable to them.
99. We have heard the rival contention and perused the materials on record. The issue in the instant relates to the addition made by AO on account of purchase of cheque/DD in lieu of cash form M/s Siddnath Enterprises.
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100. The allegation of the AO is that the assessee even after providing the specific details of transaction carried out by him with M/s Siddhnath Enterprise, failed to submit the complete contra entries in his books of account. Accordingly, these entries were added to the income of the assessee.
101. The assessee in support of his claim has filed confirmation from M/s Siddhnath Enterprise before the ld. CIT(A) wherein M/s Siddhnath Enterprise have clarified that transaction appearing in the books of assessee is full and complete list of transaction carried out with the assessee.
102. We also note that there was no defect pointed out by the ld. CIT-A in the confirmation filed by the assessee.
103. In addition to the above, we also note that assessee repeatedly contended before AO that these un-reconciled transactions do not belong to him. Accordingly, the assessee requested the AO to provide opportunity for the cross-examination of M/s Siddhnath Enterprise but the AO failed. In this regard, we note that as per the principle of natural justice AO should have provided the opportunity of cross-examination to assessee. In this connection we rely on the judgment of Hon'ble Supreme Court in the case of Andaman Timber Industries v. Commissioner of Central Excise, Kolkata-II reported in 62 taxmann.com 3. The relevant extract of the order is reproduced below:
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"It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guesswork as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.
7. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross- examination. That apart, the Adjudicating Authority simply relied upon the price-list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price- list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions.
8. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show-Cause Notice"
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104. The assessee also contended that the name 'Shreeji trading co.' is very commonly used commercially. Thus there is a very high possibility that these un-reconciled transactions might have carried out with some other party having same name. In this regard, we find that the AO failed to find any adverse observation in the contention of the assessee.
In view of above, we don't find any reason to interfere with the finding of ld. CIT (A) and accordingly the ground of appeal of Revenue is dismissed.
In the result the appeal of the Revenue is dismissed.
105. Now coming to the ITA 161/Rjt/2018, the appeal filed by the assessee. The assessee has raised following grounds of appeal.
"1.0 The grounds of appeal mentioned hereunder are without prejudice to one another.
2.0 The learned Commissioner of Income-tax (Appeals)-11, Ahmedabad [CIT(A)] erred on facts as also in law in rejecting ground of appeal related to validity of notice issue u/s.143(2) of the Income-tax Act, 1961 [hereinafter referred as to the "Act"]. That on facts as also in law, initiation of action u/s. 153A of the Act is invalid and assessment made on such invalid initiation deserves to be quashed and may kindly be quashed. 2.1 The order passed u/s. 153A of the Act without there being any incriminating material is totally unjustified on facts as also in law and may kindly be quashed.
3.0 The ld. CIT(A) erred on facts as also in law in retaining addition of Rs.6,05,002/- being profit from derivative trading done by one Shri Mehul Nandha in foreign account named PANKJ (13446) with Standards Bank. The addition retained is totally unjustified ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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and uncalled for and deserves to be deleted and may kindly be deleted.
4.0 The Ld. CIT(A) erred on facts as also in law in retaining addition of Rs.4,04,98,624/- made on account of alleged unexplained credits in the cash ledger statement of standard Bank, London. The addition retained is totally unjustified and uncalled for which may kindly be deleted.
5.0 The Ld. CIT(A) erred on facts as also in law in confirming addition of Rs.10,79,175/- on account alleged deemed rental income in respect of alleged unexplained investment in property at Ahmedabad. The addition confirmed is totally unjustified and uncalled for which deserves to be deleted and may kindly be deleted.
6.0 The Ld. CIT(A) erred on facts as also in law in confirming addition of Rs.1,80,000/- on account alleged deemed rental income in respect property other than self-occupied property. The addition confirmed is totally unjustified and uncalled for which deserves to be deleted and may kindly be deleted.
7.0 Your Honor's appellant craves leave to add, amend, alter, or withdraw any or more grounds of appeal on or before the hearing of appeal."
106. The first ground of appeal of the assessee is general. Therefore no separate adjudication is required. Hence we dismiss the ground no. 1 of the appeal of the assessee.
107. The ld. AR before us has not challenged the validity of the order framed under section 153A of the Act. Therefore we dismiss the ground no. 2 of the appeal of the assessee.
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108. The 1st issue raised by the assessee in ground number 3 is that learned CIT-A erred in confirming the addition of Rs. 6,05,002/-on account of profit from the undisclosed business.
109. At the outset, we note that the same impugned issue has raised by the assessee in the assessment year 2008-09 and we have already adjudicated this issue in paragraph number 9 of this order along with the Revenue appeal in ITA number 92/AHD/2018. Accordingly, the issue raised by the assessee is dismissed.
110. The next issue raised by the assessee in ground no 5.0 is that CIT- A erred in confirming the addition of Rs. 10,79,175/- on account of alleged deemed rental income on the alleged unexplained investment in property at Ahmadabad.
111. At the outset, we note that we have deleted the addition on account of undisclosed investment in the property located at Ahmadabad vide Para No. 43 of this order. Therefore the addition made by AO on the ground of rental income of such property situated in Ahmadabad is also liable to be deleted. Thus we reverse the order of the authorities below. Accordingly, we direct the AO to delete this addition. In result ground of appeal of the assessee is allowed.
112. The next issue raised by the assessee in ground no 6.0 is that CIT- A erred in confirming the addition of Rs. 1,80,000/- on account of ITA Nos.160 & 161/Rjt/2018 & IT(SS)A Nos.92 & 93/Ahd/2018 Shri Pankaj Chimanlal Lodhia, Rajkot (cross appeals) A.Ys 2008-09 & 2009-10
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alleged deemed rental income in respect of property other than self- occupied property.
113. At the outset, we note that the same impugned issue was also raised by assessee in the ground of appeals for the assessment year 2008- 09 where we have already adjudicated this issue against the assessee in paragraph number 49 of this order. Accordingly, the issue raised by the assessee is dismissed.
114. In the result the appeal of the assessee is partly allowed.
115. In the combined result both the appeals of the Revenue are dismissed and assessee are partly allowed.
This Order pronounced in Open Court on 09/10/2018
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(RAJPAL YADAV) (WASEEM AHMED)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 09/10/2018
Priti Yadav, Sr.PS
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आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ' / The Appellant 2. %&यथ' / The Respondent. 3. संबं धत आयकर आयु-त / Concerned CIT
4. आयकर आयु-त(अपील) / The CIT(A)- 11, Ahmedabad.
5. .वभागीय % त न ध, आयकर अपील य अ धकरण,राजोकट/DR,ITAT, Rajkot
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, स&या.पत % त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, राजोकट / ITAT, Rajkot