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TMI Blog2012 (12) TMI 902X X X X Extracts X X X X X X X X Extracts X X X X ..... e possible to get the address of all its customers. Even if customers give their address, there is no means available to the assessee to ensure that such addresses were right. Assessee, in the nature of its trade, cannot insist for an identification process akin to Know Your Customer (KYC) rules applied by banks. Just for the reason that purchases effected from certain parties did not carry full address, in our opinion, a disallowance ought not have been made. In favour of assessee - IT APPEAL NO. 564 (MDS.) OF 2012 - C.O. NO. 70 (MDS.) OF 2012 - Dated:- 5-9-2012 - ABRAHAM P. GEORGE AND V. DURGA RAO, JJ. K.E.B. Rengarajan for the Appellant. R. Meenakshisundaram for the Respondent. ORDER Abraham P. George, Accountant Member - These are appeal by the Revenue and cross-objection by the assessee, directed against an order dated 16.12.2011 of Commissioner of Income Tax (Appeals)-I, Coimbatore. 2. Revenue in its appeal is aggrieved that CIT (Appeals) deleted an addition of Rs. 1,32,34,396/- made by the A.O. alleging violation of Section 40A(3) of Income-tax Act, 1961 (in short 'the Act'). One other grievance of the Revenue is ld. CIT (Appeals) deleted an addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, it was only an exchange of new jewellery for old jewellery and differential amount alone was paid by the customers. Assessee also pointed out that in certain cases, the sale of new jewellery would happen on a day later to the purchase of old jewellery since new jewellery would be delivered to customers only after making changes suggested by the customers. 5. Assessing Officer brought to the notice of the assessee that the payments effected in cash through its cash book against a number of purchases exceeded Rs. 20,000/- and therefore, Section 40A(3) of the Act was attracted. Explanation of the assessee was that Rule 6DD(d) saved it from rigours of Section 40A(3), since purchase of old gold and diamonds and sale of new jewellery were from and to the same parties. However, A.O. was not impressed. According to him, argument of the assessee could be accepted only for the purchases and sales effected on the same day, where only net sale amount was received from such customers. But, where such purchases were effected on one day and sale was effected on subsequent day and where payments for such purchases were shown in the cash book as cash payments, Section 40A(3) was necessary to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Rs. 3,54,375/- for old gold purchase and Rs. 8,12,905/- for diamond purchase for a reason that these amounts were not supported by necessary vouchers. Thus except for a sum of Rs. 11,67,280/-, all additions made under Section 40A(3) was deleted. 9. As for the disallowance of Rs. 58,62,020/- made by the A.O. considering some purchases as not genuine, CIT (Appeals) was of the opinion that in the nature of trade of the assessee, customers might not always be willing to give complete address. According to him, assessee had furnished all possible details of the customers who had sold the old jewellery and diamonds to the assessee. All the purchases were recorded in the stock register. Physical stock of such diamonds were taken into account for calculating the closing stock. He was of the opinion that just for a reason that address of certain parties were not available, an addition could not have been made. He thus deleted the disallowance of Rs. 58,62,020/- also. 10. Now before us, learned D.R. strongly assailing the order of CIT (Appeals), submitted that assessee had produced fresh evidence before CIT (Appeals) in the nature of stock register, bills and vouchers which were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere rigours of Section 40A(3) are not attracted, states as under:- "where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee." 13. Thus, where the payments were effected to a customer on account of adjustment resulting out of an exchange of old jewellery with new Jewellery, then it does get covered under the exception clause (d) of Rule 6DD mentioned above. CIT (Appeals) had lucidly explained method of accounting followed by the assessee which reads as under:- "Purchase of old diamond jewellery and sale of new jewellery on different dates In this case, the appellant used to account the purchase of old Jewellery/diamond from the customer as cash purchase for control purpose though actual cash outflow is not made. The following are the scheme of entries followed by the appellant for this scenario. a. For purchase of old jewellery/diamond for Rs. 1000/- Purchase A/c Dr. 1000/- To Cash A/c 1000/- (Being old gold purchased from Mr. X) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee before the CIT (Appeals) were different from the books produced by it before the A.O. 14. Coming to the second disallowance, it is an admitted position that names of each of the seller were given by the assessee to the Assessing Officer, since otherwise he could not have compiled the list giving the details of such disallowance as an Annexure to the assessment order. In the nature of trade of the assessee, it may not always be possible to get the address of all its customers. Even if customers give their address, there is no means available to the assessee to ensure that such addresses were right. Assessee, in the nature of its trade, cannot insist for an identification process akin to Know Your Customer (KYC) rules applied by banks. There is no such mandatory requirement in the business of jewellery to maintain any records in line with KYC rules of bank. In fact, a prudent businessman might not insist on such rigorous identification process since insistence on such conditions will be to the detriment of his business. Just for the reason that purchases effected from certain parties did not carry full address, in our opinion, a disallowance ought not have been m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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