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Income Tax Appellate Tribunal, ‘’ A’’ BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED
आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the assessee against the order of the Learned Commissioner of Income Tax(Appeals), Ahmedabad-5, arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2011-2012.
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The assessee has raised the following grounds of appeal: 1. The learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the assessing officer in rejecting the books of accounts of the Appellant u/s.145(3) of the I.T. Act, 1961. 2. The learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of losses of Rs.3,25,74,320/- made by the Assessing Officer as alleged non genuine losses. 3. The learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of losses of Rs.3,25,74,320/- made by the Assessing Officer as alleged non genuine losses and not allowing set off of the same against other business income of Rs.2,32,20,878/- shown in the audited trading account of the appellant. 4. The learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of interest expenses of Rs.14,51,773/-. 5. The appellant craves leave to add, alter, amend or modify any of the grounds of appeal on or before the date of hearing of appeal.
The 1st interconnected issue raised by the assessee in ground no. 1 to 3 is that the learned CIT (A) erred in confirming the disallowance of loss for Rs. 3,25,74,320/- after rejecting the book of accounts by treating the loss claimed by it as bogus in nature.
The facts in brief are that the assessee in the present case is an individual and engaged in the business of trading of Gold Bars & Ornaments, silver and diamond under the name of style of M/s Adinath Impex. The assessee is also a shareholder in the companies as detailed under:
S. No. Name of the company No. of shares % of holding 1. Aryavart Commodities Pvt. Ltd 2 lakh 5.98% 2. Aryavart Infrastructure Pvt. Ltd 1 lakh 9.56% 3. Adinath Ornaments Pvt. Ltd. 9.5 lakh 9.5%
4.1 The assessee has shown sales to above mentioned parties at concessional rate as compared to market rate. The assessee’s contention is that these parties have given huge amount of interest free advances which resulting in saving of
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interest cost to the extent of Rs. 3,35,33,638/- if interest rate taken @ 12% on the interest free advances.
4.2 The AO during the assessment proceedings observed that the sales were made to above mentioned parties at the rate 2.04% lower than the market rate which resulted loss in his books of accounts. Furthermore, the assessee sold the products immediately after the purchases which evidences that the assessee has booked the losses artificially in his books of accounts. The AO further observed that the assessee during the year has earned income on sale of land to the tune of Rs. 2,31,76,100/- shown as other income in the books which suggest that such fabricated loss has been booked to set-off other income by selling gold at lower rate to the above mentioned related parties.
4.3 Besides the above, the AO also observed that assessee has made cash deposit of Rs. 4,04,47,995/- and claimed that such cash was deposited from cash sales. However, the bills generated against the cash sales were not containing the name of the parties. Likewise, the deposit of cash in the bank cannot be justified on the basis of cash sales. It is because, there was mismatch in the amount of cash sales viz a viz cash deposited in the bank account of the assessee.
4.4 In view of the above the AO was of the opinion that the book result of the assessee is not reliable and the loss declared is not genuine. Thus the AO rejected the books of accounts by invoking the provisions of section 145(3) of the Act and disallowed the loss of Rs. 3,25,74,320/- by adding to the total income of the assessee.
Aggrieved assessee preferred an appeal to the learned CIT (A).
The assessee before the learned CIT (A) submitted that he has submitted all the necessary documents in support of the transactions and he has maintained proper books of account which were duly audited. Furthermore, the GP has also
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improved in comparison to previous year but the AO without specifying any explicit shortcoming or defect in the books rejected the book of accounts.
6.1 With regard to the cash deposited in the bank, the assessee submitted that during the year its total turnover is of Rs. 320 crores out which cash sale is of Rs. 4.1 crores only which is very insignificant. Further most of cash sale were made to random customer through counter and such customers mostly are reluctant to disclose their identity. Therefore, their address or contacts details were not mentioned on bills.
6.2 Likewise, the AO’s observation that cash book and bank books are not in conformity is vogue and factually incorrect for the reason that cash and bank are containing different nature of transaction. Hence the same can never be matched except cash deposit or cash withdrawal from bank. Therefore, the rejection of books on the above ground is not justified.
6.3 The assessee with regard to concessional sale to related parties submitted that the AO identified three parties to whom sale were made allegedly at lower rate than rate prevailing in the market. At the first instance this observation of the AO factually is incorrect for the reason that out of such 3 parties there is not any sale made to one party namely Aryavart Commodities Pvt. Ltd. Thus, the very basis of disallowances of the loss claimed is wrong. Further the AO made general remarks that the sales are made at lower rate than market without pointing any specific bill on specific date which were raised at lower rate, or on that date what was the market rate of the item and how the same is being sold at lower rate. As the AO carried extensive inquiry from the assessee as well supplier debtor by issuing notices u/s 136(6) of the Act but did not find any conclusive evidence that the sales were suppressed. The finding of the AO is general and in the nature of doubt or suspicion.
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6.4 However the learned CIT (A) confirmed the action of the AO by relying on the order of his predecessor in the own case of the assessee pertaining to A.Y. 2009-10.
Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us.
The learned AR before us submitted that this tribunal in the own case of the assessee for the assessment year 2009-10 involving identical facts and circumstances has decided the issue in favour of the assessee.
8.1 The learned AR further submitted that the AO in the assessment year 2012- 13 has also accepted the books results of the assessee. The facts of the case in hand for identical to the facts of the case for the assessment year 2012-13.
8.2 In view of the above, the learned AR contended that the disallowance /addition made by the AO and confirmed by the learned CIT (A) deserves to be deleted.
On the other hand, the learned DR submitted that the facts of the case for the assessment year 2009-10 is different than the facts of the case under consideration. In the assessment year 2009-10, the revenue has not challenged the genuineness of the transaction as well as the books of accounts were not rejected. But it is not so in the case on hand. Therefore, no reference can be made to the order of the ITAT for the assessment year 2009-10. The learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that the learned CIT (A) has disallowed the loss claimed by the assessee treating it as bogus after making
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reliance on the order of his predecessor for the assessment year 2009-10. For this purpose, the relevant finding of the learned CIT (A) is extracted as under: It is pertinent to mention here that in the A.Y. 2009-10, where the AO has made the similar addition on identical facts which were confirmed by the CIT(A) vide his order dated 20.02.2013. The relevant portion of the order of the CIT(A) is as under: XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Since the disallowance of loss made by the AO was held to be justified in the appellate proceedings for A.Y. 2009-10 and the issue identically involved in the appeal under consideration and hence the disallowance made by the AO is justified and the same is confirmed. Thus, the grounds raised by the appellant are dismissed.
10.1 In view of the above, we hold that the facts of the case for the year under consideration are identical to the facts of the case for the assessment year 2009- 10. Admittedly, the addition for the assessment year 2009-10 has been deleted by this ITAT in the own case of the assessee in ITA No. 1420/Ahd/2013 vide order dated 25-01-2017. The relevant finding of the order of the ITAT reads as under:
We have heard the rival contentions and perused the records placed before us and gone through the decisions relied on by the ld. AR. Assessee’s appeal revolves round the solitary grievance against the order of ld. CIT(A) confirming addition of Rs.77,95,670/- made by ld. Assessing Officer for not allowing the claim of losses incurred by the assessee in certain sale transactions with Jay Jewellers, ACPL & S. K. Jewellers. We find that during the course of assessment proceedings ld. Assessing Officer selected 15 transactions out of which one each was Jay Jewellers and S. K. Jewellers and 13 transactions with ACPL. All these 15 transactions took place between 3.11.2008 to 28.3.2009 having one common factor that in all these 15 transactions gold bars purchased during the day were sold at a lower rate giving rise to losses. With regard to Jay Jewellers and S. K. Jewellers loss arising on each impugned transaction was Rs.2719/- and Rs.7,05,254/- respectively and the ITA No. 1420/Ahd/2013 Asst. Year 2009-10 14 remaining loss of Rs.70,87,697/- was suffered in the impugned remaining 13 transactions entered into with ACPL. Ld. Assessing Officer ignoring the assessee’s submissions that the gold prices are very volatile and the impugned transactions were entered in the normal course of business took a view that assessee has been unable to justify that there was actually so much fluctuation in the gold and diamond market in these days due to which sales were made at such lower prices. Ld. Assessing Officer also took a view that these three impugned parties are related/sister concerns of the assessee and losses have been intentionally manipulated by the assessee.
We further observe that when the issue came up before the first appellate authority, relating to these three parties as to whether the three parties are related to the assessee was adjudicated in detail by ld. CIT(A) who concluded with a view that on the basis of documents presented before him the impugned three parties are not related to the assessee as sister concern nor they are covered in the list of relatives provided in section 40A(2)(b) of the Act. But ld. CIT(A) confirmed the disallowance of losses of Rs.77,95,670/- on the basis of his observation which erupted out of the additional plea taken by the assessee. During the course of assessment proceedings and before the first appellate authority assessee had submitted that primarily all the impugned 15 transactions have been entered into in the
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normal course of business, no objection has been raised with regard to the purchases made and transactions entered with the other parties during the year and no anomaly has been found in the ITA No. 1420/Ahd/2013 Asst. Year 2009-10 15 books of account and assessee has shown a better GP. Assessee took an additional plea by submitting that it has received huge interest free advances from ACPL and if an interest rate of 15% is presumed then also an approximate interest cost of Rs.48,04,106/- would have been borne by the assessee. With this additional plea assessee submitted that there has been no loss of revenue because on one hand there has been loss in the sale transaction and on the other hand interest has not been paid on the advance/credit received from ACPL. This additional plea was taken up by ld. CIT(A) in deciding against the assessee by observing that if the rate of interest is taken at 18% and it is applied on the credit balance lying with the assessee received from ACPL then approximately notional interest will work out to Rs.72 lacs which is more or less matches with the loss suffered by the assessee in the impugned 13 transaction with ACPL and, therefore, these are colourable transactions attempted with sole objective of avoiding of true incident of taxation in the hands of the two parties. However, ld. CIT(A) has not disputed the fact that all the sale and purchases vouchers and invoices are entered in the books of account, receipts and payments have been made through banking channels, no infirmity has been found in the independent enquiries carried out with the impugned three parties. Therefore, there remains no force in the view taken by ld. CIT(A) of taking notional interest as a base to confirm the addition. The only reason for which both the lower authorities have denied the admissibility of the losses was that these transactions do not justify the bench mark of commercial expediency as there was no specific reason due to which appellant suffered losses again and again.
On further examination of facts we observe from the ledger account for F.Y. 2008-09 of ACPL placed on pages 15 to 19 of the paper book, from December, 2008 to March, 2009 regular transactions of purchase, sales and movements of funds have taken place and revenue has not disputed the transactions other than the 13 transactions and found them to be genuine. These transactions other than 13 transactions also includes those in which assessee has gained profits. Further ld. AR took us through the purchases made from Harshad Jewellers placed at pages 22 to 25 of the paper book out of which on 17.3.2009 purchases of gold bars have been made at Rs.1305 per gm. and when we look at the impugned transactions entered on 17.3.2009 gold bar has been sold to ACPL at Rs.1306 per gm and on the very same day there has been purchases from Deep Impex @ Rs.1580 per gm. Ld. Assessing Officer has alleged that assessee had purchased gold bars on 17.3.209 from Deep Impex at Rs.1580 per gm and has sold to ACPL at Rs.1306 per gm. giving rise to loss of Rs.11,06,960/- and has termed these transactions as colourable but on the very same day assessee made some purchases @ Rs.1305 per gm which is evidenced by the bill. Both these purchases from Deep Impex and Harsh Jewellers have no been held to be ingenuine which proves the contention of assessee that there was a high volatility. Ld. Assessing Officer has questioned the genuineness of sale @ Rs.1306 per gm., but has not raised any objection with regard to purchases made at Rs.1305 per gm. on the very same day. Similarly on 20.3.2009 the alleged sale transaction to ACPL of gold bar is at Rs.1306 per gm. and on the very same day ITA No. 1420/Ahd/2013 Asst. Year 2009-10 17 there is a purchase of Rs.1305 per gm from Harshad Jewellers vide its bill No.205 dated 20.3.2009. These facts in itself proves the volatility of gold/silver market and also shows the genuineness of the business transaction entered by the assessee which remains disproved even by the Revenue. At this juncture we would like to go through the judicial precedence adjudicating such type of issues.
We observe that Hon. Jurisdictional High Court in the case of Marghabhai Kishabhai Patel & Co. vs. CIT (supra) while adjudicating the issue relating to
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purchase of tobacco from its partners at higher price than average price paid to outside parties and held that the Tribunal was not justified in disallowing a part of actual price of tobacco paid by assessee –firm when it was not shown that the transaction was not bona fide or one or to be sham one or price paid was not what was shown in the books of account. It was further held that it was not open to the taxing authorities to disregard the figures of he transactions shown in the books of account of the assessee firm. Relevant portion of the Judgment of Hon. High Court is reproduced below :-
It may be pointed out that the decision of the Madras High Court in Sri Ramalinga Choodambikai Mills Ltd. v. Commissioner of Income-tax [1955] 28 10^95,2 (Mad) was approved and followed by the Supreme Court in Commissioner of Income-tax v. Calcutta Discount Company Ltd. [ 1973] 9_1 ITRJj. (SC) and there the Supreme Court held: "Where a trader transfers his goods to another trader at a price less than the market price, and the transaction is a bona fide one, the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched, to ascertain the profit from the transaction. An assessee can so arrange his affairs as to minimise his tax burden." ITA No. 1420/Ahd/2013 Asst. Year 2009-10 18 Hegde J., after notingthe decision of the Madras High Court in Sri Ramalinga Choodambikai Mills Lid. v. Commissioner of Income-tax (1955) 28 ITR 952 (Mad) and the earlier decision of the Supreme Court in Commissioner of Income-tax v. A. Raman & Company ' TR 11 (SC) observed at page 13 of [1973] 91 ITR 8 (SC): “But the law does not oblige a trader to make the maximum pro fit that he can out of his trading transactions. Income which accrues to a trader taxable in his hands: income which he could have, but has not earned, is not made taxable as income accrued to him. By adopting a device, if it is made to appear that income which belonged to the assessee had been earned by some other person, that income may be brought to tax in the hands of the assessee, and if the income has escaped tax in a previous assessment a case commencing a proceeding for reassessment under section 147(6) may be made out, Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Income- tax Act, Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented. It is a well accepted principle of law that an assessee can so arrange his affairs as to minimise his tax burden. Hence, if the assessee in this case has arranged its affairs in such a manner as to reduce its tax liability by start ing a subsidiary company and transferring ks shares to that subsidiary company and thus forgoing pan of its own profits and at the same time enabling its subsidiary to earn some profits, such a course is not impermissible under law." In view of this legal position and particularly in view of the decision of this High Court in Commissioner- of Income-tax v. Keshavlai Ckandula! [1966] 5^_JTR_12() (Guj), unless it has been shown that the transaction in question was a sham one or unless the value shown was not the value in the books of accounts or unless it was not a bona fide transaction, it is not op en to the taxing authorities to disregard the figures of the transactions shown in the books of account of the firm. The case before the Madras High Court in Sri Ramalinga Choodambikai Mills Ltd. v. Commissioner of Income-tax [1955] 28 ITR 952 (Mad) and before this High Court in Commissioner of Income-tax v. Keshavlai Chandulal [1966] 59_ITR^12P (Guj.) was directly converse of the case before us. In Keshavlai Chandulal's case [1966] 5J^JT]^J12() (Guj) the allegation was that the firm's profit was shown less by reason of the fact of sale to the partners at an undervalue. In the instant case before us it is alleged that the firm's profit has been shown to be less by reason of
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the fact that the purchases from the partners are shown to be at an inflated price. The Supreme Court has pointed out in Calcutta Discount Company's case [1973] 9.1 ITR 8 , 13 (SC), quoting from Commissioner of Income-tax v. A. Raman & Company [19681 67 ITR 11 (SC): "Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the ITA No. 1420/Ahd/2013 Asst. Year 2009-10 19 income before it accrues or arises to him. Effectiveness of the device depends not upon Considerations of morality, but on the operation of the Income-tax Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented." In the instant case, it is nobody's case that the transactions of sale from the partners and Chaturbhai Kishabhai Patel to the assessee-firm were not bona fide transactions nor is it the case of the department that they were sham transactions or that the price paid in respect of each of these transactions by the assessee-firm was other than the one set out in the books of account of the firm. Under these circumstances it appears to us that the taxing authorities had no right to substitute either the market price or the average price in place of the price or value agreed to between the parties to the transaction, since the transaction has not been shown to be a sham one nor has it been shown that the value was not the value in the books of account. Before parting with this case it may be pointed out that we fail to understand how the Income-tax Officer arrived at the figures of addition back for each of these assessment years without comparing the prevailing market price of the tobacco of the particular quality purchased from the partners and Chaturbhai Kishabhai Patel on the dates of purchase with the purchase price actually paid to the partners and Chaturbhai Kishabhai Patel. The qualities of tobacco differ very widely and also there may be fluctuations in the market from time to time and striking an average of the price of all tobacco purchased during the entire season irrespective of qualities and irrespective of the fluctuations in the market rates, was a very unscientific method followed by the department in arriving at its conclusion but in any event he had no right to depart from the prices shown in the books of account unless he found the transaction not to be a bona fide one or to be a sham one or unless he found that the prices paid were not what was shown in the books of account and since none of these three conclusions had been reached by him. he had no right to depart from the books of account of the assessee-firm, In view of these conclusions we hold that the Tribunal was not justified in disallowing a part of the actual price of tobacco paid to the partners and question No. (1) must, therefore, be answered in the negative, that is, in favour of the assessee and against the revenue. In view of our conclusion it is really not necessary to answer question No. (2) but in any event it appears that the conclusion reached by the Tribunal that the partners and their relatives were paid higher price was erroneous in law as the Tribunal has not compared comparables. We, therefore, answer question No. (2) in the affirmative, that is, in favour of the assessee and against the revenue. The Commissioner will pay the costs of this reference to the assessee.
We further observe that Hon. Supreme Court in the case of CIT vs. ShivakamiCo. P. Ltd. (supra) adjudicating the issue wherein ITA No. 1420/Ahd/2013 Asst. Year 2009-10 20 assessee with a view to sequestering the shares held by assessee in the company from clutches of Government, it sold them at a price much lower than their market value and in fact incurred a loss but Revenue could not prove that consideration was understated. Hon. Court decided the issue in favour of assessee by observing as follows:-
In the instant case, on behalf of the revenue, it was contended that it was accepted both by the Tribunal and the High Court that the transactions in question were done in order to defeat the claim of the revenue. The facts found were that there was a sale. The High Court has stated that the Tribunal had found that the
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consideration was not understated [Emphasis supplied]. The counsel-for the revenue contended that this was not correct. On the other hand, an inference could be drawn that the consideration was understated. The High Court also noted that the explanation given by the assessee for effecting the sate was not acceptable. 14. As it appears from the decision of this Court in K.P. Varghese's case (supra), the onus was on the revenue to prove that there was understatement in the document not that the goods were sold at undervalue. Understatement of a value is a misstatement of value. Selling: goods at an undervalue to defeat revenue is different from understating the value in the document of sale. The counsel for the revenue Contended that in the back ground of the facts of this case, the evil design of the assessee was clear and he said that it was difficult to know the mind of man. Therefore, an inference could be drawn in the facts of this case as noted by the Tribunal that there was understatement of value in the document. Though the legislation in question is to remedy the social evil and should be read broadly and should be so read that the object is fulfilled, yet the onus of establishing a condition of taxability must be fulfilled by the revenue. There is no evidence direct or inferential that the consideration actually received by the assessee was more than what was disclosed or declared by him. The relationship between the parties has been established. The desire to defeat the claims of the revenue has also been established but that fact that for this the assessee had stated a false fact in the document is not established. What appears from the Tribunal's order was that the real and main object was to safeguard these shares from being taken over by the Government in settlement of tax dues, and also that the buyer and seller were indirectly connected with each other. 15. The first proviso to section 12B(2) provides 'full value of the consideration for which the sale, exchange, relinquishment or transfer is made1 to be taken as the basis for the computation of the capital gains. Therefore, unless there is evidence that more than what was stated was received, no higher price can be taken to be the basis for computation of capital gains. The onus is on the revenue - the inferences might be drawn in certain cases but to come to a conclusion that a particular higher amount was in feet received must be based on such material from which such an irresistible conclusion follows. In the instant case, no such attempt was made. 16. As this Court has explained in K.P. Varghese's case (supra) that the second ingredient that is to say that the word 'declared' in sub-section (2) of section 52 is very eloquent and revealing. It clearly indicated that the focus of sub-section (2) was on the consideration declared or disclosed by the assessee as distinguished from the consideration actually received by him and it contemplated a case where the consideration received by the assessee in respect of the transaction was not truly declared or disclosed by him but was shown at a different figure. Capital gains was intended to tax the gains of an assessee, not what an assessee might have gained. What is not gained cannot be computed as gained. All laws, fiscal or otherwise, must be both reasonably and justly interpreted whenever possible. Capital gains tax is not a tax on what might have been received or could have taxed, In this case, the revenue has made no attempt to establish that there was any under statement though it might be that shares were sold at an undervalue. 17. In view of the ratio of K.P. Varghese's case (supra) the proviso to section 12B(1) can be invoked only where the consideration for the transfer of capital asset has been understated by the assessee. There is no evidence as discussed above that the full consideration received by the assessee in the transfer of the assets involved in these cases has been understated. The proviso helps or enables the department
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by providing a way to determine the market value. But the proviso is applicable only where the full value for the consideration has not been stated. There is no evidence, direct or inferential, in these cases that the full consideration had not been stated in the document. 18. In that view of the matter, in our opinion, the appeals must fail, though on different grounds than taken by the High Court. The appeals are accordingly dismissed.
Further we also observe that Hon. Supreme Court in the case of CIT vs. Calcutta Discount Co. Ltd. (supra) on a similar issue has held as under :- It is a well accepted principle of law that an assessee can so arrange his affairs as to minimise his tax burden. Hence, if the assessee in this case had arranged its affairs in such a manner as to reduce its tax liability by starting a subsidiary company and transferring its shares to that subsidiary company and thus forgoing part of its own profits and at the same time enabling its subsidiary to earn some profits, such a course was not impermissible under law.
We also observe that Hon. Jurisdictional High Court in the case of CIT vs. Amitbhai Gunvantbhai (supra) has held as under :-
The Tribunal had overlooked one important fact, namely, that the entries in the books of account of 'G ', (HUF) were not challenged by the department as a device or as a cloak to evade the tax. Nowhere on the record the department challenged that the entries did not reflect the real transaction between the parties. In the absence of any such challenge, according to the assessee, it was not open to the Tribunal to come to the conclusion that the money was not received by 'G' in his capacity of HUF but was received by him in his capacity as the guardian of the assessee. The basic principle is the same in the law relating to income-tax as well as in civil law, namely, that if there is no challenge to the transaction represented by the entries or to the genuineness of the entries, then it is not open to the other side-in the instant case the revenue—to contend that what is shown by the entries is not the real state of affairs. No attempt was made by the department to show that, in fact, though the entries were made in the books of account of the HUF, the moneys were received or passed on to Amitbhai or that the moneys were received by G in his capacity as the guardian of the assessee. Under these circumstances, the department not having challenged the genuineness of the entries in the books of account of G, (HUF) and there being no other material on the record on which it could be said that the moneys were received by G in his capacity as guardian of minor, there was no evidence before the Tribunal to come to the conclusion as it did at the end of its order by way of inference that the amount in question did reach the representative assessee in his capacity as guardian of assessee. The entries which were the only evidence on record showed that the amount was received by G in his capacity as karta of the HUF but beyond that there was no other evidence. The Tribunal without any evidence on the record had drawn the inference that the amount in question did reach the representative assessee in his capacity as guardian of the assessee. To say that G was representative assessee or that the amount did reach the representative assessee in his capacity as guardian of the assessee, was not correct so far as the record of the instant was concerned. The inference drawn by the Tribunal that the amount having come to G's hands must be considered to
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have reached his hands in his capacity as guardian of assessee was not warranted by the evidence on record and was contrary to whatever evidence that had been led on behalf of the assessee and this evidence had not been challenged on behalf of the revenue.
From going through the series of judgments of Hon. Supreme Court and Hon. Jurisdictional High Court discussed in preceding paras, we find that the ratios laid down in these judgments contemplate that if there is no challenge to the transactions entered in the books or to the genuineness of the entries, then it is not open on the side of Revenue to contend that what is shown in the transactions/entries is not the real state of affairs. In the instant case also we find that Revenue has miserably failed to make any attempt or to prove that entries made in the books are not genuine nor any other adverse material has been placed on record to show that the impugned loss was false and assessee has received more consideration than the actual transaction of sale. Further even in the independent enquiries conducted on the alleged three parties it ended up without giving any iota of evidence against the assessee as the same have nowhere been highlighted in the assessment order.
We are, therefore, of the view that the action of ld. Assessing Officer was erroneous as he has selected only few transactions on which only loss has incurred without giving cognizance to the fact that assessee has gained in other transactions with the impugned parties which are very well evidenced with the independent itemwise transaction details forming part of the books of account of assessee placed at pages 35 to 45 of the paper book. Ld. Assessing Officer also failed to point out any mistake in the alleged transactions except mentioning that the loss has been incurred. Ld. Assessing Officer completely failed to appreciate that every assessee has his own style of doing business and more specifically in the kind of business assessee is entered into it is well established that there is regular fluctuations in the prices of gold/silver/diamonds and jewellery due to which profit/loss are incurred. In the present case when the assessee is maintaining regular books of account which are audited and all transactions are fully supported by bills and vouchers, impugned transactions have taken place through banking channels, confirmations have been received from the alleged parties no adversity has been found in the statements recorded by the Revenue of the alleged parties, quantitative records are regularly maintained, similar transactions have not been disputed even in the subsequent assessment u/s 143(3) of the Act as supported by the copy of the order u/s 143(3) of the Act for Asst. Year 2012-13 framed on 13.2.2015. We, therefore, hold that the impugned 15 transactions giving rise to loss of Rs.77,95,670/- are genuine and cannot be termed as colourable with the intention of evasion of tax and ld. Assessing Officer erred in disallowing the same. We accordingly, set aside the order of ld. CIT(A) and allow the appeal of the assessee. 19. In the result, appeal of the assessee is allowed.
10.2 Given above, we hold that principles laid down by the ITAT in the own case of the assessee as discussed above, are squarely applicable to the present facts of the case.
10.3 It is also pertinent to note that the Revenue in the own case of the assessee has accepted the results for the assessment year 2012-13. The learned DR, at the
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time of hearing has not brought anything on record contrary to the arguments advanced by the learned AR for the assessee.
10.4 Therefore respectfully following the same, we set aside the order of the learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.
The next issue raised by the assessee is that the learned CIT (A) erred in confirming the addition made by the AO for Rs. 14,51,773/- on account of diversion of fund.
The AO during the assessment proceedings found that the assessee on one hand has claimed interest expenses on the borrowed fund and on the other hand it has made interest-free advances to the parties. Accordingly, he was of the view that the interest-free funds have been diverted towards interest free advances. Accordingly the AO disallowed the interest expenses of Rs. 14,51,773/- and added to the total income of the assessee.
Aggrieved assessee preferred an appeal to the learned CIT (A) who has also confirmed the order of the AO by observing as under:
5.4. The appellant has mainly contended that the total interest free advance available to the appellant is much more and the AO has completely overlooked this fact while making disallowance of interest. The appellant has relied upon decisions in the case of Reghuveer Synthetics Ltd. 354 ITR 222 (Guj.) and Reliance Utilities & Power Ltd. 330 ITR 340 (Bombay). 5.5. In the judgment of Reliance Utilities & Power Ltd., it is held that if there is interest free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan, it can be presumed that the investments were from the interest free funds available. This decision is based on finding of fact by the Tribunal that there were sufficient interest free funds available in that case. The real enquiry is whether there are interest free funds available on the asset side and in the absence of sufficient proof of available interest free funds no such presumption can be drawn. As the assessee failed to prove the same, the AO has rightly made the addition. Hence the ground of appeal is dismissed.
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Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.
The learned AR before us contended that the own fund and interest free fund of the assessee exceeds the interest-free advances. Therefore he was of the view that disallowance of interest is not warranted.
On the other hand the learned DR contended that it was the onus on the assessee to furnish the evidences to justify that the borrowed fund has not been diverted for the interest free advances. The learned DR further contended that this plea was not taken by the assessee before the authorities below. The learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly the assessee has given interest free loan and advances amounting to Rs. 31,61,09,415/- and simultaneously incurred interest cost of Rs. 14,51,773/- only. The ld. AR before us contended that interest free funds were available with assessee which exceeds the amount of loan and advances given without charging interest. There cannot be any disallowance of interest expenses in a situation where the own fund exceeds the amount of interest free advances provided by the assessee. As such, there is a presumption that the interest free advances has been made by the assessee out of its own without involving any borrowed fund. In holding so we draw support and guidance from the judgment of Hon’ble jurisdictional High court in the case of CIT vs. Torrent Power Ltd reported in 363 ITR 474 where it was held as under: It was noted from records that the assessee was having share holding funds to the extent of 2607.18 crores and the investment made by it was to the extent of`Rs.195.10 crores. In other words, the assessee had sufficient funds for making the investments and it had not used the borrowed funds for such purpose. This aspect of huge surplus funds is not disputed by the revenue which earned it the interest on bonds and dividend income. [Para 7]
17.1 In view of the above we hold that there cannot be any disallowance of interest expenses provided the own fund of the assessee exceeds the interest free
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advance. Accordingly, we direct the AO to verify whether the own fund of the assessee exceeds the amount of interest free advances and adjudicate the issue afresh in accordance with the provisions of law. Hence, the ground of appeal of the assessee is allowed for the statistical purposes.
In the result, the appeal of the assessee is partly allowed for the statistical purposes.
Order pronounced in the Court on 10/08/2021 at Ahmedabad.
Sd/- Sd/- (RAJPAL YADAV) (WASEEM AHMED) VICE PRESIDENT ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 10/08/2021 Manish