Income Tax Appellate Tribunal - Ahmedabad
Amar Jewellers Pvt. Ltd.,, Surat vs Assessee on 1 December, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "A" AHMEDABAD
Before Dr. O.K. Narayanan, Vice-President (AZ) and
Shri Mahavir Singh, Judicial Member
ITA No.4039/ Ahd/2008
Assessment Year:2005-06
Drafted: 15.12.09
Amar Jewelles Pvt. Ltd., V/s. Jt. Commissioner of
Shreeji Awas, Sardar Income-tax, Range-1,
Diamond Market, Surat
Varachha Road, Surat
PAN No. AACCA9180A
(Appellant) .. (Respondent)
Appellant by :- Shri Rasesh Shah &
Hardik Bord, AR
Respondent by:- Shri Rajeev Agarwal, CIT,DR
Date of order reserved: 01/12/2009
ORDER
PER Mahavir Singh, Judicial Member:-
This appeal by the assessee is arising out of the order of Commissioner of Income-tax (Appeals)-I, Surat in appeal No.CAS-1/335/07-08 dated 17-10-2008. The assessment was framed by the JCIT, Range-I, Surat u/s.143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') vide his order dated 26-12-2007 for the assessment year 2005-06.
2. The first issue and second issue in this appeal of the assessee is inter- connected, which are against the order of CIT(A) in confirming the action of the Assessing Officer rejecting the books of account u/s.145(3) of the Act and thereby applying Gross Profit (GP in short) rate and making addition. For this, the assessee has raised the following ground No.1 and 4:-
"1. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer in rejecting books of accounts of assessee u/s.145(3) of the Act."ITA No.4039/Ahd/2008 A.Y. 2005-06
Amar Jewellers P. Ltd. v. Jt.CIT Range-1 Surat Page 2 "4. On he facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer in making addition of Rs.1,53,04,648/- on account of alleged low gross profit on other transactions."
3. The brief facts leading to the above common and inter-connected issues are that the Assessing Officer during the course of assessment proceedings noticed that the assessee has made purchases at a higher price than the sale price and when the transactions were examined, it is found that all loss making transactions pertain to sister concern falling u/s.40A(2)(b) of the Act. According to the Assessing Officer, the sales at a lower price than import purchase price in the name of sister concern M/s. Amar exports widely effected the profitability of the assessee-company and according to him, the book results cannot be relied upon. Even the assessee has not provided the complete address, PAN No. and confirmations of the parties exceeding sale of Rs.1 lakh. Even the stock register did not contain quality-wise, item-wise and piece-wise record of stock and according to the Assessing Officer is not possible to verify the purchases and sales on a particular date. The Assessing Officer also discussed the example that the assessee-company got ornaments manufactured by paying Rs.37.51 per gm. in the month of September'04, whereas just before i.e. August'04 the assessee claimed Rs.16.52 per gm. of labour charges. The difference between two months itself indicated that either the assessee suppressed its production or claimed unreasonable labour charges. In the circumstances, the book result could not be accepted as claimed by the assessee. The Assessing Officer by giving following findings rejected the books of account:-
"On going through the above reply, the assessee company tried to justify the profitability of the company with the help of other income such as interest income etc. It is argued that the purchases of pure gold were made on credit basis through MMTC, accordingly, higher price has been paid. The argument has no strength because credit facility is always available in the market without sacrificing profit. It always depend upon supply and demand ratio as well as depends upon person to person and party to party. Therefore, the purchases made on higher price cannot be justified due to credit facility. Here, it is not a question of purchases, the question was raised before the assessee in connection to sale made to its sister concern i.e. Amar Export at the lesser price. Unfortunately, the assessee company has not made any comment on this aspect. In view of above the argument of the assessee company is not accepted.
As regards para 2 of the above reply, the assessee company argued that most of the sales have been made in cash and to the persons who might have brought for their personal use. No prudent business man can make loss in ITA No.4039/Ahd/2008 A.Y. 2005-06 Amar Jewellers P. Ltd. v. Jt.CIT Range-1 Surat Page 3 business by insisting of complete addresses. The argument of the assessee company is not found completely acceptable especially when each transaction carrying volume of huge amount i.e. almost more than Rs.5 lacs or Rs.10 lacs and the transactions have been claimed in cash. The argument of the assessee is not acceptable. None of the notices u/s.133(6) of the Act sent to Ahmedabad, where served. Despite giving opportunity, the assessee has not made any attempt either to produce any other part and the A.R. simply repeated that it happens in this line of this business ..............
As regards para 5 of above reply, the assessee company itself admitted and shown its difficulty to maintain piece wise, item wise derails in stock register but it failed to comment on the reliability of books of account as well as book result shown by the company. How cold the quantity tall be possible without having item wise, piece wise records. Under the circumstances, the defect pointed out by this office in connection to maintenance of stock register has not been satisfactorily explained. The argument of the assessee company are not found acceptable.
As regards para 5 of above reply, the assessee company made its reply in very general and vague nature. It is argued that labour charges varies depending upon the fact whether manufacturing through machinery and through hand. Here, it is expected from the assessee company to provide the derails of machinery made articles and hand made articles inspite of making such statement. It is further argued that the variation may be shown because of difference in design, novelty and clarity of goods. This statement does not justify the difference pointed out by this office in connection to labour charges claimed in difference months. Accordingly, the argument of the assessee company is rejected".
After rejecting the book results the Assessing Officer made addition on account of low GP by giving following findings:-
"7. Apart from the transactions entered with the sister concern i.e. Amar Exports, the assessee has also incurred loss in the transaction with other parties also which is evident from the calculation of gross loss Rs.15188230/- worked out by the assessee himself in the submission dated 12.09.2007. If we take out the loss of Rs.1042192/- from the loss of Rs.15188230/-, then also there will be a loss which indicates that there is a loss in transactions other than the transaction with sister concern. Hence, this office has no other option but to estimate the GP of the assessee on the transactions other than the transaction with sister concern. The assessee has shown a turnover of Rs.3,06,09,29,713/- with the persons other then sister concern G.P has already been taken in the above para on the basis of assessee's own calculation. Hence, Gross Profit @ 0.50% comes to Rs.1,53,04,648/-. This amount is added back to the total income of the assessee."ITA No.4039/Ahd/2008 A.Y. 2005-06
Amar Jewellers P. Ltd. v. Jt.CIT Range-1 Surat Page 4 Accordingly, the Assessing Officer rejected the book results and estimated the GP. The CIT(A) also confirmed the action of the Assessing Officer. Aggrieved, the assessee came in second appeal before us.
4. Before us Ld. counsel for the assessee, Shri Rasesh B Shah argued and stated that Assessing Officer has rejected the book results u/s 145(3) of the Act on account of following issues as raised in show cause notice dated 08/12/2007:-
(i) Selling price is lower than purchase price resulting into gross loss,
(ii) Sales are made in cash & addresses of parties are not available,
(iii) Quality wise stock register is not maintained &
(iv) Variance in rate of labour charges.
The Ld. counsel sated that the assessee filed detailed reply against rejection of books of accounts vide letter dated 12.12.07. However, Assessing Officer was not satisfied with the reply of assessee and he rejected books of accounts u/s. 145(3) Before CIT(A) assessee filed detailed submission against rejection of books of accounts, however, CIT(A) was not satisfied with the submission of the assessee and he confirmed the addition of Assesssing Officer in respect of books of accounts, he stated that the assessee has submitted the following reasons before the lower authorities:-
(a) Assessee properly explained the loss as per the above discussion.
(b) Assessee also explained sales made in cash.
(c) Books of accounts cannot be rejected when quality wise stock register is not maintained. The qualities of the items purchased and sold are mentioned in purchase and sales invoices and in this line of business stock register is maintained quality wise. Assessing Officer has not pointed out any single case where such type of records are maintained as per his standards.
(d) Assessee explained the variation in the rate of labour charges before Assessing Officer and CIT(A). The labour charges are supported by the bills. The variance of labour charges was due to nature of the work being handmade labour and machine labour.
(e) The gross loss ratio was less compared to the last year. In the last year books of accounts have been ultimately accepted as all the additions were deleted by Honourable Tribunal.ITA No.4039/Ahd/2008 A.Y. 2005-06
Amar Jewellers P. Ltd. v. Jt.CIT Range-1 Surat Page 5
5. As regards to estimation of GP the Ld. counsel for the assessee argued that it also Assessee also purchased the gold bars of 99.99% purity in domestic tariff area for the purpose of reselling them in local market. The Ld. counsel explained the assessee's business in brief that assessee purchased gold mainly through MMTC (The Minerals & Metals Trading Corporation of India Ltd.). The assessee can import gold in DTA only through nominated agencies. As MMTC is one of the nominated agency, assessee has imported gold from foreign supplier through MMTC Ltd. As per the terms agreed upon, MMTC makes purchases from foreign supplier on credit basis for which interest is charged by supplier at LIBOR + 0.5% rates. Assessee makes 25% advance to MMTC and balance 75% is given after 15 days. Therefore, MMTC charges interest for 15 days. Assessee is required to bear Usance Interest Charges at 12 months LIBOR (London inter bank office rate) Plus 0.5% p.a. Assessee is also required to bear interest for 15 days in respect of 75% payments made after 15 days and withholding tax. For all this MMTC raised debit note. The payments made by assessee to MMTC are converted into F.D. MMTC gives interest for full one year on account of fixed deposit put on behalf of the assessee by giving credit note. The gold which is so imported is sold to various parties at prevailing market price. Assessee has shown majority of sales in cash to many parties based at Ahmedabad. Assessee is not able to give complete address of the persons to whom cash sales have been effected. However, Assessing Officer estimated gross profit @ 0.5% on whole turnover of Rs. 3,06,09,29,713/- (excluding turnover of sister concern) and made addition of Rs. 1,53,04,648/-. This issue has been discussed at para no. 6 of the Assessment Order. The CIT(A) confirmed addition of Rs. 1,53,04,648/- as per his findings given at para no. 2.3 of the appellate order.
6. The Ld. counsel for the assessee made the submissions before us, which are summarized as under:-
(a) The Ld. counsel stated that all the sales whether on credit or cash, the assessee has made the sales at market price. Even Assessing Officer has not doubted that sales have been made at market price.
(b) Assessee earned net amount of Rs. 1,45,39,422/- on account of interest from MMTC Ltd. after deducting LIBOR interest, other interest and ITA No.4039/Ahd/2008 A.Y. 2005-06 Amar Jewellers P. Ltd. v. Jt.CIT Range-1 Surat Page 6 withholding tax. If the interest from MMTC Ltd is considered there is no loss and overall much profit.
(c) Even otherwise Assessing Officer has made wrong calculation of gross profit. The overall gross loss comes to Rs. 68,84,414/- and not Rs.
1,51,88,230/-. Hence, after excluding the figure of alleged gross loss pertaining to sister concern (although there is no loss in reality) there is a profit of Rs. 35,59,232/- & there is no loss as alleged by Assessing Officer. Even CIT(A) has accepted this argument of the assessee as can be seen from his observation at para no. 2.3 page of his order. However, it is pertinent to mention here that in fact the figure of profit is much more than the above amount considering the fact that assessee also earned interest income as explained above.
(d) Even the Assessing Officer has observed at para no. 4 of the Assessment Order that all loss making transaction pertaining to the concern of falling in the definition of section 40A(2)(b) of the I.T. Act. So according to Assessing Officer loss pertains to transactions with sister concern and not transactions with other parties done in cash.
(e) Assessee has not picked and chosen the date of cash sales as every day there has been cash sales. Assessee sold goods at market price mainly to earn interest income by exercising modus operandi as explained above.
(f) The books of account cannot be rejected when the addresses of all parties to whom cash sales made were not available. The reliance is placed on decision of Bombay High Court in case of Jessaram Fatehchand (R.B.) v/s CIT 75 ITR 33(Bom).
7. On the other hand, Ld CIT DR relied on the orders of CIT(A) and stated that the Assessing Officer as well as CIT(A) has confirmed the rejection of books of account on the following four reasons:-
(i) Selling price is lower than the purchase price resulting into gross loss. Such sales are made to sister concerns incurring loss.ITA No.4039/Ahd/2008 A.Y. 2005-06
Amar Jewellers P. Ltd. v. Jt.CIT Range-1 Surat Page 7
(ii) Sales are made in cash and addresses of the parties are not available. Such sales made to the outside parties are also shown to have incurred loss.
(iii) Quality-wise stock register is not maintained.
(iv) Variance in rate of labour charges from month to month In view of these facts the Ld. CIT DR supported the orders of the lower authorities and urge the Bench to confirm the action of the lower authorities.
8. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the main premise of the lower authorities in rejecting the books of account are that the selling price is lower than the purchase price to sister concerns, sales are made in cash and addresses of these parties are not available, quantity-wise stock register is not maintained and there is variance in rates of labour charges from month-to-month. The lower authorities could not point out any specific defect in the books of account. The assessee explained properly the loss incurred in the above transactions and also explained the sales made in cash. The assessee has not maintained the stock register in term of quality but the quality and quantity of items purchased and sold can be deduced from the purchase & sale invoice and the Assessing Officer has not pointed out any single case where there is defect in the purchase & sale invoices. Even the assessee has explained the variation in the rate of larbour charges before the lower authorities supported by bills. According to the assessee, the variation in labour charges was due to nature of work being manual and machine labour. We find that there is no finding in the orders of the lower authorities that the assessee's method of account is not regular method incurred by it and even there is no finding whether the income or profits and gains of the assessee cannot be properly deduced from the accounts maintained. In view of these facts, we are of the view that the first proviso to section 145(1), or section 145(2), can be invoked only if and where the elements attracting either of those provisions are found to exist. A clear finding to that effect, along with the materials on which such finding is base, has to be made out and given by the Assessing Officer No. assessment under the firs proviso to section 145(1) or under section 145(2) can be sustained if the Assessing Officer has not considered and recorded a finding against the assessee as to whether he has been regularly employing a method of accounting or whether his income, profits or gains can properly be deduced from his method of accounting if he has been regularly employing a method of accounting or whether the accounts are correct and complete, and the Assessing Officer's decision ITA No.4039/Ahd/2008 A.Y. 2005-06 Amar Jewellers P. Ltd. v. Jt.CIT Range-1 Surat Page 8 on these mattes is not to be a subjective or arbitrary decision but a judicial decision and cannot be accepted if there is no material to support his finding. The expression "in the opinion of the Assessing Officer" in the first proviso to section 145(1), does not confer a mere discretionary power; in the context it imposes a statutory duty on the Assessing Officer to examine in every case the method of accounting employed by the assessee and to see whether or not it has been regularly employed and to determine whether the income, profits and gains of the assessee could properly be deduced therefrom. In view of these facts and discussion, we are of the considered view that there is no defect pointed out by the lower authorities in the books of account of the assessee and rejection cannot be sustained. Accordingly, we accept the books of account of the assessee and allow this issue of the assessee's appeal. Accordingly, the inter-connected issues regarding addition made on account of GP of the assessee's appeal is also allowed.
9. The next two inter-connected issues are against the order of CIT(A) in confirming the action of the Assessing Officer in rejecting the loss of Rs.1,04,43,646/- on account of profit diverted to sister concern and thereby making further addition of profits on transactions with sister concern at Rs.6,94,795/-. For this, the assessee has raised the following ground No.2 and 3:-
"2. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer in rejecting loss of Rs.1,04,43,646/- incurred in connivance with sister concern."
"3. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer in making addition of Rs.6,94,795/- for alleged profit on transaction with sister concern."
10. The brief facts leading to the above inter-connected issues are that the Assessing Officer during the course of assessment proceedings noticed from the assessment order that the assessee has furnished 99.99% of pure gold related to SEZ amounting to Rs.14,94,02,671/- and sold the same at Rs.13,89,59,205/-. He on verification of the stock register produced by the assessee, noticed that the assessee has purchased by import from Mahesh & Co. PTE Ltd. Singapore, 105000 gm. of pure gold, on 02-04-2003 and the same is sold on the same date i.e. 02-04- 2003 to its sister concern Amar Exports at the lower price than the purchase price.
ITA No.4039/Ahd/2008 A.Y. 2005-06Amar Jewellers P. Ltd. v. Jt.CIT Range-1 Surat Page 9 Similarly, on 15-04-004 the assessee has imported 131000 gm. of pure gold from Mahesh & Co. PTE Ltd., Singapure and the same is sold on 15-04-2003 to its sister concern Amar Exports at the lower price than the purchase price. On these transactions the assessee has incurred loss of Rs.1,04,43,646/-. According to the Assessing Officer, this loss is purely a created loss and it is very strange to believe that how a prudent business man will incur huge loss on these transactions when these purchase and sales transactions has taken place on two different dates only. The AO noted that the sale to Amar Exports has taken place at the lower rate then the prevailing market rate and it is a well known fact that the price of the gold trade is fixed at the national and international level. According to the Assessing Officer, it is an established fact that when the goods are purchased by import and sold in the local market then profit element is higher. In view of the above discussion, he disallowed the entire loss of R.1,04,43,646/-. Further the Assessing Officer also added profit on transactions with sister concern by stating that the assessee has incurred loss of Rs.1,04,43,646/- on transactions of purchase and sale with the sister concern. It can easily be presumed that if these transactions are not planned or created one, then the assessee must have earned certain profit on these transactions. As mentioned in above para the assessee's books of account have been rejected, hence, profit on these particulars transactions has to be determined. As per the submission of the assessee vide letter dated 12-09-2007, the assessee has furnished gross profit ratio for three financial years. These are as under:-
F.Y. G.P.
2002-03 4.5%
2003-04 (-) 1.14%
2004-05 (-) 0.47%
Accordingly, the Assessing Officer adopted the GP ratio of 0.50% and estimated the gross profit on these transactions at Rs.6,94,795/-. Aggrieved, the assessee preferred appeal before CIT(A) and CIT(A) also confirmed the action of the Assessing Officer. Aggrieved, the assessee came in second appeal before us.
11. Before us, Ld. counsel for the assessee stated the facts that the assessee is having SEZ unit at Unit no. 96, Plot No. 302, Surat Special Economic Zone, Sachin, Surat. Assessee's sister concern namely M/s. Amar Exports is also having SEZ unit at Unit no. 95, Plot No. 302, Surat Special Economic Zone, Sachin, Surat. Assessee purchased gold bars 99.99% purity from Mahesh & Co Pvt. Ltd. of Singapore on ITA No.4039/Ahd/2008 A.Y. 2005-06 Amar Jewellers P. Ltd. v. Jt.CIT Range-1 Surat Page 10 01.04.04 & 10.04.04 of 105kg and 131kg respectively. The contract for purchase of gold bars was made on 30.03.04 and 08.04.04 with Mahesh & Co Pvt. Ltd. as per pro forma invoice. The same gold bars were sold to Amar Exports, sister concern of the assessee on 02.04.04 & 15.04.04. Assessee made sales to M/s. Amar Exports against immediate receipts of the payments but the purchases were made from the Mahesh & Co. on one year credit against L.C. obtained form bank which was granted on fixed deposit put by the assessee. Assessee was having liquidity to invest in fixed deposit for the purpose of obtaining L.C. because of immediate receipts of money from M/s. Amar Exports. Assessing Officer observed that the bars were purchased for Rs.14,94,02,671/- from Mahesh & Co Pvt. Ltd. which were sold for Rs.13,89,59,025/- as per above details and therefore assessee made loss of Rs. 1,04,43,646/- on these transactions with sister concern. Assessing Officer also made addition for profit with sister concern transactions of Rs. 6,94,795/- by adopting gross profit ratio @ 0.5% as per his findings given at para no. 7 of the Assessment Order. The Ld. counsel for the assessee argued that the CIT(A) confirmed the rejection of loss of Rs. 1,04,43,646/- as per findings given at para no. 3.3 of the Appellate Order. He stated that the CIT(A) also confirmed the addition of Rs. 6,94,795/- on account of profit with sister concern transactions as per his findings given at para no. 4.3 of the Appellate Order. The arguments made by the Ld. counsel for the assessee are summarized as under:-
(a) According to the Ld. counsel, the Assessing Officer at para no. 5 of Assessment Order observed that sales to Amar Exports had taken place at lower rate than prevailing market rate. The statement made by Assessing Officer is wrong in as much as the sales has been made to M/s. Amar Exports at price which is more than international market price.
In fact it has been certified by assessee in the sales invoice issued by the assessee that invoice showed actual price of goods described and all particulars of the invoice were true and correct. The international gold rate mentioned in the invoice is more than the published international gold rate of relevant date downloaded from internet.
(b) Assessee received the payments from Amar Exports immediately which facilitated assessee's working capital. Because of this assessee was able to obtain letter of credit from the bank. Assessee put the fixed deposit of ITA No.4039/Ahd/2008 A.Y. 2005-06 Amar Jewellers P. Ltd. v. Jt.CIT Range-1 Surat Page 11 one year against letter of credit issued by bank of one year. In this way assessee obtained credit of one year from the foreign supplier.
(c) The supplier has charged more price than international gold price on account of the fact that supplier extended credit period of one year against opening of letter of credit. The supplier charged around 4% more being the interest cost. As against assessee earned more interest on fixed deposit.
(d) The Assessing Officer has not doubted the purchase price but he has only doubted sales price which is more than international price.
(e) The Assessing Officer has wrongly observed that sales have been effected on same day. In fact after receipt of the goods from foreign supplier, assessee sold the goods on next day and after 5 days in respect of purchases made on 01.04.04 and 10.04.04 respectively. Moreover, assessee has made contract for purchase of goods on 30.03.04 and 08.04.04 in respect of purchases made on 01.04.04 and 10.04.04 respectively.
(f) M/s. Mahesh & Co., foreign supplier from whom assessee has made purchases is not related to assessee.
(g) M/s. Mahesh & Co, the foreign supplier discounted the L.C. from his bank and he had to bear interest @ 2.25% in respect of invoice dated 01.04.04 and interest @ 2.34% and 3.33% in respect of invoice dated 10.04.04. As against this they have only charged around 4% more than international price from the assessee which is reasonable. In fact the Assessing Officer has not doubted the purchases.
(h) In last year also the addition was made in respect of transaction with sister concern which was deleted by Honourable Tribunal vide order dated 19.09.09 on ITA no. 4049/A/07 as per the findings given at para no.
30.
(i) In last year also there was gross loss of 1.14%. Even if the gross profit working made by Assessing Officer is accepted i.e. -0.47%, the gross loss ratio this year is less than last year.
ITA No.4039/Ahd/2008 A.Y. 2005-06Amar Jewellers P. Ltd. v. Jt.CIT Range-1 Surat Page 12
12. Ld. CIT Departmental Representative argued before us and relied on the orders of the lower authorities.
13 We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that the assessee received the payments from M/s. Amar Exports immediately and due to this reason, the assessee was able to obtain letter of credit from the bank by putting the fixed deposit of one year against the letter of credit. The supplier has charged more price then international gold price on account of the fact that the supplier extended credit period of one year against opening of letter of credit. Accordingly, the supplier charged interest cost at 4%. Secondly, the fact that the sales have been effected after receipt of goods from the supplier almost after five days in respect of purchase made on 01-04-2004 and 10-04-2004 respectively. For this, the assessee has made contract for purchase of goods on 30-03-2004 and 08-04-2004 respectively. It is a fact that M/s. Mahesh & Co. a foreign supplier from whom the assessee had made purchase is not at all related party. M/s. Mahesh & Co. a foreign supplier discounted the L.C from his bank and he bear interest to the tune of Rs.2.5% to 3.33% in respect of the invoices against this but they have charged 4% more on international price for which the assessee paid. We find that the Assessing Officer has not doubted the purchase price related to these transactions and in the similar circumstances in assessee's own case for assessment year 2004-05, the Tribunal in ITA No.4049/Ahd/2007 dated 18-09-2009 has already accepted the transaction of the assessee after considering the submission of the assessee in para-27 to 30 which read as under:-
"27. The learned AR who appeared before us submitted that during the year under consideration, assessee imported pure gold and unused gold jewellery on credit period of 1 year. For importing goods on credit period of 1 year, assessee was required to open an L.C. for 1 year period in favour of its supplier. Said L.C. was opened against F.D. of Indusind Bank, Surat & ICICI Bank, Baroda. As assessee imported goods on credit period of 1 year, price charged by supplier was naturally higher than the market rate. The above items which were so purchased were sold immediately & the proceeds so received was utilized for making investment in F.D. with bank. Thus, considering the total of sales price & interest income, assessee earned profit in respect of each of the transactions made on various dates viz. 01.01.2004, 09.02.2004, 16.02.2004 and 19.03.2004. Even otherwise, it is a settled law that addition cannot be made in respect of notional income. Thus, even if the contention of assessing officer is accepted that goods were sold at a rate which may be slightly lower than the market rate, addition cannot be made ITA No.4039/Ahd/2008 A.Y. 2005-06 Amar Jewellers P. Ltd. v. Jt.CIT Range-1 Surat Page 13 assessee has not actually earned/received the difference amount of Rs.36,39,561/- worked out by assessing officer.
28.Assessee's AR further stated that the goods sold to M/s. Amar Exports was at fixed price and the rate was fixed in the next year where assessee received the rate difference of Rs.84,66,256/-. Assessee has shown this rate difference as income in the next year whereas M/s. Amar Exports showed it as an expenditure and claimed loss. This loss was disallowed by assessing officer in case of M/s. Amar Exports but that was allowed by CIT(A) and Tribunal. Copy of Honourable Tribunal order in case of M/s. Amar Exports in ITA No.3431/Ahd/2008 with CO No.30/Ahd/2009 was placed before us. Assessee's AR therefore summed up the argument by stating that we have actually gained Rs.3,84,000/- if interest income of Rs.1.90 crores is considered in working out the gain in alleged transaction with M/s. Amar Exports and even otherwise he received rate difference in the next year of Rs.84,66,256/-.
28. The Ld. DR supported his argument by placing reliance on orders of lower authorities.
30. We have heard the rival submissions and perused the materials on record. As assessee was able to explain the loss incurred with sister concern, the disallowance made by the assessing officer is not proper. Assessee explained the loss by stating that he actually gained ultimately because of interest income and rate difference received in the next year."
Accordingly, we are of the view that the facts of the case present case are very clear and the assessee has paid more on account of interest on international price and there is a definite loss incurred by the assessee. Accordingly, we reverse the findings of the lower authorities and allow the loss. Consequently profit estimated by the lower authorities on this transaction is also allowed. Accordingly, these two inter- connected issues in assessee's appeal are allowed.
14. The next issue in this appeal of the assessee is against the order of CIT(A) in confirming the action of the Assessing Officer in not allowing the set off of carry forward of loss by amount of Rs.57,47,586/-. For this, the assessee has raised the following ground No.5:-
"5. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer in giving less set off of carry forward of the loss by Rs.57,47,586/-."
15. At the outset Ld. Counsel for the assessee stated that this issue has been settled by the Tribunal's decision in assessee's own case in ITA No.4049/Ahd/2007 ITA No.4039/Ahd/2008 A.Y. 2005-06 Amar Jewellers P. Ltd. v. Jt.CIT Range-1 Surat Page 14 dated 18-09-2009, whereby the difference in amount of carry forward of unabsorbed loss determined in the appeal effect of the order of the Tribunal for assessment year 2004-05 may be allowed. We find that during the year under consideration, assessee has shown income of Rs.34,31,850/- after adjustment of carry forward losses of Rs.2,29,94,638/-. This loss is brought forward from A.Y 2004-05 and additions on certain issues were made in assessment year 2004-05 out of which some of the additions were confirmed by CIT(A) and after passing the appeal effect order dated 29-11-007 by DCIT, Circle-1, Surat, the carry forward loss is Rs.1,72,47,052/-. Thus Assessing Officer made addition of the difference amount of Rs.57,47,586/- to the total income of the assessee. The issue has been discussed at para-8 of the assessment order. In the course of appellate proceedings before the Bench, it is submitted that all the additions made in assessment year 2004-05 were deleted by the Tribunal in ITA No.4049/Ahd/2007 dated 18-09-2009. Accordingly, assessee is entitled to carry forward unabsorbed loss that may be determined in appeal effect of the order of ITAT for assessment year 2004-05 of assessee's own case. We feel that issue be verified in terms of Tribunal's order in appeal effect to the same. Respectfully following the Tribunal's decision in ITA No.4049/Ahd/2007 (supra), this issue of the assessee's appeal is allowed for statistical purposes.
16. In the result, assessee's appeal is allowed.
Order pronounced in Open Court on 06/01/2010
Sd/- Sd/-
(Dr.O.K.Narayanan) (Mahavir Singh)
(Vice President) (Judicial Member)
Ahmedabad,
Dated : 06/01/2010
*Dkp
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT(Appeals)- I, Surat
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
/True copy/
Deputy/Asstt.Registrar
ITAT, Ahmedabad