Assistant Commissioner of Income-tax, V. M/s. Rajmal Lakhichand & Sons,

ITA 1177/PUN/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 5230 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-10-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 01-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Business income; Depreciation; Unabsorbed depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E . , , , ! BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AW ASTHY, JM . / ITA NO.1177/PUN/2016 / ASSESSMENT YEAR : 2011-12 ACIT, CIRCLE-1, JALGAON /APPELLANT VS. M/S. RAJMAL LAKHICHAND & SONS, 169, BALAJI PETH, JALGAON 425 001 PAN : AACFR8612D . / RESPONDENT / APPELLANT BY : SHRI RAJEEV KUMAR, CIT / RESPONDENT BY : SHRI SUNIL PATHAK / DATE OF HEARING : 11.10.2018 / DATE OF PRONOUNCEMENT: 18.10.2018 / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF C IT(A)-2, NASHIK, DATED 03-03-2016 FOR THE ASSESSMENT YEAR 2011-12. 2. GROUNDS RAISED BY THE REVENUE READ AS UNDER : 1. ON FACTS AND IN LAW, THE LD. CIT(A) HAS ERRED I N DELETING THE DISALLOWANCE U/S.40A(2)(B) OF RS.1,38,55,059/-, RE LYING UPON THE HONBLE ITAT, PUNES DECISION IN THE CASE OF M/S. RAJMAL LA KHICHAND FOR THE A.Y. 2009-10 AND IN NOT GIVING ANY REASONING FOR ADOPTIN G THE GROSS PROFIT RATIO OF 2.92% AS AGAINST THE DISCLOSED GP RATIO OF 2.75%. 2. ON FACTS, THE LD.CIT(A) HAS ERRED IN NOT APPRECI ATING THE FACT THAT THE DISALLOWANCE U/S.40A(2)(B) ON THE EXCESS PAYMENT ON PURCHASES MADE FROM THE SISTER CONCERN WAS MADE AFTER CONSIDERING THE J ALGAON (LOCAL) RATES OF GOLD AND SILVER. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE ORDER OF LD.CIT(A)-II, NASHIK BE CANCELLED ON THE ABOVE ISSU E AND THAT OF THE A.O. BE RESTORED. ITA NO.1177/PUN/2016 M/S. RAJMAL LAKHICHAND & SONS 2 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, MODIFY , DELETE AMEND ANY OF THE GROUNDS WITH PRIOR PERMISSION OF THE LD. PR.CIT , AS PER THE CIRCUMSTANCES OF THE CASE. 5. THE APPELLANT PRAYS TO FILE ANY OF THE ADDITIONA L EVIDENCE, WITH THE PERMISSION OF LD. PR.CIT, APPROPRIATE TO THE GROUND S TAKEN IN APPEAL. FROM THE ABOVE, WE FIND THE GROUNDS REVOLVE AROUND DISA LLOWANCE OF RS.1,38,55,059/- MADE U/S.40A(2)(B) OF THE ACT. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE INCLUDE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN SILVER/GOLD ARTICLES, OR NAMENTS AND BULLION. ASSESSEE FILED THE RETURN OF INCOME DECLARING NIL INCO ME AND CLAIMED CARRY FORWARD OF UNABSORBED DEPRECIATION OF RS.26 ,72,095/-. DURING THE YEAR UNDER CONSIDERATION, THE TURNOVER OF THE ASSESSEE WAS RS.2,96,09,88,727/-. GROSS PROFIT AND NET PROFIT FOR THE YEAR ARE SHOWN AT 2.75% AND 1.57% RESPECTIVELY. SPECIAL AUDIT U/S.142(2A) OF TH E I.T. ACT WAS CARRIED OUT WHEREIN IT WAS FOUND THAT ASSESSEE MADE SUBSTANTIAL PURCHASES FROM THE SISTER CONCERNS AT HIGHER RATE QUA THE PURCHASE RATE WITH THE THIRD PARTIES. ON THIS ISSUE, AO REJECTED THE E XPLANATION OF THE ASSESSEE AND OPINED THAT ASSESSEE PAID EXCESSIVE AND UNREASONABLE PRICE FOR PURCHASES FROM THE SISTER CONCERNS. THE AO INVOKING THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT AND DISALLOWED AN AMOUNT OF RS.1,3 8,55,059/-. FURTHER, AO ALSO MADE COUPLE OF OTHER ADDITIONS (1) RS.7,47,9 75/- U/S.14A OF THE ACT ON ACCOUNT OF INVESTMENT IN SHARES OF SISTER C ONCERN FROM THE INTEREST BEARING FUNDS; AND (2) RS.32,960/- ON ACCOUNT OF EX CESS PAID TO MR. MANISH JAIN ON THE GOLD DEPOSIT. AT THE END OF THE A SSESSMENT PROCEEDINGS, THE AO DETERMINED THE TOTAL INCOME OF THE AS SESSEE AT RS.6,47,43,443/- AFTER SETTING OFF BROUGHT FORWARD LOSSES AGA INST THE NIL INCOME RETURNED BY THE ASSESSEE. ITA NO.1177/PUN/2016 M/S. RAJMAL LAKHICHAND & SONS 3 4. IN THE FIRST APPELLATE PROCEEDINGS, THE CIT(A), RELYING O N THE ORDER OF HIS PREDECESSOR IN THE ASSESSEES OWN CASE FOR THE A.Y. 2010-11, PARTLY ALLOWED THE GROUND RELATING TO DISALLOWANCE U/S.40A(2)(A) OF T HE ACT. WE PROCEED TO EXTRACT THE FINDING GIVEN BY THE CIT(A) HERE AS UNDER : 5.12 THUS, FOLLOWING THE DECISION OF THE HON'BLE ITAT IN THE CASE OF RAJMAL LAKHICHAND, THE ADOPTION OF G.P. RATE OF 2.92% AS AGAINST THE G.P. RATE OF 2.75 % DISCLOSED BY THE APPELLANT WILL BE FAIR AND MEET THE ENDS OF JUSTICE. THEREFORE, THE A.O. IS DIRECTED TO WORK OUT THE G.P. AT 2.92% ON THE TOTAL SALES OF RS. 2,96,09,88,727 AS P ER THE AUDITED ACCOUNTS. THE REVISED G.P. COMES TO RS. 8,64,60,871 /- AS AGAINST THE G.P. SHOWN BY THE APPELLANT AT RS. 8,15,16,851/-. A FTER REDUCING THE G.P. SHOWN BY THE APPELLANT THE BALANCE G. P. IS TO BE ADDED TO THE TOTAL INCOME OF THE APPELLANT WHICH COMES TO RS. 49,44,02 0/-. THIS COVERS THE GROUNDS ON THE ADDITION MADE BY INVOKING PROVISIONS OF SECTION 40A(2)(A) I.E. PURCHASE OF GOLD BULLION AND GOLD ORNAMENTS FR OM THE SISTER CONCERNS BY PAYING HIGHER PRICE. THE OTHER INCOME SHOWN BY T HE APPELLANT WILL REMAIN UNCHANGED. THE OTHER CONFIRMED ADDITIONS WIL L ALSO NOT BE AFFECTED. 4.1 REGARDING THE OTHER ADDITIONS U/S.14A R.W.R 8D OF THE ACT AMOUNTING TO RS.7,47,975/- AND RS.32,960/-, THE CIT(A) DELETED BOTH TH E ADDITIONS AND THE REVENUE IS NOT IN APPEAL AGAINST THOSE DELETIONS. THEREFORE, ONLY ISSUE FOR ADJUDICATION BEFORE US RELATES TO THE SAID ADDITIO N U/S.40A(2)(B) OF THE ACT QUA THE G.P. ADDITIONS. 5. AGGRIEVED WITH THE ORDER OF CIT(A) ADOPTING THE GP RA TE OF 2.92% (RS.49,44,020/-) ON THE TOTAL SALES, WHICH MEANS GRANT OF RE LIEF OF RS.89,11,039/- (I.E. RS.1,38,55,059 RS.49,44,020), THE REVENUE IS IN APPEAL WITH THE GROUNDS EXTRACTED ABOVE. 6. LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDER OF AO. HE SUBMITTED THAT THE DISALLOWANCE WAS MADE ONLY AFTER CONS IDERING THE JALGAON LOCAL RATES OF GOLD AND SILVER AND THEREFORE, PRAYED FOR RESTORING THE ORDER OF AO. ITA NO.1177/PUN/2016 M/S. RAJMAL LAKHICHAND & SONS 4 7. BEFORE US, LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTE NTION TO THE ORDER IN THE ASSESSEES OWN CASE IN ITA NOS. 532, 663/P UN/2013 AND ITA NO.607/PUN/2013, DATED 16-01-2015 FOR THE A.Y. 2009-10 A ND ITA NOS.1000 AND 1068/PUN/2015, DATED 31-08-2018 FOR THE A .Y. 2010-11. FURTHER, HE SUBMITTED THAT, IN THE SAID ORDERS OF THE TR IBUNAL, THE SAID DISALLOWANCES LINKED TO THE INVOKING THE PROVISIONS OF SECTIO N 40A(2)(B) OF THE ACT WAS NOT APPRECIATED. LD. COUNSEL FOR THE ASSESS EE SUBMITTED THE FACT OF APPRECIATION BY THE ITAT THE DECISION OF CONFIRMING ADDITIONS LINKED TO THE G.P. IN THIS REGARD, LD. COUNSEL RELIED ON THE DECISION OF PUNE BE NCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. R.L. GOLD PVT. LTD. IN ITA NOS.1695 AND 1702/PUN/2014, DATED 17-02-2017 FOR THE A.Y. 2009-1 0. THEREFORE, CONSIDERING THE SETTLED POSITION ON THIS ISSUE, LD. COUNSEL P RAYED FOR DELETING THE SAME. 8. WE HEARD BOTH THE SIDES AND PERUSED THE ORDERS OF THE REVENUE. WE HAVE ALSO PERUSED THE ORDERS OF THE TRIBUNAL IN THE ASSE SSEES OWN CASE IN THE A.YRS. 2009-10 AND 2010-11 (SUPRA). WE FIND, ON IDENT ICAL FACTS, THE TRIBUNAL IN ITA NOS.1000 AND 1068/PUN/2015 FOR THE A.Y. 20 10-11 HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY HOLDING AS UNDER : 11. NOW, WE WILL TAKE UP THE ISSUES RAISED BY THE DEPARTMENT IN ITS APPEAL. THE FIRST GROUND RAISED BY THE DEPARTMENT IN APPEAL IS AGAINST DELETING THE ADDITION OF RS.4,27,70,660/- U/S. 40A( 2)(B) OF THE ACT ON ACCOUNT OF EXCESS PAYMENTS MADE TO SISTER CONCERNS ON PURCH ASE OF GOLD/SILVER ORNAMENTS. THE COMMISSIONER OF INCOME TAX (APPEALS ) HAS DELETED THE ADDITION BY FOLLOWING THE ORDER OF TRIBUNAL IN THE CASE OF ASSESSEES SISTER CONCERN M/S. RAJMAL LAKHICHAND IN ITA NO.607/PN/201 3 (SUPRA). IDENTICAL ADDITION WAS MADE IN THE CASE OF M/S. RAJMAL LAKHIC HAND IN ASSESSMENT YEAR 2011-12. THE MATTER TRAVELLED TO THE TRIBUNAL IN ITA NO. 2463/PUN/2016. IN THE SAID CASE, THE COMMISSIONER O F INCOME TAX (APPEALS) HAD SOUGHT REMAND REPORT FROM THE ASSESSI NG OFFICER. THE ASSESSING OFFICER IN REMAND REPORT ADMITTED THAT TH E ASSESSEE HAS NOT MADE EXCESS PAYMENTS TO THE SISTER CONCERNS FOR PURCHASE OF ORNAMENTS. THE TRIBUNAL AFTER CONSIDERING THE DECISION RENDERED IN THE CASE OF M/S. RAJMAL LAKHICHAND IN ITA NO. 607/PN/2013 (SUPRA) AND THE C OMMENTS OF ASSESSING OFFICER IN REMAND REPORT DELETED THE ADDITION BY OB SERVING AS UNDER : ITA NO.1177/PUN/2016 M/S. RAJMAL LAKHICHAND & SONS 5 7. IT IS AN ADMITTED FACT THAT THERE IS NO CHANGE IN THE FACTS AND THE NATURE OF TRANSACTIONS ARE IDENTICAL. WE FURTH ER OBSERVE THAT SIMILAR DISALLOWANCES WERE MADE IN THE CASE OF OTHE R SISTER CONCERNS OF THE ASSESSEE VIZ. RAJMAL LAKHICHAND JEWELLERS PV T. LTD. AND R.L. GOLD PVT. LTD. THE MATTER TRAVELLED UP TO THE TRIBU NAL AND THE TRIBUNAL IN THE CASES OF RAJMAL LAKHICHAND JEWELLERS PVT. LT D. VS. JT. COMMISSIONER OF INCOME TAX (SUPRA) AND R.L. GOLD PVT . LTD. VS. DY. COMMISSIONER OF INCOME TAX (SUPRA) HAS DELETED THE D ISALLOWANCES U/S. 40A(2) OF THE ACT. 8. WE FURTHER OBSERVE THAT THE ASSESSING OFFICER IN THE REMAND REPORT HAS ACCEPTED THAT AFTER APPLYING LOCAL RATES , THE ASSESSEE HAS NOT MADE ANY EXCESSIVE PAYMENTS TO THE SISTER CONCE RNS FOR THE PURCHASE OF ORNAMENTS. THE LOCAL RATES AS PUBLISHE D IN THE LOCAL NEWSPAPERS HAVE BEEN COMPARED WITH THE RATES APPLIE D BY THE ASSESSEE AND ON VERIFICATION IT IS FOUND TO BE IN O RDER. THUS, THE ASSESSING OFFICER ACCEPTED THAT NO EXCESSIVE PAYMEN TS WERE MADE BY THE ASSESSEE TO ITS SISTER CONCERNS. UNDER SUCH CI RCUMSTANCES DISALLOWANCE U/S. 40A(2)(A) IS UNCALLED FOR. IN VIEW OF THE ABOVE FACTS, WE DO NOT FIND ANY INFI RMITY IN THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS). ACCORDINGLY, THE SAME IS UPHELD AND THE APPEAL OF REVENUE IS DISMISSED BEING DEVOID OF ANY MERIT. NO MATERIAL HAS BEEN PLACED ON RECORD BY THE REVENU E HIGHLIGHTING THE DISTINGUISHING FEATURE IN THE TRANSACTIONS WITH SIS TER CONCERNS IN THE PRESENT CASE. THE NATURE OF THE TRANSACTIONS IN ALL THE GR OUP CONCERNS ARE IDENTICAL. THUS, IN THE LIGHT OF THE DECISION OF TRIBUNAL IN T HE CASE OF ASSESSEES GROUP CONCERNS NO DISALLOWANCE U/S. 40A(2)(A) OF THE ACT IS WARRANTED. ACCORDINGLY, THE GROUND NO. 1 RAISED IN THE APPEAL BY THE REVENU E IS DISMISSED. 9. CONSIDERING THE SETTLED POSITION ON THIS ISSUE, WE HOLD THAT THE ORDER OF CIT(A) IN ADOPTING GP RATE AT 2.92% ON THE TOTAL SALES IS FAIR AND REASONABLE. THEREFORE, THE DECISION OF THE CIT(A) DOES NO T CALL FOR ANY INTERFERENCE ON THIS ISSUE OF ADDITION U/S.40A(2)(B) OF THE ACT . ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 18 TH DAY OF OCTOBER, 2018. SD/- SD/- ( /VIKAS AWASTHY) ( . /D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 18 TH OCTOBER, 2018. SATISH ITA NO.1177/PUN/2016 M/S. RAJMAL LAKHICHAND & SONS 6 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A)-2, NASHIK. 4. / THE PR.CIT-2, NASHIK 5. , , / DR A, ITAT, PUNE; 6. / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.