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TMI Blog2016 (12) TMI 1856X X X X Extracts X X X X X X X X Extracts X X X X ..... we confirm the decision of the CIT (A). Undisclosed turnover - CIT (A) has examined the issue and found that the turnover made by M/s Spectra Investments on behalf of the assessee exceeded the cash turn over of the assessee at ₹ 7.06 crore as against ₹ 8.03 crore adopted by AO. He found the % of GP in this line of business .He has held that what to be taxed in such situation is only the profit element and not the entire turnover as the deduction for the cost of goods has necessarily to be allowed - HELD THAT:- CIT(A) has not properly appreciated the facts stated by the AO in his remand report dt 28.9.2010. Since this issue this issue requires verification reconciliation we set aside this issue to the AO . The AO after giving adequate opportunity to the assessee would decide this matter in accordance with law. Addition on account of exchange fluctuation earned by the assessee - CIT (A) held that the assessee had incurred a net loss on account of exchange difference and deleted the entire addition - HELD THAT:- CIT (A) has not properly appreciated the facts stated by the AO in his remand report dt 01.03.2011. Since this issue this issue requires verification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003-04 and 2005-06. 02. None appeared from the assessee. The DR is heard. 03. The facts in brief are that M/s Paresh Exports Pvt Ltd is in the business of trading in bullion. A search and seizure operation was conducted on the assessee on 28/1/2005, several incriminating documents were found and seized. A notice u/s 153A was issued on 18.4.2005 in respect of ays 2003-04 2005-06 and the assessment orders were passed u/s 153A rws 143(3) on 25.6.2007. The assessee filed appeals before the CIT(A) , Mysore and the CIT (A) disposed them in ITA Nos 159 158/ACIT,CC-1(4)/ B lore/07-08 dt 09.11.2012. Against those orders, the Revenue filed these appeals. The grounds of appeal related to the a y 2003-04 are extracted as under: Ground No 1 : Assessee s Modus operendi is that the assessee, M/s Paresh Exports Pvt Ltd is controlled by Mr. M. Parvez, who happens to be the MD of the concern. It is in the business of trading in bullion. Gold is imported from foreign suppliers through M/s PEC Ltd, a Government undertaking. Orders are placed on foreign suppliers through M/s PEC Ltd. Thereafter, gold is purchased by two methods as under : Consignment method:- Foreign supplie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry , the assessee discarded the issue by stating that such interest income belonged to M/s PEC. (Pages 3-4 of AO's order). On an appeal , the CIT(A) sought remand report from the AO and found that there was no evidence to conclude that the assessee had not accounted interest income to the tune of ₹ 1,11,97,808/-. It was further held that addition ₹ 1,11,97,808/- was not based on facts but merely on the DDIT (Inv)'s report. Therefore, he deleted that addition of ₹ 1,11,97,808/-. 05. The DR submitted as under : a. the assessee had made FDs as security for purchase of gold from M/s PEG. These FDs were made in such a way that on maturity, its value would match the cost of gold. Therefore, these FDs acted as a security until the actual payment was made by the assessee to M/s PEG. b. FDs were assets acquired by assessee and hence interest received/ accruing thereon is an income of the assessee. c. ₹ 1.99 crore was the total interest received during AY 2003-04. The assessee had disclosed ₹ 87.78 lakh as interest income in its Return. After giving credit to the said amount, ₹ 1,11,87,808/- was found to be undisclosed. d. The TDS ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in the case of CIT vs Durga Prasad More 82 ITR 440, the CIT(A) deleted the addition. 09. The DR submitted that the Ld CIT(A) by applying the test of probability concluded that the probability of sales, though made on different dates in March 2003 were entered only on 31/3/2003 is more than likely than the probability that entire sales of March 2003 were actually made on 31/3/2003. In this connection , the DR submitted that the conclusion drawn by the Ld. CIT(A) based on 'probability' is unacceptable as it is not based on facts. The fact is that there was a negative cash balance which appeared throughout the month of March 2003 which continued upto the end of the month. These facts have not been dealt at length by the CIT(A) who on conjectures and surmises drew the conclusion that 'probability' of sales made on different dates being entered on 31/3/2003 is higher . Moreover the CIT(A) has also not looked into the fact that although there was no cash balance in its books, the assessee had unaccounted cash which was deposited in CITI Bank. It is therefore submitted that the AO has correctly made an addition on the peak balance as appearing on 29/3/2003. 10. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... procure gold in respect of the unaccounted sales at ₹ 12,10,000/-. Thus, the CIT(A) confirmed notional profit and initial investment totaling to ₹ 13,15,913/- and deleted the balance of ₹ 7.90 crore . 13. In this connection, the DR submitted that the CIT(A) has ignored the comments of the AO in the remand report dated 28/9/2010. The evidence relied upon by the AO in para 6, page 9 of the report states that cash bills accounted in the books of accounts and those alleged to have been made by assessee's agent M/s Spectra Investment bears the signature of the same person. Therefore, the CIT(A) should have confirmed the unaccounted sales in totality. It is submitted that the working brought out by the CIT(A) defies any logic. Even, if it were to be accepted that telescoping benefit had to be granted on sale proceeds being rotated to make further sales, the peak investment in sales ought to have been worked out and not initial investment. It is therefore submitted that the AO had correctly brought the unaccounted sales to tax and the hence the addition be upheld. 14. We have considered the above submissions. It is clear from the above that the CIT (A) has exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount and that the overall effect would be revenue neutral by ignoring the fact that this particular purchase of 1000 TT bars although booked in the purchase account was not recorded in the closing stock for the period ending 31/3/2003. It is also important to note that the assessee had not shown sale of these I000TT bars in its sales account neither has the assessee accounted for this purchase in the next f inancial year as seen in the assessment order. On page 10 of the assessment order, the assessee in his sworn statement had stated that the purchase and sale of 1000 IT bars had not been accounted for and that revised figures with return would be filed. Therefore, according to the assessee purchase of 1000 gold bars amounting to ₹ 7,82,95,007/- had not been accounted for nor the sales is accounted in its books. It is therefore submitted that the AO had correctly brought to tax these unaccounted purchase and sales and the same may hence be confirmed. 18. We have considered the above submissions. The relevant portion of the CIT (A) order is extracted as under : The assessing officer in his order of assessment has held that the appellant had purchased 1,000 TT Bars va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he extent of 1000 TT Bars during the F. Y. 2002-03 relevant to the A. Y. 2003-04 and hence the corresponding value of closing stock suppressed [1000 TT Bars] amounting to ₹ 7,82,95,0071- needs to be added back as income in the A. Y. 2003-04. Firstly going by the above observations of the assessing officer, it is clear that the appellant has to book purchase of 1000 TT bars and show the same as Closing stock. If the observation of the A.O is given effect to the result would be revenue neutral as the purchase amount would get set off by the same amount of closing stock. The assessing Officer had called for certain, clarification from M/s. PEC Ltd., during the remand proceedings on this issue and M/s. PEC Ltd., vide its letter dated 28/05/2010 addressed to the assessing officer has categorically stated that the total supplies made by M/s. PEC Ltd., to the appellant for the assessment year 2003-04 and the same is 14,100 TT Bars, which clearly tal l ies wi th quant i ty purchased as per the books of the appellant. It can also be seen from the very same statement of sales made by M/s. PEC Ltd., that it has actually delivered / issued to the appellant 500 TT bars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as the appellant comes to know of the same only through PEC Ltd. The A.O. in page 2 of his remand report dated 28/09/2010 has stated as under: During the enquires it has been noticed that there were certain discrepancies and disagreement with the DDIT[Inv] regarding the estimation of income under the head difference in exchange gain for the A. Y. 2003-04. Hence the issue has been referred back to investigation wing for further clarification. The report will be submitted after getting a clarification. In the second report dated 01/03/2011 it is stated as under: At the time of post search enquires the information was collected from M/s. PEC Ltd. , regarding the sale of gold bars and the consideration received from the assessee. Based on the information received from M/s. PEC Ltd an amount of ₹ 18,24,208/- was added as income on account of difference of exchange for the A. Y. 2003-04 in the search assessment order. The assessee in his submission made to the Honorable CIT[A]-VI, Bangalore has contended that even though the assessee has received certain exchange gains he has also suffered certain exchange losses and the assessing officer has not take in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in order to determine whether the appel lant has actual ly been credited or debited on account of exchange differences. Thus the addition of ₹ 80,24,0287/- made on this count is deleted. 25. From the above it is clear that the CIT (A) has not properly appreciated the facts stated by the AO in his remand report dt 01.03.2011. Since this issue this issue requires verification reconciliation we set aside this issue to the AO . The AO after giving adequate opportunity to the assessee would decide this matter in accordance with law. 26. Thus, the grounds of appeal related to a y 2003-04 are treated as partly allowed. I.T.A No 252/Bang/2013 AY. 2005-06 : 27. The grounds of appeal related to the a y 2005-06 are extracted as under: 1. The learned CIT(A) has erred in fact and in law in deleting an amount of ₹ 6,00,13,928/- being the addition made on account of unaccounted interest income. 2. The learned CIT(A) has erred in fact and in law in deleting an ammount of ₹ 5.02.20.000/- being the addition made on account of unaccountd investment in Gold. 3. The learned CIT(A) has erred in fact and in law in deleting an amount of ₹ 27,00,000/- b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it is therefore prayed that AO's action may be upheld. 33. We have considered the above submissions. The relevant portion of the CIT (A) order is extracted as under : The appellant has submitted that on the day of search the officials who conducted search in the premises had forcibly taken a statement from the managing Director of the appel lant company to the effect that the appel lant has made an unaccounted purchased 85 Kgs of Gold and sold the same. The Subsequent ly dur ing the course of proceedings before the invest igat ing autho r i t ie s , the Managing Di re c to r o f the appe l lant company , in hi s statement on 07.04.2005 has retracted the statement made on 28.01.2005 that the statement was given wrongly pertaining to 85 Kgs of gold KG bars and stated that he had purchased only 33 Kgs of gold KG bars from M/s. PEC Ltd. , Bangalore and sold the same on 27/01/2005 and that both purchase and sale of 33 kgs are duly accounted for in the books of accounts and that there are no unaccounted purchases or sales. During the course of remand proceedings M/s. PEC Ltd have furnished the details of supplies made to the appellant and also the stock of Gold ly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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