9911796707
TMI Blog2016 (5) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... any date whatsoever." 3. Brief facts as culled out from the record are that assessee is a Private Limited Company and engaged in the business of manufacturing and retailing of gold & silver ornaments and precious and semi precious stones. The assessee filed its return of income on 30-09-2009 declaring total income of Rs. 2,13,930/- under the head " business & profession". However, AO framed u/s 143(3) of the Act by assessing the income of assessee at Rs. 34,40,850/-. It was submitted that when customers exchanged their old ornaments in place of new ornaments then assessee accounts for purchase and sale of the ornaments simultaneously. The difference between purchase & sale value is settled either by cash or account payee cheque. In such a situation, assessee issued two invoices - one for purchase of ornaments and other one for sale of ornaments. Similarly, assessee records the payment transactions against the purchase and receipt transactions against the sale of ornaments in the cash book. However, in the actuality the transaction will only be settled with the customer at the amount of the difference arising between purchase and sale value of ornaments. The AO on examining the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the cash book on page 45 of the paper book. The assessee sold new gold for Rs. 20,725.00 to the aforesaid party on dated 26/10/2008 vide sale memo no. 8CM/1547 which is placed on page 4 of the paper book. The same sale was shown as receipt in the cash book on page 42 of the paper book. But in actuality in the instant case only the difference amount of Rs. 165.00 (sale price Rs. 20,725/- purchase price Rs. 20,890/-) was paid to the aforesaid party. However, in the cash book both purchase & sale were recorded at the full value. The assessee also submitted that wherever the payment exceeds Rs. 20,000 then the payment was made by way of account payee cheque only. Besides the above, assessee further submitted that the above process of payments are permitted in terms of clause (d) of rule 6DD of Income Tax Rules. On the other hand, ld. DR vehemently supported the order of lower authorities. 5.1 From the aforesaid discussion, we find that the AO has invoked the provisions of section 40A(3) of the Act on the ground that assessee has made the payment in cash exceeding Rs. 20,000 for the purchase of old ornaments and the same was confirmed by the Ld CIT(A). However, from the facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n confirming the disallowance of Rs. 2,53,243 made arbitrarily by the Assessing Officer under section 40(a)(ia) of the Income Tax Act, 1961 on the alleged ground that the melting loss incurred by karigars is, actually, amount paid to them without deducting tax at source." 7. The assessee hired the services of KARGARS for the making of ornaments. During the year, assessee in some cases received the lesser weight of gold from the KARIGARS and those KARIGARS were either paid lesser or no amount for their services. Accordingly the AO opined that the payment to those KARIGARS has been paid in the form of the gold. The assessee submitted that the lesser gold was received due to loss of gold in manufacturing process which is bound to happen and the same loss is also recognized in Foreign Trade Policy to the extent of 3.5% as wastage. Accordingly, the assessee submitted the working of such loss of 906.880 grams with reconciliation but failed to reconcile such loss to the extent of 166.170 grams. Accordingly the AO opined that the loss on making of ornaments to the extent of 166.170 grams represents the payments to KARIGARS in the form of gold as it is excess gold left with them in lieu o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the course of melting and manufacturing process to the tune of 906.880 grams. Such a loss was not doubted by the AO at the time of assessment but the addition for the loss of gold 166.170 grams was made due to non-availability of reconciliation. In our view merely assessee failed to provide the reconciliation does not mean that the payment has been made in the form of gold. The AO should have brought cogent reasons for treating the loss of gold as payment to the KARIGARS. As we find that the loss of 906.880 grams was duly explained which shows that there was the system of making the payment in cash to the KARIGARS. Accordingly we held that the less gold received from the KARIGARS cannot be termed as payment to KARIGARS. Therefore we have no hesitation to reverse the orders of authorities below. Hence this ground of appeal of the assessee is allowed. 11. Third issue raised by assessee in this appeal is that the learned CIT(A) erred in confirming the order of AO by making addition of Rs. 45,872/- on account of non-production of the reconciliation statement of the gold deposit lying with the assessee. For this, assessee has raised effective ground as under:-. "3) That the Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied on the order of authorities below. 15. From the aforesaid discussion, we find that the assessee at the time of assessment framed by the AO the assessee failed to reconcile the gold received from the customers to the tune of 30.100 grams therefore the same was treated as income. However from the submission of the assessee we find that the liability towards the deposit of gold from the customers was very much reflecting in the books of the assessee for the relevant year and no such liability was written back in the year. Now it is really clear that a trading liability can be taxed only if it is written off in the books of accounts. In the instant case although the assessee failed to give the reconciliation but such liability was not written off in the books of accounts. Accordingly in our considered view the aforesaid liability cannot be termed as income under section 41(1) of the Act. On contrary ld. DR failed to bring anything on record to controvert the argument of the assessee. So the liability towards the deposit of gold cannot be treated as income of the assessee. Hence ground of appeal of the assessee is allowed. 16. In the result, assessee's appeal stands allowed. Ord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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