TMI Blog2017 (2) TMI 1379X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee by : Shri Sunil Pathak Revenue by : Shri Ajay Dhoke ORDER PER VIKAS AWASTHY, JM : These cross appeals by the Revenue and the assessee are directed against the order of Commissioner of Income Tax (Appeals)-II, Nashik dated 30-06-2014 for the assessment year 2009-10. 2. The brief facts of the case as emanating from records are: The assessee company is engaged in the business of trading in gold and silver ornaments, as well as sale and purchase of bullion. The assessee company is one of the concerns of Rajmal Lakhichand Group, Jalgaon. The assessee filed its return of income for the assessment year 2009-10 on 01-09-2009 declaring loss of ₹ 19,29,942/-. The deemed income of the assessee u/s. 115 JB of the Income Tax Act, 1961 (hereinafter referred to as the Act ) was shown as ₹ 1,60,79,481/-. The case of the assessee was selected for scrutiny under CASS and accordingly first notice u/s. 143(2) was served on the assessee on 21-08-2010. During the course of assessment proceedings the Assessing Officer found various defects in the books of the assessee and hence, rejected the books of account. The Assessing Officer invoked the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer has made addition u/s. 40A(2)(b) of the Act by taking average of gold rates in the year. Gold rates fluctuate every day, sometimes there is fluctuation of rates on the same day itself. The ld. AR draws our attention to the instances of purchase of bullion and gold ornaments from sister concerns and other parties. The ld. AR referred to table at pages 156 and 157 of the paper book. The ld. AR contended that the rates of bullion in the Mumbai Market are sometimes more and at times less than the rates in Jalgaon, therefore, there is difference in the rates paid by the assessee to its sister concerns. The assessee made payment for purchase of bullion as per Mumbai rates. Referring to chart at page 156 in respect of purchase of bullion from sister concerns, the ld. AR submitted that a perusal of transactions would show that the assessee has paid excess payment to its sister concerns on five occasion and on one occasion the payment made is less than the market rate in Jalgaon. The ld. AR referred to page 157 of the paper book to show the instances of purchase of gold ornaments from its sister concern. The ld. AR pointed that the payments have been made to its sister concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2007-08 was 1.04%, whereas the gross profit in assessment year under appeal is 2.96%. No gross profit addition has been made by the Revenue in the subsequent assessment years i.e. assessment years 2010-11, 2011-12 and 2012-13. In support of his submissions the ld. AR referred to assessment orders passed u/s. 143(3) of the Act for assessment years 2010-11, 2011-12 and 2012-13 at pages 296 to 347 of the paper book. The ld. AR contended that the assessee is maintaining proper books of account which are duly audited. The assessee is also maintaining stock register. The Assessing Officer without pointing any material defect in the books of the assessee during the assessment proceedings has rejected the books of account in an arbitrary manner. The ld. AR supported the findings of Commissioner of Income Tax (Appeals) in deleting the addition made by Assessing Officer on account of low gross profit. 5. On the other hand Shri Ajay Dhoke representing the Department vehemently supported the assessment order. The Commissioner of Income Tax (Appeals) has erred in holding that the Assessing Officer has not appreciated the nature of assessee s business where prices fluctuate not only dai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. DR raised suspicion over the gold rates furnished by the assessee. The ld. DR prayed for reversing the findings of Commissioner of Income Tax (Appeals) on this issue and restoring the order of Assessing Officer. 6. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. The solitary issue raised by the assessee in its appeal is against sustaining addition to the extent of ₹ 27,39,191/- u/s. 40A(2)(b) of the Act, whereas the Department in its appeal has challenged the findings of Commissioner of Income Tax (Appeals) in deleting the gross profit addition and restricting the disallowance made u/s. 40A(2)(b) of the Act. The Department has also assailed the findings of Commissioner of Income Tax (Appeals) in accepting the books of account of the assessee. 7. The first issue raised in the appeal by the Department is with respect to reversing the findings of Assessing Officer rejecting the books of account of the assessee. A perusal of the assessment order shows that the Assessing Officer has pointed following defects in the books of the assessee : i. Inclusion of stock claimed to be belonging to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Income Tax (Appeals) in deleting the additions made on account of purchases made by assessee from its associate concerns. The assessee has also assailed the order of Commissioner of Income Tax (Appeals) in sustaining the addition to the extent of ₹ 27,39,191/- u/s. 40A(2)(b) of the Act. The Assessing Officer had made disallowance of ₹ 41,94,060/- u/s. 40A(2)(b) in respect of gold, ornaments and bullion purchased by the assessee from its sister concerns. In first appeal, the Commissioner of Income Tax (Appeals) restricted the addition to ₹ 27,39,191/-. We find that identical issue was raised before the Tribunal in the case of M/s. Rajmal Lakhichand Vs. JCIT in ITA Nos. 532 663/PN/2013 for assessment year 2009-10 and in the cross appeal by the Department in ITA No. 607/PN/2013. The Tribunal vide order dated 16-01-2015 deleted the entire addition u/s. 40A(2)(b) of the Act. The relevant extract of the order of Co-ordinate Bench in the said case is reproduced here-in-below : 8.27 We now deal with the applicability of the provisions of section 40A(2)(b) of the Act. In this case, the assessee has entered into the transactions with the group entities. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... totally erroneous as he has totally discarded the trading in the bullion that takes place. He has also not considered the statement of the assessee that there are variations and fluctuations in the bullion market and even in the intra day transactions rate can be changed and sometimes rates may be stable and rates may swing like a wind. 8.28 When the matter reached before the Ld.CIT(A) though he did not agree with the approach of the AO but he also made the same mistake. He has again gone on the average method adopted by the AO. In this case it is also considered by the assessee that many of the intra entity transactions are not correct or fictitious and that is also clear even from the chart and figures given by the Ld.CIT(A) in his order in respect of the transactions between the assessee and intra group entities. Another aspect to be considered here is that assessee is a very old firm in the gold market but in the preceding two years span the turnover of the assessee has exceeded 11.5 times from 82.55 crores in A.Y. 2007-08 to 955.78 crores in A.Y. 2009- 10. The assessee has given the justification of the same. Fictitious transactions were shown for inflating the turnover of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.30 xxxxxxxxxx 8.31 xxxxxxxxxx 8.32 We also find that again while making the addition in respect of sale of ornaments to the group concerns/sister concerns, both the authorities below have adopted the comparison formula based on the sale of ornaments to the unrelated parties and sale of ornaments to the related parties. It is stated that if the average price is taken then the assessee has charged ₹ 10,350/10 gms on the sale to the sister concerns as against the average price of ₹ 13,906/10 gms charged to the third parties/unrelated parties on the sale of gold ornaments. The AO has worked out the difference of ₹ 40.96/gm but the Ld.CIT(A) has worked out the difference at ₹ 55.60/gm. The Ld.CIT(A) has also observed that unlike section 40A(2)(b) of the I.T. Act, there is no provision even if there is a sale at lower price comparing with the prevailing market prices of the commodity or goods. In our opinion as far as the issue of ornaments is concerned, approach of both the authorities below adopting the average price formula is not correct. As far as the ornaments are concerned, the price may vary from design to design, from item to item, from purity ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
