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TMI Blog2018 (12) TMI 975X X X X Extracts X X X X X X X X Extracts X X X X ..... wellery - Held that:- This ground same as above to be restored to the file of the assessing officer for examining the issue afresh in light the evidences which the assessee may submit in this regard and after giving proper opportunity to the assessee before deciding the issue as per law. Addition on account of Sundry Creditors who had not responded to the summons issued u/s 131 - Held that:- Although, the Ld. Sr. Departmental Representative has argued at length that the Ld. CIT (A) has erred in deleting these additions, no factual infirmity or contradiction could be pointed out by her in this regard. We find that the Ld. CIT (A) has reached a logical conclusion in this regard and these factual findings remain un-contradicted. Accordingly, we find no reason to interfere with the findings of the Ld. CIT (A) on this issue and we dismiss ground no. 3 of the department’s appeal. Addition of travelling expenses - Held that:- It is undisputed that the assessee failed to produce documentary evidences in respect of these expenses before both the lower authorities and nor could justify its claim that the expenses has been incurred for purely business purposes. The Ld. CIT (A) has appa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without properly considering the submissions made by the assessee. Accordingly, in our considered view, this issue also needs to be restored to the file of the Ld. CIT (A) for fresh adjudication. - ITA No. 6260/Del/2014, ITA No.6757/Del/2014 - - - Dated:- 22-10-2018 - Sudhanshu Srivastava, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Assessee : Sh. Ashwani Taneja, Adv. For the Revenue : Ms. Ashema Neb, Sr. DR ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER : ITA No. 6260/Del/2014 is the assessee s appeal preferred against order dated 23.09.2014 passed by the Ld.CIT (Appeals)- XXVI, New Delhi for assessment year 2011-12. ITA No. 6757/Del/2014 is the department s cross appeal for the same year. 2.0 Brief facts of the case are that the assessee is a firm engaged in business of manufacturing, export and retail sale of gold jewellery (studded plain) and silver articles. The return of income was filed declaring an income of ₹ 28,84,076/-. The case was selected for scrutiny through CASS and the assessment was completed u/s 143(3) of the Income Tax Act, 1961 (hereinafter called as The Act ) at an income of ₹ 9,87,13,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as bank Stock as on 31.03.2011 as per audit report Quantity Rate Value Quantity Rate Value 24CaratGold 3132 gms 1679/g 5,25,96,719/- 50676.82 1700/gm 86172890/- 22 Carat Gold jewellery (pure) 75630gms 64114gms (Pure) 1679/gm 107648954/- -- -- -- Dealer 24 Carats 5222.7gm 4804 gms (pure) 1679/gm 80,67,461/- -- -- -- Infix gold from Nova scotia 22000gms 2150/gms 47300000/- -- --- --- B Item: Diamond Particulars Stock as on 31.03.2011 submitted to SBI Overseas bank Stock as on 31.03.2011 as per audit report Quantity Rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia as unfixed gold for manufacture and export purpose had been received against issue of Letter of Credit of ₹ 5 crores by the State Bank of India, Overseas Branch and no financial entry of value of this stock was recorded in the books of accounts of the assessee as no provisional price was provided by the bank to the assessee in respect of this gold. However, the receipt of gold was duly entered in the stock register maintained by the assessee but the stock value was calculated by the assessee only as per the financial books after excluding 22,00 this 0 gms of gold received under the Letter of Credit. It was further submitted that if this quantity to 22,000 gms is added to the stock quantity of 50,676.82 gms, the aggregate will be 72,676.82 gms which would approximately tally with the stock statement submitted to the State Bank of India wherein the quantity was shown at 72,052.49 gms and the difference would only be 624.33 gms. The assessee also submitted that while submitting the details to the bank, the quantity of 22,000 gms was inadvertently added to the stock instead of reducing the same from the total gold stock in possession of the assessee firm. It was also submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Loss Account and the AO required to assessee to file relevant details. From perusal of the details filed by the assessee, the AO reached the conclusion that some expenses pertained to personal trip/s of the family members of the partners and in some cases, there were no evidences of expenditure incurred as no vouchers and bills were produced. The AO proceeded to disallow an amount of ₹ 2,41,242/- under this head and added the same to the income of the assessee. 2.5 Similarly, on examination of the business promotion and sales promotion expenses, the AO noted that the assessee had debited expenditure of ₹ 1,67,356/- on account of payment to Mahindra Holidays and Resorts which was not duly supported by any bill or vouchers. The assessee also could not substantiate that this expenditure was related to the business of the assessee. Similarly, while examining the ledger account of sales promotion, the AO noted that the assessee had debited an amount of ₹ 1,60,000/- on account of payment for Commonwealth games tickets for customers but no bill or voucher pertaining to the same was produced by the assessee and nor could the assessee establish that the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. CIT(A) held that the totality of the circumstances would have to be looked into and where direct evidences were not available, substantial evidences would be treated as sufficient for deciding the case. The Ld. CIT (A) held that the AO had failed to substantiate, with reasoning, the disallowance and directed the deletion of this addition. (v) With respect to business promotion expenses of ₹ 1,67,356/- the Ld. CIT (A) held that the assessee had failed to demonstrate how the payments made to Mahindra Holiday and Resort was incurred wholly and exclusively for business purposes and, therefore, the disallowance was held to be justified. (vi) With respect to the disallowance of ₹ 160,000/- out of sales promotion expenses, the Ld. CIT (A) again held that the assessee had failed to demonstrate as to how the payments made for purchasing tickets of Commonwealth games was incurred wholly and exclusively for the business purposes. The Ld. CIT (A) sustained this addition also. (vii) With respect to the addition made in respect of Sundry Creditors totalling to ₹ 46,15,850/- the Ld. CIT (A) analyzed the ledger accounts of all the seven parties and also gave d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eleting the addition of ₹ 46,15,850/- without considering the fact that no compliance was made from sundry creditor in response to the notices issued. 4.The Ld CIT(A) has erred in deleting the addition of P ,41,242/- without considering the fact that the assessee did not produce any bills/voucher with regard to the same. 3.0 At the outset, the Ld. Sr. Departmental Representative prayed that the department s appeal may be take up first because it involved a substantial issue in terms of deletion of addition of ₹ 9,00,01,050/- which was made by the AO on account of difference in the stock of Gold. The Ld. Authorised Representative had no objection to department s prayer for taking up the department s appeal first. Accordingly we proceed to hear the department s appeal first. 4.0.0 The Ld. Sr. Departmental Representative submitted that there were glaring discrepancies in the stock and she referred to the observations of Assessing Officer as contained in pages 1,2 and 3 of the Assessment order and also referred to the Table/s produce by the AO in this regard. The Ld. Sr. Departmental Representative also referred to the submissions made by the assessee before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that the mistake was relatable to earlier assessment years and, therefore, no addition could have been made in the year under consideration. The Ld. Sr. Departmental Representative submitted that the Ld. CIT (A) had not reconciled the stock but had simply accepted the submissions of the assessee without duly verifying and examining the facts. The Ld. Sr. Departmental Representative also submitted that even if the explanation of the assessee regarding inadvertent error in adding the stock rather than reducing it was to be accepted, even then there was a difference of 624.33 gms which was a huge difference and looking into the assessee s trade it would be improbable that such a difference could have gone un-noticed. 4.0.1 The Ld. Sr. Departmental Representative also drew our attention to page 598 of the paper book filed by the assessee which contained month wise summary of the difference between stock as per the stock statement and the stock submitted to the bank. In this regard it was submitted that since no stock register was produced before the Assessing Officer or the Ld. CIT (A), the veracity of this reconciliation was not proven. The Ld. Sr. Departmental Representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve further submitted that subsequent payment/s by the assessee against the outstanding liability did not prove the genuineness of the transaction at that particular time. 4.3 With respect to the ground no. 4 of the department s appeal challenging the deletion of addition of ₹ 2,41,242/- relating to travelling of expenses, the Ld. Sr. Departmental Representative submitted that no details had been submitted before the AO by the assessee and the Ld. CIT (A ) had reached a wrong conclusion that the surrounding circumstances can be looked into justify the incurrence of expenditure. The Ld. Departmental Representative prayed that the department s appeal be allowed in totality by setting aside the order of the Ld. CIT (A). 5.0.0 In response to arguments of the Ld. Sr. Departmental Representative, the Ld. Authorised Representative with respect to ground no. 1 of the department s appeal submitted that the impugned stock of gold was taken on loan from the Bank of Nova Scotia and the assessee was only a custodian of the gold till it was ready for export. The Ld. Authorised Representative also drew our attention to voluminous document/s submitted before the Ld. CIT (A), with regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it was submitted that the Ld. CIT (A) had given the impugned relief after duly considering the various documentary evidences submitted in this regard. 5.0.5 The Ld. Authorised Representative also submitted that the assessee s case was that of hypothecation of stock and not of pledging of stock and, therefore, the addition could not have been made on that account. Reliance was placed on the judgment of the Hon ble Apex Court in the case of CIT vs. Balbir Singh Maini reported in (2017) 86 taxmann.com 94 (SC) for the preposition that there was no accrual of income to the assessee when gold had been received as loan from Nova Scotia Bank. The Ld. Authorised Representative also vehemently supported the order of the Ld. CIT (A) on this issue and submitted that the order of the Ld. CIT (A) on the issue be upheld. 5.1 With respect to ground no. 2 of the department s appeal which challenged the action of the Ld. CIT (A) in deleting the addition of ₹ 43,938/- being gross profit earned on account of alleged unaccounted sales, the Ld. Authorised Representative submitted that here also there was categorical finding by the Ld. CIT (A) that the discrepancy pertained to earlier as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss Account as expenditure and were rather entries on account of capital account. 7.1 With respect to ground no. 2 of the assessee s appeal challenging the disallowance of ₹ 1,67,356/- made by the AO on account of business promotion expenses, it was submitted that the said expenditure was incurred for purchase of membership of Mahindra Holiday Resort on time-share basis for the purpose of business of the assessee. However, it was fairly accepted that there was absence of bills and specific details as the record was very old. Reliance was placed on assessee s submissions before the Ld. CIT (A) in this regard and it was submitted that the Ld. CIT (A) had not considered the submissions of the assessee in proper perspective. 7.2 With respect to ground no. 3 relating to disallowance of ₹ 160000/- on account of sales promotion expenses, it was submitted that the assessee has purchased tickets for its customers for Commonwealth games in order to promote its business prospects. It was submitted that details had been submitted before the Ld. CIT (A) in this regard along with written submissions. However, the Ld. CIT (A) had brushed aside the submissions and upheld the addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit of ₹ 5 crores by State Bank of India, New Delhi. It was contended before the AO that, therefore, the stock was an unpaid stock and did not belong to the assessee but by error it had been included in the stock statement submitted to the bank. It was further submitted before the AO that as it was not paid stock it had correctly not been included in the inventory while preparing the profit and loss account and balance sheet for the year although it should not have been included in the stock statement submitted to the bank also. The assessing officer held that there was no basis at all to substantiate that it was a clerical error. The assessing officer observed stated that the unfixed stock was not included and accounted for in the books of the accounts. The assessing officer also noted that the assessee had not rectified the above so-called clerical error in the subsequent statement submitted to the bank. For this reason, the addition of ₹ 9,00,01,050/- was made for suppression of closing stock of gold by the assessing officer. 9.1.1 On appeal before the learned CIT (Appeals), the addition was deleted. The learned Commissioner (Appeals) held that the goods w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank and the opening stock shown in the books of accounts and there is also difference in the closing stock submitted to the bank and the closing stock shown in the profit and loss account at the end of the year, the addition cannot be made in the hands of the assessee for the year under consideration. We also do not find any reason to uphold the view of the Ld. Commissioner (Appeals) that if the difference is coming from earlier years, no addition can be made in the hands of the assessee in the year in which the difference is detected. The learned Commissioner (Appeals) also failed to appreciate the distinction between the judgment of the Hon ble Punjab Haryana High Court cited before him in the case of Sheena Exports and this case because in that particular case, no difference was there in the quantitative details and the only difference was in the value of the closing stock. Here, however, the differences, as indicated by the assessing officer, pertain to quantitative details. In the case of Sheena Exports, it was claimed that the statement submitted to the bank was merely a figure not supported by any quantitative details. However, in the present case, the assessee has subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt s appeal and in view our detailed findings as contained in the preceding paragraphs with respect to ground no. 1, this ground is also restored to the file of the assessing officer for examining the issue afresh in light the evidences which the assessee may submit in this regard and after giving proper opportunity to the assessee before deciding the issue as per law. Accordingly this ground also stands allowed for statistical purposes. 9.3.0 Coming to ground no. 3 of the department s appeal which challenges the action of the Ld. CIT (A) in deleting the addition of ₹ 46,15,850/- which was added on account of Sundry Creditors who had not responded to the summons issued u/s 131 of the Act, it is seen that the Ld. CIT (A) has examined the issue in detail on pages 29 to 37 of the impugned order and each the case of the seven parties has been examined at length by the Ld. CIT(A). The findings of the Ld. CIT (A) are contained in Para 9.1 of the impugned order and the same is reproduced here in under for a ready reference:- 9.1 I have carefully considered the facts of the case and perused material available on the record. The appellant filed the confirmation/proof of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reating sundry creditors aggregating to ₹ 46,15,850/- as unexplained. Consequentially, the addition of ₹ 46,15,850/- is deleted. The appellant gets relief of ₹ 46,15,850/-. 9.3.1 Although, the Ld. Sr. Departmental Representative has argued at length that the Ld. CIT (A) has erred in deleting these additions, no factual infirmity or contradiction could be pointed out by her in this regard. We find that the Ld. CIT (A) has reached a logical conclusion in this regard and these factual findings remain un-contradicted. Accordingly, we find no reason to interfere with the findings of the Ld. CIT (A) on this issue and we dismiss ground no. 3 of the department s appeal. 9.4 Ground no. 4 of the department s appeal challenges the deletion of addition of ₹ 2,41,242/- out of travelling expenses. In this regard, it is seen that the Ld. CIT (A) has deleted the addition while observing that although evidence beyond reasonable doubt is not available, the totality of circumstances has to be looked into and to evolve a process which would adapt to a situation in pursuit of truth and justice. The Ld. CIT (A) further observed that where direct evidences were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the file of the Ld. CIT (A) to verify the claim of the assessee with the books of accounts that the impugned payments were debits to the capital accounts of the partners and were not payments against salary to the partners. The Ld. CIT (A) is directed to decide this issue afresh after taking in due consideration the submissions to the assessee as well as the evidences on which it seeks to rely upon and, thereafter, pass the order in accordance with law after giving due opportunity to the assessee to present its case. In the result this ground stands allowed for statistical purposes. 10.1 Coming to ground no. 2 of the assesse s appeal which challenges the action of the Ld. CIT (A) in sustaining disallowance of ₹ 1,67,356/- under the head business promotion expenses , it is seen that the AO had disallowed this amount because this payment to Mahindra Holidays and Resort was not supported by any bill or voucher and nor was the assessee able to establish that this expenditure related to assessee s business. The Ld. CIT (A) also sustained the disallowance by observing that the assessee had failed to demonstrate as to how this payment was incurred wholly and exclusively for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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