2021 (4) TMI 475 - AT - Income Tax

Tribunal grants relief on appeal, overturns some disallowances, considers business nature & expenses.

M/s Sunrise Jewellers Versus ITO Rayagada Ward, Rayagada

The Tribunal partly allowed the appeal, providing relief on several grounds while upholding some of the AO's disallowances. The decisions were made ... Adhoc Disallowance of expenses - AO disallowed the lumpsum of the total expenditure claimed - HELD THAT:- The contention of the ld. AR is not acceptable that the adhoc disallowance cannot be made. During the course of assessment proceedings the AO specifically asked to the assessee for production of the evidence/bills and vouchers but the assessee did not produce any vouchers. He has rightly confirmed 10% of the total expenditure. The AO was unable to verify the actual expenses incurred by the assessee with proper supporting vouchers. Therefore, the ground raised by the assessee is rejected. Ld. AR referred to the decision of the CIT(A) in case of Kumar Sunrise Jewellers, we are also not binding on the decision of the CIT(A), therefore, this ground is dismissed. 10. In respect of ground No.1(ii), the AO has added to the total expenditure on carriage inwards of ₹ 2,64,014/- for want of supporting documents. As the assessee purchases valuable articles from outside also, therefore, safety is necessary and there must be incurred some expenses towards carriage inwards. The total purchase of gold is ₹ 98,31,994/- and silver purchased is ₹ 24,30,000/-. Considering the facts of the case and looking to the nature of business of the assessee, we restrict the disallowance made by the AO and confirmed by the CIT(A) to the extent of 50% of ₹ 2,64,014/-. Thus, the assessee gets relief of ₹ 1,32,007/-. This ground is partly allowed. Addition of capital introduce by the partners - HELD THAT:- Issue decided in favour of assessee as relying on METACHEM INDUSTRIES [1999 (9) TMI 21 - MADHYA PRADESH HIGH COURT] as held whether that person is an income-tax payer or not or from where he has brought this money is not the responsibility of the firm. The moment the firm gives a satisfactory explanation and produces the person who has deposited the amount, then the burden of the firm is discharged and in that case that credit entry cannot be treated to be the income of the firm for the purposes of income-tax. It is open to the Assessing Officer to take appropriate action under Section 69 of the Act, against the person who has not been able to explain the investment. In the present case, there is the concurrent finding of both the Commissioner of Income-tax (Appeals) as well as of the Tribunal that the firm has satisfactorily explained the aforesaid entries. Discrepancies found in the stocks of gold & silver on the date of survey i.e. on 04.04.2012 just after closure of the dates of the financial year - survey team has pointed out some discrepancy in physical stocks taken by them to which the assessee had stated before them that he will reconcile the issue - HELD THAT:- During the course of hearing ld. AR of the assessee has also accepted that there is excess/shortage of stocks. In the case of gold and silver he conceded that there is an excess stock found of 34.16gms and in case of silver 33,932.71 gms, respectively. He also conceded that the net profit rate should be added instead of entire value of the excess/shortage of the stocks. In this regard, he has also relied on the judgment as cited in his written submissions. However, we are not in agreement with the submission of the ld. AR regarding the profit element as offered by the ld. AR of the assessee. The shortage found of silver of 33,932.71 gms are conceded by the ld. AR on behalf of the assessee, therefore,, the entire value of the silver is to be added into the total income of the assessee, which has not been recorded properly in the books of accounts of the assessee. Further in respect of excess of 34.16 gms which are found excess is investments and the value of this is also to be added into the total income of the assessee. In this regard, the case law relied on by the ld. AR of the assessee is not applicable in the present case. Therefore, this ground of appeal of the assessee is partly allowed. Addition u/s.40A(3) - AO has disallowed that the assessee has violated the provisions of Section 40A(3) of the Act regarding purchase of gold and silver - HELD THAT:- On careful consideration of the details submitted by the ld. AR of the assessee that the assessee has purchased gold and silver through staff at villages, on Sunday/bank holidays, exchange value of old gold and silver and petty purchases, no doubt the assessee has violated the provisions of Section 40A(3) of the Act but there are some instances under which the assessee may get relief as per sub-rule (k) of Rule 6DD of I.T.Rules, 1962. No doubt that the AO has accepted that the purchases have been made by the assessee and the payments have also been made by the assessee to the sellers. We found substance on the submissions made by the ld. AR of the assessee in his written submissions which has been quoted in the above paras. In the written synopsis the ld. AR has relied on the judgment of Hon’ble Rajasthan High Court in the case of Harshila Chordia [2006 (11) TMI 117 - RAJASTHAN HIGH COURT] and Fakri Automobiles[1985 (7) TMI 36 - RAJASTHAN HIGH COURT]. The decision of Hon’ble Gujarat High Court in the case of Anupam Tele Services [2014 (2) TMI 30 - GUJARAT HIGH COURT] are squarely applicable in the present case in hand, therefore, relying the above judgments of the Hon’ble High Courts, we allow this ground of appeal of the assessee. Addition of sundry creditors - assessee has submitted in his written submissions that the sundry creditors appearing in the balance sheet are relating to previous assessment years and not any fresh creditors have been created and the AO has also noticed that the assessee is making payment in cash - HELD THAT:- Considering this view if the creditors are relate to the previous assessment years and no fresh creditors have been created, the addition cannot be made in impugned assessment year - As relying on LYCOS INDIA LIMITED VERSUS ITO, WARD-1 (1) , BHUBANESWAR [2020 (9) TMI 192 - ITAT CUTTACK] we delete the addition made by the AO and allow this ground of appeal of the assessee. Issues Involved:1. Expenses disallowed at Rs. 1,19,848/-2. Disallowance of carriage inwards at Rs. 2,64,014/-3. Capital introduced by the partners disallowed U/s. 68 of the I.T. Act at Rs. 12,30,000/-4. Addition of Rs. 59,95,483/- on the ground of discrepancies in stocks found in course of survey5. Cash purchase of gold at Rs. 66,96,965/- disallowed U/S.40-A (3) of the I.T. Act6. Sundry creditor at Rs. 9,56,250/- added as unexplainedDetailed Analysis:1. Expenses disallowed at Rs. 1,19,848/-The AO disallowed 10% of the total expenses claimed by the assessee, totaling Rs. 1,19,848/-, due to the lack of supporting bills and vouchers. The assessee argued that the disallowance was made on an ad hoc basis without specifying which vouchers were unverifiable. The Tribunal upheld the AO's decision, stating that the assessee failed to produce the required evidence during the assessment proceedings, thus justifying the 10% disallowance.2. Disallowance of carriage inwards at Rs. 2,64,014/-The AO disallowed the entire amount of Rs. 2,64,014/- claimed towards carriage inwards due to insufficient supporting documents. The Tribunal, considering the nature of the business and the necessity of such expenses, restricted the disallowance to 50% of the claimed amount, providing relief of Rs. 1,32,007/- to the assessee.3. Capital introduced by the partners disallowed U/s. 68 of the I.T. Act at Rs. 12,30,000/-The AO disallowed the capital introduced by the partners, totaling Rs. 12,30,000/-, under Section 68, questioning the source of the funds. The Tribunal referred to the decision in CIT Vs. Metachem Industries, 245 ITR 160 (MPHC), which held that once the firm satisfactorily explains and produces the person who deposited the amount, the burden shifts away from the firm. The Tribunal allowed this ground, providing relief of Rs. 12,30,000/- to the assessee.4. Addition of Rs. 59,95,483/- on the ground of discrepancies in stocks found in course of surveyThe AO added Rs. 59,95,483/- to the total income due to discrepancies in the stock of gold and silver found during the survey. The Tribunal noted that the closing stock as on 31.03.2012 was accepted by the revenue authorities and should be considered as the opening stock for the financial year 2012-2013. The Tribunal found that the excess stock of gold (34.16 gms) and shortage of silver (33,932.71 gms) were not reconciled by the assessee. Consequently, the Tribunal upheld the addition of the entire value of the silver shortage and the value of the excess gold stock.5. Cash purchase of gold at Rs. 66,96,965/- disallowed U/S.40-A (3) of the I.T. ActThe AO disallowed Rs. 66,96,965/- under Section 40A(3) for cash purchases of gold and silver exceeding Rs. 20,000/-. The Tribunal found substance in the assessee's argument that some purchases were made through staff in villages, on Sundays/bank holidays, and as exchange transactions, which are covered under Rule 6DD(k). Referring to the judgments in Harshila Chordia and Anupam Tele Services, the Tribunal allowed this ground, providing relief to the assessee.6. Sundry creditor at Rs. 9,56,250/- added as unexplainedThe AO added Rs. 9,56,250/- as unexplained sundry creditors, noting that the assessee failed to provide complete details. The Tribunal observed that the sundry creditors related to previous assessment years and no fresh creditors were created in the current year. Citing the decision in Lycos India Limited, ITA No.02/CTK/2018, the Tribunal held that the opening balances from previous years cannot be treated as unexplained cash credits in the current year. Thus, the Tribunal deleted the addition, providing relief to the assessee.Conclusion:The Tribunal partly allowed the appeal, providing relief on several grounds while upholding some of the AO's disallowances. The decisions were made considering the nature of the business, the necessity of expenses, and relevant judicial precedents.