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TMI Blog2020 (11) TMI 926X X X X Extracts X X X X X X X X Extracts X X X X ..... eals),Jammu- Order dated 30/06/2016 Penalty order u/s 271(1)(c), dated 11/03/2014. As the issues involved in the abovementioned appeals are inextricably interlinked or in fact interwoven, therefore, the same are being taken up and disposed off together by way of a common order. We shall first advert to the appeal of the assessee for A.Y 2008-09, wherein the impugned order has been assailed before us on the following grounds of appeal: "1. That the assessment order as well as the order of the Learned Commissioner of Income tax (appeals), Jammu are both against the facts of the case and are untenable in law. 2. That the worthy CIT(A) did not appreciate the facts of the case and did not apply his mind and without appreciating the arguments and written submissions rejected the appeal of the appellant and has confirmed the order of the Assessing Officer therein making several additions. 3. That the authorities below did not appreciate that the assessee was an individual and is the proprietor of M/s Puneet Bangle House and is engage in the business of manufacturing of Jewellery as in the earlier years. 4. That the A.O has grossly erred in making an addition of Rs. 2,08,51,002/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also not justified in confirming the same without appreciating the facts of the case. Alternatively, the disallowance made is very high & excessive. 8. Further, the A.O has grossly erred in not allowing the deduction claimed at Rs. 34,22,312/- u/s 80IB of the IT Act, 1961. It is an admitted fact that the assessee is manufacturing Gold Jewellery and is clearly entitled for deduction as claimed u/s 80IB of the IT Act, 1961, at Rs. 34,22,312/-. Similarly, the Ld. CIT(A) has grossly erred in confirming the same. It is prayed that deduction was correctly claimed u/s 80IB being a manufacturing business and thereby complying all the provisions laid down under the law. Further the assessee is registered with District Industries Centre, Jammu and other various departments. In view of these circumstances, the deduction as claimed u/s 80IB may kindly be allowed. 9. Further, the assessee is also entitled for the deduction u/s 80IB on the finally assessed income and it is prayed that the same may kindly be allowed. 10. Any other ground of appeal which may be urged at the time of hearing of the appeal." 2. Briefly stated, the assessee who is an individual engaged in the business of making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 41,62,600/- were overlapping in nature, 2. Addition of 'Unexplained Credits' u/s 68 shown as sundry creditors in the balance sheet of the assessee against the names of the aforementioned two parties viz. (i) M/s Balaji Impex : Rs. 61,54,538/- ; and (ii). M/s S.K Impex : Rs. 44,01,574/-. Rs. 1,05,56,112/- therefore, the same were telescoped and restricted to the amount of Rs. 2,08,51,002/-). 3. Disallowance u/s 40A(3) of cash purchases of gold from the aforementioned parties. Rs. 41,62,600/- 4. Disallowance of the assessee's claim for deduction u/s 80IB of the Act. Rs. 34,22,312/- Disallowance of the assesses claim of deduction u/s 80IB of Rs. 34,22,312/- that was made by the A.O in 'Original' assessment u/s 143(3), dated 16.12.2010 was on appeal vacated by the CIT(A), vide his order dated 29.02.2012, against which the revenue had carried the matter in appeal before the ITAT, Amritsar. 3. Aggrieved, the assessee assailed the assessment order passed by the A.O u/s 143(3) r.w.s 147, dated 26.03.2013 before the CIT(A). However, the CIT(A) not being persuaded to subscribe to the contentions advanced by the assessee upheld the aforesaid additions/disallowances and dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in order to justify the genuineness of the purchases he had used the bogus purchase invoices in the names of the aforesaid parties. At the same time, it was the claim of the assessee that though the purchase bills were bogus but he had made the correlating purchases from the open/grey market. In order to drive home his aforesaid claim the assessee placed on record certain supporting documentary evidence viz. (i). the bill wise details of sales and ledger copies of all the parties to whom the corresponding sales were made were furnished; (ii). the A.O issued letters u/s 133(6) to the parties to whom the sales were made and all of them had confirmed the transactions with the assessee; and (iii). the stock register was produced by the assessee, wherein quantitative details showing opening stock, purchases, quantity issued for production, production and closing stock were furnished with the A.O, who verified the same and did not give any adverse remarks as regards the genuineness of the sale transactions. Apart from that, it was submitted by the assessee that its GP rate for the year under consideration was 9.70%, which was in conformity with its past history and also that prevailing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from the aforementioned parties but had procured the same from open/grey market. Accordingly, the addition of the entire value of the impugned purchases could not have been made in the hand of the assessee. We are unable to comprehend as to on what basis the CIT(A) had concurred with the view taken by the A.O that an addition of the entire value of impugned purchases of Rs. 2,08,51,002/- was called for in the hands of the assessee. But then, we also cannot remain oblivious of the fact that the assessee would had procured the impugned goods from the open/grey market at a discounted value as against that accounted for on in his books of account on the basis of the bogus bills of the aforementioned parties. Accordingly, the addition in the hands of the assessee in our considered view could have fairly been made to the extent of the profit element involved in making of such purchases at a discounted value by the assessee from the open/grey market. Insofar the quantification of such profit element is concerned, we find that the Hon'ble High Court of Bombay in its recent judgement in the case of Pr. Commissioner of Income Tax-17 Vs. M/s Mohhomad Haji Adam & Company (ITA No. 1004 of 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it to direct the revenue to add Rs. 20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue." 9. In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order at costs." As such, the Hon'ble High Court had observed that the addition in respect of purchases which were found to be bogus in the case of the assessee before them was to be worked out by bringing the G.P. rate of such bogus purchases at the same rate of other genuine purchases. We thus respectfully following the aforesaid judgment of the Hon'ble High Court direct the A.O to restrict the addition insofar the bogus/unproved purchases aggregating to Rs. 2,08,51,002/- in the case before us is concerned, by bringing the G.P. rate on the amount of such bogus purchases at the same rate as that of other genuine purchases. Accordingly, for the limited purpose of giving effect to our aforesaid directions the matter is restored to the file of the A.O. Needless to say, the assessee in the course of the 'set aside' proceedings shall furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of procuring of such goods have to be related to such unidentified suppliers, and thus cannot be held to be bogus. In sum and substance, once the purchase transactions of the assessee with the aforementioned parties are stamped as bogus/sham, thereafter, no adverse inferences as regards any part of such bogus purchase transactions reflected as outstanding liability against their names in the 'books of account' of the assessee could have been validly drawn. In the backdrop of our aforesaid observations, we are of a strong conviction that now when the purchase transactions of the assessee with both of the aforesaid parties viz. M/s Balaji Impex and M/s S.K Impex have been held to be bogus, thereupon, there remained no occasion for drawing of any adverse inferences as regards the outstanding liability aggregating to Rs. 1,05,56,012/- reflected under the head 'Sundry creditors' against the names of the said parties in the 'balance sheet' of the assessee for the year under consideration. In fact, now when we have observed that the assessee had purchased the goods under consideration from unregistered dealers operating in the open/grey market, therefore, the outstanding liability in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he had on no occasion made any single payment in excess of Rs. 20,000/- for purchasing the goods from the suppliers operating in the open/grey market, however, the A.O without rebutting the same by placing on record any material proving to the contrary and dislodging the veracity of the said claim of the assessee, had most arbitrarily concluded that the assessee had contravened the provisions of Sec. 40A(3) of the Act. As regards the impugned purchases from M/s Balaji Impex as referred to by the A.O are concerned, the same already having been held to be in the nature of bogus/sham purchase transactions would thus not assist the case of the revenue. In sum and substance, the revenue had triggered the operation of Sec. 40A(3) on a mere presumptive basis de hors any concrete material proving to the contrary, which we are afraid would by no means be justified. As observed by us hereinabove, it has consistently been the claim of the assessee that though he would withdraw amount from the bank and utilise the same for making purchases from the open/grey market, but on no single occasion any payment in excess of an amount of Rs. 20,000/- was ever made by him to any supplier party during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... U/S 80IB : (i). As is discernible from the orders of the lower authorities, the assessee had in his return of income claimed deduction u/s 80IB of Rs. 34,22,312/-. However, the A.O being of the view that conversion of 24 carat gold (pure gold) into 22 carat gold ornaments by the assessee did not amount to "manufacturing" within the meaning of Sec. 80IB of the Act, disallowed the assessee's claim for deduction while framing the 'Original' assessment, vide his order passed u/s 143(3), dated 16.12.2010. On appeal, the CIT(A), vide his order dated 29.02.2012 holding a conviction that the assessee's claim for deduction u/s 80IB was in order vacated the disallowance made by the A.O Aggrieved, the revenue had assailed the order of the CIT(A) before the Tribunal, which however was dismissed by the Tribunal vide its order passed in ITA No. 153/Asr/2012, dated 15.11.2018 for low tax effect in terms of the CBDT Circular No. 3 of 2018, dated 11.07.2018. The A.O while framing the reassessment vide his order passed u/ss. 143(3) r.w.s 147, dated 26.03.2013 had in the mean time again disallowed the assessee's claim for deduction u/s 80IB of the Act. On further appeal, the CIT(A) observed that he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of the assessee that as he was carrying on the business of manufacturing of gold ornaments, therefore, his claim for deduction u/s 80IB was well in order. In support of his aforesaid claim for deduction u/s 80IB the assessee had relied on a host of judicial pronouncements. However, the A.O after considering the submissions of the assessee did not find favour with the same. The A.O finally concluded that as the conversion of 24 carat pure gold into 22 carat gold ornaments did not amount to manufacturing, therefore, the assessee was not entitled for claim of deduction u/s 80IB of the Act. On the basis of his aforesaid conviction the A.O rejected the assessee's claim for deduction of Rs. 34,22,312/- u/s 80IB. On appeal, the CIT(A) following the view that was taken by him while disposing off the appeal of the asseseee for A.Y 2009-10 upheld the disallowance of the assessee's claim for deduction u/s 80IB of the Act. (iii). We have deliberated at length on the issue under consideration and find that the issue herein involved is squarely covered by the order of this Bench of the Tribunal in the case of ACIT, Circle, Srinagar Vs. Sh. Lokesh Handa, Jammu [ITA No. 332(Asr)/2015, dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te consumers and is a new commercial commodity. The activity of the respondent assessee amounts to 'manufacture or production and, therefore, qualifies for deduction u/s 10A/10B." 4.1. Also, in the case of M/s. Tribhuwan Dass Bhimjee Jhaveri 110 TTJ 942, the Hon'ble ITAT, Mumbai has held as under: "Deduction u/s 80IB - Allow ability - industrial undertaking or branch office- Assessee's unit at Hyderabad is getting the jewellery made from Karigars at Mumbai under the supervision and control of its employees with the help of Mumbai Office (head office) of the assessee- operations carried on by the Hyderabad unit cannot be ignored merely because the Mumbai office is facilitating its activities - Therefore, assessee is entitled to deduction under section 80IB in respect of Hyderabad unit." 4.2. In the case of Puneet Sachdeva in appeal No.253/10-11 dated 29.02.2012, I have also held that the conversion of gold into gold ornaments was manufacturing, relying on the order of Hon'ble High Court and Hon'ble ITAT, Mumbai as referred above. 4.3. Further, the definition of 'manufacture' is inserted w.e.f. 01.04.2009 in section 2(24BA) of I.T.Act as under: "Manufacture" with its gramma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Tribunal and finding ourselves to be in agreement with the view therein taken respectfully follow the same. Apart from that, as observed by us hereinabove, the A.O while framing the 'Original' assessment for A.Y 2008-09, vide his order passed u/s 143(3), dated 16.12.2010 had disallowed the assessee's claim for deduction u/s 80IB. However, on appeal, the CIT(A), vide his order dated 29.02.2012 had principally found favour with the assessee's entitlement for claim for deduction u/s 80IB and allowed the same to the extent of 95%. Aggrieved, both the revenue and the assessee had assailed the order of the CIT(A) before the Tribunal by way of an appeal and a cross-objection, respectively. Insofar the appeal of the revenue is concerned, we find that the same was dismissed by the Tribunal vide its order passed in ITA No. 153/Asr/2012, dated 15.11.2018 for low tax effect in terms of the CBDT Circular No. 3 of 2018, dated 11.07.2018. On the other hand, the cross-objection of the assessee was disposed off by the Tribunal vide its order passed in C.O No. 15(Asr)/2012 [arising out of ITA No. 153/Asr/2012], wherein the restriction of the assessee's claim for deduction u/s 80IB to 95% by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred both in law and on facts by making enhancement in the income assessed by the Ld. A.O without giving any opportunity of being heard to the appellant against the principle of natural justice. 2. That having regard to the facts and circumstances of the case the learned CIT(A) Jammu has erred both in law and on facts of the case by not accepting the process of conversion of 24 Karat Gold into gold ornaments of 22 Karat as manufacturing activity and accordingly denying the deduction u/s 80IB claimed by the assessee. 3. That having regard to the facts and circumstances of the case the learned CIT(A) Jammu has erred in upholding the additions on account of bogus purchases. 4. That having regard to the facts and the circumstances of the case the learned CIT(A) Jammu has erred in upholding the additions made u/s 40A(3) of the Act. 5. That having regard to the facts and circumstances of the case the learned CIT(A) Jammu has erred in making additions on account of unverified creditors. 6. That the appellant craves to leave to add, amend, modify, delete any of the ground of appeal before or at the time of hearing and all the above grounds are without prejudice to each other." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Balaji Impex, Shop no. 18, 1st Floor, Parsvanth Plaza, Sector 27, Noida, Uttar Pradesh (Rs. 1,31,85,493/-). ; and (ii). M/s S.K Impex, 1241, Gali Kacha Bagh, Chandni Chowk, Delhi (: Rs. 1,06,74,712/-.), remains the same as were there before us in his appeal for the immediately preceding year i.e A.Y 2008-09, therefore, our order therein passed while disposing off Grounds of appeal No. 4 & 5 in ITA No. 305/Asr/2015 of his appeal for A.Y 2008-09 shall apply mutatis mutandis for the purpose of disposing off Ground of appeal No. 3 of the present appeal i.e ITA No. 05/Asr/2013 for A.Y 2008-09. We thus on the same terms respectfully following the aforesaid judgment of the Hon'ble High Court of Bombay in the case of Pr. Commissioner of Income Tax-17 Vs. M/s Mohhomad Haji Adam & Company (ITA No. 1004 of 2016, dated 11.02.2019) direct the A.O to restrict the addition insofar the bogus/unproved purchases aggregating to Rs. 2,38,60,205/- in the case before us is concerned, by bringing the G.P. rate on the amount of such bogus purchases at the same rate as that of other genuine purchases. Needless to say, the assessee in the course of the 'set aside' proceedings shall furnish the requisite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Rs. 51,34,260/- made by the A.O u/s 68 of the Act. Ground of appeal No. 5 is allowed in terms of our aforesaid observations. 18. DISALLOWANCE U/S 40A(3) : In the course of the assessment proceedings it was observed by the A.O that as the assessee had made cash purchases aggregating to Rs. 2,86,96,452/- viz. (i) cash purchases amounting to Rs. 1,27,69,355/- from M/s S.K Impex; and (ii). cash purchases amounting to Rs. 1,59,27,097/- from M/s Balaji Impex, therefore, he called upon the assessee to put forth his explanation as regards the same. In reply, it was submitted by the assessee that he had not made any purchases from the aforesaid parties but had procured the goods from the unregistered dealers operating in the open/grey market. It was stated by the assessee that he would make cash withdrawals from the bank and utilise the amount for making of purchases from the open/grey market. However, it was the claim of the assessee that on no occasion any single payment in excess of Rs. 20,000/- was made for purchasing the goods. The A.O was however not inclined to accept the aforesaid claim of the assessee and disallowed an amount of Rs. 2,86,96,452/- u/s 40A(3) of the Act. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be engaged in the business of manufacturing of gold ornaments had thus raised a claim for deduction of Rs. 64,10,983/- u/s 80IB of the Act. As observed by us hereinabove, the lower authorities had declined the assessees claim for deduction u/s 80IB, for the reason, that as per them conversion of pure gold (24 carat) into gold ornaments (22 carat) did not amount to manufacturing within the meaning of Sec. 80IB of the Act. We find that as the facts and the issue pertaining to the disallowance of the assessee's claim for deduction of Rs. 64,10,983/- u/s 80IB remains the same as were there before us in his appeal for the immediately preceding year i.e A.Y 2008-09, therefore, our order passed while disposing off the Ground of appeal No. 8 in ITA No. 305/Asr/2015 of his appeal for A.Y 2008-09 shall apply mutatis mutandis for the purpose of disposing off Ground of appeal No. 2 of the present appeal i.e ITA No. 05/Asr/2013 for A.Y 2008- 09. We thus on the same terms vacate the disallowance of the assessee's claim for deduction u/s 80IB of Rs. 64,10,983/- made by the A.O. Ground of appeal No. 2 is allowed in terms of our aforesaid observations. 20. That as the Grounds of appeal Nos. 1 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bogus purchases claimed by the assessee to have been made from two parties viz. (i) M/s Balaji Impex : Rs. 1,31,85,493/- ; and (ii). M/s S.K Impex : Rs. 1,06,74,712/-. Rs. 2,38,60,205/- Rs. 2,86,96,452/- (As the additions/disallowances towards viz. (i). bogus purchases : Rs. 2,38,60,205/--; (ii). Unexplained credits u/s 68 : Rs. 51,34,260-; and (iii). disallowance u/s 40A(3) of purchases : Rs. 2,86,96,452/- were overlapping in nature, therefore, the same were telescoped and restricted to the amount of Rs. 2,86,96,452/--). 2. Addition of 'Unexplained Credits' u/s 68 shown as sundry creditors in the balance sheet of the assessee against the names of the aforementioned two parties viz. (i) M/s Balaji Impex : Rs. 28,27,327.79 ; and (ii). M/s S.K Impex : Rs. 23,06,933.05. Rs. 51,34,260/- 3. Disallowance u/s 40A(3) of cash purchases of gold from the aforementioned parties. Rs. 2,86,96,452/- 4. Disallowance of the assessee's claim for deduction u/s 80IB of the Act. Rs. 64,10,983/- On the basis of a 'Show cause' notice ('SCN'), dated 22.10.2013, the assessee was called upon to explain as to why penalty u/s 271(1)(c) as regards the aforesaid additions/disallowances so ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n itself is backed by a process of estimation cannot be sustained and is therefore deleted. Accordingly, on the basis of our aforesaid observations we delete the penalty that was sustained by the CIT(A) as regards the aforesaid additions/disallowances. 26. The appeal filed by the assessee is allowed in terms of our aforesaid observations. ITA 547/Asr/2016 A.Y 2009-10 (Revenue appeal) 27. We shall now take up the appeal of the revenue which arises from the order passed by the CIT(A), Jammu, dated 30.06.2016, which in turn arises from the order passed by the A.O u/s 271(1)(c) of the Act, dated 11,03.2014 for A.Y 2009-10. The assessee has assailed the impugned order on the following grounds of appeal before us: "1. Whether the Ld. CIT(A) was right in law in deleting the penalty u/s 271(1)(c) of the I.T Act, 1961. 2. Whether the Ld. CIT(A) was right in law in relying his decision on the case laws which are not directly related with the issue and ignoring the decisions of Hon'ble Delhi High Court and Hon'ble ITAT Mumbai which are directly related with the issue involved." 28. We find that the revenue has assailed before us the order of the CIT(A) to the extent he had vacated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to all the benches of the Tribunal in that behalf. We hope and trust that suitable guidelines shall be framed and issued by the President of the Appellate Tribunal within shortest reasonable time and followed strictly by all the Benches of the Tribunal. In the meanwhile (emphasis, by underlining, supplied by us now), all the revisional and appellate authorities under the Income-tax Act are directed to decide matters heard by them within a period of three months from the date case is closed for judgment". In the rule so framed, as a result of these directions, the expression "ordinarily" has been inserted in the requirement to pronounce the order within a period of 90 days. The question then arises whether or not the passing of this order, beyond a period of ninety days in the case before us was necessitated by any "extraordinary" circumstances. 31. We find that the aforesaid issue after exhaustive deliberations had been answered by a coordinate bench of the Tribunal viz. ITAT, Mumbai 'F' Bench in DCIT, Central Circle-3(2), Mumbai Vs. JSW Limited & Ors. [ITA No. 6264/Mum/18; dated 14/05/2020, wherein it was observed as under: "Let us in this light revert to the prevailing situa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period during which lockdown was in force can be anything but an "ordinary" period. 10. In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon'ble Bombay High Court did not approve an order being passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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