TMI Blog2003 (3) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... the income of the assessee to the extent of Rs. 1,31,72,990 making out different disallowances and additions. At the very out set the learned counsel referring to the impugned order passed by the learned CIT submitted that the learned CIT had recomputed deduction under s. 80HHC of the Act and also made separate computation of total income by making disallowances and also making different additions on account of undisclosed investment in stock etc. and directed the AO to modify the assessment order under s. 143(3) of the Act and to issue demand notice and challan as well as penalty notice. The contention of the learned counsel is that learned CIT had not set aside the assessment order with direction to AO to reframe the assessment order but he has already completed the assessment order and AO was supposed to carry out the necessary direction and to issue demand notice and challan as per income computed by the learned CIT. The learned counsel submitted that different disallowances and additions made by the learned CIT are being challenged through different grounds of appeal and he started arguing the matter as per grounds raised in the grounds of appeal. We are disposing of the groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which no interest was paid to the said party, while the amounts receivable from the said party as on 31st March, 1997 and 31st March, 1998, stood at Rs. 8,12,900 and Rs. 8,31,900 respectively. 8. As regards M/s Lal Jewels, it was explained by Shri Ajay Vohra that the appellant has been advancing funds to/receiving funds from M/s Lal Jewels intermittently during the relevant previous year on which no interest was charged by either party. The non-charging of interest, it was submitted, on intra-company outstanding balance was on account of commercial expediency. To further the contention regarding the business expediency, a chart showing the position of interest payable to/receivable from Lal Jewels has been placed at paper book on p. 193. As per the said chart, the interest payable on the credit balance of M/s Lal Jewels works out to Rs. 4,59,502 as against interest receivable, which computes to Rs. 64,150. It was pointed out that the calculation of interest attributable to the amounts advanced to M/s Lal Jewels made by the CIT was completely erroneous. 9. In the final leg of his arguments, the learned counsel for the appellant submitted that the appellant maintains a mixed p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned counsel that if interest was to be paid on intra-party balances, the interest payable by the appellant would have been more than the interest receivable. For that reason alone, the disallowance made on an erroneous working has no legs to stand on. 15. There is merit in the alternate submission that, even otherwise, looking into the fact that the appellant is maintaining a mixed pool of funds and does not maintain any separate overdraft account, no disallowance of interest is sustainable. On perusal of the audited accounts placed in the paper book, it emerges that the interest-free funds available with the appellant in the form of partners' capital, as on 31st March, 1998, amounted to Rs. 3,28.51 lacs while the amounts outstanding against packing credit was Rs. 279.12 lacs. Against the aforesaid, amount due from Damas Jewels amounted to Rs. 8.31 lacs and M/s Lal Jewels amounted to Rs. 40.20 lacs aggregating to Rs. 48.5 lacs. On the basis of probability, the amount outstanding in the name of the aforesaid parties could have come out of interest-free funds available with the appellant. On the aforesaid facts, we are unable to agree with the view adopted by the CIT, espe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to reconcile the total gold purchased during the course of s. 263 proceedings, the same was reduced from the diamond purchase account and added to the gold purchase account to facilitate the reconciliation. 19. The learned Departmental Representative relied on the order of the CIT and did not contradict the factual averments on the side of the assessee. 20. We have carefully considered the submissions made by both the parties. The appellant prepared a chart explaining the aforesaid facts. On the perusal of the said chart, it was evident that the gold jewellery to the extent of 51.25 gms and 26.44 gms respectively were recorded in the books of accounts. As per the said chart, the appellant had reduced the gold weight of 77.65 gms. from the diamond purchased account, being the quantity of gold in the diamond jewellery purchased and corresponding additions were made to the jewellery purchased/import account and gold purchased local account. It was not disputed by the learned Departmental Representative that there was no difference in the aggregate; the difference was only on the groupings. 21. We agree with the learned counsel that the CIT has not correctly appreciated the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ises on account of (i) difference in the valuation of opening stock, subject of consideration, in asst. yr. 1997-98; and (ii) difference in the rate adopted for valuation of diamonds in closing stock (though there is no difference in quantity). The assessee contends that stock of diamonds had been valued at the market price thereof while the CIT has adopted a lower value. There is no evidence furnished by either the assessee or the CIT in support of the respective valuations adopted. We do not propose to into the issue of determining the rate to be adopted for valuation of closing stock of diamonds. Suffice to say that no further addition is called for since the assessee has already disclosed higher valuation of closing stock and thereby higher profit and there is no difference in the quantitative tally. 28. In Naresh Fabric, the Jodhpur Bench of the Tribunal had before it a case where the AO during the course of the assessment proceedings, worked out the month-wise quantitative details of purchases and sales made by the assessee and noticed that sales made by it exceeded the purchases made during a particular month. He accordingly concluded that the assessee had unrecorded purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ground of appeal is allowed. 31. In ground of appeal No. 5, addition on account of sale of silver and precious stones outside the books of account has been challenged. The CIT has made addition of Rs. 88,26,126 on account of shortage of stock of silver and precious stones of Rs. 73,12,948 and Rs. 42,157 respectively holding the same to have been sold outside the books of accounts. Further, the CIT also made an addition of Rs. 14,71,021 as the profit on the aforesaid sale plus 20 per cent. Shri Ajay Vohra, learned advocate, in his arguments has vehemently contended that the addition made by the CIT is contrary to the evidence on record and has been made without any application of mind. 32. It was submitted that during the relevant previous year, the appellant had imported silver amounting to Rs. 1,13,33,215, which was booked as purchases in the books of accounts. The entire silver, it was further submitted, was sold during the relevant previous year at the sale value of Rs. 1,41,77,590 as is apparent from paper No. 87 which is copy of details of total sales which include the amount of sale of silver. It also formed part of the total sales credited to the P L a/c, i.e., Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to the disallowance are that the appellant gives pure gold to outside karigars for fabrication of jewellery as per designs/specifications provided by the appellant. The karigars return the readymade fabricated/finished jewellery to the appellant and at that stage receive job charges for the fabrication work done by them. The job charges are credited to the accounts of the karigars at the time of receipt of fabricated/finished jewellery. 37. The CIT has alleged that the appellant did not disclose any closing stock of work-in-progress and further alleged that the appellant would have paid job charges to the extent of Rs. 3,45,000. 38. Before us, the learned counsel of the appellant submitted that the appellant does not fabricate jewellery itself and gets the same fabricated by the outside karigars and the job charges are credited/paid to them on receipt of finished jewellery. In the books of account of the appellant there is no inventory on account of semi-finished jewellery or work-in-progress. It was contended that the CIT s allegation that no work-in-progress has been declared and the addition made on that basis is without any legal force and is divorced from the factual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account is contrary to his finding in the asst. yr. 1997-98. 44. The learned Departmental Representative relied upon the CIT s order. 45. Having heard both the sides, we find ourselves inclined to agree with the submissions of the appellant. We have in asst. yr. 1997-98 deleted the addition made. The sale of stock held in asst. yr. 1997-98 has been duly recorded in the books of account. No instance has been brought to our notice where any stock has been sold outside the books of account. The addition made is, therefore, without any factual foundation and is deleted. It is further true that in asst. yr. 1997-98, the CIT had only questioned the valuation of the stock. No discrepancy, as regards the quantity of stock was pointed out in that year. Once the quantity of stock is accepted as having been correctly recorded in the books of account; there could be no allegation of sale of such stock outside the books of account. It requires no extrapolation to understand that once a quantity of stock is accepted as having been correctly recorded, the same could not have been sold outside the books in subsequent years, especially when the quantity of stock in the next year also stands rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the CIT on the issue is bad in law, being beyond jurisdiction. 49. As regards (b) above, we have already in our order for asst. yr. 1997-98 deleted the addition made by the CIT on account of alleged sales outside books of excess stock (for which addition was made by the CIT in asst. yr. 1997-98). In that view of the matter, we hold that the CIT was not justified in enhancing the total turnover, by Rs. 58,75,352. 50. In ground of appeal No. 5 we have already deleted the addition made by the CIT on account of the alleged sale of silver outside the books of accounts. Therefore, the enhancement of turnover on this ground does not survive. 51. Ground of appeal No. 10 challenges the action of the CIT in initiating the penalty proceeding under s. 271(1)(c) of the Act. We find that the issue is covered by our decision in appellant s own case for asst. yr. 1997-98. In that year we have cancelled the direction issued by the CIT. For the same reasons we cancel the directions given by the CIT for initiation of penalty under s. 271(1)(c). 52. Ground of appeal No. 11 relates to levy of interest under ss. 234A, 234B and 234C of the Act. The learned counsel for the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X
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