9911796707
TMI Blog2017 (1) TMI 1759X X X X Extracts X X X X X X X X Extracts X X X X ..... ut from the records are that assessee is an individual running a sole proprietary concern namely M/s Adinath Impex. Return of income for Asst. Year 2009-10 was filed on 30.09.2009 declaring total income of Rs. 4,41, 470/-. The case was selected for scrutiny assessment and notice u/s 143(2) of the Act followed by notice u/s 142(1) of the Act along with detailed questionnaire were issued and served. Necessary details and information as called for were duly supplied by the assessee. Assessee is in the business of trading in gold, silver, bullion, gold ornaments and diamonds. During the year turnover of Rs. 395.42 crores was achieved with the GP margin of 0.03% and net profit of Rs. 5,79,334/-. After scrutiny of various details, books of account, financial statements, by ld. Assessing Officer was not satisfied with the bonafideness of certain transactions ending up with loss entered into with three parties namely Aryavart Commodities Pvt. Ltd. (ACPL), Jay Jewellers and S. K. Jewellers in relation to sale of gold items. Ld. Assessing Officer calculated the total of such transaction ending up in loss totaling to Rs. 77,95,670/- with the observation that they have taken place due to intra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;A' should be accepted since 'overwhelming evidences have been finished and also the fact direct verification have not resulted in any information on the basis of which adverse inference can be drawn. 4. However, ld. Assessing Officer was not satisfied with the reply made by the assessee and assessed the income by disallowing the claim of loss in various transactions totalling to Rs. 77,95,670/- and assessing the income at Rs. 82,37,140/- by making following observations :- The submission made by the assessee has been considered carefully. A perusal of assessee's submission can be seen that the same is general in nature. For example the assessee in reply stated that the gold and diamond market is highly volatile. He has not proved that on the particular day the gold and diamond market was so volatile. He has not proved that on the particular day the gold and diamond market was so volatile. As per the assessee's submission has stated to have purchased gold at the rate of Rs. 1356.436/- on 12.01.2009 which was sold at a lower rate of 1290 .to Aaryat commodities, a sister concern leaving a sharp difference of Rs. 266.33 per gm. Likewise the assessee sold b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s seen that the Id A O did mention in his order that the impugned parties were appellants sister concern and close business associates. Thus, one of the premises on the basis of which addition/ disallowance has been made, rests on the applicability of section 40A(2)(b). Appellants submissions and the details filed indicate that the parties with whom 15 transactions have been undertaken by the appellant are not covered u/s, 40A(2)(b). Shareholding pattern of ACPL mentioned supra alludes that appellant is having only 6.34% shareholding and hence provisions of section 40A(2)(b) cannot be invoked. Incidentally, the Id A O except for making this plain statement has not brought on record any evidence in support of his finding that impugned parties are related with appellant u/s. 40A(2)(b), To this extent, the action of the Id A O has been found to be erroneous. Consequently, the ground of appeal No. 3 raised deserves to be allowed and the same is allowed, It would however be pertinent to point out that the additions made by the Id A O is not resting only on the issue of invoking provisions of section 40A(2)(b) but has another important limb of lack of genuineness of the transaction. & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lion market though fluctuates over a period of time but the fluctuations are not sudden unless there is some major catastrophe in the national or international political, economic or social situation. There could be a possibility of a marginal increase or decrease in the prices when a comparison is made between two days but the prices of sale and purchase for a particulars day are always fixed. It does not works like a stock market where the sale purchase price of shares vary during a particular day. The intraday price variations happen only at the MCX -gold and bullion Exchange wherein trading of gold of purchase is done but the fact remains that the appellant has not transacted on the floor of MCX but has merely traded as an ordinary businessman. Even if assuming, that the sale price of gold bought by the appellant on a particular day was less than its purchase price, the appellant could have easily waited for the price to rise either to the level of its purchases or higher than that. No justification is available on records, to indicate as to what were the compelling circumstances with the appellant to sell gold and diamond every time below the purchase price and thereby occurri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat appellant, even though not within the meaning of section 40A(2)(b), is closely related with ACPL by virtue of holding 6.34% shares of the said company. It is an undisputed fact that private limited companies are formed by people closely related to each other in terms of blood relations, friendly or social acquaintances or common business objectives and are actually tools for tax planning The appellant has admittedly obtained huge advances from ACPL. Ordinarily ACPL would have demanded and the appellant would have been required to pay interest to ACPL on such advances. Interest earnings in the hands of ACPL would have resulted in tax incidence in their hands. Consequently, with a view to avoid the incidence of taxation, the two parties entered into a callous transaction by which the appellant agreed to sell the party gold bars of 99.5% purity at below the market price in lieu of non payment of interest on their deposits. The profits earned by ACPL on purchases made from the appellant was then set off against other expenses. It is pertinent to point out that the appellant has incurred total loss on transactions entered with ACPL aggregating to 70,94,680/-. The appellant has submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action with the appellant have been duly confirmed with them. Explaining the details of transactions with the alleged three parties ld. AR submitted that - (a) As regards Jay Jewellers, it is pertinent to note that Jay Jewellers is not an associated group concern or even a distant relative of the appellant. The assessment of Jay Jewellers has also been completed u/s 143(3) of the Act and no adverse inference has been drawn in his case in respect of the purchase made by him from the appellant. In fact, the diamonds have been purchased on 3.11.2008 and sold at more or less similar rates on the very same date. It is not possible for the prices to rise abnormally on the very same date so as to entitle the appellant to huge profits as presumed by the Assessing Officer. (b) As regard to ACPL the ld. Assessing Officer has assumed that Aaryavart Commodities Pvt. Ltd. is a group concern and there is collusion with them whereby sales have been made at suppressed rates with a view to book paper losses. At the outset it is clarified that the directors of the aforesaid compay are not even remotely related to the appellant in question. Apart from commercial and business transaction t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer has completely ignored the fact that on 18.3.2009 the appellant has purchased from Harshad Jewellers gold of 8000 gms at Rs. 1305/-. The assessee has made sales at Rs. 1306/-. Therefore, there is no loss arising to the assessee as has been wrongly presumed by the Assessing Officer. The Assessing Officer has chosen to ignore the comparative purchase bill of the same item on that very date. Therefore, there is no loss occasioned by the appellant as presumed by the Assessing Officer. We had also furnished the confirmation of Harshad Jewellers indicating the detailed address and PAN during the course of assessment proceedings and after the inquiry the Assessing Officer has not brought out any material or evidence on the basis of which an adverse inference can be drawn. The Assessing Officer has stated that the purchase is of Rs. 1470.20 per 10 gms. However, the AO has completely ignored the fact that on 20.03.2009 purchase has also been made from Harshad Jewellers at the rate of Rs. 1305/- If the aforesaid purchase from Harshad Jewellers is duly taken into consideration then there would be no such loss as presumed by the Assessing Officer. Copy of the purchase/sale b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77) 108 ITR 54 (Guj) CIT vs. Keshavlal Chandulal (1966) 59 ITR 120 (Guj) CIT vs. Shivakami Co.(P) Ltd. (1986) 25 Taxman 80K (SC), 159 ITR 71 (SC) CIT vs. Calcutta Discount Co. Ltd. (1973) 91 ITR 8 (SC) CIT vs. Amitbhai Gunvantbhai (1981) 129 ITR 573 (Guj) K.P. Varghese vs. ITO (1981) 131 ITR 597 (SC) 9. Ld. Departmental Representative (DR) vehemently argued supporting the orders of lower authorities strongly supporting the view that the impugned transactions have given rise to fabricated losses intentionally made by the assessee to lower down the profits. 10. We have heard the rival contentions and perused the records placed before us and gone through the decisions relied on by the ld. AR. Assessee's appeal revolves round the solitary grievance against the order of ld. CIT(A) confirming addition of Rs. 77,95,670/- made by ld. Assessing Officer for not allowing the claim of losses incurred by the assessee in certain sale transactions with Jay Jewellers, ACPL & S. K. Jewellers. We find that during the course of assessment proceedings ld. Assessing Officer selected 15 transactions out of which one each was Jay Jewellers and S. K. Jewellers and 13 transactions with A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss of revenue because on one hand there has been loss in the sale transaction and on the other hand interest has not been paid on the advance/credit received from ACPL. This additional plea was taken up by ld. CIT(A) in deciding against the assessee by observing that if the rate of interest is taken at 18% and it is applied on the credit balance lying with the assessee received from ACPL then approximately notional interest will work out to Rs. 72 lacs which is more or less matches with the loss suffered by the assessee in the impugned 13 transaction with ACPL and, therefore, these are colourable transactions attempted with sole objective of avoiding of true incident of taxation in the hands of the two parties. However, ld. CIT(A) has not disputed the fact that all the sale and purchases vouchers and invoices are entered in the books of account, receipts and payments have been made through banking channels, no infirmity has been found in the independent enquiries carried out with the impugned three parties. Therefore, there remains no force in the view taken by ld. CIT(A) of taking notional interest as a base to confirm the addition. The only reason for which both the lower author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bhai Patel & Co. vs. CIT (supra) while adjudicating the issue relating to purchase of tobacco from its partners at higher price than average price paid to outside parties and held that the Tribunal was not justified in disallowing a part of actual price of tobacco paid by assessee -firm when it was not shown that the transaction was not bona fide or one or to be sham one or price paid was not what was shown in the books of account. It was further held that it was not open to the taxing authorities to disregard the figures of he transactions shown in the books of account of the assessee firm. Relevant portion of the Judgment of Hon. High Court is reproduced below :- It may be pointed out that the decision of the Madras High Court in Sri Ramalinga Choodambikai Mills Ltd. v. Commissioner of Income-tax [1955] 28 10^95,2 (Mad) was approved and followed by the Supreme Court in Commissioner of Income-tax v. Calcutta Discount Company Ltd. [ 1973] 9_1 ITRJj. (SC) and there the Supreme Court held: "Where a trader transfers his goods to another trader at a price less than the market price, and the transaction is a bona fide one, the taxing authority cannot take into account the market p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities to disregard the figures of the transactions shown in the books of account of the firm. The case before the Madras High Court in Sri Ramalinga Choodambikai Mills Ltd. v. Commissioner of Income-tax [1955] 28 ITR 952 (Mad) and before this High Court in Commissioner of Income-tax v. Keshavlai Chandulal [1966] 59_ITR^12P (Guj.) was directly converse of the case before us. In Keshavlai Chandulal's case [1966] 5J^JT]^J12() (Guj) the allegation was that the firm's profit was shown less by reason of the fact of sale to the partners at an undervalue. In the instant case before us it is alleged that the firm's profit has been shown to be less by reason of the fact that the purchases from the partners are shown to be at an inflated price. The Supreme Court has pointed out in Calcutta Discount Company's case [1973] 9.1 ITR 8 , 13 (SC), quoting from Commissioner of Income-tax v. A. Raman & Company [19681 67 ITR 11 (SC): "Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, in favour of the assessee and against the revenue. In view of our conclusion it is really not necessary to answer question No. (2) but in any event it appears that the conclusion reached by the Tribunal that the partners and their relatives were paid higher price was erroneous in law as the Tribunal has not compared comparables. We, therefore, answer question No. (2) in the affirmative, that is, in favour of the assessee and against the revenue. The Commissioner will pay the costs of this reference to the assessee. 14. We further observe that Hon. Supreme Court in the case of CIT vs. ShivakamiCo. P. Ltd. (supra) adjudicating the issue wherein assessee with a view to sequestering the shares held by assessee in the company from clutches of Government, it sold them at a price much lower than their market value and in fact incurred a loss but Revenue could not prove that consideration was understated. Hon. Court decided the issue in favour of assessee by observing as follows:- 13. In the instant case, on behalf of the revenue, it was contended that it was accepted both by the Tribunal and the High Court that the transactions in question were done in order to defeat the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f capital gains. The onus is on the revenue - the inferences might be drawn in certain cases but to come to a conclusion that a particular higher amount was in feet received must be based on such material from which such an irresistible conclusion follows. In the instant case, no such attempt was made. 16. As this Court has explained in K.P. Varghese's case (supra) that the second ingredient that is to say that the word 'declared' in sub-section (2) of section 52 is very eloquent and revealing. It clearly indicated that the focus of sub-section (2) was on the consideration declared or disclosed by the assessee as distinguished from the consideration actually received by him and it contemplated a case where the consideration received by the assessee in respect of the transaction was not truly declared or disclosed by him but was shown at a different figure. Capital gains was intended to tax the gains of an assessee, not what an assessee might have gained. What is not gained cannot be computed as gained. All laws, fiscal or otherwise, must be both reasonably and justly interpreted whenever possible. Capital gains tax is not a tax on what might have been received or cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciple is the same in the law relating to income-tax as well as in civil law, namely, that if there is no challenge to the transaction represented by the entries or to the genuineness of the entries, then it is not open to the other side-in the instant case the revenue-to contend that what is shown by the entries is not the real state of affairs. No attempt was made by the department to show that, in fact, though the entries were made in the books of account of the HUF, the moneys were received or passed on to Amitbhai or that the moneys were received by G in his capacity as the guardian of the assessee. Under these circumstances, the department not having challenged the genuineness of the entries in the books of account of G, (HUF) and there being no other material on the record on which it could be said that the moneys were received by G in his capacity as guardian of minor, there was no evidence before the Tribunal to come to the conclusion as it did at the end of its order by way of inference that the amount in question did reach the representative assessee in his capacity as guardian of assessee. The entries which were the only evidence on record showed that the amount was rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been incurred. Ld. Assessing Officer completely failed to appreciate that every assessee has his own style of doing business and more specifically in the kind of business assessee is entered into it is well established that there is regular fluctuations in the prices of gold/silver/diamonds and jewellery due to which profit/loss are incurred. In the present case when the assessee is maintaining regular books of account which are audited and all transactions are fully supported by bills and vouchers, impugned transactions have taken place through banking channels, confirmations have been received from the alleged parties no adversity has been found in the statements recorded by the Revenue of the alleged parties, quantitative records are regularly maintained, similar transactions have not been disputed even in the subsequent assessment u/s 143(3) of the Act as supported by the copy of the order u/s 143(3) of the Act for Asst. Year 2012-13 framed on 13.2.2015. We, therefore, hold that the impugned 15 transactions giving rise to loss of Rs. 77,95,670/- are genuine and cannot be termed as colourable with the intention of evasion of tax and ld. Assessing Officer erred in disallowin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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