2018 (10) TMI 66 - AT - Income Tax

Addition u/s 68 - Held that - Though section 68 of the Act was rightly invoked considering the failure of the assessee to give the identity of its customers, who gave advance in cash, and purchased in cash, such addition has to be restricted to the extent it is not reflected in sales. Taxing the credits in bullion margin money account and sales, would be equivalent to taxing the same amount two times. Hence, section 68 of the Act, in our opinion can be invoked only for those amounts which are not reflected in sales. Thus, while holding that the learned Commissioner of Income-tax (Appeals) was justified in confirming the addition for credits in the bullion margin money account, we direct the learned Assessing Officer to rework such addition by exclud ing margin money credits, to the extent accounted in sales, in the same financial years. In the result, ground of the assessee is partly allowed. Addition for suppression of sales and rejection of loss - cash sale of bullion at a rate below the association rates for the impugned assessment years - Held that - We upheld the order of the learned Commissioner of Income-tax (Appeals) deleting the addition for suppression in cash sales. Since the credits in bullion margin money account were transferred as sales, the learned Commissioner of Income-tax (Appeals) directed the Assessing Officer to reduce the peak credit considered for addition under section 68 of the Act from sales accounted by the assessee. As mentioned by us it is an undisputed position that credits in bullion margin money account were generally transferred to sales account. Addition of credit in bullion margin money account has been sustained by us, only to the extent not transferred/ accounted in the sales. Otherwise, it will result in double addition of the same amount. In such circumstances, we are of the opinion that the learned Commissioner of Income-tax (Appeals) was justified in giving direction to set off of credit in bullion margin money account with sales accounted by the assessee, so that double addition was avoided. Addition made for diversion of interest bearing funds - Held that - CIT-A has given a clear finding that the assessee had more than sufficient own funds for giving the interest-free advances. When the assessee was having sufficient own funds, we cannot say that any interest bearing funds were diverted for giving interest-free advances. That apart, the learned Departmental representative was unable to show what were the interest bearing funds that were held by the assessee which were diverted. We do not find any reason to interfere with the finding of the learned Commissioner of Income-tax (Appeals) in this regard. Disallowance made for personal use of car despite the assessee admitting such use - Held that - Commissioner of Income-tax (Appeals) had deleted this disallowance with a finding that the business of the assessee was vast. The learned Assessing Officer on the other hand had made the disallowance for personal use of cars based on the admission of the assessee. We are of the opinion that the learned Assessing Officer was justified in making such disallowance since it was made on an admission of the assessee. Order of the learned Commissioner of Income-tax (Appeals) on this issue is set aside and the disallowance made by the learned Assessing Officer is reinstated - decided in favour of revenue Additions made for credit/debit notes and differences in reconciliation with M/s. Metals and Minerals Trading Corporation - Held that - he assessee could not have been saddled with the onus of reconciling the differences in accounts. No way, it can be said that credit notes were the assessee s income or debit notes, were the assessee s expenses. The outcome of the arbitration proceedings, in our opinion will have a great bearing on the quantum of reconciliation difference for which the assessee, if at all is liable. In such circumstances, we are of the opinion an addition for difference in accounting credit and debit notes could not have been made for the impugned assessment years. Even if there is some income arising to the assessee, it will crystallised only in the year in which the arbitration proceedings reach a finality. The Revenue may, if it choose, take cognizance of the arbitral award, in the year in which the arbitration is complete and proceed according to law. We therefore set aside the additions made for credit/debit notes and differences in reconciliation with M/s. Metals and Minerals Trading Corporation for the impugned assessment year - decided in favour of assessee. Addition for difference in M/s. State Trading Corporation (M/s. STC) account - Held that - Nothing to show what was the nature of the income sought to be added as from State Trading Corporation. Discussion in the assessment order for the assessment year 2011-12 is only on difference with regard to M/s. Metals and Minerals Trading Corporation credit/debit notes and reconciliation. The order of the learned Commissioner of Income-tax (Appeals), also does not deal with any issue regarding addition made by the learned Assessing Officer for income from M/s. State Trading Corporation. Only conclusion we can reach is that the addition made by the learned Assessing Officer was purely on a surmises. The said addition stands deleted. Addition for exchange rate fluctuation debited in its account based on alleged instructions from M/s. Metals and Minerals Trading Corporation - Held that - If M/s. Metals and Minerals Trading Corporation had charged on the assessee, exchange fluctuation loss of ₹ 7,53,46,987, it would definitely appear in the account of the assessee with M/s. Metals and Minerals Trading Corporation. We have already held that the learned Assessing Officer can take a wholesome view considering the reconciliation differences, if any, between the assessee and the M/s. Metals and Minerals Trading Corporation, once the Arbitral Tribunal reaches its conclusion, in the year which such proceedings are complete. The assessee in our opinion could not have claimed such amount in the impugned assessment year when all along its argument was that credit/debit notes issued by M/s. Metals and Minerals Trading Corporation were fraudulent. The lower authorities were in our opinion, justified in disallowing the claim. Ground of the assessee is dismissed. Addition for want of confirmation from a creditor, named Duraikannau - Held that - We find that the assessee was given a number of opportunity during the course of assessment proceedings and also in the remand proceedings for substantiating the credit. It seems, the assessee could not produce any evidence before the learned Assessing Officer. In such situation, we are of the opinion that the learned Commissioner of Income-tax (Appeals) was justified in confirming the addition. Addition for difference in closing stock - Held that - The assessee could not file any confirmation letters either before the Assessing Officer or before the learned Commissioner of Income-tax (Appeals). Even during the remand proceedings the assessee failed to substantiate the credit. The contention of the learned authorised representative before us is that balances in such creditors account was trans ferred to sales and hence addition ought not have been done. We are unable to appreciate this argument. The assessee having introduced credits in the name of these three persons in its accounts, was obliged to provide confirmation and substantiate orders. At no point of time, the assessee claimed it as part of advance received for any cash sales and similar to bullion margin money. Thus, the onus resting on the assessee, was not discharged. Addition for unaccounted investments in a property at Tiruporur - Held that - It is clearly noted by the learned Assessing Officer that balance-sheet of the assessee s proprietorship business tallied with its bank account with ICICI Bank. Obviously, the assessee had shown payments made for three out of four plots, as utilised for some purpose other than acquisition of the plots. Ex consequenti payments made for three plots stood unexplained. We are therefore, of the opinion that lower authorities were justified in considering the cost equivalent of three plots as unexplained investment of the assessee. Addition made for credit balance in sundry debtors account - Held that - The transactions ought not have been disbelieved just for the delay in supplying the goods. The assessee having shown that sales were effected to clear the credit in the debtors account, in our opinion, an addition ought not have been made. Such addition stands deleted. Addition for a credit balance in the account of one Mrs. Pista Bai - Held that - ommissioner of Income-tax (Appeals) has noted that the amounts received from Mrs. Pista Bai were repayment of earlier advance of ₹ 30 lakhs given by Mr. Naresh Prasad Agarwal, when the business was run as a proprietorship concern. The latter transactions were reflected in the accounts of the proprietorship concern. Hence, it was only a repayment of a debt by a debtor. Once the business was taken over by the assessee company, any repayment of debt by a debtor will not create a fresh credit but will only square off the debt. We do not find any reason to interfere with the order of the Commissioner of Income-tax (Appeals).

Summary

Issues Involved:

1. Suppression of sales and rejection of loss.
2. Addition for cash credits (bullion margin money accounts).
3. Addition for reconciliation differences and unaccounted credit notes with M/s. Metals and Minerals Trading Corporation.
4. Disallowance of exchange rate fluctuation loss.
5. Addition for difference in closing stock.
6. Disallowance for diversion of interest-bearing funds to interest-free loans.
7. Additions for low drawings.
8. Disallowance for want of deduction of tax at source.
9. Disallowance for personal use of cars.
10. Disallowance under section 40A(3) of the Act.
11. Addition for unexplained loan creditors.
12. Disallowance under section 43B of the Act.
13. Disallowance of interest on TDS/service tax.
14. Disallowance of salary.
15. Addition for unexplained investments in properties.
16. Addition for low drawings.
17. Disallowance of donations.
18. Disallowance for VAT payment.
19. Addition for suppression of closing stock.
20. Disallowance of vehicle maintenance expenditure.
21. Addition for unsubstantiated loan.
22. Loss on sale of shares.
23. Addition for sundry debtors reflecting negative balance.
24. Addition for unexplained investment in property.
25. Addition for insufficient drawings.
26. Addition for personal use of cars.
27. Addition for unexplained investment in property.
28. Addition for proportionate interest on diversion of interest-bearing funds.
29. Addition for credit balance in sundry debtors account.
30. Addition for peak credit in bullion margin money account.
31. Addition for credit balance in the account of one Mrs. Pista Bai.

Detailed Analysis:

1. Suppression of Sales and Rejection of Loss:
The learned Commissioner of Income-tax (Appeals) held in favor of the assessee, noting that the assessee had submitted books of accounts for all years, which were seized during the search. The books had been accepted by the Department after due verification for some years. The Assessing Officer's selective acceptance of profits and rejection of losses was deemed improper. The assessee's explanations for lower selling rates were accepted, and it was noted that no concealed assets or wealth were found during the searches. The addition for suppression of sales and rejection of losses was deleted.

2. Addition for Cash Credits (Bullion Margin Money Accounts):
The learned Commissioner of Income-tax (Appeals) upheld the addition for cash credits, noting that the assessee did not maintain names and addresses of buyers. The duty to maintain such records could not be condoned. However, telescoping of such addition with accounted sales was allowed since the bullion margin account was squared up by increasing sales.

3. Addition for Reconciliation Differences and Unaccounted Credit Notes with M/s. Metals and Minerals Trading Corporation:
The learned Commissioner of Income-tax (Appeals) directed the Assessing Officer to recompute the amount by netting the aggregate value of the credit notes with the aggregate value of the debit notes issued by M/s. Metals and Minerals Trading Corporation. The addition was considered premature due to ongoing arbitration proceedings and was deleted by the Tribunal.

4. Disallowance of Exchange Rate Fluctuation Loss:
The learned Commissioner of Income-tax (Appeals) upheld the disallowance of exchange rate fluctuation loss, noting that the assessee was unable to produce any evidence for instructions received from M/s. Metals and Minerals Trading Corporation.

5. Addition for Difference in Closing Stock:
The learned Commissioner of Income-tax (Appeals) confirmed the addition for difference in closing stock, noting that the assessee failed to explain the difference in stock figures and did not produce evidence to support its claim.

6. Disallowance for Diversion of Interest-Bearing Funds to Interest-Free Loans:
The learned Commissioner of Income-tax (Appeals) deleted the disallowance, noting that the assessee had substantial own capital and interest-free advances available. There was no evidence to show that interest-bearing funds were diverted for interest-free loans.

7. Additions for Low Drawings:
The learned Commissioner of Income-tax (Appeals) upheld the addition for low drawings, noting that the drawings shown by the assessee were insufficient for meeting personal expenditure.

8. Disallowance for Want of Deduction of Tax at Source:
The learned Commissioner of Income-tax (Appeals) restricted the disallowance under section 40(a)(ia) of the Act based on the remand report of the Assessing Officer.

9. Disallowance for Personal Use of Cars:
The learned Commissioner of Income-tax (Appeals) deleted the disallowance, noting that the business of the assessee was vast. However, the Tribunal reinstated the disallowance based on the assessee's admission of personal use.

10. Disallowance under Section 40A(3) of the Act:
The learned Commissioner of Income-tax (Appeals) confirmed the disallowance, noting that the assessee was unable to demonstrate any exceptional reason for incurring expenditure in cash in excess of the limits laid down under the section.

11. Addition for Unexplained Loan Creditors:
The learned Commissioner of Income-tax (Appeals) confirmed the addition for unexplained loan creditors, noting the failure of the assessee to produce confirmation letters.

12. Disallowance under Section 43B of the Act:
The learned Commissioner of Income-tax (Appeals) confirmed the disallowance for non-remittance of TDS and taxes, noting that the assessee was unable to produce evidence even in the remand proceedings.

13. Disallowance of Interest on TDS/Service Tax:
The learned Commissioner of Income-tax (Appeals) confirmed the disallowance, noting that these were penal in nature.

14. Disallowance of Salary:
The learned Commissioner of Income-tax (Appeals) deleted the disallowance, noting that the continuity of business could not be doubted.

15. Addition for Unexplained Investments in Properties:
The learned Commissioner of Income-tax (Appeals) confirmed the addition for unexplained investments in properties, noting that the investments were not reflected in the balance sheets of the assessee.

16. Addition for Low Drawings:
The Tribunal deleted the addition for low drawings, noting that the Assessing Officer did not justify how the drawings shown by the assessee were inadequate.

17. Disallowance of Donations:
The learned Commissioner of Income-tax (Appeals) confirmed the disallowance, noting that the assessee was unable to produce any certificate as required under section 80G of the Act.

18. Disallowance for VAT Payment:
The learned Commissioner of Income-tax (Appeals) confirmed the disallowance, noting that the assessee could not furnish evidence for remittance of VAT payable.

19. Addition for Suppression of Closing Stock:
The learned Commissioner of Income-tax (Appeals) deleted the addition for suppression of closing stock, noting that the Assessing Officer did not make a detailed analysis of the stock value.

20. Disallowance of Vehicle Maintenance Expenditure:
The learned Commissioner of Income-tax (Appeals) deleted the disallowance based on the remand report of the Assessing Officer.

21. Addition for Unsubstantiated Loan:
The learned Commissioner of Income-tax (Appeals) deleted the addition, noting that the assessee had properly explained the credit entries.

22. Loss on Sale of Shares:
The learned Commissioner of Income-tax (Appeals) confirmed the disallowance, noting that the assessee did not produce any evidence to the contrary.

23. Addition for Sundry Debtors Reflecting Negative Balance:
The learned Commissioner of Income-tax (Appeals) upheld the addition, noting that the assessee failed to give the whereabouts of the persons in whose name the negative balances were appearing.

24. Addition for Unexplained Investment in Property:
The learned Commissioner of Income-tax (Appeals) confirmed the addition for unexplained investment in property, noting that the investments were not reflected in the balance sheets of the assessee.

25. Addition for Insufficient Drawings:
The Tribunal deleted the addition for insufficient drawings, noting that the Assessing Officer did not justify how the drawings shown by the assessee were inadequate.

26. Addition for Personal Use of Cars:
The Tribunal reinstated the disallowance for personal use of cars based on the assessee's admission.

27. Addition for Unexplained Investment in Property:
The learned Commissioner of Income-tax (Appeals) confirmed the addition for unexplained investment in property, noting that the investments were not reflected in the balance sheets of the assessee.

28. Addition for Proportionate Interest on Diversion of Interest-Bearing Funds:
The Tribunal deleted the disallowance, noting that the assessee had substantial own capital and interest-free advances available.

29. Addition for Credit Balance in Sundry Debtors Account:
The Tribunal deleted the addition, noting that the transactions were not disbelieved just for the delay in supplying the goods.

30. Addition for Peak Credit in Bullion Margin Money Account:
The Tribunal directed the Assessing Officer to rework the addition by excluding margin money credits to the extent accounted in sales.

31. Addition for Credit Balance in the Account of One Mrs. Pista Bai:
The learned Commissioner of Income-tax (Appeals) deleted the addition, noting that the amounts received were repayment of an earlier advance given by Mr. Naresh Prasad Agarwal.