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Income Tax Appellate Tribunal - Delhi

Naresh Dayanand Chandnani, New Delhi vs Acit, Circle-54(1), New Delhi on 25 May, 2018

      IN THE INCOME TAX APPELLATE TRIBUNAL
           (DELHI BENCH 'E' : NEW DELHI)

  BEFORE HON'BLE PRESIDENT, SHRI G.D. AGRAWAL
                     and
     SHRI KULDIP SINGH, JUDICIAL MEMBER

                    ITA No.5339 /Del./2017
                (ASSESSMENT YEAR : 2012-13)

                                AND

                       Stay No.342/Del/2018
                   (in ITA No.5339 /Del./2017)
                (ASSESSMENT YEAR : 2012-13)

Shri Naresh Dayanand Chandani,         vs.    ACIT, Circle 54 (1),
O - 63, Ground Floor,                         New Delhi.
Lajpat Nagar,
New Delhi - 110 024.

       (PAN : AAEPC9337Q)

      (APPELLANT)                             (RESPONDENT)

      ASSESSEE BY : Shri Ved Jain, FCA
      REVENUE BY : Shri B.R. Mishra, Senior DR

                   Date of Hearing : 21.05.2018
                   Date of Order : 25.05.2018

                             ORDER

PER KULDIP SINGH, JUDICIAL MEMBER :

The appellant, Shri Naresh Dayanand Chandani (hereinafter referred to as 'the assessee') by filing the present appeal, sought to set aside the impugned order dated 19.06.2017 passed by Ld. CIT 2 ITA No.5339/Del./2017 (Appeals)-18, New Delhi qua the assessment year 2012-13 on the grounds inter alia that :-

"1. On the facts and circumstances of the case the order passed by the learned CIT(A) is bad both in the eye of law and on facts.

2. On the facts and circumstances of the case the learned CIT(A) has erred both on facts and in law in confirming the disallowance of interest of Rs.4,37,2701- u/s 36(1)(iii).

3. (i) On the facts and circumstances of the case the learned CIT(A) has erred- in making disallowance under section 36(1 )(iii), rejecting the contention of the assessee that the loans were given out of business expediency therefore no disallowance of interest can be made.

(ii) That the learned CIT(A) has erred in rejecting the contention of the assessee, that in view of the interest expenditure claimed by the assessee having a direct nexus with the other loans directly related to the business of the assessee no disallowance u/s 36(1)(iii) can be made.

4. Without prejudice to the above and in the alternative no disallowance of interest u/s 36(1)(iii) is called for in view of the assessee having sufficient owned funds to extend such interest free loans.

5. On the facts and circumstances of the case the learned CIT(A) has erred both on facts and in law in enhancing the income by Rs.2,24,99,000/- on account of sales made during the year under consideration.

6. On the facts and circumstances of the case the learned CIT(A) has erred both on facts and in law in enhancing the income of the assessee by setting up a new source of income which is beyond the power of the Ld. CIT(A) and his jurisdiction also.

7. (i) On the facts and circumstances of the case the learned CIT(A) has erred both on facts and in law in making the addition of cash sales made by the assessee without rejecting the books of accounts of the assessee.

(ii) That such an addition amounts to double taxation in view of the fact that the assessee himself has declared the source of his sales.

(iii) That the learned CIT (A) has erred both on facts and in law in drawing adverse inference on account of cash sales, ignoring the fact that there is no bar in making cash sales, in law.

8. On the facts and circumstances of the case the learned CIT(A) has erred both on facts and in law in making the above said addition by indulging in gross conjecture and surmises without bringing any adverse material on record.

9. On the facts and circumstances of the case the learned CIT(A) has erred both on facts and in law in making the addition arbitrarily rejecting the explanation and evidences filed by the assessee in this regard."

2. Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessing Officer made addition of disallowance under section 14A of the Income-tax Act, 1961 (for short 'the Act') to the tune of Rs.31,870/- and made further addition of Rs.24,71,261/- under section 36(1)(iii) being the income from profits and gains from business or profession. 4 ITA No.5339/Del./2017

3. Assessee carried the matter by way of appeal before the ld. CIT (A) who has deleted the addition made u/s 14A and restricted the addition made by the AO u/s 36(1)(iii) of the Act to Rs.4,37,270/-. Ld. CIT (A) further enhanced the income of the assessee to Rs.2,24,99,000/- on account of sales made during the year under assessment. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal.

4. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.

GROUND NO.1

5. Ground No.1 is general in nature, hence does not require any adjudication.

GROUNDS NO.2, 3 & 4

6. The ld. AR for the assessee has not pressed these grounds qua the addition on account of disallowance of interest of Rs.4,37,270/- made by AO and confirmed by ld. IT (A) u/s 36(1)(iii) of the Act keeping in view the smallness of the addition. Consequently, grounds no.2, 3 & 4 are determined against the assessee.

GROUNDS NO.5, 6, 7, 8 & 9

7. Undisputedly, taking notice of cash deposits of Rs.1,12,49,000/- and Rs.1,12,50,000/- on May 4, 2011 and May 5, 2011 respectively by the assessee in its current account maintained with the Indian Overseas bank, the ld. CIT (A) entertained suspicion and put the cash sales to scrutiny u/s 40A(3) on the ground that the gold has been sold on the same day and trading has been done apparently for a loss of Rs.3,600/-. It is also not in dispute that the auditor has duly verified the sales and purchases of gold by the assessee as recorded in the books of account in their tax audit report. It is also not in dispute that the books of account of the assessee have never been rejected nor disputed any transaction recorded in the books of account. It is also not in dispute that the ld. CIT (A) has enhanced the income of the assessee on the ground that the assessee has failed to record detailed address of persons/ purchaser to whom the gold was sold.

8. In the backdrop of the aforesaid facts and circumstances of the case, order passed by ld. Revenue authorities below, arguments advanced by ld. AR for the parties, the sole question arises for determination in this case is :-

"as to whether cash sales of gold by the assessee is part of the trading transaction and the trader buying the gold would fall u/s 14A(3)?"

9. The ld. AR for the assessee contended that enhancement of income by the assessee to the tune of Rs.2,24,99,000/- is not sustainable because a trader in gold and silver is not barred from making sale of gold and silver in cash nor a trader is required under law to record the names and address of the purchasers to whom the cash sale of gold and silver is made and relied upon the decision rendered by Hon'ble Delhi High Court in case cited as CIT-II vs. Jindal Dyechem Industries Pvt. Ltd. - 2012 (4) TMI 423 - Delhi High Court, the decision rendered by the Hon'ble Bombay High Court in R.B. Jessaram Fetehcahnd (Sugar Dept.) vs. CIT, Bombay City-II - 1969 (7) TMI 10- Bombay High Court and the decision rendered by the Tribunal in case of Kishore Jeram Bhai Khaniya, Prop. M/s. Poonam Enterprises, Mp-83 vs. ITO - ITA No.1220/Del/2011 & Ors. dated 13.05.2014. However, on the other hand, ld. DR for the Revenue to repel the arguments of the ld. AR for the assessee relied upon the orders passed by the Revenue authorities below.

10. Hon'ble Delhi High Court in CIT-II vs. Jindal Dyechem Industries Pvt. Ltd. (supra) decided the identical issue in favour of 7 ITA No.5339/Del./2017 the assessee by holding that there was no requirement in law for recording the purchase of the bullion to whom the cash sales were made. Operative part of the judgment is extracted as under :-

"11. We may also point out that we had enquired from the learned counsel for the appellant as to whether there was any requirement in law of recording the names of the purchasers of the bullion to whom the cash sales of gold and silver were made. The learned counsel for the revenue stated that there was no such requirement in law at the relevant time. Consequently, no adverse inference could have been drawn by the Assessing Officer on account of the fact that the assessee was not in a position to furnish the names of the persons to whom the cash sales of the bullion were made."

11. Coordinate Bench of the Tribunal in case cited as Kishore Jeram Bhai Khaniya, Prop. M/s. Poonam Enterprises, Mp-83 vs. ITO (supra) decided the identical issue in favour of the assessee by relying upon the decision rendered by Hon'ble Bombay High Court in case cited as R.B. Jessaram Fetehcahnd (Sugar Dept.) vs. CIT, Bombay City-II - 1969 (7) TMI 10- Bombay High Court by returning following findings :-

"Confirmation of addition made u/s 68 of the Act - Search and seizure - Cash sales made - Held that:- There is no law which prohibits a trader or a manufacturer in making cash sales - Relying upon R.B.Jessaram Fatehchand (Sugar Deptt) VS. CIT [1969 (7) TMI 10 - BOMBAY High Court] -

sales can be in cash and it is hardly necessary for the seller to bother about the name and address of the purchaser - so long as the availability of stock is there and there is nothing adverse-against the cash memos issued by the assessee, such cash sales cannot be doubted - the volume of such cash sales at 0 22.06 is to be seen in the light of the assessee's total turnover of Rs.10.29 crore - It is but natural that if a customer makes .cash purchase and lifts the goods, there is 8 ITA No.5339/Del./2017 no duty cast upon the seller to insist for the address of the purchaser - the assessee has himself offered the amount of cash sales as his income by duly including it in his total sales -once a particular amount is already offered for taxation, it cannot be again considered u/s 68 of the Act - thus, any addition cannot be made by treating cash sales as bogus - Decided in favour of Assessee.

12. When we examine the case of the assessee in the light of the aforesaid decisions rendered by the Hon'ble High Court of Delhi in case of CIT-II vs. Jindal Dyechem Industries Pvt. Ltd. (supra), the decision of the Hon'ble Bombay High Court in R.B. Jessaram Fetehcahnd (Sugar Dept.) vs. CIT, Bombay City-II (supra) and the decision of the Tribunal in case of Kishore Jeram Bhai Khaniya, Prop. M/s. Poonam Enterprises, Mp-83 vs. ITO (supra), it is apparently clear that the ld. CIT (A) has accepted the trading results and has never rejected the books of account which are duly audited and in para 5.4.2, CIT (A) has categorically mentioned that prima facie there is no dispute as regards recording of transaction in the books of account and quantitative details for the period 01.04.2011 to 31.03.2012 includes inward or outward transactions of gold of 10 Kgs. during the year under assessment.

13. But the CIT (A) has proceeded on the basis of surmises that, "the business transactions of jewellery and bullion dealers are highly cash intensive in nature and it is always apprehended that they could be used for flow of black money into the system and has 9 ITA No.5339/Del./2017 referred to section 115BBE". CIT (A) also mentioned that "during the year under assessment, mention of PAN was made mandatory w.e.f. 01.07.2011 for bullion purchase of Rs.5,00,000/- or more at a time."

14. So far as question of making mention of PAN as mandatory w.e.f. 01.07.2011 for all jewellery/bullion purchases of Rs.5,00,000/- or more is concerned, when it is undisputed case of the assessee that the sale of gold in question was made on 03.05.2011 and sold on 05.05.2011, the provisions for mentioning PAN which came into effect w.e.f. 01.07.2011 are not attracted. Ld. CIT (A) in para 4.3(b) at page 18 has himself recorded that, "Interestingly and coincidentally, in our case, the appellant has undertaken these transactions just before that". CIT(A) despite being satisfied that the provisions are not applicable in case of the assessee but proceeded to enhance the income of the assessee to the tune of Rs.2,24,99,000/- on account of sales in cash of bullion being unexplained in the absence of detail and corroboration.

15. In the face of the fact that books of account duly audited by the auditors have been accepted by the dl. CIT (A) and no adverse inference has been drawn and provisions contained u/s 115BBE are not attracted, the income has been enhanced by ld. CIT (A) apparently on the basis of surmises which is not sustainable in the 10 ITA No.5339/Del./2017 eyes of law, hence following the decision rendered by Hon'ble High Courts and Tribunal in CIT-II vs. Jindal Dyechem Industries Pvt. Ltd. (supra), R.B. Jessaram Fetehcahnd (Sugar Dept.) vs. CIT, Bombay City-II (supra) and Kishore Jeram Bhai Khaniya, Prop. M/s. Poonam Enterprises, Mp-83 vs. ITO (supra), addition of Rs.2,24,99,000/- made by ld. CIT (A) is ordered to be deleted. Consequently, grounds no.5, 6, 7, 8 & 9 are determined in favour of the assessee.

16. Resultantly, the appeal filed by the assessee is partly allowed.

17. In view of the fact that appeal bearing ITA No.5339/Del/2017 in which the present stay application was filed has since been disposed off vide this composite order, the present stay application is hereby dismissed having been become infructuous.

Order pronounced in open court on this 25th day of May, 2018.

              Sd/-                                  sd/-
        (G.D. AGRAWAL)                         (KULDIP SINGH)
           PRESIDENT                          JUDICIAL MEMBER

Dated the 25th day of May, 2018
TS
                                11   ITA No.5339/Del./2017




Copy forwarded to:
     1.Appellant
     2.Respondent
     3.CIT
     4.CIT(A)-18, New Delhi.
     5.CIT(ITAT), New Delhi.            AR, ITAT
                                       NEW DELHI.