TMI Blog2021 (4) TMI 475X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase of gold is ₹ 98,31,994/- and silver purchased is ₹ 24,30,000/-. Considering the facts of the case and looking to the nature of business of the assessee, we restrict the disallowance made by the AO and confirmed by the CIT(A) to the extent of 50% of ₹ 2,64,014/-. Thus, the assessee gets relief of ₹ 1,32,007/-. This ground is partly allowed. Addition of capital introduce by the partners - HELD THAT:- Issue decided in favour of assessee as relying on METACHEM INDUSTRIES [ 1999 (9) TMI 21 - MADHYA PRADESH HIGH COURT] as held whether that person is an income-tax payer or not or from where he has brought this money is not the responsibility of the firm. The moment the firm gives a satisfactory explanation and produces the person who has deposited the amount, then the burden of the firm is discharged and in that case that credit entry cannot be treated to be the income of the firm for the purposes of income-tax. It is open to the Assessing Officer to take appropriate action under Section 69 of the Act, against the person who has not been able to explain the investment. In the present case, there is the concurrent finding of both the Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the sellers. We found substance on the submissions made by the ld. AR of the assessee in his written submissions which has been quoted in the above paras. In the written synopsis the ld. AR has relied on the judgment of Hon ble Rajasthan High Court in the case of Harshila Chordia [ 2006 (11) TMI 117 - RAJASTHAN HIGH COURT] and Fakri Automobiles[ 1985 (7) TMI 36 - RAJASTHAN HIGH COURT] . The decision of Hon ble Gujarat High Court in the case of Anupam Tele Services [ 2014 (2) TMI 30 - GUJARAT HIGH COURT] are squarely applicable in the present case in hand, therefore, relying the above judgments of the Hon ble High Courts, we allow this ground of appeal of the assessee. Addition of sundry creditors - assessee has submitted in his written submissions that the sundry creditors appearing in the balance sheet are relating to previous assessment years and not any fresh creditors have been created and the AO has also noticed that the assessee is making payment in cash - HELD THAT:- Considering this view if the creditors are relate to the previous assessment years and no fresh creditors have been created, the addition cannot be made in impugned assessment year - As relying on LYC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DD(g), 6DD(k) of Income Tax Rules; (vi) Sundry creditor at ₹ 9,56,250/- added as unexplained; For that the learned AO is erred in making such addition without affording sufficient opportunity to submit the details of sundry creditor; 2. That the evidences which have not been produced before the Learned AO it has no relevancy to produce the same before the higher authority as per the decision of Hon'bie Apex Court and exclusively AO is empowered/authorized to verify the same. 3. That any other ground(s) incidental to the grounds of this case may kindly be allowed to urge at the time of hearing of this case; 4. That any other evidences incidental to the grounds of this case may be permitted to adduce at the time of hearing of this case. 2. Brief facts of the case are that the assessee derives income from purchase of gold and silver and after making different varieties of gold and silver ornaments sells the same to different customers. The assessee filed its return of income for the assessment year 2013-2014 on 01.10.2013 disclosing the total income of ₹ 1,48,430/-. A survey operation u/s.133A of the Act was carried on in the business premi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO found that he has claimed amount of ₹ 2,64,014/- towards carriage inwards but the assessee could not comply the questionnaire issued on 05.06.2015 in this regard. Therefore, the Assessing Officer (AO) added the entire amount of ₹ 2,64,014/- as a bogus expenses claimed in the profit and loss account. Further on perusal of the capital account of the partner s fresh capital contribution of the partners of ₹ 12,30,000/-. In this regard the assessee submitted financial statements and explanation regarding the capital contribution by the partners before the AO but he was not satisfied and made addition u/s.68 of the Act in the hands of the partnership firm totaling to ₹ 12,30,000/- . 3. During the course of survey proceedings u/s.133A of the Act on 04.04.2012, the survey team found some discrepancy in the stock maintained by the assessee and in this regard the assessee had paid ₹ 8 lakhs as advance tax but while filing the return of income, however, the assessee did not disclose the stock discrepancy amount and claimed the refund for the advance tax paid which was allowed after proceeding the return. In the course of survey carried on 04.04.2012, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. From the documents, the AO noticed that the assessee on some days the purchase of gold and silver has been made by paying cash in exceeding ₹ 20,000/- to a single party/person by violating the provisions of Section 40A(3) of the Act, 1961. Accordingly a show cause notice was issued to the assessee on 22.01.2016. In response to the show cause notice the assessee filed written explanation on 17.02.2016, which reads as under :- A) In fact it is the usual practice of the gold and silver business concerns that on many occasions the assessee is getting new ornaments made through local karigars for which job work charges are being paid by assessee. That most of the purchases are made from village customers on the condition that the customers purchase new jewellery from the assessee. Such purchases of old gold and silver purchases were treated as credit purchases, for which there was no payment in cash ever made for those transactions since these were adjusted against sales effected to such customers by the assessee for which there is also no receipt of cash and the assessee charges making charges separately for the same. Thus such instances of old gold and silver purchases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at all purchaser invoices have been signed by the parties. The assessee can not be expected to verify the address of the sellers. The assessee has to accept whatever address has been given to it. There are practical difficulties in verifying the address. Further, once the seller suspects that the assessee firm is not prepared to accept the address given by him, he may not be interested in selling the jewellery to the assessee firm. It is a question of mutual trust and once there is suspicion, the assessee's business interest will suffer. That the assessee, in the nature of its trade, cannot insist for an identification process akin to Know Your Customer (KYC) rules applied by banks. There is ho such mandatory requirement in the business of jewellery to maintain any records in line with KYC norms of bank. In fact, a prudent businessman might not insist on such rigorous process since insistence on such conditions will be to the detriment of his business. That in the nature of the trade of the assessee it may not possible to get full address of all the customers and even if the customers give their address, there Is no means available to the assessee to ensure that such addresses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /-. In this regard, the assessee was asked to produce the complete details i.e. name and address of the sundry creditors along with ledger accounts but the assessee did not file regarding query asked by the AO. The AO observed that the entire purchase has been made through cash, therefore, there is no question of sundry creditors is arising. Accordingly, the AO added the entire sundry creditors shown in the balance sheet as on 31.03.2013 included into the total income of the assessee. 6. Feeling aggrieved from the order of AO, the assessee filed appeal before the CIT(A). The ld. CIT(A) after considering the assessment order and submissions of the assessee, dismissed the appeal of the assessee. 7. Aggrieved from the order of CIT(A), the assessee filed appeal before the Income Tax Appellate Tribunal. 8. Ld. AR before us filed paper book and also filed written submissions which read as under :- 1. That the Appellant is a partnership firm consisting of four numbers of partners namely (i) Shri Paidisetty Manmadha Rao (PAN No.BKGPP0788M); (ii) Shri Paidisetty Satya Santosh (PAN No.AAPPP3758B); (iii) Smt. Paidisetty Sushila (PAN No.AEKPP8689J) and (iv) Shri Paidisetty Manikan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is not sustainable for the reasons as under: (a) In so far as expenses disallowed at ₹ 1, 19, 848/- is concerned, it may be stated that the learned AO has disallowed the expenses on ad hoc basis without pin pointing which of the expenses vouchers are not verifiable. In the previous year of assessment, AY 2012-2013, the claim of expenditure was fully allowed. The inevitable of expenditure for the purpose of business is not at all disputed by the Department. But on ad hoc basis the learned AO disallowed 10% of the claim of expenditure without any basis while disallowing 5% of expenditure in similar situation in the case of Kumar Sunrise Jewellers vide appeal No.0128/2016-2017 dated 08/03/2018 (additional paper book under Annexure-19 at Page-175 para 5.2). Discretion cannot be used discriminatorily not power can be exercised in a pick and choose manner. Thus, on the face of the decision taken in the case of Kumar Sunrise Jewellers (supra) disallowance of expenditure at ₹ 1,19, 848/- is bad in law. Hence the disallowance of expenditure is liable to be deleted. In so far as disallowance of carriage inwards at ₹ 2, 64, 014/- is concerned, it may be state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt from Annexure-4 (series), Annexure-5, Annexure-6,Annexure-7 (series) and Annexure-8 (series) of the paper book. The identity of the partners have not been doubted by the learned AO and from their respective returns of income the creditworthiness have very much established. The learned AO had never attempted by issuing notice to the partners to establish their induction of capital in shape of cash in the firm. Hence the addition is liable to be deleted from the hand of the firm. The learned AO had never attempted. (d) In so far as addition of ₹ 59, 95, 483/-on the ground of discrepancies in stocks found in course of survey is concerned, the learned AO failed to examine the income tax return for the AY 2012-2013 in so far as quantification stock is concerned based on record viz; closing stock of gold was -8951.002 gms and silver-98021.71 gms which had susceptibly taken by the learned AO as under: GOLD Opening stock of gold as on 1.4.2011 as stated by you as per return of income at :6719.79 gm Purchase as per register :2979.64 gm Sale eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had reiterated the aforesaid facts before the learned AO as well as Learned CIT (A) as could be fortified by the written note of submission filed before both the forums (Anne\ure-10 series at page 71 Annexure-13 at page 92 of the paper book). As per the audited books of accounts which had been shown in the I.T. returns filed by the Appellant the figure of GOLD and SILVER are as under: Gold Silver 1 Opening Stock as on 1.4.2012 -.8951.002 gm :98021.71 gm 2. Purchases from 1.4.12 to 3.4.12 :40.00 gms :NILL 3. Sale 1.4.12 to 3.4.2012 (-) :45.75gms :730.00 gm 4. Stock on 4.4.12 : 8945.25 gms :97291.71 gm 5. Physical stock as per survey :8911.09gm :63359.00 gms 6. Excess/shortage (+):34.16 gms (-) :33932.71 gms The learned AO as well as learned C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant case, the said addition ought to be deleted as the Department has not approached this Hon'ble Tribunal against the order of the CIT (A) vide IT Appeal No.0128/2016-2017 dated 8.3.2018 in case of Kumar Sunrise Jewellers at Rayagada. In the instant case neither the AO nor Id. CIT(A) has doubted the genuineness of payment made in respect of goods purchased by the assessee or the identity of the sellers as the Assessing Officer has himself stated in the assessment order that the payment are made through cash. The Hon'ble Rajasthan High Court decision in case of Harshila Chordia vs. ITO 208 CTR 208 it was held that exceptions contained in Rule 6DD are not exhaustive and that the said Rule must be interpreted liberally. The genuineness of the transaction and identity of the payee has not been doubted and the business expediency has been established, the addition ought not to have been made by the learned Assessing officer. Further, the Hon'ble Supreme Court upheld the applicability of section 40A(3) to payment made for acquiring stock-in-trade and raw materials and also affirmed the decision of Hon'ble Rajasthan High Court in case of Fakri Automobiles v. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. The purpose of provisions of Section 40A (3) is to prevent transactions of unaccounted money. If the transactions are genuine, the provisions of section 40A (3) should not be applied mechanically. In the instant case the transactions are genuine. This view is fortified by the order of Learned CIT (A) dated 16.6.2015 in ITA No. 0400/14-15, in the case of M/s. Jarnal Singh Co. Thus, applying the law cited above, the entire addition need to be deleted. That in so far as addition towards Sundry creditor at ₹ 9, 56, 250/- as unexplained is concerned, it may be stated that the Appellant for the AY 2012-2013 had disclosed the sundry creditor at ₹ 19, 25, 860 under Annexure-2, page 11 of the paper book. Similarly for the AY 2013-2014 the Appellant had disclosed the sundry creditor at ₹ 19,25, 860/-. The learned AO made addition of ₹ 9, 56, 250/-treating the same as bogus as the Appellant submit anything in so far as addition of ₹ 9, 56, 250/-. But the fact remains that the Appellant has submitted the party ledger account before the learned AO who has allowed ₹ 9, 69, 910/- and disallowed the remaining amount of ₹ 9,56,250/-. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 50,562/- 5,000/- 45,562/- P.Seshamba 50,082/- 3,900/- 46,182/- TOTAL 10,33,950/- 77,700/- 9,56,250/- The carry forward figures of Sundry Creditor of 17 numbers was at ₹ 10, 33, 950/- as stated above alleged by learned AO as bogus from whom the Appellant purchased the Gold Silver ornaments but did not pay the entire amount and in the current year has paid at ₹ 77,700/- thereby the remaining balance was at ₹ 9, 56, 250/-. Therefore, the Sundry Creditor of ₹ 9, 56, 250/- were related to previous AYs. Therefore, the closing figure of previous years ought not to have been added in the current year of assessment as clearly held by Hon'ble High Court of Rajsthan reported in 2008 (301) ITR page 404 where the Hon'ble High Court have held that sum carried forward from preceding year not an investment or cash credit generated during the relevant year not taxable as income of that year. Therefore, the opening balance of trade creditors cannot be treate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up on 6 occasions out of these. On other dates either no compliance was made or these were adjourned to other dates on petition for the same. B. CIT(A). At the level of the CIT(A) opportunity provided by him has been discussed in paragraphs 2 of page 2 and 3 of his order. Hearing was fixed as many as 10 times. The only response of the assessee was an adjournment petition and a piece of written submission. Appearance followed the threat of ex-parte disposal without further opportunity. That too was only with the adjournment petition. The AR was even accommodated on an unscheduled date on his request. C. Ground 2. As per the same paragraph of the order of the CIT(A)- ' For further discussion and filing of evidences in support of the written submission, the case was adjourned' many times but there was no compliance. With a view to pre-empting a possible charge of default at the first appellate level as well, ground 2 has been taken that production of evidences before higher authority not produced before the AO have no relevance, on the basis of an un-cited apex court decision whereas it is possible under specified conditions and circumstances u/r 46A of Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales of silver ornaments relative to the stock as per record. Gold involves both purchase and sales making net marginal difference to the same. 2 Physical stock of silver ornaments. 62459 gm. 63359 gm. Slightly higher. 3 Opening stock date. First day of the preceding P/Y. First day of the P/Y 4 Opening stock basis. ITR Trading a/c filed with ITR. 5 Stock as on 31/03/2012 or 01/04/2012 Gold (gm.) Silver (gm.) Gold (gm.) Silver (gm.) 7247.43 Discrepancy with trading a/c with ITR 97522.5 Discrepancy with trading a/c with ITR 8951.002 (More) 98021.71 (More) 6 Basis of purchase and sale during the period Register Register Nil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ID by the office of the hon'ble Tribunal. Further the ld. DR submitted in respect of ground Nos.1(i) (ii) that no bills and vouchers were produced before the AO, therefore, the AO was justified to make addition which has been rightly confirmed by the CIT(A). In respect of ground No.1(iii) regarding partners capital contribution, the assessee could not justify the capital introduction that they had no capacity to introduce the capital as contributed by partners firm. The assessee has also unable to discard the findings recorded by the AO. Ld. DR in respect of ground No.1(iv) stated that during the course of survey proceedings, he had accepted that there was discrepancies found in the stocks of gold and silver and admitted and paid advance tax, if there was no discrepancies in the stocks then why the assessee paid advance tax in this regard. He also drew our attention on the balance sheet as on 31.03.2012. In respect of value of closing stock of gold and silver in which there is a totaling difference in the financial statements in respect of stock of gold and silver. Ld. DR further submitted in respect of ground No.1(iv) that the assessee had purchased gold and silver on ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old is ₹ 98,31,994/- and silver purchased is ₹ 24,30,000/-. Considering the facts of the case and looking to the nature of business of the assessee, we restrict the disallowance made by the AO and confirmed by the CIT(A) to the extent of 50% of ₹ 2,64,014/-. Thus, the assessee gets relief of ₹ 1,32,007/-. This ground is partly allowed. 11. Ground No.1(iii) is with regard to capital introduce by the partners, this issue is covered in favour of the assessee by the decision of CIT Vs. Metachem Industries, 245 ITR 160 (MPHC), wherein the Hon ble High Court has held as under :- 6. So far as the responsibility of the assessee is concerned, it is satisfactorily discharged. Whether that person is an income-tax payer or not or from where he has brought this money is not the responsibility of the firm. The moment the firm gives a satisfactory explanation and produces the person who has deposited the amount, then the burden of the firm is discharged and in that case that credit entry cannot be treated to be the income of the firm for the purposes of income-tax. It is open to the Assessing Officer to take appropriate action under Section 69 of the Act, against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the opening balance from 01.04.2011. The assessment is framed on i.e. on 21.03.2016 whereas the audit report for 31.03.2012 was prepared on 24.09.2012, which was much available at the time of framing of assessment according to which if we consider the opening balance as on 01.04.2012, there will be excess/shortage of stocks as calculated by us above but not the excess stock calculated by the survey team, therefore, the excess stock found by the survey team is not acceptable in the light of the financial statements available as on 31.03.2012. During the course of hearing ld. AR of the assessee has also accepted that there is excess/shortage of stocks. In the case of gold and silver he conceded that there is an excess stock found of 34.16gms and in case of silver 33,932.71 gms, respectively. He also conceded that the net profit rate should be added instead of entire value of the excess/shortage of the stocks. In this regard, he has also relied on the judgment as cited in his written submissions. However, we are not in agreement with the submission of the ld. AR regarding the profit element as offered by the ld. AR of the assessee. The shortage found of silver of 33,932.71 gms ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Harshila Chordia and Fakri Automobiles. The decision of Hon ble Gujarat High Court in the case of Anupam Tele Services are squarely applicable in the present case in hand, therefore, relying the above judgments of the Hon ble High Courts, we allow this ground of appeal of the assessee. 14. With regard to this ground No.1(vi) the ld. AR of the assessee has submitted in his written submissions that the sundry creditors appearing in the balance sheet are relating to previous assessment years and not any fresh creditors have been created and the AO has also noticed that the assessee is making payment in cash. Considering this view if the creditors are relate to the previous assessment years and no fresh creditors have been created, the addition cannot be made in impugned assessment year. To support our view, reliance can be placed on the decision of coordinate bench of the Tribunal in the case of Lycos India Limited, ITA No.02/CTK/2018, order dated 01.09.2020, wherein the Tribunal has observed as under :- 12. On merits of the case, with regard to addition of ₹ 1,42,04,290/-relating to sundry creditors, there was an opening balance of ₹ 1,25,24,747/- (appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not received given at page 13-14 of the assessment order. We further find that Ld. CIT (A) has confirmed the addition vide discussion made at page 25-30 of the appeal order. These amounts added are the closing credit balances of the suppliers as on 31.3.2012 which is evident from PB 42-66. In our considered opinion, the sustaining of impugned addition is not justified due to the following reasons:- i). It has not been mentioned either by A.O or by Ld. CIT(A) as to under which section of the Income Tax Act, these closing credit balances appearing as on 31.03.2012 could be added. Therefore, non-mentioning the precise provision of law makes the impugned addition bad in law. ii) If addition has been made u/s 68, such could not be added and that too of this much of amount as there was no sum received from these parties that too during the year under appeal which is evident from the copies of account of these parties enclosed in the paper book at PB 42-66 which would show that either there were opening credit balances or were purchases. iii). After perusing the PB Pg. 42-66 and PB Pg. 144, we find that purchases from these parties were aggregating to ₹ 1,90,88,538 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unexplained expenditure and addition thereof could not be made under s. 69C or by invoking proviso to s. 69C - Nisraj Real Estate Exports (P)) Ltd. vs. Asstt. CIT 31 DTR 456(JP 'A') CASH CREDIT-Failure by creditors to participate in inquiry and furnish accounts-Does not mean that creditors lacked identity-No material to show that amounts advanced by creditors in reality represented money belonging to assessee-Sums cannot be treated as cash credits-Income-tax Act, 1961-CIT v. CHANDELA TRADING CO. P. LTD. 372 ITR 68 (Cal) Income from undisclosed sources-Addition-Alleged bogus purchases-AO was not justified in making the disallowance of purchases made by the assessee merely due to non-filing of confirmation from suppliers especially when assessee has filed certificate from the bank indicating the facts that cheques issued by it were cleared and no defect in the books of account was pointed out by AO-YFC Projects (P) Ltd. vs. Dy. CIT 46 DTR 496 (Del. 'I') iv). We note that Opening balances amounting to ₹ 1,60,19,598/- (PB 144) (PB 42-66) which is evident from copies of account of these parties enclosed in the paper book at PB 42-66 is not justified on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bilateral act, Therefore also, action of AO in holding the liabilities ceased to exist may please be reversed. 6.4 Even in law, the addition is not sustainable for more than one reason. Section 41(1) of the Act is a deeming fiction according to which an amount which does not have any trace of income is treated as income liable to suffer the brunt of tax. Therefore, as per the established canons of law, the burden to prove that a particular amount falls within the four corners of section 41(1) is on the shoulder of the Assessing Officer without which the addition cannot be made and if made is liable to be deleted. 6.5 The first pre-requisite for the applicability of section 41(1) is there must be a trading liability in respect of which the deduction has been claimed and allowed and burden to prove the twin conditions to the effect of the above facts, it goes without saying, is on revenue. There is not even an iota of whisper as to whether the impugned creditors were in respect of trading liability for which any deduction was ever claimed and allowed and if allowed, in which year was it allowed so on so forth. This is evident from a plain reading of the assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven assuming that purchase could not be got verified, the fact that the sales have been accepted such sales obviously could not have been made without purchases. Therefore, in such situation G.P. Rate of the earlier years can act as a guide as held in judicial decisions including 355 ITR 290 (Guj) PB 17 is the copy of G.P. chart of various years. 6.11 We note that PB 136-143 is the copy of profit and loss account and trading account of earlier years together with assessment orders u/s 143(3) in which G.P. at the rate of 3.52%,4.13%, 2.99%, 2.~9%, 2.60%,2:21 %, 1.88% for Financial years 2007-08, 2008-09, 2009-10, 2010-11, 2012- 13, 2013-14, 2014-15 respectively has been accepted (PB 17). 6.12. Without prejudice to above, the assessee's sale was ₹ 6.21 Crores as is evident form profit and loss account enclosed at PB 13 and assessed income is at ₹ 3.54 Crores as is evident from the last page of the assessment order which would constitute 56% of the sale which is impossible and against all norms. 7. In view of above discussions, it is clear that the transactions were not bogus and therefore, the case laws relied upon by the Ld. DR are not applicable in this ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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