2024 (2) TMI 1198 - AT - Income Tax

Computation of capital gain - conversion of Gold in stock in trade and income from other sources - assessee converted the gold into stock in trade on various dates and long term capital gain was paid on it - Difference between the sale value taken by assessee and fair market sale value - contention of the assessee that online platform rate is for buying and sell online without physical delivery whereas the rate of physical delivery always remain higher side and therefore, he has take the higher rate as the capital assets on conversion immediately forms part of stock in trade and that conversion is accepted by the revenue and only disputed the rate - HELD THAT - Once the assessee has converted the capital asset into stock in trade, the revenue sum moto cannot changed the value adopted by the assessee on the ground that income under one head shown higher and on the other head less. We found merits in the arguments of assessee that the rate of gold is higher for physical delivery and considering the facet of that matter we do not found any merits in the contentions of the revenue in disturbing gold disclosed under IDS, 2016 which was for an amount of Rs. 12,76,81,150/- and after conversion into stock in trade on various dates the total sale proceed was Rs. 15,63,62,967/- is to be considered as correct sale price considering the arguments of the assessee that the rate of gold for physical delivery is higher. Not only that when there is no disputed regarding the overall income of the assessee in the year under consideration, the only difference disputed by the ld. AO and CIT(A) the head under which is to be calculated. Considering the material available on record and based on the arguments advanced before us we are of the considered view that the assessee has correctly computed the capital gain. Based on these observations ground raised by the assessee is allowed. Unexplained money u/s 69A r.w.s.115BBE - cash sales recorded in the books of the assessee considered as unexplained - Sale of gold on the date of demonetization - HELD THAT - Assessee has recorded the cash in their books of account and the source of the said cash being the sale of goods is duly recorded in the books of account and when there is no contrary material brought on recorded for the sales recorded by the assessee for an amount of Rs. 15,63,62,967/- the action of the lower authority considered the cash sales of Rs. 8,95,25,633/- as not genuine is against the evidence placed on record. Since it was not under dispute that the assessee not sold the goods. Therefore, once the goods is supported by the Invoice recorded in the books and no defects found merely the same is recorded on the date of demonetization addition of cash receipt cannot be made in the hands of the assessee. Thus, considering all the facets of the case the bench noted that the revenue did not pinpoint any defects in the books of accounts, quantitative records available with the assessee, cash book and invoice presented in the assessment proceedings. Merely the assessee has sold the gold on the date of demonetization it does not make the sale as non-genuine and we find support of this contention from the decision of the jurisdictional high court in the case of Smt. Harshil Chordia Vs. ITO 2006 (11) TMI 117 - RAJASTHAN HIGH COURT holding that once the cash receipt is supported by invoice supported by the delivery of goods the source of that cash cannot be in doubt. The cash is generated out of the stock already on record and thus the sales made by the assessee is genuine sales recorded in the books of account. All the details required to prove the sales made by the assessee were provided in the assessment proceedings. Based on the discussion so recorded herein above we consider the ground of the assessee and hold that the cash receipt from the cash sales cannot be added as income u/s. 69A - Decided in favour of assesee.

Issues Involved:

1. Legality of the CIT(A)'s order.
2. Analysis and rejection of the assessee's submissions.
3. Application of Section 145(3) for rejection of books of accounts.
4. Addition of Rs. 8,95,23,633/- as unexplained money under Section 69A.
5. Observations and findings contrary to principles of law and natural justice.
6. Treatment of normal business transactions as unusual.
7. Valuation difference in converting gold into stock-in-trade.
8. Classification of income from business versus capital gains.

Summary:

1. Legality of the CIT(A)'s Order:
The appellant contended that the CIT(A)'s order was flawed both in law and facts. The Tribunal found that the CIT(A) had correctly upheld the addition made by the AO, noting that the appellant failed to provide satisfactory explanations for the discrepancies observed.

2. Analysis and Rejection of Submissions:
The appellant argued that the CIT(A) erred in not analyzing the submissions supported by material evidence judiciously. The Tribunal observed that the CIT(A) had duly considered the facts, submissions, and findings of the AO, and upheld the AO's decision based on the anomalies and inconsistencies in the appellant's records.

3. Application of Section 145(3) for Rejection of Books of Accounts:
The appellant challenged the application of Section 145(3) by the AO for rejecting the books of accounts. The Tribunal upheld the AO's decision, noting significant discrepancies in the appellant's stock records and sales patterns, particularly during the demonetization period.

4. Addition of Rs. 8,95,23,633/- as Unexplained Money under Section 69A:
The appellant contested the addition of Rs. 8,95,23,633/- as unexplained money. The Tribunal found that the AO had rightly invoked Section 69A, as the appellant failed to satisfactorily explain the source of the cash deposits made during the demonetization period. The Tribunal noted that the appellant's claim of cash sales on the day of demonetization was not credible, given the improbability of conducting such high-volume transactions in a short time frame.

5. Observations and Findings Contrary to Principles of Law and Natural Justice:
The appellant argued that the CIT(A)'s observations were contrary to established legal principles and natural justice. The Tribunal found no merit in this argument, stating that the CIT(A) had based its decision on a thorough examination of the facts and evidence.

6. Treatment of Normal Business Transactions as Unusual:
The appellant claimed that the CIT(A) treated normal business transactions as unusual. The Tribunal upheld the CIT(A)'s findings, noting that the appellant's sales pattern during the demonetization period was highly suspicious and inconsistent with previous years.

7. Valuation Difference in Converting Gold into Stock-in-Trade:
The appellant disputed the addition of Rs. 1,09,57,300/- due to valuation differences in converting gold into stock-in-trade. The Tribunal found that the AO had correctly adjusted the valuation to reflect the fair market value, thereby treating the excess as business income rather than capital gains.

8. Classification of Income from Business versus Capital Gains:
The appellant argued that the addition of Rs. 1,09,05,700/- should be classified as capital gains rather than business income. The Tribunal upheld the AO's classification, noting that the appellant's method of valuing the converted stock was inconsistent with prevailing market rates, justifying the reclassification as business income.

Conclusion:
The Tribunal dismissed the appeal, upholding the CIT(A)'s decision on all grounds. The Tribunal found that the AO had acted correctly in rejecting the books of accounts, making additions under Section 69A, and reclassifying income based on the discrepancies and inconsistencies observed in the appellant's records.

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