Deputy Commissioner of Income-tax, V. R L Gold Pvt. Ltd., Jalgaon

ITA 1695/PUN/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7109 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-12-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 05-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJAY DHOKE
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Gross profit estimation; Deemed to accrue or arise in india; Additional evidence; Tax effect
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , ! ' # , $% &' #' , ' # '( BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI VIKAS AWAS THY, JM '%. / ITA NO. 1695/PUN/2014 * +* / ASSESSMENT YEAR : 2009-10 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 1, OLD BHIKAMCHAND JAIN MARKET, JALGAON 425001 (MAHARASHTRA) ....... / APPELLANT /VS. R.L. GOLD PVT. LTD., 169, BALAJI PETH, JALGAON 425001 PAN : AABCG5201D / RESPONDENT '%. / ITA NO. 1702/PUN/2014 * +* / ASSESSMENT YEAR : 2009-10 R.L. GOLD PVT. LTD., 169, BALAJI PETH, JOHARI BAZAR, JALGAON 425001 PAN : AABCG5201D ....... / APPELLANT /VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 1, INCOME TAX OFFICE, JALGAON / RESPONDENT ASSESSEE BY : SHRI SUNIL PATHAK REVENUE BY : SHRI AJAY DHOKE / DATE OF HEARING : 14-02-2017 / DATE OF PRONOUNCEMENT : 17-02-2017 2 ITA NOS. 1695 & 1702/PUN/2014, A.Y. 2009-10 , / ORDER PER VIKAS AWASTHY, JM : THESE CROSS APPEALS BY THE REVENUE AND THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-II, NASHIK DATED 30-06-2014 FOR THE ASSESSMENT YEAR 2009-10. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN GOLD AND SILVER ORNAMENTS, AS WELL AS SALE AND PURCHASE OF BULLION. TH E ASSESSEE COMPANY IS ONE OF THE CONCERNS OF RAJMAL LAKHICHAND GROU P, JALGAON. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMEN T YEAR 2009-10 ON 01-09-2009 DECLARING LOSS OF ` 19,29,942/-. THE DEEMED INCOME OF THE ASSESSEE U/S. 115 JB OF THE INCOME TAX ACT, 1961 ( HEREINAFTER REFERRED TO AS THE ACT) WAS SHOWN AS ` 1,60,79,481/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY UNDER CASS AND ACCO RDINGLY FIRST NOTICE U/S. 143(2) WAS SERVED ON THE ASSESSEE ON 21-08- 2010. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICE R FOUND VARIOUS DEFECTS IN THE BOOKS OF THE ASSESSEE AND HENCE, REJECTED THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER INVOKED THE PROV ISIONS OF SECTION 145 TO COMPLETE THE ASSESSMENT. THE ASSESSING OFFICER MADE CERTAIN ADDITIONS/DISALLOWANCES INCLUDING ADDITION ON ACCOUNT OF LOW GROSS PROFIT ` 86,14,243/- AND DISALLOWANCE OF ` 41,94,060/- U/S. 40A(2)(B) OF THE ACT. AGGRIEVED BY THE ASSESSMENT ORDER DATED 27-12-2011, T HE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) CHALLENGING THE ADDITIONS/DISALLOWANCES MADE DURING ASSESSME NT. THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE IMPUGNED ORDER RE STRICTED THE DISALLOWANCES MADE U/S. 40A(2)(B) TO ` 14,54,869/- AND DELETED THE 3 ITA NOS. 1695 & 1702/PUN/2014, A.Y. 2009-10 ENTIRE ADDITION ON ACCOUNT OF LOW GROSS PROFIT. NOW, THE AS SESSEE, AS WELL AS THE REVENUE ARE IN APPEAL AGAINST THE FINDINGS OF C OMMISSIONER OF INCOME TAX (APPEALS). 3. THE REVENUE HAS ASSAILED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) BY RAISING FOLLOWING GROUNDS OF APPEAL : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A)-II, NASHIK HAS ERRED IN DELETING THE GROSS P ROFIT ADDITION CONSIDERING THAT THERE IS NO JUSTIFICATION FOR REJE CTION OF ACCOUNTS WITHOUT APPRECIATING THE VARIOUS DEFECTS AS POINTED OUT BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A)-II, NASHIK HAS ERRED IN DELETING THE ADDITIO NS BEING DIVERSION OF PROFITS ON A/C OF PURCHASES MADE FROM ASSOCIATE CON CERN AT A HIGHER RATE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE ORDER OF THE LD. CIT(A)-II, NASHIK BE CANCELLED ON THE ABOVE ISSUES AND THAT OF THE A.O. BE RESTORED. THE ASSESSEE IN ITS APPEAL HAS ASSAILED ADDITION OF ` 27,39,191/- U/S. 40A(2)(B) OF THE ACT. THE ASSESSEE HAS RAISED AS MAN Y AS 6 GROUNDS, HOWEVER, ALL THE GROUNDS ARE IN RESPECT OF THE S OLE ISSUE RELATING TO ADDITION MADE U/S. 40A(2)(B) OF THE ACT. 4. SHRI SUNIL PATHAK APPEARING ON BEHALF OF THE ASSESSEE S UBMITTED THAT THE ASSESSEE PURCHASED GOLD ORNAMENTS AND BULLION FROM ITS SISTER CONCERNS. APART FROM THAT THE ASSESSEE PURCHASED GOLD ORNAMENTS FROM THIRD PARTIES AND BULLION FROM BANK AT MUMBAI. THE GOLD RATES IN MUMBAI MARKET AND IN THE LOCAL JALGAON MARKET ARE DIFFEREN T. THERE ARE VARIOUS FACTORS FOR DIFFERENCE IN RATES, TRANSPORTATION OF GOLD FROM MUMBAI TO JALGAON IS ONE OF THE KEY FACTORS FOR DIFFERENCE IN RATES BETWEEN JALGAON MARKET AND MUMBAI MARKET. THE LD. AR SU BMITTED THAT THE ASSESSING OFFICER HAS MADE ADDITION U/S. 40A(2)(B) O F THE ACT 4 ITA NOS. 1695 & 1702/PUN/2014, A.Y. 2009-10 BY TAKING AVERAGE OF GOLD RATES IN THE YEAR. GOLD RATE S FLUCTUATE EVERY DAY, SOMETIMES THERE IS FLUCTUATION OF RATES ON THE SAME D AY ITSELF. THE LD. AR DRAWS OUR ATTENTION TO THE INSTANCES OF PURCHASE OF BULLION AND GOLD ORNAMENTS FROM SISTER CONCERNS AND OTHER PARTIES. THE LD. AR REFERRED TO TABLE AT PAGES 156 AND 157 OF THE PAPER BO OK. THE LD. AR CONTENDED THAT THE RATES OF BULLION IN THE MUMBAI MARKET ARE SOMETIMES MORE AND AT TIMES LESS THAN THE RATES IN JALGA ON, THEREFORE, THERE IS DIFFERENCE IN THE RATES PAID BY THE ASSESSEE TO ITS SISTER CONCERNS. THE ASSESSEE MADE PAYMENT FOR PURCHASE OF B ULLION AS PER MUMBAI RATES. REFERRING TO CHART AT PAGE 156 IN RESPECT OF PURCHASE OF BULLION FROM SISTER CONCERNS, THE LD. AR SUBMITTED THAT A PE RUSAL OF TRANSACTIONS WOULD SHOW THAT THE ASSESSEE HAS PAID EXC ESS PAYMENT TO ITS SISTER CONCERNS ON FIVE OCCASION AND ON ONE OCCASION THE PAYMENT MADE IS LESS THAN THE MARKET RATE IN JALGAON. THE LD. AR REFERRED TO PAGE 157 OF THE PAPER BOOK TO SHOW THE INSTANCES OF PU RCHASE OF GOLD ORNAMENTS FROM ITS SISTER CONCERN. THE LD. AR POINTED THA T THE PAYMENTS HAVE BEEN MADE TO ITS SISTER CONCERN AT THE RATE PREVALENT IN JALGAON GOLD MARKET. THE LD. AR SUBMITTED THAT A PERUSAL OF TRANSACTIONS WOULD SHOW THAT THE ASSESSEE HAS MADE PA YMENT TO ITS SISTER CONCERN AT RATE LESS THAN THE RATE PREVALENT IN THE MUMBAI GOLD MARKET. THEREFORE, IT IS NOT A CASE WHERE THE ASSESSEE HAS ALWAYS MADE PAYMENT TO ITS SISTER CONCERNS AT HIGHER RATE. THE LD. A R SUBMITTED THAT THE ASSESSING OFFICER WHILE MAKING DISALLOWANCE U/S. 40A(2 )(B) HAS ERRED IN AVERAGING GOLD RATES ON YEARLY BASIS. IN FIRST A PPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS OBSERVED THAT TH E ASSESSING OFFICER HAS COMMITTED ERROR IN TAKING THE AVERAGE RATE IN ENTIRE YEAR. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ACCEPTED THE CONTENTION OF THE ASSESSEE THAT LOCAL JALGAON RATES SHOULD BE APPLIED FOR COMPARISON IN RESPECT OF PURCHASE OF GOLD, BULLION AS WELL AS 5 ITA NOS. 1695 & 1702/PUN/2014, A.Y. 2009-10 ORNAMENTS. THE COMMISSIONER OF INCOME TAX (APPEALS) WHILE RESTRICTING THE ADDITION HAS ONLY CONSIDERED THOSE TRANS ACTIONS WHERE THE ASSESSEE HAS MADE PAYMENT AT THE RATE HIGHER THA N THE LOCAL JALGAON RATES AND HAS IGNORED THE PURCHASE INSTANCES W HERE THE PAYMENTS HAVE BEEN MADE BY THE ASSESSEE AT A LOWER R ATE. THE LD. AR SUBMITTED THAT IF AGGREGATE OF THE PAYMENTS FOR PURCHASE OF BULLION AND GOLD ORNAMENTS FROM ITS SISTER CONCERN IS CONSIDERED, IT WO ULD REVEAL THAT THE ASSESSEE HAS MADE PAYMENT LESS THAN THE MAR KET RATE TO ITS SISTER CONCERNS. 4.1 THE LD. AR FURTHER POINTED THAT THE SIMILAR ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF ASSESSEES SISTER CO NCERN M/S. RAJMAL LAKHICHAND VS. JCIT IN ITA NOS. 532 & 663/PN/2013 FOR TH E ASSESSMENT YEAR 2009-10 DECIDED ON 16-01-2015. THE D EPARTMENT HAD ALSO FILED CROSS APPEAL IN ITA NO. 607/PN/2013. THE TR IBUNAL HELD THAT THE METHOD OF TAKING AVERAGE PRICE OF A YEAR IS N OT THE CORRECT METHOD TO DETERMINE THE REASONABLENESS OF THE AMOUNT PAID FOR PURCHASING THE BULLION FROM SISTER CONCERNS. THE TRIBUNAL DELETED THE ADDITION MADE U/S. 40A(2)(B) OF THE ACT IN RESPECT OF PURCHASE OF BULLION FROM SISTER CONCERNS/RELATED ENTITIES. THE LD. AR POINTED T HAT THE CASE OF THE ASSESSEE IS IDENTICAL, THEREFORE, THE ADDITION MADE U/ S. 40A(2)(B) DESERVES TO BE DELETED. 4.2 THE LD. AR FURTHER SUBMITTED THAT THE GROSS PROFIT OF THE ASSESSEE DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDE R APPEAL IS MUCH HIGHER THAN THE GROSS PROFIT IN EARLIER YEAR. THE GR OSS PROFIT OF THE ASSESSEE IN ASSESSMENT YEAR 2007-08 WAS 1.04%, WHE REAS THE GROSS PROFIT IN ASSESSMENT YEAR UNDER APPEAL IS 2.96%. NO GROSS PROFIT ADDITION HAS BEEN MADE BY THE REVENUE IN THE SUBSEQUEN T ASSESSMENT 6 ITA NOS. 1695 & 1702/PUN/2014, A.Y. 2009-10 YEARS I.E. ASSESSMENT YEARS 2010-11, 2011-12 AND 2012-13. IN SU PPORT OF HIS SUBMISSIONS THE LD. AR REFERRED TO ASSESSMENT ORDER S PASSED U/S. 143(3) OF THE ACT FOR ASSESSMENT YEARS 2010-11, 2011 -12 AND 2012-13 AT PAGES 296 TO 347 OF THE PAPER BOOK. THE LD . AR CONTENDED THAT THE ASSESSEE IS MAINTAINING PROPER BOOKS OF ACCOUNT WHICH ARE DULY AUDITED. THE ASSESSEE IS ALSO MAINTAINING STOCK REGI STER. THE ASSESSING OFFICER WITHOUT POINTING ANY MATERIAL DEFECT IN THE BOOKS OF THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS HAS RE JECTED THE BOOKS OF ACCOUNT IN AN ARBITRARY MANNER. THE LD. AR SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE ADD ITION MADE BY ASSESSING OFFICER ON ACCOUNT OF LOW GROSS PROFIT. 5. ON THE OTHER HAND SHRI AJAY DHOKE REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORTED THE ASSESSMENT ORDER. THE COMM ISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN HOLDING THAT THE ASS ESSING OFFICER HAS NOT APPRECIATED THE NATURE OF ASSESSEES BUSINESS WHERE PRICES FLUCTUATE NOT ONLY DAILY BUT EVEN MANY TIMES DURING A DA Y. THE ASSESSING OFFICER WHILE FINALIZING THE ASSESSMENT HAS ELABORATE LY NOTED DOWN EACH AND EVERY ISSUE AND AFTER RECORDING PROPER AND VALID REAS ONS BASED ON SUBSTANTIVE EVIDENCE HAS MADE ADDITIONS/DISALLOWA NCES. THE ASSESSING OFFICER AFTER POINTING OUT MATERIAL DEFECTS IN PARA 14 OF THE ASSESSMENT ORDER HAS INVOKED THE PROVISIONS OF SECTION 1 45(3) OF THE ACT AND REJECTED THE TRADING RESULTS DISCLOSED BY THE A SSESSEE. IN VIEW OF THE DEFECTS POINTED BY THE ASSESSING OFFICER THE BOOK R ESULTS OF THE ASSESSEE CANNOT BE ACCEPTED TO BE TRUE AND CORRECT. FURTHER, THE TAX EFFECT (NOTIONAL) INVOLVED IS MORE THAN THE PRESCRIBED LIMIT. 5.1 DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICE R HAS OBSERVED THAT THERE ARE MANY INTER PARTY TRANSACTIONS WITHIN THE GROUP 7 ITA NOS. 1695 & 1702/PUN/2014, A.Y. 2009-10 SUCH AS PURCHASE, SALE AS WELL AS PAYMENT OF INTEREST ON LOANS AND CHARGING OF INTEREST ETC. IN THE CASE OF PURCHASE OF BULLIO N FROM SISTER CONCERNS THE ASSESSEE HAD PAID ` 1426.83/- PER GRAM AS AGAINST ` 1390.04/- PER GRAM TO OTHER PARTIES PARTICULARLY THE BA NK. THUS, THE ASSESSEE HAS PAID ` 36.79/- IN EXCESS TO THE SISTER CONCERNS. NO REASONS WHATSOEVER HAVE BEEN GIVEN BY THE ASSESSEE FO R MAKING EXCESS PAYMENT TO SISTER CONCERNS FOR PURCHASE OF BULLION. THE A SSESSING OFFICER HAS RIGHTLY MADE DISALLOWANCE OF ` 41,94,060/- U/S. 40A(2)(B) OF THE ACT. DURING THE FIRST APPELLATE PROCEEDINGS THE ASSE SSEE HAD FURNISHED ADDITIONAL EVIDENCE IN THE FORM OF NEWSPAPER CUTTIN GS. THE REMAND REPORT WAS SOUGHT FROM THE ASSESSING OFFICER. THE ASSESSING OFFICER HAD OBJECTED TO FURNISH OF ADDITIONAL EVIDENCE. EVEN AFTER FURNISHING OF ADDITIONAL EVIDENCE THE ASSESSEE COULD NOT PR OVE GENUINENESS OF THE TRANSACTIONS WITH THE SISTER CONCERNS . THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN PLACING RE LIANCE ON THE GOLD RATES MENTIONED IN THE NEWSPAPER CUTTINGS AND RESTRICTING THE DISALLOWANCE TO ` 27,39,191/-. 5.2 THE LD. DR FURNISHED COPIES OF NEWSPAPER ARTICLES TO SH OW HOW GOLD PRICES ARE DETERMINED IN INDIAN MARKET AND THE INSTA NCES OF GOLD RATES (BULLION) ON SPECIFIED DAYS WHEN THE ASSESSEE HAD MAD E CERTAIN TRANSACTIONS FOR PURCHASE OF BULLION FROM ITS SISTER CONCERN S. THE LD. DR POINTED THAT A PERUSAL OF THE RATES FURNISHED BY HIM A ND WHEN COMPARED WITH THE RATES GIVEN BY ASSESSEE WOULD REVEAL THAT THE RATES GIVEN BY THE ASSESSEE ARE HIGHER. THE LD. DR RAISED SUSP ICION OVER THE GOLD RATES FURNISHED BY THE ASSESSEE. THE LD. DR PRAYED FOR REVERSING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE AND RESTORING THE ORDER OF ASSESSING OFFICER. 8 ITA NOS. 1695 & 1702/PUN/2014, A.Y. 2009-10 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. THE SOLITARY ISSUE RAISED BY THE ASSESSEE IN ITS APPEAL IS AGA INST SUSTAINING ADDITION TO THE EXTENT OF ` 27,39,191/- U/S. 40A(2)(B) OF THE ACT, WHEREAS THE DEPARTMENT IN ITS APPEAL HAS CHALLENGED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE GROSS PROFIT ADDITION AND RESTRICTING THE DISALLOWANCE MADE U/S. 40A(2)(B) OF THE ACT. THE DEPARTMENT HAS ALSO ASSAILED THE FINDINGS OF COM MISSIONER OF INCOME TAX (APPEALS) IN ACCEPTING THE BOOKS OF ACCOUNT OF THE ASSESS EE. 7. THE FIRST ISSUE RAISED IN THE APPEAL BY THE DEPARTMENT IS WITH RESPECT TO REVERSING THE FINDINGS OF ASSESSING OFFICER REJEC TING THE BOOKS OF ACCOUNT OF THE ASSESSEE. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE ASSESSING OFFICER HAS POINTED FOLLOWING DEFECTS IN T HE BOOKS OF THE ASSESSEE : I. INCLUSION OF STOCK CLAIMED TO BE BELONGING TO ASSO CIATE CONCERN. II. NON AVAILABILITY OF DETAILS OF ORNAMENT MAKING CHAR GES, HENCE FOR VALUING CLOSING STOCK, NO JUSTIFICATION FOR ADDED MANUFACTU RING EXPENSES. III. FAILURE ON PART OF THE ASSESSEE TO PROVE CONCLUSIVE LY THE MOVEMENT OF GOODS FROM ONE LOCATION TO OTHER. IV. GENUINENESS OF PAID LABOUR CHARGES FOR WANT OF NECE SSARY RECORDS MAINTAINED BY CONCERNED LABOURS. V. INABILITY OF THE LABOURS TO FURNISH THE DETAILS OF CASE WISE LABOUR CHARGES RECEIVED BY THEM. VI. NON MAINTENANCE OF RECORD RELATED TO PURCHASE OF CO PPER / ALLOY EITHER BY ASSESSEE OR BY LABOURS. VII. NON AVAILABILITY OF RECORD RELATED TO ITEMWISE, PURI TY WISE DETAILS OF ORNAMENTS MANUFACTURING AND SOLD DURING THE YEAR. VIII. FAILURE ON PART OF THE ASSESSEE TO EXPLAIN SATISFAC TORILY THE DEFECTS POINTED OUT VIDE VARIOUS SHOW CAUSE LETTERS. 9 ITA NOS. 1695 & 1702/PUN/2014, A.Y. 2009-10 8. THE COMMISSIONER OF INCOME TAX (APPEALS) DISCARDED THE DEFECTS POINTED BY THE ASSESSING OFFICER FOR REJECTING THE BOOKS O F ACCOUNT. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SALE AND PURCHASE OF GOLD ORNAMENTS AND BULLION. KEEPING IN VIEW THE NATURE OF BUSIN ESS OF ASSESSEE IT WOULD BE DIFFICULT TO MAINTAIN STOCK IN RESPECT O F EACH ITEM SEPARATELY. UNDISPUTEDLY, THE ASSESSEE HAS MAINTAINED S TOCK REGISTER AS PER WEIGHT. THE DAY-TO-DAY STOCK REGISTER MAINTAINED BY THE ASSESSEE IS NOT DISPUTED BY THE ASSESSING OFFICER. THE CO MMISSIONER OF INCOME TAX (APPEALS) HAS POINTED THAT IN THE EARLIER ASSES SMENT YEARS AND THE SUBSEQUENT ASSESSMENT YEARS NO ADDITION HAS B EEN MADE IN SCRUTINY ASSESSMENTS, REJECTING THE BOOKS OF ACCOUNT, ALT HOUGH, THE FACTS IN THE ASSESSMENT YEAR UNDER APPEAL AS WELL AS PRE CEDING AND SUCCEEDING ASSESSMENT YEARS ARE SAME. THE COMMISSIONE R OF INCOME TAX (APPEALS) WHILE REJECTING THE DEFECTS HAS GIVEN DETAILED REASONS. THE LD. DR HAS NOT BEEN ABLE TO CONTROVERT THE DETAILED REASONED FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING TH E ADDITION OF ` 86,14243/-. WE CONCUR WITH THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. THE DEFECTS POINTED BY THE ASSESSING OFFICER ARE TRIVIAL AND SOME ARE EVEN NON-EXISTEN T. ON ACCOUNT OF SUCH INCONSEQUENTIAL DEFECTS THE AUDITED BOOK S OF THE ASSESSEE CANNOT BE REJECTED. WE DO NOT FIND ANY MERIT IN THE GROUND NO. 1 RAISED BY THE DEPARTMENT, ACCORDINGLY THE SAME IS DISMISSED. 9. IN GROUND NO. 2, THE DEPARTMENT HAS ASSAILED THE FINDIN GS OF COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE ADDITIONS MADE ON ACCOUNT OF PURCHASES MADE BY ASSESSEE FROM ITS ASSO CIATE CONCERNS. THE ASSESSEE HAS ALSO ASSAILED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN SUSTAINING THE ADDITION TO THE EXTENT OF ` 27,39,191/- U/S. 40A(2)(B) OF THE ACT. THE ASSESSING OFFICER HAD MADE DIS ALLOWANCE 10 ITA NOS. 1695 & 1702/PUN/2014, A.Y. 2009-10 OF ` 41,94,060/- U/S. 40A(2)(B) IN RESPECT OF GOLD, ORNAMENTS AND BULLION PURCHASED BY THE ASSESSEE FROM ITS SISTER CONCERN S. IN FIRST APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) RESTRICTED THE ADDITION TO ` 27,39,191/-. WE FIND THAT IDENTICAL ISSUE WAS RAISED BEFORE THE TRIBUNAL IN THE CASE OF M/S. RAJMAL LAKHICHAND VS. JC IT IN ITA NOS. 532 & 663/PN/2013 FOR ASSESSMENT YEAR 2009-10 AN D IN THE CROSS APPEAL BY THE DEPARTMENT IN ITA NO. 607/PN/2013. THE TRIBUNAL VIDE ORDER DATED 16-01-2015 DELETED THE ENTIRE ADDITION U/S. 40A(2)(B) OF THE ACT. THE RELEVANT EXTRACT OF THE ORDER O F CO-ORDINATE BENCH IN THE SAID CASE IS REPRODUCED HERE-IN-BELOW : 8.27 WE NOW DEAL WITH THE APPLICABILITY OF THE PRO VISIONS OF SECTION 40A(2)(B) OF THE ACT. IN THIS CASE, THE ASSESSEE HA S ENTERED INTO THE TRANSACTIONS WITH THE GROUP ENTITIES. HENCE, PRIMA- FACIE THE PROPOSITION ARE APPLICABLE. THERE IS NO DISPUTE ABOUT THIS LEGA L POSITION BUT THE CORE QUESTION IS WHETHER THE ASSESSEE HAS PAID EXCESS PR ICE THAN THE MARKET RATE TO THE RELATED PARTIES OR TO THE SISTER CONCER NS FOR THE PURCHASE OF THE BULLION (99.50-STANDARD GOLD). AS PER THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE, EVEN IF THERE IS A MARGINAL DIFFERENC E IN THE MARKET PRICE OF THE MUMBAI AND THE JALGAON BUT THAT PRICES ARE COVE RED IN THE TRANSPORTATION AND DELIVERY. THE ASSESSEE HAS FILED A CHART AT PAGES 42 TO 55 OF PAPER BOOK NO.1 IN WHICH ASSESSEE HAS GIVE N NAMES OF THE SISTER CONCERNS, GOLD WEIGHT, RATE PAID, TOTAL VALUE, SALE S, JALGAON RATE ON THE SAME DAY AND THE MUMBAI RATE. AS PER THE SAID CHART ON 09-04-2008 FOR THE STANDARD GOLD- (99.50), THE ASSESSEE HAS PAID R S.12400/10 GMS WHEN THE JALGAON RATE WAS RS.11805/10 GMS. HENCE, T HERE IS A DIFFERENCE OF RS.595/- . SO ASSESSEE HAS MADE EXCES S PAYMENT. THE ASSESSEE HAS ALSO GIVEN EXAMPLES ON 03-05- 208 AND 06-05-2008, AS PER THE CHART COMPARED TO THE EVEN LOCAL MARKET THE ASS ESSEE HAS MADE THE PAYMENT IN EXCESS OF THE LOCAL MARKET RATES. IMMEDI ATELY THEREAFTER ASSESSEE HAS GIVEN THE SAMPLE EXAMPLES ON 08-05-200 8, 26-05-2008 IN RESPECT OF THE GOLD PURCHASES FROM SISTER CONCERNS R.L. GOLD PVT. LTD., RAJMAL LAKHICHAND AND SONS, RAJMAL LAKHICHAND JEWEL LERS PVT. LTD., MANRAJ JEWELLERS PVT. LTD., ETC. AS PER THE FIGURES GIVEN BY THE ASSESSEE, THE ASSESSEE HAS PAID THE PRICE WHICH IS LESS THAN THE MARKET RATE. ON THE PERUSAL OF THE SAID CHART, WE FIND THAT ON SOME OCCASIONS, ON SOME DATES, THERE IS EXCESS PAYMENTS AND ON SOME DATES, THERE IS LESSER PAYMENT. AS PER THE TRANSACTIONS GIVEN IN THE CHART , IT IS SEEN THAT IF WE CONSIDER THE TOTAL TRANSACTIONS IN A YEAR, I.E. PUR CHASE OF THE BULLION FROM 11 ITA NOS. 1695 & 1702/PUN/2014, A.Y. 2009-10 THE SISTER CONCERNS, IT IS SEEN THAT THE ASSESSEE H AS PAID LESS AMOUNT TO THE EXTENT OF RS.1,01,14,553/- IF WE GO WITH THE TH EORY OF THE AO, I.E., COMPARING THE LOCAL MARKET RATE OF JALGAON AND RATES DECLARED BY THE MUMBAI BULLION ASSOCIATION. SO FAR AS THE AO IS CON CERNED, HE HAS ADOPTED THE SHORT CUT METHOD WITHOUT UNDERSTANDING THE TRADING IN THE BULLION AND FLUCTUATIONS IN THE MARKET IN THE PRICE S AND WORKED OUT THE AVERAGE RATE BY COMPARING THE SAME TRANSACTION ON S AME DATES AND ACCORDINGLY WORKED OUT THE ALLEGED DIFFERENCE. IN O UR OPINION, THE APPROACH OF THE AO IS TOTALLY ERRONEOUS AS HE HAS T OTALLY DISCARDED THE TRADING IN THE BULLION THAT TAKES PLACE. HE HAS ALS O NOT CONSIDERED THE STATEMENT OF THE ASSESSEE THAT THERE ARE VARIATIONS AND FLUCTUATIONS IN THE BULLION MARKET AND EVEN IN THE INTRA DAY TRANSA CTIONS RATE CAN BE CHANGED AND SOMETIMES RATES MAY BE STABLE AND RATES MAY SWING LIKE A WIND. 8.28 WHEN THE MATTER REACHED BEFORE THE LD.CIT(A) T HOUGH HE DID NOT AGREE WITH THE APPROACH OF THE AO BUT HE ALSO MADE THE SAME MISTAKE. HE HAS AGAIN GONE ON THE AVERAGE METHOD ADOPTED BY THE AO. IN THIS CASE IT IS ALSO CONSIDERED BY THE ASSESSEE THAT MAN Y OF THE INTRA ENTITY TRANSACTIONS ARE NOT CORRECT OR FICTITIOUS AND THAT IS ALSO CLEAR EVEN FROM THE CHART AND FIGURES GIVEN BY THE LD.CIT(A) IN HIS ORDER IN RESPECT OF THE TRANSACTIONS BETWEEN THE ASSESSEE AND INTRA GROUP E NTITIES. ANOTHER ASPECT TO BE CONSIDERED HERE IS THAT ASSESSEE IS A VERY OLD FIRM IN THE GOLD MARKET BUT IN THE PRECEDING TWO YEARS SPAN THE TURNOVER OF THE ASSESSEE HAS EXCEEDED 11.5 TIMES FROM 82.55 CRORES IN A.Y. 2007-08 TO 955.78 CRORES IN A.Y. 2009- 10. THE ASSESSEE HAS GI VEN THE JUSTIFICATION OF THE SAME. FICTITIOUS TRANSACTIONS WERE SHOWN FOR INFLATING THE TURNOVER OF THE ASSESSEE. THE ARGUMENT OF THE LD. COUNSEL FO R THE ASSESSEE IS THAT IT WAS DONE TO FACILITATE TO OBTAIN THE FINANCE. IT IS PERTINENT TO NOTE HERE THAT ASSESSEE HAS FILED THE CHART SHOWING THE LOANS AVAILED BY THE ASSESSEE AND OTHER GROUP CONCERNS, WHICH IS PLACED AT PAGES 711 TO 714 OF THE PAPER BOOK. THE ASSESSEE WAS ENJOYING THE CC LIMIT OF RS.5.56 CRORES. AT THE SAME TIME, THE OTHER GROUP CONCERNS/ SISTER CONCERNS WERE ENJOYING THE CC LIMIT OF RS.52.81 CRORES. THE ASSES SEE HAS ALSO FILED A LETTER DATED 25-04-2008 OF THE SBI (PAGE 712 OF PAP ER BOOK) IN WHICH ONE OF THE GROUP CONCERNS M/S. R.L. GOLD PVT. LTD. HAS OBTAINED A GOLD LOAN UNDER THE DOMESTIC JEWELLERY INDUSTRY SCHEME FROM T HE SBI TO THE EXTENT OF 30 KG. IT ALSO SUPPORTS THE CASE OF THE ASSESSEE THAT WITH THE MEAGER CASH CREDIT LIMIT OF RS.5 CRORE THE ASSESSEE BY NO S TRETCH OF IMAGINATION CAN REACH TO THE TURNOVER OF RS.955 CRORE. AS PER T HE STATISTICS GIVEN BY THE LD.CIT(A) IN HIS ORDER, IT IS SEEN THAT THERE I S HIGH FREQUENCY OF TRANSACTIONS BETWEEN THE ASSESSEE AND INTRA GROUP E NTITIES. EVEN IN SOME OF THE CASES BULLION IS PURCHASED AND SOLD EIT HER ON THE SAME DATE 12 ITA NOS. 1695 & 1702/PUN/2014, A.Y. 2009-10 OR IMMEDIATELY ON THE NEXT DAY. IF THE ASSESSEE HAS NOT EARNED ANY INCOME, THEN CAN IT BE TAXED IS ANOTHER QUESTION. F OR INVOKING THE PROVISIONS OF SECTION 40A(2)(B) THE AO HAS TO ESTAB LISH THAT THE PAYMENT MADE TO THE RELATED PARTY IS NOT REASONABLE AT ALL CONSIDERING THE LOCAL MARKET CONDITIONS. IN OUR OPINION BOTH THE AUTHORIT IES BELOW HAVE NOT AT ALL CONSIDERED THE LOCAL CONDITIONS OF THE GOLD MAR KET. THE METHOD OF AVERAGE PRICE OF THE YEAR IN OUR OPINION IS NOT THE CORRECT METHOD TO DETERMINE THE REASONABLENESS OF THE AMOUNT PAID FOR PURCHASING THE BULLION FROM THE SISTER CONCERNS FOR THE REASONS NA RRATED HEREIN ABOVE THAT THERE IS VARIATION IN THE PRICE OF THE BULLION . WE ALSO FIND FROM THE CHART FILED BY THE ASSESSEE THAT THE ASSESSEE HAS P AID LESSER PRICE IN SOME CASES AS COMPARED TO THE LOCAL MARKET AND MUMB AI MARKET TO THE SISTER CONCERNS. BUT THAT IS NOT CONSIDERED BY BOTH THE AUTHORITIES BELOW. WHEN THE AVERAGE PRICE METHOD IS ADOPTED, THEN WHER E EVER THERE IS A LESSER PRICE PAID THAT IS ALSO TO BE CONSIDERED AND NOT THE EXCESS PRICE ONLY. IN OUR OPINION, THE AVERAGE PRICE METHOD ADOP TED BY BOTH THE AUTHORITIES IS TOTALLY ERRONEOUS CONSIDERING THE MA RKET CONDITIONS OF THE BULLION . 8.29 XXXXXXXXXX 8.30 XXXXXXXXXX 8.31 XXXXXXXXXX 8.32 WE ALSO FIND THAT AGAIN WHILE MAKING THE ADDIT ION IN RESPECT OF SALE OF ORNAMENTS TO THE GROUP CONCERNS/SISTER CONCERNS, BOTH THE AUTHORITIES BELOW HAVE ADOPTED THE COMPARISON FORMULA BASED ON THE SALE OF ORNAMENTS TO THE UNRELATED PARTIES AND SALE OF ORNA MENTS TO THE RELATED PARTIES. IT IS STATED THAT IF THE AVERAGE PRICE IS TAKEN THEN THE ASSESSEE HAS CHARGED RS.10,350/10 GMS ON THE SALE TO THE SIS TER CONCERNS AS AGAINST THE AVERAGE PRICE OF RS.13,906/10 GMS CHARG ED TO THE THIRD PARTIES/UNRELATED PARTIES ON THE SALE OF GOLD ORNAM ENTS. THE AO HAS WORKED OUT THE DIFFERENCE OF RS.40.96/GM BUT THE LD .CIT(A) HAS WORKED OUT THE DIFFERENCE AT RS.55.60/GM. THE LD.CIT(A) HA S ALSO OBSERVED THAT UNLIKE SECTION 40A(2)(B) OF THE I.T. ACT, THERE IS NO PROVISION EVEN IF THERE IS A SALE AT LOWER PRICE COMPARING WITH THE PREVAIL ING MARKET PRICES OF THE COMMODITY OR GOODS. IN OUR OPINION AS FAR AS THE IS SUE OF ORNAMENTS IS CONCERNED, APPROACH OF BOTH THE AUTHORITIES BELOW A DOPTING THE AVERAGE PRICE FORMULA IS NOT CORRECT. AS FAR AS THE ORNAMEN TS ARE CONCERNED, THE PRICE MAY VARY FROM DESIGN TO DESIGN, FROM ITEM TO ITEM, FROM PURITY OF GOLD ETC. IN CASE OF THE ORNAMENTS NORMALLY THE SAL ES ARE MADE FROM THE 916 TOUNCH (22 KARAT). THE ORNAMENTS MAY BE OF 18KA RAT, 20 KARAT AND 21 KARAT ALSO. WE CANNOT TAKE THE AVERAGE PRICE OF THE ORNAMENTS TO THE ENTIRE SALE OF THE YEAR AS DIFFERENT FACTORS ARE AL SO INVOLVED AS MENTIONED 13 ITA NOS. 1695 & 1702/PUN/2014, A.Y. 2009-10 ABOVE WHICH CHANGES THE PRICE OF THE ORNAMENTS. MOR EOVER, THERE MAY BE VARIATION IN THE LABOUR CHARGES ALSO. HENCE, WE DO NOT AGREE WITH THE AVERAGE PRICE FORMULA ADOPTED BY BOTH THE AUTHORITI ES BELOW FOR MAKING THE ADDITION OF RS.12,01,63,323/- ON ALLEGED SELLIN G OF THE ORNAMENTS TO THE SISTER CONCERNS AT LOWER PRICE THAN THE PRICE C HARGED TO THE UNRELATED PARTIES. 8.33 XXXXXXXXXX 8.34 XXXXXXXXXX 8.35 IN THE LIGHT OF OUR ABOVE DISCUSSION, WE ARE O F THE OPINION THAT APPROACH OF BOTH THE AUTHORITIES BELOW IS NOT CORRE CT FOR MAKING HIGH PITCH ADDITIONS IN THE HANDS OF THE ASSESSEE BY INV OKING PROVISIONS OF SECTION 40A(2)(B) AND FOR ALLEGED SELLING OF THE OR NAMENTS TO THE RELATED ENTITIES AT A LOWER PRICE. AS PER THE FINANCIAL ACC OUNTS OF THE ASSESSEE, THE GP WORKED OUT AT 1.13%. THE POSSIBILITY OF PURC HASING THE BULLION AND ORNAMENTS FROM THE GROUP ENTITIES AT A HIGHER P RICE CANNOT BE RULED OUT EVEN THOUGH THERE IS NO STRICT PROOF AGAINST TH E ASSESSEE. EVEN THE EXERCISE DONE BY BOTH THE AUTHORITIES BELOW IS NOT BASED ON ANY SCIENTIFIC METHOD. WE THEREFORE ARE OF THE OPINION THAT ADOPTI ON OF GP RATE OF 1.20% AS AGAINST 1.13% DISCLOSED BY THE ASSESSEE WILL MEE T THE ENDS OF JUSTICE. WE HOLD AND DIRECT ACCORDINGLY. WE ACCORDINGLY SET- ASIDE THE ORDER OF THE LD.CIT(A) AND DIRECT THE AO TO WORK OUT THE GP @1.2 0% ON THE TOTAL SALE OF RS.955,78,81,767/- AS PER AUDITED ACCOUNTS. AFTE R REDUCING THE GP DECLARED BY THE ASSESSEE AT RS.10,79,15,449/-, THE BALANCE GP IS TO BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THIS COV ERS THE GROUNDS ON THE ADDITION MADE BY INVOKING PROVISIONS OF SECTION 40A (2)(B), I.E. PURCHASE OF BULLION FROM THE SISTER CONCERNS/RELATED ENTITIE S BY PAYING HIGHER PRICE AS WELL AS SALE OF THE ORNAMENTS AT LOWER PRICE. AC CORDINGLY, THE RELEVANT GROUNDS TAKEN BY THE ASSESSEE ARE PARTLY ALLOWED AN D THE GROUNDS OF APPEAL NO. 1 AND 2 BY THE REVENUE ARE DISMISSED. 10. WE FIND THAT THE FACTS IN THE CASE OF THE ASSESSEE A RE IDENTICAL. THE DISALLOWANCE U/S. 40A(2)(B) HAS BEEN MADE FOR IDENTICAL RE ASONS IN THE CASE OF ASSESSEE. FOLLOWING THE ORDER OF CO-ORDINATE BENCH WE HOLD THAT THE METHOD OF AVERAGING PRICE ON YEARLY BASIS FOLLOWE D BY THE AUTHORITIES BELOW IS ERRONEOUS. THE AUTHORITIES BELOW HAVE FAILED TO TAKE INTO CONSIDERATION THE INSTANCES WHERE THE ASSESSE E HAS MADE PAYMENT TO ITS SISTER CONCERNS AT A PRICE LESS THAN THE MARKET PRICE. A 14 ITA NOS. 1695 & 1702/PUN/2014, A.Y. 2009-10 PERUSAL OF CHART AT PAGES 156 AND 157 OF THE PAPER BOO K SHOWS THAT THERE ARE SEVERAL INSTANCES WHERE THE ASSESSEE HAS MA DE PAYMENT FOR PURCHASE OF GOLD JEWELLERY AT A PRICE LESS THAN THE MARKE T RATE. UNDER SUCH CIRCUMSTANCES, NO ADDITION U/S. 40A(2)(B) IS WARRANTED. ACCORDINGLY, GROUND NO. 2 RAISED IN THE APPEAL BY THE DEP ARTMENT IS DISMISSED AND SOLE ISSUE RAISED BY THE ASSESSEE IN GROUND NOS. 1 TO 5 O F THE APPEAL IS ALLOWED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 17 TH DAY OF FEBRUARY, 2017. SD/- SD/- ( / ANIL CHATURVEDI) ( ! / VIKAS AWASTHY) ' ! / ACCOUNTANT MEMBER # ! / JUDICIAL MEMBER ' / PUNE; $% / DATED : 17 TH FEBRUARY, 2017 RK , - ./& 0&+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. & & ' () / THE CIT(A)-II, NASHIK 4. & & ' / THE CIT-II, NASHIK 5. *+ ,- , & ,- , . ./ , ' / DR, ITAT, B BENCH, PUNE. 6. +01 23 / GUARD FILE. // // TRUE COPY// &'4 / BY ORDER, 5 %6 / ASSISTANT REGISTRAR, & ,- , ' / ITAT, PUNE