Grandhi Sri Venkata Amarendra, Eluru V. ACIT, Central Circle-1, Visakhapatnam

ITA 24/VIZ/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3477 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Appeal Filed On: 26-02-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DEBAKUMAR SONOWAL
• Keywords: Unexplained cash credit; Gift; Business income; Business expenditure; Proportionate interest
• Section: 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , ACCOUNTANT MEMBER . / I . T .A.NO. 23 & 24 /VIZ/ 201 8 ( / ASSESSMENT YEAR: 20 1 3 - 1 4 AND 2014 - 15 ) SRI GRANDHI SRI VENKATA AMARENDRA C/O VAIBHAV J EWLLERS MAIN ROAD ELURU [PAN : A BIPA7175R] VS. ASST.COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 1 VISAKHAPATNAM ( / APPELLANT) ( / RESPONDENT) ./ I .T.A.NO. 50 /VIZ/201 8 ( / ASSESSMENT YEAR: 2014 - 15 ) ASST.COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 1 VISAKHAPATNAM VS. SRI GRANDHI SRI VENKATA AMARENDRA C/O VAIBHAV J EWE LLERS MAIN ROAD ELURU [PAN : A BIPA7175R] ( / APPELLANT) ( / RESPONDENT) / ASSESSEE BY : SHRI G.V.N.HARI, AR / REVENUE BY : SHRI DEBA KUMAR SONOWAL, DR / DATE OF HEARING : 04 . 07. 2018 / DATE OF PRONOUNCEMENT : 21 .0 8 .2018 2 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU / O R D E R P ER BENCH : ITA NOS. 24/VIZ/2018 AND 50/VIZ/2018 THESE CROSS APPEALS ARE FILED BY THE ASSESSEE AND THE REVENUE RESPECTIVELY AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] - 3, VISAKHAPATNAM VIDE ITA NO.211/2016 - 17/CIT(A) - 3/VSP/2017 - 18 DATED 31.10.2017 FOR THE ASSESSMENT YEAR 2014 - 15. 2. THE ASS ESSEE RAISED THE FOLLOWING GROUNDS IN HIS APPEAL : 1. THE ORDER DT.3 1.10 .2U17 OF THE COMMISSIONER OF INCOME (APPEALS) - 3, VISAKHAPATNAM IN ITA NO. 211/2016 - 17/CIT - (A) - 3/VSP/2017 - 18 SUSTAINING ADDITIONS MADE BY THE AO ON ACCOUNT OF (I) MAKING CHARGES PAID TO LOCAL GOLD SMITHS, (II) UNEXPLAINED CASH CREDIT, (III) CREDIT CARD EXPENSES AND (IV) AGRICULTURAL INCOME IS CONTRARY TO LAW, THE WEIGHT OF EVIDENCE AND PROBABILITIES OF THE CASE. 2. THE LD. CIT(A) SHOULD HAVE ALLOWED THE ENTIRE MAKING CHARGES PAID TO THE LOCA L GOLD SMITHS. 3. THE LD CIT(A) ERRED IN ADOPTING RATE OF GOLD ORNAMENT MAKING CHARGES AT RS. 140 PER GRAM AGAINST THE PAYMENT MADE AT AN AVERAGE RATE OF RS.166.66 PER GRAM. 4. THE LDCIT(A) SHOULD HAVE SEEN THAT THE AO PROCEEDED ON THE BASIS OF PRESUMPTIONS AND SURMISES IN DISALLOWING THE AMOUNT ACTUALLY INCURRED. 5. THE LDCIT(A) ERRED IN SUSTAINING THE ADDITION OF THE PURCHASES OF RS. 80,91,947 MADE FROM VEER JEWELLERS AS UNEXPLAINED CASH CREDIT U/S.68. 6. THE LDCIT(A) OUGHT TO HAVE ACCEPTED THE CONFIRMATION FURNISHED BY VEER JEWELERS TO THE AO WHICH WAS RECEIVED BY THE AO AFTER THE COMPLETION OF ASSESSMENT. 7. THE LD.CIT(A) FAILED TO SEE THAT IT WAS THE SUPPLIER WHO HAD NOT RECORDED THE SALE IN HIS BOOKS OF ACCOUNT AN D HENCE THE APPELLANT IS AT NO FAULT. 8. THE LD.CIT(A) O UGHT TO HAVE ALLOWED THE BUSINESS EXPENDITURE MET THROUGH 3 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU CITY BANK AND ICICI BANK CREDIT CARDS IN FULL. 9. THE LD.CIT(A) SHOULD HAVE SEEN THAT AGRICULTURAL OPERATIONS WERE ACTUALLY CONDUCTED BY THE APPELLANT AND SHOULD HAVE ACCEPTED THE INCOME DERIVED. 10. FOR THESE AND OTHERS THAT MAY BE URGED AT THE TIME OF APPEAL HEARING, APPELLANT PRAYS THE APPEAL MAY BE ALLOWED. 3. GROUND NOS. 1 AND 10 ARE GENERAL IN NATURE WHICH DOES NOT REQUIRE SPECIFIC ADJUDICATION. 4. GROUND NOS. 2, 3 AND 4 ARE RELATED TO THE ADD ITION MADE BY THE ASSESSING OFFICER(AO) IN RESPECT OF MAKING CHARGES OF GOLD ORNAMENTS. THE ASSESSEE CLAIMED THE EXPENSES AT RS.166.66 PER GRAM AGAINST WHICH THE AO ALLOWED RS.82/ - PER GRAM AND THE LD.CIT(A) ADOPTED @RS.140/ - PER GRAM, HENCE THE REVENUE ALSO HAS FILED CROSS APPEAL THUS, BOTH THE APPEALS ARE CLUBBED AND HEAR D TOGETHER AND DISPOSED OFF IN COMMON ORDER. 4.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAS DEBITED THE FOLLOWING EXPENSES TOWARDS MAKING CHARGE S OF 22CT. GOLD ORNAMENTS: 4 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU GOLD SMITH SALARIES - RS.26,27,000 GOLD ORNAMENTS MAKING CHARGES - LOCAL - RS.3,81,46,409 OUT STATION - RS.19,62,567 ----------------- TOTAL - RS.4,27,35,976/ - ----------------- 4. 2 . THE AO , FOUND THAT THE ASSESSEE HAS DEBITED THE GOLD ORNAMENT MAK ING CHARGES FOR OUTSTATION GOLD SMITHS AT AN AVERAGE RATE OF RS.82 / - TO RS.150 / - PER GRAM . THE ASSESSEE HAS GIVEN GOLD WEIGHING 17,780.74 GMS FOR MAKING THE ORNAMENTS TO OUTSTATION GOLDSMITHS AND INCURRED THE AGGREGATE EXPENDITURE OF RS. 19 , 60 , 567/ - , WHEREAS IN THE CASE OF LOCAL GOLDSMIT H S THE EXPENDITURE INCURRED FOR MAKING CHARGES WAS RS.3,81,46,409/ - AT AN AVERAGE RATE OF RS.166 .66 / - PER GRAM . T HE AO CALLED FOR THE DETAILS AND THE ASSESSEE PRODUCED RELEVANT VOUCHERS , BOOKS AND FOUND FROM THE INFORMATION SOME DEFICIENCIES SUCH AS SELF MADE VOUCHERS, INCOMPLETE DETAILS, NON VERIFICATION OF THE PAYMENT BY AUTHENTICATED PERSON ETC. THE ASSESSEE DID NOT PRODUCE THE STOCK REGISTER WITH THE DETAIL S OF GOLD GIVEN TO GOLDSMITH S PERSON WISE, ITEM WISE AND THE ITEMS RECEIVED BACK FROM THE GOLDSMITH ETC. ALL THE PAYMENTS WERE MADE IN CASH BUT NOT EXCEEDING RS.20,000/ - IN EACH PAYMENT . THE AO ALSO OBSERVED THAT THE PAYMENT MADE IN EXCESS OF RS.5,000/ - REQUIRES AFFIXATION OF REVENUE STAMP AS PER 5 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU SECTION 2(23) OF INDIAN STAMP ACT, 1999, BUT NO SUCH ACKNOWLEDGEMENT WAS OBTAINED BY THE ASSESSEE. MOST OF THE VOUCHERS WERE NOT VERIFIED BY THE RESPONSIBLE PERSON SUCH AS ACCOUNTANT, MANAGER ETC. AND THE A DDR ESS ES OF THE GOLDSMITHS W ERE NOT FURNISHED . THE AO WAS OF THE VIEW THAT THE ASSESSEE WAS UN ABLE TO PROVE THE EXPENDITURE WITH THE CREDIBLE EVIDENCE DUE TO LAPSES MENTIONED ABOVE . THEREFORE, THE AO HAS GIVEN NOTICE U/S 142(2) WITH PROPOS AL TO MAKE THE DI SALLOWANCE UNDER THE HEAD MAKING CHARGES . THE ASSESSEE FURNISHED THE EXPLANATION STATING THAT THE HE IS DEALING IN GOLD ORNAMENTS OF VARIOUS DESIGNS, SIZES, SHAPES AND WEIGHTS FROM NOSE PIN TO WAIST BELT WHICH INCLUDES NOSE SC REWS, RINGS, EAR STUDS, BANGLES, NECKLACES WITH VARIOUS TYPES OF DESIGNS, SHAPES ETC .. T HE AMOUNT PAID FOR MAKING CHARGES FOR GOLD ORNAMENTS DEPEND UPON THE NATURE OF ITEM, DESIGN , SHAPE AND SKILL REQUIRED FOR MAKING THE ITEM AND TIME TAKEN FOR MAKING DIF FERENT VARIETIES OF GOLD ORNAMENTS. MOST OF THE ORNAMENTS REQUIRE SKILL FOR MAKING THE INTRICATE DESIGNS, THE NUMBER AND SIZE OF PRECIOUS STONES STUDDED IN THE ORNAMENTS AS PER THE CHOICE OF THE CUSTOMER. THUS, THE ASSESSEE HAS SUBMITTED THAT THE MAKING CHARGES PAID TO DIFFERENT GOLDSMITHS FOR DIFFERENT ITEMS CANNOT BE COMPARED AND IT DEPENDS ON THE VARIETY OF ITEMS AND ARGUED THAT THE ASSESSEE HAS INCURRED 6 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU THE MAKING CHARGES, MAINTAINED THE BOOKS OF ACCOUNTS WHICH WAS SUPPORTED BY THE VOUCHERS AND THERE IS NO CASE FOR MAKING THE ADDITION OR DISALLOWING THE EXPENDITURE INCURRED. HOWEVER, THE AO ANALYSED THE VOUCHERS ON RANDOM BAS IS AND FOUND THAT EVEN IN MANUAL REGISTERS, THE ASSESSEE DID NOT MENTION NAME OF THE ORNAMENT MAKER. THE AO OBTAINED MONTHLY SALES FOR 12 MONTHS FOR THE FINANCIAL YEAR 2013 - 14 AND ARRIVED AT THE AVERAGE SAL E VALUE PER GRAM AT RS.3,100/ - AND ARRIVED AT THE QUANTUM OF GOLD GIVEN TO LOCAL GOLD SMITHS FOR MAKING THE GOLD ORNAMENTS OF 2,16,809.759 GMS ON THE BASIS OF THE SALES AS UN DER : TOTAL SALES AS PER P&L ACCOUNT RS.78,85,16,929 CLOSING STOCK 27,87,35,843 LESS : OPENING STOCK 20,19,97,755 RS.7,67,38,088 TOTAL VALUE OF 22CT GOLD ORNAMENT AVAILABLE FOR SALE RS.86,52,55,017 COMPUTATION HOW THE WEIGHT OF THE GOLD ARRIVED : TOTAL VALUE OF 22CT GOLD ORNAMENT AVAILABLE FOR SALE RS.86,52,55,017 DIVIDE BY AVERAGE RATE PER GRAM ADDUCED BY THE A AS MENTIONED ABOVE [86,52,55,017 /RS.3.100 ] 2,79,114.522 GRAMS LESS : WEIGHT OF 22CT GOLD ORNAMENTS PURCHASED 44,524.021 GRAMS WEIGHT OF 22CT GOLD FOR OUTSTATION MAKING CHARGES 17,780.740 GRAMS 62,304.761 GRAMS QUANTITY OF GOLD AVAILABLE FOR LOCAL MAKING 2,16,809.759 GRAMS 7 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU 4. 3 . THE AO ADOPTED THE RATE OF RS.82 / - PER GRAM TOWARDS MAKING CHARGES WHICH WAS THE LEAST RATE GIVEN IN THE CASE OF NON LOCAL GOLD SMITHS AND , ACCORDINGLY DETERMINED THE TOTAL MAKING CHARGES AT RS.1,77,78,400/ - IN THE CASE OF LOCAL GOLDSMITHS AS AGAINST THE AMOUNT DEBITED TO PROFIT & LOSS ACCOUNT OF RS .3,81,46,409/ - AND ACCORDINGLY WORKED OUT THE EXCESS AMOUNT DEBITED TO PROFIT & LOSS ACCOUN T AT RS.2,03,68,009/ - AS UNDER : QUANTITY OF GOLD AVAILABLE FOR MAKING 22CT GOLD ORNAMENTS 2,16,809.759 GRAMS RATE ADOPTED AS MENTIONED ABOVE RS.82/ - PER GRAM TOTAL VALUE OF MAKING C HARGES LOCAL RS.1,77,78,400 LESS : LOCAL MAKING CHARGES CLAIMED RS.3,81,46,409 EXCESS AMOUNT DEBITED RS.2,03,68,009 THE AO DISALLOWED THE SUM OF RS.2,03,68,009/ - AND ADDED BACK TO THE INCOME. 4. 4 . AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND REITERATED THE SUBMISSIONS MADE BEFORE THE AO AND ARGUED THAT THE AO HAS DISALLOWED 53% OF THE TOTAL EXPENDITURE AND ADOPTED THE MINIMUM RATE OF RS.82/ - PER GRAM AGAINST AVERAGE MAKING CHARGES OF RS.166 .66 / - PER GRAM WHICH IS HIGHLY UN REASONABLE AND ARBITRATIVE . THE ASSESSEE FURTHER SUBMITTED THAT THE SUM OF RS.82/ - PER GRAM WAS PAID FOR PLAIN ITEMS WHICH WE RE MACHINE MADE AND IN THE CASE OF HANDMADE ITEMS, 8 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU THE AVERAGE PRICE WOULD BE MORE THAN RS.17 0/ - , HENCE ARGUED THAT THE DISALLOWANCE MADE BY THE AO I S WITHOUT ANY BASIS AND UNSUSTAINABLE. THE LD.AR FURTHER ARGUED BEFORE THE LD.CIT(A) THAT THERE WERE SOME VOUCHERS WHICH WE RE NEGLIGIBLE IN NUMBER WITHOUT THE SIGNATURE OF THE GOLDSMITHS AND THE AOS OBSERVATION THAT NON PRODUCTION OF VOUCHERS WAS INCORRECT AND FAR FROM THE TRUTH. PRODUCTION OF LOCAL GOLDSMITHS FOR VERIFICATION IS IMPOSSIBLE DUE TO THE FACT THAT THEY ARE VERY SMALL PEOPLE IN T ERMS OF THEIR WORKING AND EARNING . N ON PRODUCTION OF GOLDSMITHS CANNOT BE A SOLE BASIS FOR THE DISALLOWANCE OF THE EXPENDITURE . THE LD.CIT(A) OBSERVED THAT THE ASSESSEE HAD F A ILED TO FURNISH THE C OMPLETE INFORMATION WITH REGARD TO THE ITEMS MANUFACTURED GOLD SMITH WISE , AND IDENTITY OF ALL THE KAR I GARS . N ON PRODUCTION OF GOLD SMITHS AND UNSIGNED VOUCHERS GAVE THE IMPRESSION IN THE MIND OF THE AO TO HOLD THAT THE EXPENDITURE WAS NOT VERIFIABLE AND MAY NOT BE GENUINE. THE CIT(A) VERIFIED THE DETAILS FILED BY THE ASSESSEE AND FOUND THAT THERE ARE 5 G RADES OF RATES FOR MAKING THE GOLD ORNAMENTS . THEY ARE RS.82 / - TO RS.100/ - FOR GRADE - 1, RS.120/ - TO RS.125/ - FOR GRADE - 2, RS.125/ - TO RS.130/ - FOR GRADE - 3 , RS.130/ - TO RS.137/ - FOR GRADE4, RS.140/ - TO RS.150/ - FOR GRADE 5 AND THE AVERAGE PRICE OF THESE RANGES WOULD BE AROUND RS.123/ - PER GRAM AGAINST THE AVERAGE PRICE PAID TO LOCAL SMITHS AT 9 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU RS.166/ - PER GM. ACCORDINGLY, THE CIT(A) DIRECTED THE AO TO ADOPT RS.140/ - PER GRAM INSTEAD OF RS.82/ - PER GRAM AND PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LD.C IT(A), THE ASSESSEE FILED APPEAL IN ITA NO.24/VIZ/2018 AND THE REVENUE FILED CROSS APPEAL IN ITA NO.50/VIZ/2018 AS MENTIONED ABOVE. 5. DURING THE APPEAL HEARING, THE LD.AR ARGUED THAT THE ASSESSEE IS GETTING THE ITEMS MA NUFACTURED BY GOLDSMITHS BOTH LOC ALLY AND NON LOCALLY. IN THE CASE OF NON LOCAL GOLD SMITHS, THE ASSESSEE HAD PAID MINIMUM OF RS.82/ - PER GRAM AND THE MAXIMUM OF RS.150/ - PER GRAM DEPENDING UPON THE SHAPE, SIZE AND DESIGN OF THE ITEMS MANUFACTURED BY THE ASSESSEE. ONLY IN ONE CASE THE M INIMUM CHARGES OF RS.82/ - PER GRAM WAS PAID TO VEER JEWELERS OF MUMBAI AND IN THE REMAINING CASES MINIMUM OF RS.110/ - AND MAXIMUM OF RS.150/ - WAS PAID AS MAKING CHARGES TO NON LOCALS ALSO . IN THE CASE OF LO CAL GOLDSMITHS, THE ASSESSEE HAD INCURRED THE MAKING CHARGES OF RS.3,81,46,409/ - AND PAID MAKING CHARGES RANGING FROM RS.82/ - AND THE AVERAGE WAS 166 .66 / - DEPENDING ON THE MAKE AND MODEL OF THE ITEM. THE AR FURTHER EXPLAINED THAT THE PAYMENTS MADE TO GOLDSMITH WE RE PAID DEPENDING ON VARIETY OF ITE M, SHAPE, SIZE AND DESIGN. LOT S OF ORNAMENTS 10 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU REQUIRED TO BE MANUFACTURED HANDMADE WITH LOT OF COMPLICATIONS, WHICH IS TIME TAKING AND STRENUOUS TASK . FOR MAKING THE DES IGN OF COMPLICATED ITEMS IS A TOUGH TASK WHICH TAKES AWAY THE TIME , ENERG Y AND CONCENT RATION OF THE KARI GARS AND REQUIRE MORE PAYMENT . IN GOLD ORNAMENTS EXCEPT PLAIN BANGLES AND CHAINS, ALL OTHER ITEMS REQUIRE SKILL , CONCENTRATION AND HARD WORK . THEREFORE, ARGUED THAT THE MAKING CHARGES DEPEND ON THE NATURE OF ITEM, DESIGN, SHAPE AND MODEL . EVEN IN THE CASE OF SMALL ITEMS, WHEN A SPECIFIC DESIGN IS REQUIRED, MAKING CHARGES WOULD BE MORE THAN THE GOLD ORNAMENT ITSELF. T HE LD.AR FURTHER ARGUED THAT THE ASSESSEE HAS PRODUCED ALL THE EVIDENCES BEFORE THE AO AND THE ENTIRE EXPENDITURE IS BOOKED IN THE BOOKS OF ACCOUNTS AND PROPER VOUCHERS ARE MAINTAINED BY THE ASSESSEE. THERE WAS NO DEFECT FOUND IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. DURING THE APPEAL HEARING, THE LD.AR SUBMITTED THAT THE ASSESSEE ALSO COLLECTED THE MAKING CHARGES FROM THE CUSTOMERS IN SALES AND OFFERED THE SAME AS INCOME. THEREFORE, THERE IS NO CASE FOR ANY DISALLOWANCE, HENCE REQUESTED TO SET ASIDE THE ORDER OF THE LD.CIT(A) AND ALLOW ENTIRE EXPENDITURE CLAIMED BY THE ASSESSEE. 11 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU 6. PER CONTRA, THE LD.DR ARGUED THAT REVENUE HAS ESTABLISHED THAT THE ASSESSEE IS MAKING THE PAYMENT OF RS.82/ - PER GRAM TOWARDS MAKING CHARGES IN THE CASE OF NON LOCALS AND THE AO HAS DISCUSSED IN DETAIL REGARDING DEFICIENCIES IN THE VOUCHERS MAINTAINED AND BROUGHT ON RECORD THE INCONSISTENCIES TO SUBSTANTIATE THE DISALLOWANCE . THE ASSESSEE FAILED TO PRODUCE THE EVIDENCE TO ESTAB LISH THE GENU INE NESS OF EXPENDITURE AND THE ASSESSEE ALSO HAS NOT MAINTAINED STOCK REGISTER SEPARATELY THEREFORE ARGUED THAT THE LD .CIT(A) ORDER BE SET ASIDE AND RESTORE THE ASSESSMENT ORDER. 7. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL PLACED ON RECORD. IT IS UNDISPUTED FACT THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURE AND SALE OF GOLD ORNAMENTS OF DIFFERENT SIZES, S HAPES AND MODELS WITH DIFFERENT DESIGNS. THE ASSESSEE IS ENGAGED IN THE SALE OF NOSE SCREW TO WAIST BELT, SUCH AS NOSE PINS, EAR STUDS, EAR RINGS, CHAINS, NECKLACES, WAIST BELT ETC. EACH ITEM CONSISTS OF DIFFERENT MODELS AND DESIGNS WITH A SIMPLE PLAIN B ANGLES TO C OMPLICATED DESIGN S OF ITEMS. THE PLAIN ITEM SUCH AS BANGLES, CHAINS INVOLVE LESS WORK WHICH CAN BE MADE ON MACHINE AND THE MAKING CHARGES WOULD BE LESSER COMPARED TO THE COMPLICATED MAN MADE ITEMS OF DESIGN. THE AO ADOPTED THE RATE OF RS.82/ - 12 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU PER GRAM WHICH WAS THE LEAST RATE OF MAKING CHARGES BY POINTING OUT CERTAIN DEFICIENCIES IN THE VOUCHERS AND LACK OF SIGNATURES I N SMALL NUMBER OF VOUCHERS. THE SAID AMOUNT RS.82/ - PER GRAM WAS PAID ONLY IN ONE CASE OF NON LOCAL GOLDSMITH. THE ASSESSEE ARG UED BEFORE THE CIT(A) AS WELL AS BEFORE THE TRIBUNAL THAT NUMBER OF VOUCHERS WHICH DO NOT CONTAIN THE SIGNATURES WE RE NEGLIGIBLE IN NUMBER. THE ASSESSEE HAS MAINTAINED THE BOOKS OF ACCOUNTS AND THE SAME WERE DULY AUDITED BY THE QUALIFIED ACCOUNTANT. NO DEFECTS WERE RAISED B Y THE AO EXCEPT CERTAIN DEFICIENCIES IN THE VOUCHERS . THE CIT(A) VERIFIED THE VOUCHERS AND FOUND THAT THERE ARE 5 GRADES OF MAKING CHARGES AND THE AVERAGE PRICE RANGES FROM RS.123/ - TO 16 0 / - PER GRAM. T HE LD.CIT(A) DIRECTED THE AO TO ADOPT RS.140/ - INSTEAD OF RS.82/ - , ACCORDINGLY THE L D . CIT(A) CONFIRMED THE ADDITION PARTLY. E XCEPT FEW VOUCHERS WHICH DOES NOT BEAR THE SIGNATURE AND NON MAINTENANCE OF SEPARATE STOCK REGISTER FOR GOLDSMITHS, NO OTHER SPECIFIC DEFECT WAS FOUND BY THE AO . THE AO AS WELL AS THE LD.CIT(A) DID NOT CONSIDER THE FACT THAT MAKING CHARGES W E RE ALSO COLLECTED FROM THE CUSTOMERS AND OFFERED TO INCOME. HENCE, W E ARE OF THE VIEW THAT WHEN ASSESSEE IS INCURRING MAKING CHARGES DEPENDING ON ITEM RANGING FROM RS.82/ - T O RS.166/ - PER GRAM AND DEALING IN VARIETIES OF GOLD ORNAMENTS AND PRECIOUS STONES, IT IS UNJUSTIFIED 13 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU ON THE PART OF THE AO TO ADOPT THE MINIMUM PRICE OF RS.82/ - PER GRAM FOR THE ENTIRE GOLD MANUFACTURED BY THE LOCAL GOLDSMITHS . EVEN IN NON - LOCAL GOLDSMI THS THE ASSESSEE WA S PAYING THE MAKING CHARGES OF RS.82/ - TO 150 PER GRAM AND AVERAGE WORKS OUT TO RS.110/ - PER GRAM. THEREFORE, W E DO NOT FIND ANY JUSTIFIABLE REASON TO UPHOLD THE DISALLOWANCE ADOPTING THE RATE AT RS.82/ - PER GRAM WITHOUT BRINGING ON RECORD ANY EVIDENCE TO ESTABLISH THAT THE MAKING CHARGES FOR ALL THE ITEMS WOULD RS.82/ - PER GRAM. THE FACT THAT THE MAKING CHARGES WOULD BE DEPENDING ON THE ITEM, MAKE, MODEL AND DESIGN IS NOT UNDER DISPUTE. IT IS ALSO FACT THAT THE SALES INCLUDE THE MAKING CHARGES. BEFORE MAKING THE DISALLOWANCE BLINDLY THE A O SHOULD HAVE ANALYSED THE INFORMATION WITH REGARD TO THE COST OF THE GOLD AND THE MAKING CHARGES COLLECTED BY THE ASSESSEE FROM THE SALE BILLS. IN CASE, THE AO FOUND SOME DEFECTIVE VOUCHERS, THE AMOUNT INVOLVED O N THE SAID VOUCHERS SHOULD BE DISALLOWED, BUT NOT MAKE UNIVERSAL APPLICATION OF MINIMUM PRICE OF MAKING CHARGES TO THE ENTIRE GOLD ORNAMENTS MANUFACTURE D AND SOLD BY THE ASSESSEE . THOUGH ASSESSEE DI D NOT ACCEPT FOR THE DISALLOWANCE OF EXPENDITURE , REQUESTED THE LD. CIT(A) TO ADOPT REASONABLE RATE, IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THEIR INABILITY TO PRODUCE THE LOCAL GOLDSMITHS . THE LD.AR SUBMITTED THAT PRODUCTION OF GOLD SMITH IS AN 14 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU HERCULEAN TASK SINCE THEY LOOSE THEIR DAILY EARNING AND THE IR CUSTOMERS ALSO EFFECTED FOR TIMELY DELIVERY OF THE ORNAMENTS. THE CIT(A) ADOPTED THE RATE OF RS.140/ - PER GRAM AGAINST THE AVERAGE PRICE PAID TO LOCAL SMITHS AT RS.166/ - PER GRAM. WHILE GIVING DIRECTION TO AO, T HE LD.CIT(A) DID NOT CONSIDER THE FACT THAT THE ASSESSEE IS ALSO COLLECTING THE MAKING CHARGES FROM CUSTOMERS AND OFFERED THE SAME AS INCOME. HENCE, CONSIDERING THE FACTS AND MERITS OF THE CASE WE ARE OF THE CONSIDERED OPINION TH AT ADOPTING THE RATE OF RS.150/ - PER GRAM AS AVERAGE WOULD BE FAIR AND REASONABLE TO MEET THE ENDS OF JUSTICE. ACCORDINGLY, WE DIRECT THE AO TO ADOPT RS.150/ - PER GRAM INSTEAD OF RS.140/ - PER GRAM AS ADOPTED BY THE LD.CIT(A) . ACCORDINGLY, TH E ASSESSEE SUC CEEDS PARTLY ON THIS GROUND AND APPEAL OF THE REVENUE IS DISMISSED. 8. GROUND NO.5 , 6 AND 7 ARE RELATED TO THE ADDITION OF RS.80,91,947/ - RELATED TO PURCHASE OF JEWELLERY FROM VEER JEWELLERS U/S 68 OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUN D THAT THE ASSESSE E HAD PURCHASED JEWELLERY FROM VEER JEWELLERS FOR AN AMOUNT OF RS.80,81,947/ - ON 30.07.2013 AND PAID A SUM OF RS.1,47,770/ - TOWARDS MAKING CHARGES AGGREGATING THE TOTAL AMOUNT AT RS.82,39,717/ - AND SHOWN THE CREDIT 15 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU BALANCE OF RS.82,39,717 PAYABLE TO M/S VEER JEWELLERS, MUMBAI , IN THEIR BOOKS . THE AO CAUSED THE ENQUIRIES AND CALLED FOR THE LEDGER ACCOUNT COPY OF THE ASSESSEE IN THE BOOKS OF VEER JEWELLERS AND FOUND THAT THERE WAS A DEBIT BALANCE OF RS.1,46,292/ - EXCLUDING TDS OF RS.1,478/ - RESULTING IN DIFFERENCE OF RS.80,91,947/ - . THE AO CALLED FOR THE EXPLANATION FROM THE ASSESSEE AND THE ASSESSEE EXPLAINED THAT THE GOLD JEWELLERY PURCHASED FROM M/S VEER JEWELLERS WAS RETURNED TO THE SUPPLIER AFTER FEW DAYS OF PURCHASE . T HE SUPPLIER HA D ACCOUNTED THE RETURN IMMEDIATELY, BUT THE ASSESSEE MADE B OTH THE DEBIT AND CREDIT ENTRIES IN THE IR BOOKS SUBSEQUENTLY. BUT THE AO DID NOT BELIEVE THE EXPLANATION OF THE ASSESSEE AND BROUGHT TO TAX THE SUM OF RS.80,91,947/ - AS UNEXPLAINED CASH CREDIT HOLD ING THAT NO PRUDENT PERSON WOULD INVOLVE IN SUCH A HUGE TRANSACTION AROUND RS.81 .00 LAKHS IN A CASUAL MANNER AND RETURN THE PRECIOUS METAL WITHOUT OBTAINING THE PROPER RECEIPT. 9. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CI T(A) AND THE LD.CIT(A) CONFIRMED THE ADDITION MADE BY THE AO OBSERVING THAT THE ENTRIES WERE MADE TO SUIT THE EXPLANATION OF THE 16 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU ASSESSEE WHICH IS UNNATURAL. AGAINST THE ORDER OF THE LD.CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 10. DURING THE APPEAL HEARING, THE LD.AR ARGUED THAT THE ASSESSEE HAD PURCHASED THE JEWELLERY FROM VEER JEWELLERS AND MADE THE NECESSARY ENTRIES IN THE BOOKS OF ACCOUNTS AS PER THE PURCHASE INVOICE. SUBSEQUENTLY, THE GOLD ORNAMENTS FOUND TO BE DEFECTIVE HENCE RETUR NED THE SAME TO THE SUPPLIER. HOWEVER, THE ASSESSEE COULD NOT MAKE THE ENTRIES IN THE LEDGER ACCOUNT AS WELL AS IN THE STOCK ACCOUNT INADVERTENTLY . THE LD.AR FURTHER ARGUED THAT THE ASSESSEE IS DEALING IN VARIETIES OF ITEMS AND HAVING HUGE TURNOVER , ONLY AFTER RECONCILIATION, THE NECESSARY ENTRIES OF DEBIT AND CREDIT WERE MADE IN THE LEDGER ON 30.03.2015 AND N O PAYMENT WAS MADE TO VEER JEWELLER S . S INCE THE LIABILITY AS WELL AS THE STOCK IS DECLARED IN THE ASSESSEES BOOKS , T HERE WAS NO UNDER ASSESSMENT, AND NO BOGUS CREDIT, HENCE, REQUESTED DELETE THE ADDITION AND ALLOW THE APPEAL OF THE ASSESSEE. 1 1 . ON THE OTHER HAND, THE LD.DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 17 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU 1 2 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. AS PER THE ASSESSMENT ORDER, FROM THE ACCOUNT COPY OF M/S VEER JEWEL LERS, THE AO FOUND THAT THE OUTSTANDING BALANCE WAS AT RS.1,46,292/ - AGAINST THE BALANCE SHOWN BY THE ASSES SEE AM OUNTING AT RS.82,39,717/ AND THE DIFFERENCE WAS ADDED TO INCOME. IT WAS THE CASE OF THE ASSESSEE THAT HE HAD RECEIVED THE JEWELLERY AND MADE THE ENTRIES IN THE BOOKS OF ACCOUNTS REGA RDING THE PURCHASE OF JEWELLERY AND TAKEN TO THE STOCK. ON RETURN OF JEWELLERY, THE ASSESSEE FAILED TO MAKE NECESSARY ENTRIES IMMEDIATELY IN THE STOCK BOOK AS WELL AS THE CREDITORS LEDGER HENCE THERE WAS A DIFFERENCE. NECESSARY ENTRIES WERE MADE AFTER RECONCILIATION OF BOOKS OF ACCOUNTS ON 30.03.2015. THE ASSESSEE STATE D THAT THE STOCKS ARE MAINTAINED IN THE LEDGER. THE ASSESSEE HAS PRODUCED BOOKS OF ACCOUNTS BEFORE THE AO AND NO DEFECT WAS POINTED OUT BY THE AO IN THE BOOKS OF ACCOUNT IN SUPPORT OF THE JEWELLERY PURCHASED FROM M/S VEER JEWELLERS . THE ASSESSEE EXPLAINED THAT BOTH THE STOCK AND LIABILITY WAS DECLARED IN THE BOOKS OF ACCOUNTS, HENCE NO CASE FOR MAKING THE ADDITION. NO OTHER EVIDENCE WAS BROUGHT ON RECORD BY THE REVENUE TO CONTROVERT THE SUBMISSION MADE BY THE ASSESSEE WITH REGARD TO ADMISSION OF STOCKS AS WELL AS THE LIABILITY IN THE ASSESSEES BOOKS OF ACCOUNTS. . SINCE THE LIABILITY AS WELL AS THE STOCK ARE DECLARED AND CONTINUED 18 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU IN THE BOOKS OF ACCOUNTS, THERE WAS NO UNDER ASSESSMENT, AND THERE WAS NO BOGUS LIABILITY TO MAKE THE ADDITION. ACCORDINGLY, WE HOLD THAT THE LD.CIT(A) ERRED IN UPHOLDING THE ADDITION MADE BY THE AO, THEREFORE, WE SET ASIDE THE ORDER OF THE LD.CIT(A) AND ALLOW THE APPEAL OF THE ASSESSEE. THE APPEAL OF THE ASSESSEE ON THIS GROUND IS ALLOWED. 1 3 . GROUND NO.8 IS RELATED TO THE DISA LLOWANCE OF CREDIT CARD EXPENSES MADE THROUGH CITY BANK AND ICICI BANK. THE ASSESSEE DEBITED A SUM OF RS.6,03,630/ - FOR THE AMOUNT SPENT THROUGH CITY BANK CARD AND RS.3,33,040/ - IN RESPECT OF ICICI BANK CARD, AGGREGATING TO RS.9,36,670/ - . THE AO DISALLOWED 20% OF THE EXPENDITURE TOWARDS PERSONAL IN NATURE AND MADE THE ADDITION OF RS.1,87,334/ - . ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION. AGAINST THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 13.1. APPEARING FOR THE ASSESSEE, THE LD.AR ARGUED THAT DISALLOWANCE OF 20% OF EXPENDITURE IS UNREASONABLE AND ON HIGHER SIDE AND ARGUED THAT MOST OF THE EXPENSES WE RE INCURRED FOR BUSINESS PURPOSES AND THERE WAS 19 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU NO PERSONAL EXPENDITURE INVOLVED. ON THE OTHER HAND THE LD.DR SUPPORTED THE ORDERS OF THE LD.CIT(A). 14. WE HAVE CONSIDERED THE FACTS AND MERITS OF THE CASE. THE AO DISALLOWED 20% OF THE EXPENDITURE AND THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE AO. THE ASSESSEE FAILED TO EST ABLISH THAT THE ENTIRE CREDIT CARD EXPENSES WE RE INCURRED FOR THE PURPOSE OF BUSINESS . THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) AND THE SAME IS UPHELD. THE APPEAL OF THE ASSESSEE ON THIS GROUND IS DISMISSED. 1 5 . GROUND NO.9 IS RELATED THE AGRICULTURAL INCOME. THE AO FOUND THAT THE ASSESSEE HAS ADMITTED AGRICULTURAL INCOME OF RS.6,23,005/ - AND CLAIMED THE SAME AS EXEMPT. THE ASSESSEE PRODUCED VOUCHERS IN RE SPECT OF SALE OF TOBACCO WHICH WE RE SELF MADE VOUCHERS. IN THE ABSENCE OF EVIDENCE LIKE ADANGAL, EXPENSES INCURRED FOR CULTIVATION AND THE DETAILS OF SALES MADE, THE AO REJECTED THE EXEMPTION CLAIMED BY THE ASSESSEE AND TAXED THE ENTIRE AGR ICULTURAL INCOME. 20 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU 1 6 . AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) TREATED 50% OF THE RECEIPTS AS AGRICULTURAL INCOME AND DIRECTED THE AO TO TAX THE BALANCE AMOUNT. 1 7 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. AS PER THE LD.CIT(A) ORDER, THE ASSESSEE OWNS 23.33 ACRES OF AGRICULTURAL LAND USED FOR CULTIVATION OF TOBACCO. THE ASSESSEE ALSO PRODUCED VRO CERTIFICATE AND THERE IS NO DISPUTE T HAT THE ASSESSEE HAS BEEN USING THE LAND FOR AGRICULTURAL PURPOSES AND CULTIVAT ING TOBACCO . A S PER THE ORDER OF THE LD.CIT(A) , T HE INCOME DECLARED BY THE ASSESSEE FOR 23.33 ACRES WAS RS.6,23,005/ - WHICH WORKS OUT TO RS.26,704/ - PER ACRE WHICH WA S ON HIGHER SIDE . THE CIT(A) HELD THAT THE AGRICULTURAL INCOME MAY BE REASONABLY ESTIMATED AT RS.3,50,000/ - . THE ASSESSEE IN HIS ARGUMENTS SUBMITTED THAT AVERAGE YIELD PER ACRE IS 5 CANDIES WEIGHS 227 KGS. 23.33 ACRES OF LAND HELD BY THE ASSESSEE IS CAPABLE OF PRO DUCING 115 CANDIES. THE RATE PER CANDY WAS 13,000/ - THEREFORE ARRIVED AT THE TOTAL INCOME OF RS.14,95,000/ - . AFTER DEDUCTING THE EXPENSES, THE ASSESSEE ARGUED THAT RS.6,23,005/ - IS REASONABLE. THE REVENUE COULD NOT CONTROVERT THE DETAILS FURNISHED BY TH E ASSESSEE WITH THE TANGIBLE EVIDENCE. THEREFORE WE HOLD 21 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU THAT THE INCOME OF RS.623005/ - FROM 23.33 A C RES IS REASONABLE ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD.CIT(A) AND ALLOW THE APPEAL OF THE ASSESSEE ON THIS GROUND . 1 8 . IN THE RESULT APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2014 - 15 IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ITA NO.23/VIZ/2018 1 9 . TH IS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] - 3, VISAKHAPATNA M VIDE ITA NO.484/2015 - 16/CIT(A) - 3/VSP/2017 - 18 DATED 31.10.2017 FOR THE ASSESSMENT YEAR 2013 - 14. 20 . GROUND NO.1 AND 5 ARE GENERAL IN NATURE WHICH DOES NOT REQUIRE SPECIFIC ADJUDICATION. 21 . GROUND NO.2 IS RELATED TO THE DISALLOWANCE OF INTEREST. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD ADVANCED A 22 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU SUM OF RS.1 .00 CRORE TO M/S USHA PICTURES AND FINANCIERS ON 17.04.2012 AT THE INTEREST RATE OF RS.6% PER ANNUM. THE AO FOUND THAT THE ASSESSEE HAS TAKEN UNSECURED LOAN FROM PARTIES AND PAID THE INTEREST @18% IN MOST OF THE CASES AND CLAIMED SUCH INTEREST AS EXPENDITURE IN THE PROFIT &LOSS ACCOUNT. THE ASSESSEE EXPLAINED BEFORE THE AO THAT THE ASSESSEE IS HAVING SUBSTANTIAL INTEREST FREE FUNDS AND THE LOAN WAS GIVE N OUT OF INTEREST FREE FUNDS, DUE TO BUSINESS EXIGENCIES . NOT BEING CONVINCED WITH THE EXPLANATION OF THE ASSESSEE, THE AO DISALLOWED A SUM OF RS.12,00,000/ - REPRESENTING THE DIFFERENCE OF INTEREST CHARGED BY THE ASSESSEE ON AMOUNT ADVANCED TO M/S USHA PICTURES AND FINANC IERS AND THE INTEREST PAID ON THE LOANS TAKEN BY THE ASSESSEE AND A CCORDINGLY, MADE ADDITION OF RS.12,00,000/ - . 2 2 . AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) OBSERVED THAT THE ASSESSEE HAS TAKEN RS .1 .00 CRORE FROM OVERDRAFT BANK ACCOUNT AND TRANSFERRED IT TO THE PERSONAL BALANCE SHEET OF THE ASSESSEE. THE LD.CIT(A) FURTHER OBSERVED THAT THE BANK IS CHARGING INTEREST ON OVERDRAFT ACCOUNT @ 9.96% A GAINST THE INTEREST CHARGED BY THE ASSESSEE @6%. THUS , THE LD.CIT(A) DIRECTED THE AO 23 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU TO RESTRICT THE DISALLOWANCE @4% OF INTEREST. THEREBY, THE LD.CIT(A) SCALED DOWN DISALLOWANCE OF INTEREST. 2 3 . AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. DURING THE APPEAL HEARING, THE LD.AR ARGUED THAT THE ASSESSEE IS HAVING SUBSTANTIAL INTEREST FREE FUNDS FROM WHICH THE ASSESSEE HAD ADVANCED THE FUNDS TO M/S USHA PICTURES AND FINA NCIERS DUE TO BUSINESS EXIGENCIES AND THERE IS NO CASE FOR DISALLOWING THE PROPORTIONATE INTEREST. SINCE THE AMOUNTS ARE FUNDED FROM INTEREST FREE LOANS, THE INTEREST CANNOT BE EQUATED WITH THE INTEREST OF UNSECURED LOANS. THE LD.AR FURTHER ARGUED TH AT THE LD.CIT(A) DELETED THE ADDITION IN THE SUBSEQUENT YEAR ON THE SIMILAR FACTS, HENCE ARGUED THAT THERE IS NO CASE FOR MAKING THE ADDITION. 2 4 . ON THE OTHER HAND, THE LD.DR RELIED ON THE ORDER OF THE LD.CIT(A). 2 5 . WE HAVE HEARD BOTH THE PARTIES AND P ERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS TAKEN UNSECURED LOAN OF RS.7,62,50,650/ - AND ADVANCED AN AMOUNT OF RS.1 .00 CRORE TO M/S USHA PICTURES AND FINANCIERS AND CHARGED INTEREST @6%. THE ASSESSEE SUBMITTED THAT HE IS HAVING THE SUM 24 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU OF RS.4,05,27, 956/ - HIS OWN FUNDS WHICH DOES NOT BEAR ANY INTEREST ELEMENT . F OR THE ASSESSMENT YEAR, UNDER CONSIDERATION THE ASSESSEE HAS RETURNED THE INCOME OF RS.3,07,81,690/ - AND ARGUED THAT THERE IS NO REASON TO UNDERSTATE THE INTEREST. THE AO HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SHOW THAT THE INTEREST FREE FUNDS WERE USED BY THE ASSESSEE FOR ANY OTHER PURPOSES . I T WAS SUBMITTED BY THE ASSESSEE THAT I N THE SUBSEQUENT YEAR, THE LD. CIT(A) DELETED THE ADDITION ON SIMILAR FACTS . IN THE INSTANT CASE THE ASSESSEE HA S DEMONSTRATED THAT, IT HA D INTEREST FREE FUNDS AVAILABLE IN THE BUSINESS AND IN THE SUBSEQUENT YEAR THE AND THE LD.CIT(A) HAS DELETED THE ADDITION ON SIMILAR FACTS . IF THE INTERE ST FREE SURPLUS FUNDS ARE AVAILAB LE TO THE ASSESSEE, ASSESSEE IS FREE TO U SE THE FUNDS AT HIS OPTION. T HEREFORE WE DO NOT SEE ANY REASON TO MAKE THE DISALLOWANCE ON ACCOUNT OF DIFFEREN CE OF INTEREST FOR DIVERSION OF FUNDS . ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD.CIT(A) AND DELETE THE ADDITION MADE BY THE AO . THE APPEAL O F THE ASSESSEE ON THIS GROUND IS ALLOWED. 2 6 . GROUND NO.3 IS RELATED TO THE AMOUNTS PAID FOR GIVING GIFTS TO CUSTOMERS AS BUSINESS EXPENDITURE. THE AO FOUND THAT THE ASSESSEE HAS DEBITED RS.18, 23,034/ - TOWARDS THE GIFTS TO CUSTOMERS FOR BUSINESS PROMOTION AND DEVELOPMENT . THOUGH THE ASSESSEE SUBMITTED SALE BILLS 25 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU MARKED AS GIFT ISSUED, THE ASSESSEE DID NOT PRODUCE THE DETAILS OF GIFT ITEMS AND THERE WAS NO DETAILS OF PURCHASES MADE BY THE A S SESSEE. THE PAYMENT WAS ALSO MADE IN CASH. SINCE THE ASS ESSEE FAILED TO PRODUCE THE RELEVANT VOUCHERS AND THE DETAILS, THE AO DISALLOWED THE ENTIRE AMOUNT HOLDING THAT THE EXPENDITURE WAS NOT LAID FOR BUSINESS PURPOSES. ON APPEAL, T HE LD.CIT(A) ALLOWED 50% OF RELIEF. AGGRIEVED BY THE ORDER OF THE LD.CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. DURING THE APPEAL HEARING, THE LD.AR STRONGLY SUPPORTED THE CLAIM OF THE ASSESSEE STATING THAT THE EXPENDITURE WAS GENUINE AND 50% OF THE DISALLOWANCE WAS HIGHLY UNREASONABLE AND REQUESTED TO MAKE REASONABLE DISALLOWANCE. 2 7 . ON THE OTHER HAND, THE LD.DR SUPPORTED THE ORDERS OF THE LD.CIT(A). 2 8 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. IT IS A FA C T THAT THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE WITH REGARD TO THE DETAILS OF ITEMS PU RCHASED WITH PURCHASE BILLS ETC. FOR VERIFICATION AND THE PAYMENTS WERE MADE IN CASH. IT IS ALSO UNDISPU TED FACT THAT THE ASSESSEE GAVE GIFT ITEMS TO THE CUSTOMERS TO PROMOTE THE BUSINESS. THE ASSESSEE STATED BEFORE THE AO THAT IT IS THE PREVALENT PRACTICE TO GIVE 26 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU GIFT ITEMS TO THE CUSTOMERS WHICH INCLUDE LADIES BAGS, PURSES, KEY CHAIN ITE MS ETC. WE AGREE THAT THIS PRACTICE IS PREVALENT IN THIS LINE OF TRADE AND HENCE , THE C ONTENTION OF THE ASSESSEE CANNOT BE COMPLETELY RULED OUT. KEEPIN G IN VIEW THE CLAIM OF THE ASSESSEE, EVIDENCES FURNISHED AND THE EXISTING PRACTICES, WE HOLD THAT 25% OF THE DISALLOWANCE WOULD MEET BOTH THE ENDS OF JUSTICE. ACCORDINGLY, WE DIRECT THE AO TO RESTRICT THE DISALLO WANCE TO 25% OF THE EXPENDITURE AND ALLOW THE APPEAL OF THE ASSESSEE PARTLY. 2 9 . GROUND NO.4 IS RELATED TO THE INCOME FROM AGRICULTURAL OPERATIONS . T HE ASSESSEE HAS ADMITTED THE AGRICULTURAL INCOME OF RS.6,23,005/ - FOR THE YEAR UNDER CONSIDERATION AND STATED TO HAVE CULTIVATED THE AGRICULTURAL L AND OF 23.33 ACRES . THIS ISSUE HAS BEEN CONSIDERED BY US IN ASSESSEES APPEAL IN ITA NO.24/VIZ/2018 FOR THE ASSESSMENT YEAR 2014 - 15 AND ALLOWED THE APPEAL OF THE ASSESSEE . SINCE THE FACTS ARE IDENTICAL , WE SET ASIDE THE ORDERS OF THE CIT(A) AND ALLOW THE APPEAL OF THE ASSESSEE. 30. IN THE RESULT APPEALS OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2013 - 14 AND 2014 - 15 ARE PARTLY ALLOWED AND THE APPEALS OF THE REVENUE ARE DISMISSED. 27 I.T.A NOS . 23 & 24/VIZ/2018 AND 50/VIZ/2018 SRI GRANDHI SRI VENKATA AMARENDRA, ELURU THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 21 ST AUGUST , 201 8 . SD/ - SD/ - ( . . ) ( . ) ( D.S. SUNDER SINGH) ( V. DURGA RAO) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / VISAKHAPATNAM /DATED : 21 .08.2018 L.RAMA, SPS / COPY OF THE ORDER FORWARDED TO: - 1 . / THE ASSESSEE - SRI GRANDHI SRI VENKATA AMARENDRA, C/O VAIBHAV J E EWLLERS, MAIN ROAD, ELURU 2 . / THE REVENUE ASST.COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 1 VISAKHAPATNAM 3 . THE PR. COMMISSIONER OF INCOME TAX (CENTRAL) , VI SAKHAPATNAM 4. THE COMMISSIONER OF INCOME TAX(APPEALS) - 3 , V ISAKHAPATNAM 5 . , , / DR, ITAT, VISAKHAPATNAM 6. / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM