TMI Blog2021 (4) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... two days on account of advance of ₹ 2,20,00,000/- given to one of its supplier - CIT(A) sustained the addition made by the Assessing Officer on the ground that the assessee is not into business of lending of money - HELD THAT:- A perusal of the audited balance sheet, copy of which is placed at page 18 of the paper book shows that the share capital and reserves and surplus of the assessee company at the beginning of the year was ₹ 11,93,456.12/- and at the close of the year was ₹ 11,67,33,870/-. Thus, own capital and free reserves of the assessee company throughout during the year was much more than the interest free advance of ₹ 2,20,00,000/- given to M/s Lakshya Overseas. We, therefore, respectfully following the decision of Reliance Utilities and Power Ltd. [ 2009 (1) TMI 4 - BOMBAY HIGH COURT ] hold that the learned CIT(A) was not justified in sustaining the addition of ₹ 14,194/- made by the Assessing Officer u/s 36(1)(iii) of the Act. Under valuation of closing stock - as submitted that the learned CIT(A) has not considered the submission of the assessee on this issue properly, if given an opportunity, the assessee is in a position to substan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound that the amount is paid towards increasing its authorized share capital, which is not an allowable expenditure u/s 37(1) of the Act. 5. The Assessing Officer further noted from the stock records of the assessee that the assessee gets the Gold ornaments manufactured on job work basis. For the same purpose, the Gold bars are issued to job work contractors and recorded in issue side of stock register of Gold Bars through stock journal and value is recorded at notional rates. Similarly, upon receipt of manufactured goods from job workers, the goods are recorded in Gold Jewellery item in stock register at notional value. 6. The Assessing Officer found from the stock details that the assessee company had issued gold bars weighing 87000 grams and recorded them at value of ₹ 10,72,03,710/- and paid a sum of ₹ 9,17,115/- as job charges in respect of the same (Total ₹ 10,81,20,825/-). Upon receipt of these goods, the same have been recorded in receipt side of the stock register in Gold Jewellery item. However, as per statements submitted during course of proceedings, the amount of Gold Jwellery (manufactured/production) has been recorded at ₹ 10,67,92,970/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30,049,505 Proprietor Pradeep Goel 4 Royal Gold 12,807,644 Proprietor Jai Prakash Gupta 5 Bnavya Gold 184,453,619 Partner Jai Singh Goel, Cheten Gupta 6 Ginni Holdings 58,818,238 Partner Pradeep Goel, Praveen Gupta 7 L P Overseas 156,913,690 Partner Jai Prakash Gupta, Sandeep Gupta 8 Shree Balaji Commodities 37,178,972 Partner Ashok Goel, Reena Goel 9 Shree Ganpati Impex 296,474,012 Partner Jai singh Goel, Ashok Goel 10 Sparsh Gold 17,029,703 Partner Ashok Goel, Reena Goel 11 Shree Raj Mahal Jewellers 12,717,000 P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed u/s 40A(2)(b). In the similar format, you are required to furnish the details of Gold bar 995 and finished gold jewellery purchased or sold to the related concern with the explanation as to why any amount which is not at arm s length may not be taken towards addition to the total income. 10. Rejecting the various explanation given by the assessee the learned CIT(A) observed that the assessee being a bullion dealer, all transactions were to be at fair market value and there is no reason as to why most of the purchases made from related concern were at a higher rate than market rate which is taken from the rate of purchases made from unrelated concerns. Further, on many occasions on the same date, sales of some item were made to related concern at a much lower price as compared with the purchase price from other (related or unrelated) concern. Thus, the assessee has inflated purchase price from related concern and sold at lesser price to related concerns to suppress its profit. Since, according to him the assessee could not offer any justification as to why sales were made to related concern operating from the same premise at below the rate at which sales were made to outsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of new facts. Relying on the decision of the Hon ble Supreme Court in the case of NTPC vs CIT 229 ITR 383 (SC) and the decision of the Hon ble Delhi High Court in the case of CIT vs Parabolics Print Pvt. Ltd. 276 ITR 42 (Del.), he submitted that additional ground raised by the assessee should be admitted for adjudication. 14. After hearing the learned DR and after considering the fact that the additional ground raised by the assessee is purely a legal ground and does not require verification of any new facts, the additional ground raised by the assessee is admitted for adjudication. 15. Ground of appeal no.1 and 2 being general in nature are dismissed. 16. Ground of appeal no. 3 and 4 and the additional ground raised by the assessee relate to the order of the learned CIT(A) in enhancing the income of the assessee u/s 40A(2)(b) of ₹ 3,57,53,276/- which comprises of enhancement of ₹ 2,19,63,025/- in respect of purchases made from sister concern and an amount of ₹ 1,37,90,251/- being enhancement on account of suppressed sale to the sister concern. 17. The learned counsel for the assessee strongly challenged the order of the learned CIT(A) in issuing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. We find the only issue to be decided in the above grounds relates to the order of the learned CIT(A) in enhancing the income of the assessee by ₹ 3,57,53,276/-, on an issue which was not considered by the Assessing Officer but was considered by the learned CIT(A) through enhancement notice. It is the submission of the learned counsel for the assessee that the learned CIT(A) is not empowered to make enhancement in respect of a new source of income which is not the subject matter of the assessment order and which has not been considered by the Assessing Officer. A perusal of the assessment order shows that the Assessing Officer has not made any addition on account of purchase from or sales made to the related concerns. Therefore, the question that arises is as to whether the learned CIT(A) is competent to enhance assessment by taking an income which was not considered expressly or by necessary implication by the Assessing Officer during assessment proceedings. 20. We find an identical issue had come up for before Co-ordinate Bench of the Tribunal in the case of Hari Mohan Sharma vs ACIT reported in 179 ITD 310. We find the Tribunal after considering various decisions incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties. There is no doubt about the fact that while framing the assessment even under section 143(3) of the Act, the Assessing Officer may omit to make certain additions of income or omit to disallow certain claims which are not admissible under the provisions of the Act thereby leading to escapement of income. The Income-tax Act provides for remedial measures which can be taken under these circumstances. While framing an assessment under section 143(3) of the Act, any of the following situations may occur : (a) the Assessing Officer may accept the return of income without making any addition or disallowance ; or (b) the assessment is framed and the Assessing Officer makes certain addition or disallowance and in making such additions or disallowances, he deals with such item or items of income in the body of order of assessment but he under assessed such sums ; or (c) he makes no addition in respect of some of the items, though in the course of hearing before him holds a discussion of such items of income ; (d) yet, there can be another situation where the Assessing Officer inadvertently omits to tax an amount which ought to have been taxed and in respect of wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other words, the Commissioner of Income-tax (Appeals) has a power of enhancement in respect of such item or items of income which has been dealt with in the body of the order of the assessment, and arose for his consideration as per the grounds of appeal raised before him, being the subject-matter of appeal. 16. On the basis of the above decision following remedial matrix as per the law is as under :- Sr No Situation Remedial Measures under the Income tax Act a Assessing Officer may accept the return of income without making any addition or disallowance ; or U/s 147 of the act subject to limitations contained therein b the assessment is framed and the Assessing Officer makes certain addition or disallowance and in making such additions or disallowances, he deals with such item or items of income in the body of order of assessment but he under assessed such sums ; u/s 251 (1) (a) where the Assessing Officer had dealt with the issue in the assessment and was the subject-matter of appeal c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,000 to Forbesganj branch was noted by the Income-tax Officer and also the fact that it did not reach Forbesganj on the same day. So it was argued that in the appeal the Appellate Assistant Commissioner had jurisdiction to deal with the question of the taxability of the amount of ₹ 5,85,000 and to hold that it was taxable as undisclosed profits in the hands of the assessee. We are unable to accept the argument put forward on behalf of the appellant as correct. It is true that the Income-tax Officer has referred to the remittance of ₹ 5,85,000 from the Calcutta branch, but the Income- tax Officer considered the dispatch of this amount only with a view to test the genuineness of the entries relating to ₹ 4,30,000 in the books of the Forbesganj branch. It is manifest that the Income-tax Officer did not consider the remittance of ₹ 5,85,000 in the process of assessment from the point of view of its taxability. It is also manifest that the Appellate Assistant Commissioner has considered the amount of remittance of ₹ 5,85,000 from a different aspect, namely, the point of view of its taxability. But since the Income-tax Officer has not applied his mind to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner may hear and decide any matter arising out of the proceedings in which the order appealed against was passed notwithstanding that such a matter was not raised before the Appellate Assistant Commissioner by the appellant. The issue with regard to the scope of powers of the first appellate authority in disposing of an appeal has come up before the courts umpteen times but we do not propose to burden the judgment by making reference to all the decisions on the point. We will notice a few decisions which we consider are relevant to answer the question referred. In CIT v. Shapoorji Pallonji Mistry [1962] 44 ITR 891 (SC), while construing the corresponding provisions of the Indian Income-tax Act, 1922, relating to the jurisdiction of the Appellate Assistant Commissioner in such an appeal, the Supreme Court held that, in an appeal filed by the assessee, the Appellate Assistant Commissioner has no power to enhance the assessment by discovering a new source of income, not considered by the Income-tax Officer in the order appealed against. Similar views were expressed by the apex court in CIT v. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443 (SC). It was held that the power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame in appropriate cases may be dealt with under section 147/148 of the Act and section 263 of the Act, if requisite conditions are fulfilled. It is inconceivable that in the presence of such specific provisions, a similar power is available to the first appellate authority. That being the position, the decision in Union Tyres' case [1999] 240 ITR 556 (Delhi) of this court expresses the correct view and does not need reconsideration. This reference is accordingly disposed of. [ underline supplied by us] 18. Further Honourable kerala High court in B P Sherafudin s case [ supra) while examining the powers of CIT (A) u/s 251 (1) (a) of the act on enhancement has examined the whole judicial precedent as under :- Precedential position : 39. A Full Bench of this court in CIT v. Best Wood Industries and Saw Mills [2011] 331 ITR 63 (Ker) [FB] has examined the powers of the Assessing Officer, but not the appellate authority. It has held that once the assessment is reopened for any valid reason recorded under section 148(2), then the entire assessment is open for the Assessing Officer to bring to tax any item of escaped income which comes to his notice in such reassessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds enhance the assessment , if they are not to be rendered wholly nugatory. 43. Now, we may examine the authorities that also have dealt with the powers of the appellate authority but seem to have taken a divergent path. 44. In CIT v. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443 (SC) a three-judge Bench of the Supreme Court has observed that it is only the assessee who has a right conferred under section 31 to prefer an appeal against the order of assessment made by the Income-tax Officer. If the assessee does not appeal the order of assessment becomes final subject to any power of revision that the Commissioner may have under section 33B of the Act. Therefore, it would be wholly erroneous to compare the powers of the appellate authority with the powers possessed by a court of appeal, under the Civil Procedure Code. The Appellate Assistant Commissioner is not an ordinary court of appeal. It is impossible to talk of a court of appeal when only one party to the original decision is entitled to appeal and not the other party, and because of this peculiar position the statute has conferred very wide powers upon the appellate authority once an appeal is preferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to the Appellate Commissioner to introduce in the assessment a new source of income and the assessment must be confined to those items of income which were the subject-matter of the original assessment. 50. In course of time, Union Tyres was doubted. In CIT v. Sardari Lal and Co. [2001] 251 ITR 864 (Delhi) [FB], the same issue whether the appellate authority has the power under section 251 to discover a new source of income was referred to a Full Bench. After examining the authorities holding the fielding on that issue, the learned Full Bench has held that the inevitable conclusion is that whenever the question of taxability of income from a new source of income is concerned, which had not been considered by the Assessing Officer, the jurisdiction to deal with the same in appropriate cases may be dealt with under section 147, or section 148, or even section 263 of the Act if requisite conditions are fulfilled. It is inconceivable, according to Sardari Lal, that in the presence of such specific provisions, a similar power is available to the first appellate authority. Eventually, Sardari Lal upheld the decision in Union Tyres. 51. Undeniably, the precedential position on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with the law and given a finding that no capital gain has accrued to the assessee. CIT (A) further held that funds received by the assessee is unaccounted income of the assessee and chargeable to tax u/s 68 of the act. On the matrix as held by the Honorable Delhi high court the above issue falls within the scope of the provision of section 147 of the act and not u/s 251 (1) (a) of the act. Further the Honourable Delhi high court in para no 27 has also held that power of the first appellate authority is not restricted to examine only those aspects of assessment about which the assessee makes a grievance but it covers the whole assessment to correct the order of the Assessing Officer not only with regard to the matter raised by the assessee in appeal but also with regard to any other matter which has been considered by the Assessing Officer and determined in the course of assessment. Therefore for the purpose of enhancement of income by CIT (A) , it is necessary that either the matter should be raised in the appeal by the assessee or even otherwise the matter should ld have been considered and determined in the course of assessment proceedings. It is not at all necessary that AO sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the assessee that in view of the decision of Hon ble Bombay High Court in the case of Reliance Utilities and Power Ltd. reported in (313 ITR 340)(Bom.) wherein, it has been held that where an assessee has own funds as well as borrowed funds, a presumption can be made that the advances for non business purpose have been made out of own funds and that the borrowed funds have not been used for the business purpose. According to the learned counsel for the assessee, since, own capital and free reserves of the assessee company, which is more than the advance of ₹ 2,20,0000/- given to the supplier M/s Lakshya Overseas for the period of two days, no disallowance is called for. We find merit in the above arguments of the learned counsel for the assessee. A perusal of the audited balance sheet, copy of which is placed at page 18 of the paper book shows that the share capital and reserves and surplus of the assessee company at the beginning of the year was ₹ 11,93,456.12/- and at the close of the year was ₹ 11,67,33,870/-. Thus, own capital and free reserves of the assessee company throughout during the year was much more than the interest free advance of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of ₹ 9,17,115/- to the artisans for the purpose of job work for manufacturing of such jewellery. I find that these Gold Bars were issued to the artisan on different dates starting from 2.4.2008 till 23.2.2009 and after receipt of the finished goods jewellery from such artisan, none of these jewelleries were sold and are included in the closing stock at a value of ₹ 10,67,92,970/-. 6.9. The appellant submitted before me that there was no undervaluation in the closing stock and there was only mis-calculation on 2 instances of issue of Gold Bar to one artisan, Mr. Surjeet, in the Bullion register at the time of issue. It was submitted that the same was in the nature of a clerical error. On careful consideration of the above facts and on verification of the computerized stock register produced by the appellant at the time of hearing, I find no merit in the submission made by the appellant on facts. The quantity-wise and value-wise details of purchase, sales, issue of job work and opening and closing stock in respect of Gold Bar 995, Gold Bar 999 and finished Gold jewellery were taken from the stock register of the appellant and examined on an excel sheet prepared at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same three job workers. In this case too, in the case of Surjit the valuation was wrongly done at Rs.l574.74 per gram instead of ₹ 1388/- per gram. These are genuine clerical mistakes. The rates on the relevant dates were as per those taken in the cases of Mohammed and Suleiman. When the ornaments were received back on 09.03.2009 in 11.03.2009, the valuation in all the three cases was done at ₹ 1277/- per gram. In this way you would kindly notice that due to the error in recording the correct rate against Surjit in the Gold Bullion Account, there is a rate difference of ₹ 186.70 per gram which multiplied by 2200 grams comes to ₹ 4,10,740/-. Added to this the manufacturing expenses of ₹ 9,17,115/- the total becomes a sum of ₹ 13,27,855/-, which fhe AO alleges is on account of under-valuafion. There is no such undervaluation. There is only mis-calculation in the two cases of Surjit in the Gold Bullion register at the time of issue. Further there has been a misunderstanding on the part of the AO with regard to making charges. These two wrong additions have culminated in to an addition of ₹ 13,27,855/- which it is prayed, be deleted. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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