RIDDISIDDHI BULLIONS LTD., MUMBAI V. ASST. COMM.OF INCOME TAX CENTRAL CIRCLE 46, MUMBAI

ITA 5811/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78848 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 31-01-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 26-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K C P PATNAIK
• Assessee Lawyers: CHETAN A KARIA
• Keywords: Unexplained cash credit; Unexplained expenditure; Business income; Income from undisclosed sources; Opportunity of being heard; Principle of natural justice; Earning of tax free income; Source of fund; Speculation loss; Bad and doubtful debts; Onus to prove
• Section: 69C; 143(3); 153A; 43(5); 194C; 147; 131; 148; 132; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI DR. S.T.M. PAVALAN , JUDICIAL MEMBER ./I.T.A. NO.5811/M/2013 ( AY: 2009 - 2010 ) RIDDI SIDDHI BULLIONS LTD., 115, BULLION HOUSE, TAMBAKATA LANE, OPP. DAGINA BAZAR, PYDHONIE, MUMBAI 400 003. / VS. ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 46, MUMBAI. ./ PAN : AAACR 6726 L ( / APPELLANT) .. ( / RESPONDENT ) ./I.T.A. NO. 6653 /M/2013 ( AY: 2009 - 2010 ) ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 46, MUMBAI.. / VS. RIDDISIDDHI BULLIONS LTD., 115, BULLION HOUSE, TAMBAKATA LANE, OPP. DAGINA BAZAR, PYDHONIE, MUMBAI 400 003. / ASSESSEE BY : SHRI CHETAN A KARIA / REVENUE BY : SHRI K.C.P. PATNAIK, CIT - DR / DATE OF HEARING : 19.2.2014 / DATE OF PRONOUNCEMENT : 12 .5 .2014 / O R D E R PER D. KARUNAKARA RAO, AM: THESE ARE THE CROSS APPEALS FILED AGAINST THE ORDER OF THE CIT (A) - 38, MUMBAI DATED 6.9.2013 FOR THE ASSESSMENT YEAR 2009 - 2010. THE ISSUES INVOLVED IN BOTH THE APPEALS ARE INTER - CONNECTED AND THEREFORE, THEY ARE CLUBBED FOR THE SAKE OF CONVENIENCE, HEARD COMBINEDLY AND DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE AND GROUND WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS. 1. A SSESSEES APPEAL ITA NO.5811/M/2013 2. FIRSTLY, WE SHALL TAKE UP THE ASSESSEES APPEAL ITA NO.5811/M/2013 FOR THE ASSESSMENT YE AR 2009 - 2010. THIS IS THE APPEAL, WHERE THE STAY WAS REJECTED AND EARLY HEARING WAS GRANTED. ACCORDINGLY, SINCE THE CASE WAS TRANSFERRED TO G BENCH BY THE ORDER OF THE HONBLE PRESIDENT, THE APPEAL CAME UP FOR HEARING 2 FOR THE FIRST TIME ON 26.11.2013. CON SIDERING THE LARGE NUMBER OF GROUNDS IN THE APPEALS OF BOTH THE PARTIES AND THE VOLUMINOUS PAPER BOOKS AND THE REQUIREMENT OF MATERIAL FACTS, THE CASE WAS ADJOURNED AT THE REQUEST OF BOTH THE PARTIES AND HEARD ON 2 ND , 3 RD , 10 TH , 30 TH AND 31 ST OF DECEMBER, 2013 AND 4 TH , 6 TH , 11 TH & 14 TH OF FEBRUARY, 2014. THE CASE IS FINALLY HEARD ON 19 TH FEBRUARY, 2014. 3. GROUNDS DISMISSED AS NOT PRESSED , GENERAL OR REPETITIVE: AS SEEN FROM THE GROUNDS OF APPEAL, ASSESSEE RAISED 19 GROUNDS IN THIS CASE. LD COUNSEL BROUG HT OUR ATTENTION TO THE GROUNDS NOS . 1, 2, 10, 13 TO 16 WERE NOT PRESSED . ACCORDINGLY, AFTER CONSIDERING THE VIEWS OF THE LD DR, THE SAID GROUNDS ARE DISMISSED AS NOT PRESSED. GROUNDS NO.17 AND 18 ARE EITHER GENERAL OR REPETITIVE IN NATURE. ACCORDINGLY, THE SAID GROUNDS ARE DISMISSED AS GENERAL OR REPETITIVE. 4. THE REST OF GROUNDS RELEVANT FOR ADJUDICATION ARE EXTRACTED AS UNDER: 3. THE LD CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF CLAIM FOR EXEMPTION OF INCOME OF RS. 6,42,90,319/ - U/S 10A OF THE ACT. 4.1. THE LD CIT (A) ERRED IN NOT ADJUDICATING ON THE ISSUE OF REDUCTION OF ELIGIBLE INCOME U/S 10A BY A SUM OF RS. 3,12,71,400/ - ON ACCOUNT OF STOCK TRANSFER. 4.2. THE LD CIT (A) FAILED TO APPRECIATE THAT EXEMPT INCOME U/S 10A WAS CORRECTLY DETERMINE D AT RS. 6,42,90,319/ - AND THAT ADJUSTMENT OF RS. 3,12,71,400/ - ON ACCOUNT OF STOCK TRANSFER WAS NOT CALLED FOR. 5. THE LD CIT (A) ERRED IN CONFIRMING THE ADDITION U/S 68OF RS. 2,33,00,000/ - ON ACCOUNT OF TRANSFER OF FUNDS TO AHMEDABAD BRANCH FROM OTHER BR ANCHES. 6. THE LD CIT (A) ERRED IN CONFIRMING ADDITION U/S 68 OF RS. 141,24,75,896/ - BEING AMOUNT RECEIVED FROM J OSHI BULLIONS GEMS & JEWELRY P LTD ON ACCOUNT OF OTHER DEBTORS OF APPELLANT. 7. THE LD CIT (A) ERRED IN CONFIRMING ADDITION OF RS. 9,43,68,687/ - ON ALLEGED GROUND OF UNACCOUNTED STOCK SOLD TO K.A. MALLE PHARMACEUTICALS P. LTD. 8. THE LD CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF COMMISSION PAID OF RS. 1,26,94,987/ - AND RS. 1,80,556/ - AGGREGATING TO RS. 1,28,75,553/ - . 9. THE LD CIT (A) ERRED IN C ONFIRMING DISALLOWANCE OF LOSS INCURRED IN DIAMOND TRADE OF RS. 49,73,46,618/ - . 11. THE LD CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF FOLLOWING PAYMENTS U/S 40(A)(IA) ON ACCOUNT OF SHORT DEDUCTION OF TAX AT SOURCE . 12. THE LD CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF RS. 57,56,233/ - U/S 40A(2) OUT OF INTEREST PAID TO RSBL COMMODITIES P. LTD. NATURE OF PAYMENT AMOUNT SERVICE CHAR GES 66,292/ - TRANSPORTATION CHARGES 11,49,331/ - PROFESSIONAL FEES 8,45,037/ - RENT 18,00,000/ - COMPUTER AND SOFTWARE EXPENSES 1,63,620/ - HALLMARKING CHARGES 73,034/ - COURIER EXPENSES 2,12,523/ - SUBSCRIPTION EXPENSES 71,226/ - 3 4. BRIEFLY STATED, RELEVANT FACTS OF THESE APPEALS ARE THAT THE ASSESSEE, WHO IS ENGAGED IN THE BUSINESS OF IMPORTS - EXPORTS OF BULLION AND G OLD JEWELLERY AND RELATED TRADING ACTIVITIES AS WELL AS THE COMMODITY DERIVATIVES, FILED THE RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS.5,92,76,713/ - . DURING THE COURSE OF ASSESSMENT, IN VIEW OF THE COMPLEX NATURE OF THE BOOKS OF ACCOUNTS, AO INVOKE D THE PROVISIONS OF SECTION 142(A) OF THE ACT AND REFERRED TO M/S. SINGRODIA GOYAL & CO., CHARTERED ACCOUNTANTS. THE SPECIAL AUDIT REPORT WAS SUBMITTED TO THE AO ON 21.6.2012 AND ACCORDINGLY, THE ASSESSMENT WAS COMPLETED AFTER CONSIDERING THE REMARKS OF T HE SPECIAL AUDITORS. AO DETERMINED THE ASSESSED INCOME AT RS. 230,53,59,040 / - . THE DETAILS OF THE ADDITIONS AS GIVEN IN VIDE PAGE 62 & 63 THE ASSESSMENT ORDER DATED 17.8.2012 ARE AS UNDER: PARTICULARS AMOUNT (IN RS.) AMOUNT (IN RS.) TOTAL INCOME AS PER RETURN 59276713/ - ADD DISALLOWANCE OF CLAIM U/S 10A AS DISCUSSED AT PARA 1 64290319/ - UNDERVALUATION OF STOCK TRANSFERRED FROM DTA TO SEZ, SURAT AS DISCUSSED AT PARA 2 (31271400)* UNEXPLAINED EXPENDITURE U/S 69C AS DISCUSSED AT PARA 3 42356727/ - TRANSFER INTO CASH BOOK OF AHMEDABAD BRANCH NOT EXPLAINED AT PARA 3 23300333/ - UNEXPLAINED CASH CREDIT AS DISCUSSED IN PARA 4 1412475896/ - SALE RECEIPTS OF UNACCOUNTED STOCK AS DISCUSSED AT PARA 5 94368687/ - COMMISSION FOR RECEIVING BUYERS CREDIT / CLIENT INTRODUCTION AS DISCUSSED AT PARA 6 12875553/ - LOSS IN DIAMOND TRADE AS DISCUSSED AT PARA 7 497346618/ - PERSONAL EXPENSES AS DISCUSSED AT PARA 8 443216/ - PRIOR PERIOD EXPENSES AS DISCUSSED AT PARA 9 187555/ - DISALLOWANCE U/S 40(A)(IA) AS DI SCUSSED AT PARA 10 & 11 1128882/ - DISALLOWANCE U/S 40A (2) AS DISCUSSED AT PARA 14 5756233/ - INTERNET EXPENSES DISALLOWANCE AS DISCUSSED AT PARA 15 9319850/ - LOSS ON FORWARD CONTRACTS TREATED AS SPECULATION LOSS AS DISCUSSED AT PARA 16 NOT ALLOWED TO BE SET OFF AGAINST THE BUSINESS INCOME 79632697/ - UNEXPLAINED CASH CREDIT U/S 68 AS DISCUSSED AT PARA 17 700000/ - FOREIGN FLUCTUATION GIAN AS DISCUSSED AT PARA 13 1880853/ - UNDERVALUATION OF STOCK AT PARA 12 19244/ - ASSESSED INCOME 2305359043/ - OR SAY 2305359040/ - 5. MOST OF THE ABOVE ADDITIONS ARE CONFIRMED BY THE CIT(A) AND THE ADDITION WISE DISCUSSION RESTRICTED TO THE GROUNDS EXTRACTED ABOVE IS DEALT WITH IN THE FOLLOWING PARAGRAPHS. GROUND WISE ADJUDICATION IS GIVEN IN DETAILS AS FOLLOWS . 4 6. GROUNDS NOS 1 ARE 2 ARE NOT PRESSED AS STATED ABOVE. 7. CLAIMS OF EXEMPTION U/S 10A OF THE ACT: GROUND NO. 3, 4.1 AND 4.2 REVOLVE AROUND THE SINGLE ISSUE OF DENYING EXEMPTION OF INCOME U/S 10A OF THE ACT. IT IS CLAIMED THAT ASSESSEE GOT EXPORT ORDE RS FROM DUBAI FOR MANUFACTURE AND EXPORT OF THE MEDALLIONS. ACCORDINGLY, HE MANUFACTURED GOLD MEDALLIONS FROM GOLD BARS AT SPECIAL ECONOMIC ZONE (SEZ) AT SACHIN, SURAT IN GUJARAT AND EXPORTED TO VARIOUS PARTIES AT DUBAI. CONSIDERING CERTAIN DOUBTFUL CIRC UMSTANCES SUCH AS THE ELECTRICITY CONSUMPTION, TWO DAYS ORIENTED ACTIVITIES IN THE YEAR, HUGE EXEMPT INCOME CLAIM U/S 10A OF THE ACT ETC, THE AO REFERRED THIS ISSUE TO THE FILE OF THE SAID SPECIAL AUDITORS. IT IS THE VIEWS OF THE REVENUE THAT THE ASSESSEE COULD NOT HAVE MANUFACTURE SUCH A BIG ORDER OF EXPORTS AND PROPOSED TO DENY THE CLAIM OF THE EXEMPT INCOME CLAIMED U/S 10A OF THE ACT. BEFORE THAT, THE ISSUE WAS REFERRED TO THE SPECIAL AUDITORS. ON THIS ISSUE, SPECIAL AUDITORS REPORTED CERTAIN MAJOR DISCR EPANCIES, NAMELY (I) ASSESSEE UNDERTOOK THE PRODUCTION ACTIVITY IN SEZ ONLY FOR TWO DAYS I.E., 25.9.2008 AND 13.10.2008 AND EXPORTED MEDALLIONS IMMEDIATELY ON THE NEXT DAY AND EARNED THE ABOVE STATED INCOME OF RS. 6.43 CRS (ROUNDED OF); (II) 200 KGS OF GOL D BARS FROM AHMEDABAD BRANCH IS RECORDED @ RS. 11,500/ - PER 10 GMS INSTEAD OF RS. 13,063.57 PER 10 GMS AS PER THE STOCK AVAILABLE ON THE BASIS OF FIFO METHOD; (III) THE ELECTRICITY CONSUMPTION FIGURES VIDE METER NO. 03133492 AND OTHER METER NO.1286982, SUR AT SEZ DOES NOT INDICATE THE CONSUMPTION OF ELECTRICITY FOR THE MANUFACTURING PURPOSES. THE UNITS CONSUMED IN THE MONTHS OF SEPTEMBER AND OCTOBER, 2008 ARE MUCH LOWER THAN THE UNITS CONSUMED IN THE MONTHS OF MAY AND JUNE OF 2008; (IV) OUT OF THE PRODUCTIO N OF 310 KGS OF GOLD MEDALLIONS, THERE IS NO CONCLUSIVE EVIDENCE ABOUT THE LABOUR CHARGES DONE BY M/S. S.L. INDUSTRIES TO THE EXTENT OF 110 KGS OF GOLD MEDALLIONS. EVIDENCE IS AVAILABLE ONLY TO THE EXTENT OF PRODUCTION OF 201 KGS OF GOLD BARS. DURING THE ASSESSMENT PROCEEDINGS, ASSESSING OFFICER CALLED FOR EXPLANATION OF THE ASSESSEE VIDE NOTICE DATED 19.7.2008. IN RESPONSE, ASSESSEE REPLIED AND THE DETAILS ARE AVAILABLE IN PAGE 4 AND 5 OF THE ASSESSMENT ORDER. IT IS THE CLAIM OF THE ASSESSEE THAT THE E LECTRICITY CONSUMPTION IS MORE IN THOSE MONTHS (SEPTEMBER AND OCTOBER, 2008) DUE TO EXCESS USE OF AIR 5 CONDITIONERS (ACS). ON THE ISSUE OF FIFO METHOD APPLICABILITY IN TERMS OF VALUATION, THE ASSESSEE ADMITTED TO EXPLAIN THAT THE DATE OF PURCHASE ORDER WAS CONSIDERED FOR THE VALUATION PURPOSES AND NOT THE DATE OF ISSUE. ON THE ISSUE OF DISCREPANCY OF LABOUR CHARGES INVOICED, ASSESSEE MENTIONED THAT THE LOSS REPORTED BY M/S. S.L. INDUSTRIES IS MUCH HIGHER THAN THE NORMAL LIMITS AND THEREFORE, NO PAYMENTS WE RE MADE IN RESPECT OF THE 109 KGS OF GOLD MEDALLIONS. AFTER CONSIDERING THE SAID EXPLANATIONS OF THE ASSESSEE, AO CAME TO THE CONCLUSIONS THAT THE CLAIM OF DEDUCTION U/S 10A IS NOT ALLOWABLE IN RESPECT OF INCOME OF RS. 6,42,90,319/ - . ACCORDINGLY, AO MADE THE ADDITION. IN THE PROCESS, HE IGNORED THE FACT THAT SIMILAR EXEMPTION WAS CLAIMED IN EARLIER YEARS, NAMELY, AYS 2005 - 06 TO 2009 - 10 AND NO SUCH ADDITION WAS MADE DESPITE SCRUTINY ASSESSMENTS U/S 153A R W S 143(3) OF THE ACT. THEREFORE, THE ASSESSEE DISPU TED THE SAID DENIAL OF EXEMPTION AND FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (PARAGRAPHS 12 TO 15 OF THE IMPUGNED ORDER IS RELEVANT IN THIS REGARD). 8. BEFORE THE CIT(A): DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE FILED WRITTEN SUBMISSION S WHICH ARE DISCUSSED IN PARA 14 OF THE IMPUGNED ORDER. EVENTUALLY, CIT (A) CAME TO THE CONCLUSION THAT THE (A) ACS ARE USED IN ALL THE MONTHS; AND (B) EXPLANATION OF THE ASSESSEE IN MATTERS OF THE DISCREPANCIES QUA THE LABOUR CHARGES INVOICES OF M/S. S.L . INDUSTRIES WERE FOUND UNACCEPTABLE. HE ALSO OPINED THAT KEEPING THE WHOLE SEZ UNIT IDEAL FOR 365 WORKING DAYS IS NOT PRUDENT. PHYSICAL DEMONSTRATION BEFORE THE SPECIAL AUDITORS IS ONLY WITH REFERENCE TO THE CURRENT YEAR OF AUDITING AND NOT THE RELEVANT FINANCIAL YEAR 2008 - 2009.THEREFORE, THE EXPLANATION IS NOT ACCEPTABLE. CIT (A) WAS OF THE OPINION THAT IMPORTER OF THE GOLD MEDALLIONS BEING M/S. AL KHAYAL AL DHAHABI JELLERY LLC, IS OWNED WITH A MANAGING DIRECTOR. FURTHER, HE HAS ALSO OPINED THAT WITH TWO DAYS OF MANUFACTURING ACTIVITY, ASSEESSEE EARNED PROFIT OF RS. 6.43 CRS, WHICH IS BEYOND COMPREHENSION. ASSESSEES EXPLANATION RELYING ON THE CUSTOMS AUTHORITIES OF THE MEDALLIONS IS NOT ACCEPTED BY THE CIT (A) AS THE CUSTOMS AUTHORITIES NEVER DO THE PHYSICAL VERIFICATION OF THE GOODS IMPORTED AND EXPORTED OUT OF SEZ. HE, ACCORDINGLY, HELD THAT ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S 10A OF THE ACT. 6 9. WITHOUT PREJUDICE TO THE ABOVE, THE CIT (A) EXAMINED THE DISCREPANCY WITH REGARD TO THE VALUATION BASED ON THE FIFO METHOD . AFTER ANALYZING THE ISSUE IT WAS HELD THAT THE HE WAS UNDER VALUATION OF THE STOCK AND THE ASSESSEE TRANSFERRED 200 KGS OF GOLD BARS @ RS. 11,500/ - PER 10 GMS INSTEAD OF EXISTING RATE OF RS. 13,063.57/ - PER 10 GMS. AS PER THE S TOCK AVAILABLE ON THAT DATE, THE UNDER VALUATION WORKED OUT TO RS. 3,12,71,400 / - . TO THIS EXTENT, THE PROFITS ARE INFLATED. THIS AMOUNT REPRESENTS THE DIFFERENCE BETWEEN THE VALUE OF INWARD STOCK OF GOLD BARS INTO THE SEZ UNITS AS SHOWN BY THE ASSESSEE A ND THE ACTUAL VALUE OF THE STOCK DETERMINED ON FIFO BASIS. THIS AMOUNT OF RS. 3,12,71,400/ - IS CONFIRMED WITHOUT PREJUDICE TO THE DENIAL OF DEDUCTION U/S 10A OF THE ACT. AGGRIEVED WITH THE ABOVE, THE ASSESSEE RAISED THE ABOVE GROUNDS BEFORE THE TRIBUNAL. 10. DURING THE PROCEEDINGS BEFORE US, SHRI CHETAN A KARIA, LD COUNSEL FOR THE ASSESSEE EXPLAINED THE ABOVE RELEVANT FACTS OF THE ISSUE AND REITERATED THE CONTENTIONS MADE BEFORE THE LOWER AUTHORITIES. LD COUNSEL WAS CRITICAL OF THE DISCREPANCIES REMARKE D BY THE SPECIAL AUDITORS. HE REPEATEDLY MENTIONED ABOUT THE FACT OF ASSESSEES EFFORTS IN PHYSICAL DEMONSTRATION BEFORE THE SPECIAL AUDITORS OF THE COMPANYS ABILITY TO MANUFACTURE THE SAID AMOUNT OF GOLD MEDALLIONS IN TWO DAYS TIME WITH THE MINIMUM USE O F ELECTRICITY. HE ALSO DESCRIBED THAT THE PROCESS OF MAKING MEDALLIONS IS A SIMPLE PROCESS INVOLVING CONSUMPTION OF MINIMUM UNITS OF ELECTRICITY. HE HEAVILY RELIED ON THE EXPORT INVOICES, SHIP BILLS (PAGE 413 TO 427 OF THE PAPER BOOK NO.3); BILL ENTRY OF UAE FOR MOVEMENT OF GOODS EXPORTED. HE ALSO MENTIONED ABOUT THE SECURITY AGENCYS NOTE FOR MOVEMENT OF GOLD BARS FROM AHMADABAD OFFICE TO SURAT, SEZ (428 TO 435 OF THE PB 3). HE ALSO RELIED ON THE LABOUR CHARGES BILL OF M/S. S.L. INDUSTRIES (PAGE 436 OF PB 3). HE FURTHER BROUGHT OUR ATTENTION TO THE FACT THAT THE LABOUR CONTRACTOR WAS SUMMONED U/S 131 AND THE RELEVANT BOOKS OF ACCOUNTS OF THE LABOUR CONTRACTOR WERE ALSO EXAMINED. THE FACT OF ACCOUNTING OF THE HIGHER WASTAGE / LOSS IN THE PROCESS WAS ALS O ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS (PAGE 1110 OF PB 6). ON THE ELECTRICITY CONSUMPTION ISSUE, IT WAS ARGUED THAT THE ASSESSEES TOTAL BLOCK OF ASSETS IS WORTH RS. 16,13,797/ - ONLY AND IT DOES NOT INVOLVE VERY HEAVY ELECTRICITY CONSUMPTION. NO HIGH V OLTAGE APPARATUS WAS NECESSARY FOR MAKING THE SAID MEDALLIONS. AS PER THE ASSESSEE, ON PRODUCTION OF 8 7 HRS SHIFT TO MANUFACTURE GOLD MEDALLIONS, THE POWER CONSUMPTION REQUIRED IS ONLY 65.60 UNITS @ 8.2 UNITS PER HOUR. ON THE ISSUE OF THE UNDER VALUATION Q UA THE FIFO METHOD, IT IS THE CONTENTION OF THE ASSESSEE THAT THE GOLD WAS PURCHASED @ RS. 11,500/ - PER 10 GMS BASED ON THE DATE OF THE EXPORT ORDER AND NOT THE DATE OF TRANSFER OF THE GOLD TO THE SEZ. HOWEVER, LD COUNSEL WAS NOT VERY PARTICULAR AGAINST TH E USE OF FIFO METHOD TO THE IMPUGNED TRANSFERS OF GOLD BARS OF 200KGS. 11. PER CONTRA, LD DR FOR THE REVENUE HEAVILY RELIED ON THE ORDER OF THE AO AND THE CIT (A). IN THIS REGARD, LD DR SUBMITTED A WORKING PAPER GIVING THE BRIEF SYNOPSIS ON THE CONCLUSI ONS OF THE AO AND THE CIT (A). IT IS THE CASE OF THE LD DR THAT THERE IS A LOT OF SUSPICION IN THE WHOLE CLAIM OF THE ASSESSEE AND THE CLAIM OF THE ASSESSEE AGAINST THE HUMAN PROBABILITY. THE CLAIM OF THE ASSESSEE IS NOT ALLOWABLE ON THE GROUND OF IMPO SSIBILITIES AS WELL AS AMOUNTS TO THE INFLATED INCOME. HE ALSO MENTIONED THAT THE BURDEN OF PROOF IS ON THE ASSESSEE WHEN EXEMPTION IS CLAIMED AND THE ASSESSEE FAILED TO DEMONSTRATE THE SAME. 12. DECISION OF THE TRIBUNAL CLAIM OF EXEMPTION U/S 10A OF T HE ACT : WE HAVE HEARD BOTH THE PARTIES ON THE ISSUE OF BONA FIDE OF THE MANUFACTURING ACTIVITY AT SEZ, SURAT FOR EARNING EXEMPT INCOME OF RS. 6.43 CRS AS WELL AS THE UNDER VALUATION OF THE PURCHASE OF GOLD BARS WHILE BRINING INTO SEZ, SURAT. IN THIS REGARD , PROMINENT ISSUES FOR ADJUDICATION ARE THE ASSESSEES ABILITY TO EARN THE EXEMPT INCOME OF RS 6.43 CR WITH MANUFACTURING ACTIVITY OF TWO DAYS AT SEZ, SURAT, DISCREPANCY WITH REGARD TO CONSUMPTION OF MINIMUM UNITS OF ELECTRICITY AND NON CLAIMING OF LABOU R CHARGES INVOLVING M/S. S.L. INDUSTRIES TO THE EXTENT OF 110 KGS OF GOLD MEDALLIONS. SO FAR AS ELECTRICITY CONSUMPTION IS CONCERNED, IT IS THE CLAIM OF THE ASSESSEE THAT FOR USE OF PLANT AND MACHINERY WORTH RS. 16.14 LAKHS , AROUND 65.60 UNITS @ 8.2 UNITS PER 8 HRS, IS ENOUGH. THE BOOKS OF ACCOUNTS SUPPORTS THE SAME IN FAVOUR OF THE CLAIM OF THE ASSESSEE AND THE CONSUMPTION IS ONLY AROUND 130 UNITS, WHICH IS REPORTED IN THE ELECTRICITY METERS. ALL OTHER DISCUSSIONS ON THIS ISSUE IS DEBATABLE AND THE SAME IS INCONCLUSIVE. IT IS A FACT THAT THE TOTAL UNITS CONSUMED IN THOSE TWO MONTHS OF SEPTEMBER, 2008 (943 UNITS) AND OCTOBER, 2008 (870 UNITS) EXPLAINS THE CONSUMPTION OF ELECTRICITY IN THOSE TWO MONTHS. THEREFORE, THIS 8 DISCREPANCY IN ELECTRICITY CONSUMPTIO N IS INCONCLUSIVE AND IT CANNOT BE STATED THAT THE MACHINERY WAS NOT PUT TO USE. IT IS NOT THE CASE OF THE REVENUE THAT THE PROCESS OF MAKING GOLD MEDALLIONS INVOLVES HIGH VOLTAGE PLANT AND MACHINERY REQUIRING HUGE AMOUNT OF ELECTRICITY. AO HAS NOT BROUGH T ANY INCRIMINATING MATERIAL TO SUGGEST THAT THE ASSESSEE SUPPRESSED ANY ELECTRICITY CONSUMPTION OUTSIDE THE BOOKS. SIMILAR CLAIMS U/S 10A OF THE ACT ARE MADE IN EARLIER AYS SINCE 205 - 06 AND THE SAME ARE NOT DENIED TOO. THEREFORE, ON THIS ISSUE, CONSIDERIN G THE ABSENCE ANY INCRIMINATING EVIDENCES AGAINST THE ASSESSEE, WE APPROVE THE CONTENTION OF THE ASSESSEE. 13. FURTHER, ON THE ARGUMENT RELATING TO NON - PAYMENT OF LABOUR CHARGES WITH REGARD TO MAKING OF 109 KGS OF MEDALLIONS BY SL INDUSTRIES, WE FIND T HAT THERE ARE SOME DISTURBING FACTS INVOLVING M/S. S.L. INDUSTRIES WHO COMMONLY RENDERED THE LABOUR SERVICES IN RESPECT OF THE TOTAL MEDALLIONS WORTH 310 KGS GOLD AND PROPER BILL IS ONLY AVAILABLE IN RESPECT OF 201 KGS AS AGAINST THE TOTAL CLAIM OF 310 KGS . FOR THE DIFFERENCE OF 109 KGS, NO BILLS HAVE BEEN RAISED BY M/S. S.L. INDUSTRIES. ASSESSEE ALSO NOT CLAIMED ANY EXPENDITURE ON THIS ACCOUNT. THOUGH THERE ARE WHISPERS ABOUT THE INCURRING OF HEAVY WASTAGE IN RESPECT OF 109 KGS OF GOLD MEDALLIONS, THE E VIDENCE IS ONLY IN TERMS OF BOOK ENTRIES AND NOT OTHERWISE. ON THESE FACTS, IT IS DIFFICULT TO INFER THAT M/S. S.L. INDUSTRIES RENDERED SERVICES IN RESPECT OF 109 KGS OF GOLD MEDALLIONS. WHEN THE EXEMPTION IS CLAIMED BY THE ASSESSEE, THE ONUS IS HEAVILY ON THE ASSESSEE TO PROVE THE SAME WITH EVIDENCE. IN OUR OPINION, THE ONUS IS NOT FULLY DISCHARGED BY THE ASSESSEE ON THIS LIMITED ISSUE. THEREFORE, WE ARE OF THE VIEW THAT THE PROFITS ATTRIBUTABLE TO 109 KGS OF GOLD MEDALLIONS IS REQUIRED TO BE QUANTIFIED AND DENIED FOR EXEMPTION U/S 10A OF THE ACT. AO SHOULD MAKE SURE THAT THERE IS NO DOUBLE DENIAL OF DEDUCTION QUA THE TRANSFER OF 200 KGS OF GOLD - BARS, WHICH IS SUBJECT MATTER OF DENIAL OF EXEMPTION INVOLVING THE FIFO METHOD DISCUSSED IN THE IMMEDIATE SUBS EQUENT PARAGRAPH. 14. FURTHER ALSO, CIT(A) CONFIRMED ADDITION TO THE TUNE OF RS. 3,12,71,400/ - ON THE GROUNDS OF FIFO METHOD . IT IS THE CLAIM OF THE ASSESSEE THAT THE 200 KGS OF GOLD BAR WERE TRANSFERRED TO SEZ FOR MAKING OF MEDALLIONS AND VALUED THE SAME AS 9 PER THE RATES APPLICABLE TO GOLD ON THE DATE OF EXPORT ORDER. AO MADE OUT THE CASE OF UNDERVALUATION FOLLOWING THE FIFO METHOD TO BE ADOPTED BY THE ASSESSEE. REGARDING UNDER VALUATION QUA APPLICABILITY OF THE FIFO METHOD, CONSIDERING THE ENTRIES IN TH E BOOKS OF ACCOUNTS AND THE RATE APPLICABLE ON THE DATES OF TRANSFER, AS FAIRLY ADMITTED BY THE LD COUNSEL BEFORE US, WE ARE OF THE OPINION THAT THE FIFO METHOD HAS TO BE APPLIED. ACCORDINGLY, THE PROFITS FOR THE UNDER VALUATION OF RS 3,12,71,400/ - IS REQ UIRED TO BE DISALLOWED. IN THIS REGARD, THE FINDINGS OF THE CIT (A) GIVEN IN PARA 15 OF THE IMPUGNED ORDER ARE RELEVANT WHICH READ AS UNDER: 15. I HAVE CAREFULLY EXAMINED THE FACTS OF THE CASE, THE STAND TAKEN BY THE AO IN THE ASSESSMENT ORDER, THE GROU NDS OF APPEAL AND THE WRITTEN SUBMISSIONS FILED BY THE APPELLANT DURING THE APPELLATE PROCEEDINGS. THE ASSESSING OFFICERS CONTENTION THAT EVEN IF THE CLAIM OF THE APPELLANT REGARDING DEDUCTION U/S 10A IS ACCEPTED THE SAME HAS TO BE REDUCED BY AN AMOUNT O F DIFFERENCE OF RS. 3,12,71,400 ( I.E., THE DIFFERENCE BETWEEN THE VALUE OF THE INWARD STOCK OF GOLD BARS INTO THE SEZ UNIT AS SHOWN BY THE APPELLANT AND THE ACTUAL VALUE OF THE STOCK DETERMINED ON FIFO BASIS) IS NOT ADJUDICATED UPON SINCE THE EXEMPTION CL AIMED U/S 10A HAS BEEN DENIED TO THE APPELLANT AND THIS GROUND HAS NEVER BEEN RAISED AS ONE OF THE GROUNDS OF APPEAL BY THE APPELLANT THOUGH WHILE MAKING ITS SUBMISSIONS IT IS STATED THAT THE ISSUE HAS TO BE ADJUDICATED, HOWEVER, I DECLINE TO INTERVENE IN THE VALUATION OF THE STOCK IN QUESTION AS THE SAME HAS NOT BEEN RAISED IN THE GROUNDS OF APPEAL INCLUDING THE ADDITIONAL GROUNDS OF APPEAL FILED BY THE APPELLANT. 15. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT THE DECISION GIVEN BY THE CIT (A) IN THRUSTING ON THE ASSESSEE THE FIFO METHOD ON THE TRANSFER OF 200KGS OF GOLD BARS IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. HOWEVER, CONSIDERING THE LOW VALUE PLANT AND MACHINERY WORTH OF ONLY RS 16 LAKHS, THE EXTENT OF THE ELECTRIC ITY CONSUMPTION NOTED IN THE BOOKS OF ACCOUNTS, IN THE ABSENCE OF ANY ADVERSE MATERIAL IN POSSESSION OF THE REVENUE TO CONCLUSIVELY PROVE ABOUT THE ABSENCE OF MANUFACTURING ACTIVITY OF MEDALLIONS, PRESENCE OF DOCUMENTS TO SUPPORT OF FACT OF EXPORT ACTIVITY OF THE MEDALLIONS, WE DO NOT APPROVE THE ARGUMENT OF THE REVENUE THAT THE ASSESSEE HAS NOT MANUFACTURED THE MEDALLIONS. EVENTUALLY, THERE IS NEED FOR DENYING THE EXEMPTION TO THE EXTENT OF RS 3,12,71,400/ - . REGARDING THE ALLOWING OF EXEMPTION IN RESPECT O F THE PROFITS ATTRIBUTABLE TO THE EXPORT OF THE 109 KGS OF THE GOLD MEDALLIONS , THE SAME NEEDS TO BE DISALLOWED FOR WANT OF DISCHARGE OF ONUS BY THE ASSESSEE . IT IS TO CLARIFY THAT THIS PART OF THE DISALLOWANCE IS NO WAY CONNECTED TO THE ALLEGED ABSENCE/D OUBTING OF MANUFACTURING ACTIVITY OF MAKING OF MEDALLIONS. AO IS DIRECTED TO QUANTIFY THE PROPORTIONATE DISALLOWANCE 10 AFTER GRANTING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO.3, 4.1 AND 4.2 ARE ADJUDICATED PRO - TANTO . 16. GROUND NO. 5 OF THE ASSESSEES APPEAL RELATES TO CONFIRMING OF THE ADDITION TO THE EXTENT OF RS 2.33 CRORES U/S 69C/68 OF THE ACT OUT OF THE TOTAL ADDITION OF RS 4,23,56,727/ - . AS PER THE ASSESSMENT ORDER, THE AO ALSO MADE ADDITION OF RS 2.33CR (IE THE CASH TRANSPOR TED BY ROAD FROM BRANCHES OUTSIDE AHMEDABAD) WITHOUT PREJUDICE TO THE ADDITION OF RS 4,23,56,727/ - . CIT(A) CONFIRMED THE ADDITION OF RS 2.33 CR AND DELETED THE OTHER ADDITION. THE SAID RELIEF IS CONTESTED BY THE REVENUE IN THEIR APPEAL VIDE GROUND 1 OF THE IR APPEAL. THE ISSUE INVOLVED IN THESE TWO GROUNDS RELATES TO THE CASH TRANSFERRED FROM DISTANTLY LOCATED BRANCHES OF THE ASSESSEE AND THE CASH ENTRIES IN THE BOOKS. CONSIDERING THE INTERMIXING OF THE FACTS, GROUND 5 OF THE ASSESSEES APPEAL AND GROUND 1 OF THE REVENUES APPEAL ARE ADJUDICATED HERE FOR THE SAKE OF CONVENIENCE. IT IS THE SUBMISSIONS OF THE ASSESSEE THAT THE PAYMENTS TOWARDS CUSTOMS DUTY AT SEZ, GANDHIDHAM NEED TO BE PAID IN CASH ONLY. FOR THIS PURPOSE, THE ASSESSEE TRANSFERRED CASH FROM THE BRANCHES FROM COIMBATORE, CHENNAI, MUMBAI ETC. THIS ISSUE WAS SUBJECT MATTER BEFORE THE SPECIAL AUDITORS TOO. 17. RELEVANT FACTS IN THIS ARE THAT DURING THE YEAR, THE ASSESSEE PURCHASED PLASTIC FROM M/S. LUCKY STAR INTERNATIONAL PVT. LTD, M/S. VAZIR P OLYMERS AND M/S. SHREEJI POLYMERS LOCATED AT SEZ AT KANDLA. IN THIS CONNECTION, ASSESSEE WAS UNDER OBLIGATION TO MAKE THE PAYMENT OF CUSTOMS DUTY ON THE SAID PURCHASES AND MADE THE CASH PAYMENT OF RS. 4,23,56,727/ - IN TOTO TOWARDS THE CUSTOMS DUTY. UNDISP UTEDLY, ASSESSEE DOES NOT HAVE AN ESTABLISHMENT OR A BANK ACCOUNT WITH SBI AT KANDLA. IT IS THE CLAIM OF THE ASSESSEE THAT THE REQUISITE CASH WAS TRANSPORTED PHYSICALLY FROM VARIOUS BRANCHES AT TN AND MAHARASHTRA TO AHMADABAD AND FINALLY TO KANDLA BY ROAD . WHILE THE CASH OF RS 2.33 CR IS TRANSPORTED FROM OUTSIDE GUJARATH AND THE BALANCE WAS TRANSPORTED FROM AHMEDABAD. ON EXAMINATION OF THE BOOKS OF ACCOUNT, THE SPECIAL AUDITORS BROUGHT OUT THE FOLLOWING FACTS AND FIGURES WHICH ARE REPRODUCED HERE UNDER: 11 18. FROM THE ABOVE TABLE, IT IS THE CLAIM OF THE ASSESSEE THAT THE CASH WAS TRANSPORTED FROM THE BRANCHES AT COIMBATORE, CHENNAI AND MUMBAI TO AHMADABAD BEFORE THE SAME WAS SENT TO KANDLA. THE TOTAL OF SUCH CASH WORKS OUT TO RS. 23.3 CRS. CONSIDERING THE IMPOSSIBILITY OF TRANSPORTATION OF HUGE CASH INVOLVING SUCH LONG DISTANCES THE SPECIAL AUDITORS DID NOT APPRECIATE THE CLAIM OF THE ASSESSEE. WHILE TRANSPORTATION OF CASH FROM COIMBATORE TO AHMADABAD TOOK A COUPLE OF DAYS , THE TRANSPORTATION FROM CHENNAI TO MUMBAI TOOK ONLY 0 DAYS. IN SOME CASES, THERE IS MOVEMENT OF CASH - IN AND OUT ON THE SAME DAY. SPECIAL AUDITORS ALSO EXAMINED THE INCRIMINATING INFORMATION FURNISHED BY M/S. LUCKYSTAR INTERNATIONAL P. LTD AND ALSO THE ABSENCE OF ANY DOCUMENTARY EVIDENCES TO ESTABLISH THE GENUINENESS OF THE TRANSACTION. AFTER EXAMINING THEM, THE SPECIAL AUDITORS OPINED THAT THEY ARE UNABLE TO VERIFY THE FACT OF TRANSFER OF CA SH FROM ONE PLACE TO OTHER. 19 DURING THE ASSESSMENT PROCEEDINGS, ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE AND CONDUCTED FURTHER INQUIRIES AFTER GRANTING A REASONABLE OPPORTUNITY TO THE ASSESSEE. IN ADDITION TO THE ABOVE OBSERVATION OF THE SPECIAL AUDITORS, AO HELD THAT NO SUBSTANTIAL EXPENDITURE WAS INCURRED ON TRANSPORTATION OF SUCH HUGE CASH FROM VARIOUS STATIONS. EVENTUALLY, AO INVOKED THE PROVISIONS OF SECTION 69C IN RESPECT OF ASSESSEES TOTAL CLAIM OF RS.4,23,56,727/ - . IT INC LUDES THE ABOVE SUM OF RS 2.33 CR. REST OF THE CASH WAS TRANSPORTED FROM AHMEDABAD OUT OF THE CASH BALANCES OF THE BRANCH OFFICE THERE. WITHOUT PREJUDICE, AO ALSO INVOKED THE PROVISIONS OF SECTION 68 OF THE ACT IN RESPECT OF THE ABOVE DISCUSSED SUM OF RS. 2.33 CRS, THE MONEY TRANSPORTED FROM OUT STATIONS TO AHMADABAD. THE BREAKUP DT OF TRANSFER FROM DT OF RECEIPT TO AMT IN RS. DIFF IN DAYS 7/4/2008 COIMBATORE 9/4/2008 AHMADABAD 1300000 2 1/6/2008 CHENNAI 1/6/2008 AHMADABAD 3500000 0 2/6/2008 MUMBAI 2/6/2008 AHMADABAD 500000 0 1/9/2008 MUMBAI 1/9/2008 AHMADABAD 2000000 0 2/9/ 2008 MUMBAI 2/9/2008 AHMADABAD 2500000 0 4/9/2008 MUMBAI 4/9/2008 AHMADABAD 3000000 0 10/9/2008 MUMBAI 10/9/2008 AHMADABAD 1500000 0 12/9/2008 MUMBAI 12/8/2008 AHMADABAD 2000000 0 15/9/2008 MUMBAI 15/9/2008 AHMADABAD 3000000 0 20/9/2008 MUMBAI 20/9/20 08 AHMADABAD 1500000 0 1/102008 MUMBAI 1/10/2008 AHMADABAD 2500000 0 TOTAL 23300000 12 SHOWS THAT WHILE RS. 13 LAKHS AND RS 35 LAKHS WERE TRANSPORTED FROM COIMBATORE AND CHENNAI RESPECTIVELY, THE BALANCE WAS TRANSPORTED FROM MUMBAI IN 0 DAYS IE THE SAME DAY. MAT TER TRAVELLED TO THE FIRST APPELLATE AUTHORITY. 20. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, ASSESSEE MADE VARIOUS CONTENTIONS WHICH ARE REPRODUCED IN PARA 17 OF THE IMPUGNED ORDER. EVENTUALLY, CIT (A) GRANTED RELIEF IN RESPECT OF ADD ITION OF RS 4,23,56,727/ - . HOWEVER, HE CONFIRMED THE ADDITION OF RS. 2.33 CRS MADE U/S 68 OF THE ACT. PARA 18 AND 20 OF THE IMPUGNED ORDER ARE RELEVANT HERE AND FOR THE SAKE OF COMPLETENESS OF THIS ORDER, THE SAME ARE REPRODUCED HERE UNDER: 18. I HAVE CA REFULLY EXAMINED THE FACTS OF THE CASE, THE STAND TAKEN BY THE AO IN THE ASSESSMENT ORDER, THE GROUNDS OF APPEAL AND THE WRITTEN SUBMISSIONS FILED BY THE APPELLANT DURING THE APPEAL PROCEEDINGS. THE ADDITION IS MADE BY THE AO ON THE ASSUMPTION THAT THE CA SH WOULD NOT HAVE MOVED FROM DIFFERENT BRANCHES AT CHENNAI, COIMBATORE AND MUMBAI TO AHMADABAD AND ALSO FROM AHMADABAD TO KANDLA. HOWEVER, IT IS PERTINENT TO MENTION THAT CASH WAS AVAILABLE TO THAT EXTENT IN THE BOOKS OF THE APPELLANT AT ITS BRANCH IN AHM ADABAD AND THE BOOK CASH WAS REDUCED TO THE EXTENT OF CUSTOMS DUTY PAID. THIS FACT WAS ALSO MENTIONED BY THE SPECIAL AUDITORS IN THEIR REPORT. SINCE, THE APPELLANT DOES NOT HAVE ITS BRANCH AT KANDLA THE CASH HAD TO BE MOVED FROM SOME OTHER BRANCH. THE D EPARTMENT IS REQUIRED TO ESTABLISH EITHER THAT THE CASH NEVER MOVED OR PROVE THAT THE CASH IS NOT AVAILABLE IN THE BOOKS OF ACCOUNTS OR PROVE THAT THE CASH SALES ARE BOGUS. THE AO MADE AN ADDITION TO THE EXTENT OF RS. 2.33 CRS BEING THE CASH DEPOSITED IN THE BOOKS OF THE APPELLANT TOWARDS TRANSFER FROM THE BRANCHES AT COIMBATORE, CHENNAI AND MUMBAI U/S 68 OF THE IT ACT WHEREAS THE BALANCE CASH AVAILABLE IN THE BOOK HAS NOT BEEN DISPROVED AS UNEXPLAINED CASH CREDIT. THE ISSUE OF ADDITION OF RS. 2.33 CRS U/ S 68 IS CONSIDERED SEPARATELY. NOW, THE ISSUE FOR ADJUDICATION AT THIS STAGE IS THE PAYMENT OF CUSTOMS DUTY OF RS. 4,23,56,727/ - AND THE SOURCE FOR THE SAME. NO ADDITION COULD BE MADE UNDER SUSPICION THAT THE CASH HAS NOT MOVED MORE SO WHEN THE CASH IS A VAILABLE IN THE BOOKS OF ACCOUNT OF THE APPELLANT THOUGH NOT IN THE SAME PLACE BUT IN A DIFFERENT BRANCH IN THE CASH BALANCE IN THE BOOK IS GETTING REDUCED AS PER THE CUSTOMS DUTY PAID. IN VIEW OF THIS ADDITION MADE BY THE AO OF RS. 4,23,56,727/ - U/S 69C OF THE IT ACT IS HEREBY DELETED. 20. I HAVE CAREFULLY EXAMINED THE FACTS OF THE CASE, THE STAND TAKEN BY THE AO IN THE ASSESSMENT ORDER, THE GROUNDS OF APPEAL AND THE WRITTEN SUBMISSIONS FILED BY THE APPELLANT DURING THE APPEAL PROCEEDINGS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE APPELLANT TO EXPLAIN THE SOURCES OF CASH OF RS. 2.33 CRS RECEIVED AT AHMADABAD ON TRANSFER FROM BRACHES AT CHENNAI, COIMBATORE AND MUMBAI. IN TERMS OF SECTION 68 OF THE ACT, THE ONUS IS ON THE APPELLANT T O PROVE THE CREDITS IN THE BOOKS OF ACCOUNTS. IT IS REPORTED IN THE CASE OF CIT VS. SOPHIA FINANCE LTD 206 ITR 98 DELHI (FB) THAT THE INCOME TAX OFFICER HAS JURISDICTION TO MAKE ENQUIRIES WITH REGARD TO THE NATURE AND SOURCE OF A SUM CREDITED IN THE BOOS OF ACCOUNT OF THE ASSESSEE AND IT IS IMMATERIAL AS TO WHETHER THE AMOUNT SO CREDITED IS GIVEN THE COLOUR OF A LOAN OR A SUM REPRESENTING SALE PROCEEDS OR EVEN RECEIPT OF SHARE APPLICATION MONEY. SINCE, THE APPELLANT FAILED TO EXPLAIN THE CREDITS TO THE SAT ISFACTION OF THE AO IT IS HEREBY HELD THAT THE ADDITION MADE U/S 68 OF THE IT ACT OF RS. 2.33 CRS IS VALID AND ACCORDINGLY THE ADDITION IS UPHELD. 13 21. AGGRIEVED WITH THE ABOVE DELETION OF ADDITION OF RS. 4,23,56,727/ - , REVENUE IS IN APPEAL VIDE GROUND 1 . ON THE CONTRARY, AGGRIEVED WITH THE CONFIRMING OF ADDITION OF RS. 2.33 CRS, THE ASSESSEE IS IN APPEAL VIDE GROUND NO.5 OF THE ASSESSEES APPEAL. 22. IN CONNECTION WITH THE CONFIRMING OF THE ADDITION OF RS. 2.33 CRS, THE AMOUNT CLAIMED TO HAVE BEEN RECEIV ED FROM THE BRANCHES AT COIMBATORE, CHENNAI AND MUMBAI, LD COUNSEL SUBMITTED THAT THE ASSESSEE HAS 6 BRANCHES AND ALL THE BRANCHES DEAL IN BULLION. THEY HAVE SUBSTANTIAL CASH ON HAND REFLECTED IN THE BOOKS OF ACCOUNTS WHICH IS EARNED OUT OF SALES PROCEEDS. AS PER THE ASSESSEE, THE BOOKS OF ACCOUNTS OF ALL BRANCHES ALSO ARE MAINTAINED IN SOFTWARE AT HO. OF COURSE, BRANCHES MAINTAIN THEIR BOOKS IN PHYSICAL FORM TOO. THE ACCOUNTING SOFTWARE DOES NOT PERMIT TRANSFER OF CASH ENTRY FROM ONE CASH ACCOUNT TO ANO THER CASH ACCOUNT AND THEREFORE, FOR TRANSFER OF CASH FROM ONE BRANCH TO ANOTHER OR HO, NECESSARILY THE ENTRY HAS TO BE PASSED ON THE RECEIPT OF THE CASH AT THE RECIPIENT. OTHERWISE, THE SENDING - BRANCH MAINTAIN THE CASH TRANSIT ACCOUNT WHEN MONEY IS IN TRA NSIT. IT IS FURTHER SUBMITTED THAT AS THE ACCOUNTS ARE MAINTAINED AT HO AND NOT AT BRANCHES, ENTRIES ARE PASSED NORMALLY ON THE SAME DAY AND THEREFORE, MERELY ON BASIS OF DATES IN ACCOUNTS IT CANNOT BE PRESUMED THAT CASH HAS BEEN TRANSFERRED ON SAME DATE AND THERE WAS NO TIME DIFFERENCE IN TRANSIT. IT IS ALSO SUBMITTED THAT THE CASH DEPOSIT OF RS. 4,23,56,727/ - TOWARDS CUSTOM DUTY IS OUT OF THE CASH TRANSFERRED BY THE BRANCH. RS. 2,23,00,000/ - IS TRANSFERRED FROM COIMBATORE, MADRAS, MUMBAI AND RS 1.94 CR IS THE SALE PROCEEDS OF CASH AT AHMADABAD. FURTHER, IN SUPPORT OF THE CLAIM OF TRANSFER OF CASH FROM BRANCHES, LD COUNSEL BROUGHT OUT ATTENTION TO THE EVIDENCES FILED IN PB AT PAGES 512 - 575/PB 3 BUS TICKETS, COPY CASH BOOK, CASH IN TRANSIT ACCOUNT ETC. HE ALSO MENTIONED THAT COMMON PRACTICE IN BULLION TRADE AS WELL AS IN STATE OF GUJARAT TO TRANSFER CASH BY ROAD TRANSPORT PRIVATE CARS AS WELL AS TRANSPORT BUSES. FURTHER, IT IS ALSO THE SUBMISSION OF THE ASSESSEE THAT MERE SUSPICION CANNOT BE BASIS FOR ASSESSMENT. FOR THIS PROPOSITION ASSESSEE RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT JUDGMENT IN THE CASE OF DHAKESHWARI COTTON MILLS, 26 ITR 775 (SC) AND ANOTHER JUDGMENT IN THE CASE OF LALCHAND BHAGAT AMBICA RAM, 37 ITR 288 14 (SC). FURTHER, LD COUNSEL MENTIONED THAT ADDITION U/S 68 / 69A CANNOT BE MADE ON MERE SUSPICION WITHOUT BRINGING ON RECORD EVIDENCE TO DISPROVE. IN THIS REGARD, ASSESSEE RELIED ON THE JUDGMENT OF HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT OF INCOME - TAX - II V. KAMDHENU S TEEL & ALLOYS LTD [2012] 19 TAXMANN.COM 26 (DELHI) . 23. PER CONTRA , LD DR HEAVILY RELIED ON THE ORDER OF THE CIT (A) SO FAR AS THE CONFIRMING OF THE ADDITION OF RS. 2.33 CRS IS CO NCERNED. FURTHER, IN THE CONTEX T OF THE REVENUES GROUND QUA THE DELETION OF ADDITION OF RS. 4,23,56,727/ - , LD DR HEAVILY RELIED ON THE ORDER OF THE AO AND FILED WRITTEN SUBMISSIONS, GIST OF THE SAME READS AS UNDER: THE LD CIT (A) HAS FAILED TO APPRECIATE THAT THE AO HAS CLEARLY EXPLAINED HOW THE ENTIRE TRANSACTION IS A COLOUR ABLE DEVICE EFFECTED BY THE ASSESSEE COMPANY TO ACCOMMODATE ITS UNACCOUNTED INCOME. THE ASSESSEE COMPANY HAS FILED TO EXPLAIN THE NATURE AND SOURCE OF THE CASH EXPENDITURE ON PAYMENT OF CUSTOM DUTY TO THE TUNE OF RS. 4,23,56,727/ - AND THE ADDITION U/S 69C IS JUSTIFIED. IT IS THE ARGUMENT OF THE REVENUE THAT WHEN THE ASSESSEE CLAIMS THAT THE SOURCE OF CASH PAID TOWARDS THE CUSTOMS DUTY FOR GETTING THE CUSTOMS CLEARANCE, IS THE CASH GENERATED AND THEN TRANSPORTED BY THE BRANCHES OF THE ASSESSEE, THE ONUS I S ON THE ASSESSEE TO DEMONSTRATE THE CLAIMS. WITHOUT GOING INTO THE MERITS OF THE CASH BALANCES AND THE ACTUAL PAYMENTS TO THE CUSTOMS DEPARTMENT, THE DR REASONED THAT, FOR THE CASH OF THIS MAGNITUDE TO REACH THE SEZ AT KANDLA, OBVIOUSLY, THERE ARE MANY LO GISTICAL BARRIERS THAT THE ASSESSEE NEEDS TO CROSS AND SUPPLY EVIDENCES AND THE ASSESSEE FAILED TO DEMONSTRATE THE SAME. THE SAID EVIDENCES INCLUDE: WHO CARRIED THE CASH, MODE OF CARRIAGE, WHICH ARE THE VEHICLES, WHO IS THE DRIVER, DETAILS OF THE TOLL BILL S OF THE CONCERNED VEHICLES ETC. REFERRING TO THE DETAILS FILED IN PB AT PAGES 512 - 575/PB 3, LD DR MENTIONED THAT ARE OF GENERAL NATURE AND NOT GOOD ENOUGH TO DISCHARGE THE ONUS. MERE NAMING SOME BODY WITHOUT PRODUCING BEFORE THE AO, DOES NOT ENTITLE THE ASSESSEE TO THE RELIEF. THUS, HE PRAYED FOR CONFIRMING THE GROSS ADDITION OF RS 4,23,56,727/ - . 24. WE HAVE HEARD BOTH THE PARTIES ON THE ISSUE OF ADDITION U/S 68 OF THE ACT. AO MADE ADDITION OF RS. 4,23,56,727/ - IN TOTO , THE TOTAL CASH PAID TOWARDS CUS TOMS DUTY AT KANDLA U/S 69C OF THE ACT. THIS CASH HAS TWO SEGMENTS NAMELY, (I) THE CASH OF RS 2.33 CR EMANATING FROM THE BRANCHES AND (II) THE CASH SAID TO HAVE BEEN 15 TRANSPORTED FROM AHMEDABAD (HO). CIT (A) DELETED THE SAME CONSIDERING THE AVAILABILITY OF CASH IN THE BOOKS OF ACCOUNTS OF BOTH THE BRANCHES AND THE HEAD OFFICE. FURTHER, AS PART OF THE ABOVE ADDITION AND WITHOUT PREJUDICE, AO ALSO MADE THE ADDITION OF RS. 2.33 CRS. THE REASON OF THIS ADDITION IS DUE TO THE IMPOSSIBILITY OF THE SAID CASH REACH ING KANDLA VIA AHMEDABAD IN ONE DAY TIME. ACCORDING TO THE REVENUE THE ASSESSEE FAILED TO DEMONSTRATE CONCLUSIVELY THAT SUCH CASH OF RS 2.33 CR, EMANATED FROM THE BRANCHES, CAN BE TRANSPORTED BY ROAD CROSSING ALL THE BARRIERS AND THERE IS NO EVIDENCE RELAT ING TO THE BONA FIDE OF THE CLAIM. CIT (A) IS OF THE OPINION THAT IN A DAYS TIME, THE CASH CANNOT REACH AHMEDABAD BY ROAD FROM PLACES LIKE COIMBATORE AND CHENNAI. ACCORDINGLY, CIT (A) CONFIRMED THE SAID ADDITION OF RS 2.33 CR, THE CASH TRANSPORTED FROM T HE BRANCHES. ON CONSIDERING THE ARGUMENTS OF THE PARTIES AND THE PAPERS AVAILABLE BEFORE US, WE FIND THE DOCUMENTS FILED BEFORE US ARE NOT ADEQUATE ENOUGH TO HOLD THAT THE ASSESSEE HAS DISCHARGED THE ONUS SUCCESSFULLY. TRAVEL DISTANCE BETWEEN MUMBAI AND CO IMBATORE IS OVER 1352 KM APPROXIMATELY (2200 KM SIC ) AND IT IS NOT AN EASY TASK TO COVER SUCH A DISTANCE IN A DAYS TIME. THERE ARE NUMBER OF CHECK POSTS AND THE CARRYING OF CASH IN LAKHS IS NOT AN EASY OR CASUAL ACT TO BE BELIEVED WITHOUT CONCLUSIVE EVID ENCES. AS SUCH, THE ASSESSEE HAS NOT PRODUCED THE CONCERNED DRIVERS IN PERSON BEFORE THE AO FOR EXAMINATION. IN OUR OPINION, THOUGH THERE IS ADEQUATE CASH BALANCE IN THE BOOKS OF THE BRANCHES AND THE CASH PAYMENTS ARE ACTUALLY MADE TOWARDS THE CUSTOMS DUT Y, THE ONUS IS STRICTLY ON THE ASSESSEE TO DEMONSTRATE THE TRANSPORTATION OF CASH PHYSICALLY BY ROAD FROM ALL THE OUTSTATIONS. WE DO NOT UNDERSTAND WHY CASH SHOULD BE TRANSPORTED WHEN THE ASSESSEE HAS BANK ACCOUNTS IN AHMEDABAD AT LEAST, IF NOT KANDLA. WHY THE ASSESSEE HAS NOT OPENED BANK ACCOUNTS IN SBI IN KANDA WHEN THERE IS REGULAR BANKING NEEDS TO THE ASSESSEE? NEEDLESS TO SAY FURTHER THAT THE ASSESSEE DOES NOT HAVE APPROPRIATE OR CONVINCING ANSWERS. IN SO FAR AS THE CASH TRANSPORTED FROM AHMADABAD IS C ONCERNED, THE FACTS ARE DIFFERENT AND IT IS POSSIBLE THAT CASH CAN REACH KANDA IN A DAYS TIME AS THE DISTANCE IS AROUND 250 KM APPROXIMATELY. CONSIDERING THE CONSTANT CHECKS AT THE INTERSTATE CHECKPOSTS AND COMPLEXITY OF TRANSPORTATION OF CASH PHYSICALLY, WE CANNOT EXTEND THE SAME CONCESSION TO THE CASH TRANSPORTED ACROSS THE STATES IE MUMBAI AHMEDABAD - KANDLA 16 ROUTE. THUS, IT IS NOT ONLY THE DISTANCE FACTOR THAT THE ASSESSEE FAILED TO EXPLAIN BUT ALSO THE OTHER LOGICAL ISSUES RELATING TO MODE AND METHOD OF TRANSPORTATION OF CASH PHYSICALLY ACROSS THE INTERSTATE BORDERS. ON EXAMINATION OF THE FACTS AND THE ARGUMENTS PLACED BEFORE US, WE ARE OF THE OPINION THAT THE ORDER OF THE CIT (A) IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDING LY, GROUND NO.5 OF THE ASSESSEES APPEAL AND GROUND NO 1 OF THE REVENUES APPEAL ARE DISMISSED . 25. GROUND NO.6 RELATES TO THE ADDITION OF RS 141,24,75,896/ - U/S 68 OF THE INCOME TAX ACT, 1961. RELEVANT FACTS IN THIS REGARD ARE EXPLAINED BY THE AO IN PAR A 4 OF HIS ORDER. THE SUMMARY OF THE FINDINGS OF THE SPECIAL AUDITORS REPORT, DETAILS OF THE SHOW CAUSE NOTICE ISSUED BY THE AO AND THE REPLY THEREOF FROM THE ASSESSEE WERE ALSO THEREIN. AT THE END, THE AO CAME TO THE CONCLUSIONS THAT THERE IS A NEED FO R MAKING ADDITION OF THE SAID AMOUNT U/S 68 OF THE ACT CONSIDERING THE EXPLANATION OFFERED BY THE ASSESSEE, BEING NOT SATISFACTORY. AO IS OF THE OPINION, THAT THE SOURCES FOR THE SAME WERE REMAINED UNEXPLAINED. OTHERWISE, THE RELEVANT FACTS ARE THAT THE ASSESSEE SOLD 4350.175 KGS OF GOLD JEWELRY DURING THE YEAR. OUT OF THEM, THE FOLLOWING QUANTITIES WERE SOLD FOR THE AMOUNTS MENTIONED AGAINST EACH PARTY. PARTY NAME QUANTITY SALES AMOUNT (EXCL. VAT) RS. BOND GEMS P. LTD 110.992 130431274 JOSHI BULLION GEMS & JEWELRY P.LTD 1132.467 1340314876 K.A. MALLE PHARMACEUTICALSL P. LTD 250.116 298635334 SPACE MERCANTILE CO. P. LTD 1249.549 1525744796 TOTAL 2743.124 329,51,26,280 26. ON GOING THROUGH THE RELEVANT LEDGERS OF THE ABOVE REFERRED PARTIES, THE AC COUNTS OF THE SAID THREE PARTIES ARE SETTLED THROUGH THE JOURNAL ENTRIES PASSED IN THE ACCOUNT OF JBGJPL AND THE ASSESSEE RECEIVED THE OUTSTANDING DUES FROM JBGJPL. RELEVANT PAYMENT DETAILS RECEIVED BY THE ASSESSEE ARE GIVEN AS UNDER: PARTY NAME AMOUNT (RS ) BOND GEMS P. LTD 1,89,35,587/ - K.A. MALLE PHARMACEUTICALSL P. LTD 27,67,69,687/ - SPACE MERCANTILE CO. P. LTD 1,11,67,70,622/ - TOTAL 1,41,24,75,896/ - 17 27. THUS, THE ABOVE AMOUNT OF RS. 1,41,24,75,896/ - WAS FINALLY RECEIVED BY THE ASSESSEE FROM M/S. J OSHI BULLION GEMS AND JEWELRY PVT. LTD (JBGJPL) HEADED BY MR JAYESH DESAI UNDER CERTAIN CIRCUMSTANCES INSTEAD OF DIRECTLY FROM THE SAID THREE PARTIES. THE ASSESSEE AND JBGJPL HAS ENTERED INTO THE ASSIGNMENT AGREEMENTS TO THAT EXTENT. M/S BOND GEMS P. LT D (BGPL) (REFER TABLE ABOVE) AND JBGJPL ARE RELATED PARTIES . HOWEVER, THE AO DISHONOURED THE SAID AGREEMENTS MENTIONING THAT THE SAME ARE NOT SIGNED BY THE CONCERNED PARTIES AND PARTIES HAVE NOT CONSENTED TO THE SAME. THIS ISSUE WAS REFERRED TO THE SPECI AL AUDITORS AND THEIR RELEVANT OBSERVATIONS IN THIS REGARD ARE AS UNDER: IN THE COURSE OF EXAMINATION WE HAD ISSUED A QUESTIONNAIRE DATED 28.3.2012 TO THE ASSESSEE SO AS TO EXPLAIN WHETHER ANY OF THESE PARTIES ARE RELATED IN TERMS OF SECTION 40A(2)(B), CO NFIRMATIONS OF THE ABOVE REFERRED PARTIES AND INSTRUCTION, IF ANY, GIVEN BY THE SAID PARTIES TO M/S. JOSHI BULLION GEMS & JEWELRY P. LTD IN RESPONSE TO THE SAME, THE ASSESSEE HAS FURNISHED THE UNDERTAKING FROM M/S. JOSHI BULLION GEMS & JEWELLERY P. LTD AGR EEING TO MAKE PAYMENT ON BEHALF OF THE SAID PARTIES EXCEPT BONDS GEMS P. LTD PLACED AT PAGE NO 488 TO 489 OF EXHIBIT, THE ASSESSEE HAS ALSO SUBMITTED THAT THESE PARTIES ARE NOT RELATED PARTIES AND HAS PROVIDED THE COPY OF THE ASSIGNMENT DEED ENTERED WITH M /S. JOSHI BULLION GEMS & JEWELRY P. LTD. IN RESPECT OF PAYMENTS MADE ON BEHALF OF K.A. MALLE PHARMACEUTICALS P. LTD. AND SPACE MERCANTILE CO. P. LTD PLACED AT PAGE NO. 490 TO 493 OF EXHIBIT. HOWEVER, THERE ARE NO AGREEMENTS ENTERED BETWEEN THESE PARTIES I N THIS REGARD. 28. DURING THE ASSESSMENT PROCEEDINGS, AO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE PROPOSING TO MAKE ADDITION OF RS 141.25 CRORES. HOWEVER, THE ASSESSEE REPLIED VIDE ITS LETTER DATED 4.8.2008 STRONGLY OPPOSING THE MOVE OF THE AO. IT IS THE CONTENTION OF THE ASSESSEE THAT M/S JOSHI BULLION GEMS AND JEWELRY PVT. LTD - JBGJPL INTRODUCED THE SAID 3 PARTIES IN CONNECTION WITH SCHEME OF EXPORT OF THE GOLD JEWELLERY INVOLVING MSTC AND JBGJPL STOOD AS A GUARANTOR. THERE IS NO WRITTEN DOCUMENT TO THIS EXTENT. THEREFORE, AS PART OF THE GUARANTEE, M/S JBGJPL IS REQUIRED TO CLEAR THE OUTSTANDING BALANCES OF THE SAID THREE PARTIES. ACTUALLY, JBGJPL IS ALSO ONE OF THE PURCHASERS ALONG WITH THE SAID THREE PARTIES AND THE SAME IS HEADED BY MR. JAYESH DE SAI. AS PART OF THE INVESTIGATION, SRI DESAI WAS EXAMINED ON OATH BY THE ASSESSING OFFICER U/S 131 OF THE ACT ON 17.7.2012 BEFORE THE ASSESSMENT WAS MADE. DURING THE SAID EXAMINATION AND RECORDING OF THE STATEMENT, THERE WAS INVESTIGATION INTO THE BACKGROU ND FACTORS LEADING TO ASSESSEES SALES OF GOLD JEWELLERY TO THE SAID FOUR PARTIES INCLUDING JBGJPL FOR EXPORT ABROAD INVOLVING MSTC, NON CLEARANCE OF OUTSTANDING BALANCES BY THE SAID THREE PARTIES, INVOLVEMENT OF SRI 18 DESAI AND HIS BUSINESS OBLIGATION LEADI NG TO PAYMENT OF OUTSTANDING ARREARS OF RS 141.25 CRORES (ROUNDED OF) PERTAINING TO THE SAID THREE PARTIES, JUSTIFICATION FOR THE ASSESSEE TO COLLECT THE SAID ARREARS FROM JBGJPL CONSIDERING ORAL GUARANTEE GIVEN BY DESAI, SOURCES OF THE FUNDS FOR THE JBGJ PL TO PAY THE SUM OF RS 141.25 CR ETC. FURTHER, IT IS THE SUBMISSION OF THE ASSESSEE, IN CASE THE ARREARS WOULD HAVE BECOME DEBTS AND THAT CASE, THE PROVISIONS OF SECTION 36(1)(VII) R.W.S. 36(2) OF THE ACT WOULD HAVE BECOME APPLICABLE AND THE SAID AMOUNTS BECOME BAD DEBTS WHICH ARE ALLOWABLE UNDER THE SAID PROVISIONS . 29 . M/S K A MALLE PHARMACEUTICALS P LTD : MEANWHILE, THE AO EXAMINED ONE OF THE PARTIES K A MALLE PHARMACEUTICALS P LTD (KAMPPL) BY ISSUING SUMMONS U/S 131 OF THE ACT, WHEREIN KAMPPL CONFIRM ED THE PURCHASES FROM THE ASSESSEE. KAMPPL CONFIRMED PAYABILITY OF THE OUTSTANDING BALANCES TO THE ASSESSEE AS PER THE BOOKS. IT HAS COME TO KNOW OF THE INVESTIGATION OF THE CBI INTO THE MSTC - SCAM AND THE SAME IS THE DEBTOR TO THE ASSESSEE. HE IS NOT A PARTY TO THE SAID ASSIGNMENT DEEDS. HOWEVER, HE IS AWARE OF THE FACT OF PAYMENT BY JBGJPL TO THE ASSESSEE AND THE RELEVANT LETTER IS REPRODUCED ON PAGE 22 OF THE ASSESSMENT ORDER. WHEN THE ABOVE INFORMATION WAS BROUGHT TO THE NOTICE OF THE ASSESSEE, ASSES SEE REPLIED WITH THE SAID PARTIES INTRODUCED BY THE JBGJPL, WHICH HAS UNDERTAKEN TO MAKE THE PAYMENT OF THOSE PARTIES IN CASE THE SAID PARTIES DID NOT COMPLY WITH THE PAYMENT SCHEDULES. FURTHER, IT WAS ASCERTAINED THAT THE ASSESSEE SHALL REPAY THE AMOUNT TO JBGJPL AS AND WHEN KAMPPL CLEARS THEIR LIABILITIES (OF RS. 27,67,69,687/ - ) WITH THE ASSESSEE. IDEALLY, THE KAMPPL SHOULD PAY THE SAID ARREARS TO JBGJPL. THERE WAS SOME DISCUSSION OF ASSESSEE FILING OF SUIT ON KAMPPL. FURTHER, IT WAS SUBMITTED THAT THE RE IS NO CASE OF CASH CREDITS ADDITION U/S 68 OF THE ACT. IN THIS REGARD, ASSESSEE SOUGHT FROM AO AN OPPORTUNITY TO CROSS EXAMINE THE PARTIES EITHER SINGLY OR JOINTLY. AO SUMMED UP HIS INFERENCES IN CONNECTION WITH THE KAMPPL AND THEY ARE AS UNDER: 1. T HE PARTY NAMED M/S. K.A. MALLE PHARMACEUTICALS PVT. LTD HAS SPECIFICALLY DENIED THE KNOWLEDGE AND ITS CONSENT TO THE SAID TRANSACTION. ALSO, AS ON DATE THE REPLY OF M/S. K.A. MALLE PHARMACEUTICALS PVT. LTD HAS ALREADY BEEN REPRODUCED ABOVE. ALSO, HE HAS FILED THE LEDGER OF THE ASSESSEE IN HIS BOOKS OF ACCOUNTS WHERE HE IS SHOWING THE ASESSEE AS A CREDITOR WITH TOTAL LIABILITY OUTSTANDING OF RS. 27,67,69,687/ - EVEN AS ON DATE. 19 2. ASSESSEE COULD NOT PRODUCE ANY DOCUMENTARY EVIDENCE, WHATSOEVER, TO ESTABLISH THAT THERE EXISTED ANY PRE TRADE GUARANTEE UNDERTAKEN BY M/S. JOSHI BULLION GEMS AND JEWELRY PVT LTD TO PAY THE AMOUNTS, IN CASE ANY OF THE THREE PARTIES FAIL TO DISCHARGE THEIR LIABILITIES TOWARDS M/S. RIDDHI SIDDHI BULLION LTD AGAINST THE SALE OF GOLD J EWELRY TO THESE PARTIES. 3. ENQUIRIES WERE MADE WITH THE JURISDICTIONAL ASSESSING OFFICER I.E, ITO 8(2)(1) OF M/S. JOSHI BULLION GEMS AND JEWELRY PVT. LTD AND IT WA S REPLIED BY THE CONCERNED OFFICER VIDE LETTER DATED 18.7.2012 RECEIVED IN THIS OFFICE ON 25 .7.2012 THAT THE SAID ASESSEE HAS NOT FILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR. THE CREDITWORTHINESS AND CAPACITY OF AN ENTITY WHO HAS EVEN FAILED TO FILE ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR MAY NOT BE ESTABLISHED. IN SUCH A SCENARIO THE GENUINENESS OF THE PAYMENT OF RS. 1,41,24,75,896/ - AGAINST THE LIABILITY OF THREE PARTIES BY M/S. JOSHI BULLION GEMS AND JEWELRY PVT LTD IS NOT ESTABLISHED. 4. SUMMONS U/S 131 WERE ISSUED TO M/S. JOSHI BULLION GEMS AND JEWELRY PVT LTD ON 3.7.2012, WHERE IT WAS SPECIFICALLY ASKED TO FILE DETAILS REGARDING THE SAID TRANSACTION ALONG WITH COPIES OF LEDGER ACCOUNTS OF VARIOUS PARTIES, TRIPARTITE AGREEMENT AND COMMUNICATION DETAILS IN THIS REGARD. 30. M /S SPACE MERCANTILE PVT. LTD : SIMILA RLY, SUMMONS WERE ISSUED TO ANOTHER PARTY NAMED SPACE MERCANTILE PVT. LTD (SMPL) AND THE SAID NOTICE COULD NOT BE SERVED ON THE ASSESSEE. WHEN THE SAID FAILURE WAS BROUGHT TO THE ASSESSEES NOTICE, THE ASSESSEE EXPRESSED ITS INABILITY TO FILE THE CONFIRMA TION FROM SMPL. ACCORDINGLY, AO DOUBTED THE GENUINENESS OF THE TRANSACTION CONSIDERING THE LACK OF PROPER ADDRESS, INABILITY OF THE ASSESSEE TO FILE THE CONFIRMATION, ABSENCE OF TRIPARTITE ASSIGNMENT DEED. FURTHER, AO INFERRED THAT THERE IS NO BUSINESS S ENSE FOR THE JBGJPL TO MAKE THE PAYMENT ON BEHALF OF THE THREE PARTIES CONSIDERING THE FAILURE TO ESTABLISH ANY BUSINESS NEXUS INVOLVING THESE TRANSACTIONS. AO ALSO NOTED THAT THERE IS NO EVIDENCE TO DEMONSTRATE THAT THE SAID PARTIES APPROACHED THE JBGJPL TO CLEAR THEIR LIABILITIES WITH THE ASSESSEES BOOKS OF ACCOUNTS. FURTHER, IT WAS ALSO DISCUSSED THAT SMPL PAID A SUM OF RS. 1.72 CRS TO THE ASSESSEE WHICH WAS TRANSFERRED TO JBGJPL SINCE THE JBGJPL CLEARED THE LIABILITIES OF SMPL. ASSESSEE RELIES ON TH ESE TRANSACTIONS TO PROVE THE GENUINENESS OF THE TRANSACTIONS WITH SMPL. AO DENIED THE REQUEST OF CROSS EXAMINING THE KAMPPL MENTIONING THAT IT DOES NOT SERVE ANY PURPOSE AND IT IS NOT RATIONALE. 31 . M/S BOND GEMS PVT. LTD : FURTHER, IN CONNECTION WITH THE OTHER THIRD PARTY NAMED BOND GEMS PVT. LTD (BGPL) AND THE CONFIRMATION FILED BY THE SAME, AO REJECTED BY GIVING THE FOLLOWING REASONS. 20 A. THE OFFICE ADDRESS OF BOTH MS/. JOSHI BULLION PVT. LTD AND M/S. BOND GEMS PVT LTD ARE EXACTLY THE SAME I.E, SUIT E NO.412, 4 TH FLOOR, LAXMI MALL, BUILDING NO.5, LAXMI IND ESTATE, NEW LINK ROAD, ANDHERI (W), MUMBAI 400 053 AND KNOWN TO EACH OTHER. THEREFORE, THE SAID CONFIRMATION IN ABSENCE OF THE SUPPORTING DOCUMENTS IS NOT FOUND TO BE RELIABLE. B. THE SAID CONFIR MATION IS NOT SUPPORTED BY ANY COMMUNICATION BETWEEN M/S. BOND GEMS AND M/S. BULLION AS TO THE SETTLEMENT OF DUES OF THE FORMER BY THE LATTER TOWARDS THE ASSESSEE. C. SAID CONFIRMATION IS NOT SUPPORTED BY THE COPY OF THE ACCOUNTS SHOWING THE NECESSARY ADJU STMENTS IN THE BOOKS OF M/S. BOND GEMS PVT LTD. D. IN CASE OF M/S. BOND GEMS PVT. LTD EVEN THE BILATERAL AGREEMENT BETWEEN M/S. JOSHI BULLION PVT LTD AND THE ASSESSEE DOES NOT EXIST WHICH MAY PROVE THE GENUINENESS OF THE TRANSACTION. 32. FINALLY, AO MADE ADDITION OF RS. 1,41,24,75,896/ - AS PER THE DISCUSSION GIVEN IN HIS ORDER AT PAGE 28 WHICH READS AS UNDER: THE ASSESSEE CANNOT CLAIM THE GENUINENESS OF THE SAID TRANSACTION BY SIMPLY PUTTING FORTH A REASONING THAT THERE EXISTED AN ORAL UNDERSTANDING BET WEEN HIM AND M/S. JOSHI BULLION PVT. LTD. TO MAKE THE PAYMENTS ON BEHALF OF THE PARTIES, IF SAID THREE PARTIES FAIL TO MAKE THE NECESSARY PAYMENTS. ALSO THE ASSIGNMENT DEED FILED BY THE ASSESSEE DOES NOT BEAR THE CONSENT OR APPROVAL OF THE OTHER THREE PAR TIES INVOLVED. IN VIEW OF THE AHVOE MENTIONED FACTS AND CIRCUMSTANCES, IT IS EVIDENTLY CLEAR THAT THE PAYMENTS MADE BY M/S. JOSHI BULLION GEMS AND JEWELRY PVT LTD TO THE ASSESSEE ON THE PRETEXT OF DISCHARGING THE LIABILITIES OF THE THREE PARTIES AS MENTIO NED ABOVE, IS NOT GENUINE TRANSACTION. SINCE, THE EXPLANATION OFFERED BY THE ASSESSEE IS NOT FOUND TO BE SATISFACTORY, THE SOURCE OF AN AMOUNT OF RS. 1,41,24,75,896/ - IS HEREBY ADDED TO THE INCOME OF THE ASSESSEE U/S 68 OF THE ACT. PENALTY PROCEEDINGS US/ 271(1)(C) ARE HEREBY INITIATED FOR FURNISHING INACCURATE PARTICULARS OF INCOME AND CONCEALMENT OF INCOME. 33. AGGRIEVED WITH THE ABOVE DECISION OF THE AO, ASSESSEE TOOK UP THE MATTER TO THE FIRST APPELLATE AUTHORITY. PARA 21 TO 25 OF THE IMPUGNED ORDER A RE RELEVANT IN THIS REGARD. PARA 21 AND 22 BASICALLY CONTAIN THE SUMMARY OF CERTAIN PARAS FROM ASSESSMENT ORDER. 34. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY , CIT (A) REMANDED CERTAIN ISSUES TO THE AO FOR EXAMINATION VIDE LETTER DATED 4.2.2013 U/S 250(4) OF THE ACT. AO SUBMITTED THE REMAND REPORT, THE DETAILS OF WHICH WERE MENTIONED IN PARA 23 OF THE IMPUGNED ORDER. IT IS THE SUMMARY OF THE REPORT THAT SHRI JAYESH DESAI APPEARED BEFORE THE AO ON 12.2.2013 AND EXPLAINED THE BUSINESS NE CESSITY FOR HIM TO CLEAR THE OUTSTANDING PAYMENTS OF THESE THREE PARTIES AND ALSO FILED CERTAIN DOCUMENTS CONNECTED TO THE SOURCES OF THE SUM OF RS. 1,41,24,75,896/ - PAID ON BEHALF OF THE PARTIES. HOWEVER, SHRI JAYESH DESAI 21 PROMISED TO RETURN WITH CERTAIN ANSWERS AND CERTAIN DETAILS AND FOR THIS, HE REQUESTED FOR SOME TIME. HOWEVER, ALTHOUGH THE SAID DETAILS WERE FILED IN TAPALS ON 14.2.2013, MR.DESAI NEVER APPEARED BEFORE THE AO. EXPLAINING THIS LAPSE OF MR DESAI, AO INFERRED THAT THE ASSESSEE FAILED TO EXPLAIN THE SOURCE OF PAYMENTS. FURTHER, AO IS ALSO OF THE OPINION THAT THERE IS NO DOCUMENT TO SUPPORT THE CLAIM THAT THAT THE JGBJPL IS A GUARANTOR. AO ALSO DISCUSSED ABOUT THE SUPPLIERS OF THE KAMPPL, WHO CATEGORICALLY STATED THAT HE HAS NEVER AUTHORI ZED JBGJPL TO MAKE THEIR PAYMENT ON THEIR BEHALF. THE ABSENCE OF THE TRIPARTITE AGREEMENT WAS ALSO DISCUSSED. AO DID NOT BELIEVE THAT THE JBGJPL WITH THE TURNOVER OF RS. 193.22 CRS IS CAPABLE OF GUARANTYING FOR LIABILITIES OF OTHERS WORTH RS. 200 CRS. FU RTHER, ASSESSEE ALSO RELIED ON THE JUDGMENT IN THE CASE OF ASHWANI OBEROI VS. CIT [2013] 29 TAXMANN.COM 224 (P & H) FOR THE PROPOSITION THAT THE TRANSACTION WAS NOT GENUINE AS THE AMOUNT WAS RECEIVED FROM THE ACCOUNT OF GHE THIRD PARTY AND HELD THAT ASSESS EE ROUTED UNDISCLOSED INCOME. AO ALSO COMMENTED ABOUT THE ASSESSEES FAILURE TO EXPLAIN THE SOURCE OF DEPOSITS AND THE VALIDITY OF MAKING ADDITION U/S 68 OF THE ACT. IN RESPONSE TO THE COPY OF THE REMAND REPORT MADE AVAILABLE TO THE ASSESSEE, A LETTER DA TED 4.3.2013 WAS FURNISHED BY THE ASESSEE CONTESTING EACH AND EVERY ISSUE RAISED BY THE REVENUE IN THE REMAND REPORT. PARA 24 OF THE IMPUGNED ORDER OF THE CIT (A) IS RELEVANT IN THIS REGARD. BRIEFLY SPEAKING THE REPLY CONTAINS DETAILS EXPLANATION ABOUT T HE SOURCES OF THE FUNDS AND THE ABILITY OF THE JBGJPL TO MAKE THE PAYMENT AND THE RESPONSIBILITY OF THE JBGJPL TO CLEAR THE ARREARS TO SET IN THE BUSINESS WERE DISCUSSED. EVENTUALLY, CIT (A) CONCLUDED BY CONFIRMING THE SAID ADDITION OF RS. 1,41,24,75,896/ - . 35. RELEVANT DISCUSSION IN THIS REGARD IS GIVEN IN PARA 25 TO 25.4 OF THE IMPUGNED ORDER WHICH READS AS UNDER: DECISION: 25.0 I HAVE CAREFULLY EXAMINED THE FACTS OF THE CASE, THE STAND TAKEN BY THE A.O IN THE ASSESSMENT ORDER AS WELL AS IN THE REMAN D REPORT, THE GROUNDS OF APPEAL, THE WRITTEN SUBMISSIONS FILED BY THE APPELLANT DURING THE APPEAL PROCEEDINGS AND SUBSEQUENT REJOINDER TO THE REMAND REPORT. THE APPELLANTS STATEMENT THAT THE MONEY IS PAID BY HIM ON BEHALF OF OTHER PARTIES AS MENTIONED ABO VE IS NOT ACCEPTABLE. IT IS DIFFICULT TO BELIEVE THAT THE APPELLANT WOULD TAKE A RISK OF PAYING 22 HUGE SUM OF RS.141 CRORES ON BEHALF OF THIRD PARTIES (RS.27.67 CRORES ON BEHALF OF K.M. MALLE PHARMACEUTICALS P. LTD. AND RS.111.67 CRORES ON BEHALF OF SPACE ME RCANTILE CO. P. LTD. AND RS.1.89 CRORES ON BEHALF OF BOND GEMS P. LTD) WITHOUT TAKING ADEQUATE PRECAUTION AND SECURITIES. IT IS SURPRISING TO KNOW THAT THERE IS NOT EVEN A FORMAL WRITTEN TRIPARTITE AGREEMENT BETWEEN THE PARTIES CONCERNED PRODUCED DURING TH E COURSE OF INCOME TAX PROCEEDINGS. IN NORMAL CIRCUMSTANCES SUCH TRANSACTION WILL INVOLVE A MINIMUM WRITTEN ENFORCEABLE LEGAL DOCUMENT AND SUCH WRITTEN AGREEMENT WOULD ALSO PROVIDE FOR SAFETY AND SECURITY CLAUSES. NO PRUDENT PERSON WILL GIVE SUCH HUGE SUMS WITHOUT TAKING ANY ADEQUATE SECURITY. IN THE INSTANT CASE THE TRANSACTION HAS TAKEN PLACE BETWEEN COMPANIES AND SUCH AGREEMENTS HAVE TO BE IN WRITING BETWEEN THE COMPANIES CONCERNED SO THAT THE ENFORCEABILITY IS NOT DIFFICULT IN CASE OF DEFAULT. AS DISCUS SED ABOVE ANY ONE TRANSACTION INVOLVES THREE PARTIES, THE APPELLANT, M/S JOSHI BULLION GEMS AND JEWELLERY PVT. LTD AND THE THIRD PARTY ON WHOSE BEHALF THE PAYMENT IS MADE. NEITHER A TRIPARTITE AGREEMENT INVOLVING THE SAID THREE PARTIES NOR A BILATERAL AGRE EMENT BETWEEN M/S. JOSHI BULLION GEMS AND JEWELLERY PVT. LTD AND THE THIRD PARTIES ON WHOSE BEHALF THE PAYMENTS ARE MADE HAVE BEEN PRODUCED AT ANY STAGE OF THE PROCEEDINGS EXCEPT AN ASSIGNMENT DEED BETWEEN M/S JOSHI BULLION GEMS AND JEWELLERY PVT. LTD. AND THE APPELLANT. THE ASSIGNMENT DEED BETWEEN THE APPELLANT AND M/S JOSHI BULLION GEMS AND JEWELLERY PVT. LTD. WILL HAVE EVIDENTIARY VALUE ONLY IN THE EVENT OF CONFIRMING PARTIES (PARTIES ON WHOSE BEHALF MONEY HAS BEEN PAID) WHO ARE SIGNATORIES TO THE AGREEM ENT HAVE ACCEPTED SUCH ARRANGEMENT VOLUNTARILY, IN OTHER WORDS THE SAID AGREEMENT MUST HAVE BEEN TRIPARTITE AGREEMENT. THE APPELLANTS ARGUMENT THAT ORAL AGREEMENT IS COMMON IN THIS LINE OF BUSINESS IS NOT ACCEPTABLE FOR THE REASON THAT ONE OF THE PARTIES TO THE DEAL K.M.MALLE PHARMACEUTICALS P. LTD. DENIED BEING PART OF SUCH KIND OF AGREEMENT. TO SAY AN AGREEMENT TO BE A VALID ONE THEN THERE HAS TO BE A EXPRESS WILLINGNESS OF TWO PARTIES TO THE AGREEMENT AND IF IT IS MERELY A PROPOSAL OF ON PERSON TO THE D EAL AND THE OTHER PERSON HAS NO KNOWLEDGE OF THE SAME, THEN THERE IS NOTHING WHICH CAN BE CALLED AS AN AGREEMENT BETWEEN TWO PARTIES. THE ALLEGED ORAL ARRANGEMENT FOR MAKING SUCH HUGE PAYMENT IS AGAINST THE NORMAL CONDUCT OF ANY PERSON OR ANY BUSINESS. 25. 1 THE MONEY IS PAID BY CHEQUE THROUGH THE BANK ACCOUNT. THE AR OF THE APPELLANT CLAIMS THAT THE BANK ACCOUNT THROUGH WHICH THE MONEY PAID ON BEHALF OF K.M.MALLE PHARMACEUTICALS P. LTD. AND SPACE MERCANTILE CO. P. LTD. IS THE SAME BANK ACCOUNT THROUGH WHICH THE PAYMENTS FOR THE PURCHASE OF GOLD BY M/S JOSHI BULLION GEMS AND JEWELLERY PVT. LTD. WERE ALSO MADE AND THE DEPARTMENT WHILE BELIEVING THE PAYMENTS MADE BY M/S JOSHI BULLION GEMS AND JEWELLERY PVT. LTD. FOR ITS OWN PURCHASE IS NOT ACCEPTING THE GENUINE NESS OF THE PAYMENT MADE ON BEHALF OF OTHER PARTIES. THIS ARGUMENT OF THE APPELLANT IS NOT ACCEPTED FOR THE REASON THAT IT IS NOT THE CASE OF THE DEPARTMENT THAT THE MONEY HAS NOT BEEN PAID BY M/S. JOSHI BULLION GEMS AND JEWELLERY PVT. LTD. TO THE APPELLAN T TOTALING TO A SUM OF RS. 141 CRORES BUT THE CASE AGAINST APPELLANT IS THAT THE MONEY HAS BEEN PAID FOR REASONS UN KNOWN TO THE DEPARTMENT. THE FACTS AVAILABLE BEFORE THE DEPARTMENT ARE THAT THE CLAIMS OF THE APPELLANT AND M/S JOSHI BULLION GEMS AND JEWEL LERY PVT. LTD. STAND NEGATED BY M/S. K.M. MALLE PHARMACEUTICALS P. LTD. AND M/S SPACE MERCANTILE CO. P. LTD. HAVE ALSO NEVER CONFIRMED THE CASE OF THE APPELLANT. THE ONLY PERSON WHO CONFIRMED THE PAYMENT ON ITS BEHALF IS M/S BOND GEM P. LTD. BUT THE ASSESS ING OFFICER HAS 23 ESTABLISHED THAT THE CONFIRMATION IS CANNOT BE RELIED UPON BECAUSE THE ADDRESS M/S JOSHI BULLION GEMS AND JEWELLER PVT. LTD. AND M/S BOND GEMS P. LTD ONE AND THE SAME AND THE CONFIRMATION IS NOT SUPPORTED BY THE CORRESPONDING WRITTEN AGREE MENTS ETC. AND EVEN THE QUANTUM OF TRANSACTION INVOLVED WITH M/S BOND GEMS P. LTD. IS INSIGNIFICANT COMPARED TO THE OTHER TWO PARTIES. AMONG THE BIGGER TWO PARTIES ONE PARTY K.M.MALLE PHARMACEUTICALS P. LTD. DENIED THE KNOWLEDGE OF SUCH TRANSACTION BETWEEN THE APPELLANT AND M/S JOSHI BULLION GEMS AND JEWELLERY PVT. LTD., AND THE OTHER PARTY SPACE MERCANTILE CO. P. LTD. NEVER CONFIRMED THE ARRANGEMENT BETWEEN THE APPELLANT AND SPACE MERCANTILE CO. P. LTD. NOT ONLY M/S K.M.MALLE PHARMACEUTICALS P. LTD. WAS NO T AWARE OF THE TRANSACTION BUT IT STILL SHOWS THE APPELLANT AS THE CREDITOR IN ITS BOOKS OF ACCOUNT AND IT HAS TO HONOUR ITS COMMITMENTS TO THE APPELLANT AS PER ITS OWN BOOKS OF ACCOUNT. THE APPELLANT NEVER MADE ATTEMPTS TO PROVE HIS CASE FROM THE SIDE OF SPACE MERCANTILE CO. P. LTD. THE BIGGEST PARTY TO THE SAID TRANSACTION. THEREFORE IT IS HELD THAT THE MONEY HAS BEEN PAID FOR SOME OTHER REASONS UNKNOWN THE DEPARTMENT. 25.2 DURING THE COURSE OF REMAND PROCEEDINGS THE ASSESSING OFFICER SUMMONED THE PRINCIP LE OFFICER OF M/S JOSHI BULLION & JEWELLERY PVT. LTD. IN RESPONSE TO WHICH SHRI JAYESH DESAI, DIRECTOR OF THE COMPANY APPEARED AND HIS STATEMENT WAS RECORDED. THE ASSESSING OFFICER FURTHER STATED THAT SHRI JAYESH DESAI UNDERTOOK TO EXPLAIN THE SOURCES FOR THE HUGE DEPOSITS APPEARING IN THE BANK ACCOUNT AND AS PROMISED HE NEVER APPEARED LATER AND FURNISHED EVIDENCES IN SUPPORT OF THE GENUINENESS OF THE DEPOSITS IN THE BANK ACCOUNT. THE ASSESSING OFFICER ALSO SUBMITS THAT THERE IS A PATTERN OF DEPOSITS COMING INTO THE ACCOUNT JUST BEFORE THE DATE OF MAKING PAYMENT. THOUGH THE APPELLANT HAS STATED IN HIS SUBMISSIONS REPRODUCED IN PARE 24.6 ABOVE THAT A COPY OF THE ACKNOWLEDGEMENT OF THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009 - 10 HAS BEEN FILED BY M/S JOSH I BULLION & JEWELLERY PVT. LTD., THE INDEPENDENT CONFIRMATION OBTAINED FROM THE ASSESSING OFFICER CONFIRMS THAT M/S JOSHI BULLION & JEWELLERY PVT. LTD. HAVE NOT FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009 - 10 TILL DATE. 25.3 THE APPELLANT ALSO C ONTENDED THAT NO OPPORTUNITY WAS GRANTED TO CROSS EXAM THE PARTIES TO WHOM THE SUMMONS WERE ISSUED. IT IS STATED IN THE ASSESSMENT ORDER THAT THE ASSESSING DID NOT PROVIDE THE CROSS EXAMINATION ON THE GROUND THAT IT WOULD NOT SERVE ANY PURPOSE. IN THIS RE GARD, IT MAY BE STATED THAT THE INCOME TAX PROCEEDINGS ARE CIVIL PROCEEDINGS AND THE STRICT RULES OF EVIDENCE LAW ARE NOT APPLICABLE TO THE INCOME TAX PROCEEDINGS AND THEREFORE THE ASSESSMENT IS NOT ANNULLED MERELY ON THE GROUND THAT NO OPPORTUNITY WAS GRA NTED TO CROSS EXAMINE THE PARTIES. FURTHER THE DECISION OF THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. ASHWANI OBEROI (2013) 29 TAXMAN.COM 224 CITED BY THE ASSESSING OFFICER IS MORE RELEVANT TO THE FACTS OF THE CASE THAN THE CASE LAWS CITED BY THE APPELLANT. 25.4 THE FACT THAT EMERGES IN THE WHOLE SITUATION IS THAT THE SUM OF RS. 141 CRORES HAS BEEN RECEIVED BY THE APPELLANT FROM M/S JOSHI BULLION GEMS AND JEWELLERY PVT. LTD; THE REASONS FOR SUCH PAYMENT HAS NOT BEEN SUPPORTED BY NECESS ARY EVIDENCES AS DISCUSSED ABOVE; THERE IS NO CONFIRMATION FROM THE BIGGEST PARTY M/S SPACE MERCANTILE CO. P. LTD. IN SUPPORT OF THE CASE OF THE APPELLANT, THE SOURCE FOR THE PAYMENT IN THE OF M/S JOSHI BULLION GEMS AND JEWELLERY PVT. LTD. HAS NOT BEEN 24 SUB STANTIVELY PROVED AND THE ENQUIRIES MADE WITH MIS K.M.MALLE PHARMACEUTICALS P. LTD. DISPROVES THE CONTENTION OF THE APPELLANT AND ALL SUCH FACTORS LEAD TO THE NATURAL CONCLUSION THAT THE MONEY HAS BEEN PAID FOR SOME OTHER UNKNOWN REASONS AND THE ASSESSING OFFICER HAVING NOT BEEN SATISFIED WITH THE EXPLANATION OF THE APPELLANT BROUGHT TO TAX THE SUMS DEPOSITED IN THE BOOKS OF ACCOUNT AS THE UNEXPLAINED CASH CREDIT IN TERMS OF THE PROVISIONS OF SECTION 68 OF THE ACT AND THE SAME IS HEREBY CONFIRMED. 36. FRO M THE ABOVE, IT IS EVIDENT THAT WHILE CONFIRMING THE ADDITION CIT (A) BELIEVED THE FACT THAT THERE IS NO TRIPARTITE AGREEMENT AND THEREFORE, THERE IS ABSENCE OF CONSENT BY THE DEBTORS. HE IGNORED CERTAIN CONFIRMATION LETTERS FILED BY THE BGPL AND ALSO IGN ORED THE DEMAND FOR CROSS EXAMINATION REQUESTED BY THE KAMPPL. AGGRIEVED WITH THE ABOVE, THE ASSESSEE RAISED THE GROUND NO.6 BEFORE THE TRIBUNAL. 37. BEFORE THE TRIBUNAL: DURING THE PROCEEDINGS BEFORE US, SHRI CHETAN A KARIA, LD COUNSEL FOR THE ASSESSEE E XPLAINED THE ABOVE FACTS OF THE CASE AND MENTIONED THAT MAHARASHTRA STATE TRADING CORPORATION (MSTC) IS ENGAGED IN THE EXPORT OF GOLD JEWELLERY. EXPLAINING THE SAME, LD COUNSEL MENTIONED THAT THE ASSESSEE IS A SUPPLIER OF GOLD JEWELLERY AND SMPL, KAMPPL, BGPL AND JBGJPL ARE THE PURCHASERS OF THE SAME. THESE PURCHASES SOLD THE GOODS IN THE NAME OF THE MSTC AND EXPORTED THE SAME ABROAD. AS PER THE TERMS OF AGREEMENT, MSTC RELEASES 80% OF THE INVOICE VALUE TO SMPL, KAMPPL, BGPL AND JBGJPL ON EXPORTING THE SA ME AND ADDITIONALLY, THE BALANCE OF 20% WOULD BE REALIZED ON COMPLETION OF EXPORT ACTIVITY ON REALIZATION OF EXPORT PROCEEDS THERETO. HOWEVER, WHAT SEEMS TO HAVE HAPPENED IS DIFFERENT AND THESE PARTIES NAMELY SMPL, KAMPPL, BGPL AND JBGJPL HAVE NOT ONLY RE CEIVED 80% OF THE INVOICE VALUE FROM MSTC BUT ALSO 100% OF THE EXPORT PROCEEDS. IN FACT, THESE SUPPLIERS WERE ENRICHED 80% OF THE EXPORT VALUE OF THE GOLD JEWELLERY. HOWEVER, THE ASSESSEE IS THE SUFFERER AND THE SAID PARTIES HAVE NOT CLEARED THE ARREARS T O THE ASSESSEE. CBI IS ENGAGED IN INVESTIGATION INVOLVING MSTC AND MANY OTHER ENTITIES INCLUDING SMPL, KAMPPL, BGPL AND JBGJPL. BEING THE CO - SUFFERER, THE ASSESSEE IS OUT OF THE SCAM. THESE ARE THE BRIEF DETAILS OF THE SCHEME UNCOVERED BY THE INVESTIGATIVE AGENCY AND CASES ARE FILED BY THE CBI IN THIS REGARD. 25 38. IN THIS CONTEXT, LD COUNSEL MENTIONED THAT THE ASSESSEE IS THE SUFFERER IN THE PROCESS AND THE LIABILITIES WERE NOT CLAIMED BY THE PURCHASERS OF THE GOLD JEWELLERY DESPITE THE 180% OF THE SALE PR OCEEDS EARNED BY THEM. IN THIS REGARD, LD COUNSEL REFERRED TO THE ATTEMPTS OF THE DEPARTMENT TO OBTAIN THE DATA FROM THE CBI UNSUCCESSFULLY. SO FAR AS THE ASSESSEES ROLE IS CONCERNED, LD COUNSEL SUBMITTED THAT BEING SELLER OF THE GOLD JEWELRY TO THESE THREE PARTIES THROUGH THE MSTC, NEVER RECEIVED FUNDS TO THE EXTENT OF IMPUGNED SUM OF RS. 1,41,24,75,896/ - . HE, FURTHER, MENTIONED THAT IT IS MR. JAYESH DESAI, WHO IS THE MAIN PERSON OF JBGJPL AND THE GUARANTOR FOR THE CONSIDERATION OF SALES BY THE ASSESS EE TO THE SAID THREE PARTIES. 39. REFERRING TO THE FACT THAT THE ADDITIONS ARE MADE BY THE AO UNDER SECTION 68 OF THE ACT, LD COUNSEL MENTIONED THAT THIS IS THE CASE WHERE THE SAID AMOUNT OF RS. 1,41,24,75,896/ - WAS PAID BY JBGJPL AND THE SAME IS IDENTIF IABLE CONSIDERING THE PLENTY OF REASONS SUCH AS INCORPORATION OF THE COMPANY UNDER THE COMPANY ACT, SERVICE OF THE NOTICES FOR THE DEPARTMENT, APPEARANCE OF MR. JAYESH DESAI IN RESPONSE TO THE NOTICES TO THE FILING OF RETURN ETC. REGARDING THE CREDITWORTH INESS OF THE SAME, LD COUNSEL SUBMITTED THAT ASSESSEE IS IN EXISTENCE FOR MANY YEARS AND THE AO IGNORED THE FACT THAT THE PRESENT COMPANY IS RENAMED IN THE YEAR. IT IS ALSO BROUGHT TO OUR NOTICE THAT IN RESPONSE TO THE SUMMONS U/S 131 OF THE ACT, MR. JAYE SH DESAI APPEARED AND FURNISHED ALL THE RELEVANT INFORMATION, BANK STATEMENTS TO BRIEF THE CREDITWORTHINESS AND THE SOURCE OF THE INCOME. LD COUNSEL BROUGHT OUR ATTENTION TO THE SAID STATEMENT TAKEN ON OATH BY MR. JAYESH DESAI TO DEMONSTRATE THAT THE ASSE SSING OFFICER DID NOT ASK ANY FURTHER DETAILS REGARDING THE SOURCES OF THE PAYMENTS IN THE ACCOUNTS OF JBGJPL, WHO SQUARED UP THE LIABILITIES OF SMPL, KAMPPL AND BGPL. REACTING TO THE ACTION OF THE AO ON EACH OF THE CASE, LD COUNSEL MADE VARIOUS SUBMISSION S AND THE SAME ARE DISCUSSED IN THE SUCCEEDING PARAS. 40. ( 1) KAMPPL: THE ABSENCE OF TRIPARTITE AGREEMENT AND THE ABSENCE OF CONSENT BY THE PARTIES TO THE ASSIGNMENT DEEDS IS THE CORE OBJECTION OF THE AO IN THIS REGARD. ABSENCE OF CONFIRMATION LETTER AN D THE INSISTENCE OF THE PARTIES TO MAKE THE PAYMENT TO THE ASSESSEE ARE THE OBJECTION RELIED UPON BY THE AO FOR MAKING ADDITIONS. IT IS ALSO A FACT THAT THE ASSESSING OFFICER DENIED THE REQUEST FOR CROSS 26 EXAMINATION OF KAMPPL MENTIONING THAT IT IS NOT REQ UIRED. THE ABSENCE OF BUSINESS SENSE IS ANOTHER SIDE OF THE ARGUMENT OF THE REVENUE FOR MAKING ADDITION INVOLVING KAMPPL. IN THIS REGARD, LD COUNSEL VEHEMENTLY ARGUED STATING THAT KAMPPL NOT ONLY FAILED TO CLEAR THE LIABILITIES APPEARING IN THE ASSESSEE S BOOKS OF ACCOUNTS AND IT IS OBVIOUS FOR THE ASSESSEE TO BRING PRESSURE ON THE JBGJPL, WHO IS THE GUARANTOR FOR THE SALE CONSIDERATION. JBGJPL IS ALSO ONE OF THE PURCHASER OF THE ASSESSEES GOODS DIRECTED AND THE CONNECTION BETWEEN THE JBGJPL AND THE RES T OF THE THREE PARTIES COMMERCIALLY CONNECTED TO THE ASSESSEE. IN THAT SENSE OF THE MATTER, THERE IS A COMMERCIAL SENSE WHICH IS NOT REALLY APPRECIATED BY THE REVENUE AUTHORITIES. REFERRING TO THE DENIAL OF CROSS EXAMINATION OF KAMPPL, LD COUNSEL MENTIONE D THAT IT IS BUT THE PRINCIPLES OF NATURAL JUSTICE THAT THE STATEMENTS MADE BY THE ADVISORS SHOULD BE ALLOWED FOR CROSS EXAMINATION. BY DENYING THE SAID OPPORTUNITY, THE ASSESSMENT PROCEEDINGS SUFFER FROM DENTS. REGARDING THE ABSENCE OF TRIPARTITE AGREEM ENT, LD COUNSEL MENTIONED THAT THE ASSIGNMENT DEEDS ARE SELF - CONTAINED AND THE SAME ARE LEGALLY VALUED SINCE THEY ARE SIGNED BY THE TRANSFEROR AND THE TRANSFEREE IN WRITING WHICH IS DULY REGISTERED. IT IS NOT THE REQUIREMENT OF THE LAW THAT DEBTOR SHOULD ALSO BE A PARTY TO SUCH ASSIGNMENT DEEDS. REFERRING TO THE PROVISIONS OF SECTION 130 AND 131 OF THE TRANSFER OF PROPERTY ACT, 1882, LD COUNSEL MENTIONED THAT IT IS NOT THE CASE OF NOVATION AND THE ASSIGNMENT DEEDS ARE LEGALLY VALUED. AS PER THE LAW, SUCH DEBTORS ARE OBLIGED TO MAKE PAYMENTS TO THE TRANSFEREE OF ACTIONABLE CLAIM. IN THIS CONTEXT, ASSESSEE BROUGHT OUR ATTENTION TO THE PART PAYMENT BY ANOTHER SUPPLIER SMPL TO THE EXTENT OF RS. 1.72 CRS TO THE ASSESSEE WHICH WAS DULY TRANSFERRED TO JBGJPL IN ACCORDANCE WITH THE PROVISIONS OF SECTION 130 OF TRANSFER OF PROPERTY ACT, 1882 (T.P. ACT). IN THESE KIND OF SITUATIONS, IN ACCORDANCE WITH THE PROVISIONS OF SUB - SECTION(2) OF SECTION 130 OF T.P. ACT, THE TRANSFEREE CAN ALSO RESORT TO TAKE A LEGAL ACTI ON ON THE DEBTORS FOR RECOVERY OF SUCH DEBTS. THE CONSENT OF THE DEBTOR IS NOT REQUIRED IN SUCH CASE OF TRANSFER OF ACTIONABLE CLAIM. ASSESSEE SUBMITTED THE REASONS WHY THE SAID PAYMENTS WERE MADE BY THE JBGJPL ON BEHALF OF THE THREE PARTIES AND THE EX PLANATIONS ARE GIVEN IN ANSWER TO QUESTION NO.10 AND 11 OF THE STATEMENT TAKEN ON OATH FROM MR. JAYESH DESAI (PAGE 605 TO 607 OF PB 4). IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION TO 27 THE FACT OF EXPLAINING THE SOURCES OF PAYMENT, THE FACT OF JBGJPL FI LING THE RETURN OF INCOME FOR THE AY 2009 - 2010 WAS ALSO MENTIONED (PAGE 610 OF THE PB). THE STATEMENT SHOWING SOURCES OF DEPOSITS INTO THE BOOKS OF ACCOUNTS OF JBGJPL, WHICH IS THE SOURCE OF PAYMENT OF RS. 1,41,24,75,896/ - WAS ALSO BROUGHT TO OUR NOTICE ( PAGE 611 OF THE PB). RELEVANT LEDGER EXTRACTS AND CONFIRMATIONS, COPY OF ASSIGNMENT DEEDS, THE COPY OF SUITS FILED AGAINST KAMPPL AND RECOVERIES WERE ALSO MENTIONED (PAGES 612, 626, 627 TO 633, 665 TO 675, 732 OF THE PB ARE RELEVANT). HE ALSO BROUGHT OUR ATTENTION TO THE LETTER REQUESTING FOR CROSS EXAMINATION OF KAMPPL WAS ALSO MENTIONED (PAGE 23 OF THE ASSESSMENT ORDER). (2) SMPL: REGARDING SPACE MERCANTILE CO P LTD (SMPL), LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE NOTICE COULD NOT BE SERVED ON THE SAID PARTY FOR THE REASONS BEST KNOWN TO THE SMPL. IT IS A COMMERCIAL SENSE THAT THE ASSESSEE SHOULD SOMEHOW RECOVER LEGALLY THE LIABILITIES OF SMPL AND ACCORDINGLY THE PRESSURE WAS KEPT ON MR. JAYESH DESAI AND REALIZED THE SAME BY VIRTUE OF ASSIGNMEN T DEED. IT IS A FACT THAT THE SMPL DID NOT RECOGNIZE THE SAID ASSIGNMENT DEED AND PAID A SUM OF RS. 1.72 CRS TO THE ASSESSEE INSTEAD OF JBGJPL IN ACCORDANCE WITH THE PROVISIONS OF SECTION 130 OF THE T.P. ACT, 1882, WHICH IS LEGALLY INCORRECT. (3) BGPL: REGARDING BOND GEMS PVT LTD (BGPL), IT IS THE CASE OF THE REVENUE THAT DESPITE THE CONFIRMATION LETTERS FURNISHED BY THE SAID PARTY BEFORE THE AO, ASSESSING OFFICER DENIED THE SAME AND PROCEEDED TO MAKE ADDITION ILLEGALLY, MERELY STATING THAT THE ADDRESS OF BGPL SHARES IS COMMON WITH THAT OF THE JBGJPL. IN FACT, JBGJPL AND BGPL ARE SISTER CONCERNS, WHEREIN MR. JAYESH DESAI IS THE COMMON SHAREHOLDER. THUS, LD COUNSEL SUMMED UP BY STATING THAT THE ASSESSEE BEING SELLER OF THE GOLD JEWELRY COLLECTED ITS DUES FROM JBGJPL, WHO IS A GUARANTOR AND WHOSE IDENTITY IS ESTABLISHED BEYOND DOUBT AND WHO HAS CREDITWORTHINESS TO MAKE THE PAYMENT OF THE SAME. SO FAR AS ASSESSEE AND HIS TRANSACTIONS WITH JBGJPL AND OTHER THREE PARTIES ARE CONCERNED, IT IS A COMMERCIAL TRA NSACTION OF TRADE AND REALIZATION OF THE PROCEEDS AND IT IS NOTHING TO DO WITH THE MESSY EXPORTS MADE BY FOUR PARTIES INVOLVING MSTC. THE FACT THAT CBI HAS NOT BOOKED ANY CASE AGAINST THE ASSESSEE CONFIRMS THE SAME. IN THESE CIRCUMSTANCES, WHEN THE CONDI TIONS OF SECTION 68 ARE MADE, THERE IS NO CASE FOR MAKING ADDITION U/S 68 OF THE INCOME TAX ACT, 28 1961. FURTHER, HE ALSO MENTIONED THAT THE REVENUES DEMAND FOR EXPLAINING THE SOURCES OF THE FUNDS DEPOSITED IN THE ACCOUNTS OF JBGJPL WILL AMOUNT TO SOURCES OF SOURCE WHICH IS NOT PERMISSIBLE UNDER THE LAW IN THE CASE OF THE PRESENT ASSESSEE. IN THIS REGARD, HE RELIED ON VARIOUS DECISIONS TO SUPPORT THE SAME. 41. ON THE OTHER HAND, LD DR RELIED HEAVILY ON THE ORDER OF THE AO AS WELL AS THE CIT (A). HE STRONGL Y ARGUED STATING THAT THE ABSENCE OF TRIPARTITE AGREEMENT EXPOSES THE ASSESSEES CONTENTION ABOUT THE GENUINENESS OF THE PAYMENTS MADE BY THE JBGJPL. AS PER THE REVENUE, THE CONSENT OF THE DEBTORS IS THE REQUIREMENT FOR SUCH TRANSACTIONS. IN SUPPORT, THE DENIAL OF THE CONSENT BY KAMPPL AND SUPPORTED BY THE EXPENSES OF THE LIABILITIES TO THE ASSESSEE IN THEIR BOOKS WAS CITED. FURTHER, THE FAILURE OF THE SERVICE OF NOTICE ON SMPL AND THE NON - GENUINENESS OF THE ADDRESS WAS ALSO CITED. HE ALSO BROUGHT OUR A TTENTION TO THE FACT THAT THE REVENUE WROTE A LETTER TO THE CBI ON 19.7.2012 FOR WANT OF INFORMATION FROM THEIR RECORDS AND NON - SUBMISSION OF THE REPLY TO THE SAID LETTER WAS ALSO DISCUSSED. FURTHER, REFERRING TO THE ASSESSEES CONTENTION THAT JBGJPL IS A GUARANTOR FOR THE SAID THREE PARTIES, LD DR MENTIONED THAT THERE IS NO DOCUMENT TO SUGGEST THE SAID ARGUMENT THEREFORE, IT IS THE ARGUMENT OF THE CIT - DR THAT THE JBGJPL IS NOT REQUIRED TO CLEAR THE ARREARS OF THE THREE PARTIES NAMELY KAMPPL, SMPL AD BGPL. REFERRING TO THE ASSESSEES REQUEST FOR CROSS EXAMINATION OF KAMPPL, IT IS SUBMITTED THAT WHAT PURPOSE DOES IT SERVE BY ACCEDING TO THE SAID REQUEST. REFERRING TO THE CONFIRMATION LETTER BY BGPL, LD DR RELIED ON THE ORDER OF THE AO. WHEN THE BENCH HAS BROUGHT TO THE NOTICE OF THE CIT - DR ABOUT THE COMMON LETTER OF JBGJPL AND BGPL, LD DR RELIED ON THE ORDERS OF THE REVENUE. ON THE APPLICABILITY OF PROVISIONS OF SECTION 68 TO THE IMPUGNED TRANSACTIONS I.E., THE TRANSACTIONS OF REPAYMENT OF RS. 141,24,75,89 6/ - BY JBGJPL BY TO THE ASSESSEE, LD DR MENTIONED THAT THE FAILURE OF MR. JAYESH TO REPORT BACK TO THE AO IN CONTINUATION OF THE PROCEEDINGS U/S 131 OF THE ACT, CONFIRMS THE ABSENCE OF IDENTITY OF THE JBGJPL. AS PER MR. JAYESH, THE JBGJPL ONLY FILED THE R ETURN OF INCOME TECHNICALLY BUT NOT VALIDLY. ON THE ALLEGATION OF BUSINESS SENSE, JAYESH EXPLAINED THE RATIONALE OF IMPUGNED PAYMENTS AND JUSTIFIED THE SAME BY RELYING ON THE FACT OF OBTAINING THE FD RECEIPT OF RS 43 CR FROM PEN COOPERATIVE BANK LTD AS A S ECURITY. ANSWER TO Q. NO 10 OF THE STATEMENT DATED 12.2.2013 IS 29 RELEVANT. REFERRING TO THE LD COUNSELS ARGUMENT THAT ALL THE INFORMATION EXPLAINING THE SOURCES OF PAYMENTS AND THE CREDITWORTHINESS OF THE JBGJPL REGARDING THE PAYMENT MADE ON BEHALF OF THE THREE PARTIES, LD DR MENTIONED THAT THE SAID DETAILS WERE NOT FULLY EXAMINED BY THE AO. HE ALSO MENTIONED THAT MR. JAYESH PROMISED TO APPEAR BUT NEVER APPEARED BEFORE THE AO. HOWEVER, THERE IS NO DISPUTE ON THE FACT THAT THE REQUISITE INFORMATION WAS FI LED BELATEDLY BY MR. JAYESH. FURTHER, LD DR MENTIONED THAT THE ORAL AGREEMENTS REGARDING THE GUARANTEE ARE NOT TO BE BONAFIDE. REFERRING TO THE INVOKING OF THE PROVISIONS OF SECTION 68 OF THE ACT, LD DR MENTIONED THAT THE IDENTITY WAS PARTICULARLY PROVED. CREDITWORTHINESS AND GENUINENESS ARE NOT ESTABLISHED BY THE ASSESSEE. IT IS THE ARGUMENT OF THE CIT - DR THAT NO PRUDENT BUSINESS MEN WILL EVER ACCEPT THIRD PARTY LIABILITIES TO THE TUNE OF RS. 141,24,75,896/ - WITHOUT WRITTEN AGREEMENTS. LD DR HAS ALSO M ENTIONED THAT WITH A TURNOVER OF RS. 168 CRS, JBGJPL, WHICH IS NON FILER OF RETURN, IS NOT IN A POSITION TO GIVE GUARANTEE FOR RS. 200 CRS. 42. DURING THE REBUTTAL TIME, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE STATEMENT RECORDED U/S 131 FROM MR. JAYESH AND DEMONSTRATED FROM THE ANSWERS THAT THE ASSESSEE HAS REPLIED TO ALL THE QUESTIONS RELATING TO THE SOURCES OF FUNDS OF RS. 141,24,75,896/ - WITH THE COMPANY (JBGJPL). FURTHER, HE BROUGHT OUR ATTENTION TO THE TABLES REFLECTING THE DEPOSITS AND PAY OUTS OF THE COMPANYS ACCOUNT EVIDENCING THE SOURCES OF THE SAME. FURTHER DETAILS REQUIRED TO EXPLAIN THE SOURCES OF THE DEPOSITS INTO THE ACCOUNTS OF THE COMPANY, JBGJPL, THE SAID COMPANY CAN BE PUT TO TEST OTHERWISE IT MAY AMOUNT TO EXAMINE THE SOURCES OF THE SOURCES OR ORIGIN OF ORIGIN, WHICH IS NOT PERMITTED IN LAW AND THE LD. COUNSEL RELIED ON VARIOUS DECISIONS IN SUPPORT OF THE SAME. THEY BROUGHT OUR ATTENTION TO CERTAIN JUDGMENTS OF THE HONBLE SUPREME COURT AND ALSO THE JUDGMENT OF THE HO NBLE HIGH COURT OF DELHI IN THE CASE OF YADU HARI DALMIA VS. CIT [1980] 4 TAXMAN 525 (DELHI). OTHERWISE, AS PER THE LD COUNSEL, THE QUESTION OF EVIDENCING THE PART IDENTITY OF THE ASSESSEE IS NOT LEGALLY VALID PROPOSITION AS THE ASSESSEE NOT ONLY EVIDENCE D THE GENUINENESS OF JBGJPL AND MR. JAYESH, BUT ALSO THE CONCERNED PERSON OF THE COMPANY. WITH THE FILING OF CONFIRMATIONS AND RELEVANT DETAILS FOR EVIDENCING THE SOURCE OF RS. 141,24,75,896/ - , ASSESSEE HAS SUCCESSFULLY EVIDENCED THE 30 CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTIONS. THE ASSESSING OFFICER DOES NOT HAVE ANY EVIDENCE WHATSOEVER TO ESTABLISH THAT THE JBGJPL CUM MR. JAYESH DO NOT EXIST AND THE ALSO THE REVENUE HAS FAILED TO ESTABLISH THAT THE CREDITWORTHINESS AND GENUINENESS OF THE TRANSAC TIONS SUFFER FROM ANY CREDIBILITY. IN SUCH CIRCUMSTANCES, THE EXPLANATION OF THE ASSESSEE CANNOT BE REJECTED WHILE INVOKING THE PROVISIONS OF SECTION 68 OF THE ACT. LD COUNSEL REITERATED THE ASSESSEES CRITICISM ON THE AOS DEMAND FOR TRIPARTITE AGREEME NT, WHICH ACCORDING TO THE LD. COUNSEL SHOWS THE LACK OF BASIC KNOWLEDGE ABOUT THE PROVISIONS OF SECTION 130 OF THE TRANSFER OF PROPERTY ACT (T.P. ACT) AND TRANSFER OF ACTIONABLE CLAIM AND IT IS NOT THE LEGAL REQUIREMENT THAT THE DEBTOR SHOULD BE PARTY T O THE ASSIGNMENT AGREEMENT. THE ASSIGNEE JBGJPL, BEING A TRANSFEREE IS PROTECTED BY THE PROVISIONS OF SECTION 132 OF THE T.P. ACT AND HE CAN CLAIM RECOVERY OF DEBTS DIRECTLY FROM THE DEBTORS. IN THIS CASE, KAMPPL - BGPL, ON THE KAMPPL - BGPL, ON THE ASPECT OF THE GENUINENESS OF TRANSACTIONS, LD COUNSEL RELIED ON THE DELHI HIGH COURT JUDGMENT IN THE CASE OF M/S OYASIS HOSPITALITIES PVT LTD AND THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF MOHAN KALA . 43. DECISION OF THE TRIBUNAL: WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AND THE PAPER BOOKS FILED BEFORE US. JAYESH DESAI SPACE MARCHANTILE CO P LTD RS 111.68 CR K A MALE PHARMA - CEAUTICAL P LTD RS 27.68CR BOND GEMS P LTD RS 1.89 CR RIDDI SIDDHI BULLION LTD ASSESSEE JOSHI BULLION GEMS AND JEW P LTD - PAID RS 141.25 CR TO RSBL SALES TO 4 PARTIES SOLD THRU MSTC FOR EXPORT TO UAE JPGJPL PAID 31 FLOW CHART SHOWING THE SALES OF JE WELLERY/DEBTS REPAYMENTS BY JB GJPL 44. THE ABOVE PICTORIAL REPRESENTATION SUGGE STS THE TRANSACTIONS OF SALES BY THE ASSESSEE TO FOUR PARTIES NAMELY KAMCPL, SMCPL, BGPL AND JBGJPL. BGPL IS THE SISTER CONCERN OF THE JBGJPL AND BOTH ARE CONTROLLED BY JAYESH DESAI. THE SAID PARTIES NEEDS TO PAY TRADE DEBTS TO THE ASSESSEE AND FIGURES ARE MENTIONED IN THE PICTURE ABOVE. JBGJPL ALSO PURCHASED GOLD JEWELLARY FROM THE ASSESSEE TO THE TUNE OF RS 134,03,14,876 / - . OTHERWISE, ASSESSEE HAD GROSS SALES MADE TO THESE FOUR PARTIES TO THE TUNE RS 329.51 CR AS PER THE DETAILS HERE AS UNDER: PARTY NAM E QUANTITY SALES AMOUNT (EXCL. VAT) RS. BOND GEMS P. LTD 110.992 130431274 JOSHI BULLION GEMS & JEWELRY P.LTD 1132.467 1340314876 K.A. MALLE PHARMACEUTICALSL P. LTD 250.116 298635334 SPACE MERCANTILE CO. P. LTD 1249.549 1525744796 TOTAL 2743.124 329,5 1,26,280 45. SRI JAYESH DESAI OF JOSHI BULLION GEMS & JEWELRY P.LTD AND BOND GEMS P LTD IS CLAIMED TO BE THE MAIN PERSON IN THESE TRANSACTIONS . UNDERSTANDABLY, ASSESSEE ATTEMPTED SUCCESSFULLY THE RECOVERIES OF THE SAID DEBTS OF REST OF THE TWO OTHER PAR TIES NAMELY KAMPPL AND SMCPL TOO. ASSIGNMENT AGREEMENTS ARE DRAWN BETWEEN THE ASSESSEE AND THE JBGJPL AND ASSESSEE RECOVERED RS 141.25 CR FROM JBGJPL AS PER THE SAID AGREEMENTS. CONSEQUENTLY, ASSESSEE PASSED JV ENTRIES IN ITS BOOKS SQUARING UP THE ACCOUNTS WITH THE SAID PARTIES ACCOUNTS. ASSESSEE TRANSFERRED THE ACTIONABLE CLAIMS TO JBGJPL IN ACCORDANCE WITH THE PROVISIONS OF SECTION 130 OF THE TRANSFER OF PROPERTY ACT . 46. WITH THE SAID BACKGROUND FACTS, THE CASE OF THE REVENUE IS THAT THE PROCESS OF A SSIGNMENT OF THE DEBTS TO JBGJPL IS INVALID AND THEREFORE, THE SAID RECOVERY CONSTITUTES CASH CREDITS WITHIN THE MEANING OF SECTION 68 OF THE ACT. AS A PART, AO REASONS WHY JBGJPL NEEDS TO PAY ON BEHALF OF THE REST OF THE PARTIES IE KAMPPL AND SMCPL. OF COURSE, WITH REGARD TO BOND GEMS P LTD, AO HAS DIFFERENT OBJECTIONS. AUXILIARY TO THE ABOVE, AO RAISED VARIOUS OTHER MINOR OBJECTIONS AND THEY ARE: (A). JBGJPL IS NOT A GUARANTOR FOR THE SAID PARTIES; (B). BEING NEW COMPANY WITH LITTLE TURN OVER, IT DOES N OT HAVE CAPACITY TO GUARANTEE THE TRANSACTION; (C). JBGJPL DOES NOT HAVE PROPER IDENTITY; (D). THERE IS NO BUSINESS SENSE FOR THE JBGJPL TO CLEAR 32 SUCH A HUGE DEBTS OF OTHERS; (E). THE ASSIGNMENT DEEDS ARE NOT RELIABLE AS THEY ARE NOT TRIPARTITE AND THE DEB TORS ARE NOT SIGNATORIES TO THE AGREEMENTS HENCE NO CONSENT IS GIVEN FOR THIS ARRANGEMENT; (F). OTHER PARTY - SPECIFIC OBJECTIONS ARE: (I). KAMPPL DID NOT RECOGNIZE THE ARRANGEMENT/ASSIGNMENT AGREEMENT AND STARTED PAYMENT OF THE DEBTS TO THE ASSESSEE INS TEAD OF PAYING THE SAME TO THE JBGJPL AND NO CONFIRMATION IS FILED BY THIS PARTY; (II). SPACE MARCHANTILE DOES NOT EXIST AT THE GIVEN ADDRESS NOTICE U/S 131 IS RETURNED UNSERVED; (III). CONFIRMATION LETTER FILED BY THE BOND GEMS P LTD IS NOT ACCEPTABLE A S THIS COMPANY BELONGS TO JBGJPL SHARING THE SAME ADDRESS BELONGS TO JBGJPL. 47. ON THE OTHER HAND, THE CASE OF THE ASSESSEE IS THAT GENUINENESS OF THE SALES TO THE SAID PARTIES IS NOT IN DISPUTE AND THEREFORE, THE OUTSTANDING LIABILITIES FROM THEM ARE UND ISPUTED. THIS IS FOR THE REASON THAT THE ASSESSEE MADE SALES MUCH HIGHER THAN THE EXISTING LIABILITIES AND PAID MOST OF THE SALE CONSIDERATION LEAVING ONLY RS 141.25 CR ALL PUT GATHER. IT IS THE CONTENTION OF THE ASSESSEE FORM THE BEGINNING BEFORE THE REVE NUE AND US THAT SRI JAYESH DESAI IS THE MAIN PERSON NOT ONLY AS THE GUARANTOR FOR THE IMPUGNED SALES BUT ALSO FOR THE DEFAULTS IN PAYMENTS IF ANY. FURTHER IT IS THE STAND OF THE ASSESSEE THAT JBGJPL IS UNDER OBLIGATION TO CLEAR THE OUTSTANDING PAYMENTS FRO M THESE PARTIES IF HE HAS TO BE IN THIS LINE OF BUSINESS, WHERE THE JEWELERS COMMUNITY IS VERY SMALL AND OTHERWISE, WELL - KNITTED WITH ONE ANOTHER. IF JBGJPL WERE NOT TO PAY THE SAID LIABILITIES, THE SAME WOULD NOT HAVE BEEN IN THIS JEWELERY INDUSTRY DUE T O THE FACTORS OF CREDIBILITY, RELIABILITY AND DEPENDABILITY WHICH IS REQUIRED IN THIS INDUSTRY. THUS, THE WORD OF MOUTH ASSUMES GREAT SIGNIFICANCE RATHER THAN THE DOCUMENTATION OR SIGNATURES. ON THE ISSUES RELATING TO TRIPARTITE CONSIGNMENT AGREEMENTS CUM ABSENCE OF CONSENT OF THE DEBTORS IN THE SAID AGREEMENTS, THE STAND OF THE ASSESSEE IS THAT THE SAME IS UNCALLED FOR IN VIEW OF THE SETTLED LEGAL PROPOSITION QUA THE PROVISIONS OF SECTION 130 OF THE TRANSFER OF PROPERTY ACT. REGARDING THE NON COOPER ATIVE STAND OF KAMPPL AND SPACE MERCANTILE CO P LTD QUA THIS ASSIGNMENT ARRANGEMENT INVOLVING JBGJPL AS THE ASSIGNEE, IT THE CASE OF THE ASSESSEE THAT THE PARTIES VERY MUCH EXIST AND THE SAME IS EVIDENT FROM THE FACT (I) THEY ARE ASSESSED TO TAX, (II) THEY PURCHASED GOLD JEWELLERY FROM THE 33 ASSESSEE AND OTHERS, (III) THEY HOLD BANK ACCOUNTS AND TRANSACTED WITH THE ASSESSEE USING THE BANKING CHANNELS, (IV) THEY ARE COVERED BY THE INVESTIGATION BY THE CBI, MUMBAI, (V) THEY ARE DULY INCORPORATED IN THE RECORDS OF REGISTRAR OF THE COMPANIES ETC. MERE ABSENCE OF FAILURE TO SERVICE THE NOTICE U/S 131 OF THE ACT, NO ADVERSE INFERENCE NEEDS TO BE TAKEN AGAINST THE ASSESSEE. ASSESSEE ALSO DISPLAYED STRONG OBJECTION TO THE DECISION OF THE AO IN DENYING THE DEMAND FOR CROSS EXAMINATION OF THE KAMPPL, WHO EARLIER STATED AGAINST THE ASSESSEE IN THE STATEMENT. THE SAID DEBTORS ARE AWARE OF THE ASSIGNMENT ARRANGEMENT AND DESPITE THE SAME, ONE OF THE PARTY PAID A SUM OF RS 1.72 CR TO THE ASSESSEE AFTER RECOVERY OF RS 141.25 CR FROM JBGJPL AND THE SAME WAS DULY TRANSFERRED TO THE ASSIGNEE - JBGJPL. ASSESSEE FURTHER STATED THAT THE DEBTORS HAVE NOT LEGALLY CHALLENGED THE SAID ARRANGEMENT OF JBGJPL PAYING THE DEBTS TO THE ASSESSEE ON BEHALF OF THE SAID PARTIES. REFERRING TO THE IN VOKING OF THE PROVISIONS OF SECTION 68 OF THE ACT, THE ASSESSEE ASSAILED THE SAME AND SUBMITTED THE SAID JBGJPL HAS THE CREDIT ENTRY IN THE BOOKS OF THE ASSESSEE. THEREFORE, IF THE PAYMENT OF RS 141.25 CR IS CAREFULLY ANALYSED, SRI JBGJPL HAS BECOME THE CR EDITOR BY VIRTUE OF THE TAKING OVER OF THE IMPUGNED LIABILITIES OF THE PARTIES. THE SAID LIABILITIES ARE PAID TO THE ASSESSEE BY JBGJPL DURING THE YEAR. JBGJPL IS IDENTIFIABLE. HE HAS ADEQUATE SOURCES OF INCOME TO JUSTIFY THE CLAIM. UNCONNECTED TO THE MESS , THE IMPUGNED PARTIES ARE INTO QUA THE MSTC SCAM, THE TRANSACTION OF PAYMENT OF RS 141.25 CR TO THE ASSESSEE JBGJPL IS CLEAN AND THERE IS SUSPICIOUS CIRCUMSTANCE ATTACHED TO THE SAID TRANSACTION. CONSIDERING THE ABOVE, IT IS THE CASE OF THE ASSESSEE THAT THE PROVISIONS OF SECTION 68 OF THE ACT ARE INVALIDLY INVOKED FOR MAKING ADDITION OF RS 141.25 CR BY THE AO AND CONFIRMED BY THE CIT(A). 48. WITH THE DIVERGENT STANDS NARRATED ABOVE, WE SHALL NOW CONCISE THE ISSUES TO BE ADDRESSED HERE AND SHALL TAKE UP T HE SAME FOR ADJUDICATION. THEY ARE: (I) GENERAL OBJECTIONS OF THE REVENUE AND (II) SPECIFIC OBJECTIONS. FIRST, WE SHALL DEAL WITH THE GENERAL OBJECTIONS; NAMELY BUSINESS SENSE AND VALIDITY OF THE CONSIGNMENT AGREEMENTS. THUS, REGARDING THE BUSINESS SENSE : WHETHER T HERE IS ANY B USINESS SENSE IN JBGJPL PAYING O UTSTANDING ARREARS OF RS 141.25 CR TO THE ASSESSEE ON B EHALF OF THE SAID THREE PARTIES. REGARDING THE DEFICIENCY IN THE ASSIGNMENT 34 AGREEMENTS WHETHER THE ABSENCE OF CONSENT BY THE DEBTORS AND THE BIPA RTITE NATURE OF THE ASSIGNMENT AGREEMENTS INVOLVING ONLY THE ASSESSEE AND THE JBGJPL , RENDERS THEM INVALID. WE SHALL TAKE THESE ISSUE IN THE SUCCEEDING PARAGRAPHS. 49 . BUSINESS SENSE : JBGJPL IS THE COMPANY IN THIS INDUSTRY FOR MANY YEARS. THERE IS SOME CO NFUSION IN THE MIND OF THE AO ABOUT ITS POSITION IN THE MARKET. AO IS OF THE WRONG OPINION THAT THE SAME IS A NEW COMPANY WITH LITTLE TURNOVER . BUT THE FACT IS THAT THE SAME CHANGED ITS NAME . FURTHER, THIS COMPANY IS ONE SUCH COMPANY, WHICH MADE PURCHASES FROM THE ASSESSEE INDEPENDENTLY ALONG WITH OTHER THREE COMPANIES NAMELY KAMPPL, SMCPL AND BOND GEMS P LTD (SISTER CONCERN OF JBGJPL). ALL THESE COMPANIES WERE ENGAGED BY THE MSTC FOR SUPPLY OF THE GOLD JEWELLERY AND FOR EXPORTING THEM IN THE NAME OF THE MS TC, A PUBLIC SECTOR COMPANY. THAT MAKES ONE THING CLEAR THEY ARE NOT UNKNOWN PARTIES TO ONE ANOTHER DURING THEIR FAVOURABLE TIMES. FROM THE FACTS PLACED BEFORE US, WE FIND ALL THESE FOUR COMPANIES TOGETHER ARE PARTY TO THE SCAM UNEARTHED BY THE CBI AND THE SAME IS IN THE PUBLIC KNOWLEDGE THROUGH THE PRINT MEDIA TOO. THE LD. COUNSEL FOR THE ASSESSEE MADE A STATEMENT AT BAR TO THE SAME EFFECT BASED ON THE COPY OF THE CHARGE SHEET IN THEIR POSSESSION FILED BY THE CBI. FURTHER ALSO, THE FACTS OF ASSESSEES SA LES TO THESE FOUR PARTIES AND CONSEQUENT RECEIVABLES OF THE TRADE LIABILITIES AND THEIR GENUINENESS ARE UNDISPUTED. ALL THESE PARTIES PAID THE LIABILITIES ON THEIR OWN DIRECTLY TO THE ASSESSEE LEAVING THE SAID GROSS OUTSTANDING LIABILITIES OF RS 141.25 CR. RESULTANTLY, BY ALL MEANS, THE ATTEMPTS OF THE ASSESSEE FOR EFFECTING RECOVERIES FROM THEM INDIVIDUALLY OR FROM JBGJPL ON BEHALF OF THE OTHERS, IS A COMMERCIAL DECISION OF THE ASSESSEE. THEREFORE, FROM THE ASSESSEES POINT OF VIEW, RECEIVING THE SAID A MOUNT FROM JPGJPL MAKES A BUSINESS SENSE. NOW COMING TO THE JBGJPL, IF IT MAKES THE SAME, WE FIND THE JPGJPL IS HEADED BY JAYESH DESAI AND HE IS THE CORE PERSON IN THE WHOLE SCHEME OF THE SCAM. WHILE MR DESAI HOLDS THE CONTROL AND MANAGEMENT OF M/S BOND GEMS P LTD, WE FIND HE, AS THE CONTROLLER OF JBGJPL AND IN THE STATUS OF THE CO - BENEFICIARY CUM - CO - ACCUSER, ASSUMES SIGNIFICANCE QUA THE IMPUGNED THREE PARTIES. CERTAINLY, M/S JBGJPL CANNOT BE HELD UNCONNECTED AND NON RESPONSIBLE ENTITY IN THE SCHEME A ND 35 PECULIAR CIRCUMSTANCES OF THIS CASE. ALONG WITH OTHER THREE CONCERNS, JBGJPL IS THE CO - ACCUSED IN THE SCAM AND ALL OF THEM ARE ALLEGED TO BE BENEFICIARIES OF THE SCAM FUNDS TOO. FURTHER, IT IS THE FACT THAT WHILE THE JBGJPL HAS PAID ALL THE OUTSTANDING LIABILITIES TO THE ASSESSEE, REST OF THE THREE PARTIES INCLUDING BOND GEMS P LTD, WHO ARE THE ALLEGED BENEFICIARIES OF THE SCAM MONEY STILL STANDING IN THEIR BOOKS AS WELL AS THE BOOKS OF THE ASSESSEE AS ITS DEBTORS. IN SUCH CIRCUMSTANCES, IN OUR OPINION, IT IS THE PRUDENCE OF THE ASSESSEE, TO ENTER INTO ASSIGNMENT AGREEMENT WITH THE JBGJPL, WHO IS THE CO - ACCUSED BY THE CBI ALONG WITH BOND GEMS P LTD AND TWO OTHERS. ON THESE REASONING, WE NEED TO EXAMINE IF THE ADDITION IN THE HANDS OF THE ASSESSEE ON TH E GROUND OF THE BUSINESS PRUDENCE AND INVOKING OF THE PROVISIONS OF SECTION 68 OF THE ACT ARE JUSTIFIED. WE HAVE ALREADY HELD THAT THE ASSESSEE IS JUSTIFIED IN EFFECTING RECOVERIES EVEN FROM THE THIRD PARTIES IE JBGJPL, THE CO - ACCUSED AND CO - BENEFICIARY IN THE MSTCS SCAM. AT THE SAME TIME, FROM THE OTHER ANGLE, IF THE JPGJPL IS JUSTIFIED IN ENTERING INTO ASSIGNMENT AGREEMENT OR NOT, IN OUR OPINION, NEEDS TO EXAMINED IN THE ASSESSMENT OF JBGJPL, WHICH IS UNDER SCRUTINY U/S 147 R W SECTIN 143(2) OF THE A CT. AS STATED IN THE STATEMENT TAKEN ON OATH FROM JAYESH DESAI, IT IS HIS SUBMISSION, WHICH IS NOT CONTROVERTED WITH THE EVIDENCE BY THE AO THAT IT IS THE COMMERCIAL DECISION FOR JBGJPL - JAYESH DESAI TO MAKE THE PAYMENT OF RS 141.25 CR ON BEHALF OF THE MKPP L, SMCPL AND BOND GEMS P LTD. WHEN THE ASSIGNEE CONSIDERS THE BUSINESS PRUDENCE TO MAKE THE PAYMENTS, CERTAINLY ON THE STRENGTH OF HIS ABILITY TO RECOVER THE SAME FROM THE ACTUAL DEBTORS ON THE STRENGTH OF THE ACTIONABLE CLAIMS TRANSFERRED BY THE ASSESSE E TO JBGJPL, WE FIND NO REASON FOR THE AUTHORITIES BELOW TO REJECT THE SAID EXPLANATION OF THE ASSESSEE ON FLIMSY GROUNDS SUCH AS (I) NO CONSENT OF THE DEBTORS; (II) ASSIGNMENT AGREEMENTS ARE NOT PROPERLY MADE ETC. NOW WE SHALL DEAL WITH ASSIGNMENT AGREEME NT DT 1.3.2009 AND ANALYZE HERE AS UNDER: 50 . QUESTIONABILITY OF THE ASSIGNMENT AGREEMENT: PAGE 667 - 668/PB6) : THE FOLLOWING IS THE SCANNED COPY OF THE SAID ASSIGNMENT AGREEMENT. FOR THE SAKE OF THE COMPLETENESS OF THIS ORDER, THE SAME IS INSERTED HERE AS UNDER: - 36 51. IN CONTINUATION OF THE ABOVE EXTRACTED ASSIGNMENT AGREEMENT, WE HAVE PERUSED THE CONFIRMATION OF THE DEBTS BY THE DEBTORS. FOR EXAMPLE, THE EXTRACT FROM THE COPY OF THE CONFIRMATION DT 31.3.2010 BY THE KA MALLE TO THE ASSIGNEE: (PP 815) READS AS UNDER: 37 REQUEST FOR BALANCE CONFORMATION IN CONNECTION WITH YOUR ACCOUNTS WE CONFIRM THAT THE BALANCE OF RS.. IS DUE TO YOU AS AT 31 ST MARCH 2010 ACCORDING TO OUR BOOKS. FURTHER, WE HAVE ALSO PERUSED THE LETTER OF ACCEPTANCE OF THE DEBTS BY THE ASSIGNEE. FIGURES ARE UNDISPUTEDLY ASCERTAINED BY THE CONCERNED PARTIES TOO. 52. THUS, WE HAVE PERUSED THE (I) COPIES OF THE CONFIRMATIONS OF THE ASSIGNED AMOUNTS BETWEEN THE ASSESSEE AND THE JBGJPL/BGPL (PAGES 664 TO 666OF THE PB) AND ALSO BETWEEN T HE ASSESSEE AND KA MALLE P P LTD (PAGE 815), (II) COPY OF THE LETTERS AND REMINDERS FROM THE ASSESSEE DEMANDING THE DEBTORS TO CLEAR ARREARS (PAGE 774 RELEVANT FOR SPACE AND PAGE 776 RELEVANT FOR KA MALLE) BEFORE THE ASSIGNMENT AGREEMENTS (PAGES 667 - 670 OF THE PB) WITH REGARD TO BOTH DEBTORS WHICH ARE SIGNED ON 1.3.2009;(III). COPIES OF THE SAID ASSIGNMENT DEED DT 1 ST MARCH 2009 AND ASSIGNING THE SUMS OF RS 111,67,70,622/ - INVOLVING SPACE MCPL AND RS 27,67,69,687/ - INVOLVING KA MALE PPL. ACCORDING TO THE SAI D AGREEMENTS, THE ASSIGNEE - JBGJPL IS KNOWN TO BOTH THE ASSESSEE AND THE SPACE AND KA MALLE AND IT WAS MUTUALLY DECIDED THAT HEREAFTER, THE DUES ARE RECEIVABLE BY THE ASSESSEE - ASSIGNOR FROM THE ASSIGNEE - JBGJPL. THE ASSIGNOR OBTAINED THE CONFIRMATION FROM TH E DEBTORS (PARA (IV) OF THE ASSIGNMENT DEED AND THEY BEAR THE SIGNATURE OF THE AGREED PARTIES, IF NOT SIGNED BY THE WITNESSES. GIVING EFFECT TO THE SAME, THE ASSIGNEE STARTED THE RECOVERY PROCEEDING AFTER INTIMATING THEM OF THE ASSIGNMENT OF ACTIONABLE CLA IMS AND FILED CIVIL SUITS AGAINST BOTH SPACE MCPL (PAGE 676 - 715 OF THE PAPER BOOK) AND KA MALLE (PAGES 783 - 858 OF THE PAPER BOOK). THE PERUSAL OF THESE SUITS CLEARLY INDICATES THE ASSIGNEES TOTAL RELIANCE ON THE SAID ASSIGNMENT DEEDS, CONFIRMATIONS, ABOVE SAID CORRESPONDENCE AMONG THE ASSSESSEE, ASSIGNEE AND THE DEFAULTED DEBTORS. AS PER THE CIVIL SUIT, THE DEFAULTS DEBTORS APPROACHED THE JBGJPL TO CLEAR THE DUES TO THE ASSESSEE AND NARRATED THE SPOILED RELATIONSHIPS WITH THE ASSESSEE AND REFERRED TO LOSS OF GOODWILL, BAD IMAGE/REPUTATION BUILT UP IN THE INDUSTRY ABOUT THEM AND, IN REPLY JBGJPL SIGNED THE ASSIGNMENT DEEDS AND PAID THE ARREARS TO THE ASSESSEE. HOWEVER, THE DEBTORS FAILED TO PAY THE SAME TO THE ASSIGNEE (PAGE 684 OF THE PB). SPACE MCPL CONFIR MED THE DUES PAYABLE TO THE ASSIGNEE VIDE LETTER DATED 31.3.2010 TOO. 38 THUS, THE DOCUMENTS CITED ABOVE SUGGEST THAT THE EXISTENCE OF THE UNDISPUTED DEBTS PAYABLE BY THE DEFAULTED DEBTORS ON THE ONE SIDE AND THE UNDISPUTED FACT OF ASSIGNMENT OF THE ACTIONA BLE CLAIMS ON THE OTHER. CONFIRMATIONS FROM ALL THE INVOLVED PARTIES ARE ON RECORD. IN SUCH CIRCUMSTANCES, THE AOS DECISION TO REJECT SUCH VALUABLE EVIDENCE AND PROCEED TO MAKE ADDITION OF THE SAID DEBTS ARE COMPLETELY CONTRARY TO SET PROCEDURE OF ASSESSM ENT. 52. LEGAL PROVISIONS UPHOLDING THE VALIDITY OF THE ASSIGNMENT AGREEMENTS: NOW WE SHALL ALSO ATTEND TO THE ASSESSEES ARGUMENT TOUCHING UPON THE APPLICABILITY OF THE PROVISIONS OF SECTION 130 OF THE TRANSFER OF PROPERTY ACT, 1882 AND SECTION 2(D) OF THE CONTRACT ACT, 1872 , WHICH ARE EXTRACTED AS UNDER: - 130. TRANSFER OF ACTIONABLE CLAIM. - (1) THE TRANSFER OF AN ACTIONABLE CLAIM WHETHER WITH OR WITHOUT CONSIDERATION SHALL BE EFFECTED ONLY BY THE EXECUT ION OF AN INSTRUMENT IN WRITING SIGNED BY THE TRANSFEROR OR HIS DULY AUTHORIZED AGENT, SHALL BE COMPLETE AND EFFECTUAL UPON THE EXECUTION OF SUCH INSTRUMENT, AND THEREUPON ALL THE RIGHTS AND REMEDIES OF THE TRANSFEROR, WHETHER BY WAY OF DAMAGES OR OTHERWIS E, SHALL VEST IN THE TRANSFEREE, WHETHER SUCH NOTICE OF THE TRANSFER AS IS HEREINAFTER PROVIDED BE GIVEN OR NOT: PROVIDED THAT EVERY DEALING WITH THE DEBT OR OTHER ACTIONABLE CLAIM BY THE DEBTOR OR OTHER PERSON FROM OR AGAINST WHOM THE TRANSFEROR WOULD, BU T FOR SUCH INSTRUMENT OF TRANSFER AS AFORESAID, HAVE BEEN ENTITLED TO RECOVER OR ENFORCE SUCH DEBT OR OTHER ACTIONABLE CLAIM, SHALL (SAVE WHERE THE DEBTOR OR OTHER PERSON IS A PARTY TO THE TRANSFER OR HAS RECEIVED EXPRESS NOTICE THEREOF AS HEREINAFTER PROV IDED) BE VALID AS AGAINST SUCH TRANSFER. (2) THE TRANSFEREE OF AN ACTIONABLE CLAIM MAY, UPON THE EXECUTION OF SUCH INSTRUMENT OF TRANSFER AS AFORESAID, SUE OR INSTITUTE PROCEEDINGS FOR THE SAME IN HIS OWN N AME WITHOUT OBTAINING THE TRANSFEROR' S CONSENT TO SUCH SUIT OR PROCEEDINGS AND WITHOUT MAKING HIM A PARTY THERETO. EXCEPTION. -- NOTHING IN THIS SECTION APPLIES TO THE TRANSFER OF A MARINE OR FIRE POLICY OF INSURANCE 2[ OR AFFECTS THE PROVISIONS OF SECTIO N 38 OF THE IN SURANCE ACT, 1938 (4 OF 1938 ) SECTION 2(D) IN THE INDIAN CONTRACT ACT, 1872 (D) WHEN, AT THE DESIRE OF THE PROMISOR, THE PROMISEE OR ANY OTHER PERSON HAS D ONE OR ABSTAINED FROM DOING, OR DOES OR ABSTAINS FROM DOING, OR PROMISES TO DO OR TO ABSTAIN FROM DOING, SOMETHING, SUCH ACT OR ABSTINENCE OR PROMISE IS CALLED A CONSIDERATION FOR THE PROMISE: 53. REFERRING TO THE ABOVE PROVISIONS OF LD AR FOR THE ASSESSEE MENTIONED THAT THE DEBTS INVOLVED CONSTITUTES ACTIONABLE CLAIMS AND THE SAME WERE TRANSFERRED BY THE ASSESSEE - TRANSFEROR BY VIRTUE OF THE ASSIGNMENT DEED TO THE ASSIGNEE - JBGJPL, WHO GOT THE AUTHORITY TO RECOVER THE SAME. THE TRANSFEREE IS IN THE PROCESS OF RECOVERY AND CIVIL SUITS/LEGAL NOTICES FILED OR ISSUED BY THE ASSIGNEE EVIDE NCES THE SAME. IN SUCH CIRCUMSTANCES, THE PAYMENTS MADE BY THE JBGJPL TO THE ASSESSEE ARE 39 LEGALLY SUSTAINABLE AND VALID. ON THE FACTS OF THIS CASE WITH LEGAL BACKGROUND BROUGHT OUT BY THE LD COUNSEL FOR THE ASSESSEE, WE FIND THE ARGUMENT OF THE ASSESSEE IS VALID. THEREFORE, WE FIND NO MISTAKE IN PROCESS OF ASSIGNMENT OF THE ACTIONABLE RIGHTS. AS REGARDS, THE ABSENCE OF SIGNATURE OF THE WITNESS ON THE ASSIGNMENT DEED, IT IS PERTINENT TO MENTION THAT IT IS THE PARTIES IN THE ASSIGNOR AND THE ASSIGNEE OF THE D EED TO DISPUTE THE EFFECTIVENESS OF THE DEED IN THE ABSENCE OF THE SAME BEING WITNESSED. ONCE THE OBLIGATIONS UNDERTAKEN UNDER THE DEED ARE DULY ACTED UPON BY THE PARTIES IT IS NOT THE PREROGATIVE OF THE REVENUE TO DISPUTE THE VALIDITY OF THE DEED ON THE B ASIS THAT THE SAME IS NOT WITNESSED. IT IS NEEDLESS TO FURTHER EMPHASIS THAT TRANSFER OF ACTIONABLE CLAIM DOES NOT REQUIRE THE CONSENT OF THE DEBTOR NOR THE ASSIGNMENT DEED REQUIRES THE DEBTOR ALSO TO BE PARTY TO THE SAID DEED. ALSO, ACCORDING TO THE PROVI SIONS OF SECTION 2(D) OF THE INDIAN CONTRACT ACT, CONSIDERATION MAY BE PAID BY ANY PERSON AT THE DESIRE OF THE PROVISION, IN THE INSTANT CASE, THE ASSESSEE IN RELATION TO THE DELIVERY OF GOODS TO THE BUYERS. IT IS ALSO A RELEVANT FACT TO MENTION THAT ONE OF THE DEFAULTED DEBTOR NAMELY SPACE MARCHANTILE CO P LTD PAID A SUM OF RS 1.72 CR (PAGE 661OF THE PAPER BOOK) ON 6.3.2009 TO THE ASSIGNOR AFTER THE ASSIGNMENT DEED DT 1.3.2009 WAS SIGNED AND THE SAID SUM WAS DULY T RANSFERRED TO THE ASSIGNEE IMMEDIATELY. THIS TRANSACTION ALSO SUGGESTS THE COMPLIANCE OF THE PARTIES TO THE CONSIGNMENT DEEDS. THEREFORE, WE FIND NO REASON TO QUESTION THE EXPLANATION OF THE ASSESSEE RELATING TO THE ASSIGNMENT DEEDS AND OTHER RELATED DOCUM ENTATION. NOW WE SHALL TAKE UP OTHER IMPORTANT LEGAL ISSUE RAISED BY THE ASSESSEE RELATING TO THE APPLICABILITY OF THE PROVISIONS OF SECTION 68 OF THE ACT. 54. APPLICABILITY OF THE PROVISIONS OF SECTION 68 OF THE ACT: IT IS THE CLAIM OF THE REVENUE THAT THE INVOKING OF THE PROVISIONS OF SECTION 68 OF THE ACT IS VALIDLY DONE BY THE ACT. PER CONTRA, IT IS THE CASE OF THE ASSESSEE THAT THERE IS NO CASE FOR INVOKING THE SAME. DETAILS ARE ALREADY DISCUSSED IN THE PRECEDING PARAGRAPHS. WE SHALL ANALYSE THE SAME . THE SAID PROVISIONS READ AS FOLLOWS: 40 CASH CREDITS. 68. WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION OF THE ASSESSING OFFICER, SATISFACTORY, THE SUM SO CREDITED MAY BE CHARGED TO INCOME - TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR : PROVIDED THAT WHERE THE ASSESSEE IS A COMPANY (NOT BEING A COMPANY IN WHICH THE PUBL IC ARE SUBSTANTIALLY INTERESTED), AND THE SUM SO CREDITED CONSISTS OF SHARE APPLICATION MONEY, SHARE CAPITAL, SHARE PREMIUM OR ANY SUCH AMOUNT BY WHATEVER NAME CALLED, ANY EXPLANATION OFFERED BY SUCH ASSESSEE - COMPANY SHALL BE DEEMED TO BE NOT SATISFACTORY, UNLESS ( A ) THE PERSON, BEING A RESIDENT IN WHOSE NAME SUCH CREDIT IS RECORDED IN THE BOOKS OF SUCH COMPANY ALSO OFFERS AN EXPLANATION ABOUT THE NATURE AND SOURCE OF SUCH SUM SO CREDITED; AND ( B ) SUCH EXPLANATION IN THE OPINION OF THE ASSESSING OFFICER AFORESAID HAS BEEN FOUND TO BE SATISFACTORY: PROVIDED FURTHER THAT NOTHING CONTAINED IN THE FIRST PROVISO SHALL APPLY IF THE PERSON, IN WHOSE NAME THE SUM REFERRED TO THEREIN IS RECORDED, IS A VENTURE CAPITAL FUND OR A VENTURE CAPITAL COMPANY AS REFERRED T O IN CLAUSE ( 23FB ) OF SECTION 10 . 55. THE PROVISIO NS SUGGESTS THE IDENTITY, CREDIT WORTHINESS, GENUINENESS OF THE TRANSACTION AND SATISFACTION OF THE AO ARE VARIOUS INGREDIENTS AND THE ASSESSEE IS UNDER OBLIGATION TO DEMONSTRATE THE SAME, WHEN A CASH CREDIT IS FOUND IN THE BOOKS OF THE ASSESSEE. ONCE THE PRELIMINARY ONUS IS DISCHARGED BY THE ASSESSEE, IT IS FOR THE AO TO REBUT THE SAME BEFORE MAKING ADDITION UNDER THESE PROVISIONS. AS SUCH, THESE ARE ANTI TAX - EVASION ORIENTED PROVISIONS AND ONUS IS GREATLY ON THE AO. WE SHALL NOW EXAMINE THE APPLICATION OF THE PROVISIONS TO THE FACTS OF PRESENT CASE. A. IDENTITY OF THE CREDITOR IE JBGJPL JBGJPL, BEARING THE PAN AACCJ 0316R, IS A COMPANY ENGAGED IN THE BUSINESS OF TRADING OF THE PRECIOUS METAL, STUDDED DIAMOND AND DIAMOND JEWELLERY. THE SAME IS INCORPORATED AS COMPANY IN JULY 2008. OTHERWISE , THE ASSESSEE WAS IN EXISTENCE IN DIFFERENT STATUS OVER DECADES. PRIOR TO CORPORATISATION, THE JBGJPL WAS A PARTNERSHIP FIRM IN THE NAME OF JOSHI BULLION GEMS AND JEWELLERY FROM AY 2005 - 06 ONWARDS. IN THAT AY, THE FIRM REGIS TERED THE SALES NEARLY 304 CRORES. (PAGE 1321 OF THE PB ) , 293.40 CR IN AY 2006 - 07 (PAGE 1322), 436.50 CR IN AY 2007 - 08 (PAGE 1323), 330.41 CR IN THE AY 2008 - 09 (PAGE 1324) ETC. TECHNICALLY, THE ASSESSEE FILED ITS FIRST RETURN IN THE STATUS OF COMPANY FOR T HE AY 2009 - 10 (634) WITH SOME PROBLEMS ATTACHED. ASSESSEE REPORTED TO THE DEPARTMENT THE SALES TURNOVER OF RS 193.21 CR FOR THE SAID 41 AY. ACCOUNTS OF THE ASSESSEE ARE AUDITED BY THE STATUTORY AUDITORS NAMELY KAUSHIK KR SHAH AND ASSOCIATES AND THEY IMPUGNED DEBTS ARE DULY REFLECTED IN THE BOOKS OF THE ASSIGNEE UNDER THE SCHEDULE SUNDRY DEBTORS (COPY PLACED AT PAGE 651 OF THE PB). THE SAID COMPANY IS HEADED BY SRI JAYESH R DESAI S/O RAMANLAL DESAI (45YEARS) AS A DIRECTOR APART FROM OTHER TWO DIRECTORS NAMELY R UPESH DESAID AND DHAIVAT H VIKHARIA. (PAGE 604 OF PB). FURTHER, BOND GEMS P LTD IS THE SISTER CONCERN OF THE JBGJPL. JAYESH DESAI RESPONDED TO THE NOTICE DT 5.2.13 U/S 131 OF THE ACT ON BEHALF OF THE JBGJPL AND DEPOSED STATEMENT ON OATH ON 12.2.2013 AT 3 P M IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE SAID NOTICE. MR DESAI RESPONDED TO 32 LONG QUESTIONS AND STATEMENT IS PLACED AT PAGE 604 TO 611 OF THE PAPER BOOK. AS A FOLLOW UP, MR DESAI ALSO FURNISHED PROMISED INFORMATION IN THE TAPALS TO THE AO. AO HAS IN FACT DID NOT DOUBT THE IDENTITY OF THE CREDITOR. IN FACT, IT IS THE CIT(A), WHO RAISED THE ISSUE OF IDENTITY. OTHERWISE, THE AO IS RIGHTLY SATISIFIED ABOUT THE SAME. WITH SO MUCH OF INFORMATION AVAILABLE ON RECORDS ABOUT THE JPGJPL, IT IS UNFORT UNATE THAT THE REVENUE HELD THAT THE IDENTITY IS ONLY PARTLY PROVED. IN OUR OPINION, CIT(A) IS PROPER IN COMING TO THE SAID CONCLUSION AND THEREFORE, WE CONFIRM THE ARGUMENT OF THE ASSESSEES COUNSEL ON THIS ISSUE OF IDENTITY AND DECIDE IN FAVOUR OF THE ASSESSEE. B. CREDITWORTHINESS OF THE CREDITOR IE JBGJPL REVENUE HOLDS THAT THE JBGJPL IS NOT CREDIT WORTH TO PROVIDE ORAL GUARANTEE TO RS 141.25 CRORES. BUT THE AO/ CIT(A) ADOPTED A SHORT - SIGNED APPROACH WITH PRE - MEDIATED MIND TO SOMEHOW MAKE ADDITION U/S 68 OF THE ACT AND THEY HAVE NOT APPRECIATED ALL THE FACTS AND BACKGROUND OF THE ASSESSEE. THEY HAVE NOT CONSIDERED THE FACT THAT THE ASSESSEE WAS IN EXISTENCE BEFORE CORPORATIZATION. PRIOR TO THE SAME, THE ASSESSEE EXISTED AS P ARTNERSHIP FIRM AND REGISTERED MULTIPLE 100S TO CR OF TURNOVER OF SALES. PRIOR TO CORPORATIZATION, THE JBGJPL WAS A PARTNERSHIP FIRM IN THE NAME OF JOSHI BULLION GEMS AND JEWELLARY FROM AY 2005 - 06 ONWARDS. IN THAT AY, THE FIRM REGISTERED THE SALES NEARLY 304 CRORES. (PAGE 1321 OF THE P B ) , 293.40 CR IN AY 2006 - 07 (PAGE NO. 1322 OF THE PB ), 436.50 CR IN AY 2007 - 08 (PAGE 1323), 330.41 CR IN THE AY 2008 - 09 (PAGE 1324) ETC. DURING THE DEPOSITION OF SRI DESAI ON 12.2.2013 42 AT 3 PM, IN RESPONSE TO THE QUESTIONS ON THE SOURCES OF FUNDS TO CLEAR THE EARLIER, IT WAS MENTIONED THAT HE HAS CREDIT WORTHINESS AND FILED NUMBER OF STATEMENTS/BANK EXTRACTS TO EVIDENCE THE ABILITY TO PAY THE SUM OF RS 141.25 CR (PAGE 671 TO 675 OF THE PB). THESE PAPERS WERE FILED BEFORE THE AO UNDISPUTEDLY AND THERE WERE N O FURTHER ENQUIRIES CONDUCTED OR INTENDED TO BE CONDUCTED BY THE AO. IN THAT SENSE, THE ASSESSEE DISCHARGED THE ONUS AND THE ONUS OF REBUTTING THE SAME SHIFTED TO THE REVENUE. THEREFORE, THE CONCLUSIONS OF THE CIT(A) ON THIS LIMB OF SECTION 68 OF THE ACT ARE NOT BASED ON SOUND REASONING. C. GENUINENESS OF THE TRANSACTION OF THE CREDITOR IE JBGJPL GENUINE NE SS OF THE TRANSACTION OF IMPUGNED CASH CREDIT NEEDS TO BE EXAMINED FROM THE ANGLE OF THE PARTIES INVOLVED IN THE IMPUGNED TRANSACTION. THE SUM OF RS 131.25 CR WAS PAID BY THE JOSH BULLION GEMS AND JEWELLERY P LTD (JBGJPL) AND THE SAME WAS RECEIVED BY THE ASSESSEE. IN THE PRECEDING PARAGRAPHS, WE HAVE DISCUSSED HOW THE TWO PARTIES ARE GENUINE AND THEIR IDENTITY IS BEYOND DOUBT. WE HAVE ALSO ANALYSED AND HELD THAT M/S JBGJPL HAS THE ABILITY TO PAY THE SAID AMOUNT TO ASSSESSEE. VALID TRANSFER OF THE ACTIONABLE CLAIMS QUA THE ASSIGNMENT DEEDS ARE ALSO UPHELD. IN SUCH CIRCUMSTANCES, WE FIND NO REASON TO INVOKE THE PROVISIONS OF SECTION 68 OF THE ACT. YES, THERE IS A PROBLEM OF MSTC SCAM AND RESULTANT FILING OF THE CASES BY THE CBI ON THE ASSIGNEE ONE SIDE AND OTHER DEBTORS ON THE OTHER. CLOSE READING OF THE TRANSACTIONS OF PAYMENT OF THE SUM OF RS 141.25 CR TO THE ASSESSEE, SUGGESTS THAT THE ASSESSEE IS THE CO - SUFFEROR (EXPORTERS HAVE NOT PAID THEIR DEBTS TO THE ASSESSEE) ALONG WITH THE MSTC AND WE SHOULD DISTINGUISH THE SAME FROM THE OTHER MESS REVOLVING AROUND THE MSTC SCAM. THIS APPEARS TO BE THE REASON THAT THE CBI HAS NOT INCLUDED THE ASSESSEE WHILE BOOKING THE SCAMSTERS. WE FIND NO FAULT WITH THE ASSESSEE IN EFFECTING RECOVERIES OF THE ELIGIBLE DEBTS FROM THE DEBTORS BY ALL MEANS, EITHER DIRECT AS WELL AS THE INDIRECT METHODS. IN THAT SENSE OF THE MATTER, THE TRANSACTION OF PAYMENT OF RS 141.25 CR SHOULD B E CONSIDERED AS GENUINE TRANSACTION FOR THE PURPOSE OF SECTION 68 OF THE ACT. 43 D. SATISFACTION OF THE AO FROM THE PERUSAL OF THE ORDERS OF THE REVENUE, WE FIND THAT THE AO MADE ADDITIONS BY REJECTING ASSESSEES ARGUMENTS BASED ON THE ASSIGNMENT AGREEME NTS AND FAILED TO FIND THE BUSINESS SENSE IN THE PAYMENTS MADE BY THE M/S JBGJPL. OTHER DEFICIENCIES INCLUDE ABSENCE OF CONSENT OF THE DEBTORS TO THE SCHEME OF ASSIGNMENT, THE ABSENCE OF SIGNATURES OF THE WITNESSES ON THE DOCUMENTS, FAILURE TO SERVE THE NOTICES U/S 131 ON A DEBTOR AND THE EXPRESS DERECOGNISTION OF THE DEBTORS TO THE SAID SCHEME OF ASSIGNMENT. IN THE PRECEDING PARAGRAPHS OF THIS ORDER, WE HAVE DEALT WITH EACH OF THE ISSUES AND UPHELD THE VALIDITY OF THE SCHEME OF ASSIGNMENT CONSIDERING T HE EXPRESS LEGAL PROVISIONS UNDER VARIOUS ACTS. CONSIDERING THE SAME, WE ARE OF THE OPINION THAT THE DISSATISFACTION OF THE AO IS MISPLACED. E. SOURCES OF THE SOURCES/ORIGIN OF THE ORIGIN WE ARE NOW DEALING WITH THE PROVISIONS OF SECTION 68 OF THE ACT TO TH E TRANSACTIONS OF PAYMENTS OF RS 141.25 CR BY JBGJPL TO THE ASSESSEE AND THE ENTRIES IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, THE SELLER OF THE GOODS. CREDITWORTHINESS OF THE CREDITOR HAS ALREADY BEEN DISCUSSED ABOVE. AS PART OF THE SAME, IT IS ONE OF THE ARGUMENTS OF THE LD DR THAT THE SOURCES OF THE FUNDS OF JBGJPL ARE UNEXPLAINED. IN THIS REGARD WE HAVE EXAMINED BOTH THE STATEMENT OF SRI JAYESH R DESAI GIVEN ON BEHALF OF THE JBGJPL AND ALSO THE DOCUMENTS FILED BY HIM (PAGE 671 TO 675 OF THE PB) PROVIDIN G THE DETAILS OF FUNDS FLOW FOR THE YEAR UNDER CONSIDERATION. THE SAID DOCUMENTS PROVIDE FOR DAY - TO - DAY DEPOSITS AND PAYMENT MADE TO THE ASSESSEE BY JBGJPL, AS GUARANTOR - TURNED - ASSIGNEE, AMOUNTING TO RS 141.25 CR. IT IS UNDISPUTED FACT THEY ARE FILED BEFOR E THE AO/CIT(A) BEFORE SEPTEMBER 2013, THE DATE OF THE IMPUGNED ORDER. QUESTIONS NO 13, 23 ETC OF THE STATEMENT DT 12.2.13, SUPRA AND CORRESPONDING ANSWERS ARE RELEVANT HERE. PER CONTRA, IT IS THE CASE OF THE ASSESSEES AR THAT THE ASSESSEE ANSWERED TO ALL THE QUERIES ON THIS ISSUE OF SOURCES OF FUNDS TO PAY THE SUM AMOUNTING TO RS 141.25 CR WITH THE DOCUMENTARY EVIDENCES. AS PER LD AR, CONSIDERING THE PERIOD PRIOR TO CORPORATIZATION, THE HIGH TRADE TURNOVERS NARRATED SUPRA OF THE JBGJPL, ITS IMPOSING STAND ING IN THE INDUSTRY, PROVIDING GUARANTEE TO 44 THE ASSESSEE FOR THE TRADE LIABILITIES OF THE IMPUGNED THREE PARTIES ARE JUSTIFIED. SO FAR AS THE SOURCES OF THE FUNDS IN THE BOOKS OF THE JBGJPL TO ACCOUNT FOR THE PAYOUTS OF RS 141.25 CR, IT IS THE CASE OF ASSE SSEE THAT THE SOURCES ARE EXPLAINED ALREADY AND THE PRIMARY ONUS IS DISCHARGED BY THE CREDITOR SUCCESSFULLY. THUS, THE ATTEMPTS OF THE LD CIT - DR IS TO JUSTIFY THE ADDITION BASED ON THE ARGUMENT THAT THE ASSESSEE FAILED TO EXPLAIN THE SOURCES OF THE CREDITO R CONSTITUTES SOURCES OF SOURCES OR ORIGIN OF ORIGIN WHICH IS NOT PERMITTED IN LAW AND TO SUPPORT THE PROPOSITION, THE LD. A.R. RELIED ON VARIOUS BINDING JUDGMENTS. AS PER LD COUNSEL, IN CASE OF ANY SUSPICION OR DOUBT IN THE MINDS OF THE AUTHORITIES, T HEY SHOULD EXAMINE THE SAME IN THE CASE OF THE JBGJPL, WHICH IS THE SUBJECT MATTER OF CRIMINAL PROCEEDINGS BY THE CBI. IT IS ALSO BROUGHT TO OUR NOTICE THAT THE REVENUE ALREADY REOPENED THE ASSESSMENT OF JBGJPL FOR THE RELEVANT AY 2009 - 10. IN SUPPORT, THE ASSESSEE FILED THE COPY OF THE LETTER TO THE AO DT 5.12.13 REFERRING TO ISSUANCE OF NOTICE U/S 148 OF THE ACT (PAGES1328 OF THE PB). CONCERNED AO OF THE ASSESSEES CONFIRMED THE SAME DURING THE PROCEEDINGS BEFORE US. THUS, CONSIDERING THE DISCHARGE OF ONUS BY THE ASSESSEE, WE ARE OF THE OPINION, IT IS THE CASE OF REVENUE ATTEMPTING TO AREA OF SOURCES OF SOURCES OR ORIGIN OF ORIGIN WHICH IS NOT PERMITTED IN LAW. SO FAR AS THIS ASSESSEE IS CONCERNED, WE ARE OF THE CONSIDERATION OPINION THAT THE IMPUGNED AD DITION IS NOT JUSTIFIED U/S 68 OF THE ACT. 56. DEBTOR SPECIFIC OBJECTIONS: AO RAISED AND RELIED ON A COUPLE OF ISSUES FOR MAKING THE SAID ADDITION OF RS 141.25 CR. REFERRING TO THE STATEMENT OF M/S KAMPPL. THE AO MENTIONED THAT THIS DEBTOR REFUSED TO GIV E CONSENT TO THE BIPARTITE SCHEME OF ASSIGNMENT. REFERRING TO THE OTHER DEBTOR NAMELY, M/S SPACE PPL, AO HOLDS THE SAID PARTY IS NOT AVAILABLE FOR SERVICE OF THE NOTICE U/S 131 OF THE ACT. REGARDING THE THIRD DEBTOR NAMELY, M/S BOND GEMS PVT. LTD, AOS O BJECTION RELATES SHARING OF THE COMMON ADDRESS OF THE ASSIGNEE. 57. IN OUR OPINION, THESE ISSUES DO NOT ANYWAY BECOME RELEVANT ONCE THE SCHEME OF ASSIGNMENT IS VALID LEGALLY. WE HAVE ALREADY HELD THAT THE BIPARTITE AGREEMENT CONSTITUTES A VALID ONE CONS IDERING THE PROVISIONS OF SECTION 130 OF THE TP ACT. FURTHER, THE SERVICE OF NOTICE ON M/S SPACE PPL CANNOT ALONE BE THE GROUND 45 TO COME TO THE INFERENCE ADVERSE TO THE ASSESSEE. AO OUGHT TO HAVE SEEN THE FACT THAT THE DEBTOR HAS MADE LOTS OF PURCHASES, EXP ORTS, BANKING TRANSACTIONS, INVESTIGATION AND FINALIZING CHARGE SHEET BY THE CBI ON THE SAID DEBTOR ETC. REGARDING M/S BOND GEMS PVT. LTD , THE AOS OBJECTION IS NOT SUSTAINABLE LEGALLY. 58. THEREFORE, CONSIDERING THE ABOVE DETAILED DISCUSSION AND ANALYSI S, WE ARE OF THE VIEW THAT THE OBJECTIONS OF THE AO OR CIT(A) ARE NOT SUSTAINABLE. ACCORDINGLY, THE GROUND 6 OF THE ASSESSEES APPEAL IS ALLOWED. 59. GROUND NO.7 RELATES TO THE ADDITION OF RS. 9,43,68,687/ - MADE ON ACCOUNT OF SALE OF GOLD JEWELLERY TO K.A. MALLE PHARMACEUTICALS P. LTD. (KAMPPL). IN CONNECTION WITH THE TRANSACTION, THE SPECIAL AUDITORS COMMENTED THAT THE ASSESSEE DELIVERED RELEVANT GOODS ON 24.10.2008, WHEREAS THE SALE TOOK PLACE ON 31.10.2008. THE STOCK REGISTER OF THE ASSESSEE DOES NOT INDICATE THE OUTWARD MOVEMENT OF THE SAID JEWELRY ON 24.10.008. AO NOTED THAT THE DATE IN THE BOOKS IS MENTIONED AS 23.10.2008 WRONGLY. IT IS THE CLAIM OF THE ASSESSEE THAT THE GOODS WERE TRANSFERRED ON 24.10.2008 AND THE RELEVANT INVOICE WAS ACTUALLY RA ISED ON THE PARTY ON 31.10.2008. AO DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE THAT SUCH DELIVERY IS POSSIBLE BETWEEN THE FAMILIAR PARTIES. AS PER THE ASSESSEE, THE DELIVERING THE GOODS IN ADVANCE AND THE INVOICE IS RAISED SUBSEQUENTLY IS PART OF THE BUSINESS OF THIS KIND. OTHERWISE, IT IS A FACT FOUND IN THE BOOKS THAT THERE ARE NO ENTRIES IN THE STOCK REGISTERS FROM 24 TH TO 31 ST OCTOBER, 2008. AO REJECTED THE EXPLANATION OF THE ASSESSEE AND MADE THE IMPUGNED ADDITION. OTHERWISE, THERE IS NO INCRIM INATING EVIDENCE WITH THE AO ABOUT THE ALLEGED UNACCOUNTED SALES OF THE GOODS. DURING THE FIRST APPELLATE PROCEEDING, THE CIT (A) NOTICED THAT THE STOCK REGISTER DOES NOT INDICATE REDUCTION OF STOCK ON 24.10.2008 AND THE SAME WAS REDUCED ONLY ON 31.10.200 8 ON THE BASIS OF INVOICE RAISED. IT IS THE LOGIC OF THE CIT(A) THAT WHEN THERE IS DELIVERY OF GOODS ON 24 TH OCTOBER, THE STOCK REGISTER SHOULD HAVE REFLECTED REDUCTION TO THAT EXTENT. BUT THE FACT THAT THERE IS NO DELIVERY/TRANSFER OF GOODS THEREAFTER TIL L 31 ST OCTOBER WHEN THE GOODS ARE ACTUALLY SOLD BY RAISING THE INVOICE DT 31 ST OCTOBER. THE INACCURACY IS WITH REFERENCE TO THE SAID DELIVERY OF GOODS ON 24 TH OCTOBER. IS SUCH INACCURACY GOOD ENOUGH TO MAKE ADDITIONS WITHOUT HAVING ANY 46 FURTHER CORROBORATIV E EVIDENCES IN POSSESSION OF THE AO AGAINST THE ASSESSEE? SHOULD NOT HAVE THE AO MADE ADDITION CONSIDERING THE FACT IT AMOUNTS DOUBLE ADDITION AS THE SAID SUM OF RS 9,43,68,687/ - IS PART OF THE OUTSTANDING BALANCES OF RS 27,67,69,687 INVOLVING KAMPPL U/S 6 8 OF THE ACT. HOWEVER, CIT (A) CONFIRMED THE ADDITION MADE BY THE AO VIDE PARA 28 OF HIS ORDER. THE REASONS FOR CONFIRMING THE SAME ARE THAT BUT THE CASE OF THE DEPARTMENT IS THAT SUM PAID BY M/S JOSHI BULLION IS FOR REASONS UNKNOWN TO THE DEPARTMENT AN D THEREFORE, BROUGHT O TAX AS UNEXPLAINED INCOME U/S 68 OF THE ACT WHICH VIEW WAS ALREADY UPHELD VIDE GROUND NO D ABOVE. IN VIEW OF THIS IT IS HEREBY HELD THAT THERE IS NO DOUBLE TAXATION. SINCE THE STOCK POSITION AS ON 24.10.2008 DOES NOT REFLECT THE SA LE AS ON THAT DATE, THE ADDITION OF RS 9,43,68,687/ - MADE BY THE AO IS HERE BY UPHELD. (PART OF THE PARA 28). AGGRIEVED WITH THE DECISION OF THE CIT (A), ASSESSEE IS IN APPEAL BEFORE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUND NO.7. 60. DURING THE PRO CEEDINGS BEFORE US, ASSESSEE SUBMITTED THE COPY OF THE DELIVERY CHALLAN DT 24.10.2008 IN SUPPORT OF THE BOOK ENTRY AND ALSO THE COPY OF INVOICE DT 31.10.2008 AND IT IS NOTED THAT THE SAME WERE FURNISHED TO THE SPECIAL AUDITORS TOO. AS SUCH, THERE ARE NO ADVERSE COMMENTS ON THE BONA FIDES OF THE SAID DELIVERY CHALLAN AND THE RAISING OF INVOICES AT LATER TIME WERE JUSTIFIED. YES, THERE IS SOME PROBLEM WITH THE STOCK REGISTER AND THE WAY THEY ARE MAINTAINED SUCH AS CORRESPONDING REDUCTION OF GOODS IS NOT REF LECTED. RELYING ON THE PAGE 576 OF THE PAPER BOOK NO.3, LD COUNSEL ARGUED TO EVIDENCE THAT THE MATERIAL SOLD TO KAMPPL WAS RECEIVED FROM LABOUR JOB WORKER ON 24.10.2008. HE ALSO RELIED ON THE LABOUR CHARGES BILL COPY, WHICH IS PLACED AT 579 TO 580 OF THE PB 3. HE ALSO FURNISHED THE COPY OF THE SECURITY AGENCY DELIVERY NOTE AND THE COPY OF INVOICE DATED 31.10.2008. IT IS THE ARGUMENT OF THE ASSESSEE THAT THE DELIVERY NOTICE IS DATED 24.10.2008 AND THE INVOICE DATED 31.10.2008. THERE IS NO DISCREPANCY IN THE STOCK REGISTER SO FAR AS THE STOCK QUANTITY IS CONCERNED. IN SUCH CIRCUMSTANCES, WITHOUT REJECTING THE BOOKS OF ACCOUNT NO ADDITION CAN BE MADE VALIDLY. 61. ON THE OTHER HAND, LD DR RELIED ON THE ORDER OF THE AO AND THE CIT (A). 47 62. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AND THE RELEVANT PAPERS PLACED BEFORE US. IT IS THE CASE OF THE ASSESSING OFFICER THAT THE SALE INVOICE IS LATER IN TIME IN THE PROCESS HE IGNORED THE FACT ABOUT THE LABOUR CHARGES BILL, DELIV ERY OF THE RELEVANT MATERIAL BY LABOURERS OF THE ASSESSEE, ENTRY IN THE BOOKS OF ACCOUNTS ON 24.10.2008, THE DATE ON WHICH MATERIAL WAS DELIVERED TO KAMPPL INVOICE BILL WAS DATED 31.10.2008. IT IS A FACT THAT THERE ARE NO TRANSACTIONS FROM 24.10.2008 TO 3 1.10.2008. IT IS ALSO A FACT THAT THERE IS NO DISCREPANCY SO FAR AS THE QUANTUM OF STOCK IS CONCERNED AS ON 31.3.2009. THE ASSESSING OFFICER DOES NOT HAVE ANY INCRIMINATING MATERIAL TO SUGGEST THAT THE ASSESSEE HAS SOLD THE MATERIAL RECEIVED FROM THE LABO URERS ON 24.10.2008. FURTHER, IN OUR OPINION, THE ARGUMENTS OF THE ASSESSEE ABOUT THE DOUBLE ADDITION ARE DISMISSED BY THE CIT(A) GIVING FLIMSY REASONS. RELEVANT PARTS FROM HIS ORDER ARE ALREADY EXTRACTED ABOVE. CONSIDERING THE TALLYING OF THE STOCK REGIS TER IN THE ABSENCE OF THE DISCREPANCIES, WE ARE OF THE OPINION THAT THE DECISION OF THE CIT (A) IN THIS REGARD IS REQUIRED TO BE REVERSED. ACCORDINGLY, GROUND NO. 7 RAISED BY THE ASSESSEE IS ALLOWED . 63 . GROUND NO.8 RELATES TO THE DISALLOWANCE OF COMMISS ION PAID OF RS.1,28,75,553/ - . THIS GROUND HAS TWO SEGMENTS NAMELY RS. 1,26,94,987 AND RS. 1,80,566/ - . RELEVANT BASIC DETAILS ARE DISCUSSED BY THE AO IN PARA 6 OF HIS ORDER. THE SAID PARA STARTS WITH THE FACT THAT ASSESSEE CLAIMED COMMISSION EXPENSES OF RS. 4,98,20,829/ - IN THE PROFIT AND LOSS ACCOUNT. THIS ISSUE WAS REFERRED TO THE SPECIAL AUDITORS. THE SAID COMMISSION IS CLAIMED TO HAVE BEEN INCURRED FOR OBTAINING BUYER CREDIT FACILITY FROM BANKS. AFTER ESTABLISHING THE NEXUS AND OTHER RELEVANT DET AILS, THE SPECIAL AUDITORS HELD A SUM OF RS. 1,26,94,987/ - WAS FOUND NOT ELIGIBLE FOR WANT OF NEXUS RELATED DETAILS. FURTHER, REGARDING ANOTHER PAYMENT OF COMMISSION OF RS. 1,80,566/ - INCURRED FOR CLIENT INTRODUCTION, THE SPECIAL AUDITORS HELD THAT NO DOC UMENTARY EVIDENCE WAS AVAILABLE IN SUPPORT OF THE CLAIM. DURING THE ASSESSMENT PROCEEDINGS, ASSESSING OFFICER GRANTED OPPORTUNITY TO THE ASSESSEE TO ESTABLISH THE NEXUS VIDE ITS LETTER 19.7.2012. ASSESSEE FURNISHED REPLY DATED 4.8.2012 ALONG WITH CONFIRM ATION LETTERS FROM THIRD PARTIES. AO DID NOT ACCEPT THE SAME MENTIONING THAT 48 FILING THE CONFIRMATION WITHOUT ESTABLISHING THE NEXUS OF THE EXPENSES OF THE BUSINESS TO THE ASSESSEE, THE CLAIM IS NOT ALLOWABLE. ACCORDINGLY, THE AO INVOKED THE PROVISIONS OF SECTION 37 OF THE ACT AND MADE ADDITION OF RS. 1,26,94,987/ - . WITH REGARD TO THE COMMISSION EXPENSES PAID OF RS. 1,80,566/ - , INCURRED FOR CLIENT INTRODUCTION, ASSESSEE SUBMITTED THAT THE SAID AMOUNT WAS PAID FOR CLIENTAGE IN THE RSBL SPOT I.E., ONLINE TRA DING PLATFORM FOR (I) MARKETING EXECUTIVE / AGENTS; (II) BROKERS FOR BULLION DEALS AND (III) REMISSORY COMMISSION IN CASE OF MCX AND FURNISHED RELEVANT CORRESPONDENCES. IT IS THE CLAIM OF THE ASSESSEE THAT THIS EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIV ELY FOR THE PURPOSE OF THE ASSESSEES BUSINESS AND THEREFORE, IT IS AN ALLOWABLE EXPENDITURE U/S 37 OF THE ACT. HOWEVER, AO DID NOT CONSIDER THE SAME AS A SATISFACTORY EXPLANATION AND DISALLOWED THE SAME HOLDING THAT (I) NO EVIDENCE WAS FURNISHED ESTABLISH ING THE GENUINENESS OF EXPENSES AND (II) MERE FILING OF THE CONFIRMATION LETTERS FROM THE ALLEGED PARTIES DOES NOT ESTABLISH THE GENUINENESS OF EXPENSES. ACCORDINGLY, AO MADE ADDITION OF RS. 1,80,566/ - . MATTER TRAVELLED TO THE CIT (A). PARA 29 TO 31 OF T HE IMPUGNED ORDER ARE RELEVANT HERE. 64. DURING THE PROCEEDINGS BEFORE THE CIT (A), ASSESSEE MADE WRITTEN SUBMISSIONS WHICH ARE EXTRACTED AT PARA 30 OF THE IMPUGNED ORDER. ON CONSIDERING THE SAID REPLY, CIT (A) CONFIRMED THE ADDITION MADE BY THE AO WITH R EGARD TO THE SUM OF RS. 1,26,94,987/ - . THE AO, HOWEVER, DID NOT DEAL WITH THE SUM OF RS. 1,80,566/ - . REGARDING THE ADDITION OF RS. 1,26,94,987/ - , THE DECISION OF THE CIT (A) IS GIVEN AS UNDER: 31.0. HOWEVER, THIS SUBMISSION OF THE APPELLANT HAS NOT BEEN ESTABLISHED BEFORE THE ASSESSING OFFICER. THE APPELLANTS ARGUMENT IS THAT TO CARRY ON DIAMOND TRADING BUSINESS OF ABOUT RS. 2,800/ - CRS AND SIMULTANEOUS BORROWINGS FROM NUMEROUS BANKS OF ABOUT RS. 2500/ - CRS AND ALSO TO OBTAIN BANK GUARANTEE ETC., REQUIRES CONTINUOUS PERSUASION AND LIAISONING WITH THE BANK AND FOR THIS PURPOSE, COMMISSION PAYMENTS WERE MADE TO PROFESSIONALS OR RETIRED BANK EMPLOYEES. THE DEPARTMENT DID NOT DISPUTE THE ASSERTION THAT THE COMMISSION IS REQUIRED TO BE PAID FOR BUYERS CREDIT. BUT THE DEPARTMENTS CASE IS THAT OUT OF RS. 4,98,20,829/ - SHOWN TOWARDS BUYERS CREDIT FACILITY, ONLY A SUM OF RS. 1,26,94,987/ - WAS DISALLOWED FOR WANT OF PROOF FOR THE NATURE OF SERVICES RENDERED. THEREFORE, THE ADDITION OF RS. 1,26,94,987/ - M ADE BY THE ASSESSING OFFICER IS HEREBY UPHELD 65. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE REVENUE OFFICERS WERE COMPLETELY PREJUDICED AGAINST THE ASSESSEE AND THEY 49 HAVE MECHANICALLY CONFIRMED THE ADDITION WITHOUT C ONSIDERING THE EVIDENCE FURNISHED BY HIM. ANOTHER ADDITION OF RS. 1,80,566/ - IS CONCERNED, THERE IS NO WHISPER ABOUT THE SAME BY THE CIT (A). LD COUNSEL FURTHER MENTIONED THAT THE SPECIAL AUDITORS HAVE ANALYZED THE NEXUS OF CERTAIN TRANSACTIONS ON SAMPLE BASIS AND THE TRANSACTIONS (BUYER CREDIT FACILITY) WITH THE BANK ARE NOT EXAMINED EXCESSIVELY. IF A CHANCE IS GIVEN, THE ASSESSEE SHALL BE HAPPY TO FURNISH ALL THE TRANSACTIONS AND ESTABLISHED THE TRANSACTIONS NEXUS EXCESSIVELY. 66. ON THE OTHER HAND, L D DR DOES NOT HAVE ANY OBJECTION IF THE MATTER IS REMANDED TO THE FILE OF THE AO FOR EXECUTING THE ABOVE STATEMENT OF THE LD COUNSEL MADE AT BAR. 67. ON HEARING BOTH THE PARTIES, WE FIND IT NECESSARY TO REMAND THIS ISSUE TO THE FILE OF THE AO. AO IS DIREC TED TO EXAMINE ALL THE TRANSACTIONS INVOLVING BUYER CREDIT FACILITY QUA THE COMMISSION PAYMENTS TO THE BANKS AS WELL AS THE GENUINENESS OF THE COMMISSION PAYMENT OF RS. 1,80,566/ - AND RE - ADJUDICATE THE ISSUE AFRESH AFTER GRANTING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO. 8 IS ALLOWED FOR STATISTICAL PURPOSES. 68. GROUND NO. 9 RELATES TO THE CONFIRMING OF DISALLOWANCE OF LOSS OF RS. 49,73,46,618/ - INCURRED IN DIAMOND TRADE. RELEVANT FACTS IN THIS REGARD ARE GIVEN I N PARA 7 OF THE ASSESSMENT ORDER AND PARA 32 OF THE IMPUGNED ORDER. AS PER THE ASSESSMENT ORDER, IT IS MENTIONED THAT ASSESSEE MADE LOCAL PURCHASES OF DIAMONDS AMOUNTING TO RS. 39.24 CRS FOR EXPORT PURPOSE. ASSESSEE EXPORTED THE SAME TO M/S. LEO DIAMONDS LLC FOR RS. 40.73 CRS. ASSESSEE EARNED GROSS TRADING PROFIT OF RS. 1,48,66,374/ - . FURTHER, ASSESSEE ALSO IMPORTED DIAMONDS FROM UAE BASED 5 PARTIES AMOUNTING TO RS. 2819.20 CRS AND EXPORTED THE SAME TO ANOTHER 5 PARTIES FOR A SUM OF RS. 2769.46 CRS. THE SE IMPORT AND EXPORT RELATED ACTIVITY RESULTED IN EARNING OF GROSS TRADING LOSS OF RS. 49,73,46,618/ - . DURING THE SPECIAL AUDIT PROCEEDINGS, AFTER HEARING THE ASSESSEE, THE SPECIAL AUDITORS SUBMITTED THEIR OBSERVATIONS ON THE ALLOWABILITY OF THIS CLAIM FOR THE ASSESSEE. ACCORDING TO THE SPECIAL AUDITORS, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IMPORTED THE DIAMONDS AND THE SAME WERE 50 EXPORTED FOR LOWER PRICE THAN THEIR IMPORT COST. THESE TRANSACTIONS WERE NOT SUPPORTED BY THE PURCHASE ORDERS. THE SUPPLI ERS AS WELL AS THE PURCHASERS OF THE IMPORTS AND EXPORTS ARE NOT RELATED TO THE ASSESSEE. EXPORT ACTIVITY TOOK FEW DAYS FROM THE DATE OF IMPORT OF DIAMONDS. 69. DURING THE ASSESSMENT PROCEEDINGS, IN RESPONSE TO THE AOS SHOW CAUSE NOTICE, PROPOSING THE DI SALLOWANCE AMOUNTING TO RS. 48,88,49,587/ - (RS. 49,73,46,618 RS. 1,48,66,374), DATED 19.7.2012, THE ASSESSEE REPLIED VIDE ITS LETTER DATED 4.8.2008. IN THE SAID LETTER, THE CORE STATEMENT REVOLVES AROUND THE FACT THAT THE LOSS QUANTIFIED ABOVE IS NOT PR OPER CONSIDERING THE FACT THAT THE OVERALL IMPORT AND EXPORT ACTIVITY OF THE ASSESSEE OVER A COUPLE OF YEARS HAS RESULTED AN EARNING OF THE OVERALL GROSS PROFIT OF RS. 15.23 CRS , IF THE MERCANTILE SYSTEM OF ACCOUNTING IS NOT CONSIDERED. OTHERWISE, LOSS SO DISALLOWED BY THE AO FALLS WITHIN THE PREVIOUS YEAR UNDER CONSIDERATION IS UNDISPUTED TO THE EXTENT OF RS.4,20,05,587/ - . AO CONSIDERED THE ABOVE SUBMISSIONS OF THE ASSESSSEE AND REJECTED THE SAME. THERE WAS A DISCUSSION ABOUT THE DETAILS OF THE 10 PARTIE S WHICH INCLUDES 5 SUPPLIERS AND 5 PURCHASERS OF THE DIAMONDS. THERE ARE TOTAL OF AROUND 250 TRANSACTIONS. OUT OF THE PURCHASES OF THE DIAMONDS FROM THE ASSESSEE, ONE OF THE COMPANIES IS HEADED BY MR. RAJESH KOTHARI, MANAGING DIRECTOR OF M/S. AL KHAYAL A L DHAHABI JEWELLERY LLC, DUBAI. HE HAPPENED TO BE THE NEPHEW OF THE DIRECTORS OF THE COMPANY. THIS IS CONTRARY TO THE ASSESSEES SUBMISSIONS THAT NONE OF THE PARTIES CONNECTED TO THE ASSESSEE. AS PER THE ASSESSEE, SHRI RAJESH KOTHARI IS NOT CONNECTED TO THE BUSINESS TRANSACTIONS. FURTHER, IT WAS SUBMITTED THAT EXPORTS AND IMPORTS ARE GENUINE AS THEY ARE DONE INVOLVING CUSTOMS CLEARANCE WITH SUPPORT DOCUMENTS. AS PER THE ASSESSEE, THE DIAMONDS WERE SOLD AT LOSS TO BRING IN THE FRESH CUSTOMERS INTO THE BU SINESS OPERATIONS. FURTHER, THERE ARE ALWAYS POSITIVE FIGURES IF INTEREST EARNED ON THE MARGINS IN THE FORM OF FIXED DEPOSITS KEPT WITH THE BANKS FOR SECURING THE BUYERS CREDIT AND THE INTEREST CHARGES PAID ON SUCH CREDIT COUPLED WITH EXPENSES LIKE FORWA RD RATE AGREEMENT AND OTHER CHARGES ON THE BORROWED SUMS ARE CONSIDERED. AS PER THE REVENUE, IT IS A PRE - DETERMINED LOSS AND THEREFORE, IT QUESTIONS THE GENUINE BUSINESS TRANSACTION. THE STOCK REGISTER DOES NOT INDICATE THE QUALITY AND SIZE OF THE DIAMON DS WHEN EXAMINED BY THE AO. 51 AO ALSO MENTIONED THAT ONE MR. VISAL JAIN SUPPOSED TO BE THE EMPLOYEE OF THE ASSESSEE, WHO IS AWARE OF THE INTRICACIES OF THESE TRANSACTIONS, TO REPRESENT BEFORE THE AO AND DID NOT TURN UP ON THAT DAY SCHEDULED IN THE NOTICE U/S 131 OF THE ACT. IT WAS DULY CERTIFIED BY HIM. WHEN FURTHER ENQUIRIES WERE CONDUCTED BY THE AO, THE ASSESSEE SUBMITTED THAT HE WAS UNAWARE OF THE WHEREABOUTS OF MR. VISHAL JAIN AS WAS NOT IN TOUCH WITH HIM SINCE 2009. AO FURTHER DISCUSSED THE NECESSITY OF LIFTING OF THE CORPORATE VEIL AND RELIED ON VARIOUS DECISIONS IN THIS REGARD. AT THE END, AO TOOK OBJECTION TO THE FACT OF EARNING TRADING LOSS OF RS. 49,73,46,618/ - FROM EXPORT MADE OUT OF IMPORTS WHEN LOCAL TRADING EARNED PROFIT OF RS. 1,48,66,374/ - , MENTIONING THAT THE SAID IMPORTS AND EXPORTS ARE NOT SUPPORTED BY PURCHASE ORDERS. CONSIDERING THE NON - COMPLIANCE OF MR. VISHAL JAIN AND RELATIONSHIP OF THE TRANSACTIONS WITH MR RAJESH KOTHARI, AO CAME TO THE CONCLUSION THAT THE ENTIRE TRANSACTIONS ARE EN TERED INTO ONLY TO AVAIL BUYER CREDIT FACILITY IN INDIA WHICH PROVIDES LOW INTEREST RATES AND PASS ON A PART OF THE PROFITS TO THE IMPORTS. EVENTUALLY, AO MADE ADDITION BY HOLDING THE FOLLOWING. IN VIEW OF THE ABOVE DISCUSSION, IT BECOMES REASONABLY CL EAR THAT THE MAIN INTENTION OF THE ASSESSEE WAS TO SET OFF THE ARBITRAGE INCOME EARNED FROM THE INTEREST DIFFERENCE BETWEEN THE INTEREST ON BUYERS CREDIT AND THAT ON MARGINS IN THE FORM OF FIXED DEPOSITS KEPT WITH THE BANKS AGAINST SUCH CREDITS BY CREATIN G ARTIFICIAL AND NON - GENUINE BUSINESS LOSSES. THEREFORE, THE LOSS AMOUNTING TO RS. 49,73,46,618/ - IS HEREBY DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. PENALTY PROCEEDINGS U/S 271(1)(C) ARE HEREBY SEPARATELY INITIATED FOR FURNISHING IN ACCURATE PARTICULARS OF INCOME AND CONCEALMENT OF INCOME. AGGRIEVED WITH THE ABOVE ADDITION OF RS. 49,73,46,618/ - , THE ASSESSEE FILED AN APPEAL BEFORE THE CIT (A). 70. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, ASSESSEE FILED WRITTEN SU BMISSIONS WHICH ARE DETAILED IN PARA 33 OF THE IMPUGNED ORDER. ON PERUSAL OF THE SAID SUBMISSIONS, CIT (A) UPHELD THE ADDITION MADE BY THE AO AS PER THE DISCUSSION GIVEN IN PARA 34 OF THE IMPUGNED ORDER. HOWEVER, THERE IS NO ANALYSIS AS TO HOW RS. 15.23 CRS OF PROFIT WAS EARNED IN THIS LINE OF BUSINESS OVER THE YEARS. THE ABSENCE OF PURCHASE ORDERS CONNECTIVITY OF MR. MR RAJESH KOTHARI TO THE IMPORTS AND EXPORTS AND UNUSUAL TRANSACTION OF EXPORTING WHAT IS IMPORTED WITH A TIME GAP OF FEW DAYS ADDED TO TH E SUSPICION OF THE AUTHORITIES. THE ROUND TRIPPING 52 TRANSACTIONS WAS ALSO CITED BY THE AO IN HIS REMAND REPORT DATED 18.4.2013. THE CIRCUMSTANTIAL EVIDENCES INDICATE WHAT IS CLAIMED BY THE ASSESSEE IS NOT REAL. FINALLY, CIT (A) CONFIRMED THE DISALLOWANCE OF LOSS IN DIAMOND TRADE ADDED BY THE AO. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE HAS RAISED THIS GROUND IN THE APPEAL BEFORE US. 71. HAVING HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD, IT IS PERTINENT TO MENTION THAT THE STUDY OF THE TRANSACTIONS REVEAL THAT THE REAL INTENTION OF THE ASSESSEE WAS TO EARN THE INTEREST ARBITRA GE DIFFERENCE IN RATES OF INTEREST. THE MOMENT THE EXPORT SALES ARE RECEIVED, ASSESSEE DEPOSITED THE SAME WITH THE BANK AND EARNED THE BANK INTEREST @ 8 TO 9%. T HE SAME APPEARS TO BE PROFITABLE TO THE ASSESSEE EVEN AFTER PAYMENT OF GUARANTEE COMMISSION AND OTHER INCIDENTAL CHARGES PAID TO THE BANK. USING THE FIXED DEPOSITS HELPS THE ASSESSEE TO AVAIL THE BUYERS CREDIT FACILITY WITH THE BANKS, WHICH IS PROFITABL E TO THE ASSESSEE. THE TRANSACTION AS A WHOLE INVOLVES PURCHASE AND EXPORT DIAMONDS, ADVANCE OR IMMEDIATE REALIZATIONS OF THE EXPORT REALIZATIONS, INVESTMENT IN FDS, AVAILING BUYERS CREDIT AGAINST FDRS, INTEREST RATES AND COMMISSION RATES, FOREX GAINS/LO SSES. IT IS RELEVANT TO STATE THAT NO LAW IS VIOLATED BY THE ASSESSEE BY THESE ARBITRAGE TRANSACTIONS AND THE SAME IS A COMMON PRACTICE. IT IS ALSO RELEVANT TO NOTE THAT THE SPECIAL AUDITORS, ON THE ISSUE OF DIAMOND TRADING AND PROFIT, HAVE FOUND NO INFIR MITY IN TRANSACTION EXCEPT THAT THERE ARE NO PURCHASE ORDERS FOR PURCHASES. IT IS FURTHER RELEVANT TO MENTION THAT THE SPECIAL AUDITORS HAVE ANALYZED AROUND 50 TRANSACTIONS AND HAS NOT GIVEN ANY ADVERSE COMMENTS. IT IS NOTED THAT THE ASSESSEE HAS NOT AVAIL ED ANY EXPORT BENEFIT IN THE BUSINESS OF DIAMOND TRADING. THE MANNER IN WHICH THE ASSESSEE HAS CARRIED OUT THE DIAMOND TRADE IS A MEANS OF RAISING FINANCE, WHICH IS NOT ILLEGAL. ASSESSEE IS AWARE HOW TO RUN THE BUSINESS AND AO CANNOT STEP IN THE JUDGMENT OVER THE SAME. THE SAID PROPOSITION IS SUPPORTED BY THE DECISION OF THE ALLAHABAD HIGH COURT IN THE CASE OF ABBAS WAZIR (P.) LTD . V. COMMISSIONER OF INCOME - TAX , 265 ITR 77. FURTHER, THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME - TAX VS DR. T.A. QURESHI (MP) 275 ITR 352 RELIED ON BY THE LD. FURTHER SUPPORTS THE CLAIM OF THE ASSESSEE THAT THAT MORAL ISSUES CANNOT OVERRIDE THE LEGAL ISSUES. 53 72. AS REGARDS THE CONTENTION OF THE LD DR THAT THE IDENTITY OF PARTIES TO WHOM SALES HAVE BEEN MADE IS UNKNOWN, ABSENCE OF PURCHASE ORDERS, ONE OF THE SALES PARTIES IS A RELATED CONCERN, WE ARE OF THE CONSIDERED VIEW THAT THE SAID CONTENTION CANNOT BE THE BASIS FOR SUSTAIN THE DISALLOWANCE IN VIEW OF THE FACT THAT THE TRANSACTION IS GENUINE AS THE SAME HAVE BEEN DONE TO EARN ARBITRAGE INCOME AND THE EXPORT/IMPORT HAS BEEN DONE THROUGH DUE CUSTOMS CLEARANCE. REGARDING THE FURTHER CONTENTION THAT THE IMPORTED MATERIALS ARE EXPORTED IMMEDIATELY WITHIN A PERIOD OF ONE TO TWO DAYS DOES NOT HAVE ANY IMPACT AS THE SAME IS NOT PROHIBITED BY LAW AND IN THE LIGHT OF EARNING THE ARBITRAGE INCOME. 73. IN VIEW OF THE AFOREMENTIONED DISCUSSION, WE ARE OF THE CONSIDERED VIEW THAT THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN MAKING/CONFIRMING THE IMP UGNED DISALLOWANCE/ADDITION ON THIS COUNT AND THE SAME IS DELETED. RESULTANTLY, GROUND 9 IS ALLOWED . 74. GROUND NO 10 IS NOT PRESSED AS AFOREMENTIONED . 75. GROUND NO.11 RELATES TO THE ISSUE OF SHORT DEDUCTION OF TDS AND INVOKING OF THE PROVISIONS OF SECT ION 40(A)(IA) OF THE ACT. IT IS NOT DISPUTED FACT THAT THE ASSESSEE MADE PAYMENTS ON ACCOUNTS OF SERVICES CHARGES, TRANSPORTATION CHARGES, PROFESSIONAL FEES RENT, COMPUTERS AND SOFTWARE EXPENSES, HALL MARKING CHARGES, COURIER EXPENSE AND SUBSCRIPTION EXPE NSES. HOWEVER, ASSESSEE MADE SHORT DEDUCTION OF TDS ON THE SAID PAYMENTS. AO INVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. IN THIS REGARD, AT THE VERY OUTSET, LD REPRESENTATIVES OF BOTH THE PARTIES BROUGHT OUR ATTENTION TO THE FACT THAT THIS IS SUE IS NOW SETTLED AND THE SAME HAS TO BE DECIDED IN THE LIGHT OF THE JUDGMENT OF THE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. M/S. S.K. TIKERIWAL, ITA NO.183 OF 2012 DATED 3.12.2012. IN FACT, THE SAID JUDGMENT WAS USED IN THE ORDER OF THE TRIBUNAL MU MBAI BENCH IN THE CASE OF M/S HIGHLIGHT PICTURES (INDIA) PVT. LTD VS. ACIT VIDE ITA NO.5826/M/2011 (AY 2008 - 2009) DATED 30.8.2013 AND THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. IN ANY CASE, CIT(A) GRANTED RELIEF IN RESPECT OF THE RENT PAID CONSIDERIN G THE BOARDS CIRCULAR. IT IS THE PRAYER OF THE ASSESSEE THAT THE ASSESSEE MADE SHORT TDS IN RESPECT 54 OF THE OTHER PAYMENTS APPLYING THE PROVISIONS OF DIFFERENT SECTIONS OF THE ACT AND IN SUCH CASE, THE PROVISIONS OF SECTION 40(A) (IA) OF THE ACT HAVE NO AP PLICATION. 76. WE HEARD THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE IN GENERAL AND THE ABOVE CITED JUDGMENTS IN PARTICULAR. PARA 5 & 5.1 OF THE DECISION OF THE TRIBUNAL IN THE CASE OF HIGHLIGHT PICTURES (SUPRA) ARE RELEVANT IN THIS REGARD AND THE SA ME IS REPRODUCED HERE UNDER: 5. WE HAVE CONSIDERED THE ISSUE. WITHOUT GOING INTO THE MERITS WHETHER THE PROVISIONS OF SECTION 194C WILL APPLY OR 194I OR 194J WILL APPLY, THE ISSUE CAN BE DECIDED UNDER THE PROVISIONS OF SECTION 40(A)(IA)WHICH WAS INVOKED B Y THE AO. THE SAID PROVISION IS AS UNDER : - 40. AMOUNTS NOT DEDUCTIBLE. -- NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION', -- (A) IN THE CASE OF ANY ASSESSEE -- . . . (IA) ANY INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB - CONTRA CTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB - SECTION (1) OF SECTION 139. (EMPHASIS SUPPLIED.) 5.1 AS CAN BE SEEN FROM THE ABOVE PROVISION, THIS CAN BE INVOKED ONLY WHEN TAX HAS NOT BEEN DEDUCTED OR HAS NOT BEEN PAID AS PER THE PROVISIONS. IN THIS CASE THE ASSESSEE HAS ALREADY DEDUCTED TAX IF NOT UNDER SECTION 194I OR 194J BUT UNDER 194C. IT IS NOT A CASE OF NON DEDUCTION OF TAX OR NO - DEDUCTION OF TAX AS PER THE IMPORT OF SECTION 40(A)(IA) OF THE ACT. WE ARE OF THE OPINION THAT WHEN TAX WAS DEDUCTED BY THE ASSESSEE, EVEN UNDER BONA FIDE IMPRESSION UNDER WRONG PROVISIONS OF TDS, THE PROVISIONS OF SECTION 40(A)(IA) CANNOT BE INVOKED. THIS PRINCIPLE IS BEING FOLLOWED UNIFORMLY BY VARIOUS CO - ORDINATE BENCHES AND HAS THE APPROVAL OF CALCUTTA HIGH COURT IN THE CASE OF CIT VS. M/S. S.K . TEKRIWAL (SUPRA) RELIED ON BY THE ASSESSEE. THEREFORE, WE ARE OF THE OPINION THAT DISALLOWANCE UNDER SECTION 40(A)(IA) DOES NOT ARISE IN THIS CASE. THE OTHER CONTENTIONS RAISED BY THE LD. COUNSEL NEED NOT BE ADJUDICATED AS PROVISIONS OF SECTION 40(A)(IA) CANNOT BE INVOKED IN A CASE OF SHORTFALL OF TDS. MOREOVER, THE REVENUE HAS ALSO NOT TAKEN ANY STEPS U/S. 201 WHEREIN THE ISSUE WHETHER THE DEDUCTION HAS TO BE MADE U/S. 194I OR 194J OR 194C CAN BE CONSIDERED/ EXAMINED. THE GROUND 1 TO 4 AND ADDITIONAL GRO UND RAISED ARE CONSIDERED AS ALLOWED. 77. IN THIS CASE, IT IS UNDISPUTED FACT THAT THE ASSESSEE FACTUALLY DEDUCTED THE TDS IN PRINCIPLE BUT DEFICIENCY IS THAT IT WAS DONE ON THE NET PAYMENTS BUT NOT ON THE 55 GROSS PAYMENTS. THUS IT IS THE CASE OF THE SHORT DEDUCTION. NO MALAFIDE IS DEMONSTRATED BY THE AO. AS SUCH, THE CIT(A) GRANTED RELIEF TO THE ASSESSEE IN RESPECT OF THE RENTAL PAYMENTS AND NOT OTHERS RELYING ON THE CIRCULAR OF THE BOARD. CIT(A) DID NOT FOLLOW THE COORDINATE BENCH DECISIONS IN THE CASE OF S R BROTHERS 29 TM.COM 168 (MUM ) AND EGGS SURVEY P LTD (MUM ) MENTIONING THAT THEY ARE DISTINGUISHABLE ON FACTS. IN THE PROCESS, THE LEGAL PROPOSITION ENSHRINED IN THOSE ORDERS ARE IGNORED BY THE CIT(A) AND THEREBY MISSED THE LEGAL POINT THAT THE MAKING T DS U/S 195 CONSTITUTES A VICARIOUS LIABILITY. CALCUTTA HIGH COURT IN THE CASE OF CIT VS. M/S. S.K. TIKERIWAL (SUPRA DATED 3.12.2012) AND THE MUMBAI BENCH DECISION IN THE CASE OF M/S HIGHLIGHT PICTURES (INDIA) PVT. LTD SUPRA , SUPPORT THE CLAIM OF THE ASSE SSEE AND IN ITS FAVOUR. 78. CONSIDERING THE ABOVE AND ALSO THE CONCURRENCE OF BOTH THE PARTIES ON THE ISSUE THAT THE ITEMS MENTIONED IN THE TABLE GIVEN IN THE GROUND NO.11 ARE THE CASE OF SHORT DEDUCTION, WE ARE OF THE OPINION THAT THE SAID GROUND IS COV ERED IN FAVOUR OF THE ASSESSEE AS PER THE ABOVE EXTRACTED PORTION OF THE ORDER OF THE ITAT DATED 30.8.2013 (SUPRA). ACCORDINGLY, GROUND NO.11 IS ALLOWED . 79 . GROUND NO.12 RELATES TO THE CONFIRMING OF THE DISALLOWANCE OF RS. 57,56,233/ - U/S 40A(2) OUT OF T HE INTEREST PAYMENTS MADE TO RSBL COMMODITIES P. LTD., WHICH IS THE SISTER CONCERN OF THE ASSESSEE. THIS ISSUE WAS ALSO REFERRED TO THE SPECIAL AUDITORS. THEIR OBSERVATIONS ON THIS ISSUE ARE EXTRACTED IN PARA 14 OF THE ASSESSMENT ORDER. THE SAID PARA RE ADS AS UNDER: THE INTEREST OF RS. 57,56,233/ - IS PAID TO M/S. RSBL COMMODITIES P LTD DESPITE THE FACT THAT THE ASSESSEE HAS ALSO RECEIVED EXCESS MARGIN MONEY FROM OTHER MCX CLIENTS AND NO INTEREST IS PAID TO THEM EXCEPT M/S. VENKATESH ASSOCIATES P. LTD @ 6 % P.A. IT IS FOUND THAT THE SESSEE HAS ALSO AVAILED HUGE AMOUNT OF INTEREST FREE LOANS FROM VARIOUS PARTIES AND IN SO FAR AS INTEREST BEARING LOANS ARE CONCERNED, IT HAS PAID INTEREST ONLY TO 4 PARTIES APART FROM M/S. RSBL COMMODITIES P. LTD AND M/S. VENK ATESH ASSOCIATES P. LTD. REFERRED ABOVE. WHEREAS, ON THE CONTRARY, IT IS MAKING PAYMENT OF INTEREST TO ITS RELATED PARTY ON THE EXCESS MARGIN MONEY RECEIVED FROM IT IN MCX. IN THIS REGARD, THE ASSESSEE HAS SUBMITTED THE WORKING OF INTEREST PAID TO RSBL COM MODITIES P. LTD. AS UNDER: 56 EVEN ON PERUSAL OF THE ABOVE WORKING, IT IS NOTED THAT THE ASSESSEE HAS LEVIED DIFFERENT RATES WITHIN A YEAR TO ITS SISTER CONCERN AND THERE IS NO CLEAR BASIS OF RATES LEVIED ON M/S. RSBL COMMODITIES P. LTD. COPY OF CONFIRMATION RECEIVED FROM THE SAID PARTY AND LEDGER OF INTEREST PAID TO VARIOUS PARTIES ARE EXAMINED WHICH IS PLACED AT PAGE NO. 432 TO 433 OF EXHIBIT. IN THIS REGARD, THE ASSESSEE HAS EXPLAINED THAT THE AMOUNT RECEIVED FROM THE SAID PARTY WA S UTILIZED FOR THE PURPOSE OF CREATING FIXED DEPOSITS AND THE RATE OF INTEREST PAID IS BELOW THE RATE OF INTEREST EARNED AND SINCE IT HAS DIRECT NEXUS TO THE INTEREST INCOME EARNED ON FIXED DEPOSIT, THE INTEREST EXPENSES OF RS. 57,56,233/ - IS REASONABLE. T HE ASSESSEE HAS ALSO NOT FURNISHED ANY DOCUMENTARY EVIDENCE TO SUBSTANTIATE THE NEXUS THAT ANY FIXED DEPOSIT WAS CREATED WITH THE MARGIN MONEY RECEIVED FROM M/S. RSBL COMMODITIES P. LTD. AS AGAINST THIS, WE HAVE ALSO OBSERVED THAT IN SIMILAR CASE, RATE OF INTEREST PAID TO OTHER MCX CLIENT I.E. M/S. VENKATESH ASSOCIATES P. LTD., WHO IS AN UNRELATED PARTY, IS ONLY @ 6% P.A. THE AUDITORS HAS FURTHER CONDUCTED THE ISSUE BY NOTING THAT THE, PAYMENT OF RS. 57,56,233/ - MADE TO M/S. RSBL COMMODITIES P. LTD. AND IS EXCESSIVE AND UNREASONABLE. 80. FROM THE ABOVE, ON FINDING THAT THE SPECIAL AUDITORS QUANTIFIED EXCESSIVE AND UNREASONABLE PAYMENT MADE TO RSBL OF RS. 57,56,233/ - , AO ISSUED SHOW CAUSE NOTICE DATED 19.7.2012 AND PROPOSED TO INVOKE THE PROVISIONS OF SECTI ON 40A(2) OF THE ACT. IN REPLY, THE ASSESSEE FILED A LETTER DATED 4.8.2012 CONTESTING AGAINST THE SAID PROPOSAL. THE SUMMARY OF THE ASSESSEES REPLY READS AS UNDER: (I) THE HIGH NETWORTH INVESTORS (HNI CLIENTS) ARE OFFERED INTEREST ON THEIR MARGINS. ACCORDI NGLY, INTEREST INCOME EARNED WAS PASSED ON TO M/S. RSBL COMMODITIES P. LTD. AND M/S. VENKATESH ASSOCIATES P. LTD. ON THEIR SPECIFIC DEMAND AS OTHERWISE, THE SAID CLIENTS MAY HAVE APPROACHED ANOTHER BROKERS GIVING SUCH BENEFITS. (II) HNI CLIENTS WERE OF UTMOST I MPORTANCE, THE REASON BEING THEY HELPED US IN ACHIEVING HUGE TURNOVERS OF OUR BUSINESS WHICH RESULTED IN THE BENEFIT OF REDUCTION IN TRANSACTION CHARGES LEVIED BY THE MCX. 57 (III) ALSO, THE COMPANY HAS UTILISED THE MARGIN MONEY FOR CREATING FIXED DEPOSITS FROM WHI CH IT EARNED INTEREST RATE HIGHER THAN WHAT WAS PAID TO M/S. RSBL COMMODITIES P. LTD. AND HENCE, IN THAT REGARD, THE INTEREST PAYMENT MADE TO THEM WAS REASONABLE AND NOT EXCESSIVE. (IV) CIRCUAR NO. 6 - P DATED 6 TH JULY, 1968 PG.NO.370, WHICH STATES THAT NO DISA LLOWANCE IS TO BE MADE UNDER SECTION 40A(2) IN RESPECT OF THE PAYMENTS MADE TO THE RELATIVES AND SISTER CONCERNS WHERE THERE IS NO ATTEMPT TO EVADE TAX. 81. EVENTUALLY, THE AO HELD THAT THE ASSESSEE FAILED TO SUBSTANTIATE THE NEXUS BETWEEN MARGIN MONEY RE CEIVED FROM RSBL AND THE FD CREDITED IN THE BANKS FOR EARNING OF THE INTEREST INCOME. AO DISTINGUISHED THE CIRCULAR 6 TH JULY, 1968 AND RELIED HEAVILY ON THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT FOR EFFECTING THE DISALLOWANCE. AO ALSO COMMENTED ON T HE ASSESSEES ARGUMENT THAT IN CASE THE INTEREST IS NOT PAID, THE CLIENT BEING HNI MOVED TO OTHER BROKERS. EVENTUALLY, AO HELD THAT ASSESSEE MADE THE PAYMENT TO THE SISTER CONCERN AND THE SAME CONSTITUTES EXCESSIVE AND UNREASONABLE TO THE EXPENDITURE OF R S. 57,56,233/ - . HE ACCORDINGLY MADE ADDITION. AGGRIEVED WITH THE SAME, ASSESSEE FILED APPEAL BEFORE THE CIT (A). 82. DURING THE PROCEEDINGS BEFORE THE CIT (A), ASSESSEE FURNISHED DETAILED WRITTEN SUBMISSIONS WHICH ARE EXTRACTED IN PAGE 87 AND 88 OF THE I MPUGNED ORDER. BASICALLY, THE SAID PARAS ARE THE REPETITION OF THE SUBMISSIONS MADE BEFORE THE AO. ON CONSIDERING THE SAID SUBMISSIONS, CIT (A) HELD THAT THE ASSESSEE FAILED TO ESTABLISH THE NEXUS BETWEEN THE INTEREST EARNED MARGIN MONEY AND THE FIXED DE POSITS KEPT IN THE BANKS. HE ALSO DISCUSSED THE FACT THAT THE SISTER CONCERN, RSBL, OFFERED THE SAME TO TAX AT THEIR END THEREFORE, THERE IS NO LOSS TO THE REVENUE. THE CIT (A) DISTINGUISHED THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF MUNJAL SA LES CORPORATION REPORTED IN 168 TAXMAN 43, WHEREIN THE ISSUE IS REGARDING CLAIM OF DEDUCTION U/S 30 TO 38 OF THE ACT AND NO THE CASE OF 40A(2)(B) OF THE ACT. EVENTUALLY, HE CONFIRMED THE ADDITION MADE BY THE AO. 83. DURING THE PROCEEDINGS BEFORE US, LD CO UNSEL NARRATED THE ABOVE STATED FACTS AND MENTIONED THAT THE SISTER CONCERN, RSBL, KEPT THE EXCESS MARGIN MONEY WITH THE ASSESSEE AND THE INTEREST WAS PAID BY THE ASSESSEE TO THE TUNE OF RS. 57,56,233/ - . HE FAIRLY SUBMITTED THAT THE ASSESSEE RECEIVED SUCH EXCESS MARGIN 58 MONEY FROM OTHER CUSTOMERS ALSO. BUT ASSESSEE PAID INTEREST ONLY TO TWO PARTIES I.E., M/S. VENKATESH ASSOCIATES P. LTD AND SISTER CONCERN RSBL. WHILE M/S. VENKATESH ASSOCIATES P. LTD PAID THE INTEREST @ 4%, THE SISTER CONCERN PAID THE INTE REST AT THE RATE VARYING FROM 6% TO 7%. AO DISALLOWED THE SAID INTEREST FOR WANT OF NEXUS BETWEEN THE EXCESS MARGIN MONEY TAKEN FROM THE SISTER CONCERN AND THE FIXED DEPOSIT MADE BY THE ASSESSEE IN THE BANK. BEFORE US, LD COUNSEL FOR THE ASSESSEE ARGUED STATING THAT MAKING DISALLOWANCE OF THE ENTIRE PAYMENT, MADE TO THE SISTER CONCERN, IS NOR FAIR CONSIDERING THE PROVISIONS OF THE ACT. WHEN M/S. VENKATESH ASSOCIATES P. LTD PAID 4% RATE OF INTEREST, THE FACT OF REQUIREMENT OF PAYMENT IS UNDISPUTED. THE S ISTER CONCERN OF THE ASSESSEE, WHICH IS INDEPENDENTLY ASSESSED TO TAX AND OFFERED THE INTEREST RECEIPTS TO TAX IN THEIR RETURNS OF INCOME, CAUSING NO LOSS OF REVENUE. 84. ON THE OTHER HAND, LD DR RELIED HEAVILY ON THE ORDERS OF THE AO AND THE CIT (A). H E MENTIONED THAT THE ASSESSEE PAID INTEREST ON THE EXCESS MARGIN MONEY AT THE HIGHEST RATE OF INTEREST OF 6 - 7%, WHEN NOTHING IS PAID TO REST OF THE CUSTOMERS WHO ALSO KEPT EXCESS MARGIN MONEY WITH THE ASSESSEE. SO FAR AS THE DIFFERENCE IN RATE OF INCOME I S CONCERNED I.E., RATE OF INTEREST PAID TO THE CLIENTS AND THE RATE OF INTEREST CALCULATED FROM THE BANK ON THE FD MADE OUT OF SUCH MARGIN MONEY, ASSESSEE FAILED TO ESTABLISH THE NEXUS BETWEEN TWO. IN SUCH CIRCUMSTANCES, THE ASSESSING OFFICER IS JUSTIFIED IN MAKING ADDITIONS DISALLOWING THE ENTIRE PAYMENT OF INTEREST TO THE SISTER CONCERN. REFERRING TO THE FAIRNESS OF THE ASSESSMENT ORDER, LD DR MENTIONED THAT ASSESSING OFFICER DID NOT MAKE ANY DISALLOWANCE WITH REGARD TO THE INTEREST PAID TO M/S. VENKATES H ASSOCIATES P. LTD . 85. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AND THE RELEVANT DATA FURNISHED BEFORE US. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE PAID INTEREST ON THE EXCESS MARGIN MONEY TO A COU PLE OF ITS CLIENTS I.E., M/S. VENKATESH ASSOCIATES P. LTD AND THE ASSESSEES SISTER CONCERN, RSBL COMMODITIES PVT LTD. WHILE THE ASSESSEE PAID INTEREST @ 4% TO M/S. VENKATESH ASSOCIATES P. LTD , THE RATE OF INTEREST PAID TO THE SISTER CONCERN IS @ 6 - 7%, WHI CH IS ON THE HIGHER SIDE. THIS DIFFERENTIATION CLEARLY ATTRACTS THE PROVISIONS OF 59 SECTION 40(A)(2)(B) OF THE ACT. THEREFORE, IT IS OBVIOUS THAT ASSESSEE PAID EXCESSIVE INTEREST AND THE EXCESSIVENESS IS QUANTIFIED AS THE ONE OVER AND ABOVE 4%. WE HAVE IN FERRED THE ABOVE, BASED ON THE UNRELATED COMPARABLES I.E., M/S. VENKATESH ASSOCIATES P. LTD . NOW THE OTHER SIDE OF THE ARGUMENT I.E., THE EXCESS MARGIN MONEY RECEIVED FROM RSBL IS ALSO EARNED INTEREST INCOME WHEN KEPT AS FD IN THE BANKS, IT IS THE RESPONS IBILITY OF THE ASSESSEE TO DEMONSTRATE THAT THE CASE OF M/S. VENKATESH ASSOCIATES P. LTD IS A DIFFERENT FROM THAT OF THE SISTER CONCERN. IF THE EXCESS MARGIN MONEY GIVEN BY M/S. VENKATESH ASSOCIATES P. LTD HAS ALSO FOUND RE - ENTERED FD ALONG WITH THE BANK, THE ARGUMENT OF THE LD COUNSEL SHOULD FAIL. NO RELEVANT FACTS ARE BROUGHT TO OUR NOTICE, THEREFORE, WE CANNOT COMMENT ON THIS ASPECT. THIS IS A COMMONSENSICAL APPROACH THAT IF THE EXCESS MARGIN MONEY OF BOTH THE PARTIES HAVE FOUND THE WAY INTO THE FDS O F THE BANKS, THE DISALLOWANCE TO THE EXTENT OF AMOUNT EXCEEDING 4% SHOULD BE CONSIDERED AS EXCESSIVE AND UNREASONABLE. THE EXPLANATION GIVEN BY THE ASSESSEE THAT THE SISTER CONCERN IS A HNI IS NOT TO BE CONSIDERED FAVOURABLE TO THE ASSESSEE CONSIDERING TH E PROVISIONS OF SECTION 40A(2)(B) OF THE ACT, WHICH DOES NOT PROVIDE FOR ANY EXEMPTION, AS ATTEMPTED TO BE MADE OUT BY THE ASSESSEE. THEREFORE, IN OUR OPINION, THE AO SHOULD CALCULATE THE EXCESS INTEREST OVER AND ABOVE 4% AND THAT SHOULD BE TREATED AS UNR EASONABLE AND EXCESSIVE. ACCORDINGLY, GROUND NO.12 RAISED BY THE ASSESSEE IS PARTLY ALLOWED . 86. GROUND NOS 13 TO 16 ARE NOT PRESSED AS STATED ABOVE. 87. GROUNDS NO.17 AND 18 ARE EITHER GENERAL OR REPETITIVE IN NATURE. ACCORDINGLY, THE SAID GROUNDS ARE DISMISSED AS GENERAL OR REPETITIVE. 88. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED PARTLY. ITA NO.6653/M/2013 (AY 2009 - 2010) (BY REVENUE) 89. THIS APPEAL FILED BY THE REVENUE ON 14.11.2013 IS AGAINST THE ORDER OF THE CIT (A) - 38, MUMBAI DATED 6.9. 2013 FOR THE ASSESSMENT YEAR 2009 - 2010. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 60 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DELETING THE ADDITION MADE IN RESPECT OF PAYMENT OF CUSTOM DUTY IN CA SH AT GANDHIDHAM AMOUNTING TO RS.4,23,56,727/ - WITHOUT APPRECIATING THE FACT THAT THE ENTIRE TRANSACTION MADE BY THE ASSESSEE OF MAKING COSMETIC ENTRIES IN ITS CASH BOOKS MAINTAINED FOR DIFFERENT BRANCHES AND AT THE AHMEDABAD BRANCH IS JUST TO G IVE A LEGAL COLOUR TO ITS UNACCOUNTED INCOME, WHILE ALSO IGNORING THE FACT THAT M/S. LUCKYSTAR INTERNATIONAL, IN RESPONSE TO NOTICE U/S 133(6), DENIED HAVING KEPT ANY CASH AT THEIR PREMISES ON BEHALF OF THE ASSESSEE. 2. ON THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD CIT (A) ERRED IN DELETING THE DISALLOWANCE OF INTEREST EXPENSES AMOUNTING TO RS. 93,19,850/ - WITHOUT APPRECIATING THE FACT THAT THE ACTION OF THE ASSESSEE COMPANY OF ACCEPTING INTEREST BEARING LOANS AND AT THE SAME TIME ADAVANCING INTEREST FREE LOANS TO VARIOUS PARTIES IS A MEANS TO INCREASE ITS FINANCIAL COST. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN NOT TREATING THE NET FORWARD CONTRACT LOSS OF RS. 7,96,32,697/ - AS SPECULATION LOSS AND TRE ATING IT AS BUSINESS TO BE SET OFF AGAINST THE NORMAL BUSINESS INCOME, WITHOUT APPRECIATING THE FACT THAT EFFECTIVELY THERE WAS NO ACTUAL PHYSICAL DELIVERY IN THE TRANSACTIONS AS THERE WAS NO CORRELATION BETWEEN THE ACTUAL DELIVERY TRANSACTIONS AND THE TRA NSACTION UNDER CONSIDERATION AND ALSO THE FACT THAT HEDGING LOSS CLAIMED BY THE ASSESSEE COMPANY WAS NOT ALLOWABLE UNDER ANY PROVISO TO SECTION 43(5) OF THE ACT. 90 . GROUND 1 RELATING TO ADDITION ON ACCOUNT OF CASH TRANSFER WAS ALREADY ADJUDICATED WHILE D EALING WITH THE ASSESSEES GROUND 5 OF ITS APPEAL. ON THIS ISSUE, WE UPHELD THE CONCLUSIONS OF THE CIT(A). ACCORDINGLY, THE GROUND RAISED BY THE RAISED BY THE REVENUE IS DISMISSED. 91 . GROUND NO.2 RELATES TO THE DISALLOWANCE OF INTEREST EXPENSES AMOUNTING TO RS. 93,19,850/ - . THIS ISSUE WAS REFERRED TO THE SPECIAL AUDITORS. AUDITORS NOTED THAT THE ASSESSEE RECEIVED HUGE INTEREST FREE LOANS AND ADVANCES. FURTHER, ASSESSEE CLAIMED THE INTEREST EXPENDITURE OF RS. 1,50,76,083/ - . IT IS COMMENTED BY THE SPECI AL AUDITORS THAT THE ASSESSEE SHOULD HAVE WISELY CLEARED OR REPAID THE INTEREST BEARING FUNDS INSTEAD OF GIVING INTEREST FREE LOANS TO THE SISTER CONCERNS. WHEN THIS ISSUE WAS PUT TO THE ASSESSEE VIDE LETTER DATE 19.7.2012, ASSESSEE RELIED VIDE LETTER DAT ED 4.8.2012 HAS ACCEPTED THE FACT THAT THE ASSESSEE RECEIVED INTEREST FREE LOANS AND ADVANCES AND HAS ALSO PAID THE INTEREST ON OTHER LOANS AND ADVANCES. IN REPLY, THE ASSESSEE ALSO MENTIONED THAT THE ASSESSEE IS PLACED WITH INTEREST FREE FUNDS OF RS. 38. 56 CRS AS ON 31.3.2009, WHEREAS THE INTEREST FREE LOANS ADVANCED DURING THE YEAR IS 23,36,65,000/ - AND THE INTEREST FREE LOANS RECEIVED DURING THE YEAR ABOVE RS. 2,29,36,08,880/ - . BY THAT LD COUNSEL ARGUED THAT THE ASSESSEE IS HAVING EXCESS INTEREST FREE F UNDS AVAILABLE FOR GIVING INTEREST FREE LOANS. THEREFORE, THE ALLEGATION 61 TO EXCESS COST OF RS.1,50,76,083/ - IS NOT A VALID ONE. IN THIS REGARD, HE RELIED ON THE BINDING JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER (B OM). ASSESSING OFFICER ATTEMPTED TO ESTABLISH THE NEXUS BETWEEN THE INTEREST FREE AND INTEREST BEARING FUNDS AND THE ASSESEE BEFORE MAKING THE ADDITION OF RS. 93,19,850/ - I.E., THE DIFFERENCE BETWEEN RS. 1,50,76,083/ - AND RS. 57,56,233/ - , WHICH WAS SEPARA TELY ADDED U/S 40A(2)(B) OF THE ACT. IT INVOLVES RSBL COMMODITIES PVT LTD . THIS ISSUE WAS DISCUSSED SEPARATELY WHILE DEALING WITH THE GROUND NO.12 OF THE ASSESSEES APPEAL . 92 . DURING THE PROCEEDINGS BEFORE THE CIT (A), ASSESSEE MADE WRITTEN SUBMISSIONS WHICH ARE REPRODUCED IN PARA 48 OF THE IMPUGNED ORDER. CIT (A) DELETED THE ADDITION MADE THE AO BY RELYING ON THE BINDING JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER (BOM) 313 ITR 340 AS PER THE CONTENTS OF PARA 48 OF HIS ORDER, WHICH READS AS UNDER: 48. I HAVE CAREFULLY EXAMINED THE FACTS OF THE CASE, THE STAND TAKEN BY THE AO IN THE ASSESSMENT ORDER, THE GROUNDS OF APPEAL AND THE WRITTEN SUBMISSIONS FILED BY THE APPELLANT DURING THE APPEAL PROCEEDINGS. AS POINTED OUT BY THE APPELLANT THE ISSUE IS SQUARELY COVERED BY THE ITAT, MUMBAI DECISION IN THE CASE OF AHUJA PLATINUM PROPERTIES PVT. LTD. VS. ACIT IN ITA NO.4558/MUM/2007. THE HONBLE ITAT HAS TAKEN INTO ACCOUNT THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COU RT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD, 313 ITR 340. RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL ITAT, MUMBAI SUPRA, I HEREBY DELETE A SUM OF RS. 93,19,850/ - BEING THE DISALLOWANCE OF INTEREST EXPENSES. THE ABOVE CONCLUSIONS DR AWN BY THE CIT (A) APPLYING THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER (SUPRA) AS WELL AS THE COORDINATE BENCH DECISION OF THE TRIBUNAL IN THE CASE OF AHUJA PLATINUM PROPERTIES PVT LTD (SUPRA) ARE FAIR AND REA SONABLE AND THEREFORE, IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.2 OF THE REVENUES APPEAL IS DISMISSED. 93. GROUND NO.3 RELATES TO THE DELETION OF FORWARD CONTRACT LOSS OF RS. 7,96,32,697/ - . WHILE THERE ARE MANY PARTIES INVOLVED IN TH ESE CONTRACTS AND SETTLEMENTS, THE AO SPECIFICALLY PICKED UP THE ONES INVOLVING M/S RAJMAL LAKHICHAND AND AMRISH L JAIN. GENUINENESS OF THESE TRANSACTIONS AND ALLOWABIITY OF THE LOSS WAS REFERRED BY THE REVENUE TO THE SPECIAL AUDITORS. THE SPECIAL AUDITOR S CONCLUDED HOLDING THE FOLLOWING, - IN RESPECT OF DIRECT HEDGING, IT IS SEEN THAT THE ASSES SEE HAS MADE PROFITS ALMOST EQU AL TO THAT OF LOSSES INCURRED AS EXPLAINED .. AND 62 THEREFORE, THE INTENT OF THE ASSESSEE FOR ENTERING INTO THE SAID TRANSACTIONS IS N OT CLEAR. IN THIS CONNECTION, AO ISSUED SHOW CAUSE NOTICE SEEKING THE EXPLANATION OF THE ASSESSEE IN MATTERS OF THE REASONABILITY AND BUSINESS NEXUS OF THE LOSSES INCURRED ON FORWARD CONTRACTING PARTIES. IN REPLY, THE ASSESSEE ATTEMPTED TO EXPLAIN THAT THE ASSESSEE HAD THE INTENTION OF DELIVERY AND HOWEVER, DUE TO HUGE VOLUMES, HE COULD NOT STAND BY THE SAME. CONSEQUENTLY, BOTH PARTIES OF THE FORWARD CONTRACTS HAVE DECIDED TO CANCEL THE CONTRACTS AND AVOID DELIVERY. HOWEVER, IT IS THE CLAIM OF THE ASSESS EE THAT THESE CONTRACTS ARE LINKED TO THE BUSINESS TRANSACTIONS OF THE ASSESSEE AND THEREFORE, THE LOSS EARNED ON CANCELLING THE CONTRACTS CONSTITUTES BUSINESS LOSS. AO ANALYSED THE MEANINGS OF THE EXPRESSIONS IE FORWARD CONTRACTS AND SPOT CONTRACTS AND SHORT POSITIONS ETC. ON THE ONE SIDE AND THE PROVISIONS OF SECTION 43(5)(A) OF THE ACT AND SOME JUDICIAL PRONOUNCEMENTS RELATING TO THE DERIVATIVES ON THE OTHER SIDE. FURTHER, THE AO APPLIED THE GUIDELINES OF THE AAO IN THE CASE OF M/S SOPROPHA S A 138 T M 75 AND HELD THAT THE ASSESSEE FAILED TO FULFILL THE CONDITIONS/GUIDELINES SPECIFIED IN THE SAID ORDER OF THE AAR. FINALLY, AO HELD THAT THE LOSS IN QUESTION CONSTITUTES THE DERIVATIVE LOSS AND IT IS NOT THE HEDGING LOSS. HE FURTHER OPINED THAT THE AS SESSEE HAS NOT PROVIDED ANY EVIDENCE TO INDICATE THAT THE IMPUGNED CONTRACTS ARE LINKED TO THE TRANSACTIONS INVOLVING TRADING OF GOLD AND BULLION. AO IS ALSO CRITICAL OF THE FINDING OF THE SPECIAL AUDITORS QUA THE ASSESSEES TRADING ACTIVITY OF THE GOLD AN D BULLION AND LINKAGE OF THE FORWARD CONTRACTS TO THE SAID TRADING ACTIVITY. AO FINALLY HELD THAT THE LOSS IN QUESTION CONSTITUTES SPECULATION LOSS AND NOT HEDGING LOSS WITHIN THE MEANING OF SECTION 43(5) OF THE ACT. 94. RELEVANT PARAGRAPHS FROM PAGE 60 OF THE ASSESSMENT ORDER ARE REPRODUCED AS UNDER: ALL THE ABOVE CONDITIONS NEED TO BE FULFILLED IF DERIVATIVE LOSS IS CLAIMED AS HEDGING LOSSTHERE IS NO EVIDENCE TO INDICATE THAT THE SAID TRANSACTIONS OF FORWARD CONTRACT ARE FINALLY SETTLED BY THE AC TUALL DELIVERY OF THE GOLD AND BULLION.. THE SPECIAL AUDITORS WITHOUT PROPERLY SCRUTINYING THE FACTS HAS STATED, THAT THE ASSESSEE IS IN THE BUSINESS OF TRADING IN BULLIONS AND HENCE, SUCH LOSS INCURRED DOES NOT FALL UNDER THE PURVIEW OF (THE EXCEPTIONS GIVEN IN SIC) SECTION 43(5) TO BE TERMED AS SPECULATIONS LOSS. .THEREFORE, THE HEDGING LOSS CLAIMED BY THE ASSESSEE IS NOT ALLOWABILE AGAINST NORMAL BUSINESS INCOME OF THE ASSESSEE AS THE CLAIM FAILED TO QUALIFY UNDER ANY OF THE FOUR PROVISIONS TO THE S ECTION 43(5) OF THE I T ACT. 1961. THEREFORE, IT IS HEREBY HELD THT THE 63 TRANSACTION ENTERED BY THE ASSESSEE WITH PARTIES NAMELY, M/S RAJ MAL LAKHI CHAND , AMRISH I JAIN, HITESH BAFNA AND MADANLAL P JAIN, VIVEK JAIN AND M/S RSBL COMMODITIES P LTD ARE SPECUL ATIVE IN NATURE. DIFFERENCE IN FORWARD CONTRACTS COMES OUT TO BE (RS 7,96,32,697/ - ). THE SAME IS NOT ALLOWED TO BE SET OFF AGAINST THE NORMAL BUSINESS INCOME OF THE ASSESSEE AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. THE SAME IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 95. DURING THE PROCEEDINGS BEFORE THE CIT(A), ASSESSEE MADE WRITTEN SUBMISSIONS AND THE SAME IS INCORPORATED IN PARA 50 OF THE IMPUGNED ORDER. EVENTUALLY, THE CIT(A) DELETED THE ADDITION RELYING ON THE JUDGMENT IN THE CASE OF M R DHAWAN 119 ITR412 (DELHI) WHICH DEALS WITH THE DEFINITION OF SPECULATION. CONTENTS OF PARA 51 IS RELEVANT HERE AND THE SAME IS REPRODUCED AS UNDER: 51.0 I HAVE CAREFULLY EXAMINED THE FACTS OF THE CASE UNDER THE DEFINITION OF (SPECULATION ), ALL THAT HAS TO BE FOUND OUT IS WHETHER THE CONTRACT WAS PERIODICALLY OR ULTIMATELY SETTLED BY ACTUAL DELIVERY, TRANSFER OR OTHERWISE.. IF THE CONTRACT IS SETTLED OTHERWISE THAN BY ACTUAL DELIVERY, THEN IT WILL BE A SPECULATIVE TRANSACTION NOTWITHSTAN DING THAT THE NATURE OF THE COMMODITY WAS NOT ONE LENDING ITSELF TO POSSIBILITIES OF SPECULATION OR THAT THE INTENTION OF THE PARTIES AT THE TIME OF ENTERING INTO THE CONTRACT.. IN THIS CASE, THE ASSESSEE OFFICER FAILED TO ESTABLISH THAT THERE IS NO PH YSICAL DELIVERY, THEREFORE, HOLDING THE HEDGING TRANSACTION WITH PRIVATE PARTIES AS SPECULATIVE TRANSACTION WHILE ACCEPTING THE TRANSACTIONS WITH THE BANK IS UNFOUNDED AND NOT ACCEPTABLE. THEREFORE THE ADDITION MADE BY THE ASSESSING OFFICER IS HEREBY DELE TED. 96. BEFORE US, LD DR FOR THE REVENUE IS CRITICAL OF THE FINDING OF THE CIT(A) THAT THE AO FAILED TO DISCHARGE THE ONUS. IT IS THE SUBMISSION OF THE DR THAT THE ASSESSEE FAILED TO ESTABLISH THE NEXUS OF THE IMPUGNED TRANSACTIONS OF FORWARD CONTRACTS WITH THAT OF THE REGULAR BUSINESS TRANSACTIONS OF TRADING OF GOLD AND BULLION, WHICH ARE TO BE HEDGED. RELEVANT FACTS RELATING TO WHEN THE FORWARD CONTRACTS ARE CANCELLED AND DATES THEREOF ARE NOT BROUGHT ONTO THE RECORDS. LD CIT - DR MENTIONED THAT THE CON CLUSIONS OF THE CIT(A) NEEDS TO BE REVERSED OR ALTERNATELY, THE SAME SHOULD BE REMANDED TO THE FILE OF THE AO FOR WANT OF FACTS ON VARIOUS FACETS ON THE ALLOWABILITY OF THE SAID LOSS. IN THIS REGARD, ON THE LEGAL PRINCIPLES RELAVANT TO THE CONNECTED ISSUES , HE RELIED ON THE COORDINATE BENCH DECISION IN THE CASE OF M/S LONDON STAR DIAMOND COMPANY (I) P LTD (ITA NO 6169/M/2012 DT 11.10.2013) WHERE ONE OF US IS AN AUTHOR OF THE ORDER. 97. ON THE OTHER HAND, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE ASS ESSEE FILED RELEVANT DETAILS AND FACTS AND FURTHER STATED THAT THE AO DID NOT GIVE ANY ADVERSE COMMENTS OF THE SAID FACTS. ON THE LEGAL PRINCIPLES RELATING TO THE ISSUE OF ALLOWABILITY OF THE IMPUGNED LOSSES, LD COUNSEL FOR THE ASSESSEE STATED THAT THE 64 IMP UGNED FORWARD CONTRACTS CONSTITUTE INTEGRAL AND INCIDENTAL TO THE ACTIVITY OF THE TRADING ACTIVITY OF THE GOLD AND BULLION. FORWARD CONTRACTS CONSTITUTES COMMODITY WITHIN THE MEANING OF SECTION 43(5) OF THE ACT. THE IMPUGNED LOSS CONSTITUTES HEDGING LOS S AND THEREFORE, IT CONSTITUTES THE BUSINESS LOSS. IN THIS REGARD, HE RELIED ON THE BINDING JUDGMENT IN THE CASE OF BADRIDAS GAURIDU P LTD 261 ITR 256 (BOM), SOORA J MULL NAGARMULL 129 ITR 169 (CAL) ETC. LD AR ALSO RELIED ON THE SAID ORDER OF THE TRIBUNAL IN THE CASE OF LONDON STAR DIAMOND COMPANY (I) P LTD , SUPRA AND FILED A COPY OF THE SAME. 98. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE. THE PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW INDICATES THAT THE ASSESSEE HAS FILED RE LEVANT DETAILS AND FACTS. THE SUMMARY OF THE DETAILS OF THE HEDGING LOSS ARE STATED IN THE ASSESSMENT ORDER AT PAGES 54 - 55 AND THE AO HAS NOT GIVEN ANY ADVERSE COMMENTS OF THE SAID FACTS AS CLAIMED BY THE ASSESSEE. IT IS PERTINENT TO MENTION THAT IN THE SU MMARY AND FINDINGS OF THE SPECIAL AUDITOR ON THE SAID ISSUE AVAILABLE AT PAGE NO 356 OF THE PAPER BOOK, IT HAS BEEN ACCEPTED THAT TRANSACTIONS ARE HEDGED WITH TRADE CONTRACTS PARTLY DIRECTLY AND PARTLY ON OVERALL BASIS BUT EVERY CONTRACT IS HEDGED WITH TRA DE TRANSACTIONS. THE AO HAS NOT BROUGHT ANYTHING ON RECORD TO ESTABLISH THAT THE TRADING TRANSACTIONS ARE HEDGED ONLY SELECTIVELY. CONSIDERING THE FACTS IN TOTO, THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISIONS IN THE CASES OF BADRIDAS GAURIDU P LTD 261 ITR 256 (BOM), SOORAJ MULL NAGARMULL 129 ITR 169 (CAL) ETC. AND LONDON STAR DIAMOND COMPANY (I) P LTD (SUPRA) AND THEREFORE WE ARE OF THE CONSIDERED VIEW THAT THE IMPUGNED LOSS AMOUNTS TO HEDGING LOSS AND CONSTITUTES BUSINESS LOSS. MOREOVER, THE CIT(A) HAS ANALYSED THE ISSUE FROM THE PERSPECTIVE OF SPECULATION LOSS AND HAS RIGHTLY HELD THAT THE IMPUGNED LOSS AMOUNTS TO HEDGING LOSS AND A SPECULATION LOSS. IN VIEW OF THAT MATTER, WE DO NOT FIND ANY JUSTIFIABLE REASON TO INTERFERE WITH THE DECI SION OF THE CIT(A) ON THIS COUNT AND HENCE THE SAME IS UPHELD. RESULTANTLY, THE BENEFITS OF SECTION 43(5) OF THE ACT ARE TO BE GRANTED TO THE ASSESSEE. ACCORDINGLY, GROUND 3 OF THE REVENUES APPEAL IS DISMISSED. 65 99. IN THE RESULT, THE APPEALS OF THE ASSES SEE IS PARTLY ALLOWED AND THAT OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE . ORDER IS PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF MAY, 2014 SD/ - SD/ - (DR. S.T.M. PAVALAN) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 12 .05. 2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPE LLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI