TaxTMI 
TaxTMI 
2018 (10) TMI 2072
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.... entries fn undisclosed foreign Bank account. 2. On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in restricting the addition of Rs.32,40,46,529/- to Rs.3,04,61,096/- by holding that the foreign bank account of the assessee is a trading account and profit thereon should be taxed instead of the amount of peak credit made therein. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 3,77,42,710/- made on account of unexplained credit entries of various concerns/third parties In Standard Bank, London's. 4. On the facts and In the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.3,77,42,710/- by holding that the other entries are not posting error even though Ld. CIT(A) has mentioned only one entry as posting error. 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.3,78,49,800/- made on account of unmatched entries in STCSH account. 6. On the facts and in the c....
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....h proves that assessee is having two bank account one in standard bank UK a/c no 13446 and another in the national bank (RAK bank), UAE a/c no. 0025332626002. This remittance slip also shows the transfer of $ 100000 from UK to UAE bank account of the assessee. 2) A demand notice of due margin call for $ 1,02,869.00 dated 20/5/2013 from Standard Bank. 3) Various HTML documents related to trading on Metals Web platform of the standard bank based at London. 4.3 The Investigation wing during and post-search proceedings recorded the statement of the assessee u/s 132(4) of the Act on various occasions. The assessee in response to the questions raised in the statement recorded under section 132(4) of the Act on 23-06-2013 and 307-2013 replied as under: i. The impugned bank accounts are in his name, but the accounts were opened and operated by a company based in Dubai, UAE namely "Vin gold LLC" belonging to Shri Mehul Nandha. ii. He is merely a sales executive of the company who provides consultancy services to "Vin gold LLC". iii. He has given a letter of authority to a person Shri Vishal Patadia- an employee of Shri Mehul Nandha at the time....
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.... 134496 Metal Ledger Statement - Gold Margin a/c. Standard Bank, UK 02.01.2008 to 26.06.2013 1 to 278 8. PANKAJ (Precious LON) / 134496 Metal Ledger Statement - Silver Margin a/c. Standard Bank, UK 08.01.2008 to 26.06.2013 1 to 51 9. PANKAJ (Precious LON) / 134496 Metal Ledger Statement - Platinum Margin a/c. Standard Bank, UK 31.10.2008 to 26.06.2013 1 to 2 4.8 In response to the reference, the Revenue authorities of UAE supplied the following accounts details: No. Account Type Account Number Period 1. Current Account 0025332626001** 08.06.2012 to 06.05.2014 2. Current Account 0025332626002 17.08.2010 to 06.05.2012 **No transaction is appearing in the account. 4.9 An application is also filed to settlement commission where the assessee submitted a memorandum of understanding (MOU) between him and Mehul Nandha. The assessee contended that as per MOU he (assessee) is entitled only for 10% of profit earned by Mehul Nandha. Accordingly, the assessee filed the audited financial statement of VIN GOLD related to all these transactions. Further, the assessee on the basis of these financial stat....
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.... renowned name in his field, therefore it is not expected from him that he would enter into any such transaction which would not yield result and still required his time, energy and his legal name. i) The fact that there is no need to maintain the books of accounts in Dubai proves that no need for companies to engage in activities with someone else's name. j) There was not any co-operation from the side of the assessee before the investigation wing as he made the same reply for all the queries except the email id of vingold LLC which was provided during the post search inquiries. The assessee has not filed any other information which was required from him by the Investigation wing. 4.11 Based upon above noted inconsistencies, the AO issued a detailed show-cause notice to assessee dated 18/05/2017. The AO in the show cause notice also mentioned working of peak credit which he intended to add as unaccounted income of assessee. 4.12 The assessee in his reply for the above show cause made submissions vide dated 25/05/2007 which can be summarized as under: 1) The accounts supplied by Revenue Authorities of Singapore are not at all bank accounts. But thes....
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....t bank accounts. The explanation of the assessee stands as under: However, the AO disagreed with the submission of the assessee on the grounds as detailed under: i) All the documents confirmed that these transactions are in the name of assessee. ii) The MOU is not registered or made on stamp paper. The MOU was not produced or filed before two foreign banks or any other authority, government or otherwise. iii) Assessee claimed that the account was opened in Standard Bank in his name to save Mehul Nandha from stringent margin requirement. However, on perusal of banking limit credit application, no discussion is found regarding margin requirement. iv) Assessee did not provide any information about how he came in contact with Mehul Nandha and for how many years he is acquainted with him. v) Foreign authority while providing data nowhere mention transaction recorded therein represent transaction in derivatives. Similarly, other details like mode & time of settlement, terms & conditions between "Metals Web" are not known therefore the AO concluded that it is difficult to believe that these transactions are derivative transaction. v....
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....ndha. 5.1 The assessee again filed second confirmation on letterhead of vin gold, confirmation of depositors in the accounts to AO but he disregarded the evidences and alleged that transactions do not belong to Mehul Nandha. Assessee also reiterated the submissions which were placed before AO. 5.2 The assessee also submitted that MOU not registered or not made on stamp doesn't make any difference. It fulfills all the requirement of Indian Contract Act. Further the same was not submitted to any authority as it was a confidential agreement. 5.3 The assessee accordingly contended that the detail/ accounts/ MOU/ confirmations are at par with the affidavit. All these documents cannot be rejected without critical examination and countering it by positive evidence. Further, Nandha was never summoned. The assessee was also never asked to produce him. Regarding this the assessee also relied on certain judgment in support of his where the impugned was decided in his favor. 5.4 The assessee without prejudice to above submitted that these are derivative trading transactions. Therefore the profit earned by the assessee on such transactions should be taxed and not the peak credit bal....
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....2,00,000] (ii) Loss on Forward Sale-1 is Rs.1,00,000/- [1,00,00,000 -1,01,00,000] (iii) Profit on Forward Sale-II is Rs.5,00,000/- [2,00,00,000 1,95,00,000] (iv) Net Profit is Rs. 4,00,000/- [5,00,000-1,00,000] (v) Closing Balance 7,00,000/- [Net Profit + Margin Money] In above case, if highest credit as on 08.04.2010 at Rs. 3,03,00,000/- is considered as peak balance and treated as ones' income, it will definitely give absurd results as it is only a figure of forward sale without considering the forward purchase." 5.9 Considering above the assessee contended that the AO willfully remained silent on the above example given during the assessment proceedings. 5.10 Therefore, the presumption of the AO for determining the undisclosed income is merely based on suspicion, arbitrary without rebuttal of working, one-sided & against the natural justice. 5.11 The assessee also submitted that in the proceedings before settlement commission, investing wing and assessing officer, the fact was admitted that the a/c was linked to metals web derivative a/c for trading. The reasoning for the same is given by the assessee before the CIT-A whi....
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....lexible trading screen. Key functionality includes access to multiple markets and instruments from one screen, real-time profit and loss, multi-exchange spreading and one-click scalping, protection of orders and integrated charting... ...From the perusal of the documents it is emerges that the trading is being regularly done by the assessee as Pankaj Lodhiya and the latest entries are of May 17th 2013 (Friday), i.e., last working day before the launch of the search on May 20' (Monday). ...As the documents contained multiple entries of sale and purchase, it is gathered from the HTML documents that the running balance figures in negative represent the money payable to the bank. 2.4 After the recovery of these incriminating materials from the digital data seized, it was clear that the assessee, as an individual regularly trading on the Metals Web platform... Also vide para 6.0 on page no. 42 of the assessment order (conclusion part), the AO observed that- a) The digital evidence forensically retrieved from the computer backup shows the active participation of the assessee in accessing the foreign banks and trading out of India." 5.12 The a....
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....g in UAE since long. Thus there was no jurisdiction of the AO. During the post search investigation, the assessee has not filed the copy of the MOU despite repeated opportunity provided to him. It all proves that the assessee himself is a beneficial owner of all the accounts as discussed above. Second Contention The ld. CIT(A) observed that CIT in his report u/s 245D and P.CIT under rule 9 observed that assessee had foreign bank accounts at UAE and Singapore which were used for trading in derivative. Further, all the records and net settlement entries clearly shows it is a derivative trading account. Accordingly the ld. CIT-A held that once it is concluded that this is derivative trading, then the question of taxing the undisclosed income based on peak credit theory does not arise. Third Contention The ld. CIT(A) observed that AO did not find any defect in audited financial statement filed by the assessee. Thus the profit of Rs. 1,04,61,096/- shown in it will be the quantum of profit for taxable income. The ld. CIT-A further observed that the assessee failed to explain the initial money invested in the business. Therefore the ld. CIT-A assumed on ad-hoc basi....
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.... 6. Paper Book No. 3 part (i) pages 1 to 215 7. Paper Book No. 3 part (ii) pages 216 to 393 8. Paper Book No. 3 part (iii) pages 394 to 463 8.1 The ld. AR further submitted that there was no question of working out the profit based on the peak credit theory. The AO was in possession of derivative statements showing the purchases and sales. Therefore only the profit element at the most can be added to the total income of the assessee. 8.2 The learned AR further submitted that the addition on account of initial investment had been made merely on the ad-hoc basis. There was no information available with the lower authorities suggesting that the assessee has made any initial investment. Therefore the addition of the same is not sustainable. Both the parties relied on the order of authorities below as favorable to them. First we take up Revenue's ground of appeal in ITA 92/Rjt/2018 9. We have heard the rival contentions and perused the materials available on record. The facts as discussed above are not in dispute. Therefore, we are not inclined to repeat the same for the sake of brevity. In the instant case, the first issue is whether transaction....
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.... to derivative business transactions. The relevant extract of retrieved document is extracted below : Standard Bank From: Standard Bank PLC Add: Precious Metal-Operations One George Street # 16-04/05/06 049145 Tel: +65 6232 8947/8916 Fax: +65 6533 7754 Email: [email protected] To: Pankaj C Lodhiya NAME PHONE NUMBER In accordance with the MTA between Standard Bank Plc. and Pankaj C Lodhiya we hereby give notice of the following Cash/Margin call as at Close of Business 2013/05/17 as per the breakdown below. Please advise what action you will be taking to meet this call. Margin Call &n....
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....sp; Margin Call Amount Due to us USD 102,869 9.9 We further note that the AO in his order has clearly explained the meaning of margins as detailed under: "1. INITIAL MARGIN : The initial margin is the percentage of the purchase price of securities that the investor must pay, either in cash or securities, to open a market position. The percentage varies widely; it will depend on the type of securities being purchased, the market or exchange and the creditworthiness of the investor. In the above case, this amount is USD 221,885.24 which means this amount is payable by Shri Pankaj Lodhiya. 2. VARIATION MARGIN: Variation margin is the additional funds that a broker may request from a client so that the initial margin requirements of his position keep up with any losses. If the client's equity falls below the initial margin requirement when marked to the closing price at the end of each day a margin call will be made. Sometimes referred to as maintenance margin. As per the above do....
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....ld be taxed and not the peak credit. 9.14 Now the third issue before us is the working of quantum of taxable income. In this case we find that financial statement certified by Chartered accountant and prepared as per IFRS were filed by the assessee during the assessment proceedings. 9.15 We also note that the ld. CIT-A during the appellate proceedings called for the remand report from the AO vide letter dated 12-2-2018 whether the transactions recorded in the cash & metal ledger statement are of derivative trading or purely banking transaction. This clarification was required due to the fact that the PCIT (Central) has written to the ITSC that these statements are showing trading in derivatives. But the AO in his remand report remained silent and just submitted that these statements are received under DTAA agreements which are confidential. From the remand report, we note that there was no defect pointed out in the observation of the ld. CIT-A by the AO. 9.16 In addition to the above, we also note that the ld. CIT-A has clear given finding that the assessee during the assessment proceedings has clarified the entries reflecting in the statements three times, manner of the p....
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....h are supported on the basis of corroborative evidence. In the instant case, we note that there was no corroborative evidence found during the course of search suggesting the addition of Rupees 2 crores on account of investment in the business of the assessee. Therefore in our considered view, such addition without any incriminating material is not sustainable. In holding we find support & guidance from the judgment of the Hon'ble Delhi High Court in the case of CIT Central-III vs. Kabul Chawla reported in (2016) 380 ITR 573 (Del) wherein it was held as under : "iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. ....
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.... 11.3 From the above it is clear that there cannot be any addition without finding any incriminating document found during the search. The addition in the case on hand was made by the ld. CIT-A on ad-hoc basis without any incriminating materials. 11.4 There were incriminating documents found during the search in relation the derivative transactions representing the undisclosed business of the assessee. Therefore in such circumstances, only the profit element from such transactions can be added to the total income of the assessee. In this regard, we also find the support and guidance from the judgment of Hon'ble Gujarat High Court in the case of CIT Vs. President industries reported in 258 ITR 654 wherein it was held as under: "The amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represent the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that the investment by way of....
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....rty,i.e. Deepu Jewellers is defective. 12.5 AO also held that these credit entries are unexplained and made addition u/s 69A for Rs. 3,77,42,710/- to the total income of the assessee. 13. Aggrieved, assessee preferred an appeal to ld. CIT(A). The assessee before the ld. CIT(A) submitted that three entries out of total four credit entries were wrongly posted in the statement which were immediately reversed in the statement. Therefore the relevant disputed amount under consideration is only for Rs. 38,98,098/- whereas the AO grossly erred in adding the entire cash credit in his account without the application of mind. 13.1 The assessee also contended that Mehul Nandha had arranged these funds from his associates and friends. He has shown these receipts in the audited financial statement as creditors filed during the assessment proceedings. The confirmation from these parties has also been filed during the assessment proceedings. 13.2 The ld CIT(A) after considering submissions of the assessee deleted the addition made by AO by observing as under: "From the above, it is seen that entries of USD 99,213.50 dated 08.01.2008, USD 5,57,988.64 dated 14.01.2008 and USD 1....
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....Division that as per the KYC information, the appellant is not the owner or beneficiary of M/s. Deepu Jewellers LLC. Under the said facts and circumstances, it cannot be said that the appellant failed to explain the source of funds credited by M/s. Deepu Jewellers LLC into the impugned cash ledger statement. Therefore, in respect of funds credited by M/s. Deepu Jewellers LLC in the cash ledger statement, the same is treated as explained and hence, addition made by the AO of USD 99,213.50 equivalent to Rs. 38,98,098 is deleted. This ground of appeal is allowed." 13.3 Being aggrieved by order of ld. CIT(A) Revenue is in appeal before us. 14. Both the parties relied on the order of authorities below as favorable to them. 15. We have heard the rival contentions and perused the materials available on record. On perusal of the cash ledger statement, it is evident that three out of four entries credited has been reversed in the very next entries on page no 105 & 106 of paper book-1 part (ii) of the statement. Thus in our considered view, the question of the addition of these three entries do not arise. 15.1 The only entry left is from M/s Deepu jewellers LLC which was not reve....
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....nd the bank statement of M/s Deepu Jewellers. Thus the onus is on the Revenue to prove that the transactions with the assessee of M/s Deepu Jewellers were representing the income of the assessee. 15.6 Regarding the element of the profit, we have already upheld the order of the ld. CIT-A vide Paragraph No. 9 of this order. Therefore there cannot be a further addition on account of the profit element in the transactions between the assessee and M/s Deepu Jewellers. Further, the business nature of assessee is also not of providing consultancy etc. Thus we hold that the amount received by the assessee represents the loan as contended by him. Therefore, we uphold the decision of ld. CIT-A, accordingly we dismiss the appeal of Revenue. 16. The 3rd issue raised by the Revenue in ground No. 5 is that the ld. CIT-A erred in deleting the addition made by the AO on account of unmatched entries in STCSH statement of Rs. 3,78,49,800/-. 16.1 The AO during assessment proceedings observed that in respect of STCSH (Precious LON) ledgers supplied by the Revenue Authority of Singapore is a specific account of M/s Shreeji trading Co which is a proprietary concern of the assessee. The accou....
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....statement denote the value of metal in USD that is to be paid on account of lifting of quantity by STC at the instance of M/s. Shreeji Trading Co. Credits in the metal ledger statement refers to the quantity of metal that is lifted (may be in tranches) by STC at the instance of M/s. Shreeji Trading Co. Credits in the cash ledger statement are the payment made by STC to SBL in USD in respect of the quantity lifted for supply it to M/s. Shreeji Trading Co. 16.8 Assessee also submitted reconciliation again highlighting some reversal entries which is reproduced as below: SHREEJI TRADING CO.(PROP. PANJAK C. LODHIYA) Airway Bill Wise reconciliation of Release and Lifting F.Y. 2007-08 / A.Y. 2008-09 Date Airway Bill No. T/Oz Reversal T/Oz Ref.No. of STC Invoice Date as per bill of STC Quantity in T/Oz Metal Ledger Page No. 04-02-08 7419643724 1279.6 A591 07-02-08 7419643724 A590 05-02-08 159.95 5 7419643724 A589 04-02-08 479.85 4 7419643724 ....
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.... 31-03-08 319.9 11 28-03-08 7419643724 159.95 A587 28-03-08 479.85 11 19-03-08 7419643724 159.95 A584 25-03-08 Total 7997.5 7997.5 SHREEJI TRADING CO.(PROP. PANJAK C. LODHIAY) Airway Bill Wise reconciliation of Release and Lifting F.Y. 2008-09 / A.Y. 2009-10 Date Airway Bill No. T/Oz Reversal T/Oz Ref.No. of STC Invoice Date as per bill of STC Quantity in T/Oz Metal Ledger Page No. 04-04-08 16021867613 321.48 C40 15-04-08 321.48 13 30-05-08 16021867613 321.48 47 15-07-08 321.48 20 06-06-08 16021867613 803.7 33 19-06-08 803.7 19 17-06-08 16021867613 803.7 32 09-06-08 803.7 18 10-07-08 16021867613 160.74 48 11-07-08 160.74 20 31-07-08 16021867613 321.48 45 31-07-08 321.48 22 14-07-08 16021867613 1607.4 ....
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....e preferred an appeal to ld. CIT(A) where the issue was raised in two separate ground. First for reversal entry dated 08/02/08 and second for separate bill matching for entry dated 16/01/08 in STCSH account. Accordingly the ld. CIT-A also decided the issue in two different Paragraphs. However before us revenue raised this issue in single ground. 17.1 For the first reversal entry dated 08/02/2008 assessee before the ld. CIT(A) submitted that in the metal and cash ledger statement client name is state trading corporation, which proves that the transactions are between STC and SB for appellant. Further if reversal entries are not reflecting in STC books he has nothing to do in this regard as he has no control over the books of STC. 17.2 Assessee also submitted that it was already explained to AO that he made the payment in INR to STC and STC made payment in USD to SB which has also been reconciled. There were no variances or discrepancies in it. 17.3 Assessee has submitted the whole terminology and modus operandi relating to transaction with SB through STC which is reproduced here. "(i) However in this connection, for the sake of brevity, definition / literal meaning....
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....ting agency for allowing lifting of gold to STC or as per the instruction / order of STC. -o involvement of Appellant. (xii) Thereafter, STC issues DO / delivery challan to appellant, for lifting of gold from vaulting agency." 17.4 Apart from it assessee draws the ld. CIT-A's attention to metal ledger statement where it can be clearly seen that entry has been reversed in the very next entry. 17.5 For the next entry dated 16/01/08 which is reconciled by assessee through multiple bills. The assessee contended before ld. CIT-A that invoices were generated and issued by STC and each such invoices contain details like invoice no., delivery note no., quantity, rate, custom duty etc. 17.6 Copy of purchase account and account of STC is also on record which after verification AO found multiple bills on different dates issued by STC is recorded and tallied. As regard to standard procedure adopted by the canalizing agency again it is reiterated that the assessee has no control over it and STC is undertaking of the Government of India to import precious metals in India. 17.7 The ld CIT(A) agreed with the contention of the assessee and deleted the addition made by AO for bo....
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....ich each Dr. entry in the metal ledger is quantity released by SB and each Cr. entry is quantity lifted by the assessee. Since the order entry and reversal entry thereof was debited and credited in the metal ledger, AO treated it as normal order and released entry. The logic of AO is ridiculous as the transaction is reflecting in normal course of business. If one makes sales return though his sales will be counted just because in sales ledger it is reflecting. 18.3 AO should have seen the effect of these Dr. and Cr. entries in whole and not just by catching the words of assessee. Very next reverse entry after the order entry means the above original order entry is nullified either by reason of cancellation of the order or by any other reason. 18.4 In respect of second entry dated 16/01/08 which is reconciled by assessee through multiple bills AO made this addition only because assessee in respect of some entries in metal ledger submitted reconciliation in his book on the basis of multiple invoice/ date of issue. AO while doing so stated that canalizing agency importing bullion should follow the procedure of separate bill of each purchase for issuing of invoice because rates a....
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....ocations of STC at one time, sometimes the final location of delivery of the goods is not decided. Therefore, as the destination of the goods is not yet decided the same is kept under the head of unallocated metal ledger statement. On finaltsation of the location for delivery of goods, the entry previously made is reversed by debiting the exact quantity of metal that was earlier credited and therefore as and when the location for final delivery is confirmed, the credit entry made earlier gets nullified by debiting the same and the final effect of which is given in metal ledger statement 19.3 The AO again issued a final show cause notice to explain these entries. 19.4 The assessee in his reply dated 06th July 2017 contended that all the entries in unallocated gold & silver accounts have been duly explained. Thus it is not clear whether any further clarification/information is required or show cause is issued to make the addition and accordingly, assessee requested the AO to clarify the above confusion so that required submission may be filed. However AO disregarded the contention of the assessee and observed that assessee could not explain entries in unallocated m....
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....mself admitted that corresponding Dr/Cr entries has been entered in cash ledger. (6) These transactions are temporary and get settled by actual release and subsequent lifting of the goods. For this trail an annexure 'A' is also submitted. 20.2 The ld CIT(A) agreed with the contention of the assessee and observed that in the statement of unallocated gold/silver each entry is reversed on the same date for the same quantity. Even the metal ledger statement shows "CLIENT NAME: STATE TRADNG CORPORATION INDIA (SHREEJI TRDG CO, RAJKOT)." 20.3 The ld. CIT(A) also observed that AO's inference that each and every entry of unallocated metal ledger statement matching with that of metal ledger statement on that particular date and place is not explained, is practically not possible as unallocated gold/silver is not being purchased by the assessee. Further, it is subsequently released and lifted which is duly supported by bills issued by the STC in favor of assessee. 20.4 The ld. CIT(A) also observed that once the destination of these unallocated gold and silver is decided the assessee, these become parts of total purchases. Then there is no need for a separate nomenclature. Th....
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....iency in Annexure 'A' in his order. 22.2 On perusal of this annexure we find that plea of the assessee that entries in the unallocated statement are only temporary and as soon as the location of delivery is finalized the entry has been reversed is tenable as assessee has matched entries of metal ledger statement with entries appearing in unallocated ledger statement (gold & silver). It can be seen in Annexure 'A' that entries of metal ledger statements in same quantity are appearing and then in the very next entry is reversed. Similarly, in the cash ledger statement, the corresponding entry of metal ledger statement unallocated statement in the same amount appears in cash ledger statement and the reversed entry of unallocated statement also appears in the cash ledger statement. 22.3 As these transactions are carried out by the assessee with SB through STC, in our opinion, it is not possible to enter into such transaction which is unaccounted for appellant as in this case it would also be an unaccounted transaction of STC. 22.4 Further, AO also did not find any deficiency in Annexure 'A' and he could not bring any materials on record which shows that these transactions are ....
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....essment order and the written submission have been carefully perused. According to the AO, the premium found mentioned in the ledger is over and above the purchase price paid by the appellant and is not recorded in the books of the appellant. He therefore held that the premium has been made out of unexplained sources and made the addition thereon. On the other hand, the AR contended that, this is included in the bill raised by the Standard Bank ltd., on STC in USD and subsequently by STC upon the appellant in INR. The AO failed to appreciate that, the premium is appearing in the same account wherein the purchases are recorded. If the purchases are accounted for, then obviously the premium would also be accounted for. The premium being clubbed in the purchase cost and in the invoice raised by the Standard Bank Ltd and STC, has been met by through bank. Hence, the question of treating premium as unexplained fails to survive, merely because, this is not recorded under separate This is an expenditure and payment made through bank. Any prudent businessman would record this expenditure. There is no logic in not recording the same in the books. It is clubbed in the total purchases and hen....
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....perused the materials available on record. In the instant case, the addition was made by the AO on the ground that the assessee has made payments besides the purchases. As such the AO found that there were seven payment entries on various dates reflecting in the cash ledger statement which were not connected with the purchases. The AO also did not find the submission made by the assessee satisfactory regarding these entries. Therefore the AO made the addition. 26.1 However, on perusal of the order of learned CIT-A, we note that a remand report was called from the AO on the reconciliation filed by the assessee during the appellate proceedings. The copy of the reconciliation statement is placed on page 17 of the paper book-1 part (ii). However, the AO repeated the finding of his assessment order in his remand report without pointing out any defect in the reconciliation statement filed by the assessee. 26.2 The Learned DR for the revenue has also not brought anything contrary to the finding of learned CIT-A. Therefore we are inclined not to disturb the finding of the learned CIT-A. Hence this ground of appeal of the Revenue is dismissed. 27. The 6th issue raised by the Revenu....
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....y interest, is only hypothetical. Addition merely on the basis of a surmise, fails to survive. The appellant has incurred the expense in the course of his business and as per the need of the business, the evidence of the same are on record and there is no irregularity on the part of the appellant. In view of the above, the above disallowance made by the AO is deleted. This ground of appeal is allowed." Being aggrieved by the order of learned CIT-A, the Revenue is in appeal before us. 29. Both the parties before us relied on the order of authorities below as favorable to them. 30. We have heard the rival contentions and perused the materials available on record. At the outset, we note that the AO has not brought anything on record during the assessment proceedings suggesting that the assessee has diverted interest-bearing fund to any non-business transactions. Therefore the addition was made by the AO on the basis of his surmise and conjecture. Accordingly, we find no reason to disturb the finding of learned CIT-A. Hence the ground of appeal of the revenue is dismissed. 31. The 7th issue raised by the revenue in ground number 9 and 10 is that learned CIT-A erred in delet....
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....ly covered by the decision of the Hon'ble Gujarat High Court in the case of Jayesh Raichand Shah [2013] 29 taxmann.com 151 (Gujarat) wherein it was held that: Loss incurred by wholesaler of gold and silver on hedging of metals in commodity exchange so as to insure against price fluctuation, is allowable speculative loss under section 43(5){a). The head notes of the decision reads as under: Section 43(5), read with section 147, of the Income-tax Act, 1961 - Speculative transaction -Hedging Loss -Assessment years 200708 and 2008-09 - In its returns, assessee, engaged in wholesale business of gold and silver, claimed loss under section 43(5)(a) on hedging of metals in commodity exchange to insure against price fluctuation - Said exchange was recognized in a subsequent year - In assessment it was not case of Assessing Officer that impugned hedging transactions, did not satisfy condition of section 43(5)(a) - Whether any post-assessment attempt on part of Assessing Officer to fall back on conditions required to be satisfied for application of sub-clause (a) would amount to change of reasons recorded for reopening; and any such inquiry would be wholly a fishing inquiry - Hel....
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....r ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips: Provided that for the purposes of this clause - (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) an eligible transaction in respect of trading in derivatives referred to in clause [(ac)] of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognized stock exchange;] 21. From the above provision, it can be seen that "speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity including stocks and shares is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. It is not in dispute that ordinarily the transactions entered into by the petitioner in hedging would fall under such definition of speculative transaction. However, sub-section (5) contains se....
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....explain the source of initial investment made for carrying out the business of derivative trading through Standard Bank. The addition made without any notice of enhancement and without any basis, merely on suspicion is totally unjustified and uncalled for which deserves to be deleted and may kindly be deleted. 4.0 The Ld. CIT(A) erred on facts as also in law in confirming addition of Rs.5,82,72,750/- made on account of alleged unexplained investment in properties at Ahmedabad and Mumbai. The addition confirmed in total disregards to the facts on record is totally unjustified and uncalled for which may kindly be deleted. 5.0 The Ld. CIT(A) erred on facts as also in law in confirming addition of Rs.10,79,175/- on account alleged deemed rental income in respect of alleged unexplained investment in property at Ahmedabad. The addition confirmed is totally unjustified and uncalled for which deserves to be deleted and may kindly be deleted. 6.0 The Ld. CIT(A) erred on facts as also in law in confirming addition of Rs.1,80,000/- on account alleged deemed rental income in respect property other than self-occupied property. The addition confirmed is totally unjusti....
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.... observing that he duly certifies the declarations made before the banking authority. Further banking executive also certified the same. 40.2 The assessee before the settlement commission stated on oath that assessee opened bank accounts for Shri Mehul Nandha because assessee was able to qualify for margin and net worth requirement. Therefore all the informations furnished in KYC are true. Accordingly AO made the addition of 64,74,750/- + 5,17,98,000/- = 5,82,72,750/- u/s 69A of the Act as undisclosed and unaccounted investments. 41. The aggrieved assessee carried the matter to the ld. CIT-A where assessee submitted that there is no cogent material which proves that declaration made for these investments are true except self-declaration made in KYC. 41.1 The assessee also submitted that value for the above investments is given without any documentary evidence. In-fact the assessee has declared higher value just to increase the net worth in KYC. 41.2 The assessee also claimed that where the addition is proposed under section 69A of the Act by the AO, then the onus in such cases is on the Revenue to prove the undisclosed investment. 41.3 However the ld. CIT-A disregard....
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....the above, while reiterating the aforesaid guidelines of the Board, I am directed to convey that any instance of undue influence/coercion in the recording of the statement during Search/Survey/Other proceeding under the IT Act, 1961 and/or recording a disclosure of undisclosed income under undue pressure/coercion shall be viewed by the Board adversely." 43.3 From the above circular it is amply clear that the CBDT has emphasized to its officers to focus on gathering evidences during search/survey operations and strictly directed to avoid obtaining admission of undisclosed income under coercion/ undue influence. Keeping in view the guidelines issued by the CBDT from time to time regarding the statements obtained during search and survey operation, it is undisputedly clear that the lower authorities have not collected any other evidence to prove the ownership of the properties except the KYC documents. Therefore under such facts & circumstances, we are inclined not to uphold the order of authorities below. 43.4 We also note that the AO was aware of the addresses of the properties situated in Ahmadabad and Mumbai, but he did not exercise his power given under the statute i.e. 133....
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....nvestment. The relevant extract of the KYC document is reproduced below as under: "Financial Commentary * According to client, balances in various books total around US$ 7 Million * Income from various buisnesses total around US$ 1.5 million per annum * Fully owns his home in Rajkot purchaes in 2001 at US$ 320k. An apartment in Ahmedabad purchasesd at US$150k which is tenanted at around US$25,000 a year An apartment in Mumbai, near the Nariman Point area purchased at US$1.2 milliion in 2005 Client had verbally mentioned that he bought an office unit in DMCC Dubai. Most likely there would be other assets not made known to AE * For the bulliion trading, Shreeji Trading Co. was set up and wholly owned by Pankaj himself only. He estimates that the bullion business has given him a profit of around $500k for last year. * For the other business he is in, are family businesses and co-owned with his father and brother as listed below. Rajkot Galvanizers Pvt. Ltd. - supplies mobile towers to Relieance Communications. They are supposed to be the sole suppliers for Reliance. Star Barrels....
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....by AO. Being aggrieved by the order of learned CIT-A, the assessee is in appeal before us. 47. The ld. AR before us submitted that the deemed rental value taken by the AO is excessive and unreasonable. 48. The ld. DR relied on the order of authorities below. 49. Before us also learned AR did not file any evidence suggesting that deemed rent taken by AO is over and above the prevailing market rate in Ahmadabad. In our view fetching rent of Rs.15,000/- per month from the property in Ahmadabad city is not a big deal. Therefore we are inclined to confirm the addition. Accordingly, we dismiss the ground of appeal raised by the assessee. 50. The next issue raised by the assessee in ground no 7.0 is that ld. CIT-A erred in confirming the addition of Rs 3,00,000/- made by the AO on the ground of non-deduction of tax at source on commission paid to Rajesh Bhatt. 50.1 On verification of audited accounts filed by the assessee, the AO noticed that the assessee had paid a commission of Rs. 3,00,000/- to Shri Rajesh Bhatt without deducting TDS. Accordingly, the AO issued a notice to the assessee for his explanation. 50.2 The assessee in his reply submitted that sales ....
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....ld the order of CIT-A confirming the addition of Rs.3,00,000.00. Hence the ground of appeal of the assessee is dismissed. 55. In the result, the appeal of the assessee is partly allowed. 56. In, the combined Result, the appeal of the Revenue is dismissed and the appeal of the assessee is partly allowed. 57. For the assessment year 2009-10 first we take up the grounds of appeal raised by the Revenue in IT(SS) No.93/Ahd/2018: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in restricting the addition of Rs.22,48,40,771/- to Rs.6,,05,002/- made on account of income earned out of /credit entries fn undisclosed foreign Bank account. 2. On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in restricting the addition of Rs.22,48,40,771/- to Rs.6,,05,002/- by holding that the foreign bank account of the assessee is a trading account and profit thereon should be taxed instead of the amount of peak credit made therein. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in restricting the additon of Rs.10,....
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....CIT(A) erred in restricting the addition made by the AO to Rs. 4,04,98,624.00 from Rs. 10,25,63,967.00 on account of unexplained credit entries from various parties in cash ledger statement. 61. The AO during assessment proceedings observed certain credit entries in standard bank account number 13446 of Rs. 10,25,63,967/- from the certain parties as detailed under : F.Y.2008-09 Date Details Credit (USD) Conversion rate of USD in INR Total 01/04/2008 SHREEJI INTL 100000 39.94 3994000 02/04/2008 SHREEJI INTL 50000 39.98 1999000 07/04/2008 VINAYAKA OVERSEAS 150000 39.93 5989500 29/04/2008 SHREEJI INTL 200000 40.22 8044000 30/04/2008 FR SIM JOO TENG 300000 40.46 12138000 12/05/2008 SHREEJI INTL 199955 41.68 8334124.4 14/08/2018 DEEPU JEWELLERS 499980 42.82 21409144 20/09/2018 DEEPU JEWELLERS 399980 43.72 17487126 17/09/2018 DEEPU JEWELLERS 499980 46.34 23169073 102563967 62. The AO requested the assessee to file the complete details of these credit entries. 63. Assessee vide letter da....
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....of "Deepu Jewellers", the AR stated that the appellant had furnished confirmations from the depositor before HorVble Settlement Commission and also before the AO confirming that they have lent funds to Mehul Nandha. Copy of said confirmation is also enclosed with the written submissions made to this office. Further, during the course of appellate proceedings, AR relied upon the comments of Pr. CIT in his Rule-9 report dated 18.12.2015 submitted before Hon'ble Settlement Commission, which is as under: "16.1 The competent authority, UAE, Dubai, has supplied the bank statement of M/s. Deepu Jewellers, LLC Dubai alongwith its KYC documents. As per the documents, the following persons are the share holders in the company. a. Mr. Abdulla Ramadan Moosa b. Mr. Kishore Ratilal Dhakan c. Mr. Deepak Ratilal Dhakan 16.2 As per the KYC information received from Foreign Tax Authorities, the applicant is not the owner/beneficiary of M/s. Deepu Jewellers LLC." The AR argued that as the Pr. CIT was having sufficient documents in respect of M/s. Deepu Jewellers LLC-that is, KYC data, bank statement etc., it cannot be said that funds credited into the ....
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....5,800.00 29-4-2008 To LOANS & ADVANCES Receipt 2,00,000.00 30-4-2008 To LOANS & ADVANCES Receipt 3,00,000.00 12-5-2008 To LOANS & ADVANCES Receipt 1,99,955.00 3-7-2008 By LOANS & ADVANCES Payment 5,000.00 14-7-2008 By LOANS & ADVANCES Payment 5,00,000.00 13-8-2008 To LOANS & ADVANCES Receipt 4,99,980.00 20-8-2008 To LOANS & ADVANCES Receipt 3,99,980.00 17-9-2008 To LOANS & ADVANCES Receipt 4,99,980.00 25-9-2008 By LOANS & ADVANCES Payment 5,00,000.00 2-10-2008 By LOANS & ADVANCES Payment 7,50,000.00 25-11-2008 By LOANS & ADVANCES Payment 4,75,000.00 22-12-2008 By LOANS & ADVANCES Payment 63,000.00 30-12-2008 By LOANS & ADVANCES Payment 50,000.00 20-1-2009 By LOANS & ADVANCES Payment 2,00,000.00 25,56,392.34 25,48,800.00 By Closing Balance 7,592.34 25,56,392.34 25,56,392.34 71. Both the ld. ....
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....is reflecting the business transaction i.e. sale & purchase of derivatives. Thus such transactions at the most can be treated as business transaction and therefore only the profit element is liable to be taxed. In this regard, we further find that the assessee has already shown the business profit derived from the sale & purchase of derivates which has already been added to the total income of the assessee. In this regard, we find support & guidance from the judgment of Hon'ble Gujarat High Court in the case of CIT Vs. President industries (supra). The relevant has already been reproduced herein above. 77. We also note that the provisions of section 68 of the Act should have been applied as there were credit entries found in the books of the assessee which were not satisfactorily explained. But it clear that the addition has been made in accordance to the provisions of section 68 of the Act. However, in our considered view, the character of the addition shall not change merely on the basis of the wrong section quoted by the AO. 78. Accordingly, in the instant case the onus was on the assessee to prove that the credit entries as discussed above are not representing the income ....
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.... adjudicated this issue against the revenue in paragraph number 30 of this order. Accordingly and repectfully following the same, the issue raised by the Revenue is dismissed. 89. The next issue raised by the Revenue in ground number 8 is that the learned CIT-A erred in deleting the addition for Rs. 53,50,520/- on account of purchases of cheque /DDs from M/s Siddhartha enterprises. 90. There was a survey operation u/s 133A of the Act, carried out at the business premises of M/s Siddhanath Enterprises. During survey, certain informations related to purchase of cheques/DD in lieu of cash by the assessee from M/s Siddhanath Enterprises were found. 91. The details of transactions pertaining to the year under consideration are as under: A.Y. 200910 Date Cash Given by Amount Cheque No. Bank Name Payable at CHEQUE/DD PURCHASED IN FAVOUR OF BF-14 07-Apr-08 Shreeji Trading Co. 84240 386140 RPCL Rajkot Sahyog Cotton & oil Industries BF-14 22-Jul-08 Shreeji Trading Co. 88240 816467 INDUSIND Rajkot dev sons products BF-15 20-Dec-....
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....e preferred an appeal to ld. CIT(A) where assessee submitted that he purchased cheque/DD in lieu of cash in the ordinary course of his business and paid due commission after deducting applicable TDS. 94. The assessee also submitted that he had reconciled the majority of the entries related to list of transaction forwarded by the investigation wing. Assessee also contended that the transactions which were not reconciled were not carried out by him. Therefore he had asked AO to allow him to cross-examine the M/s Siddhnath Enterprise in respect of these unmatched entries. 95. Assessee also contended that as AO did not allow him the opportunity of cross examination, he himself approached to M/s Sidhanath enterprises where they confirmed that they have not provided the investigation wing so called list of transaction. 96. A confirmation from M/s Siddhanath Enterprises was also filed by the assessee during appellate proceedings wherein it was clarified by the M/s Sidhanath enterprises that they have only carried out the transaction with the assessee which are appearing in the books of assessee. 97. The ld. CIT(A) after considering the fact of the case and submission made by t....
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....tended before AO that these un-reconciled transactions do not belong to him. Accordingly, the assessee requested the AO to provide opportunity for the cross-examination of M/s Siddhnath Enterprise but the AO failed. In this regard, we note that as per the principle of natural justice AO should have provided the opportunity of cross-examination to assessee. In this connection we rely on the judgment of Hon'ble Supreme Court in the case of Andaman Timber Industries v. Commissioner of Central Excise, Kolkata-II reported in 62 taxmann.com 3. The relevant extract of the order is reproduced below: "It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authorit....
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....peal of the Revenue is dismissed. 105. Now coming to the ITA 161/Rjt/2018, the appeal filed by the assessee. The assessee has raised following grounds of appeal. "1.0 The grounds of appeal mentioned hereunder are without prejudice to one another. 2.0 The learned Commissioner of Income-tax (Appeals)-11, Ahmedabad [CIT(A)] erred on facts as also in law in rejecting ground of appeal related to validity of notice issue u/s.143(2) of the Income-tax Act, 1961 [hereinafter referred as to the "Act"]. That on facts as also in law, initiation of action u/s. 153A of the Act is invalid and assessment made on such invalid initiation deserves to be quashed and may kindly be quashed. 2.1 The order passed u/s. 153A of the Act without there being any incriminating material is totally unjustified on facts as also in law and may kindly be quashed. 3.0 The ld. CIT(A) erred on facts as also in law in retaining addition of Rs.6,05,002/- being profit from derivative trading done by one Shri Mehul Nandha in foreign account named PANKJ (13446) with Standards Bank. The addition retained is totally unjustified and uncalled for and deserves to be deleted and may kindly b....