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2016 (5) TMI 481 - ITAT KOLKATA

2016 (5) TMI 481 - ITAT KOLKATA - TMI - Disallowance u/s 40A(3) - cash payments exceeding the sum of ₹ 20,000 - Held that:- None of the case the payment is exceeding ₹ 20,000 for the purchase of old ornaments. In all the cases where the addition was made by the AO on account of deemed payment of ₹ 20,000 on the purchase of old ornaments, the assessee sold ornaments in exchange thereof. As a result, the net payment was made the party for the purchase of old ornaments. However th .....

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even a single case where the payment is exceeding ₹ 20,000. However we find that wherever the payment exceeds for purchase more than ₹ 20,000, it has been made through account payee cheque only as evident from the submission of the assessee. In view of the above, we conclude that the assessee has not violated provisions of section 40A(3) of the Act on account of payment exceeding for the purchase of old ornaments exceeding ₹ 20,000 - Decided in favour of assessee

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order of the AO the assessee duly explained the loss of gold incurred during the course of melting and manufacturing process to the tune of 906.880 grams. Such a loss was not doubted by the AO at the time of assessment but the addition for the loss of gold 166.170 grams was made due to non-availability of reconciliation. In our view merely assessee failed to provide the reconciliation does not mean that the payment has been made in the form of gold. The AO should have brought cogent reasons for .....

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me of assessment framed by the AO the assessee failed to reconcile the gold received from the customers to the tune of 30.100 grams therefore the same was treated as income. However from the submission of the assessee we find that the liability towards the deposit of gold from the customers was very much reflecting in the books of the assessee for the relevant year and no such liability was written back in the year. Now it is really clear that a trading liability can be taxed only if it is writt .....

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f assessee - ITA No. 1754/Kol /2013 - Dated:- 13-4-2016 - Shri N. V. Vasusdevan, Judicial Member And Shri Waseem Ahmed, Accountant Member For the Petitioner : Shri A. K. Tibrawal, FCA For the Respondent : Shri Pinaki Mukherjee, JCIT-DR ORDER Per Waseem Ahmed, Accountant Member This appeal by the assessee is arising out of order of Commissioner of Income Tax (Appeals)-XII, Kolkata dated 22.03.2013. Assessment was framed by ITO Ward-12(1), Kolkata u/s 115WE(3) of the Income Tax Act, 1961 (hereinaf .....

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ments never exceeded the sum of ₹ 20,000 on any date whatsoever. 3. Brief facts as culled out from the record are that assessee is a Private Limited Company and engaged in the business of manufacturing and retailing of gold & silver ornaments and precious and semi precious stones. The assessee filed its return of income on 30-09-2009 declaring total income of ₹ 2,13,930/- under the head business & profession . However, AO framed u/s 143(3) of the Act by assessing the income o .....

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nd receipt transactions against the sale of ornaments in the cash book. However, in the actuality the transaction will only be settled with the customer at the amount of the difference arising between purchase and sale value of ornaments. The AO on examining the cash book found that payment for old gold purchase account exceeds ₹ 20,000/- and as such it violates the provisions of section 40A(3) of the Act. The plea of the assessee that the transaction of purchase and sale of the ornaments .....

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f section 40A(3) of the Act and added to the total income of the assessee. 4. Aggrieved, assessee preferred an appeal to learned CIT(A) who confirmed the action of AO by observing that the additions was made for the violation of section 40A(3) of the Act on account of the payment for purchase of old ornaments exceeding ₹ 20,000/-. Accordingly the plea of assessee was rejected that the aforesaid disallowance relates to the transactions of purchase of old ornaments in exchange of new ornamen .....

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exchange of old ornaments along with net amount adjusted with the parties. In none of the case the net payment was exceeding for the purchase of the old ornaments beyond ₹ 20,000/-. Although the assessee on sale of new ornaments in exchange of old ornaments was reflecting the transaction as independent purchase and sale in the books of accounts but in actuality the party account was adjusted with the net amount. For example, Mr. S. Bhattacharjee sold old gold to the assessee and the assess .....

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ity in the instant case only the difference amount of ₹ 165.00 (sale price ₹ 20,725/- purchase price ₹ 20,890/-) was paid to the aforesaid party. However, in the cash book both purchase & sale were recorded at the full value. The assessee also submitted that wherever the payment exceeds ₹ 20,000 then the payment was made by way of account payee cheque only. Besides the above, assessee further submitted that the above process of payments are permitted in terms of claus .....

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nt is exceeding ₹ 20,000 for the purchase of old ornaments. In all the cases where the addition was made by the AO on account of deemed payment of ₹ 20,000 on the purchase of old ornaments, the assessee sold ornaments in exchange thereof. As a result, the net payment was made the party for the purchase of old ornaments. However the assessee in its books of accounts was showing purchase and sale in full value and the same was also recorded as payment for the purchase and receipt for t .....

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it has been made through account payee cheque only as evident from the submission of the assessee which is placed on page number 1 and 2 of the paper book. The Ld DR also failed to bring anything corroborative evidence on record to controvert the arguments of the ld. AR. In addition to the above, we also find that an exception in clause (d) to Rule 6DD of Income Tax Rules 1962 has been provided which reads as under:- (d) where the payment is made by way of adjustment against the amount of any li .....

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ming the order of AO by disallowing a sum of ₹ 2,53,243/- under section 40(a)(ia) of the Act considering the melting loss incurred by KARIGARS is nothing but payment made to KARIGARS without deducting TDS. For this, assessee has raised effective ground as under:- 2) That the Learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of ₹ 2,53,243 made arbitrarily by the Assessing Officer under section 40(a)(ia) of the Income Tax Act, 1961 on the alleged ground .....

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s received due to loss of gold in manufacturing process which is bound to happen and the same loss is also recognized in Foreign Trade Policy to the extent of 3.5% as wastage. Accordingly, the assessee submitted the working of such loss of 906.880 grams with reconciliation but failed to reconcile such loss to the extent of 166.170 grams. Accordingly the AO opined that the loss on making of ornaments to the extent of 166.170 grams represents the payments to KARIGARS in the form of gold as it is e .....

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% was accepted in terms of foreign trade policy as melting and manufacturing loss. The loss more than 3.5% was disallowed due to non-availability of reconciliation statement. Being aggrieved by this order of Ld CIT(A) assessee is in second appeal before us. 9. We have heard rival contentions and perused the materials available on record. Before us Ld. AR submitted that as per the understanding with the KARIGARS if the loss in the course of melting and manufacturing of gold is beyond the specifie .....

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red during the course of melting and manufacturing process. Such a loss was treated by the AO as payment to the KARIGARS in the form of gold without TDS. However the learned AR submitted this loss does not represent the payment to the KARIGARS in the form of gold but it is actual loss and the deduction for such access loss was also made from the payment of the KARIGARS. Now the question before us is whether such loss represents the payment to the KARIGARS or it is actual loss. In our considered .....

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tune of 906.880 grams. Such a loss was not doubted by the AO at the time of assessment but the addition for the loss of gold 166.170 grams was made due to non-availability of reconciliation. In our view merely assessee failed to provide the reconciliation does not mean that the payment has been made in the form of gold. The AO should have brought cogent reasons for treating the loss of gold as payment to the KARIGARS. As we find that the loss of 906.880 grams was duly explained which shows that .....

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ciliation statement of the gold deposit lying with the assessee. For this, assessee has raised effective ground as under:-. 3) That the Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of ₹ 45,872 made by the Assessing Officer on the alleged ground that the assessee could not reconcile and file evidences in respect of gold deposits lying with the assessee. 12. The assessee has shown gold deposits from customers for 2173.07 grams. Some of the gold items were lyi .....

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submitted that such gold deposit does not relate to the year under appeal and it has not been written off in the books of accounts. Therefore the provisions of section 41(1) of the Act will not be applied in the instant case. The learned CIT(A) disregarded the claim of the assessee and confirmed the action of AO by observing as under:- 7. Appeal on ground no. 4 is against the addition of ₹ 45872/- on account of gold deposits to customers. During the assessment proceedings while examining t .....

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