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TMI Blog2022 (9) TMI 472X X X X Extracts X X X X X X X X Extracts X X X X ..... declared by the assessee on a turnover of his business of Rs.395.42 crores as against the GP rate of 0.09% declared on the turnover of Rs.75.98 crores in the immediately preceding year. On verification of the copy of relevant accounts, value-wise valuation of stock and copies of bills, the Assessing Officer noticed that the assessee during the year under consideration had sold the gold/diamonds at a lower rate to the closely held parties/companies which had adversely effected the gross profit of the year under consideration as compared to the gross profit of the immediately preceding year. He, therefore, required the assessee to show-cause as to why the books of account should not be rejected under Section 145(2) of the Income-tax Act, 1961 ("the Act" in short) and profit should not be estimated as per Section 145 of the Act. In reply, the following submissions in writing were filed by the assessee:- "1. We are in receipt of your above referred letter wherein it has been stated that for A. Y, 2010-11. We have shown GP ratio at 0.04% where as the auditor had reported the same at 0.00%. It was explained during the course of assessment proceedings that the finance / sharafi business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation at the time of assessment proceedings. All the transactions have been undertaken by account payee cheques only and the copy of bank statement have also been furnished during the course of assessment proceedings. The assessee is maintaining complete quantity tally with respect to the goods traded in. The detailed stock, registers and other quantity records have also been furnished at your good office. Your Honour had also called for the complete details with regards the name and addresses of the suppliers and customers of the goods, which had also been issuance of letters u/s. 133(6) of the Act with the suppliers and customers. If there is any discrepancy in those accounts we may kindly be intimated so that the necessary clarification can be made. 4.1 Coming to the issue of this purchases/sales having been made with closely held parties/companies is not correct. In fact, none of these transactions i.e. purchases as well as sales have been made with specified persons covered u/s. 40A(2)(b) of the Act. All these transactions have been undertaken with rank outsiders and 3rd parties. Your Honour has stated that in the earlier years GP was 0.09%. It has also been alleged that du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned and all items of expenditure are verifiable. There has been no transaction made with persons can be termed as specified u/s. 40A(2)(b) and also the fact that there is no allegation of any collusion or arrangement with these party by which the profit has been manipulated. Merely, decline in GP by itself cannot be the reason for rejecting the books of accounts and estimating the income as was held in following judicial pronouncements." 3. The Assessing Officer did not find merit in the submissions made by the assessee. According to him, the same was general in nature and not supported by any evidence. He held that no justification was furnished by the assessee to show how the sale price was lower than the purchase price which was effected with the closely held/related parties and there was no explanation offered by the assessee regarding the compelling circumstances under which he was required to sell gold and diamonds below the purchase price thereby resulting in GP loss. He held that the actual GP was concealed and manipulated by the assessee by selling goods at lower price to the closely held/related parties and keeping in view the repetitive nature of the transactions result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the assessee, at the outset, pointed out that the loss in question claimed by the assessee on the sale of gold and diamonds to the closely held/related parties was confirmed by the learned CIT(A) vide his impugned order mainly by relying on the order of his learned predecessor passed in assessee's own case for the immediately preceding year wherein a similar issue was decided against the assessee. He submitted that the order passed by the learned CIT(A) against the assessee on a similar issue for AY 2009-10 was challenged by the assessee in an appeal filed before the Tribunal and the Tribunal, vide its order dated 25.01.2017 passed in ITA No. 1420/Ahd/2013, deleted the disallowance made by the Assessing Officer and confirmed by the learned CIT(A) on account of assessee's claim for a similar trading loss in sale of gold and diamonds to the closely held/related parties. He has invited our attention to the copy of the said order placed at page Nos. 225 to 249 of the paper-book and submitted that the said order has been followed by the Tribunal subsequently to decide a similar issue involved in assessee's own case for AY 2011-12 vide its order dated 10.08.2021 passed in ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a similar trading loss claimed by the assessee in the transactions of gold and diamonds with the closely held/related parties was disallowed by the Assessing Officer in AY 2009-10 and the disallowance so made was confirmed by the learned CIT(A). The Tribunal, however, deleted the said disallowance vide its order dated 25.01.2017 passed in ITA No.1420/Ahd/2013 vide paragraph Nos.10 to 18 which read as under:- "10. We have heard the rival contentions and perused the records placed before us and gone through the decisions relied on by the ld. AR. Assessee's appeal revolves round the solitary grievance against the order of ld. CIT(A) confirming addition of Rs.77,95,670/- made by ld. Assessing Officer for not allowing the claim of losses incurred by the assessee in certain sale transactions with Jay Jewellers, ACPL & S. K. Jewellers. We find that during the course of assessment proceedings ld. Assessing Officer selected 15 transactions out of which one each was Jay Jewellers and S. K. Jewellers and 13 transactions with ACPL. All these 15 transactions took place between 3.11.2008 to 28.3.2009 having one common factor that in all these 15 transactions gold bars purchased during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs.72 lacs which is more or less matches with the loss suffered by the assessee in the impugned 13 transaction with ACPL and, therefore, these are colourable transactions attempted with sole objective of avoiding of true incident of taxation in the hands of the two parties. However, ld. CIT(A) has not disputed the fact that all the sale and purchases vouchers and invoices are entered in the books of account, receipts and payments have been made through banking channels, no infirmity has been found in the independent enquiries carried out with the impugned three parties. Therefore, there remains no force in the view taken by ld. CIT(A) of taking notional interest as a base to confirm the addition. The only reason for which both the lower authorities have denied the admissibility of the losses was that these transactions do not justify the bench mark of commercial expediency as there was no specific reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 the books of account. It was further held that it was not open to the taxing authorities to disregard the figures of he transactions shown in the books of account of the assessee firm. Relevant portion of the Judgment of Hon. High Court is reproduced below :- It may be pointed out that the decision of the Madras High Court in Sri Ramalinga Choodambikai Mills Ltd. v. Commissioner of Income-tax 1955 28 ITR 952 (Mad) was approved and followed by the Supreme Court in Commissioner of Income-tax v. Calcutta Discount Company Ltd. [1973] 91 ITR 8 (SC) and there the Supreme Court held: "Where a trader transfers his goods to another trader at a price less than the market price, and the transaction is a bona fide one, the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched, to ascertain the profit from the transaction. An assessee can so arrange his affairs as to minimise his tax burden." Hegde J., after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income-tax [1955] 28 ITR 952 (Mad) and before this High Court in Commissioner of Income-tax v. Keshavlal Chandulal [1966] 59 ITR 120 (Guj) was directly converse of the case before us. In Keshavlai Chandulal's case [1966] 59 ITR 120 (Guj) the allegation was that the firm's profit was shown less by reason of the fact of sale to the partners at an under- value. In the instant case before us it is alleged that the firm's profit has been shown to be less by reason of the fact that the purchases from the partners are shown to be at an inflated price. The Supreme Court has pointed out in Calcutta Discount Company's case [1973] 91 ITR 8 (SC), quoting from Commissioner of Income-tax v. A. Raman & Company [19681 67 ITR 11 (SC): "Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon Considerations of morality, but on the operation of the Income-tax Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 affirmative, that is, in favour of the assessee and against the revenue. The Commissioner will pay the costs of this reference to the assessee. 14. We further observe that Hon. Supreme Court in the case of CIT vs. Shivakami Co. P. Ltd. (supra) adjudicating the issue wherein assessee with a view to sequestering the shares held by assessee in the company from clutches of Government, it sold them at a price much lower than their market value and in fact incurred a loss but Revenue could not prove that consideration was understated. Hon. Court decided the issue in favour of assessee by observing as follows:- 13. In the instant case, on behalf of the revenue, it was contended that it was accepted both by the Tribunal and the High Court that the transactions in question were done in order to defeat the claim of the revenue. The facts found were that there was a sale. The High Court has stated that the Tribunal had found that the consideration was not understated [Emphasis supplied]. The counsel-for the revenue co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (supra) that the second ingredient that is to say that the word 'declared' in sub-section (2) of section 52 is very eloquent and revealing. It clearly indicated that the focus of sub-section (2) was on the consideration declared or disclosed by the assessee as distinguished from the consideration actually received by him and it contemplated a case where the consideration received by the assessee in respect of the transaction was not truly declared or disclosed by him but was shown at a different figure. Capital gains was intended to tax the gains of an assessee, not what an assessee might have gained. What is not gained cannot be computed as gained. All laws, fiscal or otherwise, must be both reasonably and justly interpreted whenever possible. Capital gains tax is not a tax on what might have been received or could have taxed, In this case, the revenue has made no attempt to establish that there was any under statement though it might be that shares were sold at an undervalue. 17. In view of the ratio of K.P. Varghese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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. No attempt was made by the department to show that, in fact, though the entries were made in the books of account of the HUF, the moneys were received or passed on to Amitbhai or that the moneys were received by G in his capacity as the guardian of the assessee. Under these circumstances, the department not having challenged the genuineness of the entries in the books of account of G, (HUF) and there being no other material on the record on which it could be said that the moneys were received by G in his capacity as guardian of minor, there was no evidence before the Tribunal to come to the conclusion as it did at the end of its order by way of inference that the amount in question did reach the representative assessee in his capacity as guardian of assessee. The entries which were the only evidence on record showed that the amount was received by G in his capacity as karta of the HUF but beyond that there was no other evidence. The Tribunal without any evidence on the record had drawn the inference that the amount in question did reach the representa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablished that there is regular fluctuations in the prices of gold/silver/diamonds and jewellery due to which profit/loss are incurred. In the present case when the assessee is maintaining regular books of account which are audited and all transactions are fully supported by bills and vouchers, impugned transactions have taken place through banking channels, confirmations have been received from the alleged parties no adversity has been found in the statements recorded by the Revenue of the alleged parties, quantitative records are regularly maintained, similar transactions have not been disputed even in the subsequent assessment u/s 143(3) of the Act as supported by the copy of the order u/s 143(3) of the Act for Asst. Year 2012-13 framed on 13.2.2015. We, therefore, hold that the impugned 15 transactions giving rise to loss of Rs.77,95,670/- are genuine and cannot be termed as colourable with the intention of evasion of tax and ld. Assessing Officer erred in disallowing the same. We accordingly, set aside the order of ld. CIT(A) and allow the appeal of the assessee." 9. The Tribunal thus passed a well-considered and a well-discussed order and decided the similar issue involved i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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