SHREE JEE JEWELLERS, Jaipur V. ITO, Jaipur

ITA 393/JPR/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7683 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 17-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROONIPAL
• Keywords: Gross profit estimation; Unexplained cash credit; Rejection of books of accounts; Related party transaction; Depreciation; Proportionate interest; Question of law; Commercial expediency; Capital expenditure; TDS
• Section: 143(3); 260A; 43; 13; 32; 68; 37

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S,B JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA. NO. 393/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2013-14 SHREE JEE JEWELLERS 20, HALDIYON KA RASTA, JAIPUR- 302003. CUKE VS. THE ITO, WARD-2(1), JAIPUR. TOLFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAHFS0887 J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ R ESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI VINOD KUMAR GUPTA (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SMT. ROONIPAL (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 13/12/2019 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 27/01/2020 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A)-I, JAIPUR DATED 31.03.2017 FOR THE ASSESSMEN T YEAR 2013-14 WHEREIN THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LEARNED LOWER AUTHORITIES GROSSLY ERRED IN REJECTIN G THE BOOKS OF ACCOUNTS BY INVOKING THE PROVISION OF SECTION 145(3 ) OF THE ACT. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(A) GROSSLY ERRED IN CONFIRMING THE TRAD ING ADDITION TO THE EXTENT OF RS. 3,85,880/- ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 2 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LEARNED LOWER AUTHORITIES GROSSLY ERRED IN DISALLOW ING THE INTEREST PAID BY THE ASSESSEE APPELLANT OF RS. 15,19,571/- O N THE LOAN TAKEN BY IT DURING THE YEAR UNDER CONSIDERATION. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LEARNED CIT (A) WITHOUT ANY SHOW-CAUSE NOTICE, WITH OUT FOLLOWING THE DUE PROCESS OF LAW GROSSLY ERRED IN DIRECTING T HE LEARNED ASSESSING OFFICER TO FURTHER DISALLOW THE PROCESSIN G FEES OF RS. 95,316/- PAID BY THE ASSESSEE APPELLANT ON THE LOAN TAKEN BY IT DURING THE YEAR UNDER CONSIDERATION. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LEARNED LOWER AUTHORITIES GROSSLY ERRED IN DISALLOW ING THE RENT PAID BY THE ASSESSEE APPELLANT OF RS. 27,50,000/- DURING THE YEAR UNDER CONSIDERATION. 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED LOWER AUTHORITIES GROSSLY ERRED IN MAKING A DDITION OF RS. 27,54,000/- ON ACCOUNT OF UNEXPLAINED CASH CREDIT U /S 68 OF THE INCOME TAX ACT, 1961. 6.1 THAT IN THE SHOW CAUSE NOTICE A QUERY WAS MADE BY THE LEARNED AO REGARDING CASH DEPOSIT OF RS. 13,77,000/ - BUT WHILE PASSING THE ORDER HE GROSSLY ERRED IN MAKING AN ADD ITION OF RS. 27,54,000/- WHICH IS 200% OF THE CASH DEPOSITED AND THE LEARNED CIT(A) ERRED IN CONFIRMING THE SAME WHICH I S ILLEGAL AND BAD IN LAW. 7. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT (A) GROSSLY ERRED IN DISALLOWING THE IN TEREST TO THE EXTENT OF RS. 1,57,081/- PAID BY THE ASSESSEE APPEL LANT TO THE PARTNERS DURING THE YEAR UNDER CONSIDERATION. ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 3 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS A PARTNERSHIP FIRM WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTUR ING, TRADING, IMPORT AND EXPORT OF PRECIOUS AND SEMI PRECIOUS STONES, JE WELLERY ETC. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 2,46,230/- AND THE SAME WAS SELECTED FOR SCRUTINY A ND THE ASSESSMENT ORDER WAS PASSED U/S 143(3) OF THE ACT 28.03.2016 A T AN ASSESSED INCOME OF RS. 1,35,62,580/-. ON APPEAL, THE LD. CIT (A) HAS GRANTED PARTIAL RELIEF TO THE ASSESSEE AND AGAINST THE ADDI TION SUSTAINED BY THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 3. IN GROUND NO. 1 THE ASSESSEE HAS CHALLENGED THE REJECTION OF BOOKS OF ACCOUNT BY THE ASSESSEE U/S 145(3) OF THE IT ACT AND IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED THE TRADI NG ADDITION OF RS. 3,85,880/-. 4. BRIEFLY THE FACTS OF THE CASE ARE THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, ON PERUSAL OF THE AUDITED F INANCIAL STATEMENTS AND DETAILS OF TRADING RESULTS FURNISHED BY THE ASS ESSEE, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS SHOWN LOW G. P RATE OF 24.85% AND LOW N.P RATE OF 0.62% IN COMPARISON TO IMMEDIAT ELY PRECEDING TWO YEARS. FURTHER, THE AO OBSERVED THAT THE PURCHASE A ND SALE ARE NOT FULLY SUBJECT TO VERIFIABLE FROM THE STOCK REGISTER IN TE RMS OF RAW MATERIAL, GOODS UNDER PROCESS OF MANUFACTURING AND FINISHED G OODS IN RESPECT OF EACH ITEM OF PURCHASE AND SALES ADVERSELY EFFECTING THE TRADING RESULTS. FURTHER, EXPENSES HAVE BEEN PARTLY FOUND VERIFIABLE AND MOST OF THE EXPENSES HAVE BEEN FOUND SUPPORTED BY SELF MADE VOU CHERS, THE CASH SALES ARE NOT FULLY SUBJECT TO VERIFICATION, THEREF ORE, A SHOW CAUSE WAS ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 4 ISSUED TO THE ASSESSEE AS TO WHY THE BOOKS OF ACCOU NT SHOULD NOT BE REJECTED BY INVOKING THE PROVISIONS OF SECTION 145( 3) OF THE ACT AND BY APPLY GP RATE OF 26% AS AGAINST 24.85% ON THE DECLA RED TURNOVER BY THE ASSESSEE FIRM. THE SUBMISSIONS SO FILED BY THE ASSESSEE WERE NOT FOUND ACCEPTABLE BY THE AO AS THE PURCHASE AND SALE S ARE NOT FULLY VERIFIABLE FROM THE STOCK INVENTORY/DETAILS IN TERM S OF QUALITATIVE AND QUANTITATIVE DETAILS OF RAW MATERIAL, GOODS MANUFAC TURING PROCESS, FINISHED GOODS AND GOODS SOLD OUT DURING THE YEAR, THE EXPENSES ARE NOT FULLY SUBJECT TO VERIFICATION WITH PROPER BILLS AND VOUCHERS. FURTHER, THE ASSESSEE HAS WRONGLY CLAIMED DEPRECIATION ON TH E VEHICLE PURCHASE BY SHRI JITENDRA AGARWAL. SIMILARLY THE CLAIM OF TH E ASSESSEE FOR CASH SALE IS NOT VERIFIABLE FROM THE BOOKS OF ACCOUNT AN D THE ASSESSEE HAS NOT EXPLAINED ANY REASON FOR SHOWING LOWER GP RATE & N.P. RATE, THEREFORE, NOT DISCLOSING TRUE AND CORRECT TRADING RESULTS DURING THE COURSE OF ASSESSMENT PROCEEDINGS. ACCORDINGLY, THE BOOKS WERE REJECTED INVOKING PROVISION OF SECTION 145(3) OF TH E ACT AND ADDITION OF RS. 4,49,539/- WAS MADE APPLYING GP RATE OF 26% TO THE DECLARED TURNOVER OF THE ASSESSEE FIRM. 5. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAR BEFORE THE LD. CIT(A). AS PER LD. CIT(A) THOUGH THE ASSESS EE HAS MAINTAINED STOCK REGISTER BUT THE QUALITATIVE DETAILS WERE NOT MAINTAINED. IT IS NOTED FROM SOME OF THE CASH SALE BILLS FILED BY THE ASSES SEE THAT FOR DIAMOND JEWELLERY ITEMS, NO SEPARATE RATES OF GOLD AND DIAM ONDS WERE STATED THEREIN AND ONLY ONE CONSOLIDATED FIGURES OF SALES AMOUNT IS MENTION. FURTHER, IN RESPECT OF JEWELLERY MANUFACTURED ON JO B WORK BASIS AS IT ISSUED GOLD TO KARIAGARS, IT IS NOTED THAT IT HAS N OT SHOWN ANY WORK IN ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 5 PROGRESS IN ITS OPENING OR CLOSING STOCK. FURTHER, REFERRING TO ONE OF THE INVENTORY INVOICE DATED 10.01.2013 IT WAS NOTED THA T DIAMOND WERE SOLD AT THE RATE OF MUCH LOWER THAN THE PURCHASE P RICE OF THE ASSESSEE WHICH CLEARLY INDICATE THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE NOT SHOWING TRUE AND CORRECT INCOME OF THE ASSESSEE. FU RTHER, THE ASSESSEE HAS NOT PROVIDED ANY REASONS FOR FALL IN GP RATE AS COMPARED TO THE EARLIER YEARS AND THEREFORE, HE UPHELD REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT AND HAS THEREAFTER APPLIED WE IGHTED AVERAGE GP RATE OF 25.86% AGAINST 26.33% APPLIED BY THE AO. TH EREFORE, OUT OF TRADING ADDITION OF RS. 4,49,539/- MADE BY THE AO, THE ASSESSEE FIRM WAS GRANTED RELIEF OF RS. 63,659/- AND THE BALANCE ADDITION OF RS. 3,85,880/- WAS SUSTAINED. AGAINST THE SAID FINDING, THE ASSESSEE IS IN APPEAL BEFORE US. 6. DURING THE COURSE OF HEARING, THE LD. AR SUBMITT ED IN RESPECT OF BASIS/DEFICIENCIES AS POINTED OUT BY AO AND CIT(A) AS UNDER:- BASIS OF BOOKS REJECTION BY AO & CIT(A): (A) PURCHASE AND SALES IN RESPECT OF DIFFERENT QUAL ITY ARE NOT VERIFIABLE FROM STOCK INVENTORY DETAILS. (B) ASSESSEE HAS MAINTAINED THE STOCK REGISTER BUT THE QUALITATIVE DETAILS WERE NOT MAINTAINED. SUBMISSION: (I) DAY WISE COMPLETE STOCK REGISTER WAS PRODUCED A LONG WITH LETTER DATED 18.03.2016 BUT AO DID NOT POINT OUT ANY SPECI FIC ITEMS FOR WHICH QUALITATIVE AND QUANTITATIVE DETAILS ARE NOT AVAILABLE. (II) ASSESSEE IS MAINTAINING CATEGORY WISE DAY TO D AY INVENTORY OF THE RAW MATERIAL LIKE GOLD BAR TT, OLD GOLD ORNAMENTS, LOOSE ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 6 DIAMONDS, DIAMOND POLKY, WHEREIN, COMPLETE INWARD A ND OUTWARD HAS BEEN SHOWN. (III) ASSESSEE IS ALSO MAINTAINING DAY TO DAY INVEN TORY OF ISSUE AND RECEIPT OF MATERIAL TO KARIGARS FOR MANUFACTURING. FOR INSTANCE, IN CASE OF GOLD TT BAR 100.54 GRAMS OF GOLD HAS BEEN I SSUED TO KARIGAR ON 01.05.2012, WHICH HAS BEEN USED TOWARDS MAKING OF KUNDAN JEWELLERY. SIMILARLY, GOODS RECEIVED FROM KA RIGARS AFTER MANUFACTURING HAS BEEN ENTERED INTO RESPECTIVE FINI SHED GOODS STOCK MENTIONING DATE, GROSS WEIGHT, CARATS AND NET WEIGHT RECEIVED. (IV) ASSESSEE IS ALSO MAINTAINING DAY TO DAY QUALIT ATIVE AS WELL QUANTITATIVE INVENTORY OF FINISHED GOODS CLASSIFIED IN VARIOUS CATEGORIES ACCORDING TO THEIR PURITIES AND STANDARD S LIKE :KUNDAN JEWELLERY 22 CTS., GOLD JEWELLERY 22 CTS., DIAMOND JEWELLERY 18 CTS., POLKY JEWELLERY 22 CTS. ,DIAMOND JEWELLERY 14 CTS. , POLKY JEWELLERY 18 CTS., KUNDAN JEWELLERY 18 CTS., DIAMON D FUSION JEWELLERY 14 CTS. HENCE IN VIEW OF THESE COMPREHENSIVE DETAILS THERE SHOULD NOT REMAIN ANY DOUBT THAT ASSESSEE IS NOT MAINTAINING QUALITAT IVE AS WELL AS QUANTITATIVE STOCK DETAILS. BASIS OF BOOKS REJECTION BY AO: (C) STOCK ITEMS TAKEN INWARD AND OUTWARD IN THE ST OCK REGISTER IS NOT FULLY VERIFIABLE IN RESPECT OF PURCHASES, MANUFACTU RING, GOODS UNDER PROCESS ETC. SUBMISSION (I) THE LD.CIT(A) RECORDED HIS FINDING AT PAGE-12, PARA 3.2.2(III) OF THE ORDER THAT THE ASSESSEE HAS BEEN MAINTAINING TH E STOCK REGISTER BUT QUALITATIVE DETAILS ARE NOT MAINTAINED . THEREFORE, IN HIS OWN WORDS IT IS AN ADMITTED FACT THAT THE STOCK REG ISTER HAS BEEN MAINTAINED BY THE ASSESSEE, THEREFORE, THE OBSERVAT IONS OF THE AO CONTRARY TO THIS FINDING STANDS VITIATED TO THAT EX TENT. ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 7 (II) AS REGARDS, THE ALLEGATION THAT PURCHASE AND S ALE DETAILS ARE NOT VERIFIABLE FROM STOCK REGISTERS, IT IS SUBMITTED TH AT ALL PURCHASE AND SALE BILL ARE REFLECTING IN STOCK REGISTER ALONG WI TH REFERENCE OF THEIR BILL NO. COMPLETE SALE AND PURCHASE BILLS WERE SUBM ITTED BEFORE THE LOWER AUTHORITIES TO FACILITATE THE VERIFICATIO N. HOWEVER, NO SPECIFIC INSTANCE OF ENTRY NOT FOUND IN STOCK REGIS TER WAS BROUGHT INTO THE NOTICE OF ASSESSEE WHEREAS THE ASSESSEE KE PT ON ASKING TO POINT OUT SUCH SPECIFIC DEFECT VIDE LETTERS DATED 1 6.3.2016 AND 21.3.2016, BUT THE AO NEVER POINTED OUT ANY SPECIFI C DEFECT (AO PAGE 8, PARA 4.2) IN STOCK RECORDS. (III) ALL THE MATERIAL ISSUED TO JOB WORKER AND RE CEIVED FROM JOB WORKER ARE SEPARATELY ENTERED IN RESPECTIVE STOCK ITEM LED GER. MOREOVER, PAYMENT TO JOB WORKER HAS BEEN MADE AFTER DUE DEDUC TION OF TDS AND SAME HAS ALSO ACCEPTED A GENUINE BY LD.AO HIMSE LF. (D) ASSESSEE MAINTAINED THE STOCK DETAILS WITH REF ERENCE TO THE TOTAL QUANTITY AND TOTAL VALUE AS SHOWN IN AUDIT REPORT O NLY. SUBMISSION: STOCK REGISTER WAS MAINTAINED BY THE ASSESSEE ON DA Y TO DAY BASIS WHEREAS IN THE TAX AUDIT REPORT QUANTITATIVE STOCK DETAILS WERE REPORTED FOR THE YEAR ON TOTAL BASIS. IT IS BEYOND OUR UNDERSTANDING HOW DAY TO DAY STOCK REGISTER CAN BE PREPARED ON THE BA SIS OF THE DETAILS REPORTED IN TAX AUDIT REPORT. (E) THE EXPENSES ARE NOT FULLY SUBJECT TO VERIFICA TION. IT WAS NEVER POINTED OUT WHICH EXPENSE IS NOT SUBJ ECT TO VERIFICATION. (F) CASH SALES IS NOT SUBJECT TO VERIFICATION. SUBMISSION: THE NATURE OF BUSINESS IS SUCH THAT SOME CASH SALE IS OBVIOUS. THE ASSESSEE SUBMITTED COMPLETE SALE BILLS CONTAINING N AME AND ADDRESS OF CUSTOMERS. EVERY SALE HAS BEEN ENTERED INTO STOCK R EGISTER WITH REFERENCE TO BILL NUMBER. FURTHER DETAILS WERE SUBM ITTED ALONG WITH ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 8 TOTAL CASH SALES BIFURCATED INTO TWO PARTS; COUNTER CASH SALE AND SALE MADE FOR WHICH DIRECT CASH WAS DEPOSITED BY CUSTOME R IN THE BANK ACCOUNT OF ASSESSEE. LOWER AUTHORITIES NEVER ASKED THE ASSESSEE FOR ANY VERIFICATION OF THE SAME, HOWEVER DECLARED TURN OVER WAS ACCEPTED AND ASSESSED. BASIS OF CIT(A) FOR SUSTAINING BOOKS REJECTION: (G) IN CASE OF CASH SALE OF DIAMOND JEWELLERY NO S EPARATE RATE OF GOLD AND DIAMOND WERE STATED AND ONLY ONE CONSOLIDATED F IGURE OF SALE AMOUNT IS MENTIONED THEREIN. SUBMISSION: IT IS AN ADMITTED FACT THAT ASSESSEE IS ENGAGED IN THE RETAIL BUSINESS OF JEWELLERY. IT IS THE PRACTICE OF THE ASSESSEE AS WE LL AS OF THE TRADE AT LARGE OF ISSUING SALES INVOICE FOR ITEM SOLD. THERE WAS NO NEED TO MENTION THE VALUE OF EACH COMPONENT ON THE SALES IN VOICE UNTIL/UNLESS ASKED BY THE CUSTOMER. THE CUSTOMER IS SATISFIED WI TH THE FORM OF THE SALES INVOICE. UNDER THE FACTS AND CIRCUMSTANCES NO ADVERSE VIEW CAN BE TAKEN. ASSESSEE IS ALSO MAINTAINING THE COMPLETE QUALITATIVE DETAILS OF ALL SALES AND RESPECTIVE COMPONENTS HAVE BEEN SH OWN IN THE RESPECTIVE STOCK ITEM AT THE TIME OF SALES. LD.CIT(A) FAILED TO APPRECIATE THE COMPLETE DETAIL GIVEN IN THE STOCK RECORDS AND TRADE PRACTICE. MOREOVER, DRAW THE ADVE RSE INFERENCE MERELY ON THE BASIS OF SUSPICION, SURMISES CONTRARY TO THE FACTS AVAILABLE ON RECORD. (H) THE APPELLANT IS GETTING JEWELLERY MANUFACTURED ON JOB WORK BASIS AS IT ISSUED GOLD TO KARIGARS. IT IS NOTED THAT IT HAS NOT SHOWN ANY WORK IN PROGRESS IN ITS OPENING OR CLOSING STOCK. SUBMISSION: THE ALLEGATION OF THE AO AND CIT(A) THAT NO DETAILS OF WORK IN PROGRESS HAS BEEN GIVEN IS COMPLETELY WRONG ON THE FACE OF I T. THE ASSESSEE FILED LEDGER ACCOUNT OF WORK IN PROGRESS VIDE LETTER DATE D 16.03.2016 (POINT NO.8). HOWEVER, THE AO AS WELL AS CIT(A) DID NOT MA KE ANY ADVERSE ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 9 REMARK ON THE SAME. THE ASSESSEE WAS HOLDING OPENIN G BALANCE IN STOCK WITH KARIGARS SHOWN AS STOCK WITH EJC AND S EPARATELY DISCLOSED THE SAME IN FORM 3CD ALSO. THE ASSESSEE WAS NOT HAV ING ANY CLOSING BALANCE IN JOB WORK, THEREFORE, IT WAS NIL. (I) THE ASSESSEE PURCHASED DIAMOND IN THE RANGE OF 11,500/- TO 12,000/- PER CARAT, WHEREAS AS PER EXPORT INVOICE D ATED 10.01.2013, IT EXPORTED DIAMOND AND OTHER JEWELLERY CONTAINING 78.61 CARATS OF DIAMOND WHICH WERE VALUED AT US$ 10 218.57 I.E. AROUND RS.8,060/- PER CARAT, WHICH IS MUCH LOWER TH AN THE PURCHASE PRICE. SUBMISSION: (I) WE ARE SUBMITTING THE EXPORT BILL UNDER CONSIDERATI ON BEFORE THE HONBLE BENCH FOR KIND PERUSAL. A PERUSAL OF THE SA ME WILL REVEAL THAT A CONSOLIDATED BILL WAS ISSUED FOR THE SAID EX PORT ASSIGNMENT AND PACKING LIST WAS ATTACHED WITH THE BILL AS MENT IONED UNDER TERMS AND CONDITION OF INVOICE. IN PACKING LIST IT WAS CLEARLY MENTIONED THAT THE ASSESSEE HAS SOLD 78.61 CARATS D IAMOND POLKHI. THE DIAMOND POLKHI IS ANOTHER TYPE OF DIAMO ND HAVING LESSER VALUE IN COMPARISON TO DIAMOND. THE RESPECTI VE OUTWARD HAS ALSO BEEN SHOWN IN STOCK REGISTER OF POLKY DIAMOND JEWELLERY 22 CTS ON 10.01.2013 SHOWING 78.61 CARATS SALES MENT IONING THE INVOICE NUMBER. THE CIT(A) MADE THE OBSERVATION JUS T BY LOOKING AT THE FACE OF INVOICE AND NOT GOING INTO FACTS AND SUPPORTING DOCUMENTS IN FORM OF PACKING SLIP AND STOCK ITEM RE GISTER. (II) NOW COMING ON THE RATE ASPECT OF DIAMOND POLKHI, IT IS SUBMITTED THAT THE ASSESSEE HAS BEEN MAINTAINING SEPARATE REG ISTER FOR DIAMOND POLKHI AND LAST PURCHASE OF DIAMOND POLKHI WAS ON 04.12.2012 AT THE RATE OF 6850 PER CARAT WHEREAS AS PER CIT(A)S OWN CALCULATION THE SAME HAS BEEN SOLD AT RS.8,060/ - PER CARAT. WITHOUT PREJUDICIAL TO ABOVE, ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 10 (III) FURTHERMORE, THIS ALLEGED IRREGULARITY WAS NEVER CO NFRONTED TO THE ASSESSEE NEITHER ANY EXPLANATION WAS ASKED. HENCE O N THIS GROUND ALSO REJECTION OF BOOKS OF ACCOUNTS IN NOT JUSTIFIE D AS HELD IN THE CASE OF ACIT VS MEWAR POLYTEX P. LTD. (1995) 51 TTJ 628 (JAIPUR TRIB.) WHEREIN IT WAS HELD AS UNDER:- THE NEXT OBSERVATION IS REGARDING AN ERROR FOUND I N ONE OF THE FOLIO OF THE CASH BOOK, WHICH MADE THE ASSESSING OF FICER COMMENT THAT THIS CLEARLY SHOWS THE IRREGULARITY IN MAINTAI NING BOOKS OF ACCOUNTS. FIRST OF ALL, ONLY ONE IRREGULARITY CANNO T JUSTIFY THE REJECTION OF ENTIRE BOOKS OF ACCOUNTS. FURTHER THE ASSESSEE WAS NEVER CONFRONTED ABOUT THIS IRREGULARITY AND, HENCE WAS NOT PROVIDED WITH AN OPPORTUNITY TO EXPLAIN THE SAME. O N THIS GROUND ITSELF THE REJECTION IS LIABLE TO BE KNOCKED DOWN A ND AS REGARDS THE NATURE OF IRREGULARITY POINTED OUT, THE HONBLE SUP REME COURT HAS HELD IN THE CASE OF CIT VS PADAMCHAND RAMGOPAL (197 0) 76 ITR 719 (SC) THAT INSIGNIFICANT MISTAKES CANNOT AFFORD A GROUND FOR RESTORING TO THIS SECTION. (IV) THE BASIS OF SUCH ADVERSE INFERENCE IS RATE DIFFERE NCE. ALTHOUGH WE HAVE EXPLAINED HEREIN ABOVE THAT GOOD SOLD IS DIAMO ND POLKHI NOT DIAMOND. EVEN OTHERWISE FOR SAKE OF ARGUMENT IF WE PRESUMED DIAMOND HAS BEEN SOLD AT LESSER PRICE, MORE PARTICU LARLY OF EXPORT, WHICH HAS BEEN GONE THROUGH CUSTOM AUTHORITIES IT C ANNOT BE A BASIS TO DRAW ADVERSE INFERENCE SINCE IN THE BUSINE SS PRICE DEPENDS UPON VARIOUS FACTORS AND CIRCUMSTANCES. BASIS OF BOOKS REJECTION BY AO: (J) GP AND NP ARE LOWER THAN LAST YEAR. (K) PURCHASE AND SALES ARE NOT FULLY VERIFIABLE FR OM STOCK REGISTER IN TERMS OF RAW MATERIAL, GOODS UNDER PROCESS OF MANUF ACTURING AND FINISHED GOODS IN RESPECT OF EACH ITEM OF PURCHASE AND SALES ADVERSELY AFFECTING TO THE TRADING RESULTS. ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 11 (L) THE ASSESSEE FAILED TO SUBSTANTIATE THE CLAIM TO SHOW REASONABLE AND TRUE AND CORRECT GP AND NP RATIO FROM THE BOOKS OF ACCOUNTS IN THIS LINE OF TRADE. SUBMISSION: (I) PERUSAL OF THE ORDER AND SUBMISSION MADE BEFORE HIM , LD.AO POINTED OUT CERTAIN DEFICIENCIES BUT IT IS IMPORTAN T TO NOTE THAT ALMOST EVERY TIME, SUCH ALLEGED DEFICIENCIES ARE FO LLOWED BY THE OBSERVATION THAT GP RATE DURING THE YEAR UNDER CONS IDERATION HAS COME DOWN. HERE, WE WOULD LIKE TO SUBMIT THAT ASSES SEE DURING THE ASSESSMENT PROCEEDINGS TIME AND AGAIN REQUESTED TO INFORM SPECIFIC DEFICIENCIES RATHER THAN GENERAL COMMENTS( REPRODUCED AT AO PAGE 9, PARA 4.2). DESPITE THESE REQUESTS LD.AO KEEP REPEATING SAME DEFICIENCIES IN GENERAL WORDS WITHOU T ANY SPECIFIC DEFECTS. IT EMERGES FROM HIS FINDINGS THAT REJECTIO N OF BOOKS IS PROMPTED ONLY DUE TO REDUCTION IN GP. WE HAVE ALREA DY ADDRESSED THE GENERAL DEFICIENCIES OBSERVED BY HIM UNDER FORG OING PARAGRAPHS. (II) AS FAR AS REJECTION OF BOOKS ONLY DUE TO REDUCTION IN GP RATE IS CONCERNED SAME CANNOT BE DONE SINCE ASSESSEE WAS MA INTAINING COMPLETE DAY TO DAY INVENTORY AND WE PLACE OUR RELI ANCE ON FOLLOWING CASE LAWS IN THIS REGARD:- ACIT VS MEWAR POLYTEX P. LTD. (1995), 51 TTJ 628 (J AIPUR TRIB.), WHEREIN, IT WAS HELD AS UNDER:- THUS IF IN EARLIER YEARS CORRECT INCOME AS PER LAW COULD BE DEDUCED, IT IS SURPRISING THE FIND AS TO WHY IT COU LD NOT BE DONE SO IN THE YEAR UNDER APPEAL. IT APPEARS THAT L OW RATE OF GROSS PROFIT AS COMPARED TO THE IMMEDIATELY PRECEDI NG YEAR PROMPTED THE ASSESSING OFFICER TO DO SO. BUT SINCE MERE LOW GROSS PROFIT RATE BY ITSELF IS NOT A GROUND AT ALL FOR REJECTION OF BOOKS, HE HAS TRIED TO JUSTIFY THE SAME BY ALLEGING SERIOUS IRREGULARITIES IN THE ACCOUNTS. ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 12 CIT V/S POONAM RANI (2010) 326 ITR 223 (DEL), ASSESSEE HAVING FURNISHED COMPLETE DETAILS, INCLUD ING QUANTITATIVE DATA IN RESPECT OF PURCHASE OF RAW MAT ERIAL, MANUFACTURE OF COPPER WIRE AND SALE OF FINISHED PRO DUCTS AND THE AO HAVING NOT POINTED OUT ANY PARTICULAR DEFECT OR DISCREPANCY IN THE BOOKS OF ACCOUNT MAINTAINED BY T HE ASSESSEE, FALL IN GP RATE ALONE COULD NOT BY ITSELF BE A GROUND TO REJECT THE ACCOUNTS BY INVOKING S. 145(3); CIT(A ) AND THE TRIBUNAL HAVING ACCEPTED THE EXPLANATION GIVEN BY T HE ASSESSEE FOR THE FALL IN GP RATE AND THE FINDING OF FACT RECORDED BY THEM HAVING NOT BEEN SHOWN TO BE PERVER SE IN ANY MANNER, NO SUBSTANTIAL QUESTION OF LAW ARISES F OR CONSIDERATION. REASON OF LOWER GP: THE ASSESSEE IS ENGAGED IN JEWE LLERY BUSINESS WHERE GOLD PRICES ARE DECIDED IN THE INTERNATIONAL MARKETS AND ASSESSEE HAD TO SALE THE ITEMS AT THE PREVALENT PRICE ONLY W HEREAS, STOCK REPRESENTS HISTORIC PRICE. ANY ADVERSE FLUCTUATION EFFECTS THE GP. HENCE THERE REMAINS NO CONTROL IN THE HANDS OF THE ASSESS EE TO MAINTAIN THE FIXED MARGINS. RESULTS ARE BETTER: IT IS SUBMITTED THAT LD.AO AS W ELL CIT(A) BOTH ESTIMATED THE GP BY APPLYING AN AVERAGE RATE OF GP WITHOUT GIVING ANY WEIGHTAGE TO THE TREND LINE BETWEEN INCREASE IN TUR NOVER AND DECLARES IN GP. NATURALLY TO INCREASE THE TURNOVER THE ASSES SEE HAD TO FORGO SOME MARGINS. TURNOVER, GP, ALONG WITH INCREASE AND DECREASE IN GP RATE IS DEPICTED BY WAY OF A TABLE GIVEN BELOW:- AY SALES TURNOVER GP GP RATE INCREASE IN TURNOVER (%) DECREASE IN GP RATE (%) 2011- 12 1,92,93,967/- 55,90,497/- 28.98% - - ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 13 2012- 13 3,11,62,210/- 78,45,880/- 25.18% 61.51% 13.11% 2013- 14 3,90,42,302/- 97,10,459/- 24.85% 25.29% 5.39% (EXPECTED RATE OF REDUCTION IN GP) THEREFORE, FOLLOWING THE SIMPLE TREND LINE ALSO THE GP RATE OF ASSESSEE WAS EXPECTED TO DECREASE BY 5.39% I.E. THE GP RATE WAS EXPECTED TO REMAIN AT 23.82% (25.18%-1.36%), WHEREAS THE ASSESS EE HAS DECLARED THE GP RATE OF 24.85% WHICH IS MUCH BETTER. HENCE, THERE WAS NOT REDUCTION IN GP RATE IF WE COMPARE IT WITH INCREASE IN TURNOVER. IT IS FURTHER SUBMITTED THAT THE ASSESSEE HAS BEEN ASSESSED U/S 143(3) FOR AY 2006-07 VIDE ORDER DATED 28.03.2008, WHEREIN DECLARED GP RATE OF 15.22% ON TOTAL TURNOVER OF 94,52,346/- HAS BEEN ACCEPTED BY THE AO. WHEREAS, CURRENT YEAR GP RATE IS 24.85% WHICH I S MUCH HIGHER THAN THIS, THEREFORE, REJECTION OF BOOKS PROMPTED B Y REDUCTION IN GP KINDLY BE DELETED. ONE VERY IMPORTANT POINT TO CONSIDER HERE IS THAT T HE AO ASKED THE DETAILS OF LABOUR CHARGES AS MUCH AS TWO TIMES IN A SINGLE QUERY LETTER DATED 10.03.2016 AND THE SAME WAS SUBMITTED. NO DEF ECT WAS FOUND THEREIN. ONCE THE LABOUR CHARGES HAS BEEN ACCEPTED THEN RESULTANTLY THE QUANTITY OF PRODUCTION STANDS PROVED SO THE AMO UNT OF GROSS PROFITS AS WELL. 7. THE LD DR IS HEARD WHO HAS RELIED ON THE FINDING S OF THE LOWER AUTHORITIES WHICH WE HAVE ALREADY NOTED ABOVE. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD CIT(A) HAS REFERRED TO NON-MAINTENANCE OF ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 14 QUALITATIVE STOCK DETAILS, NO SEPARATE RATES FOR GO LD AND DIAMOND, NON- REFLECTION OF WORK-IN-PROGRESS AND VALUATION OF DIA MOND IN ONE OF THE EXPORT INVOICE. WE FIND THAT EACH OF THESE MATTERS HAVE BEEN SATISFACTORILY EXPLAINED BY THE LD AR IN HIS WRITTE N SUBMISSIONS WE HAVE TAKEN NOTE ABOVE AND HENCE, WE ARE OF THE VIEW THAT THERE IS NO JUSTIFIABLE BASIS FOR REJECTION OF BOOKS OF ACCOUNT S IN THE INSTANT CASE. IN THE RESULT, THE TRADING ADDITION SO MADE ON REJE CTION OF BOOKS RESULTS IS DELETED AND BOTH THE GROUNDS ARE ALLOWED. 9. IN GROUND NO. 3, THE ASSESSEE HAS CHALLENGED THE SUSTENANCE OF DISALLOWANCE OF INTEREST PAID ON SECURED LOAN TAKEN FROM THE HDFC BANK AND DISALLOWANCE OF PROCESSING CHARGES RELATIN G TO BANK LOAN. 10. IN THIS REGARD, BRIEFLY THE FACTS OF THE CASE A RE THAT DURING THE YEAR UNDER CONSIDERATION, TWO PARTNERS OF THE ASSES SEE FIRM NAMELY SHRI SHUBHANG MITTAL & SHRI BRIJ KISHORE MITTAL ALONG WI TH THREE OF THEIR FAMILY MEMBERS HAVE PURCHASED A SHOWROOM SPACE MEAS URING TOTAL BUILT UP AREA OF 1779 SQ. FT. AT C-44, SARDAR PATEL MARG, C-SCHEME, JAIPUR FROM M/S KRISHNA GOPAL RANGOTA PVT. LTD. AND M/S MAA UPASANA COLONIZERS FOR A CONSIDERATION OF RS. 4.11 CRORES. THE ASSESSEE FIRM RAISED A SECURED LOAN RS. 1.50 CRORE FROM HDFC BANK AND ON BEHALF OF THE FIVE CO-OWNERS OF THE AFORESAID PROPERTY, RS. 7 5 LAC WAS PAID TO M/S KRISHNA GOPAL RANGOTA PVT. LTD. AND RS. 75 LAC WAS PAID TO M/S UPASANA COLONIZERS. DURING THE YEAR UNDER CONSIDERA TION, THE ASSESSEE HAS INCURRED A SUM OF RS. 15,19,571/- AS INTEREST O N THE ABOVE LOAN OF RS. 1.50 CRORE TAKEN FROM HDFC BANK AND A SUM OF RS . 95,316/- AS LOAN PROCESSING FEE. THE AO HAS DISALLOWED THE INTEREST OF RS. 15,19,571/- ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 15 PAID TO HDFC BANK BY TREATING THE SAME AS NOT INCUR RED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE FIRM. 11. ON APPEAL, THE LD. CIT(A) HELD THAT THE LOAN OF RS. 1.50 CRORE TAKEN BY THE ASSESSEE FIRM FROM HDFC BANK WAS USED FOR THE PURPOSES OF ACQUISITION OF A SHOWROOM BY THE TWO PARTNERS AN D THEIR THREE FAMILY MEMBERS AND THEREFORE, LOAN SO TAKEN AND INTEREST E XPENSE SO INCURRED CANNOT BE TREATED AS INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE FIRM, THEREFORE, THE DISAL LOWANCE OF RS. 15,19,571/- WAS SUSTAINED. FURTHER, THE AO WAS DIRECTED TO DISALLOW A SUM OF RS. 95,316/- TOWARDS PROCESSING C HARGES. AGAINST THE SAID FINDINGS, THE ASSESSEE IS IN APPEAL BEFORE US. 12. DURING THE COURSE OF HEARING, THE LD. AR SUBMIT TED THAT DURING THE YEAR UNDER CONSIDERATION, PARTNERS ALONG WITH F AMILY MEMBERS PURCHASED A SHOW ROOM FOR CONSIDERATION OF RS.4.11 CRORE. SAME WAS SUBSEQUENTLY GIVEN ON RENT TO THE ASSESSEE FIRM. OU T OF TOTAL CONSIDERATION, RS 2.61 CRORE WERE PAID BY THE PURCH ASER DIRECTLY AND REMAINING 1.50 CRORE PAID BY FIRM ON BEHALF OF THES E PURCHASERS. IT IS RELEVANT TO MENTION HERE THAT FOR THIS PURPOSE, FIR M RAISED A SECURED LOAN OF RS.1.50 CRORE FROM HDFC BANK LIMITED. THE P AYMENT MADE DIRECTLY BY THE FIRM WAS DEBITED TO THE RESPECTIVE PERSON ON BEHALF OF WHOM SUCH PAYMENTS WERE MADE. THE DETAILS ARE AS FO LLOWS:- S.NO. NAME AMOUNT DEBITED PROPORTIONATE INTEREST RELATION WITH FIRM ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 16 DISALLOWED 1. SHUBHANG MITTAL 30,00,000/- 3,03,914/- PARTNER 2. BRIJ KISHORE MITTAL 30,00,000/- 3,03,914/- PARTNER 3. GIRIRAJ PRASAD MITTAL 30,00,000/- 3,03,914/- RELATIVE OF PARTNER 4. MADHURI MITTAL 30,00,000/- 3,03,914/- RELATIVE OF PARTNER 5. SHIKHA MITTAL 30,00,000/- 3,09,915/- RELATIVE OF PARTNER TOTAL 1,50,00,000/- 15,19,571/- THE TOTAL INTEREST PAID ON THE ABOVE REFERRED LOAN DURING THE YEAR BY THE FIRM WAS RS. 15,19,571/-. THE AO MADE THE DISAL LOWANCE OF ENTIRE AMOUNT OF INTEREST PAID ON SUCH LOAN BY HOLDING AS UNDER:- CONSIDERING THE FACTS OF THE CASE, THE REPLY OF THE ASSESSEE HAS NOT BEEN FOUND REASONABLE AND SATISFACTORY. IT IS E VIDENT THAT THE ASSESSEE HAS TAKEN A COMMERCIAL LOAN OF RS.1,50,00, 000/- FROM THE HDFC BANK AND THE AMOUNT HAS BEEN ADVANCED TO THE A BOVE COMPANIES INSTEAD OF UTILIZING THE ABOVE FUNDS IN B USINESS PURPOSES. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS CONSTRUCTED THAT THE CLAIM OF THE ASSESSEE FOR INTE REST EXPENSES TO THE EXTENT OF RS.15,19,571/- PAID ON ACCOUNT OF ABO VE LOAN USED FOR NON BUSINESS PURPOSE IS NOT ALLOWABLE AS PER TH E LAW. IN VIEW OF THE ABOVE CLAIM OF INTEREST EXPENSES OF RS.15,19 ,571/- IS NOT ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 17 JUSTIFIED AND THE SAME IS DISALLOWED AND ADDED TO T HE TOTAL INCOME OF THE ASSESSEE. 13. DURING THE COURSE OF FIRST APPEAL, THE DISALLOW ANCE SO MADE BY AO WAS CONFIRMED BY THE CIT(A) AND RELEVANT FINDING HAS BEEN GIVEN BY CIT(A) AT PAGE 13 PARA 7 OF ORDER DATED 28.03.2016. 14. IN THE ABOVE FACTUAL BACKGROUND, IT WAS SUBMITT ED BY THE LD AR THAT THE FIRM WAS NOT HAVING SHOWROOM AT ANY VISIBL E PROMINENT PLACE. AT THAT TIME, A PROMINENT PLACE SUITABLE FOR SHOWRO OM COME TO THEIR KNOWLEDGE WHICH WERE AVAILABLE FOR SALE. THE FIRM B ASED UPON THE BUSINESS EXPEDIENCY AND COMMERCIAL PRUDENCE WILLING NOT TO PUT ENTIRE RESOURCES TO BUY THE SHOWROOM. THE PARTNERS AND THE FIRM WERE ALSO NOT HAVING THAT MUCH OF RESOURCES OR WILLING TO TAK E RISK. HOWEVER, CONSIDERING THE NEED OF THE FIRM THE PARTNERS PREPA RED OTHER FAMILY MEMBERS TO PURCHASE THE SHOWROOM AND ACCORDINGLY PA RTNERS AND RELATIVES PUT THEIR OWN RESOURCES IMMEDIATELY TO TH E EXTENT OF RS.2.61 CRORES AND REMAINING AMOUNT WERE RAISED BY THE FIRM AS SECURED LOAN AND GIVEN ON BEHALF OF THESE PERSONS. IT IS IMPORTA NT TO NOTE THAT LOAN WAS ALSO RAISED ON THE BASIS OF COLLECTORAL SECURIT IES OF IMMOVABLE PROPERTIES OWNED BY THESE PERSONS IN THEIR INDIVIDU AL CAPACITY. IN NUTSHELL, FIRM NEITHER TOOK ANY RISK SINCE AMOUNT G IVEN ON BEHALF OF THESE PEOPLE WERE RECOVERABLE AND IN CASE OF DEFAUL T THAT WAS RECOVERABLE FROM THEIR PROPERTIES. UNDER THE FACTS AND CIRCUMSTANCES, PROPERTY WAS PURCHASED FOR USE OF FIRM WITHOUT ANY RISK AND RESPONSIBILITY THEREFORE, HOLDING THAT SAME IS NOT FOR BUSINESS PURPOSE IS WITHOUT APPRECIATING THE COMPLETE FACTS IN RIGHT PE RSPECTIVE. ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 18 15. AS FAR AS INTEREST PAYMENT BY FIRM ON THAT SECU RED LOAN IS CONCERNED, IT WAS SUBMITTED THAT IT IS AN ADMITTED POSITION THAT SAME HAS BEEN USED FOR PURCHASE OF SHOWROOM PROPERTY ON BEHALF OF BUYERS. FOR SAKE OF CONVENIENCE, THESE BUYERS HAVE BEEN BIF URCATED IN TWO CATEGORIES. ONE IS PARTNERS AND SECOND IS RELATIVES . SAME HAVE BEEN DEALT SEPARATELY AS FOLLOWS:- (A) INTEREST PAYMENT ON LOAN USED ON BEHALF OF PARTNERS : (I) THE PARTNERS WERE HAVING CREDIT BALANCE IN THEIR AC COUNT ON 01.04.2012 OF RS. 77,16,667/- (SHRI SHUBHANG MIT TAL RS. 42,23,557/- & SHRI BRIJ KISHORE MITTAL RS. 34,9 3,110/- ) AND EVEN AFTER DEBITING THIS WITHDRAWAL THERE WAS CREDIT BALANCE IN PARTNERS CAPITAL ACCOUNT. (II) THIS IS NOT THE CASE WHERE DRAWING WERE MADE BY THE PARTNERS OUT OF THEIR CAPITAL ACCOUNT WHICH WAS HAV ING DEBIT BALANCE AND NO INTEREST HAS BEEN CHARGED UPON THEM. THE PARTNERS WERE HAVING CREDIT BALANCES IN T HEIR CAPITAL ACCOUNT ON WHICH THEY WERE GETTING INTEREST @12%, HENCE, IF THE PARTNERS MADE DRAWINGS OUT OF T HEIR OWN CAPITAL ACCOUNT WHICH IS HAVING CREDIT BALANCE THEN IT IS BEYOND THE JURISDICTION OF THE AO TO LOOK IN TO THE FACT WHETHER THIS DRAWING WAS MADE FOR THE BUSINESS PURPOSE OR NOT. CERTAINLY, DISALLOWANCE OF INTEREST WAS WARRANTED IN THE CONDITION WHERE PARTNERS WERE HAVI NG DEBIT BALANCE AFTER DRAWINGS AND NO INTEREST HAS BE EN CHARGED BY THE FIRM ON DEBIT BALANCE OF THE PARTNER S. ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 19 (III) THIS IS A COMPLETELY TAX NEUTRAL TRANSACTION. THE P ARTNERS WERE HAVING CREDIT BALANCE IN THEIR ACCOUNT ON WHIC H THEY WERE GETTING INTEREST @12% ON DAY TO DAY BASIS . IN PLACE OF MAKING DRAWING FROM THE FIRM IF THEY COULD HAVE ARRANGED THE MONEY FROM SOMEWHERE ELSE THEN CERTAIN LY, THEY WOULD HAVE GETTING INTEREST @12% ON THEIR CAPI TAL ACCOUNT. THE INTEREST TO PARTNERS HAS BEEN PAID ON DAY TO DAY BALANCE AND SINCE THE AMOUNT HAS BEEN PAID O N THEIR BEHALF, NO INTEREST WAS PAID TO THE PARTNERS ON THIS AMOUNT FROM THE DATE ON WHICH SUCH SUM WAS PAID. HENCE FROM FIRM POINT VIEW THERE IS NO CHANGE IN TH E PROFITABILITY DUE TO THIS TRANSACTION. (IV) HENCE, IN VIEW OF FORGOING FACTS AND CIRCUMSTANCES DISALLOWANCE OF INTEREST CALCULATED ON THE AMOUNT O F RS. 60 LAKHS(RS.6,07,828/-) BEING THE AMOUNT WITHDRAWN BY THE PARTNERS OUT OF THEIR CAPITAL ACCOUNT IS NOT WA RRANTED. HENCE, DISALLOWANCE OF RS. 6,07,828/- KINDLY BE DEL ETED IN FULL. (B) LOANS GIVEN TO FAMILY MEMBERS: (I) REMAINING AMOUNT OF RS.90 LAKH WAS GIVEN ON BEHALF OF FAMILY MEMBERS OF PARTNERS AND DEBITED IN THEIR ACC OUNTS AND INTEREST @ 12% WAS CHARGED THEREON. (II) ADMITTEDLY THESE LOANS HAD BEEN GIVEN OUT OF MONEY RECEIVED FROM HDFC LOAN ACCOUNT HENCE THERE WAS A ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 20 DIRECT NEXUS BETWEEN THE BORROWED FUNDS TAKEN FROM HDFC BANK @12 % AND GIVEN TO THE FAMILY MEMBERS. NOTABLY THE ASSESSEE HAS BEEN CHARGING THE SAME RAT E OF INTEREST FROM THESE FAMILY MEMBERS HENCE THERE IS N O JUSTIFICATION FOR MAKING THE DISALLOWANCE OF ENTIRE AMOUNT OF INTEREST PAID TO HDFC BANK LIMITED HOLDING THAT THE SAME HAS NOT BEEN USED FOR BUSINESS PURPOSE. 16. IT WAS FURTHER SUBMITTED THAT THE LD. CIT(A) HA S ALSO NOTED HIS FINDING OF FACT THAT ASSESSEE HAS BEEN CHARGING INT EREST @ 12% FROM THESE FAMILY MEMBERS AT PAGE-22, PARA-3.3 OF ORDER. THE RELEVANT PARA IS REPRODUCED HEREUNDER FOR SAKE OF CONVENIENCE:- .. IT WAS OBSERVED THAT THE APPELLANT HAS CHARGED INTE REST @12% FROM MS. SHIKHA MITTAL, SHRI GIRIRAJ PRASAD MITTAL AND MS. SANGEETA MITTAL WHEREAS, IT HAS PAID INTEREST @15 % TO THEM AND NO INTEREST APPEARS TO BE PAID TO MS. SANGEETA MITTAL. IN VIEW OF THESE FACTS, THE INTEREST IS TO BE ALLOWED @ 12% TO THESE ENTITI ES. ONCE THE AO HIMSELF HAS PROVED THE NEXUS BETWEEN BO RROWED FUNDS TAKEN FROM HDFC BANK AND GIVING TO FAMILY MEM BERS, AND THIS FACT HAS ALSO BEEN ADMITTED BY THE LOWER AUTHO RITIES THAT THE ASSESSEE HAS BEEN CHARGING THE INTEREST @12% FROM T HESE FAMILY MEMBERS, THEN NO DISALLOWANCE WAS WARRANTED. 17. IT WAS ACCORDINGLY SUBMITTED THAT UNDER THE FAC TS AND CIRCUMSTANCES IN THE INSTANT CASE, THE ASSESSEE FIR M ON BORROWED MONEY HAS EQUALLY EARNED THE INTEREST OR REDUCED IT S INTEREST EXPENSE. THE BORROWED MONEY HAS BEEN LAID OUT FOR SPECIFIC P URPOSE ON WHICH ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 21 EQUAL AMOUNT HAS BEEN EARNED OR SAVED. THE LOWER AU THORITIES DISALLOWED THE INTEREST AT ONE HAND AND TAXED THE I NTEREST INCOME OR SAVING IMPLYING THAT SAME HAS BEEN EARNED WITHOUT A PPLYING SAID BORROWED MONEY WHICH IS CONTRADICTORY TO THE FACT O R WITHOUT APPRECIATING THE ENTIRE FACTS. HENCE, THE IMPUGNED DISALLOWANCE BE DELETED IN FULL. 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LIMITED ISSUE UNDER CONSID ERATION RELATES TO ALLOWABILITY OF INTEREST EXPENDITURE ON THE LOAN TA KEN BY THE ASSESSEE FIRM FROM HDFC BANK. IT IS AN UNDISPUTED FACT THAT THE PROPERTY HAS BEEN PURCHASED BY THE TWO PARTNERS AND THEIR FAMILY MEMBERS IN THEIR INDIVIDUAL CAPACITY AND THE LOAN AMOUNT SO RAISED B Y THE ASSESSEE FIRM HAS BEEN PAID DIRECTLY TO THE TWO ENTITIES ON BEHAL F OF THESE PURCHASERS. THEREFORE, THE LOAN AMOUNT HAS BEEN USED TO PART FU ND THE PROPERTY PURCHASED BY THE PARTNERS AND THEIR FAMILY MEMBERS. THEREFORE, AS FAR AS IMMEDIATE AND PROXIMATE BENEFICIARY OF SUCH FUND S IS CONCERNED, IT IS CLEARLY THE PARTNERS AND THEIR FAMILY MEMBERS. AT THE SAME TIME, GIVEN THE UNDERSTANDING THAT THE PROPERTY SO PURCHASED SH ALL BE USED BY THE ASSESSEE FIRM FOR ITS SHOWROOM, THE ASSESSEE FIRM H AS ALSO BENEFITTED IN SOME WAY FROM SUCH AN ARRANGEMENT. HOWEVER, SUCH B ENEFIT IS LIMITED TO EASY AVAILABILITY OF PROPERTY THROUGH WHICH IT C AN CARRY ON ITS BUSINESS ACTIVITIES AS THE ASSESSEE FIRM SHALL BE P AYING RENTALS ON SUCH PROPERTY AND IT HAS NOT BEEN DEMONSTRATED THAT ANY BENEFIT BY WAY OF LOWER RENTALS HAS ACCRUED TO THE ASSESSEE FIRM VIS- -VIS PREVAILING MARKET RATE. THEREFORE, THE CONTENTION OF THE LD AR THAT THE INTEREST EXPENSE HAS BEEN INCURRED ON FUNDS BORROWED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS CANNOT BE ACCEPTED. C OMING TO ANOTHER ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 22 CONTENTION OF THE LD AR THAT WHERE THE ASSESSEE FIR M HAS CHARGED INTEREST ON SUCH FUNDS FROM THE FAMILY MEMBERS, THE SAME SHALL BE ELIGIBLE FOR SETOFF AND NO DISALLOWANCE OF INTEREST PAID TO BANK SHOULD BE MADE. IN THIS REGARD, IT HAS BEEN SUBMITTED THAT O N LOAN GIVEN TO FAMILY MEMBERS, INTEREST @ 12% HAS BEEN CHARGED AND ON LOAN GIVEN TO TWO PARTNERS, THEY WERE HAVING SUFFICIENT OPENIN G CREDIT BALANCE IN THEIR CAPITAL ACCOUNT ON WHICH THEY WERE ELIGIBLE F OR 12% RATE OF INTEREST AND GIVEN THAT THE ASSESSEE FIRM HAS NOT P AID ANY INTEREST ON SUCH CREDIT BALANCE, NON-CHARGING OF INTEREST ON LO AN ADVANCED ON THEIR BEHALF IS TAX NEUTRAL. WE FIND FORCE IN THE ARGUME NTS OF THE LD AR THAT WHERE THE ASSESSEE FIRM HAS CHARGED INTEREST FROM T HE FAMILY MEMBERS AND HAS NOT PAID INTEREST WHICH IT WAS SUPPOSED TO PAY ON THE OPENING CREDIT BALANCE IN PARTNERS CAPITAL ACCOUNT WHICH S TAY INVESTED IN THE ASSESSEES FIRM THROUGHOUT THE YEAR, THE INTEREST P AID TO THE BANK SHALL BE OFFSET FROM THE SAID RECOVERY OF INTEREST AND TH ERE SHOULD NOT BE ANY DISALLOWANCE TO EXTENT OF SUCH RECOVERY. THEREFORE, FOR THE LIMITED PURPOSES OF DETERMINING THE INTEREST PAID TO THE BA NK AND INTEREST RECOVERED FROM FAMILY MEMBERS/INTEREST SAVED ON PAR TNERS CAPITAL ACCOUNT FOR THE PERIOD THEIR OPENING CAPITAL REMAIN INVESTED AND NOT WITHDRAWN, THE MATTER IS REMANDED TO THE FILE OF TH E ASSESSING OFFICER WHO SHALL VERIFY AND ALLOW SET OFF OF INTEREST RECO VERED FROM FAMILY MEMBERS/INTEREST SAVED ON PARTNERS CAPITAL ACCOUNT FROM INTEREST ON BANK LOAN AND BALANCE, IF ANY OF INTEREST EXPENSE S HALL ONLY BE BROUGHT TO TAX. IN THE RESULT, THE GROUND IS DISPOSED OFF IN LIGHT OF ABOVE DIRECTIONS. ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 23 19. IN GROUND NO. 4, THE ASSESSEE HAS CHALLENGED T HE DISALLOWANCE OF LOAN PROCESSING FEE OF RS 95,316 PAID TO HDFC LOAN. IT WAS SUBMITTED BY THE LD AR THAT NO SUCH DISALLOWANCE WAS MADE BY THE AO AND THE LD CIT(A) WITHOUT ISSUING ANY SHOW-CAUSE AS REQUIRED U /S 251(2) HAS ENHANCED THE INCOME BY DISALLOWING THE SAID CLAIM O F THE ASSESSEE FIRM. FROM PERUSAL OF ORDER OF LD CIT(A) AND MATERIAL ON RECORD, WE FIND THAT NO SUCH SHOW-CAUSE WAS ISSUED BY THE ASSESSEE FIRM AND BEING A MANDATORY REQUIREMENT U/S 251(2) BEFORE ANY ENHANCE MENT BEING MADE BY THE LD CIT(A), THE SAME CANNOT BE DISPENSED WITH AND IN ABSENCE THEREOF, THE ADDITION SO MADE BY THE LD CIT (A) IS DIRECTED TO BE DELETED. IN THE RESULT, THE GROUND OF APPEAL IS AL LOWED. 20. IN GROUND NO. 5, THE ASSESSEE HAS CHALLENGED TH E DISALLOWANCE OF RENT ON SHOWROOM PREMISES WHICH WAS PAID DURING THE YEAR UNDER CONSIDERATION. 21. IN THIS REGARD, BRIEFLY THE FACTS OF THE CASE A RE THAT DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSING OFFI CER OBSERVED THAT AN AMOUNT OF RS. 27,50,000/- UNDER THE HEAD RENT E XPENSES HAS BEEN CLAIMED BY THE ASSESSEE FIRM. AS PER THE ASSESSING OFFICER, THE ASSESSEE HAS TAKEN ON RENT SHOWROOM PREMISES IN MAN UPASANA FROM THE FAMILY MEMBERS AND PARTNERS OF THE ASSESSEE FIRM AND THE S AID PREMISES HAVE NOT BEEN PUT TO USE DURING THE YEAR UNDER CONSIDERA TION. THE AO OBSERVED THAT THE SAME IS VERIFIABLE FROM THE SCEHD ULE OF FIXED ASSET AS ON 31.03.2013 WHEREAS THE ASSESSEE HAS SHOWN WORK I N PROGRESS AMOUNTING TO RS. 10,90,412/- IN RELATION TO THE SAI D SHOWROOM PREMISES. THE ASSESSING OFFICER FURTHER HELD THAT T HE PAYMENT HAS BEEN ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 24 SHOWN IN NAME OF ONE PERSON WHEREAS THE AGREEMENT H AS BEEN PREPARED IN NAME OF FIVE MEMBERS OF THE FAMILY, FUR THER PAYMENT HAS BEEN SHOWN FOR 11 MONTHS WHEREAS THE AGREEMENT HAS BEEN PREPARED ONLY IN THE AUGUST, 2012. FURTHER, THE RENT PAYMENT ALSO APPEARS TO BE ON HIGHER SIDE WHICH HAS BENEFITED THE FAMILY MEMBE RS AND THE PARTNERS OF THE ASSESSEES FIRM, THEREFORE, THE AO HAS HELD THAT THE ASSESSEE HAS FAILED TO PROVE THE SAID BUILDING WAS PUT TO USE FOR BUSINESS PURPOSES AND JUSTIFICATION & BASIS FOR THE DETERMINATION OF THE RENT. ACCORDINGLY, THE ASSESSEES RENT CLAIM OF RS. 27,50,000/- WAS NOT FOUND REASONABLE AND JUSTIFIED IN VIEW OF THE PROVI SIONS OF THE ACT AND THE SAME WAS DISALLOWED. 22. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE THE LD. CIT(A) WHO HAS SUSTAINED THE SAID DISALLOWA NCE. THE LD. CIT(A) OBSERVED THAT SINCE THE SHOWROOM WAS INAUGURATED ON 13.05.2013, NO BUSINESS ACTIVITIES WERE CARRIED OUT FROM THE RENTE D SPACE AT MAA UPASANA DURING THE YEAR UNDER CONSIDERATION. FURTHE R, HE REFERRED TO THE PROVISIONS OF SECTION 30 OF THE ACT WHEREIN IT HAS BEEN PROVIDED THAT THE RENT IS ALLOWED IN RESPECT OF PREMISES, WH ICH IS OCCUPIED AND USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION OF THE ASSESSEE FIRM. IT WAS HELD BY THE LD. CIT(A) THAT ON 01.05.2 012 I.E. THE DATE ON WHICH THE PREMISES UNDER CONSIDERATION WAS CLAIMED TO BE TAKEN ON RENT, IT WAS NOT FIT TO USE FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE FIRM OF RUNNING A SHOWROOM AND THE ASSESSE E COULD NOT COMMENCE ITS BUSINESS ACTIVITIES THEREON TILL THE E ND OF THE YEAR UNDER CONSIDERATION AS THE SHOWROOM WAS INAUGURATED ON 13 .05.2013 ONLY. FURTHER, HE RELIED ON THE DECISION OF HONBLE M.P. HIGH COURT IN CASE OF ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 25 NASHIRWAN AND CO. PVT. LTD. VS. CIT 77 ITR 822 AS W ELL AS THE DECISION OF HONBLE DELHI HIGH COURT IN CASE SONY INDIA P. L TD. VS. CIT 285 ITR 213. HE ACCORDINGLY UPHELD THE DISALLOWANCE OF THE RENT EXPENSES SO CLAIMED BY THE ASSESSEE AS THE SAME IS NEITHER ALLO WABLE U/S 30 NOR U/S 37 OF THE ACT. AGAINST THE SAID FINDINGS, THE ASSE SSEE IS IN APPEAL BEFORE US. 23. DURING THE COURSE OF HEARING, THE LD. AR SUBMIT TED THAT THE ASSESSEE FIRM GOT THE SHOWROOM ON RENT FROM PARTNER S AND THEIR FAMILY MEMBER W.E.F. 01.05.2012 AND A LEASE DEED WAS ENTER ED BETWEEN THE ASSESSEE AND ALL CO-OWNERS OF PROPERTY IN THE MONTH OF AUGUST, 2012 AND THE RENT WAS CREDITED IN RESPECTIVE LEDGER ACCO UNTS OF THE FAMILY MEMBERS ON MONTHLY BASIS. THE AO DISALLOWED THE REN T ON THE GROUND THAT THE SHOWROOM WAS NOT PUT TO USE DURING THE YEA R UNDER CONSIDERATION, THE AGREEMENT HAS BEEN MADE ON 01.08 .2012 WHEREAS THE RENT HAS BEEN PAID FROM 01.05.2012 FROM THE FAC TS THAT THE RENT APPEARS TO BE ON HIGHER SIDE. HOWEVER, DURING THE C OURSE OF APPELLATE PROCEEDINGS, THE ADDITION WAS SUSTAINED BY THE LD. CIT(A) ONLY ON THE SOLE GROUND THAT THE ASSESSEE HAD NOT USED THE SHOW ROOM FOR ITS BUSINESS PURPOSES AS INAUGURATION OF THE SHOWROOM W AS MADE ON 13.05.2013. 24. THE LD. AR SUBMITTED THAT THE LIMITED QUESTION THAT ARISES FOR CONSIDERATION IS WHETHER USE FOR BUSINESS PURPOSE S HALL BE STARTED FROM THE DAY OF INAUGURATION OR FROM THE DAY ON WHICH PR EMISES WAS TAKEN AND THE ASSESSEE STARTED ITS WORK THERE. THE AO AS WELL AS CIT(A) TERMED THE MEANING OF USED FOR THE BUSINESS PURPOS E U/S 30 IN A VERY ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 26 CONFINED WAY. SECTION 30 DEALS WITH THE ALLOWABILIT Y OF RENT FOR PREMISES USED FOR THE PURPOSE OF BUSINESS AND SAYS THAT RENT SHALL BE ALLOWED OF A PREMISE OCCUPIED BY THE ASSESSEE AS A TENANT. IN THE INSTANT CASE IT IS NOT IN DISPUTE THAT PREMISES WERE IN OCCUPATION OF THE ASSESSEE AS TENANT AND RENT WAS PAID FOR THE PERIOD UNDER CONSI DERATION. THE WORD USED FOR THE PURPOSE OF BUSINESS CANNOT BE INTERP RETED IN A MANNER THAT USE FOR BUSINESS PURPOSE SHALL START FROM THE DAY OF INAUGURATION OF SHOW ROOM AS HELD BY CIT(A). A BUSINESS DOES NOT IN VOLVE JUST OPEN A SHOP AND START SELLING THE GOODS. THERE ARE SO MANY ACTIVITIES WHICH ARE COMPULSORILY REQUIRED TO BE DONE TO REACH UP TO THE POINT OF INAUGURATION. ON THE CONTRARY, TAKING POSSESSION, M AKING PLAN, DESIGN, INTERIOR, FURNITURE FIXTURES, INSTALLATION OF SECUR ITY SYSTEMS, EXTERIOR LOOK AND DESIGN, SAFETY VAULTS AND STORAGE, DISPLAY COUN TERS, LIGHTINGS, AIR CONDITIONER INSTALLATION, CIVIL WORK ETC. ALL ARE F OR BUSINESS PURPOSE NOT FOR ANY PERSONAL OR OTHER PURPOSES. FURTHER THE CON CEPT OF PUT TO USE IS RELEVANT FOR THE PURPOSE OF SECTION 32 ONLY. IN SEC TION 30 THE WORD USED FOR THE PURPOSE OF BUSINESS IS USED WHICH IS A VERY WIDER TERM AND SPECIFIC. IN SUPPORT OF OUR CONTENTION WE RELY UPON THE DECISION OF HONBLE KOLKATA HC IN THE CASE OF CIT VS EVEREADY I NDUSTRIES (INDIA) LTD. (2018) 258 TAXMANN 0313 (CAL.), WHEREIN, IT WA S HELD AS UNDER:- 8. MR. AGARWAL, LEARNED COUNSEL FOR THE REVENUE AR GUES THAT THE ASSESSEE HAD NOT BEEN IN POSSESSION OF THE PROPERTY AND A DISPUTE WAS GOING ON BETWEEN THEM AND THE LESSOR. THE KEYS OF THE PREMISES WERE LYING WITH THE POLICE. THEREFORE, THE APPLICATION OF SECTION 30 WAS DEPENDENT UPON THE FINDINGS WHETHER THE ASSESSEE WAS A TENANT, PAYING RENT AND USING THE DEMISED PRE MISES FOR THE PURPOSE OF ITS BUSINESS. WE FIND ON AN EXAMINATION OF THE ORDER OF ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 27 THE TRIBUNAL THAT ALL THESE FACTUAL ISSUES HAVE BEE N ANSWERED IN FAVOUR OF THE ASSESSEE. NOW, WHEN THESE FACTS ARE I N FAVOUR OF THE ASSESSEE, IT IS NOT WITHIN THE DOMAIN OF A COURT EX ERCISING JURISDICTION UNDER SECTION 260A TO ENQUIRE INTO THE CORRECTNESS OF THAT FACT FINDING AND RETURN A CONTRARY FINDING THA T THE ASSESSEE WAS NOT A TENANT, AND WAS NOT IN USING THE PREMISES FOR BUSINESS PURPOSES, OVERTURNING THE RULING OF THE TRIBUNAL. O N THIS ISSUE ALSO, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDING O F THE TRIBUNAL. IN THE CASE REFERRED ABOVE, THE HONBLE HIGH COURT HAS ALLOWED DEDUCTION OF RENT EVEN IN THE CASE WHERE PROPERTY W AS NOT IN THE POSSESSION OF THE ASSESSEE BUT THE INTENDED USE WAS FOR THE PURPOSE OF BUSINESS. WHEREAS IN OUR CASE, THE PROPERTY WAS IN POSSESSION AS WELL AS ASSESSEE WAS CARRYING ON CERTAIN ACTIVITIES THER E RELATED TO THE BUSINESS OF ASSESSEE. HENCE LOOKING INTO THE MERIT OF THE CASE, IT IS REQUESTED THAT THE EXPENSES TOWARDS RENT KINDLY TO BE ALLOWED. 25. IT WAS FURTHER SUBMITTED THAT REGARDING THE OBS ERVATION OF THE AO THAT RENT AGREEMENT WAS ENTERED IN AUGUST 2012 WHER EAS RENT HAS BEEN PAID FOR 11 MONTHS, IT WAS SUBMITTED THAT ALTH OUGH THE LEASE AGREEMENT WAS ENTERED ON 01.08.2012 BUT THE ASSESSE E TOOK THE POSSESSION OF PROPERTY AND STARTED ITS WORK W.E.F. 1 ST MAY ITSELF. THIS FACT IS ALSO MENTIONED IN THE SAID LEASE AGREEMENT THE AO JUST LOOKED UPON THE DATE OF ENTERING OF LEASE AGREEMENT WITHOU T READING THE AGREEMENT IN ITS ENTIRETY. TAKING THE POSSESSION OF PROPERTY AND STARTING WORKING THEREIN FROM MAY ITSELF IS ALSO EV IDENT FROM FINDING OF THE AO ORDER. THE LD.AO CLOSELY SCRUTINIZE THE LEDG ER OF INTERIOR WORK ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 28 SHOWN AS WORK IN PROGRESS IN FIXED ASSETS. THE LEDG ER REVEALS THAT THE FIRST ENTRY OF PURCHASE OF WOOD WAS MADE IN THIS AC COUNT ON 11.06.2012, WHICH PROVES BEYOND ANY DOUBT THAT THE SHOW ROOM WAS IN POSSESSION OF ASSESSEE BEFORE ENTERING LEASE AGR EEMENT. HENCE, THE AO ADOPTED CONTRADICTORY APPROACH AS AT ONE HAND US E OF SHOWROOM W.E.F. 01.05.2012 IS DENIED AND ON OTHER HAND WORK CARRIED OUT THERE FROM MONTH OF MAY ITSELF HAS BEEN ACCEPTED. 26. IT WAS FURTHER SUBMITTED THAT THE CASE LAWS CI TED BY THE REVENUE ARE DISTINGUISHABLE. IN THE CASE OF NOSHIRWAN & CO. PVT. LTD. VS CIT (1970) 77 ITR 822 (MP), THE BUILDING WAS UNDER CONS TRUCTION AND PAYMENT OF RENT WAS USED AS A DEVICE TO FINANCE THE CONSTRUCTION OF BUILDING. THE ASSESSEE TOOK THE COMPLETED PROPERTY ON RENT WITH ELECTRICITY CONNECTION AND SOME OTHER FACILITIES. T HE BUILDING WAS FIT TO USE AND MALL WAS RUNNING AT FULL SWING BUT THE ASSE SSEE FIRM DECIDED IN THEIR BUSINESS PRUDENCE TO MAKE ATTRACTIVE INTERIOR AND INSTALL OTHER AMENITIES TO ATTRACT THE CUSTOMERS, AS THE JAIPUR I S A TOURIST CENTRIC PLACE SO HAVING ATTRACTIVE SHOWROOM IS AN ESSENTIAL NEED TO RUN A JEWELLERY SHOW ROOM. OTHER RELIED CASE OF SONY INDI A PVT. LTD. VS CIT (2006) 285 ITR 213 (DELHI) IS ALSO DISTINGUISHABLE AS THE EXPENSES IS FULLY ALLOWABLE TO THE ASSESSEE U/S 30 ITSELF, WHER EAS, IN THAT CASE EXPENSE WAS NOT ALLOWABLE U/S 37 OF THE ACT. HENCE, IN VIEW OF FORGOING FACTS AND CIRCUMSTANCES, THE IMPUGNED DISALLOWANCE OF RS. 27,50,000/- KINDLY BE DELETED IN FULL. 27. THE LD DR IS HEARD WHO HAS RELIED ON THE FINDIN GS OF THE LOWER AUTHORITIES. ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 29 28. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE RELEVANT PROVISIONS OF SEC TION 30 WHICH ARE UNDER CONSIDERATION READS AS UNDER: 30. IN RESPECT OF RENT, RATES, TAXES, REPAIRS AND INSUR ANCE FOR PREMISES, USED FOR THE PURPOSES OF THE BUSINESS 99 OR PROFESSION, THE FOLLOWING DEDUCTIONS SHALL BE ALLOWED (A ) WHERE THE PREMISES ARE OCCUPIED BY THE ASSESSEE (I ) AS A TENANT, THE RENT PAID FOR SUCH PREMISES ; AND FURTHER IF HE HAS UNDERTAKEN TO BEAR THE COST OF REPAIRS TO TH E PREMISES, THE AMOUNT PAID ON ACCOUNT OF SUCH REPAIR S ; (II ) OTHERWISE THAN AS A TENANT, THE AMOUNT PAID B Y HIM ON ACCOUNT OF CURRENT REPAIRS 99 TO THE PREMISES ; (B ) ANY SUMS PAID ON ACCOUNT OF LAND REVENUE, LOCAL RAT ES OR MUNICIPAL TAXES ; (C ) THE AMOUNT OF ANY PREMIUM PAID IN RESPECT OF INSURA NCE AGAINST RISK OF DAMAGE OR DESTRUCTION OF THE PREMISES. EXPLANATION.FOR THE REMOVAL OF DOUBTS, IT IS HEREB Y DECLARED THAT THE AMOUNT PAID ON ACCOUNT OF THE COST OF REPAIRS REFER RED TO IN SUB-CLAUSE (I), AND THE AMOUNT PAID ON ACCOUNT OF CURRENT REPA IRS REFERRED TO IN SUB-CLAUSE (II), OF CLAUSE (A), SHALL NOT INCLUDE A NY EXPENDITURE IN THE NATURE OF CAPITAL EXPENDITURE. 29. IT THUS PROVIDES THAT WHERE THE PREMISES ARE US ED FOR PURPOSES OF BUSINESS AND THE PREMISES ARE OCCUPIED BY THE ASSES SEE AS A TENANT, THE RENT PAID FOR SUCH PREMISES SHALL BE ALLOWED AS DEDUCTION. IN THE PRESENT CASE, WE FIND THAT THE ASSESSEE WAS CARRYIN G OUT CERTAIN IMPROVEMENTS/FIT-OUTS IN THE PREMISES IN FORM OF IN TERIORS, FURNITURE, AIR- CONDITIONING SYSTEM, STRONG ROOM, ETC AND THE EXPEN SES THEREOF WERE ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 30 SHOWN UNDER WORK-IN-PROGRESS AS ON THE CLOSE OF THE FINANCIAL YEAR. THEREFORE, THE PREMISES WERE NOT READY TO BE USED B Y THE ASSESSEE FIRM AS ON CLOSE OF THE FINANCIAL YEAR AS THE NECESSARY IMPROVEMENTS/FIT-OUTS ACTIVITIES WERE BEING CARRIED ON. MERE POSSESSION OVER THE RENTED PREMISES IS NOT SUFFICIENT. WHAT IS EQUALLY RELEVAN T IS THAT THE PREMISES ARE USED FOR PURPOSES OF BUSINESS. THE TERM USED FOR PURPOSES OF BUSINESS DOESNT NECESSARY MEAN IN THE LITERAL SEN SE OF ACTUAL USAGE FOR PURPOSES OF BUSINESS. IT HAS TO BE UNDERSTOOD IN THE SENSE THAT THE PREMISES WERE ATLEAST READY TO BE USED FOR PURPOSES OF BUSINESS. IN OTHER WORDS, CAN IT BE SAID THAT ALL NECESSARY FACI LITIES WHICH ARE REQUIRED TO RUN A JEWELLERY SHOWROOM WERE IN PLACE AND IF REQUIRED, THE ASSESSEE COULD HAVE STARTED OPERATING THE SHOWROOM IN TERMS OF PHYSICAL FACILITIES FOR DISPLAY AND STORAGE OF JEWE LLERY, WHETHER THE CUSTOMERS COULD VISIT THE SHOWROOM AND THERE ARE RE LATED FACILITIES FOR THEIR SITTING AND OTHER CONVENIENCES, WHETHER AIR-C ONDITIONING SYSTEM HAS BEEN INSTALLED AND APPROPRIATE FURNITURE/FIXTUR ES INSTALLED, ETC. THEREFORE, WE AGREE THAT THE DAY THE SHOWROOM WAS F ORMALLY INAUGURATED, IT DOESNT NECESSARILY MEAN THAT SHOWR OOM WAS NOT READY TO BE USED PRIOR TO THAT. IF THE SHOWROOM WAS READ Y TO BE USED EVEN PRIOR TO THE DATE OF FORMAL INAUGURATION, THE ASSES SEE SHALL BE ELIGIBLE FOR CLAIM OF RENTAL PAYMENTS WHICH IS HOWEVER NOT T HE CASE BEFORE US. 30. HAVING SAID THAT, THE QUESTION IS WHERE THERE I S NO DISPUTE THAT THE RENT PAYMENT HAS BEEN MADE BY THE ASSESSEE FIRM FOR TAKING ON RENT PREMISES FOR SETTING UP A NEW SHOWROOM AND THE REBY, EXPANDING ITS EXISTING BUSINESS, CAN THE SAME BE ALLOWED IN T HE YEAR THE PREMISES ARE READY TO BE USED. GIVEN THAT IN THE INSTANT CA SE, THE ASSESSEE HAS ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 31 ALSO INCURRED EXPENDITURE ON FIT-OUTS/IMPROVEMENTS ON SUCH LEASED PREMISES, AND HAS ACCUMULATED AND SHOWN THE SAME UN DER THE HEAD WORK-IN-PROGRESS, DRAWING SIMILAR ANALOGY, WE ARE OF THE VIEW THAT RENT PAYMENT, PERTAINING TO THE PERIOD THE PREMISES ARE NOT READY TO BE USED, CAN BE ACCUMULATED AND THE SAME CAN BE CLAIME D AND WILL BE ALLOWED IN THE YEAR IN WHICH THE PREMISES WERE READ Y TO BE USED I.E, NEXT ASSESSMENT YEAR 2014-15. THE GROUND OF APPEAL IS DISPOSED OFF IN LIGHT OF AFORESAID DIRECTIONS. 31. IN GROUND NO. 6 THE ASSESSEE HAS CHALLENGED THE SUSTENANCE OF ADDITION OF RS. 27,54,000/- ON ACCOUNT OF UNEXPLAIN ED CASH CREDIT U/S 68 OF THE IT ACT. 32. BRIEFLY THE FACTS OF THE CASE ARE THAT DURING T HE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSING OFFICER ON PER USAL OF THE HDFC BANK ACCOUNT AND CIB/AIR/ITS DETAILS NOTICED THAT T HE ASSESSEE HAS DEPOSITED CASH OF RS. 57,36,540/- ON VARIOUS DATES IN ITS BANK ACCOUNT AND A SHOW CAUSE WAS ISSUED TO THE ASSESSEE TO PROV IDE NECESSARY EXPLANATION. IN RESPONSE VIDE ITS LETTER DATED 21.0 3.2016, THE ASSESSEE FIRM SUBMITTED THAT THE CASH DEPOSITS WERE MADE OUT OF CASH SALE PROCEEDS FROM GOODS SOLD AND FURTHER SUBMITTED THAT THE CASH WERE DEPOSITED BY THE CUSTOMERS AGAINST THE SALE OF GOOD S AND FILED CASH MEMO PREPARED IN ACCORDANCE WITH THE CASH DEPOSITS. THE ASSESSING OFFICER ON PERUSAL OF THE CASH MEMO, NOTED THAT THE MEMOS ARE PRINTED AND PREPARED IN HAND WRITING AND THE SAME HAVE NOT FOUND SUBJECT TO VERIFICATION FROM THE BOOKS OF ACCOUNT AND STOCK RE GISTER/INVENTORY SINCE NO SUCH BILL BOOKS HAS BEEN PRODUCED FOR EXAMINATIO N. IT WAS ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 32 ACCORDINGLY HELD BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS FAILED TO EXPLAIN THE SOURCE OF CASH DEPOSIT TO THE EXTENT OF RS 27,54,000 ON VARIOUS DATED AS DETAILED IN THE ASSESSMENT ORDER A ND NO PROPER, REASONABLE AND ACCEPTABLE EXPLANATION TO THE SOURC E OF CASH CREDIT OF RS. 27,54,000/- IN THE BANK ACCOUNT HAS BEEN SUBMI TTED U/S 68 AND ACCORDINGLY, THE CREDIT OF RS. 27,54,000/- IS TREAT ED AS UNEXPLAINED INCOME OF THE ASSESSEE OUT OF UNDISCLOSED SOURCES O F INCOME AND THE SAME WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 33. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE THE LD.CIT(A). THE LD. CIT(A) SUSTAINED THE ADDITIO N AND THE RELEVANT FINDINGS ARE CONTAINED IN PARA 3.6.2 OF HIS ORDER W HICH ARE REPRODUCED AS UNDER:- (III) I HAVE DULY CONSIDERED THE SUBMISSIONS OF TH E APPELLANT, ASSESSMENT ORDER AND THE MATERIAL PLACED ON RECORD. IT IS DIFFICULT TO BELIEVE THE STORY OF THE APPELLANT THA T OUTSIDE PARTIES DEPOSITED CASH IN ITS BANK ACCOUNT AT THEIR STATION AND THE DELIVERY OF THE GOODS WAS ONLY GIVEN AFTER RECE IVING THE MONEY. FOR INSTANCE, VIDE INVOICE NO. 7 DATED 28.04 .2012, JEWELRY FOR A SUM OF RS. 40,000/- WAS SOLD TO SMT. LATA AGARWAL OF MUMBAI AND ON THE SAME DATE, A SUM OF RS . 40,000/- WAS DEPOSITED IN THE BANK ACCOUNT OF THE A PPELLANT AT MUMBAI. I FAIL TO BELIEVE THAT AFTER PURCHASING THE JEWELRY FROM THE APPELLANT ON 28.04.2012 AT JAIPUR, SMT. LA TA AGARWAL DEPOSITED RS. 40,000/- AT MUMBAI. SIMILAR, ARE THE CASES OF CASH DEPOSITED IN ITS BANK AT HYDERABAD, B ANGALORE, LAKHIMPUR, TINSUKIA ETC. THE STORY APPEARS TO BE FE ASIBLE ON PAPER BUT NOT IN REALITY. FURTHER, IT APPEARS THAT SOME OF THE NAMES WERE REPEATING, THE APPELLANT HAS NOT FILED A NY CONFIRMATION FROM THEM TO SUBSTANTIATE ITS CONTENTI ON. IT IS INTERESTING TO NOTE THAT IN THESE CASES, AS PER THE SALE ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 33 INVOICES, NO CASH PAYMENT WAS MADE IN PART AT THE S ALE COUNTER OF THE APPELLANT AND THE ENTIRE AMOUNT WAS DEPOSITED AT THE PLACES OF THE BUYERS. THEREFORE, I T IS HELD THAT THE APPELLANT COULD NOT EXPLAIN THE SOURCE OF CASH DEPOSITS IN ITS BANK ACCOUNTS AT DIFFERENT PLACES O F THE COUNTRY SATISFACTORY AND THUS THE AO WAS JUSTIFIED IN MAKING THE IMPUGNED ADDITION UNDER CONSIDERATION. (IV) THE CONTENTION OF THE APPELLANT THAT IT IS MAI NTAINING ITS RECORDS ON TALLY SOFTWARE AND IMMEDIATELY ON SA LE AND PURCHASE OF TRADING ITEMS, IT GETS REFLECTED IN ALL THE RELATED PLACES, APPEARS NOT BE CORRECT FACTUALLY, I T IS NOTED THAT THE APPELLANT WAS ISSUING INVOICES MANUALLY AN D NOT THROUGH TALLY SOFTWARE AND ITS STOCK REGISTER, APPA RENTLY WAS NOT MAINTAINED ON TALLY SOFTWARE. 34. AGAINST THE SAID FINDINGS, THE ASSESSEE IS IN A PPEAL BEFORE US AND HAS SUBMITTED THAT DURING THE YEAR CONSIDERATION, A SSESSEE DEPOSITED TOTAL CASH OF RS. 57,36,540/- IN ITS BANK ACCOUNT. THE LD. AO ASKED THE EXPLANATION VIDE POINT NOS. 4 & 5 OF NOTICE DATED 1 0.03.2016 IN THIS REGARD. IT WAS EXPLAINED OUT OF THAT AMOUNT RS. 13, 77,000/- WAS DEPOSITED OUT OF COUNTER CASH SALE AND RS. 27,72,54 0/- DIRECTLY DEPOSITED BY THE CUSTOMERS TO THE BANK ACCOUNT OF T HE ASSESSEE AGAINST THE SALES. ALONGWITH EXPLANATION, LD. AO WAS ALSO P ROVIDED WITH CORRESPONDING SALES BILLS. HE WAS ALSO HAVING STOCK REGISTER FOR VERIFICATION. AFTER CONSIDERING (REFER PAGE 16 OF A O ORDER) THE EXPLANATION LD. AO MADE THE ADDITION OF RS. 27,54,0 00/- WHICH IS 200% OF THE CASH DEPOSITED OUT OF COUNTER SALE. THE DETA ILS OF SUCH DEPOSIT OUT OF COUNTER SALE ADDED BY LD. AO ARE AS FOLLOWS: - S.NO. DATE P ARTICULARS AMOUNT 1. 28.09.2012 CASH DEPOSITED 3,47,000/ - ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 34 2. 01.10.2012 CASH DEPOSITED 2,00,000/ - 3. 31.10.2012 CASH DEPOSITED 2,30,000/ - 4. 01.11.2012 CASH DEPOSITED 2,00,000/ - 5. 06.12.2012 CASH DEPOSITED 2,00,000/ - 6 05.01.2013 CASH DEPOSITED 2,00 ,000/ - TOTAL CASH DEPOSITED 13,77,000/ - 35. IT WAS FURTHER SUBMITTED THAT THE LD. CIT(A) ON THE OTHER HAND DOUBTED THE CASH DEPOSITED DIRECTLY BY THE CUSTOMER TO THE ASSESSEE ACCOUNT (REFER PAGE 37 PARA 3.6.2(III) OF CIT(A) OR DER) AND CONFIRMED THE ADDITION. FROM THE PERUSAL OF THE FACT, IT IS C LEAR THAT AO WAS MADE ADDITION FOR CASH DEPOSIT HAVING NATURE OF COUNTER SALE WHEREAS ACTION OF THE CIT(A) LEAD TO CONFIRMING ADDITION OF CASH D EPOSIT HAVING DIFFERENT NATURE I.E. DIRECT DEPOSIT BY CUSTOMERS M EANS THE ADDITION BY CIT(A) IS OF DIFFERENT DEPOSIT FROM THE ADDITION M ADE BY AO. 36. IT WAS SUBMITTED THAT THE ASSESSEE SUBMITTED TH E COMPLETE DETAILS IN RESPECT OF THESE CASH DEPOSITS WHICH WER E ALLEGED TO REMAINED UNEXPLAINED, ALONG WITH COMPLETE SALE BILLS. THE AS SESSEE TRADES IN GOLD JEWELLERY ON WHOLE SALE AND RETAIL BASIS. THE NATUR E OF BUSINESS IS SUCH WHERE CASH SALES IS OBVIOUS AND MOST OF THE RETAIL SALES HAPPENS IN CASH ONLY.THE ASSESSEE DEPOSITS SUCH CASH IN HIS BANK AC COUNT. THE AO ASKED SPECIFIC QUERY REGARDING THE CASH DEPOSITED O N SPECIFIC DATES WHICH WAS EXPLAINED WITH CASH BOOK AND COMPLETE SAL E INVOICES. THE SOURCE OF THE CASH DEPOSITS IS EXPLAINED HEREUNDER: - S.NO. DATE PARTICULARS AMOUNT SOURCE PBP 1. 28.09.2012 CASH DEPOSITED 3,47,000/ - CASH SALE MADE ON 26.09.2012 PBP - 53 - ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 35 TOTALING TO RS. 4,39,045/-. 54 2. 01.10.2012 CASH DEPOSITED 2,00,000/ - OUT OF OPENING BALANCE OF CASH RS. 86,632/- AND CASH SALE OF THE DAY RS. 1,20,000/-. PBP - 55 3. 31.10.2012 CASH DEPOSITED 2,30,000/ - DIRECTLY DEPO SITED BY CUSTOMER TOWARDS CASH SALE VIDE BILL NOS. 185 & 186. PBP - 51 4. 01.11.2012 CASH DEPOSITED 2,00,000/ - OUT OF OPENING BALANCE OF CASH AT RS. 12,83,665/- (SALE OF RS. 56000/- ON 27.10.2012, RS. 1,57,700/- ON 29.10.2012 AND RS. 1,47,906/- ON 31.10.2012 ) PBP - 55 - 57 5. 06.12.2012 CASH DEPOSITED 2,00,000/ - OUT OF OPENING BALANCE OF CASH ON 01.12.2012 RS. 11,74,957/- AND CASH SALE OF RS. 1,90,202 ON 03.12.2012. PBP - 58 6 05.01.2013 CASH DEPOSITED 2,00,000/ - OUT OF OPENING BALANCE OF CASH ON 01.01.2013 RS. 15,07,765/- AND CASH SALE OF RS. 1,02,000/- ON 04.01.2013 PBP - 60 TOTAL CASH DEPOSITED 13,77,000/ - 37. IT WAS FURTHER SUBMITTED THAT THE CIT(A) MADE T HE OBSERVATION THAT CASH DEPOSITED BY PARTIES DIRECTLY IN THE BANK ACCOUNT OF ASSESSEE IS DIFFICULT TO BELIEVE. IT IS SUBMITTED THAT THERE IS NOTHING WRONG IF THE ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 36 PURCHASER IS DEPOSITING THE CASH IN ASSESSEES BANK ACCOUNT. IN RETAIL SALES THIS IS A PREVAILING PRACTICE. JAIPUR IS A WE LL-KNOWN TOURIST DESTINATION, SOME PEOPLE ARE COMING TO SEE THE JEWE LLERY AND IF THEY WANT TO BUY, THEY ASKED THE OTHER FAMILY MEMBER TO DEPOSIT THE CASH SO THAT THEY CAN BUY THE JEWELLERY. SOME OTHER ARE NOT CARRYING THE CASH AFTER SELECTING THE JEWELLERY ENSURING THE DEPOSITI ON OF CASH. HENCE, DOUBTING THE SALE ON THE SOLE GROUND THAT CASH WAS DEPOSITED ON VERY SAME DAY OF SALE IS NOTHING MORE THAN SUSPICION. TH IS IS THE LOOKOUT OF THE BUYER TO MAKE ARRANGEMENTS OF THE PAYMENTS ON V ERY SAME DAY AND ASSESSEE IS NOT CONCERNED WITH THIS IN ANY MANN ER. 38. IT WAS SUBMITTED THAT THE TRADER IS NOT BARRED UNDER ANY LAW TO MAKE SALE IN CASH NOR HE WAS REQUIRED TO RECORD NAM E AND ADDRESS OF THE PERSONS TO WHOM CASH SALE HAS BEEN MADE. IN SUP PORT OF OUR CONTENTION WE RELY UPON THE DECISION OF HONBLE DEL HI HIGH COURT IN THE CASE OF CIT VS JINDAL DYECHEM INDUSTRY LIMITED HOLDING AS UNDER:- 11. WE MAY ALSO POINT OUT THAT WE HAD ENQUIRED FRO M THE LEARNED COUNSEL FOR THE APPELLANT AS TO WHETHER THERE WAS A NY REQUIREMENT IN LAW OF RECORDING THE NAMES OF THE PURCHASERS OF THE BULLION TO WHOM THE CASH SALES OF GOLD AND SILVER WERE MADE. T HE LEARNED COUNSEL FOR THE REVENUE STATED THAT THERE WAS NO SU CH REQUIREMENT IN LAW AT THE RELEVANT TIME. CONSEQUENTLY, NO ADVER SE INFERENCE COULD HAVE BEEN DRAWN BY THE ASSESSING OFFICER ON A CCOUNT OF THE FACT THAT THE ASSESSEE WAS NOT IN A POSITION TO FUR NISH THE NAMES OF THE PERSONS TO WHOM THE CASH SALES OF THE BULLION W ERE MADE 39. IT WAS FURTHER SUBMITTED THAT THE ALLEGATION TH AT NO CONFIRMATION WAS FILED FROM THESE PARTIES IS BASED ON SUSPICION ONLY. LD. AO AS WELL ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 37 AS CIT(A) NEVER ASKED THE ASSESSEE TO FILE ANY CONF IRMATION. WITHOUT PREJUDICE TO THE ABOVE, ALTERNATIVELY, THE ASSESSEE IS NOT REQUIRED TO FILE ANY CONFIRMATION ONCE THE TURNOVER HAS BEEN ACCEPTE D, SALE INVOICES HAS BEEN ISSUED AND THE ASSESSEE WAS HAVING STOCK F OR THAT SALES. IN THE DECISION OF CIT VS JINDAL DYECHEM INDUSTRY LIMI TED, IT WAS HELD THAT THE TRADER IS NOT REQUIRED TO RECORD NAME AND ADDRE SSES OF THE PERSONS TO WHOM CASH SALES HAS BEEN MADE. HENCE, NO ADVERSE INFERENCE CAN BE DRAWN ON ACCOUNT OF CASH SALE MADE. ON ONE HAND, THE REVENUE HAS ACCEPTED AND ASSESSED THE TURNOVER DECLARED BY THE ASSESSEE AND ON OTHER HAND ADDITION OF CASH DEPOSITED ARISING OUT O F CASH SALES HAS BEEN MADE BY REVENUE. THIS HAD RESULTED INTO DOUBLE TAXA TION. ONCE THE AO HAS ACCEPTED THE TURNOVER DECLARED BY THE ASSESSEE THEN CASH DEPOSIT OUT OF THAT AMOUNT SHALL NOT BE TREATED AS UNEXPLAI NED. IN SUPPORT RELIANCE WAS PLACED ON THE FOLLOWING DECISION:- R.B. JESSARAM FATEHCAHND (SUGAR DEPT.) VS. CIT, BOM BAY CITY-II 1969 (7) TMI 10 (BOM HC) SHRI NARESH DAYANAND CHANDANI VS. ACIT IN ITA NO.53 39/DEL /2017 VIDE ORDER DATED 25.05.2018. ALTERNATIVELY AND WITHOUT PREJUDICE TO THE ABOVE, I T WAS SUBMITTED THAT ADDITION U/S 68 IS NOT SUSTAINABLE ONCE BOOKS OF AC COUNTS HAVE BEEN REJECTED BY THE AO U/S 145(3) AND IN SUPPORT, RELIA NCE WAS PLACED ON VARIOUS DECISIONS. 40. THE LD DR IS HEARD WHO HAS RELIED ON THE FINDIN GS OF THE LOWER AUTHORITIES. ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 38 41. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRSTLY, IT IS NOTED THAT THER E SEEMS TO AN ARITHMETICAL ERROR GIVEN THE DETAILS OF CASH DEPOSI TS ON VARIOUS DATED NOT FOUND SATISFACTORILY EXPLAINED TOTALING TO RS 1 3,77,000 AND THE ADDITION FINALLY MADE BY THE AO TOTALING TO RS 27,5 4,000. THEREFORE, TO THIS EXTENT, THE ADDITION STAND MODIFIED AND THE LI MITED ISSUE RELATES TO ADDITION OF RS 13,77,000. THE ASSESSEES CONTENTIO N IS THAT THE SAME REPRESENT CASH DEPOSITED OUT OF COUNTER SALES MADE BY THE ASSESSEE FIRM AND SALE BILLS AND STOCK REGISTER WERE PRODUCE D DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ONCE THE SALES/TURNOV ER SO DECLARED BY THE ASSESSEE HAS BEEN ACCEPTED, THE DEPOSIT SO MADE STAND EXPLAINED AND NO ADDITION SHOULD BE MADE IN HANDS OF ASSESSEE FIRM. IN CONTRAST, THE CASE OF THE REVENUE IS THAT THE ASSESSING OFFIC ER HAS PURSUED THE CASH MEMOS DURING THE ASSESSMENT PROCEEDINGS AND NO TED THAT THE MEMOS ARE PRINTED AND PREPARED IN HAND WRITING AND THE SAME HAVE NOT FOUND SUBJECT TO VERIFICATION FROM THE BOOKS OF ACC OUNT AND STOCK REGISTER/INVENTORY SINCE NO SUCH BILL BOOKS HAS BEE N PRODUCED FOR EXAMINATION. THERE IS NO DISPUTE ON THE PROPOSITION THAT WHERE THE CASH SO DEPOSITED REPRESENT THE CASH SALES MADE BY THE A SSESSEE FIRM AND SUCH CASH SALES ARE DULY RECORDED IN THE BOOKS OF A CCOUNTS, NO ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE FIRM. HOWE VER, SUCH A CLAIM NEED TO BE SUBSTANTIATED BY THE ASSESSEE FIRM AND T O BE VERIFIED BY THE ASSESSING OFFICER. IN THIS REGARD, WE FIND THAT SOU RCE OF CASH DEPOSITS OF RS 13,77,000 ON THE SPECIFIC DATES WERE SUBMITTED A LONG WITH CASH BOOK AND SALE BILLS FOR VERIFICATION DURING THE ASSESSME NT PROCEEDINGS AS WE HAVE NOTED IN PARA 36 ABOVE AND HOWEVER, THERE DOES NT SEEM TO BE ANY SPECIFIC FINDING BY THE ASSESSING OFFICER. WE T HEREFORE DEEM IT ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 39 APPROPRIATE TO SET-ASIDE THE MATTER TO THE FILE OF THE AO FOR THE LIMITED PURPOSES OF VERIFICATION OF SOURCE OF CASH DEPOSITS OF RS 13,77,000 AS SUBMITTED BY THE ASSESSEE FIRM AS WE HAVE NOTED IN PARA 36 ABOVE AND WHERE THE SAME IS FOUND TO BE IN ORDER, ALLOW THE N ECESSARY RELIEF TO THE ASSESSEE FIRM. THE GROUND OF APPEAL IS DISPOSED OF F IN LIGHT OF ABOVE DIRECTIONS. 42. IN GROUND NO. 7, THE ASSESSEE HAS CHALLENGED TH E SUSTENANCE OF DISALLOWANCE OF INTEREST OF RS. 1,57,081/-. IN THIS REGARD, BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD TAKEN U NSECURED LOANS FROM THE FAMILY MEMBERS OF THE PARTNERS IN THE EARLIER Y EARS AND PAYING INTEREST @ 15% ON THE SAME. DURING THE YEAR, INTERE ST @ 12% WAS CHARGED FROM THE FAMILY MEMBERS ON THE AMOUNT GIVEN ON BEHALF OF THEM FOR THE PURCHASE OF SHOWROOM. THE AO MADE THE ADDITION OF ENTIRE AMOUNT OF INTEREST OF RS. 7,06,363/- PAID TO FAMILY MEMBERS HOLDING THAT THE BORROWINGS HAVE NOT BEEN USED FOR BUSINESS PURPOSE. DURING THE COURSE OF FIRST APPEAL, LD. CIT(A) RESTR ICTED THE INTEREST PAID TO THE FAMILY MEMBERS TO 12% BY HOLDING AS UNDER:- I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPE LLANT, ASSESSMENT ORDER AND THE MATERIAL PLACED ON RECORD. DURING THE APPELLATE PROCEEDINGS, THE AR WAS REQUIRED TO SUBMI T THE RATES AT WHICH INTEREST HAS BEEN CHARGED AND PAID TO THE ABO VE PERSONS AND FROM THE DETAILS FURNISHED, IT WAS OBSERVED THA T THE APPELLANT HAS CHARGED INTEREST @ 12% FROM MS. SHIKHA MITTAL, SHRI GIRIRAJ PRASAD MITTAL AND MS. SANGEETA MITTAL WHEREAS, IT H AS PAID INTEREST @15% TO THEM AND NO INTEREST APPEARS TO BE PAID TO MS. SANGEETA ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 40 MITTAL. IN VIEW OF THESE FACTS, THE INTEREST IS TO BE ALLOWED @ 12% TO THESE ENTITIES. THE APPELLANT HAS ALLOWED INTERE ST OF RS. 7,85,404/- TO THE ABOVE THREE PERSONS @15% WHICH IS BEING RESTRICTED TO 12% WHICH WOULD RESULT IN ADDITION OF RS. 1,57,081/- TO THE INCOME OF THE APPELLANT AGAINST DISALLOWANCE OF RS. 7,06,363/-. IT MAY BE MENTIONED THAT LOANS TO THESE PERSONS WERE PROVIDED BY THE APPELLANT FIRM ON ACCOUNT OF PURCHA SE OF SHOWROOM AT MAAN UPASANA MALL, THE INTEREST ON WHIC H HAS BEEN DISALLOWED BY THE AO AND UPHELD BY ME IN THE EARLIE R GROUND OF APPEAL. THEREFORE, THIS GROUND OF APPEAL IS PARTY A LLOWED. 43. DURING THE COURSE OF HEARING, THE LD. AR SUBMIT TED THAT THE ADDITION HAS BEEN SUSTAINED BY THE CIT(A) ON THE GR OUND THAT ASSESSEE HAS CHARGED THE INTEREST FROM FAMILY MEMBERS AT 12% FOR THE LOANS GIVEN TO BUY THE SHOW ROOM THEREFORE PAYING THEM TH E INTEREST @ 15% IS EXCESSIVE. IT IS IMPORTANT TO NOTE THAT SAID LOA NS WERE GIVEN TO THE FAMILY MEMBERS OF PARTNERS FOR A VERY SPECIFIC PURP OSE I.E FOR PURCHASE OF SHOWROOM TO BE USED BY THE FIRM AND THIS ARRANGE MENT WAS MADE TO FACILITATE THE ASSESSEE TO GET A SHOW ROOM TO RUN I TS BUSINESS. THE BANK LOAN WAS OBTAINED ON THE COLLATERAL OF PERSONAL PRO PERTY OF THE PARTNERS AND THEIR FAMILY MEMBERS. THE FIRM HAD GIVEN ONLY 1 .50 CRORE, WHEREAS THE SHOWROOM WAS PURCHASED FOR 4.11 CORES, WHICH ME ANS 2.61 CRORE WERE ARRANGED BY THE PARTNERS AND FAMILY MEMBERS OU T OF THEIR OWN SOURCES TO FACILITATE THE FIRM. THE FIRM GOT THE SH OWROOM WITHOUT PAYING ANY SECURITY DEPOSIT. THE SAID TRANSACTION IS HAVIN G PECULIAR FACTS AND BASED UPON COMMERCIAL EXPEDIENCY. ON THE OTHER HAND , THE SUBJECTED AMOUNT OF BORROWING FROM FAMILY MEMBERS OF THE ASSE SSEE WAS IN EARLIER YEARS FOR BUSINESS PURPOSES AND IT WAS AT D ISCRETION OF THE ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 41 ASSESSEE TO USE THESE FUNDS AS AND WHERE REQUIRED. THEREFORE, AT THAT TIME LOOKING INTO NEED OF FUNDS AND OTHER CIRCUMSTA NCES, THE RATE WAS DECIDED AT 15%. NOW BOTH THE TRANSACTIONS CANNOT BE EQUATED AS BOTH ARE OF DIFFERENT PERSPECTIVE AND WERE ENTERED INTO FOR DIFFERENT PURPOSE AT DIFFERENT POINT OF TIME. HENCE, CONSIDERING PRES ENCE OF THESE PECULIAR FACTS IN THIS TRANSACTION, BOTH NOT TO BE EQUATED. IN THE INSTANT CASE, ASSESSEE BORROWED FUND FROM BANK @ 12% THAT LOAN IS SECURED WHEREAS BORROWING FROM FAMILY MEMBERS ARE UNSECURED IN NATURE. THE SECURED LOANS HAVE TO BE PAID AS PER PRE-DETERMINED REPAYMENT SCHEDULE WHEREAS UNSECURED LOANS UNDER CONSIDERATIO N CAN BE PAID AS PER FLEXIBILITY OF THE ASSESSEE. UNDER THESE CIRCUM STANCES, INTEREST RATE PAID @15% IS REASONABLE AND AT PREVAILING MARKET RA TE OF UNSECURED LOANS. THEREFORE, IT IS REQUESTED THAT INTEREST KIN DLY BE ALLOWED @ 15% INSTEAD OF 12% AS RESTRICTED BY LD. CIT(A). 44. THE LD DR IS HEARD WHO HAS RELIED ON THE FINDIN GS OF THE LOWER AUTHORITIES. 45. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THERE ARE NO FRES H BORROWINGS FROM FAMILY MEMBERS DURING THE YEAR BUT ARISING OUT OF P AST BORROWINGS ON WHICH THE ASSESSEE HAS BEEN PAYING INTEREST @ 15% I N THE EARLIER YEARS AS WELL AND WHICH HAS BEEN ACCEPTED BY THE REVENUE. THE FRESH BORROWING DURING THE YEAR FROM HDFC BANK HAS BEEN U TILIZED FOR ADVANCING TO THE PARTNERS AND THE FAMILY MEMBERS AN D THERE IS THUS A DIRECT NEXUS WHICH HAS BEEN ESTABLISHED BETWEEN THE SAID BORROWING AND ADVANCING THE FUNDS TO THE FAMILY MEMBERS AND H AS NO NEXUS WITH THE PAST BORROWINGS. FURTHER, THE ASSESSEE HAS CON TENDED THAT THE ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 42 BORROWING FROM FAMILY MEMBERS BEING UNSECURED AS CO MPARED TO BANK BORROWINGS WHICH WAS CLAIMED TO BE TAKEN ON COLLATE RAL OF PERSONAL PROPERTY OF THE PARTNERS AND FAMILY MEMBERS AND THU S CARRIES A DIFFERENTIAL RATE OF INTEREST. WE FIND THAT THE IN TERNAL COMPARABLE RELIED UPON BY THE REVENUE IS NOT APPROPRIATE GIVEN THE QU ALITATIVE DIFFERENCE IN THE TWO LOAN TRANSACTIONS AND IT WOULD HAVE BEEN APPROPRIATE TO COMPARE THE RELATED PARTY TRANSACTION WITH AN INDEP ENDENT THIRD PARTY TRANSACTION CARRYING THE SAME QUALITATIVE UNSECURED LOAN PARAMETERS. IN ABSENCE OF THE SAME, THE ADDITION SO SUSTAINED B Y THE LD CIT(A) IS HEREBY DIRECTED TO BE DELETED. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISPOSED OFF IN LIGHT OF AFORESAID DIRECTIONS. ORDER PRONOUNCED IN THE OPEN COURT ON 27/01/2020. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 27/01/2020. *SANTOSH VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHREE JEE JEWELLERS, JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- ITO, WARD-2(1), JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE { ITA NO. 393/JP/2017} VKNS'KKUQLKJ@ BY ORDER, ITA NO. 393/JP/2017 SHREE JEE JEWELLERS VS. ITO 43 LGK;D IATHDKJ@ ASST. REGISTRAR