9911796707
TMI Blog2021 (4) TMI 475X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity to produce the vouchers to that effect even though the expenditure inevitable for the business; (iii) Capital introduced by the partners disallowed U/s. 68 of the I.T. Act at Rs. 12,30,000/-. For that the learned AO is erred in making such additions in the hand of the firms even though all the partners are the assessees under his jurisdiction having perpetual source of income shown in previous returns; (iv) Addition of Rs. 59,95,483/- on the ground of discrepancies in stocks found in course of survey. For that the Learned AO is erred in making such addition without considering the stock reconciliation statement submitted in course of assessment proceedings by upholding the facts germinated in course of survey in absence of statement of partners on oath U/s. 131 of the I.T. Act; (v) Cash purchase of gold at Rs. 66,96,965/-disallowed U/S.40-A (3) of the I.T. Act For that the learned AO is erred in making such huge addition without considering the genuine hardship of the sellers of the Tribal area as well as in contravention of provision under 6DD (d), 6DD(g), 6DD(k) of Income Tax Rules; (vi) Sundry creditor at Rs. 9,56,250/- added as unexplained; For that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnish on a single occasion to the details sought by the AO. Therefore, the AO disallowed lumpsum 10% of the total expenses claimed by the assessee i.e. Rs. 1,19,848/- (10% of Rs. 11,98,476/-) and added back to the total income of the assessee. Further on examination of the profit and loss account the AO found that he has claimed amount of Rs. 2,64,014/- towards carriage inwards but the assessee could not comply the questionnaire issued on 05.06.2015 in this regard. Therefore, the Assessing Officer (AO) added the entire amount of Rs. 2,64,014/- as a bogus expenses claimed in the profit and loss account. Further on perusal of the capital account of the partner's fresh capital contribution of the partners of Rs. 12,30,000/-. In this regard the assessee submitted financial statements and explanation regarding the capital contribution by the partners before the AO but he was not satisfied and made addition u/s.68 of the Act in the hands of the partnership firm totaling to Rs. 12,30,000/- . 3. During the course of survey proceedings u/s.133A of the Act on 04.04.2012, the survey team found some discrepancy in the stock maintained by the assessee and in this regard the assessee had pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the provisions of Section 40A(3) of the Act, 1961. Accordingly a show cause notice was issued to the assessee on 22.01.2016. In response to the show cause notice the assessee filed written explanation on 17.02.2016, which reads as under :- "A) In fact it is the usual practice of the gold and silver business concerns that on many occasions the assessee is getting new ornaments made through local karigars for which job work charges are being paid by assessee. That most of the purchases are made from village customers on the condition that the customers purchase new jewellery from the assessee. Such purchases of old gold and silver purchases were treated as credit purchases, for which there was no payment in cash ever made for those transactions since these were adjusted against sales effected to such customers by the assessee for which there is also no receipt of cash and the assessee charges making charges separately for the same. Thus such instances of old gold and silver purchases is in reality an exchange-of new jewellery for old jewellery and differential amount, if any, alone was paid by assessee. The sale of new jewellery happens on a day later to the date of old jewelle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctical difficulties in verifying the address. Further, once the seller suspects that the assessee firm is not prepared to accept the address given by him, he may not be interested in selling the jewellery to the assessee firm. It is a question of mutual trust and once there is suspicion, the assessee's business interest will suffer. That the assessee, in the nature of its trade, cannot insist for an identification process akin to Know Your Customer (KYC) rules applied by banks. There is ho such mandatory requirement in the business of jewellery to maintain any records in line with KYC norms of bank. In fact, a prudent businessman might not insist on such rigorous process since insistence on such conditions will be to the detriment of his business. That in the nature of the trade of the assessee it may not possible to get full address of all the customers and even if the customers give their address, there Is no means available to the assessee to ensure that such addresses ark right. E) Section 40A(3) is not an absolute prohibition on the cash payments. The Rules 6DD provides for the circumstances in which cash payments in excess of Rs. 20,000.00 can be allowed as deduction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missed the appeal of the assessee. 7. Aggrieved from the order of CIT(A), the assessee filed appeal before the Income Tax Appellate Tribunal. 8. Ld. AR before us filed paper book and also filed written submissions which read as under :- 1. That the Appellant is a partnership firm consisting of four numbers of partners namely (i) Shri Paidisetty Manmadha Rao (PAN No.BKGPP0788M); (ii) Shri Paidisetty Satya Santosh (PAN No.AAPPP3758B); (iii) Smt. Paidisetty Sushila (PAN No.AEKPP8689J) and (iv) Shri Paidisetty Manikanta (PAN No.BKGPP0789L). All of them are income tax Assessees under jurisdiction of ITO, Rayagada. The firm is a trading retailer dealt with the business of gold and silver ornaments. The firm purchases old gold and silver jewellers from the tribal people of the locality and after making them new ornaments sales the same to the customers. The Appellant in due course of business maintained the books of accounts consisting of sale and purchase register, ledger accounts of expenditure as well as party ledger. The same was produced before the Learned AO at the time of assessment. 2. That there was a survey operation conducted in the beginning of the AY 2013-2014 i.e. on 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exure-19 at Page-175 para 5.2). Discretion cannot be used discriminatorily not power can be exercised in a pick and choose manner. Thus, on the face of the decision taken in the case of Kumar Sunrise Jewellers (supra) disallowance of expenditure at Rs. 1,19, 848/- is bad in law. Hence the disallowance of expenditure is liable to be deleted. In so far as disallowance of carriage inwards at Rs. 2, 64, 014/- is concerned, it may be stated that this expenditure is inevitable for the business. After considering this aspect, the learned AO for the previous assessment year 2012-2013 allowed Rs. 2, 52, 612/- (2.06%) as Against the purchased turnover of Rs. 1,22,61,994/-. During the year in question, the Appellant claimed carriage inwards at Rs. 2, 64, 014/- (3.62%) as against the turnover of Rs. 72,96,390/-. The learned AO disallowed the entire claim without considering vouchers being filed by the Appellant which is bad in law. Thus, the addition is liable to be deleted. In so far as Capital introduced by the partners disallowed U/s. 68 of the I.T. Act at Rs. 12,30, 000/- as under: (i) Shri Paidisetty Manmadha Rao (PAN No.BKGPP0788M) - Rs. 8,50,000/-. The source is from agricultural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old was -8951.002 gms and silver-98021.71 gms which had susceptibly taken by the learned AO as under: GOLD Opening stock of gold as on 1.4.2011 as stated by you as per return of income at :6719.79 gm Purchase as per register :2979.64 gm Sale effected upto 31.3.12(-) :2449.49 gm TOTAL :7247.43 GM Closing stock as per stock inventory as on 4.4.2012 :8911.09gm Excess stock found :1633.66gm It may be stated that in so far as GOLD, the opening stock as taken by the Learned AO is not based on record. The Appellant has stated before the Learned AO at the time of survey that he will reconcile the figures and paid advance tax amounting to Rs. 8,00,000/-towards excess stock, if any, found. The Appellant filed I.T. return AY 2012-2013 on 30/09/2012 in which it was fairly disclosed the closing balance of gold as on 31/03/2012 at: 8951.002 gms. This stock shown in the return is well supported by the audited statement of accounts (Annexure-2, at page 10 of the paper book). The Appellant had reiterated the aforesaid facts before the learned AO as well as Learned CIT (A) as could be fortified by the written note of submission filed before both the forums (Annexure-10 series at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar, 263 ITR 610 (MP) and Hon'ble Gujurat High Court in the case of CIT v President Industries, 258 ITR 654 (Guj) is referred to wherein it was held that the total sale amount cannot be treated as income. Only an element income can be taxed in case of unaccounted amount of sales. In so far as addition of Cash purchase of gold at Rs. 66, 96, 965/- U/s.40-A (3) of the I.T. Act is concerned it may be stated that the Learned AO in course of survey operation has gone through the purchase register and purchase memo wherein it has been pointed out that the gold purchased more than Rs. 20, 000/-without issuing cheque or draft to that extent to the customers from whom the gold and silvers have been purchased. The detailed purchase of gold and silver in cash are as under: Gold Silver 1. Purchase through staff at village -Rs. 16,12,420/- -Rs.Nil 2. Purchase on Sunday and Bank holidays -Rs. 8,97,995/- -Rs. 1,30,500/- 3. Exchange value of gold and Silver -Rs. 20,33,350/- -Rs. 2,85,100/- 4. Petty purchases -Rs. 14,90,620/- -Rs. 2,66,980/- TOTAL -Rs. 60,34,385/- -Rs. 6,82,580/- It may be stated that in a similarly situated case the learned CIT (A) in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Assessing Officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. Rule 6DD provides that an assessee can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule." In case of Ajmer Food Products (P.) Ltd. v. JCIT [IT Appeal No. 625 (jp) of 2014, dated 28-9-2016] a similar issue has come up before the Co-ordinate Bench and speaking through one of us, it was held as under: "4.5 The genuineness of the transaction as well as the identity of the payee are not disputed. Further, the appellant has explained the business expediency of making the cash payments to both the parties which has not been controverted by the Revenue. Following the decision of Gujarat High Court in case of Anupam Tele Services (supra) and Rajasthan High Court in case of Harshila Chordia (supra), the addition of Rs. 45,738/- under section 40A(3) is deleted." The predominant judicial view is that cash payment in excess of Rs. 20,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,900/- 66,815/- Durga Prasad Panda Rs. 54,620/- 6,500/- 48,120/- S.Srinivas Rao Rs. 58,336/- 4,200/- 54,136/- A.Lokanath Patra Rs. 50,562/- 5,000/- 45,562/- P.Seshamba 50,082/- 3,900/- 46,182/- TOTAL 10,33,950/- 77,700/- 9,56,250/- The carry forward figures of Sundry Creditor of 17 numbers was at Rs. 10, 33, 950/- as stated above alleged by learned AO as bogus from whom the Appellant purchased the Gold & Silver ornaments but did not pay the entire amount and in the current year has paid at Rs. 77,700/- thereby the remaining balance was at Rs. 9, 56, 250/-. Therefore, the Sundry Creditor of Rs. 9, 56, 250/- were related to previous AYs. Therefore, the closing figure of previous years ought not to have been added in the current year of assessment as clearly held by Hon'ble High Court of Rajsthan reported in 2008 (301) ITR page 404 where the Hon'ble High Court have held that sum carried forward from preceding year not an investment or cash credit generated during the relevant year not taxable as income of that year. Therefore, the opening balance of trade creditors cannot be treated as unexplained cash credited ought not to have been added u/s. 68 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es on petition for the same. B. CIT(A). At the level of the CIT(A) opportunity provided by him has been discussed in paragraphs 2 of page 2 and 3 of his order. Hearing was fixed as many as 10 times. The only response of the assessee was an adjournment petition and a piece of written submission. Appearance followed the threat of ex-parte disposal without further opportunity. That too was only with the adjournment petition. The AR was even accommodated on an unscheduled date on his request. C. Ground 2. As per the same paragraph of the order of the CIT(A)- ' For further discussion and filing of evidences in support of the written submission, the case was adjourned' many times but there was no compliance. With a view to pre-empting a possible charge of default at the first appellate level as well, ground 2 has been taken that production of evidences before higher authority not produced before the AO have no relevance, on the basis of an un-cited apex court decision whereas it is possible under specified conditions and circumstances u/r 46A of Income Tax Rules. But the AR goes on to contradict himself by surreptitiously adducing additional evidence at the end of the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... First day of the P/Y 4 Opening stock basis. ITR Trading a/c filed with ITR. 5 Stock as on 31/03/2012 or 01/04/2012 Gold (gm.) Silver (gm.) Gold (gm.) Silver (gm.) 7247.43 Discrepancy with trading a/c with ITR 97522.5 Discrepancy with trading a/c with ITR 8951.002 (More) 98021.71 (More) 6 Basis of purchase and sale during the period Register Register Nil Nil 7 Purchase as per register (gm) 2979.64 48100 8 Purchase as per trading a/c (gm) * 4775.650 * 48600 No reconciliation of the huge dichotomy between purchase as per register impounded during survey and that as per trading a/c for the preceding P/Y No reconciliation of purchase as per register-impounded during survey and that as per trading a/c for the preceding P/Y 9 Sales as per register (gm) 2449.49 21515.5 10 Sales as per trading a/c (gm) 2544.44 21515.5 No reconciliation of sales as per register impounded during survey and that as per 'trading a/c for the preceding P/Y 11 Discrepancy Excess Shortage Shortage; No explanation. Shortage; No explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.40A(3) of the Act after relying on the judgment of the Hon'ble Andhra Pradesh High Court is also not applicable because the rules made in this regard is not applicable in the impugned assessment year. Therefore, the AO and CIT(A) both are justified to make and confirm the addition made u/s.40A(3) of the Act. Further the ld. DR submitted in respect of sundry creditors that there is difference in the figures mentioned in the opening balance which are not tallied from the financial statements and details submitted in the paper book. The entire details have not been supplied by the assessee before any of the authorities below, therefore, the authorities below are justified in this regard. 9. After hearing both the sides and perusing the entire material available on record along with the paper book filed by the assessee as well as the orders of the authorities below and the written submissions filed by both the sides, we observe in respect of ground No.1(i) that during the course of assessment proceedings the assessee did not give details as required by the AO in respect of certain expenses as quoted (supra) and for want of sufficient evidence/vouchers. The AO disallowed the lumpsum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l that the firm has satisfactorily explained the aforesaid entries. 7. We are, therefore, of the opinion that the view taken by the Tribunal is correct and the aforesaid question is answered against the Revenue and in favour of the assessee. Respectfully following the decision of the Hon'ble High Court, we allow this ground of appeal of the assessee. Thus, the assessee gets relief of Rs. 12,30,000/-. 12. The issue raised in ground No.1(iv), is with regard to discrepancies found in the stocks of gold & silver on the date of survey i.e. on 04.04.2012 just after closure of the dates of the financial year. The survey team has pointed out some discrepancy in physical stocks taken by them to which the assessee had stated before them that he will reconcile the issue. From the statement of the assessee and audited financial statements for the financial year 31st March, 2012, the closing stock of gold is 8951.002 gms and for silver of 98021.710 gms and the total purchase and sales of gold for three days is 40 gms and sales is 45.7 gms. Therefore, the stock as on 04.04.2012 of gold is 8945.25 gms, therefore, there is net resultant excess of stock is 34.15 gms which is unreconciled. Furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts of the assessee. Further in respect of excess of 34.16 gms which are found excess is investments and the value of this is also to be added into the total income of the assessee. In this regard, the case law relied on by the ld. AR of the assessee is not applicable in the present case. Therefore, this ground of appeal of the assessee is partly allowed. 13. With regard to addition made u/s.40A(3) of Rs. 66,96,965/- , the AO has disallowed that the assessee has violated the provisions of Section 40A(3) of the Act regarding purchase of gold and silvers. On careful consideration of the details submitted by the ld. AR of the assessee that the assessee has purchased gold and silver through staff at villages, on Sunday/bank holidays, exchange value of old gold and silver and petty purchases, no doubt the assessee has violated the provisions of Section 40A(3) of the Act but there are some instances under which the assessee may get relief as per sub-rule (k) of Rule 6DD of I.T.Rules, 1962. For completeness of our order, we would like to reproduce the provisions of Rule 6DD(k) as under :- [6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be proved by the assessee at the time of assessment as well as at the appellate stage and we further notice that the assessee has shown cost of raw material consumed of Rs. 2,50,70,322.18 and he has shown also revenue from operations of Rs. 4,09,10,036.44 and there is also closing stock of raw materials as well as of the work-in-progress and finished goods. From the order of AO, we find that the AO has accepted the cost of raw material consumed, work-in-progress and finished goods as well as revenue from operations but the AO has not accepted the current liabilities appeared in the books of the assessee. Without the purchases, how the manufacturing process can be done and sales can be made. If there was not genuine or bogus creditors credited by the assessee the effect must be given on the financial statements prepared by the assessee. But the AO has one-sided taken view that the purchase is bogus. This view of the AO is not correct and our view is supported by the decision of the coordinate bench of the Tribunal in the case of Smt. Sudha Loyalka ITA No.399/Del/2017, order dated 18.07.2018, wherein the Tribunal has observed as under :- "6. After hearing both the partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by authenticated purchase bills / vouchers for which payments were made through banking channels, and sales against these purchases are not doubted, addition under section 69 was not justified merely because suppliers could not be located and were not produced for examination - RAJESH P. SONI VS. ACIT 100 TTJ 892 (AHD 'D'). Section 68 cannot be applied for taxing unconfirmed sundry creditors - CIT vs. Vardhman Overseas Ltd (2012) 343 ITR 0408 (Del). Income-Cash credit-Credit purchases-Provisions of s. 68 are not attracted to amounts representing purchases made on - credit-Tribunal- has recorded a categorical finding of fact based on appreciation of materials and evidence on record that the AO has accepted the purchases, sales as also the trading result disclosed by the assessee-It has also recorded a finding that the two amounts in question represented the purchases made by the assessee on credit-Therefore, addition of said amounts could not be made under s. 68 (COMMISSIONER OF INCOME TAX vs. PANCHAM DASS JAIN 74 CCH 0623 (All HC) Income-Cash credit-Credit purchases-Provisions of s. 68 are not attracted to amounts representing purchases made on credit -Astt. CIT vs. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the following judicial decisions has not been discharged. 6.1 There is no evidence that the liability has ceased to exist and that too in the year under appeal. The very fact these amounts are being shown as payable in the balance sheet of the assessee go to establish that there was no cessation of the liability as held in the following judicial decisions: - 6.2 Impugned liabilities are very much payable by the assessee as and when demanded and unless it is demanded, these are bound to be shown as outstanding. The very fact that these liabilities are appearing in the balance sheet is a strong acknowledgement of the debts payable by the assessee as has recently been held in the case of CIT vs Tamilnadu Warehousing Corporation 292 ITR 310(Mad). It has also been held in the case of Ambica Mills Ltd vs CIT 54 ITR 167 (Guj) that liability shown in the balance sheet is a clear case of acknowledging the liability and such liability cannot be treated to have ceased so as to attract section 41(1). That being so, where is the question of holding the said liabilities as ceased to exist, more so when assessee herself is acknowledging the liabilities to be paid? How can a third party that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undry creditors for which there could never be any claim of deduction having been allowed. 6.6 The A.O. has not established with evidence that the liability in respect of the above outstanding balances has ceased to exist. AO has gone on presumption and that too by placing the burden wrongly on the shoulders of the assessee. Section 41(1) does not envisage any such presumption of cessation and fix the incidence of tax thereon. 6.7 In the absence of any material having been brought on record to establish that the deduction was claimed or credit balance has been remitted, addition cannot be made u/s 41 (1) in view of the following decisions: * Steel and General Mills Co. Ltd vs ClT 96 ITR 438(Del) * CIT vs Nathubhai Desha Bhai 130 ITR 238 (MP) * Liquidator, Mysore Agencies P Ltd vs CIT 114 ITR 853(Karn) * K.V. Moosa Koya & Co vs CIT 175 ITR 120,124(Ker) * CIT vs Pranlal P Doshi 201 ITR 756(Guj) 6.8 The third burden which was on A.O. was to establish that cessation if at all has happened, has happened in the year under appeal. After all, liability to tax can be fixed in the year to which it pertains and to no other year. Liability to tax any ceased liability in a particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken by assessee before Ld. CIT(A) that if sale has been accepted, purchases must have been made. How can there be sale without purchases? Hence this decision does not apply.
8. In the background of the aforesaid discussions and respectfully following the aforesaid decisions, we are of the opinion that the Authorities below are not justified in making / sustaining the addition in dispute. Accordingly, the total addition of Rs. 3,50,94,758/- made by the AO and confirmed by the Ld. CIT(A) is hereby deleted.
On careful perusal of the above observations of the Tribunal, we find that the issue involved in the present case of the assessee is squarely applicable to it. Respectfully following the same, we delete the addition made by the AO and confirmed by the CIT(A) on account of unexplained sundry creditors. Thus, ground No.2 of appeal of the assessee is allowed.
15. Respectfully following the above decision of the coordinate bench of the Tribunal, we delete the addition made by the AO and allow this ground of appeal of the assessee.
16. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 12/03/ 2021. X X X X Extracts X X X X X X X X Extracts X X X X
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