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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 ..... s (P) Ltd. [ 2002 (10) TMI 231 - ITAT BOMBAY-E] had concluded, that when a provision of law is to be applied, it is to be seen that all the circumstances alliunde to the application of such provision did exist. It was observed by the Tribunal, that if it was not possible to find out how the violation of the provision was done, then addition could not be made on the basis of inferences and surmises. Observing, that in the case before them, as it was not known at what point of time and how the assessee had violated the provisions of Sec. 40A(3), therefore no addition on that count was warranted. Accordingly, in the backdrop of our aforesaid observations, we are of the considered view that as the revenue had failed to dislodge the claim of the assessee, and therein prove to the contrary that he had made payments towards purchase of goods from the open/grey market exceeding the prescribed limits contemplated in Sec. 40A(3), therefore, the disallowance made by the A.O cannot be sustained and is liable to be vacated. Deduction u/s 80IB - Increase in profit due ot disallowance of expenses - HELD THAT:- Claim of the assessee for deduction u/s 80IB is in order and the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 ₹ 2,08,51,002/- on account of so-called bogus purchases. The AO did not appreciate that these were genuine purchases and all the purchases were duly accounted for in the books of accounts and their sales were duly accepted in toto. As such, the A.O has blown hot cold in the same breath/. 5. That the A o did not appreciate that even otherwise the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is manufacturing Gold Jewellery and is clearly entitled for deduction as claimed u/s 80IB of the IT Act, 1961, at ₹ 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 and trading of gold ornaments had e-filed his return of income for A.Y 2008-09 on 24.11.2008, declaring a total income of Rs. Nil after claiming deduction u/s 80IB amounting to ₹ 34,22,312/-. Original assessment was framed by the A.O u/s 143(3), dated 16.12.2010, wherein holding a conviction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 : ₹ 61,54,538/- ; and (ii). M/s S.K Impex : ₹ 44,01,574/-. ₹ 1,05,56,112/- therefore, the same were telescoped and restricted to the amount of ₹ 2,08,51,002/-). 3. Disallowance u/s 40A(3) of cash purchases of gold from the aforementioned parties. ₹ 41,62,600/- 4. Disallowance of the assessee s claim for deduction u/s 80IB of the Act. ₹ 34,22,312/- Disallowance of the assesses claim of deduction u/s 80IB of ₹ 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 sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of the assessee that as no supporting bills were provided by the open/grey market suppliers from where the goods were procured, therefore, 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounted by the assessee in his books of accounts , therefore, it can safely or rather inescapably be concluded that the assessee had not purchased the goods 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 ₹ 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to reduce the selling price accordingly as a result of which profit comes to 5.66%Therefore, considering 5.66 % of ₹ 3,70,78,1 25/- which comes to ₹ 20,98,62 1.88 we think it fit to direct the revenue to add ₹ 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account to the extent relatable to his claim of having purchased the goods from them have to be reversed. At the same time, as the assessee had admittedly purchased the impugned goods at a discounted value from the open/grey market, therefore, the source 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 ₹ 1,05,56,012/- reflected under the head Sundry creditors against the names of the said parties in the bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to demonstrate that the assessee had incurred any expenditure in respect of which a payment was made of a sum exceeding twenty thousand rupees otherwise than by an account payee cheque drawn on a bank or account payee bank draft. Although, it has throughout been the claim of the assessee that he had on no occasion made any single payment in excess of ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase of goods from the open/grey market exceeding the prescribed limits contemplated in Sec. 40A(3), therefore, the disallowance of an amount of ₹ 41,62,600/- made by the A.O cannot be sustained and is liable to be vacated. Ground of appeal No. 7 is allowed in terms of our aforesaid observations. 8. DEDUCTION 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 ₹ 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, date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee tried to impress upon the A.O that the requisite conditions for claim of deduction u/s 80IB were duly satisfied by him. It was the claim of the assessee before him, that he would purchase 24 carat pure gold which would be converted into 22 carat gold ornaments by diluting the same with 7% copper and 3% silver. As such, it was the claim 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 ₹ 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 uphe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms has a distinct identity, treated as a new article and not the same as raw or standard gold in the form of bricks, biscuits or bars. As a result of the said processing a commercially different saleable product comes into existence. Jewellery has a distinctive name, character and use. It can no longer be regarded as the original commodity, has separate 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforesaid order of the Tribunal in the case of ITO, Ward-2(3), Jammu vs. Sanjay Jain, Jammu (supra) which has also been followed by the ld. CIT(A), and is squarely applicable to the facts and circumstances of the present case, we dismiss the appeal of the Revenue. 8. In the result, the appeal of the Revenue is dismissed. We have perused the aforesaid order of 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 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all now advert to the appeal filed by the assessee against the order passed by the CIT(A), Jammu, dated 10.10.2012 for A.Y 2009-10, which in turn arises from the order passed by the A.O u/s 143(3) of the Act, dated 30.12.2011. The assessee has assailed the impugned order on the following grounds of appeal before us : 1. That having regard to the facts and circumstances of the case the learned CIT(A) Jammu has 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persuaded to subscribe to the contentions advanced by the assessee upheld the aforesaid additions/disallowances and dismissed the appeal. 15. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. We shall deal with the respective issues involved in the present appeal, as under: 16. BOGUS PURCHASES : As the facts and the issue pertaining to the disallowance made by the A.O towards bogus purchases of ₹ 2,38,60,205/- which were claimed by the assessee to have been made from the aforementioned parties viz. (i). M/s Balaji Impex, Shop no. 18, 1st Floor, Parsvanth Plaza, Sector 27, Noida, Uttar Pradesh (₹ 1,31,85,493/-). ; and (ii). M/s S.K Impex, 1241, Gali Kacha Bagh, Chandni Chowk, Delhi (: ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he addition of ₹ 51,34,260/- made by the A.O by treating the outstanding liabilities aggregating to an amount of ₹ 51,34,260/- (Cr) shown by the assesseee in his balance sheet under the head Sundry creditors against the names of the aforesaid parties viz. (i). M/s Balaji Impex : ₹ 28,27,327.79 (Cr); and (ii). M/s S.K Impex : ₹ 23,06,933.05. (Cr) as an unexplained credit within the meaning of Sec. 68 of the Act, remains the same as were there before us in his appeal for the immediately preceding year i.e A.Y 2008-09. Accordingly, our order passed while disposing off Ground of appeal No. 6 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. 5 of the present appeal i.e ITA No. 05/Asr/2013 for A.Y 2008-09. We thus on the same terms vacate the addition of ₹ 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 ₹ 2,86,96,452/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DEDUCTION U/S 80IB : (i). On a perusal of the records, we find that the assessee had in his return of income claimed deduction u/s 80IB of ₹ 64,10,983/-. However, the A.O being of the view that conversion of 24 carat 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 30.12.2011. On appeal, the CIT(A) not finding any infirmity in the view taken by the A.O, upheld the disallowance of the assessee s claim for deduction u/s 80IB. Aggrieved, the assessee had assailed the order of the CIT(A) before the Tribunal. (ii). We have perused the orders of the lower authorities and find that the assessee who is engaged in the business of conversion of raw gold (24 carat) into gold ornaments (22 carat), claiming to be engaged in the business of manufacturing of gold ornaments had thus raised a claim for deduction of ₹ 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 rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice issued u/s 274 r.w.s 271(1)(c) along-with the assessment order is also invalid and void ab initio and penalty order is liable to be cancelled. 6. That the penalty order passed by the A.O is also illegal, invalid inasmuch as there is no application of mind while levying the penalty. As such the order is bad in law and the same is liable to be cancelled. 7. That the CIT(A) has grossly erred in sustaining some penalty. The whole penalty should have been cancelled by the worthy CIT(A). 8. That the penalty sustained by the CIT(A) is very high excessive. 9. Any other ground of appeal which may be urged at the time of hearing of the appeal. 23. Briefly stated, the A.O wile culminating the assessment had also initiated penalty proceedings u/s 271(1)(c) of the Act for concealing of the particulars of income by the assessee, as regards the following additions/disallowances : Sr. No. Particulars Amount of Addition/disallowance 1. Disallowance of Bogus purchases claimed by the assessee to have been made from two parties viz. (i) M/s Balaji Impex : ₹ 1,31,85,493 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the order passed by the CIT(A) to the extent he had sustained the penalty imposed by the A.O u/s 271(1)(c), has carried the matter in appeal before us. We may herein observe that as the impugned additions/disallowances made by the A.O viz. (i) addition towards unexplained credits u/s 68 of the Act: ₹ 51,34,260/-; and (ii). addition/disallowance of cash purchases u/s 40A(3) of the Act: ₹ 2,86,96,452/-, had been vacated by us while disposing off the appeal of the assessee in ITA 05/Asr/2013 for A.Y 2009-10, therefore, the penalty imposed by the A.O as regards the same cannot survive and is liable to be vacated. Accordingly, we quash the penalty imposed by the A.O u/s 271(1)(c) in respect of the aforesaid additions/disallowances viz.(i) addition towards unexplained credits u/s 68 of the Act : ₹ 51,34,260/-; and (ii). addition/disallowance of cash purchases u/s 40A(3) of the Act: ₹ 2,86,96,452/-. As regards the addition towards bogus purchases of ₹ 2,38,60,205/-, the same had been restricted by us to the extent of the amount the assessee would had benefited by procuring the goods at a discounted value from the open/grey market. In our considered view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly upon the conclusion of the hearing. (b) In case where the order is not pronounced immediately on the conclusion of the hearing, the Bench shall give a date for pronouncement. In a case where no date of pronouncement is given by the Bench, every endeavour shall be made by the Bench to pronounce the order within 60 days from the date on which the hearing of the case was concluded but, where it is not practicable so to do on the ground of exceptional and extraordinary circumstances of the case, the Bench shall fix a future day for pronouncement of the order, and such date shall not ordinarily be a day beyond a further period of 30 days and due notice of the day so fixed shall be given on the notice board. As such, ordinarily the order on an appeal should be pronounced by the bench within no more than 90 days from the date of concluding the hearing. It is, however, important to note that the expression ordinarily has been used in the said rule itself. This rule was inserted as a result of directions of Hon ble High Court in the case of Shivsagar Veg Restaurant Vs ACIT [(2009) 317 ITR 433 (Bom)] wherein it was inter alia, observed as under: We, therefore, direct the President ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a where the dispute lies or where the cause of action arises shall be extended for a period of 15 days after the lifting of lockdown . Hon ble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, It is also clarified that while calculating time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly , and also observed that arrangement continued by an order dated 26th March 2020 till 30th April 2020 shall continue further till 15th June 2020 . It has been an unprecedented situation not only in India but all over the world. Government of India has, vide notification dated 19th February 2020, taken the stand that, the coronavirus should be considered a case of natural calamity and FMC (i.e. force majeure clause) maybe invoked, wherever considered appropriate, following the due procedure . The term force majeure has been defined in Black s Law Dictionary, as an event or effect that can be neither anticipated nor controlled When such is the position, and it is offi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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