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TMI Blog2025 (4) TMI 918X X X X Extracts X X X X X X X X Extracts X X X X ..... Act') were issued and served on the assessee, in response to which the AR of the assessee appeared before the Assessing Officer and filed the requisite details from time to time. 3. During the course of assessment proceedings the Assessing Officer noted from the details submitted by the assessee that it has shown melting gain at 1.70%. The Assessing Officer compared the melting gain shown for the preceding four financial years which are as under: Financial Year Melting gain percentage 2012-13 6.83% 2013-14 0.59% 2014-15 7.98% 2015-16 1.70% 4. He, therefore, asked the assessee to justify the melting gain shown by it at 1.70%. Rejecting the various explanations given by the assessee, the Assessing Officer adopted the melting gain at 4% by observing as under: "5.1 The submission of the assessee is considered very carefully. However, the submission of the assessee is not acceptable because of the following reasons- i) The reasons given by the AR are very generic and no concrete reasons have been given by the AR. ii) It is true that the melting gain depends on the purity of old ornaments or gold given by the customers. However, the melting gain ratio shown by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on 31.03.2016 was Rs. 296.41 Crores and interest free advances outstanding as on that date were Rs 114.63 Crores, besides partners balances of Rs. 3.84 Crores. Kindly note that amount of sundry creditors mentioned above of Rs. 885.94 Crores includes a sum of Rs. 429.19 Crores payable to Manvi Holdings Pvt. Ltd. Similarly the figures of advances given interest free of Rs. 114.63 Crores included a sum of Rs. 88.93 Crores given to Manvi Holdings Pvt Ltd. As the party is the same and the amount payable to the said party being much more than the amount receivable from it we could not have charged/paid any interest to the said party. Further in the subsequent year, we have merged both the accounts into one account, a copy of which is enclosed and therefore the question of charging interest to the said party does not arise Similarly in cases of advances of Rs 17.63 Crores and 6.99 Crore given to Ashoka Builders and Ashoka Engineering, we would like to state that we have entered into Joint Venture with the said parties and as such the transactions with the said party constitute business transactions and therefore no interest is charged on the same. As regards the partners accounts we hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st till date of agreement is required to be charged on the advances like practice in earlier years. He noted that the assessee has debit balances in partners' accounts and other liabilities are shown as loan from bank. Under such circumstances, no interest free funds are available to the assessee. Since the assessee has taken huge loans from sister concern M/s. Manraj Motors Pvt. Ltd. and paid substantial interest to this concern, therefore, the advances given to the Ashok group, Nashik is out of borrowed funds only. He accordingly, held that the assessee has not used borrowed funds for business purposes. Therefore, he calculated the interest up to date of agreement at Rs. 1,42,04,274/- and made addition of the same by invoking the provisions of section 36(1)(iii) of the Act. 11. Similarly, the Assessing Officer noted that even after entering into the Joint Venture agreement, no work is commenced and no work-in-progress or any sort of work is done. The huge advance was given as loan and the property to be developed do not have commensurate valuation. He further noted that no activity of construction is commenced and therefore, it can be stated that the borrowed funds are not utili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain would depend upon the quality/type of ornaments purchased by the appellant company, which are bound to vary from item with respect to purity. 2.4 The addition made merely on the basis of preceding year's results cannot be justified either on facts or in law 2.5 The addition of Rs. 1,06,90,398 being the result of guess work and surmises deserves to be cancelled. 3. GENERAL 3.1 The learned CTT(A) erred in concluding that the decisions relied upon by the appellant were not applicable to the facts under consideration. 3.2 The appellant prays leave to adduce such further evidence to substantiate its case as the occasion may demand. 3.3 The appellant craves leave to add, amend, alter or delete any one or more of the grounds of appeals as may be required in the nature and circumstances of the case. 14. The first issue raised in the grounds of appeal is regarding the disallowance of interest u/s 36(1)(iii) of Rs. 2,95,58,034/-. The Ld. Counsel for the assessee submitted that the assessee had granted loan to the Ashok Group in financial year 2010-11 i.e. relevant to assessment year 2011-12. Till assessment year 2015-16, the assessee was charging interest and such inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had advanced the loans to third parties without any commercial exigency, therefore, the Ld. CIT(A) / NFAC has rightly sustained the disallowance of interest made by the Assessing Officer u/s 36(1)(iii) of the Act. So far as the claim of the assessee that in the past years the assessee has not received interest for which he has not credited such interest during the year is concerned, the Ld. DR submitted that the assessee could have claimed the same as bad debt if the same was not received. So far as the decision of the Hon'ble Supreme Court in the case of CIT vs. Vasish Chay Vyapar Ltd. (supra) is concerned, he submitted that in that case the assessee was a NBFC whereas the assessee in the instant case is not a NBFC, therefore, the said decision is not applicable to the facts of the present case. So far as the decision of the Hon'ble Supreme Court in the case of S.A. Builders is concerned, he submitted that the same also is not applicable to the facts of the present case. 18. The Ld. Counsel for the assessee in his rejoinder submitted that it is a business loan given during the course of business and therefore, the decision of the Hon'ble Supreme Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould have claimed the same as bad debt. However, as a prudent businessman, the assessee has not recognized the interest on such doubtful debts. In our opinion, merely because the assessee has not recognized the interest income in respect of the outstanding amount from these two concerns, it cannot change the colour of such advance which is a commercial transaction. Since the impugned loans / advances were given to M/s. Ashoka Builders and Developers and Ashoka Engineering Co. in the course of business and are commercial transactions for which the assessee was charging interest from assessment year 2013-14 till 2015-16 and only because of non-payment of interest from the said parties, the assessee stopped charging interest for the impugned assessment year and to recover the principal and interest, the assessee has entered into a Joint Venture Agreement with the said concerns, therefore, such commercial transactions cannot be termed as diversion of interest bearing funds. In this view of the matter, we are of the considered opinion that the provisions of section 36(1)(iii) of the Act are not applicable to the facts of the present case. We, therefore, set aside the order of the Ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in another year it would be 7.98%, i.e. 7.98 kg out of 100 kg of old jewellery, or, in other words, how the yield could be about 5 to 13 times higher in one year than in another year. Gold jewellery is generally 22 carat which contains 91.67% pure gold and rest impurity. Therefore, the rate of extraction yield should be in a close range and not show such wide fluctuation, i consider assessee's claim to be unrealistic and unreasonable Appellant termed AO's estimate of 4% to be guess work. But I find that it is the same percentage taken last year and very close to 3.7% yield shown by assessee firm's sister concern Rajmal Lakhichand Jewellers Pvt Ltd. Accordingly, ground nos. 4, 5 and 6 are rejected and addition of Rs. 1,06,90,398/- is confirmed." 24. We find an identical issue had come up before the Tribunal in assessee's own case for assessment year 2017-18 and the Tribunal dismissed the appeal filed by the Revenue vide ITA No.62/PUN/2023, order dated 14.03.2023 by observing as under: "4. At the outset of hearing, ld. Authorised Representative(ld.AR) of the assessee submitted that this issue is already covered by the decision ITAT Pune Bench in assessee's own case f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period April 2008 to March 2009. We also find that AO has made break up for two periods i.e. 01.04.2008 and 28.11.2008 to 31.03.2009. How the period can be bifurcated for working out the yearly average is not known. We also find force in the contention of the Ld. Counsel for the assessee that when old ornaments are purchased from the third parties, the purity of the gold is determined by using Kasuati which is one stone. There is no other scientific method whereby it can be concluded that the gain estimated at the time of purchased of the old ornament (MOD) was perfect. Moreover, the assessee is consistently following the particular method and that method has never been questioned by the revenue. In our opinion, there is no justification to support the addition made by the AO and confirmed by the Ld. CIT(A) in respect of alleged suppression of the melting gain. We accordingly delete the said addition. In the result, respective grounds taken by the assessee are allowed. Respectfully following the decision of Hon'ble ITAT Pune, wherein the facts of the case are squarely applicable in the case of the appellant, Therefore, I am of the considered view that the A.O. is not justifie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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