TaxTMI 
TaxTMI 
2018 (3) TMI 1625
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.... CASS. Accordingly, statutory notice u/s. 143(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") was issued to the assessee on 23-09-2011. During the course of scrutiny assessment proceedings, the Assessing Officer made additions/disallowances on following counts : i. Disallowance u/s. 40A(2)(a) Rs.8,15,19,070/-. ii. Disallowance u/s. 14A Rs.9,24,259/-. iii. Addition on account of under valuation of closing stock Rs.54,87,702/-. iv. Disallowance of interest and depreciation on house property Rs.85,63,967/-. v. Disallowance of expenditure relating to Khar Flats Rs.7,61,579/-. vi. Addition of Godown Rent Rs.1,22,484/-. Aggrieved by assessment order dated 26-09-2013, the assessee filed appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) deleted the disallowances made by Assessing Officer u/s. 40A(2)(a) and estimated GP at 2.75% as against GP of 2.22% declared by assessee. Further, the Commissioner of Income Tax (Appeals) upheld the additions/disallowances made by Assessing Officer in respect of under valuation of stock, disallowance of interest, depreciation and other expenses relating t....
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....ompared to Rs. 473.23 crores in assessment year 2009-10. Since, the turnover in the assessment year under appeal is higher than the turnover in immediately preceding assessment year, the GP would go down. Thus, the addition made by Commissioner of Income Tax (Appeals) is not justified. The ld. AR referred to P & L account (at page 14 of the paper book) for the assessment years 2009-10 and 2010-11. 3.2 In respect of ground No. 4 relating to valuation of closing stock, the ld. AR submitted that the assessee has made addition of Rs. 54,87,702/- on account of under valuation of stock. The assessee is consistently making valuation of its closing stock on cost or net realizable value, whichever is less. For calculating net realizable value the assessee applies gold/bullion rate as quoted by Bombay Bullion Association. The assessee has been consistently following this method of valuation of closing stock in the preceding and succeeding assessment years. No objection whatsoever was ever made by Assessing Officer either in the earlier assessment years or in the subsequent assessment years in assessee adopting Bombay Bullion Association rates for valuation of closing stock. 3.3 In respect ....
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....,259/- made on account of disallowance u/s 14A read with rule 8D. From the facts of the case, it can be seen that assessee has invested interest bearing funds and has deliberately diverted its interest bearing funds into the shares of its own sister concerns and the sole purpose of this transaction was to avoid payment of taxes. 3. On the facts and circumstances of the case and in law, the order of the Ld. CIT(A)-2, Nashik be cancelled on the above issues and that of the A.O. be restored. 4. The appellant craves leave to add, alter, modify, delete amend any of the grounds at any stage of appellate proceedings. 5. The appellant prays to file any of the additional evidence appropriate to the grounds taken in appeal." 6. The ld. DR submitted that a special audit was carried out in the case of assessee. During the course of audit it transpired that the assessee has entered into various transactions with its sister concerns. In invoices the details of ornaments, making charges etc. are not mentioned. There are variation in the rates charged from sister concerns and third parties. Further, the invoices do not bear the time of transactions. The assessee has inflated purchase price....
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....espect of disallowance made u/s. 14A the ld. AR submitted that the assessee has invested a sum of Rs. 1,36,40,800/- in shares of group companies. The details of investments made by assessee in group companies are as under : a. Manraj Housing Finance Ltd. Rs.21,90,800/-. b. R.L. Gold Pvt. Ltd. Rs.1,00,000/-. c. Manvi Holdings Pvt. Ltd. Rs.1,12,50,000/-. d. Manraj Jewellers Pvt. Ltd. Rs.1,00,000/-. Rs.1,36,40,800/-. The assessee has not received any dividend from any of these companies, therefore, no exempt income has been earned by assessee from investments made in group concerns. The ld. AR placing reliance on the decision of Special Bench of Tribunal in the case of Assistant Commissioner of Income Tax Vs. Vireet Investments (P) Ltd. reported as 188 TTJ 1 (Del) (SB) and Goyal Ishwarchand Kishorilal Vs. JCIT in ITA No. 422/PN/2013 for assessment year 2009-10 decided on 26-06-2014 submitted that where no exempt income has been earned, no disallowance u/s. 14A is warranted. 10. We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. The ground No. 1 raised in the appeal by assessee is wit....
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....rnished by assessee before the Commissioner of Income Tax (Appeal) with regard to differences on comparison of Bombay rates and local rates in respect of gold bullion and gold ornaments are as under: Summary Actual purchase price Purchase price as per Jalgaon rate Excess amount paid Less amount paid New Ornaments 2,83,98,28,666 2,94,29,75,490 4,64,822 (10,36,11,647) Bullion 2,50,07,83,500 2,57,17,72,000 59,11,500 (4,69,00,000) Total 5,34,06,12,166 5,48,47,47,490 63,76,322 (15,05,11,647) Net less paid (14,41,35,325) (14,41,35,325) The Commissioner of Income Tax (Appeal) worked out the difference between the Bombay rates adopted by the Assessing Officer and Jalgaon rates applied by the assessee with respect to purchase of gold bullion and jewellery. The relevant extract of the findings of Commissioner of Income Tax (Appeal) are as under: "6.9 If we take and compare the excess payments worked out by the Auditors and the A.O. applying the purchase rates prevailing at the Bombay Bullion Association and the excess or less payments worked out by the appellant using the purchase rates prevailing at Jalgaon, then the picture that eme....
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..../ Commissioner of Income Tax (Appeal) have failed to understand the trading transactions in gold bullion and gold ornaments in right perspective. The method of average price of the year is not correct method to determine reasonableness of the amount paid for purchasing gold bullion from sister concerns. There are certain instances where the assessee had paid lesser price as compared to the local market and Bombay market to the sister concerns. This fact has not been considered by both the Authorities below. (e) There are mistakes in the recasted trading account prepared by the Commissioner of Income Tax (Appeal) as the total turnover of the assessee as shown in the recasted trading account is Rs. 1065.32 crores whereas the actual turnover is Rs. 955.78 crores. Similarly, transactions with the third parties including gold bullion and gold ornaments as per recasted trading account is Rs. 679.66 crores as against cost of actual transaction Rs. 435.37 crores. Therefore, no reliance can be placed on recasted trading account. (f) While making addition in respect of sale of gold ornaments to group concerns/ sister concerns, both the Authorities below have adopted comparison formula ba....
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....- as per audited accounts. After reducing the GP declared by the assessee at Rs. 10,79,15,449/-, the balance GP is to be added to the total income of the assessee. This covers the grounds on the addition made by invoking provisions of section 40A(2) (b) i.e. purchase of bullion from the sister concerns/related entities by paying higher price as well as sale of the ornaments at lower price. Accordingly, the relevant grounds taken by the assessee are partly allowed and the grounds of appeal No. 1 and 2 by the Revenue are dismissed." 17. Both sides are unanimous in admitting that the transactions carried out by the assessee during the assessment year under appeal are similar in nature and their accounting has also been done in similar manner. Thus, there are fictitious transactions between assessee and other group concerns to inflate the turnover. The Commissioner of Income Tax (Appeals) while estimating GP at the rate of 2.75% has taken cue from the decision of the Tribunal in the case of M/s. Rajmal Lakhichand (supra). The relevant extracts of the findings of Commissioner of Income Tax (Appeal) in this regard are as under: "As discussed above, the appellant had also entered into ....
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....ar. Thus, following the decision of the Hon'ble ITAT in the case of Rajmal Lakhichand, the adoption of G.P. rate of 2.75% as against the G.P. rate of 2.22% disclosed by the appellant will be fair and meet the ends of justice. Therefore, the A.O. is directed to work out the G.P at 2.75% on the total sale of Rs. 888,30,42,858/- as per the audited accounts. The revised G.P. comes to Rs. 24,42,83,678/- as against G.P. shown by the appellant at Rs. 19,69,50,707/-. After reducing the G.P. shown by the appellant at Rs. 19,69,50,707/-, the balance G.P. is to be added to the total income of the appellant which comes to Rs. 4,73,32,971/-. This covers the grounds on the addition made by invoking provisions of section 40A(2)(a) i.e. purchase of gold bullion and gold ornaments from the sister concerns by paying higher price. The other income shown by the appellant will remain unchanged. The other confirmed additions will not be affected." 18. The assessee has assailed the G.P. estimated by Commissioner of Income Tax (Appeal) being on the higher side. As against the GP of 2.22% disclosed by assessee the Commissioner of Income Tax (Appeals) has estimated GP at 2.75%, thereby enhancing the G....
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....d by Bombay Bullion Association for valuation of closing stock. We do not find any merit in the reasoning given in the impugned order to disturb the method of valuation of closing stock. Accordingly, the findings of Commissioner of Income Tax (Appeals) on this issue are set aside and ground No. 4 raised in appeal by assessee is allowed. 20. In ground Nos. 5 and 6 the assessee has assailed disallowance of interest Rs. 42,02,453/-, depreciation Rs. 43,61,514/- and expenditure Rs. 7,61,579/- relating to Khar, Mumbai flats. The assessee has paid interest on loan taken for purchasing flats at Khar, Mumbai. The contention of the ld. AR is that the flats were purchased by assessee for business purpose and are being used by employees of the assessee companies whenever they visit Mumbai for purchase/sale of gold/bullion. We find that identical issue had come up before the Tribunal in assessee‟s own case in assessment year 2007-08. The Tribunal after examining the facts allowed depreciation, payment of interest and other expenditure in respect of said flats. The relevant extract of the findings of Tribunal on this issue are as under : "11. We have considered the rival arguments made....
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....he Directors. The facts of the case clearly show that the company is the real owner of both the flats notwithstanding their registration in the names of directors. It is the defacto and beneficial ownership which is material and relevant. In the context of depreciation the courts have accepted the assessee's claim for the same even when property/vehicles are not registered in the name of company/firm but in the names of directors/partners. Addl.CIT Vs. Manjeet Engg. Ind. 154 ITR 509 Delhi CIT Vs. Fazilka Dabwali 270 ITR 398; P&H Ratio of the said decisions would also apply to the facts of our case also. It is also important to note that the appellant's claim for depreciation has been accepted also for the A.Y. 2007-08. We are enclosing herewith a copy of our sales tax registration certificate wherein the particulars of Offices and its addresses are mentioned." 13. From the above it is clearly seen that the assessee's claim of depreciation which has been accepted by the AO in the original assessment has not been withdrawn. This otherwise implies that the AO has accepted the flat as business asset used for the purpose of business. We find the Hon'ble Punjab & Haryana High Cour....
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.... real ownership of flats in question. Thus, in view of the findings of Co-ordinate Bench of Tribunal on this issue, ground Nos. 5 and 6 raised in appeal by assessee are allowed. 21. In result, the appeal of assessee is partly allowed in the terms aforesaid. 22. Now we proceed on to decide the appeal of Revenue. The ground No. 1 raised in appeal has been adjudicated along with ground No. 3 of appeal by the assessee. For the detailed reasons given above, the ground No. 1 raised in appeal by Revenue is dismissed. 23. In ground No. 2 of appeal, the Revenue has assailed deleting of disallowance Rs. 9,24,259/- u/s. 14A r.w.Rule 8D of the Act. As per the contention of the assessee, the assessee had invested Rs. 1,36,40,800/- over a period of time in its group companies. The assessee has not received any dividend income from the said companies in the period relevant to the assessment years under appeal. This fact has not been re-butted by the Revenue. The Special Bench of the Tribunal in the case of ACIT Vs. Vireet Investment (P) Ltd.(supra) has held that no disallowance u/s.14A r.w. Rule 8D(2)(iii) can be made where no exempt income from investment is received during the year. In....