TaxTMI 
TaxTMI 
TaxTMI 
2015 (1) TMI 1393
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....rnaments as well as selling bullions. The assessee filed its return of income on 25-09-2009 declaring NIL income. The Assessing Officer completed the assessment u/s. 143(3) vide order dated 26-02-2011 determining the total income at Rs. 8,76,65,079/- by making the following additions: 2.1 Subsequently, the Assessing Officer vide order dated 29-12-2011 passed u/s. 154 of the I.T. Act determined the revised total income at Rs. 73,40,88,070/- by making the following addition which was omitted to be added in the original assessment order although discussed in the body of the assessment order and disallowed. 2.2 Subsequently, in yet another order passed u/s. 154 of the I.T. Act on 23-01-2012 the Assessing Officer determined the total income at Rs. 73,42,67,410/- by making the following rectification: 2.3 The assessee filed an appeal before the Ld. CIT(A) who gave part relief to the assessee. So far as addition made to the trading account is concerned, the Ld. CIT(A) directed the Assessing Officer to estimate the profit by adopting the GP rate of 5.71% on turnover of Rs. 5,65,51,47,570/- thereby sustaining the addition of Rs. 21,49,93,482/-. He also gave certain relief on account of a....
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....n the accounts warranting rejection thereof. Even in the past years, the books were accepted by the Dept. b. All the transactions of purchases and sales with the sister concerns were genuine and they were not made for diverting profits of the appellant to the sister concerns. c. All the concerns had duly accounted for the sale and purchase transactions in the group and the same were duly accounted for VAT on the transactions effected. d. The transactions were executed with the sister concerns at the market rates only and even otherwise, there was no reason to warrant a conclusion that the appellant must have sold the stocks to the sister concerns at lesser price than the market value. e. There were substantial purchases of ornaments and bullion from the sister concerns which were acquired for trading by the appellant and hence the profit margin thereon was low. There were many transactions of purchases by the appellant from the sister concerns wherein the price paid was lesser than Bombay Bullion rates and hence it could not be inferred that the appellant had reduced its profits. f. The sister concerns enjoyed the bigger bank finance limits and they could purchase gold an....
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....g high interest bearing loans were utilized for investment in the shares, when it was not so and considering the investments at the end of the year instead of properly considering the dates of various investments. 4] Property Income of Rs. 3,15,102/- 4.1] The learned CIT(A) erred in making following additions-- a. Disallowance of electricity expenses for the use for partner's residence -Rs. 81,906/- (para 31). b. Additional Disallowance of the telephone expenses - Rs. 38,012/- (Para 31.1). c. Additional electricity and telephone expenses - Rs. 1,95,184/- (para 31.2) 4.2] The learned CIT(A) failed to appreciate that the appellant on its own had made the disallowances for the use of the above assets for personal purposes in the return and the basis adopted was the same as that in the past assts. And thus, there was no reason to make further disallowances on the basis of presumptions and surmises. 4.3] The learned CIT(A) failed to appreciate that the above additions were not called for in view of the fact that the rent charged by the appellant was inclusive of the above charges. 4.4] Without prejudice, the appellant submits that the disallowances made are very high....
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.... terms of partnership deed and the same was allowable as per the provisions of Sec. 40(b) of the Act. 9.2] The learned CIT(A) failed to appreciate that there was no device, much less colorable device to evade tax. 9.3] The learned CIT(A) did not appreciate the facts of the case and consequently erred in applying the provisions of sec. 40(A)(2)(b) with respect to interest paid to partner which was in accordance with law. 9.4] The learned CIT(A) failed to appreciate that the quantum of interest paid by the partner to the parties from whom he had received gold had nothing to do with the appellant's claim for deduction u/s. 40(b) of the Act. 10] Out of depreciation on windmill - Rs. 31,133/- 10.1] The learned CIT(A) erred in confirming the disallowance of the depreciation on part of the structure of wind mill by applying the rate of 10% as applicable to buildings and he failed to appreciate that this structure was part of the wind mill eligible for depreciation @ 80% 11] The appellant requests for admission of additional evidences if any required in deciding the above grounds of appeal. 12] The appellant craves leave to add, alter, amend or delete any of the above gro....
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....he assessee has declared gross profit @ 1.13% and net profit @ 0.9%. He analysed the comparative position of GP and NP of the other group concerns, the details of which are as under: He, therefore, asked the assessee to furnish the various details as per notice issued u/s. 142(1) to which the assessee replied. 4.3 From the various details furnished by the assessee the Assessing Officer noted that the assessee firm sold gold ornaments to sisters concerns at lower price than sold to other parties by Rs. 40.36/gram. He noted from the various details furnished by the assessee that on the other dates either it has been sold below the cost price or slightly above the cost price and in this way the assessee firm has diverted its profit to sisters concerns by making sale at lower rates. He observed that no uniform method is applied by the assessee for sales to sister concerns and the rates are decided at its own sweet will. Keeping all these facts in mind, the Assessing Officer considered the average rate as made to the other parties than the sisters concerns and added the difference of Rs. 40.36/gram on entire sale of 29,77,287.493 grams made to sister concerns. Such details are annexed....
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....nations given by the assessee, the Assessing Officer estimated melting gain at 10% of the gold issued weighing 259088.002 grams which comes to 25908.800 grams as against melting gain shown at 20288.186 grams. Accordingly, he held that gold weighing 5620.6014 grams has been suppressed and the assessee got manufactured new ornaments itself that are sold outside the books of account. The average rate/gram from the quantitative details of sales comes to 1510.50/gram. By applying the same rate, the Assessing Officer held that the assessee had earned income of Rs. 84,89,937/- on account of sale. He accordingly brought to tax an amount of Rs. 84,89,937/- as income on account of melting gain. 4.6 The Assessing Officer further noted that the various Karigars are doing the work for maximum number of cases of Rajmal Lakhichand group. None of the karigars were found to be having knowledge as to from which company they are receiving the gold for preparing the ornaments. None of the karigars is having knowledge as to how much labour charges he received from which company. They failed to give the details of the company-wise receipts. From the above, he observed that all these karigars are nothin....
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....lating to itself as well as of the various group concerns he prepared a consolidated trading account of all the concerns which show sale of Rs. 2219.54 crores while the sales actually made to the third parties are only Rs. 679.66 crores. Further, he also compared the purchase price paid to the sister concerns for bullion, vis-a-vis market price as per Mumbai bullion Association and noted that the assessee has paid higher purchase price of Rs. 3,10,10,720/- to the sister concerns. Similarly, he compared the purchase of ornaments from the sister concerns, vis-avis third parties and noted that the assessee has made excess payment of Rs. 18 crore to the sister concerns, vis-a-vis third parties. He observed that the assessee charged an average price of Rs. 13,350/- per 10 gm for the ornaments sold to the sister concerns as against the average price of Rs. 13,906/- per 10 gm charged to third parties. Thus, the difference comes to Rs. 55.60 per gm. He noted that the register for issue and receipt of gold are not supported by karigars to whom the gold was given and therefore the register cannot be accepted. Similarly, he also rejected the contention of the assessee that the melting gain sh....
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....rom time to time made purchases of bullion from the sister concerns except in a few cases where it has purchased from outside parties. He submitted that like the stock market, during a day, the gold prices fluctuate and daily closing rates of Mumbai Bullion are published in the papers. The AO compared the rates paid by the assessee, vis-a-vis the Bombay rates and held that the assessee has paid the excess price to the sister concerns and accordingly invoked the provisions of section 40A(2) for making the addition. He submitted that since the assessee is making purchases at Jalgaon, therefore, there is no reason to compare the rates of Mumbai with the purchases rate of the assessee. The AO should have compared the rate of purchases vis-a-vis Jalgaon, i.e. the local rates. He submitted that although this contention was raised before the CIT(A), however, he also did not accept this contention. Referring to page 1 to 6 of paper book No. 2 he drew the attention of the Bench to the comparable rates of Mumbai market and Jalgaon market. Referring to the said, he submitted that the assessee by and large has paid the rates to the sister concerns for purchase of bullion which are lesser than ....
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.... not justified. 6.3 Referring to the copy of the assessment order of the group concerns placed at paper book 254 to 364 of paper book No. 1, he submitted that in other concerns the AO has invoked the provisions of section 40A(2) to hold that it has paid excess price to the other concerns for purchases. Referring to the assessment order of M/s. Manvi Holding Pvt. Ltd., placed at paper book page 274 he submitted that this is contradictory to the stand taken in the assessee's case, because on one side in the hands of the assessee, the AO holds that the assessee has paid excess price to Manvi Holdings. He accordingly submitted that the disallowance u/s. 40A(2) is not justified in respect of the purchases of bullion from the sister concerns. 6.4 As regards the allegation of the AO that assessee has paid excessive price for purchase of ornaments to the sister concerns, he submitted that the purchases and sales with the sister concerns are entered into by the assessee mainly to obtain bank finance. If this was not done the group would not have got the bank finance and it would not have been able to achieve the growth. Therefore, these purchase of new ornaments made by the assessee a....
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....ale at a higher rate. This only will bring profit to any jeweller. Therefore the purchase rates of old ornaments are much lower. So far as the new ornaments are concerned, they are made on the instruction of the assessee from bullion or gold given to the karigars. 6.7 He submitted that the A.O./CIT(A) has again compared the rates of the new ornaments by considering the Bombay Bullion rates. He reiterated that basically Bombay Bullion rates should not be adopted for comparison of purchases and the yardstick should be based on Jalgaon rates. If Jalgaon rates are considered, the assessee has infact paid lesser price and therefore question of disallowance u/s. 40A(2) is not warranted. 6.8 As regards the allegation of the Revenue that the assessee has transferred profits to the sister concerns by paying a higher price for purchases and charging a lower price for the sales effected to sister concerns he submitted that this finding is also wrong. Referring to page 52 of Paper Book 1, he drew the attention of the Bench to the chart giving the details of sales of bullion effected to sister concerns and submitted that these sales have fetched excess price of Rs. 1,13,57,471/- to the assess....
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....le purchasing the old ornaments where each item is different from the other. Whatever is obtained as melting gain, is accounted for by the assessee. He submitted that the assessee has maintained proper records. Therefore, the addition on this basis is also not justified. 6.12 The Ld. Counsel for the assessee submitted that the assessee has maintained the books of accounts which are closed and supported by balance sheet. All sales and purchases are vouched and the purchases are made through banking channels. Day to Day stock records are maintained and accounts are audited. There are no adverse comments by the auditors. In the past years also, the results shown by the assessee are by and large accepted. The A.O. had raised many points about rejecting the books of accounts and the same have been answered by the assessee properly. The points raised by the A.O. were replied point-wise before CIT(A). Therefore, it is grossly incorrect on the part of the CIT(A) to hold that the assessee's books of accounts suffer from certain defects. Accordingly, the rejection of books of accounts is not warranted and secondly, the estimation of G.P. at such a high figure is not justified. 6.13 He ....
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....of purchases and sales with the sister concerns as genuine and further, he has estimated the G.P. of 5.71%. Accordingly, he has calculated G.P. @ 5.71% on estimated turnover of Rs. 5,65,51,47,670/- and arrived at Rs. 32,29,08,931/- as against the G.P. of Rs. 10,79,15,449/- and made an addition of Rs. 21,49,93,482/-. He submitted that in view of the facts and circumstances mentioned above, there is no justification for rejecting the books of accounts and for estimating the G.P. 6.17 He submitted the reasons for fall in G.P. in this year are due to the following: "a. The turnover has increased substantially over the earlier two years and hence, there is a fall in G.P. b. The gold prices went on increasing during the year. Referring to page 55A he submitted that the assessee has given the chart which indicates that on 1st April, 2008 the gold rate was Rs. 11,750/- per 10 gms while on 31st March, it was Rs. 15,250/- per 10 gms (page 55F). The assessee had taken gold deposits and it had to return gold to the depositors in this year (pages 386 to 501 of Paper Book 1). Thus, when the gold deposit was accepted, it was at a lower price and the gold had to be returned to them when the p....
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....o the provisions of section 145(3) of the Act and (2) very high pitch additions made by the AO on the alleged purchases of the bullion and ornaments by giving higher prices as compared with the prices prevailing at the Mumbai bullion market and the addition towards alleged selling of bullion and ornaments to its sister concerns below the rate prevailing in the market thereby siphoning off the profits of the assessee firm to the intra group companies and more particularly to M/s. Rajmal Lakhichand Jewellers Pvt. Ltd. 8.1 We find the Ld. CIT(A) has taken efforts to bring on record the shareholding of the Lakhichand family who is having the absolute control on the management and business of the Rajmal Lakhichand group of companies. For the sake of convenience, we reproduce some of the tables giving the details of shareholding of Shri Ishwarlal S. Lalwani and his family members in the different companies which are as under: "6. I have carefully gone through the assessment order, remand report of the A.O. detailed submission of the appellant and the material available on record. Before adjudicating the various issues raised in the appeal, I would give a back ground of the appellant f....
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....the Jalgaon Peoples Cooperative Society Ltd., against the hypothecation of the stock and debtors. On this aspect the AO concluded that the book results are not reliable. The AO has also given another reason that the assessee failed to file reconciliation of the stock statement in respect of the sales made on 31-03-2009. The AO has also reservation as the assessee could not prove conclusively the movement of the goods from one location to another, i.e. from one of the group companies to the assessee's location and vice versa. During the course of assessment proceedings, the AO asked the assessee to prove that the payment of the labour charges are genuine. The AO also noted that there is expenses towards purchase of the copper by the assessee and no separate making charges were mentioned on the sale bills and hence the book results were not reliable. The AO issued notices to some of the Karigars who are involved in refining of the old ornaments as well as making of the jewellery. As noted by the AO all of them responded but stated that no record for receipt of sold or prepared ornaments are maintained by any of them. As stated by the Karigars, the labour charges are received in c....
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.... giving them higher price as compared to the prices declared by the Mumbai Bullion Association. Similarly, the AO also made addition of Rs. 12,01,53,323/- for alleged sale to the sister concerns of the ornaments and the bullion at a price which are allegedly lesser as compared to the rates declared by the Mumbai Bullion Association. 8.6 Para 10 is the only paragraph in the assessment order where the AO has given his reasons and findings on account of the above two additions. For the sake of convenience we reproduce here the relevant paragraphs from the assessment order where the AO has made the addition: "10. Sales to sister concern- The assessee vide its letter dated Nil submitted the details of total sales for the period under consideration made to sister concern and other parties, which is enclosed with this office as Annexure-1. From the details furnished, it can be seen that the assessee firm sold gold ornaments to sister concern at lower price than sold to other parties by Rs. 40.36 per gram, Further, it can also be seen that on the other dates either it has been sold below the cost price or slightly above the cost price and in this way the assessee firm has diverted its p....
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....grams which comes at 25908.800 grams as against shown gain at 20288.186 grams. Accordingly, the gold weighing 5620.6014 grams has been suppressed and the assessee got manufactured the new ornaments out of that and sold outside the books of accounts. The average rate per gram as per the quantitative details on sale comes to Rs. 1510.50 per gram, By applying the same rate, the assessee had earned income of Rs. 84,89,937/- on account of sale. The entire sale consideration is taxed as income because the expenditure incurred towards its purchases, refining charges etc. have already been debited." In sum and substance in the opinion of the AO the average of the melting gain declared by the assessee at 7.3% was not acceptable as in some of the months the melting gain percentage was ranging from 10.31% to 14.54%. The AO, therefore, estimated the melting gain at 10% of the gold issued weighing 259088 grams and accordingly made addition of Rs. 84,89,937/-. 8.9 The assessee challenged all the above additions before the Ld. CIT(A) and succeeded in getting part relief. Before going to the approach adopted by the Ld. CIT(A) for rejecting the estimation made by the AO, it is necessary to bring ....
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....s purchased new ornaments worth Rs. 453.72 crore from the sister concerns representing 88.99% of the total ornament purchases. The assessee firm has purchased old ornaments (mod) worth Rs. 56.10 crore from third parties. As regards sale of bullion, the assessee firm has sold bullion worth Rs. 122.90 crore representing 27.7% of total sales of bullion to its sister concerns as against sale of bullion worth Rs. 320.76 crore to other parties. The assessee has sold ornaments worth Rs. 397.45 crore (78.18%) to its sister concerns as against Rs. 110.89 crore (21.81%) to other parties. He noted that apart from the assessee firm, only M/s. Rajmal Lakhichand Jeweller (P) Ltd. sells bullion and gold ornaments directly to the customers through its 3 showrooms located at Surat, Nashik and Thane. According to him it is rather surprising that the assessee firm is engaged in hundreds of transactions of purchase and sale of ornaments with the sister concerns which do not sell ornaments to the customers directly. The statement of accounts of sale/purchase of gold and ornaments with sister concerns reveal one more interesting fact that while the assessee firm on 24/05/2008 had sold ornaments worth Rs....
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....es from the third parties. He has further observed that in respect of the ornaments while Rajmal Lakhichand and sons, Manvi Holdings Pvt. Ltd. R.L. Gold Pvt. Ltd., and Rajmal Lakhichand Jewellers Pvt. Ltd., did not purchase ornaments from third parties, R.L. Gold Pvt. Ltd. and Rajmal Lakhichand Jewellers Pvt. Ltd. are paid higher price/10gms to sister concerns, vis-a-vis purchase from third parties. It appears that the Ld. CIT(A) after obtaining a lot of data from the assessee in respect of the intra group transactions of the sales and purchases noted that in respect of the purchases made from intra group companies the price paid was 5.83% higher in the case of Rajmal Lakhichand Jewellers Pvt. Ltd. and 14% in the case of R.L. Gold (P) Ltd. As observed by the Ld. CIT(A) Manvi Holdings Pvt. Ltd. has sold gold ornaments to third parties at Rs. 15232/10 gms as against Rs. 13,610/10 gms to sister concerns. In case of average price of the bullion, R.L. Gold Pvt. Ltd. has sold bullion at Rs. 13,310/10 gms to third parties as against Rs. 13,051/10 gms to its sister concerns. Manvi Holdings Pvt. Ltd. has sold bullion at Rs. 14,091/10 gms to third parties as against Rs. 13,777/10 gms to its ....
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....5.77 kg After recording the above facts and figures the Ld. CIT(A) concluded that the entire group has shown inflated turnover in the form of fictitious purchases and fictitious sales in the name of the sister concerns. He also observed that the bullion and ornaments to the extent of 4559.23 kgs are rotated more than 3.6 times by showing sales to the sister concerns which according to the Ld. CIT(A) are only paper transactions. According to the Ld. CIT(A) there are few transactions of physical purchase and sales within the group concerns. The Ld. CIT(A) concluded that the assessee has inflated the turnover by showing the intra group transactions to raise funds from the financial institutions apart from diversion of profit. The Ld. CIT(A) asked the assessee to prepare a consolidated account of the entire group sale and also another trading account without taking into consideration purchase and sale transactions made within the group concerns. As per the working made on the basis of the consolidated trading account of the entire group, the GP percentage was worked out at 2.27% and in respect of the trading account excluding sale and purchases among the sister concerns, the GP was wo....
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....6 kg mainly comprising of MOD (old ornaments) from the third parties and assessee has shown the melting gain in respect of 259.08 kg only. The rest was used as bullion or new ornaments. The assessee filed the chart showing the gross weight of the ornaments, net weight of the ornaments and net weight after refining of the ornaments and according to the assessee the average melting gain comes to 7.83%. The AO has already rejected the said plea of the assessee and estimated the melting gain at 10% of the total gold refined. 8.20 On the basis of the above facts and figures the Ld. CIT(A) concluded that the books of account of the assessee are not reliable. He also observed that in his opinion the assessee by and large engaged in fictitious sales and purchases within the group concerns. He also observed that the books of account of the assessee did not give true and correct profit for the A.Y. 2009-10 even though they are audited u/s. 44AB of the Act. The Ld. CIT(A) confirmed the action of the AO for rejection of books of account by invoking the provisions of section 145(3) of the Act. The Ld. CIT(A) has given also some instances in respect of the transactions of the assessee firm with....
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....e involved in inflating the turnover by showing only paper transactions of sale and purchases of bullion as well as ornaments. Even it is also strange to note that in the case of Manraj Jewellers Pvt. Ltd. and other few entities they do not have any showroom, but they have shown/declared such transactions. In view of the above, the books of account of the assessee, in our opinion, do not give the correct picture and therefore are liable to be rejected. 8.22 Once we hold that the books of account of the assessee do not reflect the correct picture of its true state of financial affairs then the next question will be whether the AO is justified in making the addition of Rs. 64.66 crores u/s. 40A(2)(b) of the Act for allegedly making excess price to its intra group companies for purchase of the bullion and ornaments and also whether the AO was justified in making the addition of Rs. 12.12 crores with the charge of siphoning off the profits by the assessee by showing the sale of the ornaments as well as bullion at a lower price as compared to the rates prevailing in the bullion and jewellery market as given by the Mumbai Bullion Association. It is true that the entire case is based onl....
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....llion as well as the ornaments/gm for making the comparison of the market rate in Jalgaon and market rate in Mumbai. There is no dispute about the fact that there are lot of intra group transactions in respect of the bullion as well as the ornaments. As per the record, it is seen that the assessee is dealing in the 99.50 (standard gold-bullion) and they were compared with the turnover of the assessee, shareholding of the bullion in the total sales is Rs. 443.63 crores which is 46.40% of the total sales turnover, i.e. Rs. 955.78 crores. Same way the share of the sale of the ornaments in the total sale worked out to 53%. There is an element of diamond sale also as per the chart enclosed with the assessment order being Annexure No. 2. 8.25 in this case, even if the books of account are rejected by the AO but ultimately the assessment is framed u/s. 143(3) of the Act by making addition u/s. 40A(2)(b) and the addition towards siphoning of the alleged profit. 8.26 We find force in the argument of the Ld. Counsel for the assessee that both the authorities below have not correctly understood the trading in the gold. According to him gold is a commodity having high liquidity and there are....
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....ess payment. The assessee has also given examples on 03-05-2008 and 06-05-2008, as per the chart compared to the even local market the assessee has made the payment in excess of the local market rates. Immediately thereafter assessee has given the sample examples on 08-05-2008, 26-05-2008 in respect of the gold purchases from sister concerns R.L. Gold Pvt. Ltd., Rajmal Lakhichand and sons, Rajmal Lakhichand Jewellers Pvt. Ltd., Manraj Jewellers Pvt. Ltd., etc. As per the figures given by the assessee, the assessee has paid the price which is less than the market rate. On the perusal of the said chart, we find that on some occasions, on some dates, there is excess payments and on some dates, there is lesser payment. As per the transactions given in the chart, it is seen that if we consider the total transactions in a year, i.e. purchase of the bullion from the sister concerns, it is seen that the assessee has paid less amount to the extent of Rs. 1,01,14,553/- if we go with the theory of the AO, i.e., comparing the local market rate of Jalgaon and rates declared by the Mumbai Bullion Association. So far as the AO is concerned, he has adopted the short cut method without understandin....
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....A) in his order, it is seen that there is high frequency of transactions between the assessee and intra group entities. Even in some of the cases bullion is purchased and sold either on the same date or immediately on the next day. If the assessee has not earned any income, then can it be taxed is another question. For invoking the provisions of section 40A(2)(b) the AO has to establish that the payment made to the related party is not reasonable at all considering the local market conditions. In our opinion both the authorities below have not at all considered the local conditions of the gold market. The method of average price of the year in our opinion is not the correct method to determine the reasonableness of the amount paid for purchasing the bullion from the sister concerns for the reasons narrated herein above that there is variation in the price of the bullion. We also find from the chart filed by the assessee that the assessee has paid lesser price in some cases as compared to the local market and Mumbai market to the sister concerns. But that is not considered by both the authorities below. When the average price method is adopted, then where ever there is a lesser pric....
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....r concerns is to the extent of Rs. 397.45 crores and to the third parties Rs. 110.89 crores. As per the statistics given in the impugned order, it is seen that the assessee has sold the ornaments to the sister concerns and immediately on the next day ornaments are purchased. (Page 28 of the Ld. CIT(A)'s order -transactions with Rajmal Lakhichand and sons). Same way assessee has sold ornaments of Rs. 1,01,32,168/- to Rajmal Lakhichand and sons, Jalgaon on 30-07-2008 as against purchase of the ornaments to the extent of Rs. 12,57,96,131/-. Again on 23-07-2008 assessee has shown sale of ornaments to Rajmal Lakhichand and sons Rs. 6,97,15,876/- and has shown the purchases of Rs. 7,05,87,330/- on 25-08-2008 and again shown the sale of ornaments to the same entity, i.e. Rajmal Lakhichand and sons on 28-08-2008 to the extent of Rs. 7,13,52,664/-. Again with the same entity there is frequency of transactions of the sale and purchase of ornaments with the short gap of 1 or 2 days. This suggests that the transactions entered into by the assessee with its sister concerns/group entities may not be for the genuine trading purpose but to inflate the turnover. 8.32 We also find that again wh....
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....nderstand when the assessee firm is not involved nor has earned any MTF gain, then how the Ld. CIT(A) has included the MTF gain of Rs. 25,50,87,766/. The assessee has filed the copy of the audited statement of account in the compilation and the profit and loss account is at page 27 of paper book No. 1 for the A.Y. 2008-09. We find that the assessee has not disclosed any income from MTF gain. That is also one of the reason in respect of the other group entities where gross profit margin is at higher level. 8.34 From the following consolidated trading account chart of the group entities for the F.Y. 2008-09 which clearly shows that in case of Rajmal Lakhichand Jewellers Pvt. Ltd. and Manraj Jewellers Pvt. Ltd., MTF gain declared is Rs. 3,11,19,833/- and Rs. 8,59,77,676/- respectively. As per the chart also, we find the higher GP in the other group entities is due to element of the MTF gain. 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....
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....he assessee is that records are maintained by the assessee firm in respect of the ornaments given for refining. However, if the karigars have not maintained the record the assessee cannot be held responsible for that. Another plank of argument of the Ld. Counsel for the assessee is that assessee is following a particular method of maintaining the record which is as per the quantitative details and the same has been accepted for number of years by the department without questioning anything and there is no justification in the A.Y. 2009-010 to abruptly reject the method adopted by the assessee and estimate the alleged suppressed melting gain. From the chart filed by the assessee we find that assessee has maintained the record as under: 8.38 We find force in the above argument of the Ld. Counsel for the assessee. We have perused the month-wise break up of the melting gain declared by the assessee and find that there is variation. We also find force in the argument of the Ld. Counsel for the assessee that when assessee is maintaining the record showing the old ornaments issued for refining purpose on the weight basis, then there should have been no justification for rejecting the sai....
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....error was rectified vide an order Dt. 23/01/2012 u/s. 154 of the Act. Facts of the case reveal that ground floor and 2nd floor were used by group concerns and partners respectively. Tenants are paying rent which according to the appellant is an all inclusive rent. However, keeping in view the quantum of rent received from the tenant sister concerns, appellant's argument that the rent also included providing generator services does not sound convincing. Taking similar stand as was taken in the case of electricity and telephone expenses, I am of the opinion that disallowance of 15% of expenses will meet the end of the justice. Hence, 15% of total expenses of Rs. 16,30,963/- i.e. Rs. 2,44,644/- is disallowed. Appellant gets a relief of Rs. 6,20,837/-." 9.3 Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 9.4 The Ld. Counsel for the assessee strongly challenged the order of the CIT(A). He submitted that the CIT(A) has not given any basis or justification for sustaining the addition. He submitted that the assessee owns 2 showrooms at 169, 189 Johri Bazar, Jalgaon, one is newly constructed and the other is old one. Second floor of the building which is a....
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....ssessee has not charged any interest to the said party. However, in subsequent years it has charged 12% per annum to the said party. However, the Assessing Officer was not satisfied with the explanation given by the assessee. He observed that the charging of interest next year does not compensate the non charging of interest during the year. He accordingly disallowed an amount of Rs. 3 lakhs being interest @12% on Rs. 25 lakhs. 10.2 In appeal the Ld. CIT(A) upheld the action of the Assessing Officer. He observed that the assessee did not explain satisfactorily the trading nature of advance as claimed by it. Since the assessee has paid interest on borrowed funds and has charged interest from R.K. Oswal Graphics Pvt. Ltd. in subsequent years, therefore, there was no justification for not charging interest for this year. He accordingly upheld the action of the Assessing Officer. 10.3 Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 10.4 The Ld. Counsel for the assessee submitted that certain advances have to be given in the normal course of business. These advances do not constitute loans for the purpose of charging interest. In this case also, the advan....
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....t apply. However, the Assessing Officer was not satisfied with the explanation given by the assessee. He held that if the borrowed funds were not utilised for construction of the guest house the firm would not have required the borrowed funds to this extent. He, therefore, disallowed proportionate interest amounting to Rs. 15,02,342/- u/s. 14A of the I.T. Act. 11.2 In appeal the Ld. CIT(A) deleted the addition made u/s. 14A. However, he disallowed an amount of Rs. 7,51,151/- being 50% of the interest paid of Rs. 15,02,342/- on the presumption of possible use of the guest house by the sister concerns u/s. 36(1)(iii) of the I.T. Act. 11.3 Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 11.4 The Ld. Counsel for the assessee submitted that the work of construction of the guest house/staff quarters was in progress as on 31-03-2009 and therefore the question of its possible use by the sister concerns does not arise. Therefore, when the CIT(A) and the Assessing Officer accepted that the guest house was for the use of the assessee, no disallowance was warranted of the interest for the reason that the question of using by the sister concerns does not arise at....
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..../-. Thus, firm has paid more interest to the partner than required in the garb of capital brought in by the partner in the firm as GDS. On being questioned by the Assessing Officer, it was stated that the assessee has paid interest @9% per annum on GDS to Ishwarlal Lalwani as per terms of the partnership deed and it is below 12% which is permissible u/s. 40(b) of the I.T Act. Therefore, the question of disallowance of any interest to partners does not arise. However, the Assessing Officer was not satisfied with the explanation given by the assessee. He observed that it is only a colourable device and hence the excess interest paid is disallowable even u/s. 40A(2)(b). Relying on various decisions the AO disallowed the difference of Rs. 18,92,421/- being excess interest paid to the partner. 12.2 In appeal the Ld. CIT(A) called for a remand report from the Assessing Officer on the basis of various submissions made before him. After considering the remand report and the submission of the assessee to such remand report he upheld the disallowance made by the Assessing Officer by observing as under: "42. I have gone through the AO's order, remand report and appellant's submissi....
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....rowed by the partner has got nothing to do with the rate at which interest is allowable to the partner u/s. 40A(b). Since the assessee firm had paid interest @9% p.a. to one of its partners which is also in accordance with the partnership deed and it is within the limit prescribed u/s. 40(b), therefore, the question of disallowance of interest paid by the firm to its partner does not arise. He submitted that for allowing interest to the partner the reasonableness of such amount is not to be looked into and any amount paid below the ceiling of 12% interest is allowable as a deduction. He submitted that the assessee firm could receive additional gold deposits than what it could have received under its own gold deposit scheme on account of GDS started by one of its partners. This has rather benefited the firm as the interest paid by it to the partner @9% was certainly much less than the interest which it would have paid to the bank for getting loan to purchase that much quantity of gold. Therefore, the provisions of section 40A(2)(b) would not apply there. He accordingly submitted that the disallowance should be deleted. 12.5 The Ld. Departmental Representative on the other hand heav....
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....3. Grounds of appeal No. 1(j) and 10 to 12 by the assessee relate to denial of depreciation on windmill amounting to Rs. 31,133/-. 13.1 Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings observed that depreciation on addition to windmills were disallowed in the A.Y. 2008-09. The assessee firm had preferred an appeal. Before finalising the assessment for the impugned assessment year, the Assessing Officer received the order of the CIT(A) for A.Y. 2008-09 according to which he allowed depreciation in respect of those additional items at 10%, i.e. the rate applicable to building and not at 80% being the rate applicable to windmill. Following the order of the CIT(A) for A.Y. 2008-09, the Assessing Officer asked the assessee to file a revised computation on the basis of the order of the CIT(A). The Assessing Officer accordingly allowed depreciation of Rs. 2,56,85,779/- as against Rs. 2,57,16,912/- claimed by the assessee. 13.2 In appeal the Ld. CIT(A) following his order for A.Y. 2008-09 in assessee's own case confirmed the disallowance of Rs. 31,133/-. 13.3 Aggrieved with such order of the CIT(A) the assessee is in appeal befo....
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....rivers are used for business purpose for taxable income and investment in shares which will yield dividend income and which is exempt u/s. 10(38) of the I.T. Act. He, therefore, asked the assessee as to why disallowance should not be made u/s. 14A r.w. Rule 8D. It was explained by the assessee that it has no such income which is exempt and does not form part of the total income. Therefore, the question of disallowance u/s. 14A does not arise. However, as required by the Assessing Officer, disallowance u/s. 14A was calculated and furnished before the Assessing Officer which according to the assessee was Rs. 4,53,72,146/-. The Assessing Officer accordingly made disallowance of Rs. 4,53,72,146/- u/s. 14A to the total income of the assessee. 14.2 In appeal the Ld. CIT(A) justified the action of the Assessing Officer in invoking the provisions of section 14A of the I.T. Act. He, however, observed that because of disallowance u/s. 14A, the Assessing Officer did not make any separate disallowance u/s. 36(1)(iii) of the I.T. Act. He observed that assessee has used borrowed funds for making investment of Rs. 42.75 crores towards share capital of M/s. Rajmal Lakhichand Jewellers Pvt. Ltd., ....
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....he appellant firm (40% share in profit/loss). The appellant is engaged in trading of bullion/ornaments and making such investment is not an integral part of its business. 14.3 According to him the assessee could not justify as to how the investments in the group concerns in the form of share capital are in the business interest of the assessee and why the borrowed funds invested in group concerns could not be treated as diversion of borrowed funds for non business purposes and why the interest paid on that should not be disallowed. After considering the various submissions furnished by the assessee he observed that funds amounting to Rs. 84.90 crores have been used for non business purpose in the form of investment in share application money in group companies including Rajmal Lakhichand Jewellers Pvt. Ltd., While the assessee is paying interest @6% to sundry creditors the interest rate for bank comes to be approximately 13% (interest of Rs. 2.23 crore on bank loan of Rs. 16.66 crore). However, taking into consideration that the assessee must have also used other funds, an average cost of borrowing was calculated as under: Total interest : Rs. 12,52,16,339/- Borrowed funds inc....
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....all the facts are also on record. Relying on the decisions of the Hon'ble Supreme Court in the case of NTPC v. CIT reported in 229 ITR 383 (SC) and in the case of Jute Corporation of India Ltd. v. CIT & Another reported in 187 ITR 688 and the decision of the Hon'ble Bombay High Court in the case of Ahmedabad Electricity Company reported in 119 ITR 351 he submitted that the additional grounds should be admitted. 14.7 After hearing both the sides and considering the additional grounds being legal in nature, we admit the additional grounds raised by the assessee following the principles laid down in case of National Thermal Power Corporation (Supra). 14.8 The Ld. Counsel for the assessee submitted that assessee has invested an amount of Rs. 84,95,15,900/- in the shares of the group companies from which no dividend was received. The details of such investments are as under: "(a) Rajmal Lakhichand Jewellers Pvt. Ltd. Rs. 42.75 crores (b) R.L. Gold Pvt. Ltd., Rs. 10.49 crores (c) Manraj Jewellers Pvt. Ltd., Rs. 1.18 crores (d) Manvi Holding Pvt. Ltd., Rs. 15.12 crores" 14.9 Referring to the balance sheet at page 28 of the paper book he submitted that the capital of the....
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....8/- there would be loss under this head and the same has to be set off against income from business during the year u/s. 71. This would result in the same deduction as claimed by the assessee u/s. 36(1)(iii) for the interest payment. The loss to that extent would have to be set off against the business income with the result that there will not be any addition in the hands of the assessee. He accordingly submitted that the additional grounds raised by the assessee has to be allowed. 14.11 Referring to the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT v. Marudhar Chemicals and Pharmaceuticals Pvt. Ltd. reported in 319 ITR 75 he submitted that the Hon'ble High Court following the decision of Hon'ble Supreme Court in the case of S.A. Builders Ltd. reported in 288 ITR 1 (SC) has held that before disallowing the deduction of interest pertaining to the interest free loan advanced to the sister concerns or its directors it was incumbent on the authorities to record a finding whether it was not given as a measure of commercial expediency. Since the Tribunal had not recorded such a finding, the Hon'ble High Court restored the issue to the file of th....
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....e. We hold and direct accordingly. Since we are restoring the additional grounds to the file of the Assessing Officer for fresh adjudication, we refrain ourselves from adjudicating the grounds of appeal No. 1(b) and 1(c) by the assessee and grounds of appeal No. 10 of the Revenue which are kept open. Accordingly, the above grounds are allowed for statistical purposes. 15. Ground of appeal No. 3 by the Revenue and Ground of appeal No. 1(d) by the assessee relate to part relief given by the Ld. CIT(A) on account of property income. 15.1 Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings observed that assessee has given 1/3rd of old show room property on rent to other business concern and 1/3rd of the property being used by the partners for their residence. The area of old building is 1078.35/sq. mtr. Thus, 2/3rd of the building is not used for own business. He observed that the assessee has recovered only Rs. 4,72,800/- from sister concerns for the use of business premises, electricity and telephone and for the residential use only 5% of electricity charges and 3% of telephone charges have been recovered for personal use. From th....
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....al that rent is recovered from the sister concerns and again the appellant itself as per the past practice has disallowed part of the, electricity and telephone charges. No addition on this score is made in the past even in scrutiny assessments. Taking into account the facts of the case and past records, in my opinion in the absence of any material/evidence on record, estimating rent at a higher amount could not be justified. While there is no basis for estimating the expenses for personal use at a higher percentage, from the facts of the case and submissions made it is seen that the part of the electricity expenses though disallowed by the appellant are not adequate, especially taking into consideration the area used by the partners. Electricity bill for old showroom of which 1/3 portion is being occupied by the partners was Rs. 10,41,860/-. In view of the above, I find no error in AO's making further disallowance of Rs. 81,906/- which is confirmed. 31.1 Similarly, telephone expenses of Rs. 9,503/- are disallowed by the appellant itself. However, the AO has estimated the personal use at 15% of Rs. 3,16,767/- i.e. Rs. 47,515/- and added the difference of Rs. 38,012/-. This al....
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....he Ld. Departmental Representative on the other hand strongly supported the order of the Assessing Officer. 15.6 We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We do not find any infirmity in the order of the CIT(A). It is an admitted fact that no addition on account of electricity and telephone charges were made in the past on this issue. However, that cannot be a precedent since every assessment year is separate and distinct. Merely because some addition was not made in the past cannot be the basis for not making addition in the current assessment year especially when personal element of the expenses cannot be ruled out. Further, since the partners are occupying the same building from where the business of the assessee is being carried out, therefore, disallowance of electricity expenses is justified. However, since the amount disallowed by the Assessing Officer was on the higher side, the Ld. CIT(A) considering the totality of the facts of the case has restricted such disallowance to 15% of the expenses, which in our opinion is reasonable. 15.7 As rega....
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.... facts of the case since the assessee is following mercantile system of accounting. 16.2 In appeal the Ld. CIT(A) deleted the addition of Rs. 42,847/- being the difference in the account of Sunny foresight Pvt. Ltd. While doing so, he noted that the assessee has cleared its accounts in the next year. However, in the case of Harmony Multi Media Pvt. Ltd. he noted that the bill was recorded twice. According to him, although the error was rectified in the next year, however, double deduction should not be allowed in this year. He accordingly confirmed the addition. 16.3 Aggrieved with such order of the CIT(A) the Revenue as well as the assessee are in appeal before us. 16.4 We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. It is an admitted fact that the assessee has recorded a bill of Rs. 67,690/- twice. Since the assessee is following mercantile system of accounting and since correct method of accounting has to be followed to determine the true income, therefore, the assessee cannot be allowed to claim the expenditure twice in this year. Under these circumst....
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....31-03-2009 at Rs. 1,46,67,933/-, the details of which are as under: 18.2 The Assessing Officer however worked out the WDV as on 31-03-2009 at Rs. 1,38,53,048/- by deducting the depreciation @ 15% amounting to Rs. 24,44,656/- out of the WDV of Rs. 1,62,97,704/-. The Assessing Officer thus made addition of Rs. 8,14,855/- to the total income of the assessee being difference in the closing WDV, i.e. Rs. 1,46,67,933 - Rs. 1,38,53,048/-. 18.3 Before CIT(A) the assessee brought to his notice the provisions of section 43(6) and submitted that the Assessing Officer has taken an incorrect view in the matter of working of the WDV. The decision of Hon'ble Delhi High Court in the case of CIT v. Chirangilal reported in 74 ITR 80 and the decision of Hon'ble Calcutta High Court in the case of CIT v. Suman Tea and Plywood Industries reported in 204 ITR 719 were relied upon. The Ld. CIT(A) called for a remand report from the Assessing Officer. However, no specific comments were given by the Assessing Officer on this issue but the Assessing Officer reiterated the finding of the predecessor Assessing Officer. After considering the remand report the Ld. CIT(A) deleted the disallowance by obse....
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....lling due for payment, six months before 31-03-2009 and not encashed/not revalidated till today aggregating to Rs. 1,44,856/- appear in the statement enclosed". 19.2 However, the Assessing Officer was not satisfied with the explanation given by the assessee and added an amount of Rs. 1,44,856/- u/s. 41(1) of the I.T. Act. 19.3 Before CIT(A) the assessee submitted that the liability did not cease to exist nor was there unilateral act by the assessee which could suggest that the assessee made an entry in the books of account which has led to reduction of its liability. The liability continues to exist and appears in the balance sheet. The assessee has to revalidate the cheques issued to the depositors or their legal heirs as and when they come for revalidation. The remand report of the Assessing Officer on this issue was silent. 19.4 Based on the arguments advanced by the assessee the Ld. CIT(A) deleted the addition by observing as under: "44. The appellant is running a scheme called Gold Deposit Scheme under which deposits are received from several parties stationed at different places. Sometimes due to loss of original receipt/death etc. the deposit remains to be collected by ....
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....the addition of Rs. 1,61,06,612/- on account of verification under GDS." 20.1 Facts of the case, in brief, are that the Assessing Officer issued letters u/s. 133(6) to 331 parties who had deposited gold with the assessee, out of which 50 letters were returned undelivered due to wrong name/address on the envelope or change of address. The correct quantity of deposit of gold from such parties was 10663.610 grams. The Assessing Officer confronted the same to the assessee, who submitted that out of the 331 parties who had deposited in the Gold Deposit Scheme (GDS), 132 parties have already confirmed the fact of their having deposited gold with the assessee under the GDS while no reply was received from 149 parties. The letters sent to 50 parties were returned unserved. However, there is no balance of gold remaining unreturned in cases where the deposit was matured and not renewed till date. The assessee furnished the list of such persons. However, the Assessing Officer was not satisfied with the explanation given by the assessee and concluded that the said quantity did not belong to the concerned depositors but was belonging to the assessee. He accordingly valued the said quantity at ....
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....t lead to adverse inference until corroborated by subsequent findings/investigations. It seems AO was running out of time hence could not take the matter further. But the said addition without bringing on record any evidence to support that 10.6 kg gold belonged to the firm and it has introduced the same in fictitious names would be legally untenable. AO was required to make further enquiries from the bank account of the appellant whether the interest cheques issued to these persons (where, letters returned undelivered) were still pending or withdrawn by the appellant itself. This apart, no addition could be made in the year under appeal when admittedly deposits had been received in earlier years. The AO has also erred in applying the rate as on 31/03/2009. In this view of the matter, addition of Rs. 1,61,06,612/- cannot be sustained either on facts or in law. The same is deleted." 20.4 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 20.5 We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. From the copy of the assessment order itsel....
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.... was submitted that the assessee firm had given a contract for some work to one Ghulabchand Rajuria from Ahmedabad in relation to the construction of the new show room at Jalgaon. Tax was deducted u/s. 194C of the Income Tax Act in respect of the payment to the said party. An amount of Rs. 1,32,772/- was due to be paid to the said party as on 31-03-2009. The services of the said party was also hired for the construction of the staff quarters/guest house which was in progress during the later years and for some work in relation to old show room. Under instruction from the said party, the assessee has paid an amount of Rs. 1,20,000/- in instalments from 08-04-2009 to 13-07-2009. Unpaid balance of Rs. 12,772/- was carried forward but offered to tax in the A.Y. 2001-12 being liability not payable. The confirmation from the said party was also obtained but the same has been obtained after the assessment was over. 21.3 Based on the above submissions made by the assessee, the Ld. CIT(A) called for a remand report from the Assessing Officer who reiterated his earlier stand. After considering the same the Ld. CIT(A) deleted the addition by observing that the assessee has filed the account ....