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TMI Blog2014 (11) TMI 398X X X X Extracts X X X X X X X X Extracts X X X X ..... Held that:- Credit in the case of Mr. K. Panduranga Reddy who is an income tax assessee with PAN AOWPK1766P required re- examination – thus, the matter is restored to the file of AO for examination – Decided in favour of assessee. Loss on trading – Held that:- CIT(A) was rightly of the opinion that there was nothing wrong on the part of assessee to enter into forward contract transaction to protect his business interests - assessee has entered into forward contract transactions as assessee is dealing with bullion market where the fluctuations are on a daily basis - Since Ld. CIT(A) examined the transactions and also gave a finding that these are forward contract transactions to care against loss through the price fluctuations, the same is eligible to be treated as business loss and is covered by the proviso to section 43(5) – Decided against revenue. Addition of GP – Held that:- Revenue could not justify why gross profit addition has to be resorted without rejecting books of accounts - In fact, it is a search case and all the books of accounts and data were also impounded/seized by Revenue - In the absence of any incriminating material or in the absence of any other details, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e restricted to 25% of the claim as against 50% of claim made by A.O. He restricted the disallowance to 25%, excluding the expenses on chit loss, bank interest and depreciation which he directed, should not be disallowed. Assessee is aggrieved in restricting disallowance to 25% of other expenditure whereas, Revenue is aggrieved in deleting the 25% of gross expenditure. 4. In the course of present proceedings, assessee has raised an additional ground on the issue that routine disallowance cannot be made in search assessments in the absence of any incriminating material. These additional grounds were raised in A.Y. 2002-03 to 2005-06 and made detailed submissions on the issue. This additional ground being legal in nature was admitted. It was submitted that general disallowance on estimate basis in search assessments completed under section 143(3) read with section 153A of the I.T. Act are not sustainable in the absence of any incriminating seized material. Reliance was placed on the following decisions. 1. DCIT, Circle-3, Hyderabad vs. AMR India Ltd. ITA.No.1828/Hyd/2012. 2. CIT (Central) vs. Murali Agri Products Ltd., Appeal No. 36 of 2009 of Hon ble High Court of Bombay N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in making the disallowance based on the books of accounts produced. However, we are of the opinion that disallowance is on higher side. Considering assessee s turnover and nature of expenditure involved, we are of the opinion that the disallowance can be restricted to 10% of the expenditure claimed, being personal in nature as assessee s business is done in a proprietary concern. Accordingly, we modify the order of Ld. CIT(A) from disallowance of 25% on expenditure ( other than those allowed by CIT(A) in full) to 10% of the expenditure in the impugned three assessment years. Accordingly, ground in these years (A.Ys. 2006-07 to 2008-09) are partly allowed. Since, expenditure is partly sustained, the Revenue contention that Ld. CIT(A) reduced the disallowance to 25% becomes infructuous. Accordingly, Revenue grounds in these A.Ys. 2006-07 to 2008-09 are rejected. CASH CREDITS : 8. Ld. CIT(A) sustained cash credits of ₹ 2,75,000 in A.Y. 2006-07, ₹ 8 lakhs in A.Y. 2008-09. In fact, A.O. made addition of cash credits in all the impugned assessment years. Assessee has furnished necessary evidences before A.O. and also before Ld. CIT(A). Ld. CIT(A) remitted the matter to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, we do not see any reason to differ from the findings of Ld. CIT(A). Accordingly, addition of ₹ 2,75,000 in A.Y. 2006-07 under section 68 stands confirmed. Ground in that year is accordingly rejected. LOSS ON TRADING: 11. Ground.3 raised by Revenue in A.Y. 2007-08 is against the order of Ld. CIT(A) allowing the loss claimed by assessee disallowed as capital loss but allowed by Ld. CIT(A) as business loss. Assessee claimed loss of ₹ 15,98,588 in the activity of hedging business of commodity gold . Assessee claimed the same as business loss whereas, A.O. treated the same as long term capital loss. It was contended before Ld. CIT(A) that the transaction carried on by assessee are for his own business and is in the same line. Hence, it does not constitute speculative transaction. As the assessee has entered into forward transactions for purchase of gold and carrying on the same line of business in trading gold, it does not constitute speculative transaction as contemplated under section 43(5) of the I.T. Act. It was further submitted that in A.Y. 2007-08 assessee suffered loss of the above amount whereas, in F.Y. 2009-10 relevant to A.Y. 2010-11 assessee gained p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price speculations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him shall not be deemed to be a speculative transaction. This proviso is not confined to contracts in respect of raw materials entered into by persons in the course of their manufacturing business as has been sought to be contended by the Revenue before the Tribunal and now before us. We do not find any scope for giving such a construction to this proviso. The proviso is clear and unambiguous. It applies equally to cases of persons carrying on manufacturing as well as persons carrying on business of selling goods. There is no scope to confine it to manufacturers. In that view of the matter, we do not find any merit in the submission of the Revenue that the benefit of the proviso is available only to manufacturers in respect of purchase of raw materials. It clearly applies also to persons carrying on merchanting business. So far as the facts are concerned, the finding is clear as set out above. The requirements of this proviso are fully met i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o low when compared to earlier years. Except this no other cogent reason has been brought on record by the A.O. while estimating the gross profit at 0.19%. I find that the A.O. is not justified in making addition on this finding. He made a comparison of G.P. in earlier years but failed to note that the gross turnovers in A.Ys. 2007-08 and 2008- 09 has substantially gone up when compared to earlier years. In A.Y. 2007-08 the turnover is ₹ 495.23 crores and in A.Y. 2008-09 the turnover is ₹ 554.25 crores. Whereas in the A.Ys. 2004-05, 2005-06 and 2006-07, the turnovers are ₹ 132.63 crores, ₹ 159.48 crores and ₹ 152.54 crores respectively which give percentage of 0.46%, 0.13% and 0.19% respectively. It could be seen from the above that there was substantial increase in the turnover in A.Ys. 2007-08 and 2008-09. It is a well known fact that every prudent business man tries to augment the turnover to the maximum extent possible and in that process keeps the profit margin at a low rate, which would ultimately enable him in earning more profits. In the instant case, there was increase in the turnover in A.Y. 2007-08 by ₹ 342.69 crores as compared to A.Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re-worked out accordingly. Reliance is placed on the decisions of Hon ble Delhi High Court in the case of Gopal Lal Bhajan Lal 62 ITD 661 and decision of Hon ble High Court of Punjab Haryana in the case of CIT vs. Ashok Kumar 334 ITR 355. In the later case, it was held that Section 132B and Rule 112C empowered the Revenue to apply the seized assets which are retained against the tax liability of assessee unilaterally. Relying on the above, it was the submission that since the cash was available with the department, the same should have adjusted towards self assessment/ advance tax. Even though this ground is legal ground and can be admitted on the principles of legal claims, what is required to be examined is, whether seized cash was available with the department. Moreover, only year in which the amount can be adjusted towards advance tax is with reference to A.Y. 2008-09 wherein time was available till 31st March, 2008 for payment of advance tax. In other years it can only be for self assessment tax if returns were filed. However, assessee is claiming tax adjustments in all the impugned three assessment years. Letters given to the department for adjustment is also not placed on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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