The DCIT, Central Circle-2(4), Ahmedabad V. M/s. Zaveri & Co. Exports, Ahmedabad

ITA 930/AHD/2007

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80481 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-10-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 01-03-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD , BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER. ITA.NO. 930 /AHD/2007 & 2971/AHD/2009 (ASSESSMENT YEARS:2004-05 & 2005-06) DCIT, CENTRAL CIRCLE-2(4), AHMEDABAD. APPELLANT VS. M/S. ZAVERI & CO. EXPORTS, SWAGAT COMPLEX, C.G. ROAD, AHMEDABAD. RESPONDENT PAN: AAAFZ0697G / BY REVENUE :SHRI SUBHASH BAINS, CIT D. R. / BY ASSESSEE : SHRI M. K. PATEL WITH SHRI JAYESH C. CHAREDALAL, A. R. /DATE OF HEARING :14.10.2014 !'# /DATE OF PRONOUNCEMENT :31.10.2014 ORDER PER SHAILENDRA KUMAR YADAV, JM: THESE CROSS APPEALS ARE ARISING OUT FORM THE ORDER OF LD. CIT(A)-III, AHMEDABAD, DATED 19.12.2006 FOR THE ASS ESSMENT I.T.A. NOS. 930/AHD/2007 & 2971/AHD/2009 A.Y. 04-05 & 05-06 (M/S. ZAVERI & CO. EXPORTS VS. DCIT) PAGE 2 YEAR 2004-05 & ORDER OF LD. CIT(A)-XVI, AHMADABAD, DATED 18.08.2009 FOR A.Y. 2005-06. THEY ARE BEING DISPOS ED OF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENC E. 2. FOR A.Y. 2004-05 REVENUE HAS RAISED FOLLOWING GR OUNDS: 1. THE LD. CIT(APPEAL) ERRED IN LAW AND ON FACTS I N DELETING OF DISALLOWANCE OF EXPENSES OF RS. 18,74,640/- MADE BY A.O. AFTER COMPUTING INTEREST LOADING CHARGES INCLUDED IN PURCHASE PRICE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF TH E ASSESSING OFFICER ON THE ABOVE POINTS. 3. SIMILAR ISSUE AROSE IN ITA NO. 669/AHD/2007 IN C ASE OF M/S. ZAVERI & CO. VS. ACIT FOR A.Y. 2004-05 WHEREIN VIDE PARA NOS. 4 TO 4.8 OF SAID ORDER, SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE. THE OPERATIVE PORTION OF THE ORDER IS AS UNDER: 4.7 THIS REASONED FINDING OF THE CIT(A) NEED NOT INTERFERENCE FROM OUR SIDE. WE FIND THAT ASSESSEE ENGAGED IN BUSINESS OF TRADING OF BULLION. HE PURCHASED BU LLION MAINLY FROM GOVERNMENT CORPORATION LIKE STATE TRADI NG CORPORATION OF INDIA (STC) AND MAINLY METAL TRADING CORPORATION OF INDIA (MMTC). THERE ARE VARIOUS CORRESPONDENCE BETWEEN ASSESSING OFFICER AND ASSESS EE ON POINT OF VARIOUS QUERIES OF ASSESSING OFFICER. THE CHRONOLOGY OF EVENTS IN PURCHASE OF BULLION FROM ST C AS UNDER AND SAME IS APPLICABLE TO MMTC: (A) ZAVERI & CO. (BUYER INDIAN PARTY) APPROACHES ST C- AHMEDABAD FOR PURCHASE OF GOLD. (B) STC-AHMEDABAD PLACES ORDER WITH FOREIGN SUPPLIE R AT DUBAI, U.A.E. OR OTHER COUNTRIES. I.T.A. NOS. 930/AHD/2007 & 2971/AHD/2009 A.Y. 04-05 & 05-06 (M/S. ZAVERI & CO. EXPORTS VS. DCIT) PAGE 3 (C) THE BUYER INDIAN PARTY MAKES ADVANCE PAYMENT T O STC-A AHMADABAD. (D) STC- AHMEDABAD OPENS A LETTER OF CREDIT (L/C) W ITH INDIAN BANK FOR THE REQUIRED AMOUNT.(AFTER 30-09- 2003). PRIOR TO 30-09-2003 BUYER INDIAN PARTY OPEN S L/C ON REQUEST AND ON AUTHORITY OF STC. (E) STC- AHMEDABAD MAKES FDR OF THIS ADVANCE PAYMEN T RECEIVED. THIS FDR IS PLEDGED BY STC- AHMEDABAD FO R OPENING LETTER OF CREDIT WITH L/C OPENING BANK. THE FDR WILL BE FOR A TERM OF ONE YEAR. UPTO 30-09-200 3 THE FDR IS PLACED BY INDIAN PARTY. (F) THE FOREIGN SUPPLIER SHIPS THE GOLD TO STC- AHMEDABAD THROUGH AIR CARGO. (G) GOLD CONSIGNMENT ARRIVES AT AHMEDABAD AIRPORT. (H) STC- AHMEDABAD AUTHORISES BUYER-PRIVATE PARTY TO COLLECT THE GOLD FROM CONCERNED AIRLINES. (I) STC- AHMEDABAD ARRANGES TO PAY THE CUSTOMS DUT Y. (J) BUYER-PRIVATE PARTY TAKES DELIVERY OF GOLD. (K) AS PER TERMS AND CONDITIONS OF L/C, THEPAYMENT TO FOREIGN SUPPLIER IS TO BE MADE BY STC- AHMADABAD. (L) THE STC- AHMEDABAD IS REQUIRED TO PAY A HIGHER PURCHASE PRICE (AS COMPARED TO THE INTERNATIONAL GO LD RATE PREVAILING ON DATE OF SHIPMENT) TO THE FOREIGN SUPPLIER DUE TO THE CREDIT ALLOWED TO STC- AHMEDABA D. THE FOREIGN SUPPLIER ISSUES INVOICE IN THE NAME OF STC- AHMEDABAD. AS PER IMPORT EXPORT POLICY OF GOVERNMENT OF INDIA PREVAILING AT RELEVANT TIME IMPORT OF BULLION FOR T RADING PURPOSES INTO INDIA WAS PERMITTED ONLY TO THE GOVER NMENT NOMINATED AGENCIES LIKE STC, MMTC, BANKS ETC. PRIVA TE I.T.A. NOS. 930/AHD/2007 & 2971/AHD/2009 A.Y. 04-05 & 05-06 (M/S. ZAVERI & CO. EXPORTS VS. DCIT) PAGE 4 PARTIES LIKE THE ASSESSEE WERE NOT ALLOWED TO IMPOR T THE BULLION. 4.8 ASSESSEE PURCHASED THE BULLION FROM STC, MMTC E TC. AS PER POLICY LAID DOWN BY RESERVE BANK OF INDIA, U PTO 30 TH SEPTEMBER, 2003 THE PAYMENT OF BULLION IMPORTED BY STC, MMTC WAS MADE BY OPENING LETTER OF CREDIT IN THE NA ME OF FOREIGN SUPPLIER. THIS L/C WAS OPENED BY THE ASSES SEE AT THE BEHEST AND UNDER AUTHORITY OF STC, MMTC, SINCE THE ASSESSEE HAD TO MAKE THE PAYMENT FOR ITS PURCHASES TO STC/MMTC. HOWEVER THE RESERVE BANK OF INDIA AMENDED ITS POLICY AND WITH EFFECT FROM 1 ST OCTOBER, 2003 AND HENCE THE ASSESSEE MADE THE PAYMENT DIRECTLY TO STC / MMT C AND NOT THROUGH THE L/C IN THE NAME OF FOREIGN SUPP LIER OF STC / MMTC. ASSESSEE WAS PURCHASING THE BULLION FRO M STC /MMTC ON A CREDIT OF 365 DAYS. ASSESSEE WAS SE LLING THE BULLION ON SPOT PAYMENT BASIS. THIS RESULTED IN PURCHASE PRICE AT HIGHER AMOUNT THAN THE SALE PRICE . THE SALE BILLS ISSUED BY STC / MMTC WERE FOR A TOTAL PR ICE I.E. THERE WAS NO SEGREGATION OF ANY SORT LIKE SPOT PRIC E, INTEREST ETC. THE INVOICES WERE FOR A COMPOSITE AMOUNT. AS P ER THE MERCANTILE METHOD OF ACCOUNTING FOLLOWED BY THE ASS ESSEE THE ENTIRE PURCHASE PRICE AS PER THE SALE BILL OF S TC / MMTC WAS TREATED AS EXPENDITURE AND DEBITED TO PURCHASES . THE SALES PRICE AS PER THE SALES BILLS ISSUED BY THE AS SESSEE WAS TREATED AS INCOME AND CREDITED TO SALES ACCOUNT. L/ C WERE OPENED BY ASSESSEE (UPTO 30-09-2003) BY PUTTING MAR GIN MONEY, BY WAY OF FIXED DEPOSITS WITH THE CONCERNED BANK. THE ASSESSEE EARNED INTEREST ON FDR. THE BANK FDR INTEREST INCOME ON MARGIN MONEY WAS SHOWN ON ACCRUA L BASIS UPTO 31 ST MARCH, 2004 AS INCOME OF I.T.A.Y. 2004-05. IN SPITE OF THESE SUBMISSIONS ON BEHALF OF ASSESSEE ASSESSING OFFICER MADE DISALLOWANCE OF RS. 2,29,45, 449/- BY MAKING A HYPOTHETICAL EXERCISE WHICH IS BASED ON PRESUMPTIONS AND CONJECTURES. ASSESSING OFFICER WA S NOT JUSTIFIED IN MAKING ADDITION OF RS. 2,29,45,449/- B Y DISALLOWING THE PRESUMED AMOUNT OF INTEREST LOADING CHARGES INCLUDED IN THE PURCHASES OF BULLION ON ACC OUNT OF CREDIT PERIOD OF 365 DAYS. ASSESSING OFFICER HAS P RESUMED THAT THE PURCHASES FROM STC/MMTC ARE INCLUSIVE OF INTEREST AND ASSUMED THIS FIGURE OF INTEREST ON THE BASIS OF IRRELEVANT DATA COMPILED BY HIM. HE FURTHER MADE I.T.A. NOS. 930/AHD/2007 & 2971/AHD/2009 A.Y. 04-05 & 05-06 (M/S. ZAVERI & CO. EXPORTS VS. DCIT) PAGE 5 ASSUMPTION THAT 90% OF THIS ASSUMED INTEREST IS FOR BULLION TURNOVER AND REMAINING 10% FOR EARNING BANK FDR INT EREST. ASSESSING OFFICER HAS APPORTIONED THE 10% ASSUMED AMOUNT IN TWO ASSESSMENT YEARS I.E. I.T.A.Y. 2004-0 5 AND 2005-06 IN THE PROPORTION OF INTEREST ACCRUAL OF BA NK FDR AS WELL AS THAT RECEIVABLE FROM STC / MMTC, WHICH I S NOT JUSTIFIED. IN VIEW OF ALL, CIT(A) WAS JUSTIFIED IN DELETING ADDITION OF RS.2,29,45,449/- MADE BY A.O. ON ACCOUN T OF INTEREST LOADING, WE UPHOLD THE SAME. 3.1 FACTS BEING SIMILAR, SO FOLLOWING THE SAME REAS ONING, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDING OF C IT(A) WHO HAS RIGHTLY DELETED THE EXPENSES OF RS. 18,74,640/- MAD E BY A.O. AFTER COMPUTING INTEREST CHARGES INCLUDED IN PURCHA SE PRICE. SAME IS UPHELD. IN RESULT, THIS APPEAL OF REVENUE IS DISMISSED. 4. FOR A.Y. 2005-06, REVENUE HAS RAISED FOLLOWING G ROUNDS: 1) THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DEL ETING OF DISALLOWANCE OF EXPENSES OF RS. 44,15,633/- MADE BY A.O. AFTER COMPUTING INTEREST LOADING CHARGES INCLUDED IN PURCHASE PRICE. 2) THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELE TING OF DISALLOWANCE ADDITION MADE ON ACCOUNT OF WASTAGE SHOWN IN SEZ UNIT OF RS. 68,360/- WITHOUT CONSIDERING FACTS ON ITS RIGHT PROSPECTIVE. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF TH E ASSESSING OFFICER ON THE ABOVE POINTS. 5. IN FIRST ISSUE, ASSESSING OFFICER MADE DISALLOWA NCE OF EXPENSES OF RS. 44,15,633/- AFTER COMPUTING INTERES T CHARGES INCLUDED IN PURCHASE PRICE. IN APPEAL, CIT(A) DELE TED THE SAME. WE FIND THAT SIMILAR ISSUE AROSE IN ITA NO. 669/AHD /2007 IN CASE OF M/S. ZAVERI & CO. VS. ACIT FOR A.Y. 2004-05 WHEREIN I.T.A. NOS. 930/AHD/2007 & 2971/AHD/2009 A.Y. 04-05 & 05-06 (M/S. ZAVERI & CO. EXPORTS VS. DCIT) PAGE 6 VIDE PARA NOS. 4 TO 4.8 OF SAID ORDER AS FOLLOWED I N ITA NO. 930/AHD/2007 ON SIMILAR ISSUE IN PARA 3 OF THIS ORD ER, WE HAVE DECIDED SIMILAR ISSUE IN FAVOUR OF ASSESSEE. F ACTS BEING SIMILAR, SO FOLLOWING THE SAME REASONING, WE ARE NO T INCLINED TO INTERFERE WITH THE FINDING OF CIT(A) WHO HAS RIGHTL Y DELETED THE EXPENSES OF RS. 44,15,633/- MADE BY A.O. AFTER COMP UTING INTEREST CHARGES INCLUDED IN PURCHASE PRICE. SAME IS UPHELD. 6. NEXT ISSUE IS WITH REGARD TO DISALLOWANCE ON ACC OUNT OF WASTAGE SHOWN IN SEZ UNIT OF RS.68,360/-. ASSESSIN G OFFICER OBSERVED THAT ASSESSEE HAS SHOWN WASTAGE OF 219 GMS OF GOLD WHILE MANUFACTURING THE GOLD JEWELLERY. ASSESSING OFFICER ASKED TO ASSESSEE TO STATE THE METHOD OF VALUING TH E WASTAGE. THEREFORE, A.O. RESTRICTED THE WASTAGE OF 100 GM AN D MADE THE ADDITION OF RS.68,360/- BEING VALUE OF BALANCE GOLD OF 119 GMS. 6.1 MATTER WAS CARRIED BEFORE FIRST APPELLATE AUTHO RITY, WHEREIN IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT DURING THE YEAR ASSESSEE PURCHASED 25,75,000 GMS OF RAW MA TERIAL INCLUDING GOLD AND MANUFACTURED 25,87,799.630 GMS O F JEWELLERY. THERE WAS SHORTAGE OF 219.360 GMS WHIC H WAS VERY MEAGER AT 0.0084%. AS AGAINST THIS, WASTAGE NORMS FIXED BY THE GOI, MINISTRY OF COMMERCE, FOREIGN TRADE POLICI ES FOR EXPORT OF PLAIN GOLD JEWELLERY IS ALLOWABLE UPTO 1. 25%. SINCE ASSESSEE HAS SHOWN MANUFACTURING LOSS OF ONLY 0.008 4% AS AGAINST PERMISSIBLE LIMIT OF 1.25% FIXED BY THE CON CERNED MINISTRY OF GOI. AGREEING TO THE CONTENTIONS OF AS SESSEE, CIT(A) RIGHTLY OBSERVED THAT ASSESSING OFFICER WAS NOT JUSTIFIED I.T.A. NOS. 930/AHD/2007 & 2971/AHD/2009 A.Y. 04-05 & 05-06 (M/S. ZAVERI & CO. EXPORTS VS. DCIT) PAGE 7 IN MAKING SUCH ADDITION ON ACCOUNT OF SHORTAGE/MANUFACTURING LOSS. SO, CIT(A) RIGHTLY DE LETED THE ADDITION OF RS. 68,360/- MADE BY ASSESSING OFFICER ON ACCOUNT OF SHORTAGE. SAME IS UPHELD. 7. IN THE RESULT, APPEALS FILED BY REVENUE FOR BOTH YEARS ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 31 ST DAY OF OCTOBER, 2014. SD/- SD/- (ANIL CHATURVEDI) (SHAILENDRA KUMAR YA DAV) ACCOUNTANT MEMBER JUDICIAL MEMBER TRUE COPY S.K.SINHA $ $ $ $ &' &' &' &' ('# ('# ('# ('# / COPY OF ORDER FORWARDED TO:- 1. / REVENUE 2. / ASSESSEE 3. -- . / CONCERNED CIT 4. .- / CIT (A) 5. '23 &, , / DR, ITAT, AHMEDABAD 6. 367 89 / GUARD FILE. BY ORDER / $ , :/ - , <