TaxTMI 
TaxTMI 
2021 (4) TMI 475
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....4,014/- For that the Learned AO is erred in not providing sufficient opportunity to produce the vouchers to that effect even though the expenditure inevitable for the business; (iii) Capital introduced by the partners disallowed U/s. 68 of the I.T. Act at Rs. 12,30,000/-. For that the learned AO is erred in making such additions in the hand of the firms even though all the partners are the assessees under his jurisdiction having perpetual source of income shown in previous returns; (iv) Addition of Rs. 59,95,483/- on the ground of discrepancies in stocks found in course of survey. For that the Learned AO is erred in making such addition without considering the stock reconciliation statement submitted in course of assessment proceedings by upholding the facts germinated in course of survey in absence of statement of partners on oath U/s. 131 of the I.T. Act; (v) Cash purchase of gold at Rs. 66,96,965/-disallowed U/S.40-A (3) of the I.T. Act For that the learned AO is erred in making such huge addition without considering the genuine hardship of the sellers of the Tribal area as well as in contravention of provision under....
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....nses : Rs. 28,950/- Total : Rs. 11,98,476/- For the above expenditure claimed by the assessee in the profit and loss account, the assessee was asked to produce the supporting bills and vouchers but the assessee could not furnish on a single occasion to the details sought by the AO. Therefore, the AO disallowed lumpsum 10% of the total expenses claimed by the assessee i.e. Rs. 1,19,848/- (10% of Rs. 11,98,476/-) and added back to the total income of the assessee. Further on examination of the profit and loss account the AO found that he has claimed amount of Rs. 2,64,014/- towards carriage inwards but the assessee could not comply the questionnaire issued on 05.06.2015 in this regard. Therefore, the Assessing Officer (AO) added the entire amount of Rs. 2,64,014/- as a bogus expenses claimed in the profit and loss account. Further on perusal of the capital account of the partner's fresh capital contribution of the partners of Rs. 12,30,000/-. In this regard the assessee submitted financial statements and explanation regarding the capital contribution by the partners before the AO but he was not satisfied and made addition u/s.68 of the Act in the hands of ....
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....ification of bank account, the AO found that all the times for the entire year cash withdrawal was made by issuing self- cheques. From the documents, the AO noticed that the assessee on some days the purchase of gold and silver has been made by paying cash in exceeding Rs. 20,000/- to a single party/person by violating the provisions of Section 40A(3) of the Act, 1961. Accordingly a show cause notice was issued to the assessee on 22.01.2016. In response to the show cause notice the assessee filed written explanation on 17.02.2016, which reads as under :- "A) In fact it is the usual practice of the gold and silver business concerns that on many occasions the assessee is getting new ornaments made through local karigars for which job work charges are being paid by assessee. That most of the purchases are made from village customers on the condition that the customers purchase new jewellery from the assessee. Such purchases of old gold and silver purchases were treated as credit purchases, for which there was no payment in cash ever made for those transactions since these were adjusted against sales effected to such customers by the assessee for which there is also no receipt....
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....instances of purchases of gold and silver from village people at their respective villages through staff are not cash purchases. D) That all purchaser invoices have been signed by the parties. The assessee can not be expected to verify the address of the sellers. The assessee has to accept whatever address has been given to it. There are practical difficulties in verifying the address. Further, once the seller suspects that the assessee firm is not prepared to accept the address given by him, he may not be interested in selling the jewellery to the assessee firm. It is a question of mutual trust and once there is suspicion, the assessee's business interest will suffer. That the assessee, in the nature of its trade, cannot insist for an identification process akin to Know Your Customer (KYC) rules applied by banks. There is ho such mandatory requirement in the business of jewellery to maintain any records in line with KYC norms of bank. In fact, a prudent businessman might not insist on such rigorous process since insistence on such conditions will be to the detriment of his business. That in the nature of the trade of the assessee it may not possible to get full addres....
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....has been made through cash, therefore, there is no question of sundry creditors is arising. Accordingly, the AO added the entire sundry creditors shown in the balance sheet as on 31.03.2013 included into the total income of the assessee. 6. Feeling aggrieved from the order of AO, the assessee filed appeal before the CIT(A). The ld. CIT(A) after considering the assessment order and submissions of the assessee, dismissed the appeal of the assessee. 7. Aggrieved from the order of CIT(A), the assessee filed appeal before the Income Tax Appellate Tribunal. 8. Ld. AR before us filed paper book and also filed written submissions which read as under :- 1. That the Appellant is a partnership firm consisting of four numbers of partners namely (i) Shri Paidisetty Manmadha Rao (PAN No.BKGPP0788M); (ii) Shri Paidisetty Satya Santosh (PAN No.AAPPP3758B); (iii) Smt. Paidisetty Sushila (PAN No.AEKPP8689J) and (iv) Shri Paidisetty Manikanta (PAN No.BKGPP0789L). All of them are income tax Assessees under jurisdiction of ITO, Rayagada. The firm is a trading retailer dealt with the business of gold and silver ornaments. The firm purchases old gold and silver jewellers from the tribal....
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....ich of the expenses vouchers are not verifiable. In the previous year of assessment, AY 2012-2013, the claim of expenditure was fully allowed. The inevitable of expenditure for the purpose of business is not at all disputed by the Department. But on ad hoc basis the learned AO disallowed 10% of the claim of expenditure without any basis while disallowing 5% of expenditure in similar situation in the case of Kumar Sunrise Jewellers vide appeal No.0128/2016-2017 dated 08/03/2018 (additional paper book under Annexure-19 at Page-175 para 5.2). Discretion cannot be used discriminatorily not power can be exercised in a pick and choose manner. Thus, on the face of the decision taken in the case of Kumar Sunrise Jewellers (supra) disallowance of expenditure at Rs. 1,19, 848/- is bad in law. Hence the disallowance of expenditure is liable to be deleted. In so far as disallowance of carriage inwards at Rs. 2, 64, 014/- is concerned, it may be stated that this expenditure is inevitable for the business. After considering this aspect, the learned AO for the previous assessment year 2012-2013 allowed Rs. 2, 52, 612/- (2.06%) as Against the purchased turnover of Rs. 1,22,61,994/-. Durin....
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....iness have very much established. The learned AO had never attempted by issuing notice to the partners to establish their induction of capital in shape of cash in the firm. Hence the addition is liable to be deleted from the hand of the firm. The learned AO had never attempted. (d) In so far as addition of Rs. 59, 95, 483/-on the ground of discrepancies in stocks found in course of survey is concerned, the learned AO failed to examine the income tax return for the AY 2012-2013 in so far as quantification stock is concerned based on record viz; closing stock of gold was -8951.002 gms and silver-98021.71 gms which had susceptibly taken by the learned AO as under: GOLD Opening stock of gold as on 1.4.2011 as stated by you as per return of income at :6719.79 gm Purchase as per register :2979.64 gm Sale effected upto 31.3.12(-) :2449.49 gm TOTAL :7247.43 GM Closing stock as per stock inventory as on 4.4.2012 :8911.09gm Excess stock found :1633.66gm It may be stated that in so far as GOLD, the opening stock as taken by the Learned AO is not based on record. The Appellant has stated before the Learned AO at the time of survey that h....
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....1 gms The learned AO as well as learned CIT (A) have utterly failed to take note of the facts supported with documentary evidences and acted in a manner contrary to the facts placed before them. In so far as Gold is concerned there should not have been any addition and similarly in so far as Silver is concerned addition ought to have been made due to discrepancy, at best on 33932.71 gms valued at Rs. 11.13.650/- based on data disclosed in the return for the AY 2013-2014. Thus, at best the rate of net profit disclosed in the return at 1.09% to be taken into consideration for addition. In this context, the Hon'ble High Court of Madhya Pradesh in the case of Balchand Ajit Kumar, 263 ITR 610 (MP) and Hon'ble Gujurat High Court in the case of CIT v President Industries, 258 ITR 654 (Guj) is referred to wherein it was held that the total sale amount cannot be treated as income. Only an element income can be taxed in case of unaccounted amount of sales. In so far as addition of Cash purchase of gold at Rs. 66, 96, 965/- U/s.40-A (3) of the I.T. Act is concerned it may be stated that the Learned AO in course of survey operation has gone through the purchase regist....
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....xisted at relevant point in time which talks about considerations of business expediency and other relevant factors and Rule 6DD(j) which provides for the exceptional or unavoidable circumstances and the fact that the payment in the manner aforesaid was not practical or would have caused genuine difficulty to the payee and furnishing the necessary evidence to the satisfaction of the Assessing Officer as to the genuineness of the payments and the identity of the payee has held that: "The terms of section 40A(3) are not absolute. Consideration of business expediency and other relevant factors are not excluded. The genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances sp....
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....ance of the Sundry Creditor as on 1.4.2012 were as follows: Names Closing balance as on 31.3.2012 Payment during the AY 2013) Closing balance as on 31.3.2013 Jammi Dharakanath Prusty Rs. 63,520/- 3,400/-'"' 60,120/- Kandulu Rama Rs. 61,130/- 2,300/- 58,830/- Krishna Dr.V.Murali Krishna Rs. 71,620/- 5,400/- 66,220/- V.Eswar Rao Rs. 63,150 3,900/- 59,250/- K.Raju Rs. 73,125/- 7,500/- 65,625/- K.Naresh Kumudan Rs. 63,811/- 6,000/- 57,811/- Jami Raja Rs. 57,430/- 4,700/- 52,730/- K.Shankar Rao Rs. 54,840/- 2,800/- 52,040/- Gudula Satya Rao Rs. 64.221/- 4,200/- 60,021/- G.Venkata Ramana Rs. 56,256/- 2,900/- 53,356/- P.Ramana Rao Rs. 58,496 4,700/- 53,796/- P.Anusha Rs. 59,036/- 3,400/- 55,636/- B.Rama Devi Rs. 74,715/- 7,900/- 66,815/- Durga Prasad Panda Rs. 54,620/- 6,500/- 48,120/- S.Srinivas Rao Rs. 58,336/- 4,200/- 54,136/- A.Lokanath Patra Rs. 50,562/- 5,000/- 45,562/- P.Seshamba 50,082/- 3,900/- 46,182/- TOTAL 10,33,950/- ....
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....i. The additional evidence in the form of details of sundry creditors with confirmations from page 107 - 124 as annexure - 15 series against the last si. no. (15) of the paper book may kindly be regulated in accordance Rule 29 of IT (AT) Rules. Specified conditions under the Rule for the Tribunal to allow additional evidence are not satisfied: a. The Tribunal has not required it; b. Sufficient opportunities. Income tax authorities have not decided the case without sufficient opportunities. This fact is also relevant in the context of the argument of insufficient opportunities taken for certain grounds of appeal [1(h): disallowance . i carriage inwards and l(vi): sundry creditors added as unexplained]. A. AO. Opportunity provided has been discussed in first two paragraphs of the assessment order. ARs different from the current one were appearing before him. Hearing was fixed as many as 17 times. It was taken up on 6 occasions out of these. On other dates either no compliance was made or these were adjourned to other dates on petition for the same. B. CIT(A). At the level of the CIT(A) opportunity provided by him has been discussed in para....
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....29 of IT (AT) Rules not satisfied, may kindly be taken on record; b. It may kindly be recited in the order, c. Reason may kindly be recorded as required u/r 29 of IT (AT) Rules. II. Ground 1(iv)" Reconciliation of AO's computation and assessee's submission on stock discrepancy. The survey was 4 days into the beginning of the Previous Year (P/Y). Derivation aspects AO's computation Assessee's submission 1 Stock as per record As on the end of the preceding P/Y. Justification- Paragraph 5, pg. 6 of the assessment order: cIn course of survey operation the partner was asked to update the purchase/sales register as on the date of survey and to calculate the stock position... ' Contains transactions during the 3 days prior to the survey from the beginning of the P/Y. No purchase of silver, minor sales of silver ornaments relative to the stock as per record. Gold involves both purchase and sales making net marginal difference to the same. 2 Physical stock of silver ornaments. 62459 gm. 63359 gm. Slightly higher. 3 Opening stock date. First day of the preceding P/Y. First day of th....
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.... Further the ld. DR submitted in respect of ground Nos.1(i) & (ii) that no bills and vouchers were produced before the AO, therefore, the AO was justified to make addition which has been rightly confirmed by the CIT(A). In respect of ground No.1(iii) regarding partners capital contribution, the assessee could not justify the capital introduction that they had no capacity to introduce the capital as contributed by partners firm. The assessee has also unable to discard the findings recorded by the AO. Ld. DR in respect of ground No.1(iv) stated that during the course of survey proceedings, he had accepted that there was discrepancies found in the stocks of gold and silver and admitted and paid advance tax, if there was no discrepancies in the stocks then why the assessee paid advance tax in this regard. He also drew our attention on the balance sheet as on 31.03.2012. In respect of value of closing stock of gold and silver in which there is a totaling difference in the financial statements in respect of stock of gold and silver. Ld. DR further submitted in respect of ground No.1(iv) that the assessee had purchased gold and silver on cash, therefore, Section 40A(3) of the Act is clea....
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....4,30,000/-. Considering the facts of the case and looking to the nature of business of the assessee, we restrict the disallowance made by the AO and confirmed by the CIT(A) to the extent of 50% of Rs. 2,64,014/-. Thus, the assessee gets relief of Rs. 1,32,007/-. This ground is partly allowed. 11. Ground No.1(iii) is with regard to capital introduce by the partners, this issue is covered in favour of the assessee by the decision of CIT Vs. Metachem Industries, 245 ITR 160 (MPHC), wherein the Hon'ble High Court has held as under :- 6. So far as the responsibility of the assessee is concerned, it is satisfactorily discharged. Whether that person is an income-tax payer or not or from where he has brought this money is not the responsibility of the firm. The moment the firm gives a satisfactory explanation and produces the person who has deposited the amount, then the burden of the firm is discharged and in that case that credit entry cannot be treated to be the income of the firm for the purposes of income-tax. It is open to the Assessing Officer to take appropriate action under Section 69 of the Act, against the person who has not been able to explain the investment. In....
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....ed on i.e. on 21.03.2016 whereas the audit report for 31.03.2012 was prepared on 24.09.2012, which was much available at the time of framing of assessment according to which if we consider the opening balance as on 01.04.2012, there will be excess/shortage of stocks as calculated by us above but not the excess stock calculated by the survey team, therefore, the excess stock found by the survey team is not acceptable in the light of the financial statements available as on 31.03.2012. During the course of hearing ld. AR of the assessee has also accepted that there is excess/shortage of stocks. In the case of gold and silver he conceded that there is an excess stock found of 34.16gms and in case of silver 33,932.71 gms, respectively. He also conceded that the net profit rate should be added instead of entire value of the excess/shortage of the stocks. In this regard, he has also relied on the judgment as cited in his written submissions. However, we are not in agreement with the submission of the ld. AR regarding the profit element as offered by the ld. AR of the assessee. The shortage found of silver of 33,932.71 gms are conceded by the ld. AR on behalf of the assessee, therefore,, ....
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....cision of Hon'ble Gujarat High Court in the case of Anupam Tele Services are squarely applicable in the present case in hand, therefore, relying the above judgments of the Hon'ble High Courts, we allow this ground of appeal of the assessee. 14. With regard to this ground No.1(vi) the ld. AR of the assessee has submitted in his written submissions that the sundry creditors appearing in the balance sheet are relating to previous assessment years and not any fresh creditors have been created and the AO has also noticed that the assessee is making payment in cash. Considering this view if the creditors are relate to the previous assessment years and no fresh creditors have been created, the addition cannot be made in impugned assessment year. To support our view, reliance can be placed on the decision of coordinate bench of the Tribunal in the case of Lycos India Limited, ITA No.02/CTK/2018, order dated 01.09.2020, wherein the Tribunal has observed as under :- 12. On merits of the case, with regard to addition of Rs. 1,42,04,290/-relating to sundry creditors, there was an opening balance of Rs. 1,25,24,747/- (approx) as on first date of the financial year in the books of th....
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....CIT (A) has confirmed the addition vide discussion made at page 25-30 of the appeal order. These amounts added are the closing credit balances of the suppliers as on 31.3.2012 which is evident from PB 42-66. In our considered opinion, the sustaining of impugned addition is not justified due to the following reasons:- i). It has not been mentioned either by A.O or by Ld. CIT(A) as to under which section of the Income Tax Act, these closing credit balances appearing as on 31.03.2012 could be added. Therefore, non-mentioning the precise provision of law makes the impugned addition bad in law. ii) If addition has been made u/s 68, such could not be added and that too of this much of amount as there was no sum received from these parties & that too during the year under appeal which is evident from the copies of account of these parties enclosed in the paper book at PB 42-66 which would show that either there were opening credit balances or were purchases. iii). After perusing the PB Pg. 42-66 and PB Pg. 144, we find that purchases from these parties were aggregating to Rs. 1,90,88,538/- and it has been held in the following judicial decisions that credit on a....
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....under s. 69C or by invoking proviso to s. 69C - Nisraj Real Estate & Exports (P)) Ltd. vs. Asstt. CIT 31 DTR 456(JP 'A') CASH CREDIT-Failure by creditors to participate in inquiry and furnish accounts-Does not mean that creditors lacked identity-No material to show that amounts advanced by creditors in reality represented money belonging to assessee-Sums cannot be treated as cash credits-Income-tax Act, 1961-CIT v. CHANDELA TRADING CO. P. LTD. 372 ITR 68 (Cal) Income from undisclosed sources-Addition-Alleged bogus purchases-AO was not justified in making the disallowance of purchases made by the assessee merely due to non-filing of confirmation from suppliers especially when assessee has filed certificate from the bank indicating the facts that cheques issued by it were cleared and no defect in the books of account was pointed out by AO-YFC Projects (P) Ltd. vs. Dy. CIT 46 DTR 496 (Del. 'I') iv). We note that Opening balances amounting to Rs. 1,60,19,598/- (PB 144) (PB 42-66) which is evident from copies of account of these parties enclosed in the paper book at PB 42-66 is not justified on the ground that when assessee has not claimed any expense to that ex....
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....olding the liabilities ceased to exist may please be reversed. 6.4 Even in law, the addition is not sustainable for more than one reason. Section 41(1) of the Act is a deeming fiction according to which an amount which does not have any trace of income is treated as income liable to suffer the brunt of tax. Therefore, as per the established canons of law, the burden to prove that a particular amount falls within the four corners of section 41(1) is on the shoulder of the Assessing Officer without which the addition cannot be made and if made is liable to be deleted. 6.5 The first pre-requisite for the applicability of section 41(1) is there must be a trading liability in respect of which the deduction has been claimed and allowed and burden to prove the twin conditions to the effect of the above facts, it goes without saying, is on revenue. There is not even an iota of whisper as to whether the impugned creditors were in respect of trading liability for which any deduction was ever claimed and allowed and if allowed, in which year was it allowed so on so forth. This is evident from a plain reading of the assessment order. Therefore, Ld. A.O. miserably failed to di....
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.... that purchase could not be got verified, the fact that the sales have been accepted such sales obviously could not have been made without purchases. Therefore, in such situation G.P. Rate of the earlier years can act as a guide as held in judicial decisions including 355 ITR 290 (Guj) PB 17 is the copy of G.P. chart of various years. 6.11 We note that PB 136-143 is the copy of profit and loss account and trading account of earlier years together with assessment orders u/s 143(3) in which G.P. at the rate of 3.52%,4.13%, 2.99%, 2.~9%, 2.60%,2:21 %, 1.88% for Financial years 2007-08, 2008-09, 2009-10, 2010-11, 2012- 13, 2013-14, 2014-15 respectively has been accepted (PB 17). 6.12. Without prejudice to above, the assessee's sale was Rs. 6.21 Crores as is evident form profit and loss account enclosed at PB 13 and assessed income is at Rs. 3.54 Crores as is evident from the last page of the assessment order which would constitute 56% of the sale which is impossible and against all norms. 7. In view of above discussions, it is clear that the transactions were not bogus and therefore, the case laws relied upon by the Ld. DR are not applicable in this case. As far a....