2020 (10) TMI 39 - HC - Income Tax

Revenue's Appeals Dismissed; Assessee Prevails on Substantial Questions of Law. Closure of Connected Petitions.

The High Court dismissed the Revenue's appeals, ruling in favor of the assessee on substantial questions of law 1 to 3. The Court found no substantial ... Suppression of income - Lower rates for cash sales as against 'sales to jewellers'- HELD THAT:- Tribunal took note of the statement given by one of the employees and the assessee and has extracted the relevant portion of the statement. Noting that the deponent did not make any allegation that they were selling bullions in cash at lower rates and it was done for suppression of income, the Tribunal took note of the assessee's stand that the trade information and data will not be shared with all employees, as they follow 'need to know principle' and only such information which was required to be shared within employees will be made known to the concerned employee. Tribunal noted that the soft copy of the books of accounts found at the time of search was not a parallel set of account but only regular accounts maintained by the assessee based on which it was filing their returns. With the above factual finding, the Tribunal concurred with the CIT(A) correctly .- Decided in favour of the assessee Disallowance of interest - AO disallowed the interest alleging diversion of interest free loans at 12% given to various persons - HELD THAT:- CIT(A) found that the assessee had substantial capital built over various years and was also having substantial interest free advances and there was nothing on record to show that any interest bearing funds were diverted for giving any interest free loans or for making any investments. The finding rendered by the CIT(A) was decided for its correctness and the Tribunal confirmed the same after taking note of the observations made by the CIT(A), who had analyzed the total investments and interest free advances given for the assessment years 2006-07 to 2012-13 as well as the total of interest free advances received by the assessee for all the assessment years and confirmed the finding.- Decided in favour of the assessee Income arising to the assessee on account of the credit and debit notes issued by M/s.MMTC Ltd. - HELD THAT:- Tribunal, in it's considered view rightly deferred the proceedings under the Act to be commenced after the conclusion of the Arbitral proceedings, considering the nature of dispute between the assessee and M/s.MMTC Ltd.,. We find that the order passed by the Tribunal meets the ends of justice and safeguards the interest of Revenue and no cause has arisen to invoke the powers under Section 150 of the Act.- Decided in favour of the assessee Unexplained credit - non filing of confirmation letter from Smt.Pista Bai called for under Section 142(1) - HELD THAT:- Tribunal also verified the facts and noted that the transaction amounts received from Smt.Pista Bai were repayment of earlier advances of ₹ 30,00,000/- given by the assessee, when the business was run as a Proprietorship concern and the latter transactions were reflected in the accounts of the Proprietorship concern. Thus it was held to be only a repayment of debt by a Debtor. Once the business was taken over by the assessee Company, any repayment of debt by a Debtor will not create a further credit, it will square off the debit. Therefore, the Tribunal found that there was no reason for interfering with the order passed by the CIT(A).- No substantial question of law. Issues Involved:1. Justification of quoting lower rates for cash sales versus sales to jewelers.2. Disallowance of interest where the assessee had sufficient own funds.3. Additions based on credit notes raised by M/s.MMTC Ltd. pending arbitration.4. Treatment of repayment of debt by a debtor as fresh credit.Detailed Analysis:1. Justification of Quoting Lower Rates for Cash Sales:The Tribunal examined whether the assessee quoting lower rates for cash sales as against sales to jewelers was justified. The assessee argued that cash sales resulted in immediate realization of money, justifying slightly lower rates. The Tribunal noted the absence of incriminating material found during the search and that the books relied upon were the same as those produced during the original assessment. It was also observed that the soft copy of the books found was not a parallel set but regular accounts. The Tribunal concurred with the CIT(A) that there was no suppression of income and upheld the decision favoring the assessee.2. Disallowance of Interest:The Assessing Officer disallowed interest alleging diversion of interest-free loans at 12%. The assessee contended that the business had substantial capital and interest-free advances, and no interest-bearing funds were diverted. The CIT(A) found that the assessee had sufficient own funds and confirmed that no interest-bearing funds were diverted for interest-free loans. The Tribunal upheld this finding, noting that the CIT(A) had thoroughly analyzed the investments and advances for the relevant assessment years.3. Additions Based on Credit Notes Pending Arbitration:The Assessing Officer added income based on credit notes issued by M/s.MMTC Ltd., ignoring debit notes. The CIT(A) directed the Assessing Officer to set off liabilities from debit notes against income from credit notes. The Tribunal noted ongoing arbitration proceedings between the assessee and M/s.MMTC Ltd., and held that the outcome of these proceedings would impact the reconciliation differences. The Tribunal deferred the addition until the arbitration reached finality, allowing the Revenue to take cognizance of the Arbitral Award in the relevant year.4. Treatment of Repayment of Debt as Fresh Credit:The Assessing Officer added Rs. 30,00,000 as unexplained credit due to non-filing of a confirmation letter from Smt.Pista Bai. The CIT(A) and the Tribunal found that this amount was a repayment of earlier advances given by the assessee when the business was a proprietorship. The Tribunal confirmed that the repayment of debt by a debtor does not create a fresh credit but squares off the debt. The Tribunal upheld the CIT(A)'s decision, finding no reason for the addition.Conclusion:The High Court dismissed the Revenue's appeals, answering Substantial Questions of Law nos. 1 to 3 against the Revenue and in favor of the assessee. It found no Substantial Question of Law arising for consideration on the fourth issue. Consequently, the connected miscellaneous petitions were also closed.