TaxTMI 
TaxTMI 
TaxTMI 
2016 (12) TMI 1486
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....ng increase in capital was attributable to inheritance of assets which consists of land and building ( original cost Rs. 25,000/- and revalued cost at Rs. 14.5 lakhs) and gold ornament which were pawned and pledged of 27,927 gms received by the assessee from his grand father Shri Khagendra Nath.Nandi was not believed by the ld. AO. The assessee explained before the AO that on 11.07.1997 his grand father Shri Khagendra Nath .Nandi expired leaving behind his assets in favour of the assessee. It was brought to the knowledge of the AO that the late grand father was an income tax returnee and was in the business of money lending and used to lent money on the basis of gold jewellery being pledged before him as a security and when he died there was 27,927.170 gms of gold ornaments which were pledged gold in the money lending business was transferred to the assessee who took over the business of money lending business after the demise of his grand-father. In order to prove that the assessee inherited the business of money- lending from the late grand father, the assessee produced a copy of the notarised affidavit which was sworn by the uncles of the assessee and father of the assessee, in ....
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....efore, on a preponderance of probability, it is almost certain that such accumulated gold did not have any claimant and would constitute forfeited gold. However, it was not proper to treat such forfeiture to be a benefit derived by the lender (Assessee) till 01.04.2006, when finally he took the gold stock as a part of his own capital. In view of the above, I hold that by forfeiting the alleged pawn gold of 27.909 kgs and treating it as a part of his own capital as on 01.04.2006, the assessee has derived the benefit of its ownership which arose from his business and the benefit is clearly convertible money. The value of such benefit as on 01.04.2006, as computed by assessee himself is Rs. 1,52,00,082/- which has to be assessed as assessee's income arising on 01.04.2006 i.e. for the A/Y 2007-08 u/s 28(iv) of the IT Act, 1961. Therefore, this will be added to the income returned by the assesee. " 4. Aggrieved the assessee preferred an appeal before ld.CIT(A) and contended that the entire confusion in respect to the increase in capital was caused due to certain mistakes committed by the auditor because of over-sight and that in the instant assessment year, the assessee deviated from....
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....feited to the pledgee/money lender in this case to the assessee has been found to be on a totally wrong basis both on facts and law. The ld. CIT(A) after discussing the case laws has held that the pledged item can be claimed by the pledgor any time and the pledgee (money lender) has to give back the pledged item after collecting the dues. And in any case if the pledger is not able to retrieve the gold by remitting the amount as agreed upon then the assessee money lender has to give notice to the pledgor about the sale of pawned items and that during the auction the pledgee (money lender) cannot even buy the pledged items. Based on the aforesaid facts the ld. CIT(A) agreed to the explanation given by the assessee that the assessee cannot be termed as the owner of the pawned gold which got transferred to the assessee from his grand father and the same is a contingent liability and cannot be taxed in A.Y.2007-08 and ordered deletion of the addition. 5. We have heard both the parties and perused the records. The whole controversy is that during the assessment proceedings the AO observed that the assessee has shown in his own capital as on 31.03.2007 at Rs. 2,35,09,705/- as against the....
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....gold as on 31.03.1997. This fact according to the ld. CIT(A) has been corroborated by the physical verification carried out by M/s. P.C.Associates, Chartered Accountants regarding the pledged stock of gold jewellery as on 31.03.1997. The ld. CIT(A) also took note of the fact that the assessee got the money lending licence on 21.11.1997 and the ld. CIT(A) has gone through the stock register of the pledged and released items from 1997 onwards and found that it contained the entire list of parties who had pledged jewellery for availing loans and the borrowers who have redeemed the pledged gold also. Thereafter the ld. CIT(A) after taking note of the affidavit which was notarised by assessee's father and 2 uncles (i.e. two brothers of the father) who have waived their share of inheritance in the business with all its assets and liabilities including that of the pledged gold/jewelleries weighing 27,909.070 gms noted that the assessee was running the money lending business after the death of his grandfather and was having the pledged stock of 27,927.170 gms as on 31.03.1997 onwards. The ld. CIT(A) took note of the fact that in the remand report the AO has confirmed from six borrowers who....
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....dmission in this respect of the auditor in the impugned order of the ld. CIT(A) in pages 26 and 27. The question whether the assessee is into the money lending business has also been proved by the assessee by producing the money lending licence which is annexed at page 19 of the paper book and we note that licence for money lending was granted to the assessee dated 21.11.1997. The assessee's grand father Shri Khagendra Nath Nandi was into the business of money lending on the basis of the gold pledge as security is proved by the income tax returns filed by the said Shri Khagendra Nath Nandi and also from the pledged stock register of Shri Khaghendra Nath Nandi for the year 1996-97 and 1997-98 which shows the pledged items and subsequent release of the same which are annexed at pages 55 to 145 of the paper book. On perusal of the audited statement of Shri Khagendra Nath Nandi for the year ended 31.03.1997 which is placed at page 49 and perusal of notes on accounts reveals the fact of stock of gold of 27,927.170 gms as on that date. This fact has been corroborated by the Chartered Accountants M/s. PC Associates who have physically verified the stock has given a certificate dated 7.5.1....
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....e sheet as on 31.03.2009 and we note that the money lended was to the tune of Rs. 5,14,857 and inorder to corroborrate the figures the ld AR took our attention to page 146 to 163 of the PB, which are the pledged stock register, wherein we note the entire names of the borrowers with address ,date , weight of gold and amount lended is reflected and we take note that opening balance of gold is 27.927 gms and on 31.03.1999 the closing stock of gold pawned was 31,183 gms and Rs. 5,14 ,897/- was lended by the assessee, which matches with the figures shown in the balance sheet as on 31.03.1999 at page 22 of the paper book. Thus we note that the pawned jewellery stock of 31,183gms as on 31.3.1999 was reduced to approx 28 kgms as noted by AO as on 31.3.2007 pursuant to various redemptions that had happended during the period from 1999 to 2007. The assessee during the financial year 2006-07 thought it fit merely to revalue the said already accounted jewellery and give the effect of revalued portion of the jewellery to the tune of Rs. 1.52 crores and included the same in the jewellery account on assets side and corresponding credit to his capital account. This is merely a book entry passed by....
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.... to Mr Anal Kanti Dey on 16.11.2009 calling for certain details. In response to the said letter, Mr Anal Kanti Dey replied that the amount was given prior to 1.4.2002 and the same is brought forward from 1.4.2002 and outstanding as on 31.3.2007 and that no interest was received by him from the assessee on the said amounts. The ld AO made verification of the income tax returns of the assessee for the Asst Years 2001-02 , 2002-03 , 2003-04 and 2006- 07 and observed that no advance was stated to have been shown by the assesseee in his returns of income. The ld AO observed that the assessee showed / reflected the advance from customers only in the financial year 2006-07 relevant to Asst Year 2007-08. The ld AO concluded that the if the explanation of the assessee is accepted then it is to be held that there was an agreement between the assessee and Mr Anal Kanti Dey for rate of sale of gold and because the price of gold is gradually increasing on the higher side, naturally no business would like to make his investment remain idle. Hence in the absence of any documentary evidence of advance to establish the genuineness of transaction, the ld AO added the advance amount of Rs. 49,50,000/....
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....corded on single entry system in the past. During the financial year 2006-07, the assessee thought it fit to convert from single entry system to double entry sytem and accordingly brought all the entries from the past into the books of accounts in the financial year 2006-07 relevant to Asst Year 2007-08. That does not make automatically fresh credits found credited in the books of accounts of the assessee so as to attract the provisions of section 68 of the Act. He argued that the advance from customer was very old entry and brought forward from earlier years which has also been rightly confirmed by Mr Anal Kanti Dey. He also argued that these advances were reflected in the single entry method of accounting in the past in the year of receipt and income tax scrutiny assessments were completed accordingly for Asst Years 2001-02 , 2002-03 & 2003-04 based on the said books of accounts finding that the advance received were satisfactorily explained in the assessment. He argued that the subject mentioned advance from customers had not entered either the cash book or the bank book of the assessee during the financial year 2006-07. The ld AO also had not disputed this aspect. While that is....
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....ntry system to double entry system. 6. Balance creditors /deposit of Rs. 49,50,000/- was received long back from Sri Anal Kanti Dey (Rs. 27,50,000/- directly and Rs. 22,00,000/- through Sri Goutam Pal) for purchasing of gold & jewellery. He argued that from the above, it would be clear that the advance was received from Mr Anal Kanti Dey in the earlier years and the same has been brought on record in the regular books of accounts in the financial year 2006-07 without having any impact on cash flow for the year. Hence no addition u/s 68 of the Act could be made in the facts of the instant case. 11. We have heard the rival submissions and perused the materials available on record including the relevant pages of the paper book filed by the assessee in this regard. We find that at the outset, that the assessee has been maintaining accounts in Bengali conversion single entry system and the same were duly converted into English double entry system during the financial year 2006-07 relevant to Asst Year 2007-08. The ld AR argued that the advances from Mr Anal Kanti Dey had been received prior to 1.4.2002 which fact has been duly confirmed by him also in the reply letter filed by him b....
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....elied upon by the ld DR in the case of Roshan Di Hatti vs CIT supra is not applicable to the facts of the instant case as it only held that when the nature and source of credit is not properly explained by the assessee, then the same could be taxed u/s 68 of the Act. The issue as to whether the said credit is in the form of sum of money or not was not the dispute or the question before the Hon'ble Supreme Court. We find from the facts before the Hon'ble supreme court in that case , that the assessee thereon was carrying on jewellery business in Lahore and had migrated to India in June 1947 and had brought the value of gold and other jewellery from the said business into India and reflected the same in his balance sheet. The documentary evidences in that case proved the existence of that assessee carrying on jewellery business in Lahore prior to migration to India and hence it was held that the value of those assets (irrespective of it getting taxed in Lahore or not) that were brought into India cannot be added u/s 68 of the Act. Hence we hold that the decision relied upon by the ld DR does not advance the case of the revenue. It is also not in dispute that there was no physical inf....