2017 (1) TMI 1443 - AT - Income Tax

Tribunal upholds CIT(A)'s decision, dismisses revenue's appeals. Proper records and explanations led to deletion of additions.

ACIT, Circle-III, Ludhiana Versus Radhe Sham Jain Diamond Jewellers (P) Ltd.

The Tribunal dismissed the revenue's appeals for both assessment years, upholding the CIT(A)'s decisions to delete additions made by the AO. The Tribunal ... Addition on account of disallowance of jewellery making charges of the equal amount - Held that:- This addition is made by the AO without calling for the explanation of the assessee. CIT(Appeals) on proper appreciation of the facts and material on record, correctly observed that there is no specific requirement to mention the jewellery making charges in the sale bills so as to ensure that same are considered allowable or considered as genuine expenses. The assessee maintained proper records and satisfied the CIT(Appeals) that this addition is wholly unwarranted. CIT(Appeals) also did not approve rejection of the books of account under section 145(3). The assessee has maintained proper records and movement of the stock and TDS has been deducted on jewellery making charges wherever applicable. Therefore, the disallowance made by the Assessing Officer was highly unjustified which have been correctly deleted by the ld. CIT(Appeals). This ground of appeal of the revenue has no merit. Addition made merely on account of low GP rate - Held that:- Addition is made merely on account of low GP rate. However, the ld. CIT(Appeals) did not justify the rejection of the books of account under section 145(3) of the Income Tax Act on which no specific ground have been raised by the revenue. In preceding assessment year 2008-09, on the basis of same method of accounting, the Assessing Officer accepted the GP rate disclosed by the assessee, therefore, Assessing Officer should follow rule of consistency and on the same method of accounting, merely on low GP rate, such addition should not be made. Since the assessee maintained the books of account on the same accounting method as of the preceding assessment year as well as in assessment year under appeal, therefore, there was no basis for making the addition against the addition particularly when no specific defects have been pointed out in maintenance of the books of account and that ld. CIT(Appeals) did not approve rejection of the books of account. In these circumstances, we do not find any infirmity in the order of the ld. CIT(Appeals) in deleting the addition. This ground of appeal of the revenue is also dismissed. Addition u/s 68 - Held that:- CIT(Appeals) on going through the report of DDIT (Investigation) Kolkata noted that facts have been verified by the Assessing Officer and no adverse inference was drawn in consultation with DIT (Investigation) Ludhiana. The report of the Assessing Officer as highlighted in the appellate order shows that after elaborate inquiries conducted by Investigation Wing at Kolkata, the identity, creditworthiness and genuineness of various share application companies could not be said to be doubtful so much so that no adverse inference from the same could be drawn. The ld. CIT(Appeals), therefore, noted that under these circumstances, the Assessing Officer had not mentioned the detailed proceedings in the assessment order therefore, nothing was found adverse against the assessee to show whether it was accommodation entry. The ld. CIT(Appeals), therefore, noted that there is no adverse material available against the assessee on record so as to make the addition. The ld. CIT(Appeals) relied upon several decisions in his findings in order to come to the finding that addition is wholly unjustified. The ld. CIT(Appeals), considering the totality of the facts and circumstances and report of DDIT (Investigation) Kolkata, deleted the entire addition. Genuineness of the investment in capital of assessee company - Held that:- As during the course of search, no adverse material was found against the assessee of receiving any accommodation entry. Therefore, when no adverse material was found against the assessee, where is the question for ld. CIT(Appeals) to correct the error in the assessment order. The ld. CIT(Appeals) has corrected the error in the assessment order by deleting the addition because Assessing Officer has not mentioned the details of investigation conducted by him through Investigation Wing at Kolkata in assessment order without any justification. The ld. CIT(Appeals) rightly considered the entire material for the purpose of deleting the addition. Why the Kolkata parties have made investment in the assessee company is not relevant because these parties have confirmed in making investment in assessee company by producing sufficient evidence before Investigation Wing, Kolkata. Decisions relied upon by ld. DR are, therefore, not applicable to the facts of the case. In this view of the matter, we do not subscribe to the view of ld. DR that matter may be remanded to the ld. CIT(Appeals) for further investigation and determination of the issue. We, therefore, do not find any merit in the departmental appeal on this issue. Ground Nos. of the appeal of the revenue dismissed. List of Issues:1. Deletion of addition on account of disallowance of jewelry making charges.2. Deletion of addition on account of disallowance of repair charges on old jewelry.3. Deletion of addition on account of unexplained share premium.Issue-wise Detailed Analysis:Issue No. 1: Deletion of Addition on Account of Disallowance of Jewelry Making ChargesThe revenue challenged the deletion of the addition of Rs. 17,68,793/- for the assessment year 2008-09 and Rs. 58,09,670/- for the assessment year 2009-10, which was made by the Assessing Officer (AO) on the grounds that jewelry making charges were not separately mentioned in the sales bills. The AO argued that a prudent businessman would not omit to receive charges incurred. However, the assessee maintained that these charges were part of the trading account and were correctly recorded in the Issue & Receipt Register. The CIT(A) observed that the trading account, including the jewelry making charges, was accepted by the AO, and there was no specific requirement to mention these charges separately in the sale bills. The CIT(A) also noted that the AO had not brought any adverse material against the assessee to justify the addition. The Tribunal upheld the CIT(A)'s decision, noting that the AO had made the addition without calling for an explanation from the assessee and that the assessee had maintained proper records, including TDS deductions where applicable. Consequently, the Tribunal dismissed the revenue's appeal on this ground for both assessment years.Issue No. 2: Deletion of Addition on Account of Disallowance of Repair Charges on Old JewelryFor the assessment year 2008-09, the revenue challenged the deletion of the addition of Rs. 14,790/- and for the assessment year 2009-10, the addition of Rs. 98,436/-. The AO disallowed these repair charges as they were not mentioned in the sales bills. The assessee explained that the repair charges were net amounts paid for repairing old jewelry and were recorded in the books. The CIT(A) found that this disallowance was similar to the jewelry making charges issue and deleted the addition. The Tribunal agreed with the CIT(A), noting that the assessee had provided a specific explanation and maintained proper records. The AO did not point out any specific defects in the maintenance of the books. Therefore, the Tribunal dismissed the revenue's appeal on this ground for both assessment years.Issue No. 3: Deletion of Addition on Account of Unexplained Share PremiumThe revenue challenged the deletion of additions of Rs. 11,17,80,000/- and Rs. 1 lac for the assessment year 2008-09, and Rs. 6,37,20,000/- and Rs. 4,50,000/- for the assessment year 2009-10, made by the AO on account of unexplained share premium. The AO argued that the share premium was a colorable device to introduce unaccounted income, citing reasons such as the new incorporation of the company, investments from Kolkata-based companies with no past association, and the sale of shares at a loss. The assessee countered that the share premium was justified due to the takeover of a running business with substantial market value. The CIT(A) found that detailed inquiries had been conducted, including verification by the DDIT (Investigation) Kolkata, which confirmed the genuineness of the transactions. The CIT(A) noted that no adverse material was found during the search, and the AO had not mentioned the detailed inquiries in the assessment order. The Tribunal upheld the CIT(A)'s decision, rejecting the revenue's request to admit additional evidence, as it was not relevant to the matter in issue. The Tribunal emphasized that the initial burden of proving the genuineness of the share application money was discharged by the assessee, and the revenue failed to show that the investments emanated from the assessee's coffers. Consequently, the Tribunal dismissed the revenue's appeal on this ground for both assessment years.Conclusion:The Tribunal dismissed the revenue's appeals on all grounds for both assessment years, upholding the CIT(A)'s decisions to delete the additions made by the AO. The Tribunal found that the assessee had maintained proper records, provided satisfactory explanations, and that the AO had not brought any adverse material to justify the additions.