Manvi Holdings Pvt. Ltd., Jalgaon V. Dy. CIT, Circle-2, Jalgaon

ITA 721/PUN/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9127 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 26-04-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 22-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ACHAL SHARMA CIT SR NO MUKESH; SR NO
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Rejection of books of accounts; Depreciation; Business expenditure; Opportunity of being heard; Principle of natural justice; Rule of consistency; Deemed to accrue or arise in india; Deemed dividend; Commercial expediency

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE . . . . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO. 782/PUN/2013 / ASSESSMENT YEAR : 2009-10 1. DCIT, CIRCLE - 1, JALGAON . /APPELLANT V/S MANVI HOLDING S PRIVATE LIMITED, 169, BALAJI PETH, JOHRI BAZAR, JALGAON, JILHA PETH, JALGAON DISTRICT, JALGAON PAN : AAECM0026B . /RESPONDENT . / ITA NO. 721/PUN/2013 / ASSESSMENT YEAR : 2009-10 2. MANVI HOLDING S PRIVATE LIMITED, 169, BALAJI PETH, JALGAON - 425001 PAN : AAECM0026B . /APPELLANT V/S DCIT, CIRCLE - 2, JALGAON . /RESPONDENT . / ITA NO. 1694/PUN/2014 / ASSESSMENT YEAR : 2009-10 3. DCIT, CIRCLE - 1, JALGAON . /APPELLANT V/S MANRAJ JEWELLERS PVT. LTD., 169, BALAJI PETH, JALGAON 425 003 PAN : AADCM3254C . /RESPONDENT ASSESSEE BY : SHRI SUNIL PATHAK REVENUE BY : SR.NO.1 & 2 - SHRI ACHAL SHARMA, ADDL .CIT SR.NO.3 MUKESH JHA, JCIT / DATE OF HEARING :24.07.2017 / DATE OF PRONOUNCEMENT: 28.07.2017 2 ITA NOS.782 AND 721/PUN/2013 AND ITA NO.1694/PUN/2014 / ORDER PER D. KARUNAKARA RAO, AM : ITA NOS. 782 AND 721/PUN/2013 IN THE CASE OF MANVI HOLDINGS PVT. LTD., ARE CROSS APPEALS FILED BY THE ASSESSEE AND THE REV ENUE FOR THE ASSESSMENT YEAR 2009-10. THEY ARE FILED AGAINST THE ORDER OF CIT(A)-II, NASHIK DATED 23-01-2013. 2. ITA NO.1694/PUN/2014 IN THE CASE OF MANRAJ JEWEL LERS PVT. LTD., IS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A)-II, NASH IK DATED 04-06-2014 FOR THE ASSESSMENT YEAR 2009-10. THE ABOVE TWO ASSESSEES ARE THE SISTER CONCERNS OF WELL KNOWN RAJMAL LAKHICHAND GROUP OF CASES OF JALG AON AND THE FACTS AND ISSUES ARE INTERCONNECTED. THEREFORE, ALL THE APPE ALS ARE CLUBBED TOGETHER AND ARE BEING ADJUDICATED BY THIS COMPOSITE ORDER. 3. WE FIRST TAKE UP THE CROSS APPEALS IN THE CASE O F MANVI HOLDINGS PVT. LTD., I.E. ITA NO.782/PUN/2013 AND ITA NO.721/PUN/2013. 4. IN THE ASSESSES APPEAL, I.E. ITA NO.721/PUN/201 3 ASSESSEE RAISED 8 GROUNDS. ALL OF THEM REVOLVE AROUND 3 MAJOR ISSUES NAMELY, (1) CORRECTNESS IN REJECTION OF BOOKS OF ACCOUNTS AND CONSEQUENTIAL ES TIMATION APPLYING FLAT GP RATE, (2) OTHER ADDITIONS U/S.40A(2) OF THE ACT AND ALSO ON ACCOUNT OF DIVERSION OF PROFITS TO SISTER CONCERNS, (3) DISALLOWANCE OF INTEREST AMOUNTING TO RS.27,71,262/- INVOKING THE PROVISIONS OF SECTION 3 6(1)(III) OF THE ACT APPLYING NOTIONAL ADDITIONAL INTEREST RATE OF 6% ON THE OUTS TANDING TRADING BALANCES WITH THE SISTER CONCERNS AND (4) DIRECTION OF THE CIT(A) IN INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IN RESPECT OF TWO DIREC TORS NAMELY, SHRI ISHWARLAL S. LALWANI (MENTIONED AS SHRI ISHWARLAL S. JAIN IN SOM E PLACES OF THE IMPUGNED ORDERS) AND SHRI MANISH JAIN (AS MENTIONED IN THE G ROUNDS). 3 ITA NOS.782 AND 721/PUN/2013 AND ITA NO.1694/PUN/2014 5. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE TH AT THE ASSESSEE IS ONE OF THE COMPANIES OF WELL KNOWN RAJMAL LAKHICHAND GROUP OF CASES OF JALGAON. ASSESSEE IS ENGAGED IN THE BUSINESS OF GOLD AND SIL VER, MAKING OF ORNAMENTS AS WELL AS SELLING THE BULLIONS. ASSESSEE FILED THE R ETURN OF INCOME ON 26-08-2009 DECLARING BUSINESS LOSS OF RS.1,65,39,742/- AND UNA BSORBED DEPRECIATION AMOUNTING TO RS.1,15,725/-. ASSESSMENT WAS COMPLET ED U/S.143(3) OF THE ACT DETERMINING THE ASSESSED INCOME AT RS.13,24,72,697/ -. AO MADE ADDITION OF RS.83,53,982/- ON ACCOUNT OF GROSS PROFIT ADDITION. AO ALSO MADE ADDITION OF RS.2.89 CRORES (ROUNDED OFF) INVOKING THE PROVISION S OF SECTION 40A(2)(B) IN RESPECT OF THE SALES MADE BY THE ASSESSEE TO THE SI STER CONCERNS. FURTHER, ON ACCOUNT OF DIVERSION OF PROFITS TO THE SISTER CONCE RNS, AO MADE ADDITION OF RS.10.45 CRORES (ROUNDED OFF). 6. IN THE FIRST APPELLATE PROCEEDINGS, THE CIT(A) D ELETED ADDITIONS MADE U/S.40A(2)(B) AS WELL AS THE ADDITION MADE ON ACCOU NT OF DIVERSION OF PROFITS AND ALLOWED THE APPEAL. HOWEVER, THE CIT(A), WHILE CONFIRMING THE DECISION OF AO IN MATTERS ON REJECTION OF BOOKS OF ACCOUNTS U/S .145(3) OF THE ACT, INCREASED THE GROSS PROFIT RATE. BOOK PROFITS, AS PER THE AS SESSEES BOOKS, IS 1.41% ON THE TURNOVER OF RS.141.58 CRORES (ROUNDED OFF). TH E CIT(A) HELD IN PARA 16.1 OF HIS ORDER THAT GROSS PROFIT RATE OF 1.41% IS VERY M UCH ON THE LOWER SIDE. THEREFORE, HE ESTIMATED THE PROFITS OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR APPLYING THE FLAT RATE OF 2%. THUS , THE CIT(A) CONFIRMED THE ADDITION OF RS.83,53,082/- WHICH WORKS OUT TO 0.59% (2% - 1.41%) ON RS.141.58 CRORES (ROUNDED OFF) OF TURNOVER. FURTHE R, THE CIT(A) CONFIRMED THE REJECTION OF BOOKS OF ACCOUNTS AFTER APPRECIATING T HE DEFICIENCIES ENLISTED BY THE AO. CONTENTS OF DEFICIENCIES ARE DISCUSSED IN PARA NOS. 14 AND 15 OF THE ASSESSMENT ORDER. 4 ITA NOS.782 AND 721/PUN/2013 AND ITA NO.1694/PUN/2014 7. REGARDING THE FIRST ISSUE (SUPRA) RAISED BY THE ASSESSEE, VIDE GROUND NOS. 1 TO 3 OF THE ASSESSEE, LD. COUNSEL FOR THE AS SESSEE SUBMITTED THAT, ON THE GROUND OF SIMILAR DEFICIENCIES, THE BOOKS OF ACCOUN TS WERE REJECTED BY THE AO IN THE CASE OF M/S. RAJMAL LAKHICHAND (IN SHORT RL), RETAILER IN THE GOLD, JEWELLERY AND BULLION. THE TRIBUNAL IN THE SAID CA SE OF M/S. RAJMAL LAKHICHAND VS. JCIT, RANGE-1, JALGAON VIDE ITA NOS. 532 & 663/ PUN/2013 AND ITA NO.607/PUN/2013 ORDER DATED 16-01-2015 CONFIRMED TH E SAID DECISION OF REJECTION OF BOOKS OF ACCOUNTS. BRINGING OUR ATTEN TION TO PARA NOS. 8 TO 8.35 OF THE SAID ORDER OF THE TRIBUNAL, THE LD. COUNSEL FOR THE ASSESSEE DEMONSTRATED THE FACT OF DEALING WITH THIS ISSUE. FURTHER, BRING ING OUR ATTENTION TO PAGE 441 OF THE PAPER BOOK VIDE PARA NO. 8.35, LD. COUNSEL D EMONSTRATED THE FACT OF RESTRICTING OF THE ADDITION BY THE TRIBUNAL IN THAT CASE TO 1.20% AGAINST THE BOOK PROFITS OF 1.13% WITH THE DIFFERENCE OF ONLY 0 .07%. IN THE INSTANT CASE, THE CIT(A) CONFIRMED THE DIFFERENTIAL GROSS PROFIT RATE OF 0.59% OVER AND ABOVE THE GROSS PROFIT RATE OF 1.41%. THIS GP RATE IS MU CH HIGHER THAN THE 1.13% OF THE BUSINESS OF M/S. RAJMAL LAKHICHAND. IN THIS RE GARD, LD. AUTHORISED REPRESENTATIVE FILED A WRITTEN SUBMISSION AND THE S AME IS EXTRACTED AS UNDER (PARA 2 & 2.1) : 2. GROUND NO. 1 - 3 : IN THIS CONTEXT, IT IS SUBMI TTED THAT IN THE CASE OF RAJ MAL LAKHICHAND HON'BLE ITAT HAS ADOPTED GP OF 1.20% AS AGAINST 1.13% SHOWN BY THE ASSESSEE (PAGE 441 OF PAPER BOOK). IN OUR CASE, THE BUSINESS IS A WHOLE SALE BUSINESS OF JEWELLERY AND THEREFORE, THE MARGIN IS NOT MUCH AS COMPARED TO RETAIL BUSINESS. SECONDLY, THE APPELLAN T HAS SHOWN THE GP OF 1.41% (PAGE 2 OF CIT(A)) WHICH IS ALREADY HIGHER TH AN THE GP OF 1.20% ADOPTED BY ITAT AND THEREFORE, NO FURTHER ADDITION IS REQUIRED. 2.1 SECONDLY, THE A.O. HIMSELF HAS ESTIMATED THE GP AT 2% AS AGAINST THE GP OF 1.41% SHOWN BY THE APPELLANT BY MAKING A GP A DDITION OF RS. 83,53,082/-. THE APPELLANT SUBMITS THAT THE CIT (A) IS NOT JUSTIFIED IN ESTIMATING A GP AT 8.15% PARTICULARLY, WHEN ITAT IN THE CASE OF RAJ MAL LAKHICHAND HAS NOT SUSTAINED ANY ADDITION ON THE GR OUNDS TAKEN BY THE A.O. I.E. IT HELD THAT THE COMPARISON BASED ON AVERAGE P RICE BY THE A.O. IS WRONG AND THERE WAS NO EXCESS PAYMENT FOR PURCHASES FROM SISTER CONCERNS NOR WAS THERE DIVERSION OF PROFITS TO SISTER CONCERNS. IN T HIS CASE ALSO, ON PAGE 43, 44 OF PAPER BOOK 1 AND ON PAGES 559 TO 561 OF PAPER BOOK 2, THE ASSESSEE HAS DEMONSTRATED THE SAME. ACCORDINGLY, THE ASSESSEE SU BMITS THAT NO ADDITION OF GP IS WARRANTED IN THIS CASE AND THE DEPTL. APPEAL ALSO MAY BE DISMISSED AS THE ISSUES ARE COVERED BY ITAT DECISION IN THE CASE OF RAJMAL LAKHICHAND. 5 ITA NOS.782 AND 721/PUN/2013 AND ITA NO.1694/PUN/2014 THUS, THE AUTHORISED REPRESENTATIVE CALLED FOR CONF IRMING THE BOOK RESULTS OF THE ASSESSEE (1.41%) ON THE ISSUE OF DECISION OF TH E TRIBUNAL ON THE CORRECTNESS OF INVOKING THE PROVISIONS OF SECTION 1 45(3) OF THE ACT. LD. AUTHORISED REPRESENTATIVE BROUGHT OUR ATTENTION TO PARA NO.8.21 OF THE TRIBUNAL ORDER (SUPRA) IN SUPPORT OF CONFIRMING OF REJECTION OF BOOKS OF ACCOUNTS, THE LD. COUNSEL READ OUT THE FOLLOWING LINES (LAST LINES OF THE SAID PARA) WHICH IS EXTRACTED AS UNDER : 8.21 . . . . . . . . . . . . . . . . . . . . . . . . . . IN VIEW OF THE ABOVE, THE BOOKS OF ACCOUNT OF THE ASSESSEE, IN OUR OPINION, DO NOT GIVE THE CORRECT P ICTURE AND THEREFORE ARE LIABLE TO BE REJECTED. 8. EVENTUALLY, THE LD. COUNSEL FOR THE ASSESSEE BRO UGHT OUR ATTENTION TO THE DATE OF THE ORDER OF THE TRIBUNAL, I.E. 16-01-2015 AND COMPARED THE SAME WITH THE DATE OF THE IMPUGNED ORDER OF THE CIT(A), I.E. 23-01-2013. LD. COUNSEL FOR THE ASSESSEE MENTIONED THAT THE ORDER OF THE TRIBUN AL IS NOT AVAILABLE TO THE CIT(A) AT THE RELEVANT POINT OF TIME. CONSIDERING THE FAIRNESS OF ADJUDICATION OF THIS ISSUE, LD. AUTHORISED REPRESENTATIVE MENTIONED THAT TRIBUNAL MAY CONSIDER REMANDING TO THE FILE OF THE CIT(A) FOR APPLYING TH E RATIOS OF THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. RAJMAL LAKHICHAND (SUP RA) ON (1) THE ISSUE OF THE REJECTION OF BOOKS OF ACCOUNTS AND (2) THE APPROPR IATE GROSS PROFIT RATE THAT SHOULD BE APPLIED FOR BRINGING THE LITIGATION TO TH E LOGICAL CONCLUSION. LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE CONVEYED HIS INTENTION TO INCREASE THE GROSS PROFIT MARGINALLY TO BRING THE LITIGATION TO THE FINALITY. LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE REQUESTED THAT SUCH INCREASE, IF ANY, MUST NOT BE AS MUCH AS 0.70% DECIDED BY THE TRIBUNAL IN CASE OF M/S. RAJMAL LAKHICHAND. CIT(A) SHOULD ALSO CONSIDER THE FACT T HAT THE BUSINESS OF THE ASSESSEE IS DIFFERENT QUA THAT OF THE M/S. RAJMAL L AKHICHAND (SUPRA). 6 ITA NOS.782 AND 721/PUN/2013 AND ITA NO.1694/PUN/2014 9. LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE HEAVILY RELIED ON THE ORDERS OF THE AO AND THE CIT(A). 10. WE HEARD BOTH THE PARTIES ON THIS ISSUE AND PER USED THE FILES/PAPER BOOKS FILED BEFORE US. AFTER HEARING BOTH THE PARTI ES ON THIS ISSUE OF REJECTION OF BOOKS OF ACCOUNTS AS WELL AS ON THE ISSUE OF ESTIMA TING THE APPROPRIATE GROSS PROFIT RATE, WE ARE OF THE OPINION THAT IN THE ORDE R OF THE TRIBUNAL IN THE CASE OF M/S. RAJMAL LAKHICHAND, THIS ISSUE HAS ALREADY BEEN ADJUDICATED BY THE TRIBUNAL. WE FIND THE AOS IN BOTH THE CASES HAVE IDENTIFIED SIMILAR DISCREPANCIES WITH REGARD TO THE BOOKS OF ACCOUNTS. THEREFORE, WE ARE OF THE OPINION IN SO FAR AS REJECTION OF BOOKS OF ACCOUNTS IS CONCERNED, THE MATTER STANDS COVERED AND THE AOS DECISION TO REJECT THE BOOKS OF ACCOUNTS HAS TO BE UPHELD AND IN FAVOUR OF THE REVENUE. 11. SO FAR AS THE ESTIMATION OF PROFITS ARE CONCERN ED, WE ARE OF THE OPINION THAT THIS ISSUE SHOULD TRAVEL BACK TO THE FILE OF T HE CIT(A). IN THE PROCEEDINGS, CIT(A) IS DIRECTED TO APPRECIATE THE ORDER OF THE T RIBUNAL IN THE CASE OF M/S. RAJMAL LAKHICHAND (SUPRA) AND ADJUDICATE THE ISSUE AFRESH IN LIGHT OF THE SAID ORDER OF THE TRIBUNAL. HE SHALL EXAMINE THE FACTS OF THE PRESENT CASE WITH THAT OF M/S. RAJMAL LAKHICHAND QUA THE NATURE OF BUSINES S ACTIVITIES AND GRANT PROPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE A S PER THE SET PRINCIPLES OF NATURAL JUSTICE. IN ANY CASE, WE FIND THE INCREASE IN GROSS PROFIT IF ANY MAY NOT EXCEED THE SAID DIFFERENTIAL RATE OF 0.70%. ACCORD INGLY, WE ARE OF THE VIEW THAT THE ISSUES RAISED BY THE ASSESSEE IN GROUND NOS. 1 TO 3 SHOULD BE ALLOWED FOR STATISTICAL PURPOSES. 12. REGARDING THE SECOND ISSUE RELATES TO THE DISAL LOWANCE OF INTEREST U/S.36(1)(III) OF THE ACT. BACKGROUND FACTS OF THE CASE INCLUDE THAT THE ASSESSEE MAINTAINED A RUNNING ACCOUNT WITH THE SISTER CONCER NS AND DECIDED TO CHARGE 7 ITA NOS.782 AND 721/PUN/2013 AND ITA NO.1694/PUN/2014 INTEREST @6% ON THE OUTSTANDING BALANCES RECEIVED B Y THE ASSESSEE. THE DETAILS ARE GIVEN IN PAGE 576 OF THE PAPER BOOK. R S.54,21,963/- WAS CALCULATED @6% AS INTEREST INVOLVING THE SISTER CONCERNS OF TH E ASSESSEE. IT IS THE VIEW OF THE AO THAT THE SAID INTEREST RATE IS ON THE LOWER SIDE. THEREFORE, AO COMPARED THE SAME WITH THAT OF THE BANK INTEREST RA TES PAID BY THE ASSESSEE TOWARDS THE ADVANCES/THE LOANS TAKEN BY THE ASSESSE E. HE TOOK THE VIEW THAT CHARGING OF INTEREST @12% IS APPROPRIATE. AO MADE ADDITION OF RS.54,21,963/- AS PER THE DISCUSSION GIVEN IN PARA 17 OF THE ASSES SMENT ORDER WHICH IS REPRODUCED AS UNDER : 17. DISALLOWANCE U/S.36(1)(III) OF THE ACT : THE A SSESSEE WAS FOUND TO HAVE PAID SUBSTANTIAL INTEREST TO VARIOUS INSTITUTES AS WELL AS TO THE SISTER CONCERN. THE ASSESSEE WAS ASKED TO ESTABLISH THAT THE PAID I NTEREST WAS THE BUSINESS EXPENDITURE AND CAN BE CLAIMED TO HAVE BEEN INCURRE D EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE DETAILS OF SUCH INTEREST PAYMENT WERE SUBMITTED BY THE ASSESSEE ON 27-12-2011 AS UNDER : KOTAK MAHINDRA RS.66,43,508/- HDFC RS.23,53,324/- METAL LOAN RS.1,77,63,422/- TDS RS.24,452/- VEHICLE LOAN RS.45,277/- RAJMAL LAKHICHAND RS.54,21,963/- ---------------------- TOTAL RS.3,22,51,946/- ---------------------- FROM THE ABOVE CHART, CAN BE SEEN THAT THE ASSESSEE HAD SALE/PURCHASE TRANSACTIONS WITH M/S. RAJMAL LAKHICHAND IN WHICH T HE DIRECTORS OF THE ASSESSEE COMPANY WERE HAVING SUBSTANTIAL INTEREST. THE COPY OF ACCOUNT EXTRACT OF M/S. RAJMAL LAKHICHAND AS APPEARING IN THE BOOKS OF THE ASSESSEE COMPANY SHOWS THAT THE ASSESSEE HAD PAID INTEREST OF RS.54,21,963 /- @6%, HOWEVER, NO INTEREST HAS BEEN CHARGED TO THE SISTER RAJMAL LAKH ICHAND JEWELLERS PVT. LTD., THEREBY, THE ASSESSEE IS FOUND HAVE UTILIZED BORROW ED FUNDS FOR GIVING THE LOANS TO THE SISTER CONCERN. ON ACCOUNT OF PAYMENT OF INTEREST OF RS.54,21,963/- TO M/S. RAJMAL LAKHICHAND REQUIRES T O BE PROPORTIONATELY DISALLOWED OUT OF THE PAID INTEREST OF RS.3,22,51,9 46/- AND ACCORDINGLY, RS.54,21,963/- IS ADDED TO ASSESSEES TOTAL INCOME BECAUSE IT DOES NOT QUALIFY FOR DEDUCTION U/S.36(1)(III) OF THE I.T. ACT, 1961. 13. CIT(A) RESTRICTED THE DISALLOWANCE TO RS.27,71, 272/- BY GIVING THE FOLLOWING REASONING. FOR THE SAKE OF COMPLETENESS, RELEVANT PARA NO.20 OF THE ORDER OF CIT(A) IS EXTRACTED AS UNDER : 8 ITA NOS.782 AND 721/PUN/2013 AND ITA NO.1694/PUN/2014 20. AS REGARDS DISALLOWANCE OF INTEREST U/S 36(L)( III) OF THE ACT, THE APPELLANT COMPANY HAS DEBITED RS.3,22,51,946/- IN I TS P & L A/C ON ACCOUNT OF INTEREST PAYMENTS ON SECURED AS WELL AS UNSECURED LOANS. THIS INTERALIA INCLUDES RS.54,21,963/ - STATED TO HAVE BEEN PAID TO M/S RAJM A L LAKHICHAND. I FIND FROM THE CALCULATION SUBMITTED B Y THE APPELLANT THAT WHILE INTEREST ON DEBIT BALANCE HAS BEEN PAID, INTE REST ON CREDIT BALANCE HAS ALSO BEEN CHARGED FROM M/S.RAJMAL LAKHICHAND. W HILE THERE WAS A DEBIT BALANCE OF RS. 37,83,17,093/- AS ON 31/03/200 9 AGAINST RAJMAL LAKHICHAND IN SALE/PURCHASE ACCOUNT, THERE WAS A CR EDIT BALANCE OF RS.32,89,13,300/- AGAINST THE ABOVE CONCERN AS ON 3 1/03/2009. THE NET OF INTEREST PAID AND RECEIVED COMES TO RS. 54,21,96 3/-. HOWEVER, I ALSO FIND FROM THE RECORD THAT THE APPELLANT COMPANY REC EIVED A LOAN OF RS. 5.5 CRORE FROM KOTAK MAHINDRA BANK ON 16/05/2008 AG AINST ITS PROPERTY SITUATED AT KALYAN. THIS AMOUNT WAS GIVEN TO M/S RA JMAL LAKHICHAND JEWELLERS (P) LTD ON BEHALF OF M/S RAJMAL LAKHICHAN D. WHILE THE APPELLANT COMPANY HAS TAKEN LOAN @ 11 . 50 % FROM BANK, IT IS CHARGING ONLY 6% FROM ITS SISTER CONCERNS . THERE IS A DIRECT NEXUS IN THE ABOVE REFERRED BANK LOAN AND THE AMOUNT PAID TO M/S. RAJMAL LAKHIC HAND JEWELLERS (P) LTD ON BEHALF OF RAJMAL LAKHICHAND. IN VIEW OF THE ABOVE, BORROWED FUNDS AT HIGHER INTEREST ARE DIVERTED FOR NON-BUSIN ESS PURPOSE AT LOWER INTEREST RATES. THE APPELLANT HAS FAILED TO PROVE A NY COMMERCIAL EXPEDIENCY IN REGARD TO DIVERSION OF FUNDS FOR NON - BUSINESS PURPOSES. IN VIEW OF THE ABOVE, DIFFERENCE OF 5.50% IN INTEREST RATE, TO THE EXTENT OF RS.26,52,054/- (INTEREST @5.50% ON RS.5.50 CRORE FO R 320 DAYS) IS DISALLOWED U/S 36(1)(III) OF THE ACT. IT IS ALSO N OTICED THAT THERE WAS A DEBIT BALANCE OF RS.6,12,787/- AGAINST SHRI. ISHWAR LAL S.LALWANI, DIRECTOR OF THE COMPANY. THE APPELLANT COMPANY HAS NOT CHAR GED ANY INTEREST. THE APPELLANT HAS BORROWED FUNDS FROM BANKS AT INTE REST RATES RANGING FROM 11.50% TO 13.25%. THE APPELLANT HAS DIVERTED BORROWED FUNDS FOR NON-BUSINESS PURPOSES. HENCE INTEREST OF RS.75,534 /- I.E. @ 12% ON RS.6,12,787/- WILL ALSO BE DISALLOWED U/S 36(1)(III ) OF THE ACT. SIMILARLY, THE APPELLANT HAD GIVEN A LOAN OF RS.3,63,957/- TO SHRI. MANISH JAIN, ANOTHER DIRECTOR OF THE COMPANY ON WHICH NO INTERES T HAS BEEN CHARGED. ACCORDINGLY INTEREST OF RS.43,674/- I.E. @12% ON RS .3,63,957/- IS ALSO DISALLOWED U/S 36(1)(III) OF THE ACT. TOTAL DISALL OWANCE COMES TO RS.27,71,262/- (RS.26,52,054 + RS.75,534 + RS.43,67 4). THE APPELLANT GETS A RELIEF OF RS.26,50,701/-. 14. BEFORE US, LD. COUNSEL FOR THE ASSESSEE DEMONST RATED THAT THE PAYMENT OF LOANS IS NOT BORNE OUT OF THE RECORDS. THIS IS THE MATTER OF TRANSACTIONS INVOLVING THE SISTER CONCERNS. ACCORDING TO HIM, T HE RELIEF SHOULD BE GRANTED TO ASSESSEE IN VIEW OF THE SUPREME COURT JUDGMENT IN T HE CASE OF S.A. BUILDERS VS. CIT REPORTED IN 288 ITR 1. 15. LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE SUBMITTED THAT IT IS A CASE OF DIRECT NEXUS OF DIVERTING THE BANK LOANS UL TIMATELY TO THE SISTER CONCERNS AND LEVYING OF INTEREST AT LESSER RATE OF INTEREST IS NOT OUT OF THE COMMERCIAL EXPEDIENCY. 9 ITA NOS.782 AND 721/PUN/2013 AND ITA NO.1694/PUN/2014 16. FURTHER, WE FIND THAT THE LD. AUTHORISED REPRE SENTATIVE FILED THE FOLLOWING WRITTEN SUBMISSIONS AND WE PROCEED TO IMP ORT RELEVANT PARAGRAPHS AS UNDER (PARA 3, 3.1 TO 3.3) : 3. GROUND NO. 4 & 5 - IN THIS CONTEXT, THE ASSESSE E HAS MADE SUBSTANTIAL SALES TO RAJMAL LAKHICHAND DURING THE YEAR (PAGE 56 2 OF PAPER BOOK 2) AGAINST THOSE SALES, IT RECEIVED MONEY FROM THEM FROM TIME TO TIME AS GIVEN ON PAGE 563 TO 576. THE GROUP FOLLOWS THE POLICY OF CHARGIN G 6% INTEREST ON THE FUNDS RECEIVABLE FROM THE GROUP CONCERNS. AS THE ASSESSEE HAD RECEIVED MORE FUNDS FROM THEM, IT PAID NET INTEREST OF RS.54,21,963/- O N THE DIFFERENCE (PAGE 576 OF PAPER BOOK 2). THE TOTAL INTEREST PAYABLE TO RAJMAL LAKHICHAND WAS RS.1 , 18,01,425 / - AS REDUCED BY THE INTEREST RECEIVABLE FROM THEM O F RS.63,79,463 / - AND THE NET INTEREST WAS TAKEN TO THE ACCOUNT OF RAJ MAL LAKHICHAND (PAGE 576). THEREFORE, THERE IS NO REASO N FOR DISALLOWANCE. JUST BECAUSE, THE ASSESSEE HAD DEBITED INTEREST OF RS.3, 22,51,946 / - IN THE P&L ACCOUNT PAYABLE TO THE BANK, THE A.O. ERRED IN DISA LLOWING INTEREST OF RS.54,21,963/- PAYABLE BY THE ASSESSEE AS MENTIONED ABOVE. THE BANK INTEREST IS ALLOWABLE AS THE LOANS FROM THE BANKS ARE UTILIZ ED FOR THE PURPOSE OF THE BUSINESS. 3.1 SECONDLY, THE TRANSACTIONS WITH THE SISTER CONC ERN RAJMAL LAKHICHAND HAVE BEEN ON BUSINESS ACCOUNT. THEREFORE, FOR THE R ECEIVABLES FROM THEM, EVEN IF, THE ASSESSEE HAS NOT CHARGED THE INTEREST, STIL L INTEREST PAYABLE TO THE BANK WAS ALLOWABLE AS A DEDUCTION (SC 288 ITR 1). THIRDL Y , THE ASSESSEE'S OWN RESERVES AND CAPITAL ARE TO THE EXTENT OF RS.13.40 CRS. (PAGE 13 OF THE PAPER BOOK 1) AND HENCE, THESE INTEREST FREE FUNDS WERE A VAILABLE WITH THE ASSESSEE FOR GIVING FUNDS TO SISTER CONCERNS AND THUS, NO DI SALLOWANCE IS WARRANTED. BOMBAY H.C. [313 ITR 340]. 3.2 THIRDLY, THE A.O. HAS WRONGLY MENTIONED THAT TH E ASSESSEE HAS NOT CHARGED INTEREST TO RAJMAL LAKHICHAND JEWELLERS PVT . LTD. ON PAGE 580 OF PAPER BOOK 2, THE ASSESSEE HAS GIVEN THE ACCOUNT EXTRACT IN WHICH THE ENTRY OF NET INTEREST RECEIVED IS VERY MUCH MADE AND HENCE, THER E IS NO MERIT IN THE CONTENTION OF THE A.O. 3.3 IN THE CASE OF M / S. RAJMAL LAKHICHAND, THERE WAS NO ISSUE ABOUT INTEREST DISALLOWANCE IN THE ABOVE CONTEXT AND THER EFORE, THERE IS NO FINDING BY THE ITAT IN ITS ORDER. 17. FROM THE ABOVE, IT IS EVIDENT THAT THERE ARE CE RTAIN ERRONEOUS ASSUMPTIONS ON PART OF THE AO (PARA 3.2 ABOVE). AS SUCH, THERE IS NO SPEAKING ORDER ON THE APPLICABILITY OF THE SAID (SUPRA). T HEREFORE, AFTER HEARING BOTH THE SIDES, WE FIND THE DISCUSSION GIVEN BY THE CIT(A) D O NOT CONSTITUTE A SPEAKING ORDER. WE THEREFORE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) SHOULD BE SET- ASIDE. WE PROCEED TO REMAND THIS ISSUE TO THE FILE OF THE CIT(A) FOR FRESH ADJUDICATION. HE SHALL GRANT REASONABLE OPPORTUNIT Y OF BEING HEARD TO THE 10 ITA NOS.782 AND 721/PUN/2013 AND ITA NO.1694/PUN/2014 ASSESSEE AS PER THE SET PRINCIPLES OF NATURAL JUSTI CE. ACCORDINGLY, THIS PART OF GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATIS TICAL PURPOSES. 18. THE THIRD ISSUE IN THE CROSS APPEALS RELATES TO THE CORRECTNESS OF THE DIRECTIONS GIVEN BY THE CIT(A) INVOKING THE PROVISI ONS OF SECTION 2(22)(E) OF THE ACT IN RESPECT OF SHRI ISHWARLAL S. LALWANI AND SHR I MANISH JAIN (DIRECTORS OF THE COMPANY AS MENTIONED IN THE GROUNDS). 19. ON THIS ISSUE, AO DID NOT MAKE ANY ADDITION IN THE ASSESSMENT ON THIS ACCOUNT. THIS ISSUE CAME UP FOR DISCUSSION DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE PROCEEDINGS. CIT(A) DISCUSSED THIS ISSUE IN PARA 21 OF HIS ORDER. ON STUDYING THE VARIOUS TRANSACTIONS INVOLVING M/S . RAJMAL LAKHICHAND WHERE SHRI ISHWARLAL S. LALWANI AND SHRI MANISH JAIN ARE THE DIRECTORS, IT IS SUBMITTED THAT THE ASSESSEE HAS A RUNNING ACCOUNT WITH THE SA ID ASSESSEE. THE CREDIT BALANCE WORKS OUT TO RS.22.33 CRORES (ROUNDED OFF) AGAINST THE DEBIT BALANCE OF RS.23.01 CRORES (ROUNDED OFF). THE DIFFERENCE WORK S OUT TO RS.67,59,393/-. ON THIS BALANCE, IT IS THE VIEW OF THE CIT(A) THAT RS. 67,61,977/- CONSTITUTES LOAN/ADVANCES GIVEN TO THE PRIVATE LIMITED COMPANY WHICH ARE SHARED BY THE COMMON DIRECTORS. IN THE LIGHT OF THESE FACTS, THE CIT(A) GAVE DIRECTION TO THE AO TO CONSIDER TAXING THE SAID AMOUNT IN THE HANDS OF THE DIRECTORS OF THE COMPANY INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. RELEVANT DIRECTION FROM PARA NO.21 IS EXTRACTED AS UNDER : 21. . . . . . . . . . . . . . . . . . . . . . . . . THE ACCOUNT IS REQUIRED TO BE EXAMINED TO FIND OUT THE MAXIMUM DEBIT BALANCE DURING THE YEAR TO INVOKE THE PROVISIONS OF SEC. 2(22)(E) OF THE ACT IN THE HANDS OF SHRI ISHWARLAL S. LALWANI. FURTHER, ACCORDING TO APPELLANTS LETTER DTD. 05/09/2012, TH ERE WAS A DEBIT BALANCE OF RS.6,58,503/- AGAINST SHRI ISHWARLAL S.LALWANI, DIRECTOR OF THE APPELLANT COMPANY (SHAREHOLDING 99.16%). THIS AMOU NT IS REQUIRED TO BE TAXED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT IN THE HANDS OF SHRI ISHWARLAL S. LALWANI. AO IS ALSO DIRECTED TO EXAMI NE THE APPLICABILITY OF THE PROVISIONS OF SECTION 2(22)(E) IN THE HANDS OF THE PARTNERS OF M/S. RAJMAL LAKHICHAND TO WHOM THE APPELLANT COMPANY IS STATED TO HAVE MADE AN ADVANCE, WITH A MAXIMUM BALANCE DURING THE YEAR BEING AT RS.38,46,00,984/-. THE AO SHALL ALSO EXAMINE THE O THER ACCOUNT WITH 11 ITA NOS.782 AND 721/PUN/2013 AND ITA NO.1694/PUN/2014 M/S. RAJMAL LAKHICHAND WHERE THERE WAS A CREDIT BAL ANCE OF RS. 32,80,85,847/- FOR THE PURPOSE OF INVOKING THE PROV ISIONS OF SEC. 2(22)(E) OF THE ACT IN THE HANDS OF PARTNERS SHRI ISHWARLAL S. LALWANI, SHRI AMRISH I.LALWANI AND SMT. NEETIKA M.LALWANI WITH 40%, 30% AND 30% SHARE, RESPECTIVELY IN THE PROFIT/LOSS OF THE FIRM. THE A PPELLANTS LETTER DTD. 25/09/2012 FURTHER REVEALS THAT M/S.RAJMAL LAKHICHA ND JEWELLERS (P) LTD. MADE A PAYMENT OF RS.45 LAC TO ONE SHRI VIJAYKUMAR KATARIYA ON 25/11/2008 ON BEHALF OF THE APPELLANT COMPANY FOR A PPELLANTS PROPERTY AT SANGAMNER. M/S.RAJMAL LAKHICHAND JEWELLERS (P) LTD. ALSO INCURRED EXPENSES AMOUNTING TO RS.64,38,555/- ON BEHALF OF T HE APPELLANT COMPANY ON ACCOUNT OF CONSTRUCTION AT AHMEDNAGAR. AO IS DIRECTED TO EXAMINE THESE PAYMENTS FOR THE PURPOSE OF INVOKING THE PROVISIONS OF DEEMED DIVIDENDS IN THE HANDS OF SHRI ISHWARLAL S. LALWANI. 20. BEFORE US, LD. COUNSEL FOR THE ASSESSEE MENTION ED THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT CANNOT BE INVOKED WHEN THE BALANCES INVOLVING ARE ON ACCOUNT OF TRADING OR CURRENT ACCOUNT TRANSACTIO NS. THE AMOUNT OF RS.67,61,977/- IS MERELY A DIFFERENCE BETWEEN THE D EBIT AND CREDIT BALANCES. ACCORDING TO HIM, THEY ARE NOT THE CLEAR LOAN OR AD VANCES PAID BY THE ASSESSEE. THEREFORE, LD. COUNSEL PRAYED FOR EXPUNGING THE DIR ECTIONS OF THE CIT(A). IN THIS REGARD, HE RELIED ON VARIOUS DECISIONS TO SUPP ORT THE ABOVE ARGUMENT. 21. LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE HEAVILY RELIED ON THE ORDER OF THE CIT(A). 22. ON HEARING BOTH THE PARTIES, THE TRANSACTION IN QUESTION ARE MERELY OF ROUTINE BUSINESS TRANSACTIONS. BOOKS DO NOT CONFIR M THAT THERE ARE ANY LOAN/ADVANCES GIVEN BY THE ASSESSEE TO THE SISTER C ONCERNS WITH THE COMMON DIRECTORS. THUS, WE FIND THE LOANS INVOLVED ARE CE RTAINLY ON ACCOUNT OF TRADING TRANSACTIONS, I.E. PURCHASE AND SALE OF THE GOLD/JE WELLERY/BULLION ETC. AND IT IS NOT THE CLEAR PAYMENT OF LOAN BY THE ASSESSEE TO TH E COMPANY. THEREFORE, WE ARE OF THE OPINION THAT DIRECTIONS GIVEN BY THE CIT (A) TO THE AO ON THIS ACCOUNT IS PRIMA-FACIE UNSUSTAINABLE IN LAW. ACCORDINGLY, THE ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS ALLOWED IN FAVOUR OF THE ASSESSEE. 12 ITA NOS.782 AND 721/PUN/2013 AND ITA NO.1694/PUN/2014 ITA NO.782/PUN/2013 (BY REVENUE) : 23. IN THIS APPEAL, REVENUE HAS RAISED THE FOLLOWIN G GROUNDS : 1. ON THE FACT AND IN THE CIRCUMSTANCE OF THE CASE THE LD.CIT(A)-II, NASHIK ERRED IN GIVING RELIEF BY ESTIMATING THE INCOME OF ASSESSEE AND NOT ON THE BASIS OF FACTS OF THE CASE. 2. ON THE FACT AND IN THE CIRCUMSTANCE OF THE CASE THE LD.CIT(A)-II, NASHIK ERRED IN DELETING ADDITIONS OF RS.2,89,47,407/- ON ACCOUNT OF DISALLOWANCE U/S.40A(2)(B) I.E. PURCHASES FROM SISTER CONCERN WH EN THE CIT(A) HAS APPRECIATED FACTS IN RESPECT OF PROVISION OF SEC.40 A(2)(B) ARE CLEARLY APPLICABLE. 3. ON THE FACT AND IN THE CIRCUMSTANCE OF THE CASE THE LD.CIT(A)-II, NASHIK ERRED IN DELETING ADDITIONS ON ACCOUNT OF DIVERSION OF PROFIT OF RS.10,44,96,803/- WHEN THE CIT(A) HAS APPRECIATED THE FACTS THAT DIVE RSION OF PROFIT ON SALE IS CLEARLY ESTABLISHED. 4. ON THE FACT AND IN THE CIRCUMSTANCE OF THE CASE THE LD.CIT(A)-II, NASHIK ERRED IN DELETING ADDITIONS ON ACCOUNT OF G.P. OF R S.83,53,082/- WHEN THE ACTION OF A.O. IN REJECTING BOOKS OF ACCOUNT IS UPH ELD. 5. ON THE FACT AND IN THE CIRCUMSTANCE OF THE CASE THE LD.CIT(A)-II, NASHIK ERRED IN PARTLY DELETING ADDITIONS OF RS.26,50,701/ - AS AGAINST OF RS.54,21,963/- MADE BY A.O. ON ACCOUNT OF DISALLOWANCE U/S.36(1)(I II). 6. ON THE FACT AND CIRCUMSTANCE OF THE CASE THE ORD ER OF THE CIT(A) BE CANCELLED AND THAT OF THE A.O. BE RESTORED. 7. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND THE GROUND OF APPEAL, IF FELT NECESSARY. 24. REFERRING TO THE ISSUE RELATING TO ESTIMATION O F PROFITS, RESTRICTING ADDITIONALLY THE GROSS PROFIT TO 0.59% AND ALSO DEL ETION OF ADDITIONS MADE BY THE AO U/S.40A(2)(B) OF THE ACT ON ONE SIDE AND ALS O THE ADDITIONS ON ACCOUNT OF DIVERSION OF PROFITS ON THE OTHER, THE LD. COUNS EL FOR THE ASSESSEE SUBMITTED THAT THESE ASPECTS OF THE ISSUE ARE CONNECTED TO (T HE FIRST ISSUE) RAISED BY THE ASSESSEE IN ITS APPEAL VIDE GROUND NOS. 1 TO 3. FU RTHER, HE MENTIONED THAT THIS ISSUE NOW STANDS REMITTED TO THE FILE OF THE CIT(A) FOR FRESH ADJUDICATION IN THE LIGHT OF THE ORDER OF THE TRIBUNAL IN THE CASE OF M /S. RAJMAL LAKHICHAND ITA NOS. 532 & 663/PUN/2013 AND ITA NO.607/PUN/2013 ORD ER DATED 16-01-2015. ACCORDINGLY, IT IS THE VIEW OF THE LD. COUNSEL THAT GROUND NOS. 1 13 ITA NOS.782 AND 721/PUN/2013 AND ITA NO.1694/PUN/2014 TO 4 OF THE REVENUE SHOULD BE REMANDED ALONG WITH G ROUND NOS. 1 TO 3 OF THE APPEAL OF THE ASSESSEE. 25. ON HEARING BOTH THE PARTIES, WE FIND THIS ISSUE IS OBLIQUELY RELATED AND THE SAME HAS ALREADY BEEN ADJUDICATED BY THE TRIBUN AL IN THE CASE OF M/S. RAJMAL LAKHICHAND (SUPRA). FURTHER, WE HAVE ALREA DY REMANDED THE ISSUE WHILE DEALING WITH THE APPEAL OF THE ASSESSEE. CO NTENTS OF PARA 7 TO 11 OF THIS ORDER ARE RELEVANT. CIT(A) IS DIRECTED TO GRANT RE ASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THEREFORE, WE ORDER ACCORDI NGLY. 26. REFERRING TO GROUND NO.5 OF THE REVENUE, IT WAS MENTIONED THAT THE SAID GROUND RELATES TO THE RELIEF GRANTED BY THE CIT(A) ON ACCOUNT OF INTEREST U/S.36(1)(III) OF THE ACT. 27. ON HEARING BOTH THE PARTIES, WE FIND THIS ISSUE HAS A NEXUS TO GROUND NO.2 RAISED BY THE ASSESSEE. IN DEALING WITH THE I SSUE IN THE APPEAL OF THE ASSESSEE, WE REMANDED THE SAME TO THE FILE OF THE C IT(A). CONSIDERING THE PRINCIPLE OF CONSISTENCY, WE REMAND THIS ISSUE IN A PPEAL OF REVENUE ALSO TO HIS FILE. CIT(A) IS DIRECTED TO ACCORD REASONABLE OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE. 28. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. 29. TO SUM UP, THE APPEALS OF THE ASSESSEE AND THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1694/PUN/2014 MANRAJ JEWELLERS PVT. LTD. : 30. NOW, WE SHALL TAKE UP THE APPEAL OF THE REVENUE IN RESPECT OF MANRAJ JEWELLERS PVT. LTD. ITA NO.1694/PUN/2014. GROUND S RAISED BY THE REVENUE ARE AS UNDER : 14 ITA NOS.782 AND 721/PUN/2013 AND ITA NO.1694/PUN/2014 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A)-II, NASHIK HAS ERRED IN DELETING THE GROS S PROFIT ADDITION CONSIDERING THAT THERE IS NO JUSTIFICATION FOR REJECTION OF ACC OUNTS WITHOUT APPRECIATING THE VARIOUS DEFECTS AS POINTED OUT BY THE ASSESSING OFF ICER IN THE ASSESSMENT ORDER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A)-II, NASHIK HAS ERRED IN DELETING THE ADDI TIONS BEING DIVERSION OF PROFIT ON A/C OF SALES MADE TO ASSOCIATE CONCERN AT A LOWE R RATE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE ORDER OF THE LD.CIT(A)-II, NASHIK BE CANCELLED ON THE ABO VE ISSUES AND THAT OF THE A.O. BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, MODIFY , DELETE, AMEND ANY OF THE GROUNDS WITH PRIOR PERMISSION OF THE HONBLE CI T, AS PER THE CIRCUMSTANCES OF THE CASE. 5. THE APPELLANT PRAYS TO FILE ANY OF THE ADDITIONA L EVIDENCE APPROPRIATE TO THE GROUNDS TAKEN IN APPEAL. 31. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE T HAT ASSESSEE COMPANY BELONGS TO RAJMAL LAKHICHAND GROUP OF CASES OF JALG AON. ASSESSEE IS ENGAGED IN THE BUSINESS OF GOLD AND SILVER, MAKING OF ORNAM ENTS AS WELL AS SELLING THE BULLIONS. ASSESSEE FILED THE RETURN OF INCOME ON 2 2-08-2009 DECLARING NIL INCOME, HOWEVER, DEEMED INCOME U/S.115JB WAS SHOWN AT RS.2,60,51,861/-. ASSESSEE DECLARED GROSS PROFIT @2.71% AND NET PROFI T @ 0.73% ON THE TOTAL TURNOVER OF RS.303.54 CRORES. 32. BEFORE US, REFERRING TO GROUND NO.1, LD. COUNSE LS MENTIONED THAT THE SAID GROUND RELATES TO THE REJECTION OF BOOKS OF AC COUNT AND THE REASONS FOR REJECTION ARE COMMON TO THE OTHER CASES NAMELY, M/S . RAJMAL LAKHICHAND AND MANVI HOLDINGS PVT. LTD. BRINGING OUR ATTENTION TO THE ORDER IN THE CASE OF M/S. RAJMAL LAKHICHAND (SUPRA), THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ON IDENTICAL FACTS AND THE LISTED DEFICIENCIES IN THE BOOKS OF ACCOUNT, THE TRIBUNAL CONFIRMED THE REJECTION OF BOOKS OF ACCOUNT INVOKIN G THE PROVISIONS OF SECTION 145(3) OF THE ACT. CONSEQUENTLY, THE ORDER OF THE CIT(A) IN THIS CASE IS REQUIRED TO BE REVERSED AND IN FAVOUR OF THE REVENU E. 15 ITA NOS.782 AND 721/PUN/2013 AND ITA NO.1694/PUN/2014 33. ON HEARING BOTH THE PARTIES AND CONSIDERING THE FAIRNESS OF THE LD. COUNSEL FOR THE ASSESSEE, WE ARE OF THE OPINION THA T GROUND NO.1 RAISED BY THE ASSESSEE IN SO FAR AS IT RELATES TO REJECTION OF BO OKS OF ACCOUNT IS ALLOWED IN FAVOUR OF THE REVENUE. SO FAR AS ESTIMATION OF GRO SS PROFIT AND THE APPROPRIATE GROSS PROFIT RATE IS CONCERNED, WE FIND THIS MATTER NEEDS TO RE-VISIT TO THE FILE OF THE CIT(A) APPRECIATING THE REASONING AND LOGIC GIV EN BY THE TRIBUNAL IN THE CASE OF M/S. RAJMAL LAKHICHAND (SUPRA) AFTER GRANTI NG REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE ORDER ACCORDING LY. 34. SO FAR THE ISSUE RAISED IN GROUND NO.2 THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE MENTIONED THAT THE S AME RELATES TO DELETION OF ADDITION BEING THE DIVERSION OF PROFITS ON ACCOUNT OF SALES MADE TO THE ASSOCIATE CONCERN AT A LOWER RATE. HE MENTIONED THAT THIS IS SUE WAS NOT APPROVED BY THE ABOVE REFERRED DECISION OF THE TRIBUNAL IN THE CASE OF M/S. RAJMAL LAKHICHAND (SUPRA). 35. ON HEARING BOTH THE SIDES, WE FIND THERE IS NO APPEAL FILED BY THE ASSESSEE. HOWEVER, CONSIDERING THE ORDER OF THE TR IBUNAL ON IDENTICAL ISSUE, WE DIRECT THE CIT(A) TO APPLY THE REASONING GIVEN BY T HE TRIBUNAL IN THE CASE OF M/S. RAJMAL LAKHICHAND (SUPRA) AND ADJUDICATE THE I SSUE RAISED IN GROUND NO.2. THEREFORE, THIS ISSUE ALSO IS REMANDED TO THE FILE OF THE CIT(A). 36. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF JULY, 2017. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE; DATED : 28 TH JULY, 2017. 16 ITA NOS.782 AND 721/PUN/2013 AND ITA NO.1694/PUN/2014 / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A) - II, NASHIK 4. T HE CIT - II, NASHIK 5 . DR, ITAT, A BENCH PUNE; 6 . / GUARD FILE.