TMI Blog2017 (1) TMI 1759X X X X Extracts X X X X X X X X Extracts X X X X ..... cer ignoring the assessee s submissions that the gold prices are very volatile and the impugned transactions were entered in the normal course of business took a view that assessee has been unable to justify that there was actually so much fluctuation in the gold and diamond market in these days due to which sales were made at such lower prices. Ld. Assessing Officer also took a view that these three impugned parties are related/sister concerns of the assessee and losses have been intentionally manipulated by the assessee From going through the series of judgments of Hon. Supreme Court and Hon. Jurisdictional High Court it contemplate that if there is no challenge to the transactions entered in the books or to the genuineness of the entries, then it is not open on the side of Revenue to contend that what is shown in the transactions/entries is not the real state of affairs. In the instant case also we find that Revenue has miserably failed to make any attempt or to prove that entries made in the books are not genuine nor any other adverse material has been placed on record to show that the impugned loss was false and assessee has received more consideration than the actual trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has raised following grounds of appeal :- 1. The ld. CIT(A) has erred in confirming the addition of ₹ 77,95,670/- made by the Assessing Officer for the losses incurred by the appellant in the transactions with Jay Jewellers, Aaryavart Commodities Pvt. Ltd. and S. K. Jewellers as per Annexure-A to the Assessment Order. 2. The appellant craves leave to add, alter, amend or modify any of the grounds of appeal on or before the date of hearing of appeal. 2. Briefly stated facts as culled out from the records are that assessee is an individual running a sole proprietary concern namely M/s Adinath Impex. Return of income for Asst. Year 2009-10 was filed on 30.09.2009 declaring total income of ₹ 4,41, 470/-. The case was selected for scrutiny assessment and notice u/s 143(2) of the Act followed by notice u/s 142(1) of the Act along with detailed questionnaire were issued and served. Necessary details and information as called for were duly supplied by the assessee. Assessee is in the business of trading in gold, silver, bullion, gold ornaments and diamonds. During the year turnover of ₹ 395.42 crores was achieved with the GP margin of 0.03% and net profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question are supported by bills, payments are made by account payee cheques. The parties in question have also confirmed with transaction and it has not been proved or established that these transactions are collusive in nature. Mere doubts and suspicions did not constitute evidences that the losses are not genuine on account of these transactions. In view of the above facts our losses are not genuine on account of these transactions. In view of the above facts our losses with respect to these transaction as mentioned to the Annexure - 'A' should be accepted since 'overwhelming evidences have been finished and also the fact direct verification have not resulted in any information on the basis of which adverse inference can be drawn. 4. However, ld. Assessing Officer was not satisfied with the reply made by the assessee and assessed the income by disallowing the claim of loss in various transactions totalling to ₹ 77,95,670/- and assessing the income at ₹ 82,37,140/- by making following observations :- The submission made by the assessee has been considered carefully. A perusal of assessee's submission can be seen that the same is general in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three parties are not related or sister concerns of the assessee as they do not fall under the provisions of section 40A(2)(b) of the Act but sustained the ld. Assessing Officer s action of disallowing appellant s claim of loss of ₹ 77,95,670/- on the selected transactions with alleged three parties by observing as follows :- 4.3 I have carefully considered the facts of the case and the submissions made by the appellant. As far as the issue concerning invocation of provisions of section 40A(2)(b). challenged by appellant through ground of appeal No. 3, is concerned it is seen that the Id A O did mention in his order that the impugned parties were appellants sister concern and close business associates. Thus, one of the premises on the basis of which addition/ disallowance has been made, rests on the applicability of section 40A(2)(b). Appellants submissions and the details filed indicate that the parties with whom 15 transactions have been undertaken by the appellant are not covered u/s, 40A(2)(b). Shareholding pattern of ACPL mentioned supra alludes that appellant is having only 6.34% shareholding and hence provisions of section 40A(2)(b) cannot be invoked. Incidental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h has earlier resulted in a loss. The argument of the appellant that the loss was incurred on account of being new in business, thus fails. 4.5 without prejudice to above, the argument of the appellant that the incurred loss is relatable to the issue of gold and diamond market being highly volatile and fluctuating has been considered and found to be not supporting the appellants case. There is no denying to the fact that the gold and bullion market is volatile and fluctuating but at the same time it is also true that the fluctuations are inter day and not intraday. The gold and bullion market though fluctuates over a period of time but the fluctuations are not sudden unless there is some major catastrophe in the national or international political, economic or social situation. There could be a possibility of a marginal increase or decrease in the prices when a comparison is made between two days but the prices of sale and purchase for a particulars day are always fixed. It does not works like a stock market where the sale purchase price of shares vary during a particular day. The intraday price variations happen only at the MCX -gold and bullion Exchange wherein trading of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchase price and incurred loss so as to offset the interest payable to the ACPL. In the case of Me Dowells, Hon'ble Apex Court has observed that whereas the tax authorities cannot enter into the shoes of businessman and decide as to how a business is to be conducted but at a same time, they are fully empowered to lift the corporate veil so as to discover the truth and reality of a transaction. The hypothesis of the loss incurred on transaction with ACPL relatable to the issue of non-payment of interest on loans received by them apparently is the true story of this case. It is undisputed that appellant, even though not within the meaning of section 40A(2)(b), is closely related with ACPL by virtue of holding 6.34% shares of the said company. It is an undisputed fact that private limited companies are formed by people closely related to each other in terms of blood relations, friendly or social acquaintances or common business objectives and are actually tools for tax planning The appellant has admittedly obtained huge advances from ACPL. Ordinarily ACPL would have demanded and the appellant would have been required to pay interest to ACPL on such advances. Interest earning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 2 raised by the appellant is dismissed. 7. Aggrieved, assessee is now in appeal before the Tribunal. Ld. Authorised Representative (AR) submitted that it is an established fact that the alleged three parties namely- (1) Jay Jewellers, Aryavart Commodities Pvt. Ltd. and S. K. Jewellers are not related/sister concern of the assessee, as they do not fall under the provisions of section 40A(2)(b) of the Act [as rightly adjudicated by ld. CIT(A)]. As regards the alleged non bona fideness of the transactions entered into with the three parties, the Assessing Officer has made direct inquiries and the transaction with the appellant have been duly confirmed with them. Explaining the details of transactions with the alleged three parties ld. AR submitted that - (a) As regards Jay Jewellers, it is pertinent to note that Jay Jewellers is not an associated group concern or even a distant relative of the appellant. The assessment of Jay Jewellers has also been completed u/s 143(3) of the Act and no adverse inference has been drawn in his case in respect of the purchase made by him from the appellant. In fact, the diamonds have been purchased on 3.11.2008 and sold at more or less ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the fact that on the very same day assessee made purchases from M/s Harshad Jewellers vide bill no.194 dated 17.3.2009 from whom quantity of 5,000 grms of gold was purchased @ ₹ 1305 per gram and these purchases from M/s Harshad Jewellers has not been disputed by the Assessing Authority at any stage. Referring to this fact ld. AR submitted that the Assessing Officer has made a comparison of the purchase and sales rates which is ₹ 1580 and ₹ 1306 respectively. However, for inexplicable reasons the Assessing Officer has completely ignored the fact that on that very day gold has been purchased at the rate of ₹ 1305/- also. The Assessing Officer has completely ignored the fact that on 18.3.2009 the appellant has purchased from Harshad Jewellers gold of 8000 gms at ₹ 1305/-. The assessee has made sales at ₹ 1306/-. Therefore, there is no loss arising to the assessee as has been wrongly presumed by the Assessing Officer. The Assessing Officer has chosen to ignore the comparative purchase bill of the same item on that very date. Therefore, there is no loss occasioned by the appellant as presumed by the Assessing Officer. We had also furnished the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord evidencing that they have been regularly assessed to tax and no adverse view in the case of these three parties has been taken. Books of accounts are audited, quantity details are regularly maintained, no major down fall in the G.P. rates, books of account have not been rejected. Therefore, the ld. Assessing Officer s allegation of the assessee that these impugned transactions are manipulated in order to show losses are far from truth as these transactions are genuine and are neither colourable nor sham and have been entered prudently by the assessee. In support, ld. AR referred and relied on the following decisions :- Marghabhai Kishabhai Patel Co. vs. CIT (1977) 108 ITR 54 (Guj) CIT vs. Keshavlal Chandulal (1966) 59 ITR 120 (Guj) CIT vs. Shivakami Co.(P) Ltd. (1986) 25 Taxman 80K (SC), 159 ITR 71 (SC) CIT vs. Calcutta Discount Co. Ltd. (1973) 91 ITR 8 (SC) CIT vs. Amitbhai Gunvantbhai (1981) 129 ITR 573 (Guj) K.P. Varghese vs. ITO (1981) 131 ITR 597 (SC) 9. Ld. Departmental Representative (DR) vehemently argued supporting the orders of lower authorities strongly supporting the view that the impugned transactions have given rise to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of assessment proceedings and before the first appellate authority assessee had submitted that primarily all the impugned 15 transactions have been entered into in the normal course of business, no objection has been raised with regard to the purchases made and transactions entered with the other parties during the year and no anomaly has been found in the books of account and assessee has shown a better GP. Assessee took an additional plea by submitting that it has received huge interest free advances from ACPL and if an interest rate of 15% is presumed then also an approximate interest cost of ₹ 48,04,106/- would have been borne by the assessee. With this additional plea assessee submitted that there has been no loss of revenue because on one hand there has been loss in the sale transaction and on the other hand interest has not been paid on the advance/credit received from ACPL. This additional plea was taken up by ld. CIT(A) in deciding against the assessee by observing that if the rate of interest is taken at 18% and it is applied on the credit balance lying with the assessee received from ACPL then approximately notional interest will work out to ₹ 72 lacs whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has questioned the genuineness of sale @ ₹ 1306 per gm., but has not raised any objection with regard to purchases made at ₹ 1305 per gm. on the very same day. Similarly on 20.3.2009 the alleged sale transaction to ACPL of gold bar is at ₹ 1306 per gm. and on the very same day there is a purchase of ₹ 1305 per gm from Harshad Jewellers vide its bill No.205 dated 20.3.2009. These facts in itself proves the volatility of gold/silver market and also shows the genuineness of the business transaction entered by the assessee which remains disproved even by the Revenue. At this juncture we would like to go through the judicial precedence adjudicating such type of issues. 13. We observe that Hon. Jurisdictional High Court in the case of Marghabhai Kishabhai Patel Co. vs. CIT (supra) while adjudicating the issue relating to purchase of tobacco from its partners at higher price than average price paid to outside parties and held that the Tribunal was not justified in disallowing a part of actual price of tobacco paid by assessee firm when it was not shown that the transaction was not bona fide or one or to be sham one or price paid was not what was shown in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an so arrange his affairs as to minimise his tax burden. Hence, if the assessee in this case has arranged its affairs in such a manner as to reduce its tax liability by start ing a subsidiary company and transferring ks shares to that subsidiary company and thus forgoing pan of its own profits and at the same time enabling its subsidiary to earn some profits, such a course is not impermissible under law. In view of this legal position and particularly in view of the decision of this High Court in Commissioner- of Income-tax v. Keshavlai Ckandula! [1966] 5^_JTR_12() (Guj), unless it has been shown that the transaction in question was a sham one or unless the value shown was not the value in the books of accounts or unless it was not a bona fide transaction, it is not op en to the taxing authorities to disregard the figures of the transactions shown in the books of account of the firm. The case before the Madras High Court in Sri Ramalinga Choodambikai Mills Ltd. v. Commissioner of Income-tax [1955] 28 ITR 952 (Mad) and before this High Court in Commissioner of Income-tax v. Keshavlai Chandulal [1966] 59_ITR^12P (Guj.) was directly converse of the case before us. In Keshavlai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the entire season irrespective of qualities and irrespective of the fluctuations in the market rates, was a very unscientific method followed by the department in arriving at its conclusion but in any event he had no right to depart from the prices shown in the books of account unless he found the transaction not to be a bona fide one or to be a sham one or unless he found that the prices paid were not what was shown in the books of account and since none of these three conclusions had been reached by him. he had no right to depart from the books of account of the assessee-firm, In view of these conclusions we hold that the Tribunal was not justified in disallowing a part of the actual price of tobacco paid to the partners and question No. (1) must, therefore, be answered in the negative, that is, in favour of the assessee and against the revenue. In view of our conclusion it is really not necessary to answer question No. (2) but in any event it appears that the conclusion reached by the Tribunal that the partners and their relatives were paid higher price was erroneous in law as the Tribunal has not compared comparables. We, therefore, answer question No. (2) in the aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties has been established. The desire to defeat the claims of the revenue has also been established but that fact that for this the assessee had stated a false fact in the document is not established. What appears from the Tribunal's order was that the real and main object was to safeguard these shares from being taken over by the Government in settlement of tax dues, and also that the buyer and seller were indirectly connected with each other. 15. The first proviso to section 12B(2) provides 'full value of the consideration for which the sale, exchange, relinquishment or transfer is made1 to be taken as the basis for the computation of the capital gains. Therefore, unless there is evidence that more than what was stated was received, no higher price can be taken to be the basis for computation of capital gains. The onus is on the revenue - the inferences might be drawn in certain cases but to come to a conclusion that a particular higher amount was in feet received must be based on such material from which such an irresistible conclusion follows. In the instant case, no such attempt was made. 16. As this Court has explained in K.P. Varghese's case (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame time enabling its subsidiary to earn some profits, such a course was not impermissible under law. 16. We also observe that Hon. Jurisdictional High Court in the case of CIT vs. Amitbhai Gunvantbhai (supra) has held as under :- The Tribunal had overlooked one important fact, namely, that the entries in the books of account of 'G ', (HUF) were not challenged by the department as a device or as a cloak to evade the tax. Nowhere on the record the department challenged that the entries did not reflect the real transaction between the parties. In the absence of any such challenge, according to the assessee, it was not open to the Tribunal to come to the conclusion that the money was not received by 'G' in his capacity of HUF but was received by him in his capacity as the guardian of the assessee. The basic principle is the same in the law relating to income-tax as well as in civil law, namely, that if there is no challenge to the transaction represented by the entries or to the genuineness of the entries, then it is not open to the other side-in the instant case the revenue-to contend that what is shown by the entries is not the real state of affairs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has received more consideration than the actual transaction of sale. Further even in the independent enquiries conducted on the alleged three parties it ended up without giving any iota of evidence against the assessee as the same have nowhere been highlighted in the assessment order. 18. We are, therefore, of the view that the action of ld. Assessing Officer was erroneous as he has selected only few transactions on which only loss has incurred without giving cognizance to the fact that assessee has gained in other transactions with the impugned parties which are very well evidenced with the independent itemwise transaction details forming part of the books of account of assessee placed at pages 35 to 45 of the paper book. Ld. Assessing Officer also failed to point out any mistake in the alleged transactions except mentioning that the loss has been incurred. Ld. Assessing Officer completely failed to appreciate that every assessee has his own style of doing business and more specifically in the kind of business assessee is entered into it is well established that there is regular fluctuations in the prices of gold/silver/diamonds and jewellery due to which profit/loss ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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