2018 (8) TMI 1252 - AT - Income Tax

Genuineness of expenditure - making charges of gold ornaments - Assessee contended that, AO has disallowed 53% of the total expenditure and adopted the minimum rate of ₹ 82/- per gram against average making charges of ₹ 166.66/- per gram which is highly unreasonable and arbitrative. - The CIT(A) adopted the rate of ₹ 140/- per gram against the average price paid to local smiths at ₹ 166/- per gram. - Held that - considering the facts and merits of the case we are of the considered opinion that adopting the rate of ₹ 150/- per gram as average would be fair and reasonable to meet the ends of justice - Decided partly in favor of assessee. Additions u/s 68 - purchase of jewellery from Veer Jewellers - unexplained cash credit - AO observed that no prudent person would involve in such a huge transaction around ₹ 81.00 lakhs in a casual manner and return the precious metal without obtaining the proper receipt. - Held that - The assessee explained that both the stock and liability was declared in the books of accounts, hence no case for making the addition. No other evidence was brought on record by the revenue to controvert the submission made by the assessee with regard to admission of stocks as well as the liability in the assessee s books of accounts.. Since the liability as well as the stock are declared and continued in the books of accounts, there was no under assessment, and there was no bogus liability to make the addition. - Decided in favor of assessee.

Issues Involved:
1. Addition on account of making charges paid to local goldsmiths.
2. Addition of unexplained cash credit.
3. Disallowance of credit card expenses.
4. Rejection of claimed agricultural income.
5. Disallowance of interest on advance to M/s Usha Pictures and Financiers.
6. Disallowance of business expenditure on gifts to customers.

Detailed Analysis:

1. Addition on Account of Making Charges Paid to Local Goldsmiths:
The assessee claimed expenses for making charges at ?166.66 per gram, but the Assessing Officer (AO) allowed only ?82 per gram, citing deficiencies in vouchers and lack of verification. The Commissioner of Income Tax (Appeals) [CIT(A)] adopted a rate of ?140 per gram. The Tribunal found that the assessee dealt in a variety of gold ornaments requiring different levels of skill and time, justifying higher making charges. The Tribunal directed the AO to adopt ?150 per gram as a fair and reasonable rate, considering the nature of the items and the average rates paid.

2. Addition of Unexplained Cash Credit:
The AO added ?80,91,947 as unexplained cash credit, suspecting the genuineness of a transaction with Veer Jewellers. The assessee argued that the jewellery was returned and the entries were made later. The Tribunal found that the liability and stock were declared in the books, and no evidence was provided by the revenue to dispute this. The Tribunal set aside the CIT(A)'s order and deleted the addition, accepting the assessee's explanation.

3. Disallowance of Credit Card Expenses:
The AO disallowed 20% of credit card expenses, considering them personal in nature. The CIT(A) confirmed this disallowance. The Tribunal upheld the CIT(A)'s decision, noting that the assessee failed to establish that the entire expenses were for business purposes.

4. Rejection of Claimed Agricultural Income:
The AO rejected the claimed agricultural income of ?6,23,005 due to lack of evidence. The CIT(A) treated 50% as agricultural income. The Tribunal found that the assessee owned 23.33 acres of agricultural land and produced evidence of cultivation. The Tribunal accepted the assessee's argument that the income was reasonable and set aside the CIT(A)'s order, allowing the full claimed agricultural income.

5. Disallowance of Interest on Advance to M/s Usha Pictures and Financiers:
The AO disallowed ?12,00,000, representing the difference between the interest paid on loans and the interest charged on an advance to M/s Usha Pictures at 6%. The CIT(A) scaled down the disallowance to 4% interest. The Tribunal found that the assessee had sufficient interest-free funds and the advance was due to business exigencies. The Tribunal deleted the addition, noting that similar disallowances were deleted in subsequent years.

6. Disallowance of Business Expenditure on Gifts to Customers:
The AO disallowed the entire amount of ?18,23,034 spent on gifts, citing lack of details and cash payments. The CIT(A) allowed 50% of the expenditure. The Tribunal acknowledged the prevalent practice of giving gifts to customers in this trade and directed the AO to restrict the disallowance to 25% of the expenditure, considering the evidence and business practices.

Conclusion:
The Tribunal partly allowed the appeals of the assessee for the assessment years 2013-14 and 2014-15, and dismissed the appeals of the revenue. The decisions were based on a detailed examination of the nature of expenses, business practices, and the evidence provided by the assessee.

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