Income Tax Appellate Tribunal - Mumbai
Mishka Gold Jewellery Limited , Mumbai vs Additional Commissioner Of Income ... on 7 December, 2018
ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 1
M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) &
DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, MUMBAI
BEFORE SHRI R.C. SHARMA, AM AND SHRI RAVISH SOOD, JM
ITA No(s). 5972/Mum/2017
(निर्धारण वषा / Assessment Year: 2012-13)
M/s Mishka Gold Jewellery Ltd., Addl. Commissioner of Income Tax- 4(2),
C-803, 8 Floor, Marathon Innova बिधम/ 6th Floor, Aaykar Bhawan, M.K Road,
th
Building, Ganpat Rao Kadam Marg, Mumbai - 400 020.
Vs.
Lower Parel (W), Mumbai-400 013.
स्थामी रेखा सं ./ जीआइआय सं ./ PAN No. AADCK7703L
(अऩीराथी /Appellant) : (प्रत्मथी / Respondent)
ITA No(s). 5438/Mum/2017
(निर्धारण वषा / Assessment Year: 2012-13)
Deputy Commissioner of Income M/s Mishka Gold Jewellery Ltd., C-801/A,
Tax- 4(2), Room No. 640, 6 th बिधम/ Marathon Innova Building, Ganpat Rao
Floor, Aaykar Bhawan, M.K Road, Vs. Kadam Marg, Lower Parel (W),
Mumbai-400 013.
Mumbai - 400 020.
स्थामी रेखा सं ./ जीआइआय सं ./ PAN No. AADCK7703L
(अऩीराथी /Appellant) : (प्रत्मथी / Respondent)
अऩीराथी की ओय से / Appellant by : S/sh. Hari Raheja & Mani Jain, A.R‟s
प्रत्मथी की ओय से/Respondent by : Shri. Chaitnya Anjania, D.R
सुनवाई की तायीख / : 12.10.2018
Date of Hearing
घोषणा की तायीख / : 07.12.2018
Date of Pronouncement
ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 2
M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) &
DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
आदे श / O R D E R
PER RAVISH SOOD, JUDICIAL MEMBER:
The present cross appeals filed by the assessee and the revenue are directed against the order passed by the Commissioner of Income-tax (Appeals)-9, Mumbai, dated. 16.06.2017, which in turn arises from the assessment order passed by the Assessing Officer (for short „A.O‟) under Sec. 143(3) of the Income Tax Act, 1961 (for short „Act‟), dated. 31.03.2015. We shall first advert to the appeal of the assessee. The assessee has assailed the order of the CIT(A) by raising the following grounds of appeal before us :
The following grounds of appeal are without prejudice to one another.
"1. On the facts and circumstances of the Appellant's case and in law the Ld. Commissioner Of Income Tax (Appeals) erred in confirming the action of Ld. AO in making disallowance of Rs. 1,47,246/- being 10% of Miscellaneous expenses amounting to Rs. 14,72,456/- as per the grounds stated in the order or otherwise.
2. On the facts and circumstances of the Appellant's case and in law the Ld. Commissioner Of Income Tax (Appeals) erred in confirming the action of Ld. AO in making disallowance of Rs. 3,77,036/- being 25% of travelling expenses amounting to Rs. 15,08,143/- as per grounds stated in the order or otherwise.
3. On the facts and circumstances of the Appellant's case and in law the Ld. Commissioner of Income Tax (Appeals) erred in confirming the action of Ld. A.O in disallowing a sum of Rs. 36,00,000/- on account of remuneration paid to director by invoking the provisions of Sec. 36(1)(ii) of the Income Tax Act, 1961 as per the grounds stated in order or otherwise.
4. On the facts and circumstances of the Appellant's case and in law the Ld. Commissioner of Income Tax (Appeals) erred in confirming the action of Ld. A.O in making an addition of Rs. 14,40,82,458/- on account of loans and share premium by invoking provisions of section 68 of the Income Tax Act 1961 as per the grounds stated in the order or otherwise.
5. On the facts and circumstances of the Appellant's case and in law the Ld. Commissioner of Income Tax (Appeals) erred in confirming the action of Ld. A.O in disallowing purchases of Rs. 1,71,73,863/- as per the grounds stated in the order or otherwise.
6. On the facts and circumstances of the Appellant's case and in law the Ld. Commissioner of Income Tax (Appeals) erred in estimating overall ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 3 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
gross profit @2% of total sales made by the appellant without any cogent material on record.
7. The appellant craves to add, to amend, alter, modify and / or withdraw any or all of the above grounds of appeal, each of which are without prejudice to one another.
The appellant prays the Hon'ble Tribunal to delete the addition/disallowances made by the Ld. Assessing Officer, which is confirmed by the Ld. Commissioner of Income Tax(Appeals)."
2. Briefly stated, the assessee company which is engaged in the business of manufacturing of gold, diamond, silver and platinum ornaments had e- filed its return of income for A.Y. 2012-13 on 26.09.2012 declaring total income of Rs. 3,33,30,920/-. The return of income was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2).
3. The A.O while framing the assessment inter alia made the following additions/disallowances in the hands of the assessee :
Sr. No. Particulars Amount
1. 20% disallowance of Miscellaneous Expenses Rs. 2,94,491/-
2. 50% disallowance out of Travelling Expenses Rs. 7,54,072/-
3. Disallowance of the remuneration paid to director Rs. 36,00,000/-
under Sec. 36(1)(ii) of the Act.
4. Addition of loans and share premium under Sec. Rs. 14,40,82,458/-
68 of the Act
5. Disallowance of purchases Rs. 4,83,27,950/-
Income of the assessee was thereafter assessed by the A.O vide his order passed under Sec. 143(3), dated 31.03.2015 at Rs. 24,01,64,650/-.
4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee partly allowed the appeal and sustained the following additions/ disallowances :
ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 4 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
Sr. No. Particulars Amount
1. 10% disallowance of Miscellaneous Expenses Rs. 1,47,246/-
2. 25% disallowance out of Travelling Expenses Rs. 3,77,036/-
3. Disallowance of the remuneration paid to director Rs. 36,00,000/-
under Sec. 36(1)(ii) of the Act.
4. Addition of loans and share premium under Sec. Rs. 14,40,82,458/-
68 of the Act.
5. Disallowance of purchases (by estimating the over all Rs. 1,71,73,863/-
Gross profit rate at 2% of the total turnover of the assessee).
5. That both the assessee and the revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We shall first advert to the appeal filed by the assessee wherein the aforementioned additions/disallowances sustained by the CIT(A) has been assailed before us.
6. The Learned Authorized Representative (for short „A.R‟) for the assessee had at the very outset assailed the sustaining of the 10% of disallowance out of the total „miscellaneous expenses‟ of Rs. 14,72,456/- by the CIT(A). The Ld. A.R drew our attention to the observations of the CIT(A) in context of the issue under consideration at Page 14-15 - Para 12.1-12.3 of his order. The Ld. A.R took us through the order of the A.O which revealed that the following expenses were booked under the aforementioned head of expense :
Sr. No. Particulars Amount
1. Telephone & Mobile charges Rs. 4,18,551/-
2. Petrol expenses Rs. 3,50,846/-
3. Business promotion Rs. 3,99,730/-
4. Hotel Expenses Rs. 3,03,329/-
Total Rs. 14,72,456/-
It was averred by the Ld. A.R that though the entire details pertaining to the above mentioned expenses were submitted with the A.O during the course of ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 5 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
the assessment proceedings, but the latter while framing the assessment had whimsically disallowed 20% of the expenses amounting to Rs. 2,94,491/-. The ld. A.R took us through the observations of the A.O in context of the aforesaid disallowance. On a perusal of the assessment order it stands revealed that the aforesaid expenses were disallowed by the A.O for the reason that they were only supported by self made vouchers. The contention of the assessee that the aforementioned expenses were indispensably required for the running of the business and the veracity of the same had been checked and certified by the auditors, however, did not find favour with the A.O. The Ld. A.R submitted that the CIT(A) without placing on record any cogent material which could justify disallowance of any part of the aforementioned expenses had however upheld 10% of the total disallowance. It was the contention of the Ld. A.R that now when neither of the lower authorities had either pointed out any such specific expense the genuineness and veracity of which was not open for verification from the self made vouchers, nor provided any basis for disallowing/sustaining of 20%/10% of the aforesaid expenses, thus no part of such disallowance could have been sustained. Further, the Ld. A.R assailed the sustaining of 25% of travelling expenses aggregating to Rs. 15,08,143/- by the CIT(A) which had led to a consequential addition/disallowance of Rs. 3,77,036/-. The Ld. A.R took us through the observations of the A.O in context of the aforesaid disallowance. It was observed by the A.O that substantial expenses were incurred towards travelling expenses of the directors of the assessee company viz. (i) Mr. Mohit Kamboj; and (ii) Mr. Naresh Kapoor. Observing, that the assessee had failed to substantiate on the basis of irrefutable evidence that the said expenditure was incurred wholly and exclusively for the purpose of the business of the assessee company the A.O had disallowed 50% of the expenses. On appeal, the CIT(A) after taking cognizance of the fact that the aforesaid expenses were supported by evidence and were essential for the smooth running of the business of the assessee company scaled down the disallowance to 25% of the total expenses. The Ld. A.R in support of his ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 6 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
claim that no disallowance out of the aforesaid expense was called for in the hands of the assessee relied on his submissions made before the lower authorities. It was the contention of the assessee before the CIT(A), that as against its turnover of more than Rs. 610 crores it had incurred miniscule amount of travelling expenses of Rs. 15,08,143/-. In the backdrop of the aforesaid fact it was the contention of the assessee that for achieving the aforesaid substantial turnover the directors of the assessee company were required to travel all over the country to secure orders, thus no adverse inference as regards such miniscule amount of travelling expenses was liable to drawn. It was submitted by the Ld. A.R that as there was no finding of the lower authorities as to what was the infirmity emerging from the claim of expenditure incurred by the assessee in context of the travelling undertaken by its directors, thus the disallowance made only on the basis of conjectures and surmises could not be sustained and was liable to be vacated. The Ld. A.R further adverted to the sustaining of the disallowance under Sec. 36(1)(ii) of the remuneration of Rs. 36,00,000/- paid by the assessee company to its director viz. Mr. Mohit Kamboj during the year under consideration. It was submitted by the ld. A.R, that the said disallowance was backed by misconceived facts and misconstruing of the settled position of law on the part of the lower authorities. It was submitted by the Ld. A.R that during the year under consideration the assessee company had paid a remuneration of Rs. 36,00,000/- to its director Mr. Mohit Kamboj, which in the backdrop of the substantial scale of business of the assessee company and the efforts and hard work that was put in by him for maintaining as well as improving the business of the assessee company, was well within the reasonable parameters. In order to fortify his aforesaid contention, it was submitted by the Ld. A.R that the tremendous increase in the turnover and profits of the assessee company during the year under consideration viz. A.Y. 2012-13, as in comparison to the earlier years was solely attributable to the efforts of the said director viz. Sh. Mohit Kamboj. Further, it was submitted by the Ld. A.R that the payment of remuneration to the director was duly approved in the meeting of the „board of directors‟ in ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 7 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
compliance of the mandate of the Companies Act. The Ld. A.R averred that the aforesaid remuneration paid to the director for the services rendered by him was clearly allowable as per the provisions of Sec. 37(1) of the Act. In support of his aforesaid contention the Ld. A.R relied on certain judicial pronouncements viz. (i) AMD Metplast (P) Ltd. Vs. DCIT (2012) 343 ITR 563 (Del); and (ii) Arihantam Infra Projects (P) Ltd. Vs. JCIT (2015) 4 taxmann.com 404 (Pune-Trib). It was submitted by the Ld. A.R, that the lower authorities had both misconceived the facts of the case as well as misconstrued the scope and gamut of the provisions of Sec. 36(1)(ii) of the Act. On the basis of his aforesaid contentions, it was submitted by the ld. A.R that the disallowance made by the A.O under Sec. 36(1)(ii) of Rs. 36,00,000/- could not be sustained and was liable to be vacated. The Ld. A.R further assailed the addition of Rs. 14,40,82,458/- made by the A.O by treating certain loans and share premium received by the assessee company as an „unexplained cash credit‟ under Sec. 68 of the I.T Act. It was the contention of the Ld. A.R that the assessee company had received a loan aggregating to Rs. 15,76,40,458/- from its director viz. Sh. Mohit Kamboj during the year under consideration. Out of the aforesaid amount a sum of Rs. 11,00,00,000/- was advanced by Mr. Mohit Kamboj vide two cheques of Rs. 10,00,00,000/- and Rs. 1,00,00,000/- issued on 31.03.2012. It was submitted by the ld. A.R that on the basis of the aforesaid loan the assessee had issued cheques of an identical amount to two parties viz. (i) M/s Arham Jewellery : Rs. 10,00,00,000/-; and (ii) M/s Dev Jewels : Rs. 1,00,00,000/-. It was averred by the Ld. A.R that as the cheques received from Sh. Mohit Kamboj for certain reasons were not presented for payment by the assessee company, thus the corresponding cheques issued by the assessee to the aforementioned third parties were also at its instance not presented by them for payment. The ld. A.R submitted that in the backdrop of the aforesaid facts a reversal entry for an amount of Rs. 11,00,00,000/- was passed in the ledger account of Sh. Mohit Kamboj in the „books of account‟ of the assessee company for the subsequent year i.e. A.Y. 2013-14. The ld. A.R in order to fortify his aforesaid contention drew our attention to the copy of the ledger ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 8 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
account of Sh. Mohit Kamboj appearing in the „books of account‟ of the assessee company for Financial Year 2012-13. Further, in order to drive home his aforesaid contention the Ld. A.R drew our attention to the reconciliation statement of ICICI Bank Account No. 026105007511 of the assessee company for the period 01.03.2012 to 31.03.2012. It was submitted by the Ld. A.R that the amount of Rs. 11,00,00,000/- just remained to be a „book entry‟ which on the transaction not having fructified was reversed in the subsequent year. In order to buttress his aforesaid claim the Ld. A.R took us through the observations of the CIT(A) in context of the issue under consideration. It was observed by the CIT(A) that the A.O had recorded a finding that though the assessee company had received a loan amounting to Rs. 15,76,40,458/- from its director Sh. Mohit Kamboj during the year under consideration, but out of the said amount an amount of Rs. 11,00,00,000/- was not reflected in the bank statements of either of the parties. It was submitted by the Ld. A.R that as observed by the CIT(A), it was an admitted fact that the assessee company had not received the amount of Rs. 11,00,00,000/- from Sh. Mohit Kamboj. The ld. A.R submitted that now when the loan of Rs. 11,00,00,000/- from Sh. Mohit Kamboj did not fructify into an actual receipt of amount by the assessee company and the book entry passed during the year had subsequently been reversed in the „books of account‟ of the assessee company in the following year i.e A.Y 2013-14, therefore, there was no reason for characterising the same as an unexplained cash credit in the hands of the assessee company during the year under consideration. Further, it was submitted by the ld. A.R that the CIT(A) misconceiving the facts of the case had most arbitrarily held the loan of Rs.3,17,12,458/- given to the assessee company by its director Mr. Mohit Kamboj as an unexplained cash credit under Sec. 68 of the I.T Act. It was the contention of the ld. A.R that the aforesaid sum of Rs. 3,17,12,458/- was given by Mr. Mohit Kamboj on 01.03.2012 from his account with Bank of India. Further, on a detailed enquiry with respect to the source of the aforesaid loan amount, it was found that a sum of Rs.3,17,10,565/- was on the same day received by Mr. Mohit Kamboj from ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 9 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
M/s Dev Jewels. The ld. A.R submitted that the summons issued by the A.O to M/s Dev Jewels under Sec. 131 of the I.T Act were served at the latters residential address. The ld. A.R submitted that solely for the reason that no business activity was found to be carried out by M/s Dev Jewels at the aforementioned address, adverse inferences as regards the genuineness and veracity of the transaction between Mr. Mohit Kamboj and M/s Dev Jewels had been drawn by the lower authorities. It was the contention of the ld. A.R that though there was no reason to raise doubt as regards the duly substantiated „source‟ of the „source‟ of the aforementioned amount of Rs.3,17,12,458/-received by the assessee company from Mr. Mohit Kamboj, but the lower authorities on the basis of flimsy grounds had drawn adverse inferences as regards the same. Alternatively, it was averred by the ld. A.R, that even otherwise prior to the insertion of the first proviso to Sec.68 on 01.04.2013, which was effective from assessment year 2013-14, no obligation was cast upon the assessee to explain the „source‟ of the „source‟ of a credit appearing in its „books of account‟. In support of his aforesaid contention, the ld. A.R relied on the judgment of the Hon'ble High Court of Bombay in the case of PCIT-13, Mumbai Vs. Veedhata Tower Pvt. Ltd. [ITA No. 819 of 2015; dated 17.04.2018] (copy placed on record). Further, the ld. A.R in order to substantiate the identity and capacity of Shri Dev Gupta, proprietor of M/s Dev Jewels, therein took us through the copy of his income tax return, copy of audited balance sheet, copy of trading and profit & loss account and copy of audit report in Form No. 3CB for the year under consideration i.e A.Y 2012-13 (Page 67 -81 of APB). In order to dispel the doubts as regards the identity of Shri Dev Gupta, proprietor of M/s Dev Jewels, it was submitted by the ld. A.R that assessment for A.Y 2012-13 was framed under Sec. 143(3) in the case of the said person. In order to fortify his aforesaid claim the ld. A.R took us through the copy of the assessment order of Shri. Dev Gupta for A.Y 2012-13 (Page 109 -111 of „APB'). In the backdrop of the aforesaid facts, it was averred by the ld. A.R that no doubts as regards the identity and capacity of Shri Dev Gupta, proprietor of M/s Dev Jewels, was liable to be drawn in context of the amount which was ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 10 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
advanced by him to Mr. Mohit Kamboj. On the basis of his aforesaid contention, the ld. A.R averred that now when „source‟ of the „source‟ of the amount received by the assessee stood established beyond any scope of doubt, therefore, no adverse inferences as regards the genuineness and veracity of the loan received by the assessee company from Mr. Mohit Kamboj was liable to be drawn. The ld. A.R further adverted to the gross profit addition of Rs.1,71,73,863/- that was sustained by the CIT(A) out of the total addition of Rs.4,83,27,950/- made by the A.O. It was submitted by the ld. A.R that the assessee company had carried out purchase and sale transactions amounting to Rs. 275,65,27,108/- and Rs.129,94,98,461/-, respectively, from/to 3 parties viz. (i) M/s Arham Jewellery; (ii) M/s Dev Jewels; and (iii) M/s Rajeshwari Impex, during the year under consideration. It was submitted by the ld. A.R that the A.O in order to verify the veracity of the transactions under consideration had issued notices under Sec. 133(6) to the aforesaid parties. In respect of two parties viz. (i) M/s Arham Jewellery; and (ii) M/s Dev Jewels, it was observed by him that the addresses of the said parties that was provided by the assessee turned out to be the residential addresses from where no business was being conducted. Further, notice issued under Sec. 133(6) to M/s Rajeshwari Impex was returned unserved. On the basis of the aforesaid observations the A.O held the purchases made by the assessee from the said concerns as ingenuine, and accordingly made a gross profit addition of 1.72% of the total purchases of Rs. 275,65,27,108/- which were claimed by the assessee to have been made from the said parties, leading to a consequential addition/disallowance of Rs. 4,74,12,266/-. Still further, the A.O disallowed the labour charges of Rs. 9,15,684/- claimed by the assessee to have been paid to M/s Arham Jewellery by holding the same as being ingenuine. The ld. A.R submitted that the assessee refuting the adverse inferences drawn by the A.O as regards the veracity of the purchases made from the aforementioned parties, had submitted that it was in the business of manufacturing and trading of gold jewellery wherein each and every gram of raw material was duly recorded in the stock statement. It was averred by the ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 11 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
ld. A.R that the stock summary of gold was submitted before the A.O, which was verified by him. In the backdrop of the aforesaid facts the ld. A.R submitted that the purchase and sale transactions of the assessee with the aforementioned parties viz. (i) M/s Arham Jewells (ii). M/s Dev Jewels; and
(iii) M/s Rajeshwari Impex were duly verified by the A.O during the course of the assessment proceedings and no discrepancy in respect of the same had emerged. Further, it was the contention of the assessee before the CIT(A) that the purchases and sales made to the aforementioned parties were substantiated by the assessee on the basis of supporting documents furnished with the A.O during the course of the assessment proceedings. In sum and substance, it was the contention of the ld. A.R that no discrepancy was pointed out by the A.O either as regards the valuation or the quantity of the purchases and sales of the assessee with the aforementioned parties. The ld. A.R submitted that the observation of the A.O that the funds of the assessee company were received by Mr. Mohit Kamboj and thereafter routed back to the assessee company was totally baseless. The ld. A.R adverting to the observations of the A.O that the address given for M/s Dev Jewels and M/s Arham Jewellery turned out to be the residential addresses, submitted that as the said respective concerns were proprietary concerns, therefore, the respective addresses therein provided were the residential addresses of the proprietors of the said concerns i.e Mr. Dev Gupta and Mr. Vishal Jain. On the basis of his aforesaid submissions it was the contention of the ld. A.R that no adverse inferences on the said count were liable to be drawn in respect of the genuineness and veracity of the purchases made by the assessee from the aforementioned concerns viz. (i) M/s Dev Jewels; and (ii) M/s Arham Jewellery. In order to dispel the doubts as regards the identity and the capacity of the aforementioned concerns, it was submitted by the ld. A.R that the assessments in the case of M/s Dev Jewels and M/s Arham Jewellery had been framed under Sec.143(3) of the I.T Act. In support of his aforesaid contention the ld. A.R drew our attention to the copies of the returns of income, computations of income, balance sheets and tax audit reports of M/s Dev Jewels (Page 67-81) of „APB‟ and M/s Arham Jewellery ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 12 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
(Page 82-93) of „APB‟ for A.Y. 2012-13. In respect of M/s Rajeshwari Impex, it was the contention of the ld. A.R that there could be various reasons for non-service of the notice issued by the A.O under Sec. 133(6). It was submitted by the ld. A.R that mere non-service of notice cannot suffice for characterising a transaction as ingenuine. In order to buttress his aforesaid contention the ld. A.R submitted that now when the A.O had not raised any doubts on the quantity and valuation of the purchases and sales made by the assessee from/to the aforementioned parties, therefore, the question of adding any further gross profit did not arise at all. Further, the ld. A.R submitted that in order to prove the identity and capacity of the aforementioned concern viz. M/s Rajeshwari Impex the copy of its income tax return, balance sheet and tax audit report was placed on record of the A.O (Page 94-108) of „APB‟. In the backdrop of his aforesaid contention it was averred by the ld. A.R that the gross profit addition in respect of the purchases of the assessee from the aforementioned parties was most arbitrarily made by the A.O, which thereafter was substituted by the CIT(A) by an overall gross profit of 2% on the total turnover (inclusive of gross Profit calculated and shown by the assessee in its „books of account‟). It was the contention of the ld. A.R that as no part of the purchases and sales made by the assessee from the aforementioned parties were disproved after necessary verifications by the lower authorities, therefore, there was no reason for drawing of adverse inferences as regards the same.
7. Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the order of the A.O. In context of the disallowance of the expenses it was averred by the ld. D.R that the onus was cast upon the assessee to establish the genuineness of the said respective deductions, which it had failed to do. In support of his aforesaid contention the ld. D.R relied on the judgment of the Hon‟ble High Court of Calcutta in the case of CIT Vs. Korlay Trading Co. Ltd. (1998) 232 ITR 820 (Cal). Further, in order to buttress his aforesaid contention the ld. D.R took support of Sec. 105 of the Indian Evidence Act. It was submitted by the ld. D.R that the A.O had called upon the assessee to ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 13 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
substantiate the expenses with supporting bills/vouchers, and also to establish that the same were incurred wholly and exclusively for its business purposes under Sec.37(1) of the Act. It was submitted by the ld. D.R that as the assessee had failed to substantiate the incurring of the aforesaid expenses for the purpose of its business, therefore, the A.O had rightly disallowed a part of the same. As regards the disallowance made by the A.O in respect of remuneration of Rs.36 lac paid to its director i.e. Mr. Mohit Kamboj, it was submitted by the ld. D.R that no resolution was passed by the company to support the same. Further, it was the contention of the ld. D.R that Mr. Mohit Kamboj was not a full time director of the assessee company. The ld. D.R taking support of his contention that the income has to be assessed under the right head of income, submitted that no infirmity did emerge from the aforesaid disallowance made by the A.O under Sec. 36(1)(ii) of the I.T Act. Further, the ld. D.R adverted to the addition of Rs. 14,17,12,458/- made by the A.O under Sec.68 of the I.T Act. The ld. D.R rebutting the contention of the counsel for the assessee that the amount of Rs.11 crore was merely a „book entry‟ which not having fructified into an actual transaction was thus reversed in the succeeding year, submitted that the said contention was never taken by the assessee either before the A.O or the CIT(A). In order to fortify his aforesaid claim the ld. D.R drew our attention to the contentions which were advanced by the ld. A.R before the CIT(A) (Page 28 of the CIT(A) order). In respect of the amount of Rs. 3,17,12,458/- received by the assessee company from Mr. Mohit Kamboj it was submitted by the ld. D.R that the latter had merely acted as a facilitator for routing the money of the assessee company back to its coffers in the garb of loans. In support of his contention the ld. D.R drew our attention to the observations of the A.O in context of the said issue at Page No. 19 - Para 15.5 of the assessment order. It was submitted by the ld. D.R that the A.O had rightly made an addition of the aforesaid amount of Rs. 3,17,12,458/- under Sec. 68 of the Act. In support of his contention that on the failure on the part of an assessee to discharge the „onus‟ as regards the „nature‟ and „source‟ of an amount credited in its books of accounts, the ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 14 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
same is liable to be treated as an unexplained cash credit under Sec.68 of the I.T Act, the ld. D.R relied on certain judicial pronouncements viz. (i). Uma Kant Vs. DCIT (2014) 369 ITR 220 (Bom); (ii). CIT Vs. N.R. Portfolio Pvt. Ltd (2013) 263 CTR 456 (Del); and (iii). CIT Vs. Ruby Traders & Exporters Pvt. Ltd (2003) 263 ITR 300. In context of the addition of Rs.11 crore made by the A.O, it was submitted by the ld. D.R that the assessee had failed to demonstrate as to what corresponding assets were generated in respect of the aforementioned loan which was raised from Mr. Mohit Kamboj. Further, the ld. D.R adverted to the G.P. addition of 1.72% that was made by the A.O in respect of the purchases claimed by the assessee to have been made from the aforementioned three parties viz. (i) M/s Dev Jewels; (ii) M/s Arham Jewellery; and (iii) M/s Rajeshwari Impex. The ld. D.R submitted that the aforesaid addition was substantially scaled down by the CIT(A) by substituting the same by an overall estimation of the GP rate of 2% on the total turnover of the assessee. It was the contention of the ld. D.R that Mr. Dev Gupta, proprietor of M/s Dev Jewells and Mr. Vishal Jain, proprietor of M/s Arham Jewellery were parties which were involved in carrying out bogus transactions. In order to fortify his aforesaid contention, it was averred by the ld. D.R that neither of the aforesaid parties despite specific directions had appeared before the A.O, nor any request was made by the assessee for summoning them. The ld. D.R assailing the order of the CIT(A) who had restricted the addition to an overall gross profit of 2% (inclusive of GP shown by the assessee) submitted that the very basis for arriving at such a view was baseless. It was the contention of the ld. D.R that in case of bogus purchases the additions are to be made in respect of the savings which the assessee would make by procuring the goods from the open/grey market. The ld. D.R submitted, that the Tribunal in various cases had made additions of 6% to 6.5% in respect of bogus purchases. The ld. D.R further submitted that as held by the Hon‟ble Supreme Court in the case of SBI Vs. CIT (1986) 157 ITR 67 (SC) the „books of account‟ of an assessee are not to be taken as sacrosanct.
ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 15 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
8. The ld. A.R in his rejoinder to the aforesaid contentions advanced by the revenue submitted that the payment of remuneration to Mr. Mohit Kamboj, director of the assessee company was on a monthly basis. It was further averred that such payment of remuneration to the said director had continued in the subsequent years. The ld. A.R rebutting the contention of the revenue wherein it was averred that the assessee had not sought summoning of the aforesaid parties viz. (i) Mr. Dev Gupta proprietor of M/s Dev Jewels; (ii) Mr. Vishal Jain, proprietor of M/s Arham Jewellery; and (iii) Mr. Shiva Suri Yadav, proprietor of M/s Rajeshwari Impex, submitted that the A.O had never informed the assessee that the aforementioned parties despite specific directions had failed to appear before him. Further, it was the contention of the ld. A.R that the assessee was at no stage ever asked to produce either of the aforementioned parties. The ld. A.R rebutting the contention advanced by the revenue in context of the GP addition pertaining to the purchases made by the assessee from the aforementioned three parties, submitted that as the G.P rate of 1.72% of the assessee for the year under consideration i.e A.Y. 2012-13 was progressive as against the G.P rate of 1.08% for the immediately preceding year i.e A.Y 2011-12, thus the said fact in itself dispelled all doubts as regards the veracity of the „trading results‟ of the assessee company for the year under consideration. It was submitted by the ld. A.R that in the totality of the facts of the case the gross profit disclosed by the assessee was not liable to be dislodged.
9. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We shall first advert to the disallowance of Rs.1,47,246/- i.e 10% of the „miscellaneous expenses‟ amounting to Rs.14,72,456/- that has been upheld by the CIT(A). We find that the A.O while framing the assessment had disallowed 20% of the aforesaid expenses, leading to a consequential addition of Rs.2,94,491/- in the hands of the assessee. The aforesaid disallowance was made by the A.O for the reason that the various expenses booked by the assessee under the said head of expenditure viz. (i) telephone ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 16 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
and mobile charges; (ii) petrol expenses; (iii) business promotion expenses; and (iv) hotel expenses were only supported by self made vouchers, which did not inspire much confidence. We find that the disallowance of the aforesaid expenses by the A.O was thereafter scaled down by the CIT(A) to 10% of the total expenses. Admittedly, the disallowance of a fraction of the aforesaid expenses, in the absence of irrefutable documentary evidence proving that they were not incurred wholly and exclusively for the purpose of the business of the assessee company is only backed by a guess work and estimation on the part of the lower authorities. On a perusal of the order of the A.O it emerges that he had disallowed part of the aforesaid expenses for the reason that the same were either not fully supported by proper bills/vouchers, or in certain cases were backed by self made vouchers. We are of the considered view that the aforesaid observation of the A.O is nothing better than a general statement as he had not referred to a single stance where any such expense is not supported by a proper bills/vouchers or a situation where the veracity of the expense claimed by the assessee is not discernible from a perusal of any such self made voucher. Be that as it may, we are however also not oblivious of the fact that as observed by the A.O, the assessee had not maintained any log book/record in respect of telephone expenses, vehicle expenses and hotel expenses, as a result whereof the factum of the said expenses having been incurred wholly and exclusively for the purpose of the business of the assessee cannot be established beyond any scope of doubt. We find that the CIT(A) in order to meet the ends of justice has adopted a liberal approach and restricted the disallowance to 10% of the total expenses booked under the said head of expenditure. We are of the considered view, that in the backdrop of the aforesaid facts no infirmity does emerge from the sustaining of the disallowance of 10% of the total miscellaneous expenses by the CIT(A). We thus finding no reason to dislodge the sustaining of the disallowance of 10% of the miscellaneous expenses by the CIT(A), uphold his order to the said extent. The Ground of appeal No. 1 raised by the assessee is dismissed.
ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 17 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
10. We shall now advert to the sustaining of the disallowance of 25% of the travelling expenses by the CIT(A) which had led to a consequential addition of Rs.3,77,036/- in the hands of the assessee. We find that the assessee had claimed to have incurred a total amount of Rs.15,08,143/- towards travelling expenses. It was observed by the A.O that the said expenses were mainly incurred by the assessee company in respect of the travelling by its directors viz. Mr. Mohit Kamboj and Mr. Naresh Kapoor. The A.O in order to verify the veracity of the aforesaid expenses had directed the assessee to place on record the corresponding bills/vouchers and the nature of travelling expenses, as well as establish the nexus of incurring of the same with the business of the assessee company. As the assessee failed to place on record the necessary documentary evidence, the A.O disallowed 50% of the said expenses and made a consequential addition of Rs.7,54,072/-. However, on appeal, it was the contention of the assessee that in the backdrop of a turnover of Rs.610 crores of the assessee company for the year under consideration, the miniscule amount of travelling expenses of Rs.15,08,143/- was much well within the reasonable parameters. It was the contention of the assessee before the CIT(A) that for achieving the turnover to the said extent the directors of the assessee company were required to travel all over the country to secure sale orders and increase its profitability. Further, in order to fortify the veracity of the aforesaid expense the assessee had taken support of the fact that its „books of account‟ had duly been audited, checked and certified by the auditors.
11. Admittedly, the assessee had failed to place on record documentary evidence as was called for by the A.O to verify the veracity as well as the nexus of the „travelling expenses‟ under consideration with the business of the assessee. In the backdrop of the aforesaid facts, the A.O disallowed 50% of the travelling expenses. On appeal, the CIT(A) scaled down the disallowance to 25% of the expenses booked under the said head of expenditure. Be that as it may, the disallowance of the expenses both by the A.O and scaling down of the same by the CIT(A) in either case was for the ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 18 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
reason that the assessee had failed to fortify its claim that the expenditure under consideration was incurred wholly and exclusively for the purpose of its business. Further, the disallowance of a fraction of the expenses by the A.O and the CIT(A) was made only on an estimate basis and not on the basis of any concrete facts disproving the authenticity of such claim. Rather, we find that the CIT(A) adopted a liberal approach and in order to meet the ends of justice had restricted the disallowance to the extent of 25% of the total expenses. We have given a thoughtful consideration to the issue under consideration, and keeping in view the fact that the assessee had failed to conclusively establish the incurring of the travelling expenses and its nexus with its business, thus are of the view that the lower authorities were fairly justified in disallowing a part of the said expenses. However, at the same time, we are unable to persuade ourselves to endorse the disallowance of 25% of the said expenses which as per our considered view is highly exorbitant in the backdrop of the scale of the business of the assessee. There is substantial force in the contention of the ld. A.R that keeping in view the substantial turnover of more than Rs.610 crores of the assessee company for the year under consideration, incurring of travelling expense to the extent of Rs. 15,08,143/- can safely be held to be a miniscule amount. We thus keeping in view the totality of the facts of the case and the nature of business of the assessee company, therein restrict the disallowance of the travelling expense to the extent of 10% of the total amount of such expenses. On the basis of our aforesaid observations the disallowance of travelling expenses would stand restricted to an amount of Rs.1,50,814/-. The order of the CIT(A) is modified to the said extent. The Ground of appeal No. 2 is partly allowed in terms of our aforesaid observations.
12. We shall now advert to the disallowance of an amount of Rs.36 lac by the A.O under Sec. 36(1)(ii) of the I.T Act, which thereafter had been upheld by the CIT(A). Before adverting to the merits of the issue, we are of the considered view that the aforesaid statutory provision under which the disallowance had been made needs to be culled out as under:
ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 19 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
"36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Sec.28
(i) .......................................................................................................... (ia). .......................................................................................................... (ib). ..........................................................................................................
(ii) any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission."
We find from a perusal of the orders of the lower authorities that the remuneration of Rs. 36 lac paid by the assessee company as remuneration to its director viz. Mr. Mohit Kamboj was disallowed by the A.O by invoking Sec.36(1)(ii) of the I.T. Act. The A.O justifying the aforesaid disallowance had observed that no such payment was made in the earlier years. Further, it was noticed by him that during the year no remuneration was paid to the other directors of the assessee company. The A.O also observed that despite specific directions the assessee had failed to place on record a copy of the resolution that would have been passed at the meeting of the „board of directors‟, therein resolving to pay remuneration to the aforementioned director who was also a 99.9% shareholder of the assessee company.
13. We have heard the authorized representatives of both the parties in context of the issue under consideration and have given a thoughtful consideration to the same. We find that our indulgence has been sought by the assessee for adjudicating as to whether the CIT(A) was right in law and facts of the case in concurring with the A.O that the remuneration of Rs.36 lac paid to Mr. Mohit Kamboj, director of the assessee company was liable to be disallowed under Sec. 36(1)(ii) of the Act. We find that the CIT(A) after deliberating at length on the contentions advanced by the assessee for vacating the disallowance made by the A.O under Sec. 36(1)(ii) of the I.T. Act was however not persuaded to subscribe to the same. It was observed by the CIT(A) that it was an admitted fact that Mr. Mohit Kamboj, director of the assessee company was 99.9% shareholder of the same. It was observed by him that in the present case the assessee had failed to substantiate the veracity of its claim by placing on record a copy of the resolution that otherwise would have been passed at the meeting of the „board of directors‟, ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 20 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
therein resolving to pay remuneration to the aforementioned directors. Further, it was noticed by the CIT(A) that the assessee had not only failed to place on record the aforesaid documentary evidence substantiating its claim before the A.O during the course of the assessment proceedings, but had also not place on record the same by way of an additional evidence before him. Insofar the reliance placed by the assessee on the judgment of the Hon‟ble High Court of Delhi in the case of AMD Metaplast (P.) Ltd. Vs. CIT (2012) 341 ITR 563 (Delhi) was concerned, it was observed by the CIT(A) that the facts involved in the said case were distinguishable. It was noticed by the CIT(A) that in the case before the High Court the assessee had established that the payment was made to the director as per the terms of appointment and he had rendered his services as required. Insofar the order of the ITAT, Pune in the case of Arihant Infra Project Pvt. Ltd. Vs. JCIT (2015) 64 Taxman.com (Pune) that was relied upon by the assessee, it was observed by the CIT(A) that the same too was distinguishable on facts. The CIT(A) noticed that in the aforementioned case the commission was paid to the managing director for the services which were rendered by him as per the terms of appointment. It was observed by the CIT(A) that in the case before him the assessee had failed to establish that the payment of Rs.36 lac to Mr. Mohit Kamboj, director of the assessee company who was holding 99.9% shares was as per the terms of the appointment order which would have been approved at the Annual General Meeting of the assessee company, as no copy of the same was furnished before the A.O during the course of the assessment proceedings or before him during the course of the appellate proceedings. It was observed by the CIT(A) that since no case was made out by the assessee that the facts involved in its case were not similar to that involved in the case of Dalal Baroacha Stock Broking (P) Ltd. Vs. Additional Commissioner of Income Tax (2011) 131 ITD 36 (Mum)(SB), therefore, the ratio of judgment/decision relied upon by the A.O was not found to be distinguishable on facts, and the A.O had rightly disallowed the sum of Rs.36 lac that was claimed by the assessee company to have been ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 21 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
paid as remuneration to Mr. Mohit Kamboj, Director of the assessee company by invoking the provisions of Sec. 36(1)(ii) of the I.T. Act.
14. We have heard the authorized representatives for both the parties in context of the issue under consideration, perused the orders of the lower authorities and the material available on record. In our considered view Sec.36(1)(ii) was made available on the statute by the legislature with the purpose to prevent evasion of tax by describing a payment to an employee as bonus or commission, when in fact ordinarily it should have reached the shareholder as profit or dividend. On a perusal of the aforesaid statutory provision, it can safely be gathered that the same contemplates a check on the dwindling of the profits of a business by merely describing the payment as bonus or commission, if the payment is in lieu of dividend or profit. Admittedly, in the case before us Shri Mohit Kamboj, director of the assessee company was 99.9% shareholder and was thus in a position to take any decision regarding either payment of dividend or payment of remuneration. The claim of the assessee that the payment of remuneration of Rs.36 lac to the aforementioned director was for the services rendered by him is found to be totally unsubstantiated. The assessee had failed to place on record any material which would irrefutably prove that the services that were rendered by the director, in lieu of which the aforesaid amount of Rs.36 lac was paid to him. Rather, as observed by us hereinabove, the assessee as a matter of fact had even failed to place on record a copy of the resolution which otherwise would have been passed at the Annual General Meeting of the company authorising payment of remuneration of Rs.36 lac to the said director. Further, it is also a matter of fact that no such payment was made to the said director in the earlier years. We have given a thoughtful consideration to the contentions raised by the ld. A.R in support of its claim that the remuneration of Rs.36 lac paid by the assessee company to Mr. Mohit Kamboj, director for the services rendered by him was not liable to be disallowed under Sec.36(1)(ii), but are unable to persuade ourselves to accept the same. We have perused the observations of the CIT(A) and find ourselves to be in agreement with the well reasoned view ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 22 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
taken by him that the amount of Rs. 36 lac paid by the assessee company to Mr. Mohit Kamboj, director was rightly disallowed by the A.O under Sec. 36(1)(ii) of the I.T. Act. We thus finding no infirmity in the order of the CIT(A) in context of the issue under consideration uphold his order to the said extent. The Ground of appeal No. 3 raised by the assessee is dismissed.
15. We shall now advert to the addition of Rs.14,40,82,458/- made by the A.O by holding certain amounts received by the assessee company as „unexplained cash credit‟ under Sec. 68 of the I.T Act. We find that the aforementioned amount comprised of viz. (i) an amount of Rs.10,00,00,000/-; and (ii). Rs.1,00,00,000/- which were claimed by the assessee to have been received vide two cheques from Mr. Mohit Kamboj on 31.03.2012; and an amount of Rs.3,17,12,458/- that was received by the assessee on 01.03.2012 from Mr. Mohit Kamboj from his account with Bank of India.
16. We shall first take up the amount of Rs.11,00,00,000/- [i.e. Rs.10,00,00,000/- (+) Rs.1,00,00,000/-] which is claimed by the assessee to have been received by two cheques from Mr. Mohit Kamboj on 31.03.2012. During the course of the assessment proceedings it was observed by the A.O that the assessee company had claimed to have received a loan of Rs.15,76,40,458/- from Mr. Mohit Kamboj, director of the assessee company who was holding 99.99% of its shares. On being called upon by the A.O to substantiate the identity, genuineness and creditworthiness of the lender, the assessee company placed on record the loan confirmation, copy of the return of income and copy of bank statements of Mr. Mohit Kamboj. On a perusal of the loan confirmation it was observed by the A.O that Mr. Mohit Kamboj had subscribed to 10,00,000 equity shares of a face value of Rs.10/- at a premium of Rs. 40/- per share of the assessee company through his loan account. It was observed by the A.O that as Mr. Mohit Kamboj was not having any business, therefore, he was not maintaining any personal „balance sheet‟. Rather, a perusal of his „return of income‟ revealed that his main source of income was from salary and ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 23 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
income from house property. The A.O observed that it was the claim of the assessee company that a sum of Rs.11,00,00,000/- was stated to have been advanced as loan by Mr. Mohit Kamboj by two cheques on 31.03.2012. However, on perusal of the statements of various bank accounts of Mr. Mohit Kamboj i.e with Bank of India, Union Bank of India, State Bank of India and Saraswat Cooperative Bank as were placed on the record by the assessee during the course of the assessment proceedings, it was observed by the A.O that neither of the said bank statements reflected the aforesaid loan of Rs.11,00,00,000/- which was stated to have been advanced by him on 31.03.2012 to the assessee company. In the absence of a plausible explanation as regards the aforesaid discrepancy the A.O assessed the amount of Rs.11,00,00,000/- as an unexplained cash credit under Sec.68 in the hands of the assessee company. Further, it was observed by the A.O that an amount of Rs.3,17,12,458/- was advanced by Mr. Mohit Kamboj on 01/03/2012 to the assessee company. It was noticed by the A.O that on the same day i.e on 01/03/2012 Mr. Mohit Kamboj had received an amount of Rs. 3,17,10,565/- from M/s Dev Jewels which was utilised by him for advancing the aforesaid amount to the assessee company. The A.O was of the view that M/s Dev Jewels was not a genuine party and had by projecting itself as a main supplier was only facilitating bogus purchases for the assessee company. Further, it was observed by the A.O that M/s Dev Jewels would in the garb of loans/advances make available the funds of the assessee company to Mr. Mohit Kamboj. Subsequently, the said funds would be routed back in the form of loans by Mr. Mohit Kamboj to the assessee company. On the basis of his aforesaid observations the A.O held a conviction that after completion of the bogus purchase transactions by the assessee company through M/s Dev Jewels, the funds would be routed back through Mr. Mohit Kamboj to the assessee company. Further, the A.O took note of the fact that Mr. Mohit Kamboj was not having any business income in his personal capacity and his only source of income was from salary and rental income. In the backdrop of the aforesaid facts, the A.O observed that in the absence of a personal „balance sheet‟ of Mr. Mohit Kamboj it was not ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 24 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
possible to determine the nature of the amount which was received by him from M/s Dev Jewels. In order to verify the veracity of the aforesaid transaction the A.O issued summons under Sec.131 of the Act to the principal officer of M/s Dev Jewels, therein calling upon him to put up an appearance and verify the veracity of the impugned transaction. However, it was noticed by the A.O that the address of the aforementioned party viz. M/s Dev Jewels that was provided by the assessee company turned out to be a residential address and no business activity was being carried out from the said premises. However, the summons were served on the lady residing in the said residential premises. In the backdrop of the aforesaid facts, the A.O being of the view that the source of the sum of Rs.3,17,12,458/- in the hands of the lender i.e. Mr. Mohit Kamboj was from an ingenuine party viz. M/s Dev Jewels, therefore, held the same as an „unexplained cash credit‟ under Sec.68 in the hands of the assessee.
17. We have deliberated at length on the issue under consideration in the backdrop of the contentions advanced by the authorized representatives of both the parties. We shall first advert to the loan of Rs.11,00,00,000/- which as claimed by the assessee was raised from Mr. Mohit Kamboj. On a perusal of the orders of the lower authorities, it stands revealed that it was the claim of the assessee company that it had received two cheques of Rs.10,00,00,000/- and Rs.1,00,00,000/- from Mr. Mohit Kamboj on 31.03.2012 by way of a loan. We find that the A.O has held the aforementioned amount aggregating to Rs.11,00,00,000/- as an unexplained cash credit under Sec.68, for the reason that the said amounts were not found reflected in the various bank accounts of Mr. Mohit Kamboj, and the assessee also had failed to reconcile the said discrepancy on the basis of any plausible explanation. We find that the CIT(A) referring to the observations of the A.O had observed that out of the loan aggregating to Rs.15,76,40,458/- received by the assessee company from its director Mr. Mohit Kamboj, an amount of Rs.11,00,00,000/- was not reflected in the bank statements of either of the parties. The ld. A.R during the course of the ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 25 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
hearing of the appeal submitted that as against the aforesaid cheques aggregating to Rs.11,00,00,000/- received from Mr. Mohit Kamboj, cheques for identical amounts were issued on the same date i.e 31.03.2012 to its creditors viz. (i) M/s Arham Jewellery: Rs.10,00,00,000/-; and (ii) M/s Dev Jewels: Rs.1,00,00,000/-. It is the contention of the ld. A.R, that because of certain reasons as the cheques received from Mr. Mohit Kamboj were not presented by the assessee for payment, therefore, the corresponding cheques issued by the assessee company to its aforementioned creditors were also at its instance not presented for clearance by them. It was averred by the ld. A.R that the entries passed by the assessee company in its „books of accounts' during the year under consideration were reversed in the subsequent year i.e A.Y 2013-14. In order to fortify his aforesaid contention, the ld. A.R had drawn our attention to the „ledger account‟ of Mr. Mohit Kamboj for the period 01.04.2012 to 31.03.2013 appearing in the „books of account‟ of the assessee company, which revealed that an amount of Rs.11,00,00,000/- was debited in his account by the assessee company on 30.04.2012. The ld. A.R drawing force from his aforesaid contentions submitted that the receipt of loan from Mr. Mohit Kamboj had not fructified into a transaction involving actual flow of funds. In order to fortify his aforesaid contention the ld. A.R had drawn our attention to the reconciliation statement of ICICI Bank A/c No. 026105007511 of the assessee company for the year under consideration. On a perusal of the aforesaid bank reconciliation statement, it stands revealed that against the aforesaid cheques of Rs.11,00,00,000/- received as loan from Mr. Mohit Kamboj on 31.03.2012 the assessee is stated to have issued cheques of the same amount on 31.03.2012 to (i) M/s Arham Jewellery: Rs.10,00,00,000/-; and (ii) M/s Dev Jewels : Rs. 1,00,00,000/-. In sum and substance, the ld. A.R had tried to impress upon us that the loan of Rs.11,00,00,000/- received vide cheques on 31.03.2012 from Mr. Mohit Kamboj had just remained a „book entry‟, which not having fructified into an actual transaction was thus reversed in the immediately succeeding year on 30.04.2012.
ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 26 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
18. We have given a thoughtful consideration to the aforesaid contentions so advanced by the ld. A.R. On a perusal of the observations of the CIT(A), we find that it is a matter of record that the amount of Rs.11,00,00,000/- is not reflected in the bank statements of either of the parties. We find that our indulgence has been sought to adjudicate that where a loan received by an assessee by cheques from a lender on the last day of the financial year, thereafter does not fructify into actual flow of funds and is reversed in the succeeding year, then merely for the reason that the said loan stood reflected as a liability in the „balance sheet‟ of the assessee would suffice for characterising the same as an „unexplained cash credit‟ under Sec.68 of the I.T Act. We are of the considered view that Sec. 68 would come into play only where the assessee offers no explanation about the „nature‟ and „source‟ thereof of the „sum‟ as is found credited in its „books of account‟ maintained for any previous year. On the basis of a logical reasoning, it can safely be concluded that a „credit‟ of sum in the „books of accounts‟ of an assessee would indispensably presuppose a „debit‟ of an equal corresponding amount i.e increase in the assets to a same extent. Admittedly, as observed by the CIT(A), the sum of Rs.11 crore is not found reflected in the bank statements of either of the parties. Thus, it can safely be concluded that the amount to the said extent had not flown into the bank accounts of the assessee. Rather, it is the claim of the ld. A.R that the assessee had issued cheques of an equivalent amount of Rs.11 crore on the same day i.e 31.03.2012 to two parties viz. (i) M/s Arham Jewellery: Rs.10,00,00,000/-; and (ii) M/s Dev Jewels Rs.1,00,00,000/-. However, as averred by the ld. A.R, as the cheques received by the assessee from Mr. Mohit Kamboj could not be presented for certain reasons, thus the cheques issued to the aforementioned parties were also not presented by them at the instance of the assessee. We find that the ld. A.R in order to fortify his contention that the aforementioned transaction did not materialise at all had drawn our attention to the copy of the account of Mr. Mohit Kamboj as appearing in the „books of account‟ of the assessee viz. Mishka Gold Jewellery Limited (formerly known as KBJ Bullion Limited) for the succeeding year viz. A.Y 2013-14. On a perusal of the aforesaid copy ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 27 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
of account of Mr. Mohit Kamboj, it stands revealed that the assessee company had in the succeeding year i.e on 30.04.2012 debited his account by an amount of Rs. 11,00,00,000/-. On the basis of the aforesaid contention, the ld. A.R had tried to impress upon us that on the basis of a loan transaction which had not fructified and was reversed in the „books of accounts‟ of the assessee company in the immediately succeeding year i.e A.Y 2013-14, no adverse inferences much the less an addition was liable to be made in the hands of the assessee.
19. We have given a thoughtful consideration to the issue before us in the backdrop of the orders of the lower authorities and the contentions advanced by the authorised representatives for both the parties. We are of the considered view that in a case where an assessee had on the last day of the financial year received a loan from a lender by cheque, then as per the „mercantile system‟ of accounting, irrespective of the fact that the cheque is yet to be cleared, the assessee would „credit‟ the account of the said lender in his „books of account‟ for the said year. On the basis of the said posting of entry in the „books of accounts‟ the said lender would stand reflected as a liability in the „balance sheet‟ of the assessee. Now, in case the cheque received by the assessee as a loan from the said lender does not see the light of the day and the same for certain reasons is not presented in the succeeding year, then in the backdrop of the fact that the loan transaction had not fructified into a transaction involving actual flow of funds, the assessee would reverse the entry and therein „debit‟ the account of the lender in his „books of account‟ for the succeeding year. On a similar footing, in case the assessee had issued a cheque to a creditor on the last day of the financial year, then as per the „mercantile system‟ of accounting, irrespective of the fact that the cheque issued by the assessee is yet to be presented by the third party, the assessee would „debit‟ the account of the said creditor in its „books of account‟ for the year. In the backdrop of the aforesaid posting of entry in the „books of accounts‟ the balance payable by the assessee to the said creditor would stand reflected as a liability at a lower/reduced figure, ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 28 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
i.e to the extent the assessee had „debited‟ his account. Now, if the cheque issued by the assessee to the creditor is thereafter at the instance of the assessee not presented by him in the succeeding year, then the assessee would reverse the said transaction and „credit‟ the account of the creditor in his „books of accounts‟ for the succeeding year.
20. In the backdrop of our aforesaid deliberations we shall now look into the facts involved in the case of the assessee before us. We are of the considered view that in terms of our aforesaid observations, the notional and short lived credit in the account of Mr. Mohit Kamboj as appearing in the „books of accounts‟ of the assessee company cannot be principally characterised as an „unexplained cash credit‟ in the hands of the assessee. We are of the considered view that on the basis of the facts averred by the ld. A.R, the „nature‟ and „source‟ of the credit appearing in the account of Mr. Mohit Kamboj cannot be held as an unexplained cash credit. Insofar the nature and source of the aforesaid credit is concerned, the Ld. A.R had explained that the same had emerged on account of a loan received by cheques from the aforesaid person viz. Mr. Mohit Kamboj on 31.03.2012, which however not having fructified into actual receipt of funds were thus reversed in the succeeding year. We are of the considered view that now when the transaction under consideration not having fructified was thus reversed in the succeeding year, therefore, in the absence of there being any actual flow of funds from the lender to the assessee company, deliberations on the source of the credit would not be of any significance. However, we are also not oblivious of the fact that the assessee had failed to come forth with the aforesaid explanation as regards the transaction under consideration before the A.O, and as such he had no occasion to verify the veracity of the said claim of the assessee in the backdrop of the material filed by the assessee before us. We are of the considered view that in all fairness the matter requires to be restored back to the file of the A.O. The A.O shall during the course of the set aside proceedings make necessary verifications as regards the aforesaid claim of the assessee that the loan transaction ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 29 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
under consideration had not fructified into an actual transaction involving flow of funds in the hands of the assessee. The A.O during the course of the set aside proceedings shall verify the factual position by making necessary verifications viz. (i). perusing the bank accounts of the assessee company for the year under consideration and that of the immediately succeeding year viz. A.Y 2013-14; (ii). calling for the bank accounts of Mr. Mohit Kamboj for the year under consideration and that of the immediately succeeding year viz. A.Y 2013-14; (iii). making necessary verifications from Mr. Mohit Kamboj as regards the advancing of a loan of Rs. 11,00,00,000/- to the assessee company; (iv) making necessary verifications as regards the authenticity of the claim of the assessee of having issued cheques aggregating to Rs.11,00,00,000/- to two parties i.e (a) M/s Arham Jewellery :Rs.10,00,00,000/-; and (b) M/s Dev Jewels: Rs. 1,00,00,000/- on 31.03.2012. In case the claim of the assessee that the aforementioned transaction was a loan received by cheques from Mr. Mohit Kamboj on 31.03.2012, which did not see the light of the day, and not having fructified into a transaction involving actual flow of funds was thus reversed in the succeeding year is found to be in order to the satisfaction of the A.O, then no addition as regards the amount of Rs.11,00,00,000/- shall be made in the hands of the assessee. Before parting, we may herein clarify that the A.O during the course of the set aside proceeding shall remain at a liberty to make any other enquiry to his satisfaction as he deems fit. Needless to say, the A.O shall during the course of the set aside proceedings afford a reasonable opportunity of being heard to the assessee who shall remain at a liberty to substantiate its claim before him.
21. We shall now advert to the addition of Rs.3,17,12,458/- made by the A.O as regards the loan received by the assessee on 01.03.2012 from Mr. Mohit Kamboj, vide a cheque drawn on his account with Bank of India. We find that adverse inferences as regards the genuineness and veracity of the aforesaid amount of Rs.3,17,12,458/- was drawn by the A.O, for the reason that on the same day a sum of Rs.3,17,10,565/- was received by Mr. Mohit ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 30 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
Kamboj from M/s Dev Jewels, which as alleged by the A.O was a concern facilitating bogus purchases for the assessee. The A.O held a conviction that as Mr. Mohit Kamboj was not having any business income in his personal capacity and his only source of income was by way of salary and rental income, thus, it was beyond comprehension as to why such a substantial amount would have been received by him from M/s Dev Jewels. Further, it was observed by the A.O that Mr. Mohit Kamboj had received substantial amounts from the aforementioned party viz. M/s Dev Jewels on multiple occasions. On the basis of the aforesaid facts the A.O arrived at a conclusion that the aforementioned party viz. M/s Dev Jewels had merely acted as a facilitator, wherein by projecting itself as the main supplier of the assessee company had only facilitated bogus purchases for the assessee company. The A.O was of the view that the sale consideration received in lieu of the bogus purchases by M/s Dev Jewels was thereafter advanced to Mr. Mohit Kamboj, who in turn would route the said money in the garb of loans to the assessee company. On the basis of the aforesaid deliberations the A.O was of the view that there was a full complete cycle of the said transactions through Mr. Mohit Kamboj. In the backdrop of the aforesaid facts, the A.O was of the view that though the identity of the lender viz. Mr. Mohit Kamboj who was the shareholder of the assessee company was established beyond doubt, however, the other two conditions viz. (i) source of the loan (creditworthiness); and (ii). genuineness of the transaction were not proved. On the basis of his aforesaid observations the A.O held the amount of Rs.3,17,12,458/- as an unexplained cash credit under Sec.68 in the hands of the assessee.
22. We have deliberated at length on the issue under consideration in context of the material available on record. Admittedly, an amount of Rs.3,17,12,458/- was advanced by Mr. Mohit Kamboj as a loan to the assessee company on 01.03.2012 through his bank account with Bank of India. Further, on a perusal of the material available on record it emerges that on the same day i.e on 01.03.2012 the assessee had received a sum of Rs.3,17,10,565/- from M/s Dev Jewels. It is in the backdrop of the serious ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 31 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
doubts which the A.O had as regards the genuineness of the transaction between M/s Dev Jewels and Mr. Mohit Kamboj, that had led to characterising of the amount of Rs.3,17,12,458/- received by the assessee company from Mr. Mohit Kamboj as an unexplained cash credit under Sec.68 of the I.T Act. In sum and substance, doubts in context of the source of the source of the loan received by the assessee company were raised by the A.O. We find that Mr. Mohit Kamboj had received an amount of Rs. 3,17,10,565/- from M/s Dev Jewels as on 01.03.2012. The A.O had doubted the identity of M/s Dev Jewels on the ground that summons issued to the said concern under Sec.131 of the I.T Act at the address provided by the assessee company had turned out to be a residential address, and no business activity was found to be carried out from the said premises. We may herein observe that admittedly the summons issued under Sec.131 were served on the lady residing in the aforesaid residential premises, and it is not the case of the revenue that the said notice was returned unserved. We find substantial force in the contention of the ld. A.R that as the concern viz. M/s Dev Jewels was a proprietary concern owned by Mr. Dev Gupta, therefore, providing of the residential address of the said person would in no way justify drawing of adverse inferences as regards the identity of the lender, specifically when the summons had been served at the said address. We further find that the assessee had by placing on record the copy of the return of income, computation of income, balance sheet, tax audit report etc. of M/s Dev Jewels for the year under consideration viz. A.Y 2012-13 (Page 67-81 of „APB‟), had thus proved to the hilt the identity, and creditworthiness of the party and the genuineness of the transaction under consideration. Interestingly, the assessee had placed on record the copy of the assessment order passed in the case of Mr. Dev Gupta, proprietor M/s Dev Jewels for A.Y 2013-14. Further, copy of the assessment order of Mr. Mohit Kamboj passed under Sec.143(3), dated 20.03.2015 for A.Y 2012-13 had also been placed on record by the assessee (Page 115 -118 of APB). On a perusal of the aforesaid assessment order it stands revealed that the loan of Rs.13,58,71,572/- received by Mr. Mohit Kamboj from M/s Dev Jewells ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 32 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
during the period relevant to A.Y 2012-13 was deliberated upon and inter alia initially assessed as an unexplained cash credit under Sec. 68 in his hands. However, on appeal the said addition made in the hands of Mr. Mohit Kamboj was deleted by the CIT(A). The CIT(A) while deleting the aforesaid addition had observed that the loan raised by Mr. Mohit Kamboj from M/s Dev Jewels was found to be duly reflected in the „balance sheet‟ of the loan creditor viz. M/s Dev Jewels as on 31.03.2012 under the head „loans and advances (asset)‟. Further, it was observed by the CIT(A) that the bank account statements of the loan creditor viz. M/s Dev Jewels clearly revealed that the amount had been received by the latter through RTGS or account payee cheques prior to advancing of loans to Mr. Mohit Kamboj, and no cash deposits were found in the bank account prior to advancing of loans to him. We are of the considered view that in the backdrop of the aforesaid facts the observations of the lower authorities that the identity, creditworthiness and genuineness of the transaction between M/s Dev Jewels and Mr. Mohit Kamboj was not substantiated clearly falls to ground. We may herein observe that in the backdrop of the aforesaid facts, it can safely be concluded that the assessee had been able to explain the source of the source of the loan of Rs.3,17,12,458/- received from Mr. Mohit Kamboj during the year under consideration. Apart therefrom, we may herein observe that as held by the Hon'ble High Court of Bombay in the case of Pr. CIT-13, Mumbai Vs. Veedhata Tower Pvt. Ltd. (ITA No. 819 of 2015, dated 17.04.2018) the requirement of explaining the source of the source of a receipt had been made available on the statute vide the Finance Act, 2012, by way of a first proviso to Sec.68 of the Act, which is effective only from assessment year 2013-14. Insofar the subject assessment year i.e. A.Y. 2012-13 is concerned, no obligation was cast upon the assessee to explain the source of the source of the credit of Rs. 3,17,12,458/- in its „books of account‟. We thus are of the considered view that in terms of our aforesaid observations the addition of Rs. 3,17,12,458/- sustained by the CIT(A) under Sec. 68 cannot be upheld and is therefore deleted.
ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 33 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
23. We shall now advert to an addition of Rs.23,70,000/- made by the A.O in respect of a loan claimed by the assessee to have been received during the year from Mr. Deepak Kumar Kamboj. We find that during the course of the assessment proceeding the assessee in order to substantiate the genuineness and veracity of the loan transaction under consideration had placed on record the confirmation of the aforementioned lender viz. Mr. Deepak Kumar Kamboj. The A.O being of the view that as the assessee had failed to substantiate the veracity of the transaction by placing on record the requisite documents viz. bank statement, copy of the return of income or any other corroborative document, thus held the same as an unexplained cash credit under Sec.68 in the hands of the assessee. Rather, it was observed by the A.O that the assessee on being called upon to place on record the said documents had expressed its inability to furnish the same. Further, on appeal the CIT(A) confirmed the aforesaid addition of Rs.23,70,000/-.
24. We have deliberated at length on the aforesaid issue under consideration and have also perused the material available on record. We find that the assessee had placed on record the copy of confirmation of Mr. Deepak Kumar Kamboj (Page 66 of APB). On a perusal of the aforesaid confirmation it emerges that Mr. Deepak Kumar Kamboj had furnished his complete residential details, PAN No. and had confirmed of having advanced an amount of Rs.23,70,000/- vide a bank transaction dated 10.05.2011. We are of the considered view that in the backdrop of the aforesaid „material‟ made available on record by the assessee during the course of the assessment proceedings, the claim of the assessee of having raised a loan from the aforementioned party could not have been summarily scrapped, and the said amount be held as an unexplained cash credit. We though are also not oblivious of the fact that a very heavy onus is cast upon the assessee to establish the identity and capacity of the lender parties, and merely by placing on record the confirmation of the lender the onus so cast upon the assessee cannot be said to have been fully discharged. In the backdrop of the aforesaid facts, we are of the considered view that as the ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 34 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
confirmation of Mr. Deepak Kumar Kamboj along with his Income tax credentials placed on record by the assessee does inspire some confidence about the genuineness and veracity of the transaction under consideration, therefore, in all fairness the matter requires to be restored to the file of the A.O, with a direction to the assessee to place on record the requisite documentary evidence in order to substantiate the identity, creditworthiness and the genuineness of the transaction under consideration. We thus set aside the aforesaid issue as regards the addition of Rs.23,70,000/- made under Sec.68 to the file of the A.O for fresh adjudication. Needles to say, the A.O shall during the course of the set aside proceedings afford a reasonable opportunity of being heard to the assessee, who shall remain at a liberty to substantiate its claim by placing on record the requisite documentary evidence.
25. We shall now advert to the disallowance of purchases of Rs.1,71,73,863/- as had been sustained by the CIT(A). A separate disallowance of the „labour charges‟ paid by the assessee to M/s Arham Jewellery was subsumed in the estimated G.P addition of Rs. 1,71,73,863/- that was sustained by the CIT(A). We find that the assessee company had made certain purchase and sale transactions with the following parties:
Name Purchase Sales
M/s Dev Jewells 134,57,23,221 35,84,95,389
M/s Arham Jewellery 88,18,29,997 64,37,53,141
M/s Rajeshwari Impex 52,89,73,890 29,72,49,931
Grand total 275,65,27,108 129,94,98,461
On a perusal of the bank statement of Mr. Mohit Kamboj, it was observed by the A.O that substantial payments were made to him in his individual capacity by the aforementioned parties. In turn, Mr. Mohit Kamboj had advanced the said amounts as loans to the assessee company. The A.O being of the view that as Mr. Mohit Kamboj did not have any business income for the year under consideration in his personal capacity and his only source of income was by way of salary and rental income, thus ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 35 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
substantial amounts received by him on multiple occasions from the aforementioned parties was beyond comprehension. The A.O was of the view that the funds of the assessee company through the aforementioned parties would find its way back to the coffers of the assessee company through Mr. Mohit Kamboj. In order to verify the veracity of the purchases claimed by the assessee to have been made from the aforementioned parties the A.O issued summons under Sec. 131 of the I.T Act, therein calling upon the said parties to put up an appearance before him. However, neither of the parties complied with the directions of the A.O, and as such failed to put up an appearance before him. It was further gathered by the A.O that the addresses provided by the assessee of two of the aforementioned concerns viz. (i) M/s Dev Jewels; and (ii) M/s Arham Jewellery turned out to be the residential addresses from where no business activity was being carried out. Further, summons under Sec.131 could not be served on M/s Rejeshwari Impex as it was reported that the address was not correct. In the backdrop of the aforesaid facts the A.O concluded that the purchases claimed by the assessee to have been made from the aforementioned parties were not genuine, and on the said pretext he made a G.P. addition of Rs.4,74,12,266/-(i.e.1.72% G.P. as shown in the tax audit report) on the purchases aggregating to Rs.275,65,27,108/- claimed by the assessee to have been made from the said parties. Further, the „labour charges‟ of Rs. 9,15,684/- claimed by the assessee to have been paid to M/s Arham Jewellery was also disallowed by the A.O. On appeal, the CIT(A) restricted the addition to 2% (inclusive of G.P. calculated and shown by the assessee) on the total turnover of the assessee company and accordingly restricted the addition to an amount of Rs.1,71,73,863/-.
26. The assessee being aggrieved with the upholding of the addition of Rs.1,71,73,863/- has carried the matter in appeal before us. We have given a thoughtful consideration to the aforesaid issue in the backdrop of the material available on record. We find that as observed by us while dealing with the addition of Rs.3,17,12,458/- which was made by the A.O under Sec. 68, the identity, capacity and creditworthiness of M/s Dev Jewels had ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 36 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
been deliberated upon by us at length. As observed by us hereinabove, the aforesaid concern viz. M/s Dev Jewels had been assessed under Sec. 143(3), vide order dated 11.03.2016 for A.Y 2013-14. In the said assessment order the aforementioned party viz. Mr. Dev Gupta, proprietor of M/s Dev Jewels had been accepted by the revenue as having been engaged in the business activity of resale of gold ornaments and jewellery. Further, the copies of the return of income, computation of income, audited balance sheet, trading and profit and loss account for the year ended 31.03.2012 and audit report in Form No. 3CB of the aforementioned party viz. M/s Dev Jewels for the year under consideration viz. A.Y 2012-13 duly substantiates the identity and creditworthiness of the said party. Rather, a perusal of the trading and profit and loss account of M/s Dev Jewels for A.Y 2012-13 reveals purchases of Rs.289,52,76,058/- and sales of Rs.289,52,21,885/- carried out by the said concern during the year under consideration.
27. We shall now advert to the purchases of Rs. 88,18,29,997/- claimed by the assessee to have been made from M/s Arham Jewellery (proprietor Vishal Jain). The assessee has also claimed to have paid „labour charges‟ of Rs. 9,15,684/- to the said concern. We have perused the copies of the return of income, computation of income and bank statement of M/s Arham Jewellery for the year under consideration i.e. A.Y 2012-13 (Page 82-93 of „APB‟). We find that the aforesaid party viz. M/s Arham Jewellery had made purchases of Rs. 277,00,00,668/- and sales of Rs.276,99,90,789/- during the year under consideration. Further, the said concern had accounted for „labour income‟ of Rs. 30,35,701/- during the year under consideration. We find from a perusal of the aforesaid documents that the said concern viz. M/s Arham Jewellery (proprietor Vishal Jain) is being assessed to tax and had returned a net taxable income of Rs.13,86,387/- for the year under consideration.
28. Insofar the purchases of Rs.52,89,73,890/- claimed by the assessee company to have been made from M/s Rajeshwari Impex are concerned, we. find that the summons issued under Sec.131 by the A.O could not be served ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 37 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
on the aforesaid concern as it was reported that the address provided by the assessee was not found to be correct. However, the assessee had placed on record the copies of the return of income, computation of income, balance sheet and trading and profit and loss account for the year ended 31.03.2012 of the aforementioned concern. On a perusal of the audited financial results of the aforesaid concern, it emerges that it had made purchases of Rs.156,20,11,849/- and carried out sales of Rs.155,83,83,738/- during the year under consideration. We are considered view that keeping in view the aforesaid audited financial results of the said concern viz. M/s Rajeshwari Impex (proprietor Mr. Shiva Sare Yadav) for the year under consideration viz. A.Y 2012-13, the observations of the lower authorities that the said concern is a bogus concern cannot be accepted.
29. We find that the A.O had drawn adverse inferences as regards the genuineness and veracity of the purchases claimed by the assessee to have been made from the aforementioned parties viz. (i). M/s Dev Jewels; (ii). M/s Arham jewellery; and (iii). M/s Rajeshwari Impex, by holding a conviction that the said parties had advanced loans to Mr. Mohit Kamboj, who had further advanced loans to the assessee company, and as such the transaction has come to a full circle. Further, the „labour charges‟ paid by the assessee to M/s Arham Jewellery was also disallowed by the A.O by holding the said concern as ingenuine. In sum and substance, the A.O doubting the genuineness of the purchases claimed by the assessee to have been made from the aforementioned parties was of the view that such purchase consideration or labour charges received by the said parties found its way back to the coffers of the assessee company by way of loans advanced by them to Sh. Mohit Kamboj, who in turn would advance the same to the assessee company. We have deliberated at length on the issue under consideration and are unable to persuade ourselves to accept the said observations of the A.O. We find substantial force in the claim raised by the assessee before the CIT(A), that now when out of total purchases of Rs. 276.65 crores only an amount of Rs. 3.17 crore alleged to have been rounded back to the assessee company is a miniscule amount, the same in ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 38 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
no way can justifiably lead to an inference that the entire purchase transaction is coming to a full circle. Apart therefrom, such independent transaction of advancing of loans by the aforementioned parties to Mr. Mohit Kamboj in the absence of irrefutable evidence cannot dislodge the veracity of the purchases claimed by the assessee to have been made from the aforementioned parties. Further, we find that the stock statements alongwith the quantitative details that are stated to have been filed by the assessee with the A.O were accepted by him and no discrepancy as regards the same was pointed out by him. The books of accounts had also not been doubted by the A.O. Rather, the entire details of the purchases and sales filed by the assessee have not been doubted by the A.O. The A.O had not pointed out any discrepancy as regards the valuation of the sales and purchases for the year under consideration. It is the claim of the assessee that the documentary evidence substantiating the purchases and sales of the assessee with the aforementioned parties viz. ledger accounts of the parties, invoices, stock statements etc. were perused by the A.O and no discrepancy as regards the same had been pointed out by him. Insofar the trading results of the assessee are concerned, as submitted by the assessee before the CIT(A) the G.P rate for the year under consideration stood reflected at 1.72%, which was either progressive/or in conformity with that of the immediately preceding and the succeeding years, as under:
A.Y G.P rate
2011-12 1.08%
2012-13 1.72%
2013-14 1.73%
2014-15 0.69%
Further, the assessee is also stated to have made purchases and sales from the aforementioned parties in the subsequent years i.e A.Y 2013-14 and A.Y 2014-15, and the same had been accepted by the A.O. As regards the non- service of summons issued by the A.O to M/s Rajeshwari Impex, we are of the considered view that the same in the absence of any clinching evidence ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 39 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
proving the ingenuineness of the purchases cannot justify characterising of the same as bogus. In the totality of the facts of the case as had been deliberated upon by us hereinabove, it can safely be concluded that the purchases claimed by the assessee to have been made from the aforementioned parties cannot be held as ingenuine. Before parting, we may further observe that though the A.O had drawn adverse inferences as regards the genuineness of the purchases claimed by the assessee to have been made from the aforementioned parties viz. (i) M/s Dev Jewells; (ii) M/s Arham Jewellery; and (iii) M/s Rajeshwari Impex, however the sales aggregating to Rs.129,94,98,461/- made by the assessee to the said concerns as charted out by us hereinabove had been accepted by him. In the backdrop of the aforesaid facts, we are of the considered view that the revenue cannot be permitted to draw adverse inferences as regards the veracity of the purchase transactions by holding the aforesaid concerns as bogus parties, while for at the same time accept the genuineness of the sales made by assessee to them. Thus, in the backdrop of our aforesaid observations the adverse inferences drawn by the A.O as regards the genuineness of the purchase transactions of the assessee with the abovementioned parties cannot be sustained and is herein vacated. Insofar, the adverse inferences which have been drawn by the lower authorities on the ground that the said concerns had made substantial payments of amounts to Mr. Mohit Kamboj, in our considered view the same as observed by us hereinabove, being independent transactions will have no bearing on the adjudication of the genuineness of the purchases claimed by the assessee to have been made from the said respective parties. Apart therefrom, in the absence of any irrefutable evidence which would prove to the hilt the ingenuineness of the „labour charges‟ of Rs. 9,15,684/- claimed by the assessee to have been paid to M/s Arham Jewellery, which had duly reflected a „labour income‟ of Rs. 30,35,701/- in its profit & loss account for the year under consideration i.e A.Y 2012-13, the adverse inferences drawn by the A.O as regards the veracity of such expenditure is also liable to be vacated. We thus in terms of our aforesaid observations finding no reason ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 40 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
to sustain the unsubstantiated estimation of gross profit rate of 2% by the CIT(A), leading to a consequential addition of Rs.1,71,73,863/- in the hands of the assessee, delete the same. The Grounds of appeal no 5 and 6 are allowed in terms of our aforesaid observations.
ITA No. 5438/Mum/2017A.Y 2012-13 (Revenues appeal)
30. We shall now advert to the appeal filed by the revenue. The revenue assailing the order of the CIT(A) has raised the following grounds of appeal before us:
"1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs.4,83,27,950/- made by the A.O on account of bogus purchases without appreciating the fact that the A.O disallowed the bogus purchases in proportion with the overall Gross Profit shown by the assessee.
2. The appellant craves leave to amend or alter any ground or add new ground which may be necessary."
31. We may herein observe that the revenue in its aforementioned appeal has assailed the deletion of an addition of Rs. 4,83,27,950/- made by the A.O on account of alleged bogus purchases, for the reason that the CIT(A) had failed to appreciate that the A.O had disallowed the bogus purchases in proportion with the overall gross profit shown by the assessee. We may herein observe that the CIT(A) had not deleted the addition of Rs. 4,83,27,950/- but rather had substituted the same by an addition to the extent of Rs. 1,71,73,863/-. We have already deliberated at length on the sustaining of the addition by the CIT(A) to the extent of Rs.1,71,73,863/- in context of the purchases made by the assessee from the aforementioned three concerns viz. (i) M/s Arham Jewellery; (ii) M/s Dev Jewells; and (iii) M/s Rajeshwari Impex and have deleted the disallowance of Rs.1,71,73,863/- for the reason that the purchases claimed by the assessee to have been made from the aforementioned concerns cannot be disallowed by alleging the same as bogus in the absence of irrefutable documentary evidence. Thus, in terms of our observations recorded hereinabove the ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 41 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.
ground of appeal No. 1 raised by the revenue in respect of the bogus purchases fails. The Ground of appeal No. 1 raised by the revenue is dismissed.
32. The Ground of appeal No. 2 being general is dismissed as not pressed.
33. The appeal of the assessee is partly allowed in terms of our aforesaid observations and the appeal of the revenue is dismissed.
Order pronounced in the open court on 07.12.2018
Sd/- Sd/-
(R.C Sharma) (Ravish Sood)
ACCOUNTANT MEMBER JUDICIAL MEMBER
भुंफई Mumbai; ददनांक 07.12.2018
Ps. Rohit Kumar
आदे श की प्रनिलऱपि अग्रेपषि/Copy of the Order forwarded to :
1. अऩीराथी / The Appellant
2. प्रत्मथी / The Respondent.
3. आमकय आमक् ु त(अऩीर) / The CIT(A)-
4. आमकय आमक् ु त / CIT
5. ववबागीम प्रतततनधध, आमकय अऩीरीम अधधकयण, भफ ुं ई / DR, ITAT, Mumbai
6. गार्ड पाईर / Guard file.
सत्मावऩत प्रतत //True Copy// आदे शधिस ु धर/ BY ORDER, उि/सहधयक िंजीकधर (Dy./Asstt. Registrar) आयकर अिीऱीय अधर्करण, भफ ंु ई / ITAT, Mumbai ITA NO(s). 5972/Mum/2017 & 5438/Mum/2017 42 M/s Mishka Gold Jewellery Ltd. Vs Addl.CIT-4(2) & DCIT-4(2) Vs. M/s Mishka Gold Jewellery Ltd.