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TMI Blog2023 (1) TMI 610X X X X Extracts X X X X X X X X Extracts X X X X ..... hold that the transaction of purchase of sale of silver the by the assessee are genuine transaction and in the process loss incurred by the assessee cannot be disallowed. Hence we hereby set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Thus, the ground of appeal of the assessee is allowed. Disallowances of interest expenses on account of diversion of interest bearing fund - HELD THAT:- Admittedly the own fund of the assessee exceeds the amount of loans and advances given to various parties. This fact can be verified from the submission made by the assessee before the authorities below. Accordingly, we are of the view that a presumption can be drawn to hold that the interest free advances has been given by the assessee out of his own interest free fund. Accordingly, the question of making the disallowance of interest expense does not arise. Hence, the ground of appeal of the assessee is hereby allowed. - ITA No. 1269/AHD/2012 - - - Dated:- 11-1-2023 - SHRI WASEEM AHMED , ACCOUNTANT MEMBER And SHRI SIDDHARTHA NAUTIYAL , JUDICIAL MEMBER Assessee by : Shri Aseem L. Thakkar , A. R Revenue by : Shri Vijay Kumar Jaiswal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) has erred in law and on facts while failing to consider the transaction with Madhukant Business Group and Shah Trading Trading Co. is old one and there is no transaction during the year and both the parties are belonging to same group and the group is facing acute financial crunch even the recovery of principal amount was doubtful, the appellant has not charged interest from the same parties. 3. The Ld. CIT(A) has erred in law and on facts while ignoring the fact that the appellant company was having huge interest free funds at its disposal on which, it has not paid any interest. The appellant reserves its right to add, amend, alter or modify any of the grounds stated hereinabove either before or at the time of hearing. 3. The 1st issue raised by the assessee is that the learned CIT-A erred in confirming the order of the AO by sustaining the addition of Rs. 6,98,85,971/- representing the loss claimed by it (the assessee) which was treated as bogus in nature. 4. The facts in brief are that the assessee in the present case is a private limited company and engaged in the business of trading of Gold, Silver, and Diamond jewelry. The assessee in the year under con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As such, if the bank account of M/s Harshad Jewellers has been controlled and managed by it or its director there should have been some material found in this regard by the survey team and survey of team of VAT department. Thus, it was submitted by the assessee that the transaction carried out by it which has resulted loss of ₹ 6,98,85,971/- is a genuine business transaction and therefore the same cannot be denied. 5. However, the AO disagreed with the submission of the assessee on various reasons. There was no agreement in writing between the assessee and the father of the proprietor of M/s Harshad Jewellers for the supply of silver items in the month of February 2008. Furthermore, if the assessee has entered into some understanding orally to supply the silver items then the assessee as accordingly should have entered into an agreement for the purchase of the silver items in the month of February 2008. But the assessee has not done so. 5.1 It was also observed by the AO that the statement of Shri Harshadbhai Jashwntlal Soni was recorded being the proprietor of M/s Harshadbhai Jewellers wherein it was admitted that there was no actual transaction carried out between t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Harshad Jewellers has given misleading and false statement to avoid his liability and to safeguard his skin from the income tax proceedings. Therefore, no reference can be made to such statement. 7.2 The transaction shown by the assessee as purchases from M/s Pargati Traders and the transaction shown by the assessee as sales to M/s Harshad Jewellers were duly accepted as genuine in the books of accounts of the respective parties in the assessment framed under section 143(3) of the Act. Thus if any transaction is bogus in nature in the hands of the assessee all corresponding transactions in the hands of the parties could not be believed as genuine. 7.3 However, the learned CIT-A disregarded the contention of the assessee by observing that the assessee was given the opportunity of cross verification during the remand proceedings for 3 times but the assessee failed to avail the same. According to the learned CIT-A, the assessee purposely not wanted to avail the opportunity of cross-examination. Thus no benefit can be extended to the assessee on account of non-cross verification of the parties. 7.4 It was also found by the learned CIT-A that the assessee has carried out circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions. The learned DR vehemently supported the order of the authorities below. 11. We have heard the rival contentions of both the parties and perused the materials available on record. We note that there was survey operation at the premises of the assessee under section 133A of the Act dated 30 November 2010 wherein it was discovered that the assessee has carried out certain circular transactions from various parties in order to generate the loss of ₹ 6,98,85,971/- in a short period of time. As such it was alleged that the assessee has shown purchases of silver from the party namely M/s Pargati Traders in a period beginning from 04- 02-2008 to 04-03-2008 for a sum of Rs. 84,84,62,633/- which was sold within the same period for a sum of Rs. 77,85,76,622/- to M/s Harshad Jewellers which has resulted in loss to the assessee. The impugned loss was treated as bogus or fictitious by the AO. The view of the AO was also confirmed by the learned CIT(A). 11.1 From the preceding discussion we note that the view of the AO that the assessee has booked fictitious loss was based on following facts: I. There was a sheet marked as page 4 of Annexure-B, where details of purchases of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Traders) at prevailing market rate and supplied to customer at predetermined rate and in this process, it incurred loss of around Rs. 18 crore. The explanation of the appellant assessee was nowhere found false by the lower authorities neither any contrary material was brought on record. The AO merely on surmise and conjecture held that the explanation of the assessee was afterthought. We also find that the genuineness of transaction of sale and purchases of jewelry cannot be doubted merely for the reason that purchases and sales were made on same date but at different price. In this regard we find support and guidance from the judgment of Hon ble Gujarat High Court in case of Marghabhai Kishanbhai Patel vs. CIT reported in 108 ITR 54, where it was held as under: In view of the decision of this High Court in CIT v. Keshavlal Chandulal [1966] 59 ITR 120, unless it has been shown that the transaction in question was a sham one or unless the value shown was not the value in the books of accounts or unless it was not a bona fide transaction, it was not open to the taxing authorities to disregard the figures of the transactions shown in the books of account of the firm. 11.3 N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the books of the assessee which is placed on pages 17 to 24 of the paper book filed by the Revenue. On perusal of the same, it is revealed that there were numerous transactions carried out between the assessee and M/s. Harshad Jewellers and none of the transaction has been doubted by the authorities below except the transactions which were shown as purchases by the assessee in the period specified above which has resulted loss to the assessee. Besides the above, it is equally important to note that the group company of the assessee namely M/s Aaryavart Commodities Pvt. Ltd. has also carried out transaction with the M/s Harshad Jewellers but no doubt was raised. Therefore, in our considered opinion the genuineness of transactions pertaining to certain specified period out of numerous similar transactions cannot be doubted merely on basis of the statement furnished by Shri Harshad Soni, the proprietor of M/s Harshad Jewellers that the affairs of its propriety concern are being looked after by the director of the assessee company which is far from the reality. It is because, the revenue despite having the knowledge of all other transactions between the assessee and M/s Harshad Jewel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the month of February 2008 only for a sum of ₹ 84,84,62,633/- only. Thus, it suggests that this company was exclusively making sale to the assessee only. Likewise, on perusal of the financial statements of M/s Gayatri Trading Co. placed on pages 223 to 240 of paper book, we note that it has shown sales for the year amounting to Rs. 80,80,63,612/- and the purchases amounting to Rs. 80,75,22,123/- respectively which again evidences that all the sales were made to Pargati Traders only. All these fact coupled with the finding of investigation wing about the circular transfer of fund through banking channel give rise to doubt and suspicion. But it is well settled position of law by the various judgment of Hon ble supreme court including the judgment in case of CIT vs. Daulatram Rawatmull reported in [1964] 53 ITR 574 (SC) that the suspicion or doubt howsoever strong cannot take place of the evidence and cannot be made basis of drawing inference against the assessee. 11.7 Moving further we find that none of the authorities below have carried independent inquiry with parties alleged to have indulge in circular transaction. There was no effort made to find out the nature of tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- and on the other hand has made significant amount of interest free advance to following parties: 1. Madhukant Business Group Rs. 70 Lacs 2. Shah Trading Co. Rs. 40 Lacs 13.1 On question by the AO with regard to the business expediency of advancing the interest free loans, the assessee submitted that advances were given in earlier year. The assesse further submitted that the parties are facing financial crunch and recovery of principal amount is even in doubt. Therefore, the question of charging interest does not arise. 13.2 However, the explanation furnished by the assessee was not found to be satisfactory by the AO. The AO found that there were no business transaction carried out by the assessee with the above parties except extending interest free advance. Thus, the AO held that the assessee failed to establish business expediency and in absence of such expediency the proportionate interest expenses cannot be allowed. Hence, the AO worked out the proportionate interest @ 12% on such advances at Rs. 13.2 lacs and added to the total income of the assessee. 14. The aggrieved assessee carried the issue before the learned CIT(A). The assessee besides reiterati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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