TaxTMI 
TaxTMI 
2014 (7) TMI 853
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....2013. Considering the large number of grounds in the appeals of both the parties and the voluminous paper books and the requirement of material facts, the case was adjourned at the request of both the parties and heard on 2nd, 3rd, 10th, 30th and 31st of December, 2013 and 4th, 6th, 11th & 14th of February, 2014. The case is finally heard on 19th February, 2014. 3. Grounds Dismissed as not pressed, general or repetitive: As seen from the Grounds of Appeal, Assessee raised 19 grounds in this case. Ld Counsel brought our attention to the grounds nos. 1, 2, 10, 13 to 16 were not pressed. Accordingly, after considering the views of the Ld DR, the said grounds are dismissed as not pressed. Grounds No.17 and 18 are either general or repetitive in nature. Accordingly, the said grounds are dismissed as general or repetitive. 4. The rest of grounds relevant for adjudication are extracted as under: "3. The Ld CIT (A) erred in confirming the disallowance of claim for exemption of income of Rs. 6,42,90,319/- u/s 10A of the Act. 4.1. The Ld CIT (A) erred in not adjudicating on the issue of reduction of eligible income u/s 10A by a sum of Rs. 3,1....
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....of the Special Auditors. AO determined the assessed income at Rs. 230,53,59,040/-. The details of the additions as given in vide page 62 & 63 the assessment order dated 17.8.2012 are as under: Particulars Amount (in Rs.) Amount (in Rs.) Total income as per return 59276713/- Add - Disallowance of claim u/s 10A as discussed at para 1 64290319/- Undervaluation of stock transferred from DTA to SEZ, Surat as discussed at para 2 (31271400)* Unexplained Expenditure u/s 69C as discussed at para 3 42356727/- Transfer into cash book of Ahmedabad Branch not explained at para 3 23300333/- Unexplained cash credit as discussed in para 4 1412475896/- Sale receipts of unaccounted stock as discussed at para 5 94368687/- Commission for receiving buyer's credit / client introduction as discussed at para 6 12875553/- Loss in Diamond trade as discussed at para 7 497346618/- Personal expenses as discussed at para 8 443216/- Prior period expenses as discussed at para 9 187555/- Disallowance u/s 40(a)(ia) as discusse....
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....o. 03133492 and other Meter No.1286982, Surat SEZ does not indicate the consumption of electricity for the manufacturing purposes. The units consumed in the months of September and October, 2008 are much lower than the units consumed in the months of May and June of 2008; (iv) out of the production of 310 kgs of gold medallions, there is no conclusive evidence about the labour charges done by M/s. S.L. Industries to the extent of 110 kgs of gold medallions. Evidence is available only to the extent of production of 201 kgs of gold bars. During the assessment proceedings, Assessing Officer called for explanation of the assessee vide notice dated 19.7.2008. In response, assessee replied and the details are available in page 4 and 5 of the assessment order. It is the claim of the assessee that the electricity consumption is more in those months (September and October, 2008) due to excess use of Air Conditioners (ACs). On the issue of FIFO method applicability in terms of valuation, the assessee admitted to explain that the date of purchase order was considered for the valuation purposes and not the date of issue. On the issue of discrepancy of labour charges invoiced, assessee mentione....
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.... gms. As per the stock available on that date, the under valuation worked out to Rs. 3,12,71,400/-. To this extent, the profits are inflated. This amount represents the difference between the "value of inward stock of gold bars into the SEZ units as shown by the assessee and the actual value of the stock determined on FIFO basis". This amount of Rs. 3,12,71,400/- is confirmed without prejudice to the denial of deduction u/s 10A of the Act. Aggrieved with the above, the assessee raised the above grounds before the Tribunal. 10. During the proceedings before us, Shri Chetan A Karia, Ld Counsel for the assessee explained the above relevant facts of the issue and reiterated the contentions made before the lower authorities. Ld Counsel was critical of the discrepancies remarked by the special auditors. He repeatedly mentioned about the fact of assessee's efforts in physical demonstration before the special auditors of the company's ability to manufacture the said amount of gold medallions in two days time with the minimum use of electricity. He also described that the process of making medallions is a simple process involving consumption of minimum units of electricity. He he....
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....t. In this regard, prominent issues for adjudication are the assessee's ability to earn the Exempt income of Rs. 6.43 cr with manufacturing activity of two days at SEZ, Surat, discrepancy with regard to consumption of minimum units of electricity and non claiming of labour charges involving M/s. S.L. Industries to the extent of 110 kgs of gold medallions. So far as electricity consumption is concerned, it is the claim of the assessee that for use of plant and machinery worth Rs. 16.14 lakhs, around 65.60 units @ 8.2 units per 8 hrs, is enough. The books of accounts supports the same in favour of the claim of the assessee and the consumption is only around 130 units, which is reported in the electricity meters. All other discussions on this issue is debatable and the same is inconclusive. It is a fact that the total units consumed in those two months of September, 2008 (943 units) and October, 2008 (870 units) explains the consumption of electricity in those two months. Therefore, this discrepancy in electricity consumption is inconclusive and it cannot be stated that the machinery was not put to use. It is not the case of the Revenue that the process of making gold medallions i....
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....n the books of accounts and the rate applicable on the dates of transfer, as fairly admitted by the ld Counsel before us, we are of the opinion that the FIFO method has to be applied. Accordingly, the profits for the under valuation of Rs. 3,12,71,400/- is required to be disallowed. In this regard, the findings of the CIT (A) given in para 15 of the impugned order are relevant which read as under: "15. I have carefully examined the facts of the case, the stand taken by the AO in the assessment order, the grounds of appeal and the written submissions filed by the appellant during the appellate proceedings. The Assessing Officer's contention that even if the claim of the appellant regarding deduction u/s 10A is accepted the same has to be reduced by an amount of difference of Rs. 3,12,71,400 ( i.e., the difference between the value of the inward stock of gold bars into the SEZ unit as shown by the appellant and the actual value of the stock determined on FIFO basis) is not adjudicated upon since the exemption claimed u/s 10A has been denied to the appellant and this ground has never been raised as one of the grounds of appeal by the appellant though while ma....
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....#39;s appeal and ground 1 of the revenue's appeal are adjudicated here for the sake of convenience. It is the submissions of the assessee that the payments towards Customs duty at SEZ, Gandhidham need to be paid in cash only. For this purpose, the assessee transferred cash from the branches from Coimbatore, Chennai, Mumbai etc. This issue was subject matter before the Special Auditors too. 17. Relevant facts in this are that during the year, the assessee purchased plastic from M/s. Lucky Star International Pvt. Ltd, M/s. vazir Polymers and M/s. Shreeji Polymers located at SEZ at Kandla. In this connection, assessee was under obligation to make the payment of Customs Duty on the said purchases and made the cash payment of Rs. 4,23,56,727/- in toto towards the Customs Duty. Undisputedly, assessee does not have an establishment or a bank account with SBI at Kandla. It is the claim of the assessee that the requisite cash was transported physically from various branches at TN and Maharashtra to Ahmadabad and finally to Kandla by road. While the cash of Rs. 2.33 cr is transported from outside Gujarath and the balance was transported from Ahmedabad. On examination of the books of a....
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.... It includes the above sum of Rs. 2.33 cr. rest of the cash was transported from Ahmedabad out of the cash balances of the Branch office there. Without prejudice, AO also invoked the provisions of section 68 of the Act in respect of the above discussed sum of Rs. 2.33 Crs, the money transported from out stations to Ahmadabad. The breakup shows that while Rs. 13 lakhs and Rs. 35 lakhs were transported from Coimbatore and Chennai respectively, the balance was transported from Mumbai in "0" days ie the same day. Matter travelled to the first appellate authority. 20. During the proceedings before the first appellate authority, assessee made various contentions which are reproduced in para 17 of the impugned order. Eventually, CIT (A) granted relief in respect of addition of Rs. 4,23,56,727/-. However, he confirmed the addition of Rs. 2.33 Crs made u/s 68 of the Act. Para 18 and 20 of the impugned order are relevant here and for the sake of completeness of this order, the same are reproduced here under: "18. I have carefully examined the facts of the case, the stand taken by the AO in the assessment order, the grounds of appeal and the written submissions filed ....
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.... credited in the boos of account of the assessee and it is immaterial as to whether the amount so credited is given the colour of a loan or a sum representing sale proceeds or even receipt of share application money. Since, the appellant failed to explain the credits to the satisfaction of the AO it is hereby held that the addition made u/s 68 of the IT Act of Rs. 2.33 Crs is valid and accordingly the addition is upheld." 21. Aggrieved with the above deletion of addition of Rs. 4,23,56,727/-, Revenue is in appeal vide ground 1. On the contrary, aggrieved with the confirming of addition of Rs. 2.33 Crs, the assessee is in appeal vide ground no.5 of the assessee's appeal. 22. In connection with the confirming of the addition of Rs. 2.33 Crs, the amount claimed to have been received from the branches at Coimbatore, Chennai and Mumbai, Ld Counsel submitted that the assessee has 6 branches and all the branches deal in bullion. They have substantial cash on hand reflected in the books of accounts which is earned out of sales proceeds. As per the assessee, the books of accounts of all branches also are maintained in software at HO. Of course, branches maintain their books in phy....
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....how the entire transaction is a colourable device effected by the assessee company to accommodate its unaccounted income. The assessee company has filed to explain the nature and source of the cash expenditure on payment of custom duty to the tune of Rs. 4,23,56,727/- and the addition u/s 69C is justified." It is the argument of the revenue that when the assessee claims that the source of cash paid towards the Customs Duty for getting the customs clearance, is the cash generated and then transported by the branches of the assessee, the onus is on the assessee to demonstrate the claims. Without going into the merits of the cash balances and the actual payments to the Customs Department, the DR reasoned that, for the cash of this magnitude to reach the SEZ at Kandla, obviously, there are many logistical barriers that the assessee needs to cross and supply evidences and the assessee failed to demonstrate the same. The said evidences include: who carried the cash, mode of carriage, which are the vehicles, who is the driver, details of the toll bills of the concerned vehicles etc. Referring to the details filed in PB at pages 512-575/PB 3, Ld DR mentioned that are of general nature a....
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....d at least, if not Kandla. Why the assessee has not opened bank accounts in SBI in Kanda when there is regular banking needs to the assessee? Needless to say further that the assessee does not have appropriate or convincing answers. In so far as the cash transported from Ahmadabad is concerned, the facts are different and it is possible that cash can reach Kanda in a day's time as the distance is around 250 km approximately. Considering the constant checks at the interstate checkposts and complexity of transportation of cash physically, we cannot extend the same concession to the cash transported across the states ie Mumbai-Ahmedabad-Kandla route. Thus, it is not only the distance factor that the assessee failed to explain but also the other logical issues relating to mode and method of transportation of cash physically across the interstate borders. On examination of the facts and the arguments placed before us, we are of the opinion that the order of the CIT (A) is fair and reasonable and it does not call for any interference. Accordingly, ground no.5 of the assessee's appeal and ground no 1 of the Revenue's appeal are dismissed. 25. Ground no.6 relates to the addi....
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....ad issued a questionnaire dated 28.3.2012 to the assessee so as to explain whether any of these parties are related in terms of section 40A(2)(b), confirmations of the above referred parties and instruction, if any, given by the said parties to M/s. Joshi Bullion Gems & Jewelry P. Ltd in response to the same, the assessee has furnished the undertaking from M/s. Joshi Bullion Gems & Jewellery P. Ltd agreeing to make payment on behalf of the said parties except Bonds Gems P. Ltd placed at page no 488 to 489 of Exhibit, the assessee has also submitted that these parties are not related parties and has provided the copy of the assignment deed entered with M/s. Joshi Bullion Gems & Jewelry P. ltd. in respect of payments made on behalf of K.A. Malle Pharmaceuticals P. Ltd. and Space Mercantile Co. P. Ltd placed at page No. 490 to 493 of Exhibit. However, there are no agreements entered between these parties in this regard." 28. During the assessment proceedings, AO issued a show cause notice to the assessee proposing to make addition of Rs. 141.25 crores. However, the assessee replied vide its letter dated 4.8.2008 strongly opposing the move of the AO. It is the contention of the asse....
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....case the said parties did not comply with the payment schedules. Further, it was ascertained that the assessee shall repay the amount to JBGJPL as and when KAMPPL clears their liabilities (of Rs. 27,67,69,687/-) with the assessee. Ideally, the KAMPPL should pay the said arrears to JBGJPL. There was some discussion of assessee filing of suit on KAMPPL. Further, it was submitted that there is no case of cash credits addition u/s 68 of the Act. In this regard, assessee sought from AO an opportunity to cross examine the parties either singly or jointly. AO summed up his inferences in connection with the KAMPPL and they are as under: "1. The party named M/s. K.A. Malle Pharmaceuticals Pvt. Ltd has specifically denied the knowledge and its consent to the said transaction. Also, as on date the reply of M/s. K.A. Malle Pharmaceuticals Pvt. Ltd has already been reproduced above. Also, he has filed the ledger of the assessee in his books of accounts where he is showing the asessee as a creditor with total liability outstanding of Rs. 27,67,69,687/- even as on date. 2. Assessee could not produce any documentary evidence, whatsoever, to establish tha....
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....actions with SMPL. AO denied the request of cross examining the KAMPPL mentioning that it does not serve any purpose and it is not rationale. 31. M/s Bond Gems Pvt. Ltd : Further, in connection with the other third party named Bond Gems Pvt. Ltd (BGPL) and the confirmation filed by the same, AO rejected by giving the following reasons. "a. The office address of both ms/. Joshi Bullion Pvt. Ltd and M/s. Bond Gems Pvt Ltd are exactly the same i.e, suite no.412, 4th Floor, Laxmi Mall, Building No.5, Laxmi Ind Estate, New Link Road, Andheri (W), Mumbai - 400 053 and known to each other. Therefore, the said confirmation in absence of the supporting documents is not found to be reliable. b. The said confirmation is not supported by any communication between M/s. Bond Gems and M/s. Bullion as to the settlement of dues of the former by the latter towards the assessee. c. Said confirmation is not supported by the copy of the accounts showing the necessary adjustments in the books of M/s. Bond Gems Pvt Ltd. d. In case of M/s. Bond Gems Pvt. Ltd even the bilateral agreement between M/s. Joshi Bullion Pv....
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....apse of Mr Desai, AO inferred that the assessee failed to explain the source of payments. Further, AO is also of the opinion that there is no document to support the claim that that the JGBJPL is a guarantor. AO also discussed about the suppliers of the KAMPPL, who categorically stated that he has never authorized JBGJPL to make their payment on their behalf. The absence of the tripartite agreement was also discussed. AO did not believe that the JBGJPL with the turnover of Rs. 193.22 Crs is capable of guarantying for liabilities of others worth Rs. 200 Crs. Further, assessee also relied on the judgment in the case of Ashwani Oberoi vs. CIT [2013] 29 Taxmann.com 224 (P & H) for the proposition that the transaction was not genuine as the amount was received from the account of the third party and held that assessee routed undisclosed income. AO also commented about the assessee's failure to explain the source of deposits and the validity of making addition u/s 68 of the Act. In response to the copy of the remand report made available to the assessee, a letter dated 4.3.2013 was furnished by the asessee contesting each and every issue raised by the Revenue in the remand report. Pa....
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....ngs except an assignment deed between M/s Joshi Bullion Gems and Jewellery Pvt. Ltd. and the appellant. The assignment deed between the appellant and M/s Joshi Bullion Gems and Jewellery Pvt. Ltd. will have evidentiary value only in the event of confirming parties (parties on whose behalf money has been paid) who are signatories to the agreement have accepted such arrangement voluntarily, in other words the said agreement must have been tripartite agreement. The appellant's argument that oral agreement is common in this line of business is not acceptable for the reason that one of the parties to the deal K.M.Malle Pharmaceuticals P. Ltd. denied being part of such kind of agreement. To say an agreement to be a valid one then there has to be a express willingness of two parties to the agreement and if it is merely a proposal of on person to the deal and the other person has no knowledge of the same, then there is nothing which can be called as an agreement between two parties. The alleged oral arrangement for making such huge payment is against the normal conduct of any person or any business. 25.1 The money is paid by cheque through the bank account. The AR....
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....he department. 25.2 During the course of remand proceedings the assessing officer summoned the principle officer of M/s Joshi Bullion & Jewellery Pvt. Ltd. in response to which Shri Jayesh Desai, director of the company appeared and his statement was recorded. The assessing officer further stated that Shri Jayesh Desai undertook to explain the sources for the huge deposits appearing in the bank account and as promised he never appeared later and furnished evidences in support of the genuineness of the deposits in the bank account. The assessing officer also submits that there is a pattern of deposits coming into the account just before the date of making payment. Though the appellant has stated in his submissions reproduced in pare 24.6 above that a copy of the acknowledgement of the return of income for the assessment year 2009-10 has been filed by M/s Joshi Bullion & Jewellery Pvt. Ltd., the independent confirmation obtained from the assessing officer confirms that M/s Joshi Bullion & Jewellery Pvt. Ltd. have not filed the return of income for the assessment year 2009-10 till date. 25.3 The appellant also contended that no opportunity w....
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....C) is engaged in the export of gold jewellery. Explaining the same, Ld Counsel mentioned that the assessee is a supplier of gold jewellery and SMPL, KAMPPL, BGPL and JBGJPL are the purchasers of the same. These purchases sold the goods in the name of the MSTC and exported the same abroad. As per the terms of agreement, MSTC releases 80% of the invoice value to SMPL, KAMPPL, BGPL and JBGJPL on exporting the same and additionally, the balance of 20% would be realized on completion of export activity on realization of export proceeds thereto. However, what seems to have happened is different and these parties namely SMPL, KAMPPL, BGPL and JBGJPL have not only received 80% of the invoice value from MSTC but also 100% of the export proceeds. In fact, these suppliers were enriched 80% of the export value of the gold jewellery. However, the assessee is the sufferer and the said parties have not cleared the arrears to the assessee. CBI is engaged in investigation involving MSTC and many other entities including SMPL, KAMPPL, BGPL and JBGJPL. Being the co-sufferer, the assessee is out of the scam. These are the brief details of the scheme uncovered by the investigative agency and cases are ....
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....additions. It is also a fact that the Assessing Officer denied the request for cross examination of KAMPPL mentioning that it is not required. The absence of business sense is another side of the argument of the Revenue for making addition involving KAMPPL. In this regard, Ld Counsel vehemently argued stating that KAMPPL not only failed to clear the liabilities appearing in the assessee's books of accounts and it is obvious for the assessee to bring pressure on the JBGJPL, who is the guarantor for the sale consideration. JBGJPL is also one of the purchaser of the assessee's goods directed and the connection between the JBGJPL and the rest of the three parties commercially connected to the assessee. In that sense of the matter, there is a commercial sense which is not really appreciated by the Revenue Authorities. Referring to the denial of cross examination of KAMPPL, Ld Counsel mentioned that it is but the principles of natural justice that the statements made by the advisors should be allowed for cross examination. By denying the said opportunity, the assessment proceedings suffer from dents. Regarding the absence of tripartite agreement, Ld Counsel mentioned that the ass....
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....of SMPL and accordingly the pressure was kept on Mr. Jayesh Desai and realized the same by virtue of assignment deed. It is a fact that the SMPL did not recognize the said assignment deed and paid a sum of Rs. 1.72 crs to the assessee instead of JBGJPL in accordance with the provisions of section 130 of the T.P. Act, 1882, which is legally incorrect. (3) BGPL: Regarding Bond Gems Pvt Ltd (BGPL), it is the case of the Revenue that despite the confirmation letters furnished by the said party before the AO, Assessing Officer denied the same and proceeded to make addition illegally, merely stating that the address of BGPL shares is common with that of the JBGJPL. In fact, JBGJPL and BGPL are sister concerns, wherein Mr. Jayesh Desai is the common shareholder. Thus, Ld Counsel summed up by stating that the assessee being seller of the gold jewelry collected its dues from JBGJPL, who is a guarantor and whose identity is established beyond doubt and who has creditworthiness to make the payment of the same. So far as assessee and his transactions with JBGJPL and other three parties are concerned, it is a commercial transaction of trade and realization of the proceeds and it is nothing t....
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....t, confirms the absence of identity of the JBGJPL. As per Mr. Jayesh, the JBGJPL only filed the return of income technically but not validly. On the allegation of business sense, Jayesh explained the rationale of impugned payments and justified the same by relying on the fact of obtaining the FD receipt of Rs. 43 cr from Pen Cooperative Bank Ltd as a security. Answer to Q. no 10 of the statement dated 12.2.2013 is relevant. Referring to the Ld Counsel's argument that all the information explaining the sources of payments and the creditworthiness of the JBGJPL regarding the payment made on behalf of the three parties, Ld DR mentioned that the said details were not fully examined by the AO. He also mentioned that Mr. Jayesh promised to appear but never appeared before the AO. However, there is no dispute on the fact that the requisite information was filed belatedly by Mr. Jayesh. Further, Ld DR mentioned that the oral agreements regarding the guarantee are not to be bonafide. Referring to the invoking of the provisions of section 68 of the Act, Ld DR mentioned that the identity was particularly proved. Creditworthiness and genuineness are not established by the assessee. It is t....
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.... of "actionable claim" and it is not the legal requirement that the debtor should be party to the assignment agreement. The assignee - JBGJPL, being a transferee is protected by the provisions of section 132 of the T.P. Act and he can claim recovery of debts directly from the debtors. In this case, KAMPPL-BGPL, on the KAMPPL-BGPL, on the aspect of the genuineness of transactions, ld Counsel relied on the Delhi High Court judgment in the case of M/s Oyasis Hospitalities Pvt Ltd and the judgment of Hon'ble Supreme Court in the case of Mohan Kala. 43. Decision of the Tribunal: We have heard both the parties and perused the orders of the Revenue Authorities and the paper books filed before us. Flow Chart showing the sales of jewellery/debts - Repayments by JBGJPL 44. The above pictorial representation suggests the transactions of sales by the assessee to four parties namely KAMCPL, SMCPL, BGPL AND JBGJPL. BGPL is the sister concern of the JBGJPL and both are controlled by Jayesh Desai. The said parties needs to pay trade debts to the assessee and figures are mentioned in the picture above. JBGJPL also purchased gold jewellary from the assessee to the tune of Rs. 134,03,14,....
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....en address - notice u/s 131 is returned unserved; (iii). Confirmation letter filed by the Bond Gems P Ltd is not acceptable as this company belongs to JBGJPL sharing the same address belongs to JBGJPL. 47. On the other hand, the case of the assessee is that genuineness of the sales to the said parties is not in dispute and therefore, the outstanding liabilities from them are undisputed. This is for the reason that the assessee made sales much higher than the existing liabilities and paid most of the sale consideration leaving only Rs. 141.25 cr all put gather. It is the contention of the assessee form the beginning before the revenue and us that Sri Jayesh Desai is the main person not only as the guarantor for the impugned sales but also for the defaults in payments if any. Further it is the stand of the assessee that JBGJPL is under obligation to clear the outstanding payments from these parties if he has to be in this line of business, where the jewelers' community is very small and otherwise, well-knitted with one another. If JBGJPL were not to pay the said liabilities, the same would not have been in this jewelery industry due to the factors of credibility, reliability a....
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....an and there is suspicious circumstance attached to the said transaction. Considering the above, it is the case of the assessee that the provisions of section 68 of the Act are invalidly invoked for making addition of Rs. 141.25 cr by the AO and confirmed by the CIT(A). 48. With the divergent stands narrated above, we shall now concise the issues to be addressed here and shall take up the same for adjudication. They are: (i) General objections of the Revenue and (ii) Specific Objections. First, we shall deal with the general objections; namely Business sense and validity of the Consignment agreements. Thus, regarding the Business Sense: Whether there is any business sense in JBGJPL paying outstanding arrears of Rs. 141.25 cr to the assessee on behalf of the said three parties. Regarding the deficiency in the assignment Agreements - Whether the absence of consent by the debtors and the bipartite nature of the assignment agreements involving only the assessee and the JBGJPL, renders them invalid. We shall take these issue in the succeeding paragraphs. 49. Business Sense: JBGJPL is the company in this industry for many years. There is some confusion in the mind of the AO about i....
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.... beneficiaries of the scam money still standing in their books as well as the books of the assessee as its debtors. In such circumstances, in our opinion, it is the prudence of the assessee, to enter into 'assignment agreement' with the JBGJPL, who is the co-accused by the CBI along with Bond Gems P Ltd and two others. On these reasoning, we need to examine if the addition in the hands of the assessee on the ground of the 'business prudence' and invoking of the provisions of section 68 of the Act are justified. We have already held that the assessee is justified in effecting recoveries even from the third parties ie JBGJPL, the co-accused and cobeneficiary in the MSTC's scam. At the same time, from the other angle, if the JPGJPL is justified in entering into 'assignment agreement' or not, in our opinion, needs to examined in the assessment of JBGJPL, which is under scrutiny u/s 147 r w section 143(2) of the Act. As stated in the statement taken on oath from Jayesh Desai, it is his submission, which is not controverted with the evidence by the AO that it is the commercial decision for JBGJPL-Jayesh Desai to make the payment of Rs. 141.25 cr on behalf of t....
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....r to Space, Space has to make payment towards the above-referred bills amounting to a sum of Indian Rs. 111,67,70,622.00 which is outstanding and has become overdue. III. The amount of Rs. 11,67,70,622/- has become over due from space and space has approached the assigned to make the payment to the Assignor on its behalf. Since the Assignee is well known both to assignor and space, it is mutually decided that henceforth the over due amount would be shown as receivable from the Assignor i.e. Joshi Bullion Gems & Jewellery Pvt. Ltd. and Space account would be settled by transferring the o/s amount to Assignor through Journal Entry. IV. That the Assignor has obtained confirmation from Space regarding the outstanding payment which is pending as debt/dues against the supply of the said goods. V. As per the books of account/ledger of the Assignor. The said amount is receivable fro space. VI. That the Assignor hereby agrees to assign the Assignee to collect the outstanding dues from space. &nb....
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.... suits clearly indicates the assignee's total reliance on the said assignment deeds, confirmations, above said correspondence among the asssessee, assignee and the defaulted debtors. As per the civil suit, the defaults debtors approached the JBGJPL to clear the dues to the assessee and narrated the spoiled relationships with the assessee and referred to loss of goodwill, bad image/reputation built up in the Industry about them and, in reply JBGJPL signed the assignment deeds and paid the arrears to the assessee. However, the debtors failed to pay the same to the assignee (page 684 of the PB). Space MCPL confirmed the dues payable to the assignee vide letter dated 31.3.2010 too. Thus, the documents cited above suggest that the existence of the undisputed debts payable by the defaulted debtors on the one side and the undisputed fact of assignment of the actionable claims on the other. Confirmations from all the involved parties are on record. In such circumstances, the AO's decision to reject such valuable evidence and proceed to make addition of the said debts are completely contrary to set procedure of assessment. 52. Legal Provisions upholding the validity of the Ass....
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....d by the assessee-transferor by virtue of the assignment deed to the assignee-JBGJPL, who got the authority to recover the same. The transferee is in the process of recovery and civil suits/legal notices filed or issued by the assignee evidences the same. In such circumstances, the payments made by the JBGJPL to the assessee are legally sustainable and valid. On the facts of this case with legal background brought out by the Ld Counsel for the assessee, we find the argument of the assessee is valid. Therefore, we find no mistake in process of assignment of the actionable rights. As regards, the absence of signature of the witness on the assignment deed, it is pertinent to mention that it is the parties in the assignor and the assignee of the deed to dispute the effectiveness of the deed in the absence of the same being witnessed. Once the obligations undertaken under the deed are duly acted upon by the parties it is not the prerogative of the Revenue to dispute the validity of the deed on the basis that the same is not witnessed. It is needless to further emphasis that transfer of actionable claim does not require the consent of the debtor nor the assignment deed requires the debto....
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.... (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10." 55. The provisions suggests the identity, credit worthiness, genuineness of the transaction and satisfaction of the AO are various ingredients and the assessee is under obligation to demonstrate the same, when a cash credit is found in the books of the assessee. Once the preliminary onus is discharged by the assessee, it is for the AO to rebut the same before making addition under these provisions. As such, these are anti tax-evasion oriented provisions and onus is greatly on the AO. We shall now examine the application of the provisions to the facts of present case. a. Identity of the creditor ie JBGJPL JBGJPL, bearing the PAN AACCJ 0316R, is a company engaged in the business of trading of the precious metal, studded diamond and diamond jewellery. The same is incorporated as compa....
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....the assessee. They have not considered the fact that the assessee was in existence before corporatization. Prior to the same, the assessee existed as Partnership Firm and registered multiple 100's to cr of turnover of sales. Prior to corporatization, the JBGJPL was a partnership firm in the name of Joshi Bullion Gems and Jewellary from AY 2005-06 onwards. In that AY, the firm registered the sales nearly 304 crores. (page 1321 of the PB), 293.40 cr in AY 2006-07 (page no. 1322 of the PB), 436.50 cr in AY 2007-08 (page 1323), 330.41 cr in the AY 2008-09 (page 1324) etc. During the deposition of Sri Desai on 12.2.2013 at 3 pm, in response to the questions on the sources of funds to clear the earlier, it was mentioned that he has credit worthiness and filed number of statements/bank extracts to evidence the ability to pay the sum of Rs. 141.25 cr (page 671 to 675 of the PB). These papers were filed before the AO undisputedly and there were no further enquiries conducted or intended to be conducted by the AO. In that sense, the assessee discharged the onus and the onus of rebutting the same shifted to the revenue. Therefore, the conclusions of the CIT(A) on this limb of section 68 o....
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..... Considering the same, we are of the opinion that the dissatisfaction of the AO is misplaced. e. Sources of the Sources/Origin of the origin We are now dealing with the provisions of section 68 of the Act to the transactions of payments of Rs. 141.25 cr by JBGJPL to the assessee and the entries in the books of accounts of the assessee, the seller of the goods. Creditworthiness of the creditor has already been discussed above. As part of the same, it is one of the arguments of the Ld DR that the sources of the funds of JBGJPL are unexplained. In this regard we have examined both the statement of Sri Jayesh R Desai given on behalf of the JBGJPL and also the documents filed by him (page 671 to 675 of the PB) providing the details of funds flow for the year under consideration. The said documents provide for day-to-day deposits and payment made to the assessee by JBGJPL, as guarantor-turned-assignee, amounting to Rs. 141.25 cr. It is undisputed fact they are filed before the AO/CIT(A) before September 2013, the date of the impugned order. Questions no 13, 23 etc of the statement dt 12.2.13, supra and corresponding answers are relevant here. Per contra, it is the case of the asse....
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....jection relates sharing of the common address of the assignee. 57. In our opinion, these issues do not anyway become relevant once the 'scheme of assignment' is valid legally. We have already held that the bipartite agreement constitutes a valid one considering the provisions of section 130 of the TP Act. Further, the service of notice on M/s Space PPL cannot alone be the ground to come to the inference adverse to the assessee. AO ought to have seen the fact that the debtor has made lots of purchases, exports, banking transactions, investigation and finalizing charge sheet by the CBI on the said debtor etc. Regarding M/s Bond Gems Pvt. Ltd, the AO's objection is not sustainable legally. 58. Therefore, considering the above detailed discussion and analysis, we are of the view that the objections of the AO or CIT(A) are not sustainable. Accordingly, the ground 6 of the assessee's appeal is allowed. 59. Ground no.7 relates to the addition of Rs. 9,43,68,687/- made on account of sale of gold jewellery to K.A. Malle Pharmaceuticals P. Ltd. (KAMPPL). In connection with the transaction, the special auditors commented that the assessee delivered relevant goods on 2....
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.... the sale as on that date, the addition of Rs. 9,43,68,687/- made by the AO is here by upheld." (part of the para 28). Aggrieved with the decision of the CIT (A), assessee is in appeal before Tribunal by raising the above mentioned ground no.7. 60. During the proceedings before us, assessee submitted the copy of the delivery challan dt 24.10.2008 in support of the book entry and also the copy of invoice dt 31.10.2008 and it is noted that the same were furnished to the special auditors too. As such, there are no adverse comments on the bona fides of the said delivery challan and the raising of invoices at later time were justified. Yes, there is some problem with the stock register and the way they are maintained such as corresponding reduction of goods is not reflected. Relying on the page 576 of the paper book no.3, Ld Counsel argued to evidence that the material sold to KAMPPL was received from labour job worker on 24.10.2008. He also relied on the labour charges bill copy, which is placed at 579 to 580 of the PB 3. He also furnished the copy of the security agency delivery note and the copy of invoice dated 31.10.2008. It is the argument of the assessee that the delivery noti....
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....e was available in support of the claim. During the assessment proceedings, Assessing Officer granted opportunity to the assessee to establish the nexus vide its letter 19.7.2012. Assessee furnished reply dated 4.8.2012 along with confirmation letters from third parties. AO did not accept the same mentioning that filing the confirmation without establishing the nexus of the expenses of the business to the assessee, the claim is not allowable. Accordingly, the AO invoked the provisions of section 37 of the Act and made addition of Rs. 1,26,94,987/-. With regard to the commission expenses paid of Rs. 1,80,566/-, incurred for client introduction, assessee submitted that the said amount was paid for clientage in the RSBL Spot i.e., Online trading platform for (i) marketing executive / agents; (ii) brokers for bullion deals and (iii) remissory commission in case of MCX and furnished relevant correspondences. It is the claim of the assessee that this expenditure was incurred wholly and exclusively for the purpose of the assessee's business and therefore, it is an allowable expenditure u/s 37 of the Act. However, AO did not consider the same as a satisfactory explanation and disallowe....
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....e other hand, Ld DR does not have any objection if the matter is remanded to the file of the AO for executing the above statement of the Ld Counsel made at Bar. 67. On hearing both the parties, we find it necessary to remand this issue to the file of the AO. AO is directed to examine all the transactions involving 'buyer credit facility' qua the commission payments to the banks as well as the genuineness of the commission payment of Rs. 1,80,566/- and re-adjudicate the issue afresh after granting a reasonable opportunity of being heard to the assessee. Accordingly, ground no. 8 is allowed for statistical purposes. 68. Ground no. 9 relates to the confirming of disallowance of loss of Rs. 49,73,46,618/- incurred in diamond trade. Relevant facts in this regard are given in para 7 of the assessment order and para 32 of the impugned order. As per the assessment order, it is mentioned that assessee made local purchases of diamonds amounting to Rs. 39.24 Crs for export purpose. Assessee exported the same to M/s. Leo Diamonds LLC for Rs. 40.73 Crs. Assessee earned gross trading profit of Rs. 1,48,66,374/-. Further, assessee also imported diamonds from UAE based 5 parties amou....
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....he business operations. Further, there are always positive figures if "interest earned on the margins in the form of fixed deposits kept with the banks for securing the buyers credit and the interest charges paid on such credit coupled with expenses like Forward Rate agreement and other charges on the borrowed sums are considered". As per the Revenue, it is a pre-determined loss and therefore, it questions the genuine business transaction. The stock register does not indicate the quality and size of the diamonds when examined by the AO. AO also mentioned that one Mr. Visal Jain supposed to be the employee of the assessee, who is aware of the intricacies of these transactions, to represent before the AO and did not turn up on that day scheduled in the notice u/s 131 of the Act. It was duly certified by him. When further enquiries were conducted by the AO, the assessee submitted that he was unaware of the whereabouts of Mr. Vishal Jain as was not in touch with him since 2009. AO further discussed the necessity of lifting of the corporate veil and relied on various decisions in this regard. At the end, AO took objection to the fact of earning trading loss of Rs. 49,73,46,618/- from ex....
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....he study of the transactions reveal that the real intention of the assessee was to earn the interest arbitrage difference in rates of interest. The moment the export sales are received, assessee deposited the same with the bank and earned the bank interest @ 8 to 9%. The same appears to be profitable to the assessee even after payment of guarantee commission and other incidental charges paid to the bank. Using the Fixed Deposits helps the assessee to avail the 'buyers credit facility' with the banks, which is profitable to the assessee. The transaction as a whole involves purchase and export diamonds, advance or immediate realizations of the export realizations, investment in FDs, availing buyer's credit against FDRs, interest rates and commission rates, Forex gains/losses. It is relevant to state that no law is violated by the assessee by these arbitrage transactions and the same is a common practice. It is also relevant to note that the special auditors, on the issue of diamond trading and profit, have found no infirmity in transaction except that there are no purchase orders for purchases. It is further relevant to mention that the special auditors have analyzed arou....
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.... fact that this issue is now settled and the same has to be decided in the light of the judgment of the Calcutta High Court in the case of CIT vs. M/s. S.K. Tikeriwal, ITA No.183 of 2012 dated 3.12.2012. In fact, the said judgment was used in the order of the Tribunal - Mumbai Bench in the case of M/s Highlight Pictures (India) Pvt. Ltd vs. ACIT vide ITA No.5826/M/2011 (AY 2008-2009) dated 30.8.2013 and the issue was decided in favour of the assessee. In any case, CIT(A) granted relief in respect of the rent paid considering the Board's circular. It is the prayer of the assessee that the assessee made short TDS in respect of the other payments applying the provisions of different sections of the Act and in such case, the provisions of section 40(a) (ia) of the Act have no application. 76. We heard the parties and perused the orders of the revenue in general and the above cited judgments in particular. Para 5 & 5.1 of the decision of the Tribunal in the case of Highlight Pictures (supra) are relevant in this regard and the same is reproduced here under: "5. We have considered the issue. Without going into the merits whether the provisions of section 194C....
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....deduction has to be made u/s. 194I or 194J or 194C can be considered/ examined. The ground 1 to 4 and additional ground raised are considered as allowed." 77. In this case, it is undisputed fact that the assessee factually deducted the TDS in principle but deficiency is that it was done on the net payments but not on the gross payments. Thus it is the case of the short deduction. No malafide is demonstrated by the AO. As such, the CIT(A) granted relief to the assessee in respect of the rental payments and not others relying on the Circular of the Board. CIT(A) did not follow the coordinate bench decisions in the case of S R Brothers 29 TM.COM 168 (Mum) and Eggs Survey P Ltd (mum) mentioning that they are distinguishable on facts. In the process, the legal proposition enshrined in those orders are ignored by the CIT(A) and thereby missed the legal point that the making TDS u/s 195 constitutes a vicarious liability. Calcutta High Court in the case of CIT vs. M/s. S.K. Tikeriwal (supra dated 3.12.2012) and the Mumbai Bench decision in the case of m/s Highlight Pictures (India) Pvt. Ltd supra, support the claim of the assessee and in its favour. 78. Considering the above and also....
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.... parties are examined which is placed at page no. 432 to 433 of Exhibit. In this regard, the assessee has explained that the amount received from the said party was utilized for the purpose of creating fixed deposits and the rate of interest paid is below the rate of interest earned and since it has direct nexus to the interest income earned on Fixed Deposit, the interest expenses of Rs. 57,56,233/- is reasonable. The assessee has also not furnished any documentary evidence to substantiate the nexus that any fixed deposit was created with the margin money received from M/s. RSBL Commodities P. Ltd. As against this, we have also observed that in similar case, rate of interest paid to other MCX client i.e. M/s. Venkatesh Associates P. Ltd., who is an unrelated party, is only @ 6% p.a. The auditors has further conducted the issue by noting that the, payment of Rs. 57,56,233/- made to M/s. RSBL Commodities P. Ltd. and Is excessive and unreasonable." 80. From the above, on finding that the special auditors quantified excessive and unreasonable payment made to RSBL of Rs. 57,56,233/-, AO issued show cause notice dated 19.7.2012 and proposed to invoke the provisio....
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.... between the interest earned margin money and the Fixed Deposits kept in the banks. He also discussed the fact that the sister concern, RSBL, offered the same to tax at their end therefore, there is no loss to the Revenue. The CIT (A) distinguished the judgment of the Hon'ble Apex Court in the case of Munjal Sales Corporation reported in 168 TAXMAN 43, wherein the issue is regarding claim of deduction u/s 30 to 38 of the Act and no the case of 40A(2)(b) of the Act. Eventually, he confirmed the addition made by the AO. 83. During the proceedings before us, Ld Counsel narrated the above stated facts and mentioned that the sister concern, RSBL, kept the excess margin money with the assessee and the interest was paid by the assessee to the tune of Rs. 57,56,233/-. He fairly submitted that the assessee received such excess margin money from other customers also. But assessee paid interest only to two parties i.e., M/s. Venkatesh Associates P. Ltd and sister concern RSBL. While M/s. Venkatesh Associates P. Ltd paid the interest @ 4%, the sister concern paid the interest at the rate varying from 6% to 7%. AO disallowed the said interest for want of nexus between the excess margin m....
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....pt as FD in the banks, it is the responsibility of the assessee to demonstrate that the case of M/s. Venkatesh Associates P. Ltd is a different from that of the sister concern. If the excess margin money given by M/s. Venkatesh Associates P. Ltd has also found reentered FD along with the bank, the argument of the Ld Counsel should fail. No relevant facts are brought to our notice, therefore, we cannot comment on this aspect. This is a commonsensical approach that if the excess margin money of both the parties have found the way into the FDs of the banks, the disallowance to the extent of amount exceeding 4% should be considered as excessive and unreasonable. The explanation given by the assessee that the sister concern is a HNI is not to be considered favourable to the assessee considering the provisions of section 40A(2)(b) of the Act, which does not provide for any exemption, as attempted to be made out by the assessee. Therefore, in our opinion, the AO should calculate the excess interest over and above 4% and that should be treated as unreasonable and excessive. Accordingly, ground no.12 raised by the assessee is partly allowed. 86. Ground nos 13 to 16 are not pressed as sta....
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....y the revenue is dismissed. 91. Ground no.2 relates to the disallowance of interest expenses amounting to Rs. 93,19,850/-. This issue was referred to the special auditors. Auditors noted that the assessee received huge interest free loans and advances. Further, assessee claimed the interest expenditure of Rs. 1,50,76,083/-. It is commented by the special auditors that the assessee should have wisely cleared or repaid the interest bearing funds instead of giving interest free loans to the sister concerns. When this issue was put to the assessee vide letter date 19.7.2012, assessee relied vide letter dated 4.8.2012 has accepted the fact that the assessee received interest free loans and advances and has also paid the interest on other loans and advances. In reply, the assessee also mentioned that the assessee is placed with interest free funds of Rs. 38.56 Crs as on 31.3.2009, whereas the interest free loans advanced during the year is 23,36,65,000/- and the interest free loans received during the year above Rs. 2,29,36,08,880/-. By that Ld Counsel argued that the assessee is having excess interest free funds available for giving interest free loans. Therefore, the allegation to e....
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....ss of these transactions and allowabiity of the loss was referred by the revenue to the special auditors. The special Auditors concluded holding the following,- "in respect of direct hedging, it is seen that the assessee has made profits almost equal to that of losses incurred as explained .. and therefore, the intent of the assessee for entering into the said transactions is not clear". In this connection, AO issued show cause notice seeking the explanation of the assessee in matters of the reasonability and business nexus of the losses incurred on forward contracting parties. In reply, the assessee attempted to explain that the assessee had the intention of delivery and however, due to huge volumes, he could not stand by the same. Consequently, both parties of the forward contracts have decided to cancel the contracts and avoid delivery. However, it is the claim of the assessee that these contracts are linked to the business transactions of the assessee and therefore, the loss earned on cancelling the contracts constitutes business loss. AO analysed the meanings of the expressions ie 'forward contracts' and spot contracts and short positions etc. ....
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....k to the total income of the assessee. ..." 95. During the proceedings before the CIT(A), assessee made written submissions and the same is incorporated in para 50 of the impugned order. Eventually, the CIT(A) deleted the addition relying on the judgment in the case of M R Dhawan 119 ITR 412 (Delhi) which deals with the definition of 'speculation'. Contents of para 51 is relevant here and the same is reproduced as under: "51.0 I have carefully examined the facts of the case... under the definition of (speculation), all that has to be found out is whether the contract was periodically or ultimately settled by actual delivery, transfer or otherwise........ If the contract is settled otherwise than by actual delivery, then it will be a speculative transaction notwithstanding that the nature of the commodity was not one lending itself to possibilities of speculation or that the intention of the parties at the time of entering into the contract........ In this case, the assessee officer failed to establish that there is no physical delivery, therefore, holding the hedging transaction with private parties as speculative transaction while accepting the tra....