TaxTMI 
TaxTMI 
2017 (2) TMI 1379
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....d accordingly first notice u/s. 143(2) was served on the assessee on 21-08-2010. During the course of assessment proceedings the Assessing Officer found various defects in the books of the assessee and hence, rejected the books of account. The Assessing Officer invoked the provisions of section 145 to complete the assessment. The Assessing Officer made certain additions/disallowances including addition on account of low Gross Profit Rs. 86,14,243/- and disallowance of Rs. 41,94,060/- u/s. 40A(2)(b) of the Act. Aggrieved by the assessment order dated 27-12-2011, the assessee filed appeal before the Commissioner of Income Tax (Appeals) challenging the additions/disallowances made during assessment. The Commissioner of Income Tax (Appeals) vide impugned order restricted the disallowances made u/s. 40A(2)(b) to Rs. 14,54,869/- and deleted the entire addition on account of low Gross Profit. Now, the assessee, as well as the Revenue are in appeal against the findings of Commissioner of Income Tax (Appeals). 3. The Revenue has assailed the order of Commissioner of Income Tax (Appeals) by raising following grounds of appeal : 1. "On the facts and in the circumstances of the case and in....
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....on the payment made is less than the market rate in Jalgaon. The ld. AR referred to page 157 of the paper book to show the instances of purchase of gold ornaments from its sister concern. The ld. AR pointed that the payments have been made to its sister concern at the rate prevalent in Jalgaon gold market. The ld. AR submitted that a perusal of transactions would show that the assessee has made payment to its sister concern at rate less than the rate prevalent in the Mumbai gold market. Therefore, it is not a case where the assessee has always made payment to its sister concerns at higher rate. The ld. AR submitted that the Assessing Officer while making disallowance u/s. 40A(2)(b) has erred in averaging gold rates on yearly basis. In first appeal, the Commissioner of Income Tax (Appeals) has observed that the Assessing Officer has committed error in taking the average rate in entire year. The Commissioner of Income Tax (Appeals) has accepted the contention of the assessee that local Jalgaon rates should be applied for comparison in respect of purchase of gold, bullion as well as ornaments. The Commissioner of Income Tax (Appeals) while restricting the addition has only considered ....
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....Dhoke representing the Department vehemently supported the assessment order. The Commissioner of Income Tax (Appeals) has erred in holding that the Assessing Officer has not appreciated the nature of assessee's business where prices fluctuate not only daily but even many times during a day. The Assessing Officer while finalizing the assessment has elaborately noted down each and every issue and after recording proper and valid reasons based on substantive evidence has made additions/disallowances. The Assessing Officer after pointing out material defects in para 14 of the assessment order has invoked the provisions of section 145(3) of the Act and rejected the trading results disclosed by the assessee. In view of the defects pointed by the Assessing Officer the book results of the assessee cannot be accepted to be true and correct. Further, the tax effect (notional) involved is more than the prescribed limit. 5.1 During the assessment proceedings the Assessing Officer has observed that there are many inter party transactions within the group such as purchase, sale as well as payment of interest on loans and charging of interest etc. In the case of purchase of bullion from sister c....
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....g the books of account of the assessee. A perusal of the assessment order shows that the Assessing Officer has pointed following defects in the books of the assessee : i. "Inclusion of stock claimed to be belonging to associate concern. ii. Non availability of details of ornament making charges, hence for valuing closing stock, no justification for added manufacturing expenses. iii. Failure on part of the assessee to prove conclusively the movement of goods from one location to other. iv. Genuineness of paid labour charges for want of necessary records maintained by concerned labours. v. Inability of the labours to furnish the details of case wise labour charges received by them. vi. Non maintenance of record related to purchase of copper / alloy either by assessee or by labours. vii. Non availability of record related to itemwise, purity wise details of ornaments manufacturing and sold during the year. viii. Failure on part of the assessee to explain satisfactorily the defects pointed out vide various show cause letters." 8. The Commissioner of Income Tax (Appeals) discarded the defects pointed by the Assessing Officer for rejecting the books of account. The asses....
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....e-in-below : "8.27 We now deal with the applicability of the provisions of section 40A(2)(b) of the Act. In this case, the assessee has entered into the transactions with the group entities. Hence, prima-facie the proposition are applicable. There is no dispute about this legal position but the core question is whether the assessee has paid excess price than the market rate to the related parties or to the sister concerns for the purchase of the bullion (99.50-standard gold). As per the argument of the Ld. Counsel for the assessee, even if there is a marginal difference in the market price of the Mumbai and the Jalgaon but that prices are covered in the transportation and delivery. The assessee has filed a chart at pages 42 to 55 of paper book No.1 in which assessee has given names of the sister concerns, gold weight, rate paid, total value, sales, Jalgaon rate on the same day and the Mumbai rate. As per the said chart on 09-04-2008 for the standard gold- (99.50), the assessee has paid Rs. 12400/10 gms when the Jalgaon rate was Rs. 11805/10 gms. Hence, there is a difference of Rs. 595/- . So assessee has made excess payment. The assessee has also given examples on 03-05- 208 and ....
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.... crores in A.Y. 2007-08 to 955.78 crores in A.Y. 2009- 10. The assessee has given the justification of the same. Fictitious transactions were shown for inflating the turnover of the assessee. The argument of the Ld. Counsel for the assessee is that it was done to facilitate to obtain the finance. It is pertinent to note here that assessee has filed the chart showing the loans availed by the assessee and other group concerns, which is placed at pages 711 to 714 of the paper book. The assessee was enjoying the CC limit of Rs. 5.56 crores. At the same time, the other group concerns/sister concerns were enjoying the CC limit of Rs. 52.81 crores. The assessee has also filed a letter dated 25-04-2008 of the SBI (page 712 of paper book) in which one of the group concerns M/s. R.L. Gold Pvt. Ltd. has obtained a gold loan under the domestic jewellery industry scheme from the SBI to the extent of 30 kg. It also supports the case of the assessee that with the meager cash credit limit of Rs. 5 crore the assessee by no stretch of imagination can reach to the turnover of Rs. 955 crore. As per the statistics given by the Ld.CIT(A) in his order, it is seen that there is high frequency of transacti....
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....price formula is not correct. As far as the ornaments are concerned, the price may vary from design to design, from item to item, from purity of gold etc. In case of the ornaments normally the sales are made from the 916 tounch (22 karat). The ornaments may be of 18karat, 20 karat and 21 karat also. We cannot take the average price of the ornaments to the entire sale of the year as different factors are also involved as mentioned above which changes the price of the ornaments. Moreover, there may be variation in the labour charges also. Hence, we do not agree with the average price formula adopted by both the authorities below for making the addition of Rs. 12,01,63,323/- on alleged selling of the ornaments to the sister concerns at lower price than the price charged to the unrelated parties. 8.33 xxxxxxxxxx 8.34 xxxxxxxxxx 8.35 In the light of our above discussion, we are of the opinion that approach of both the authorities below is not correct for making high pitch additions in the hands of the assessee by invoking provisions of section 40A(2)(b) and for alleged selling of the ornaments to the related entities at a lower price. As per the financial accounts of the assessee,....