2018 (5) TMI 1966 - AT - Income Tax

Sales in cash of bullion being unexplained in the absence of detail and corroboration - whether cash sales of gold by the assessee is part of the trading transaction and the trader buying the gold would fall u/s 14A(3)? - HELD THAT - CIT (A) has categorically mentioned that prima facie there is no dispute as regards recording of transaction in the books of account and quantitative details for the period 01.04.2011 to 31.03.2012 includes inward or outward transactions of gold of 10 Kgs. during the year under assessment. CIT (A) has proceeded on the basis of surmises that the business transactions of jewellery and bullion dealers are highly cash intensive in nature and it is always apprehended that they could be used for flow of black money into the system and has referred to section 115BBE . CIT (A) also mentioned that during the year under assessment mention of PAN was made mandatory w.e.f. 01.07.2011 for bullion purchase of 5, 00, 000/- or more at a time. So far as question of making mention of PAN as mandatory w.e.f. 01.07.2011 for all jewellery/bullion purchases of 5, 00, 000/- or more is concerned when it is undisputed case of the assessee that the sale of gold in question was made on 03.05.2011 and sold on 05.05.2011 the provisions for mentioning PAN which came into effect w.e.f. 01.07.2011 are not attracted. Ld. CIT (A) in para 4.3(b) at page 18 has himself recorded that Interestingly and coincidentally in our case the appellant has undertaken these transactions just before that . CIT(A) despite being satisfied that the provisions are not applicable in case of the assessee but proceeded to enhance the income of the assessee to the tune of 2, 24, 99, 000/- on account of sales in cash of bullion being unexplained in the absence of detail and corroboration. In the face of the fact that books of account duly audited by the auditors have been accepted by the dl. CIT (A) and no adverse inference has been drawn and provisions contained u/s 115BBE are not attracted the income has been enhanced by ld. CIT (A) apparently on the basis of surmises which is not sustainable in the eyes of law hence following the decision rendered by Hon ble High Courts and Tribunal in CIT-II vs. Jindal Dyechem Industries Pvt. Ltd. 2012 (4) TMI 423 - DELHI HIGH COURT R.B. Jessaram Fetehcahnd (Sugar Dept.) vs. CIT Bombay City-II 1969 (7) TMI 10 - BOMBAY HIGH COURT and Kishore Jeram Bhai Khaniya Prop. M/s. Poonam Enterprises Mp-83 2014 (5) TMI 699 - ITAT DELHI addition made by ld. CIT (A) is ordered to be deleted. - Decided in favour of the assessee.

Summary

Issues Involved:
1. Disallowance of interest under section 36(1)(iii)
2. Enhancement of income on account of sales made during the assessment year
3. Addition of cash sales made by the assessee
4. Adverse inference drawn on cash sales without rejecting books of accounts

Issue 1: Disallowance of Interest under Section 36(1)(iii):
The appellant sought to set aside the order confirming the disallowance of interest under section 36(1)(iii). The contention was that no disallowance should be made as the loans were given out of business expediency. The tribunal found that the smallness of the addition led the appellant to not press these grounds. Consequently, the grounds were determined against the assessee.

Issue 2: Enhancement of Income on Account of Sales:
The CIT (A) enhanced the income of the assessee on account of sales made during the assessment year. The tribunal examined the cash deposits made by the assessee and the scrutiny of cash sales under section 40A(3). The key question was whether cash sales of gold by the assessee constituted part of trading transactions. The tribunal referred to relevant case laws and held that the enhancement of income was not sustainable. The addition made by the CIT (A) was ordered to be deleted, ruling in favor of the assessee.

Issue 3: Addition of Cash Sales Made by the Assessee:
The CIT (A) made an addition based on cash sales made by the assessee without rejecting the books of accounts. The tribunal analyzed the legality of such additions and considered the requirement of recording purchaser details for cash sales of gold. Relying on precedents and statutory provisions, the tribunal concluded that the addition made by the CIT (A) was based on surmises and not sustainable in law. Consequently, the addition was ordered to be deleted, favoring the assessee.

Issue 4: Adverse Inference Drawn on Cash Sales Without Rejecting Books of Accounts:
The tribunal scrutinized the adverse inference drawn on cash sales without rejecting the books of accounts. It was highlighted that the books of account were duly audited and accepted, and that no adverse material was brought on record. The tribunal emphasized that the income enhancement was based on surmises and not supported by relevant legal provisions. Relying on legal precedents, the tribunal ruled in favor of the assessee and ordered the deletion of the addition made by the CIT (A).

In conclusion, the tribunal partially allowed the appeal filed by the assessee, deleting the additions made by the CIT (A) regarding interest disallowance and income enhancement on account of sales. The tribunal dismissed the stay application as the related appeal had been disposed of.