PRINCIPAL COMMISSIONER OF IN vs. M/S. NARESH PRASAD AGARWAL

TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 In the High Court of Judicature at Madras Reserved On : 22.09.2020 Pronounced On: 25 .09.2020 Coram : The Honourable Mr.Justice T.S.SIVAGNANAM and The Honourable Mrs.Justice V.BHAVANI SUBBAROYAN Tax Case Appeal Nos.275 to 283, 285, 291 to 293, 300 & 319 to 322 of 2020 and C.M.P.Nos. 9590, 9616, 9617, 9618, 9623, 9624, 9625, 9627, 9628, 9651, 9653, 9655, 9809, 10059, 10061 and 10062 of 2020 Principal Commissioner of Income Tax Central I No.108, Mahatma Gandhi Road, Chennai. ...Appellant in all Appeals Vs M/s.Shiv Salai & Sons(I) Ltd, No.1, Narasima Dasari Lane, 60/61, NSC Bose Road, Chennai 600 079 PAN AANCS9453R ...Respondent in all Appeals COMMON PRAYER: APPEALS under Section 260A of the Income Tax Act, 1961 against the order dated 27.06.2018 made in 1/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 Tax Case Appeal Nos. I.T.A.Nos. Assessment Years 1. T.C.A.No.275/2020 I.T.A.No.1450/chny/2017 2007-08 2. T.C.A.No.276/2020 I.T.A.No.1485/chny/2017 2006-07 3. T.C.A.No.277/2020 I.T.A.No.1451/chny/2017 2008-09 4. T.C.A.No.278/2020 I.T.A.No.1453/chny/2017 2010-11 5. T.C.A.No.279/2020 I.T.A.No.1486/chny/2017 2007-08 6. T.C.A.No.280/2020 I.T.A.No.1488/chny/2017 2009-10 7. T.C.A.No.281/2020 I.T.A.No.1452/chny/2017 2009-10 8. T.C.A.No.282/2020 I.T.A.No.1490/chny/2017 2011-12 9. T.C.A.No.283/2020 I.T.A.No.1487/chny/2017 2008-09 10. T.C.A.No.285/2020 I.T.A.No.1449/chny/2017 2006-07 11. T.C.A.No.291/2020 I.T.A.No.1489/chny/2017 2010-11 12. T.C.A.No.292/2020 I.T.A.No.1454/chny/2017 2011-12 13. T.C.A.No.293/2020 I.T.A.No.1455/chny/2017 2012-13 14. T.C.A.No.300/2020 I.T.A.No.1491/chny/2017 2012-13 15. T.C.A.No.319/2020 I.T.A.No.1998/chny/2017 2011-12 16. T.C.A.No.320/2020 I.T.A.No.1448/chny/2017 2012-13 17. T.C.A.No.321/2020 I.T.A.No.1989/chny/2017 2012-13 18. T.C.A.No.322/2020 I.T.A.No.1447/chny/2017 2011-12 on the file of the Income Tax Appellate Tribunal, Madras 'A' Bench. For Appellant in all Appeals: Mr.T.R.Senthil Kumar Senior Standing Counsel assisted by Ms.K.G.Usha Rani 2/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 Common Judgment was delivered by

T.S.Sivagnanam,J.

These appeals, filed by the Revenue, under Section 260A of the Income Tax Act, 1961 ('the Act' for brevity) is directed against the orders dated 27.06.2018 passed by the Income Tax Appellate Tribunal Bench 'A' Chennai ('the Tribunal' for brevity) in I.T.A.Nos.1453/chny/2017, 1486/chny/2017, 1488/chny/2017, 1452/chny/2017, 1490/chny/2017, 1487/chny/2017, 1449/chny/2017, 1489/chny/2017, 1454/chny/2017, 1455/chny/2017, 1491/chny/2017, 1998/chny/2017, 1448/chny/2017, 1989/chny/2017 and 1447/chny/2017 for the Assessment Years under consideration (AYs' 2006-07 to 2012-13). These appeals can be segregated into three categories based on the Substantial Questions of Law which have been framed for consideration. The following are the four Substantial Questions of Law have to be decided in these appeals: 1).Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the assessee quoting lower rates for cash sales as against 'sales to jewellers' is tenable, even though both are not credit sales? 3/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 2)Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that disallowance of interest is not warranted where the assessee had sufficient own funds, without appreciating that the diverted own funds had it remained with the assessee would have reduced its interest burden? 3)Whether on the facts and circumstances of the case, the Appellate Tribunal was correct in deciding that until the arbitration proceedings between the assessee and M/s.MMTC Ltd., (Minerals and Metals Trading Corporation Ltd.,) reach a finality, additions cannot be made on the credit notes raised by M/s.MMTC Ltd., in favour of the assessee when the arbitration proceedings itself were caused by collusive conduct on the part of both the parties? 4). Whether on the facts and circumstances of the case, the Hon'ble Tribunal was correct in holding that repayment of a debt by a debtor will not create a fresh credit but only square off the debt, without taking cognizance of the fact that the credit appears in the 4/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 books of M/s.Shiv Sahai & Sons (I) Ltd., for the year ending 31.03.2012, relevant to the assessment year 2012- 13? 2. The Substantial Question of Law No.1 above arises in T.C.A.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 for seven assessment years. The Question of Law nos.2 and 3 arises in T.C.A.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 for all assessment years and Question of Law no.4 arises in T.C.A.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 for the assessment year 2012- 13 only. 3. Since the facts are identical and the challenge in these appeals are to a common order passed by the Tribunal, it would suffice to refer to the facts in T.C.A.No.285/2020 filed against the order passed by the Tribunal in I.T.A.NO.1449/Chny/2017 for the assessment year 2006-07. 5/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 4. The respondent assessee is an individual and was a proprietor of a business concern trading in Gold, Silver and Bullions from September 2010. The Proprietorship business was converted into a Limited Company. There was a search and seizure operations conducted on two dates namely 06.01.2012 and 02.03.2012. Pursuant to which notice under Section 153(A) of the Act was issued for the assessment years under consideration (AY 2006-07 to 2012-13). The assessments were completed under Section 143(3) read with Section 153(A) of the Act by orders dated 31.03.2014. The major issues in the Assessment Orders which are subject matter of these appeals are four in number namely (i) cash sales effected by the assessee quoting low rates, (ii) disallowance of interest which was set aside by the Tribunal (iii) Credit notices which were issued to M/s.MMTC Ltd., (Minerals and Metals Trading Corporation Ltd.,) which were directed to be kept in abeyance till the conclusion of the arbitration proceedings, (iv) unexplained credit in the name of Smt.Pista Bai. The assessee being aggrieved by the Assessment Orders dated 31.03.2014 preferred appeals before the Commissioner of Income Tax (Appeals)-19, Chennai [CIT(A)]. 6/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 The appeals were Partly Allowed and the above four issues were decided in favour of the assessee vide order dated 28.03.2017. 5. The assessee contended before the CIT(A) that the books relied on by the Assessing Officer for making the additions were the very same books which were produced by the assessee before the Assessing Officer during the course of original assessment and there was no incriminating material found at the time of search and the recomputation of profit was made by the Assessing Officer purely on surmises. Further the assessee submitted that they were not following the Association Rate for selling bullions but were following LMB (London Bullion Metal Exchange) with adjustments for exchange rate difference, import duty etc and sales effected to jewelers were based on cheques received from them. It will take couple of days for collection. Whereas across the counter cash sales resulted in immediate realization of money and therefore, such transactions were incorporated by the assessee by offering slightly lower rates for cash sales. Further more the assessee contended that LMP rates noted in the diary was for 0.999 purity gold, whereas the gold traded by assessee was of 0.995 7/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 purity and the bullion trading was different from other businesses and the assessee will not be able to share all the information with its employees and they were given information only on 'Need to know principle'. The CIT(A) considered the said contention in a elaborate manner and allowed the assessee's appeal. 6. The Revenue preferred an appeal to the Tribunal and in paragraph no.61 of the impugned order, the Tribunal has elaborately considered the entire factual matrix and took note of the number of instances where the assessee had charged lesser on its jewelery customers than for cash sales. Various invoice numbers have been recorded and noting in the diaries of the earlier years were considered as also the fact that there was no additions for suppression of sales for the years 2010-11 and 2011-12. That apart, the Tribunal took note of the statement given by one of the employees and the assessee and has extracted the relevant portion of the statement. Noting that the deponent did not make any allegation that they were selling bullions in cash at lower rates and it was done for suppression of income, the Tribunal took note of the assessee's stand that the trade 8/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 information and data will not be shared with all employees, as they follow 'need to know principle' and only such information which was required to be shared within employees will be made known to the concerned employee. Further more, the Tribunal noted that the soft copy of the books of accounts found at the time of search was not a parallel set of account but only regular accounts maintained by the assessee based on which it was filing their returns. With the above factual finding, the Tribunal concurred with the CIT(A). 7. With regard to the second issue namely disallowance of interest, the Assessing Officer disallowed the interest alleging diversion of interest free loans at 12% given to various persons for the assessment years 2006-07 to 2012-13. The assessee stated before the Assessing Officer that every business has its own requirements to make advances and it can be interest free or not or for non business purposes and the Assessing Officer cannot adopt a percentage of 12%. The Assessing Officer noted that the assessee also received interest free advances from customers and various other third parties. The explanation offered by the assessee was held to be 9/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 vague and without proper details and accordingly, the Assessing Officer made disallowance of interest free advances and loans at 12%. On appeal, the CIT(A) found that the assessee had substantial capital built over various years and was also having substantial interest free advances and there was nothing on record to show that any interest bearing funds were diverted for giving any interest free loans or for making any investments. The finding rendered by the CIT(A) was decided for its correctness and the Tribunal confirmed the same after taking note of the observations made by the CIT(A), who had analyzed the total investments and interest free advances given for the assessment years 2006-07 to 2012-13 as well as the total of interest free advances received by the assessee for all the assessment years and confirmed the finding. 8. With regard to the third issue, the Assessing Officer brought the income arising to the assessee on account of the credit and debit notes issued by M/s.MMTC Ltd., The assessee was on appeal before the CIT(A) contenting that the Assessing Officer cannot take note of the credit notes, ignoring the existence of debit notes. Therefore, a Remand Report was 10/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 called and in which, the Assessing Officer clarified that only credit notes were considered. The assessee pleaded that if at all the Assessing Officer is considering adopting accounts provided by M/s.MMTC Ltd., then it should be adopted in full and the Assessing Officer cannot blow hot and cold at the same time. Further the assessee contended that they are following mercantile system of accounting and as such the incomes arising on account of net of credit and debit notes, should be offered to tax year on year on the basis of receipt of credit / debit notes; the receivables arising to the assessee on account of credit notes was set off against the liabilities arising on account of the debit notes. The CIT(A) noted that the credit notes as well as debit notes are on record and have been submitted as documents before the learned Arbitrator as well as before this Court in a dispute between the assessee and M/s.MMTC Ltd.,. The CIT(A) considered the said submission and directed the Assessing Officer to give relief to the liabilities arising to the assessee on account of the debit notes and set off the same against the income receivables as per the credit notes raised by M/s.MMTC Ltd., and the Assessing Officer was computing the net of credit notes over and above the debit note and bring only the net amount for taxation. 11/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 9. The correctness of the said finding rendered by the CIT(A) was tested by the Tribunal. The Tribunal noted that criminal proceedings were initiated against the senior official of M/s.MMTC Ltd., and the individual assessee who was arrayed as a third accused and the criminal proceedings were quashed in Crl.O.P.NO.21243 of 2014 and Crl.R.C.NO.1191 of 2015 dated 17.04.2017. Further, the Tribunal noted that M/s.MMTC Ltd., had filed a Suit in the Original Side of this Court in C.S.No.249/2013 and the assessee had initiated arbitration proceedings against M/s.MMTC Ltd., as provided in the Memorandum of Understanding dated 02.04.2008 between the assessee and M/s.MMTC Ltd.,. The matter traveled upto the Hon'ble Supreme Court of India at the instance of M/s.MMTC Ltd.,. in Civil Appeal NO.11148 of 2017 in which the Honble Supreme Court disposed of the Appeal by order dated 20.11.2017, appointing Hon'ble Justice Mr.R.V.Raveendran, Former Judge of the Hon'ble Supreme Court as Arbitrator to decide all disputes arising out of Memorandum of Agreement dated 02.04.2008 between the assessee and M/s.MMTC Ltd., and the Claim Petition filed by the assessee before the Arbitrator was directed to be treated 12/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 as counter claim. The said order dated 20.11.2011 was to supersede the arbitration proceedings in Clause no.11 of the Memorandum of Agreement dated 02.04.2008. 10. The Hon'ble Supreme Court also fixed a time frame for the parties to exchange documents. On a Miscellaneous Petition moved by M/s.MMTC Ltd., in M.A.No.941 of 2020 in C.A.NO.11148 of 2017, the Hon'ble Supreme Court by order dated 02.06.2020, extended the time limit for the Arbitral proceedings by twelve months and the time to start from the date when the Hon'ble Arbitrator resumes the proceedings. Though the order passed in the Miscellaneous Petition is only on 02.06.2020, we have mentioned about this in this judgment to demonstrate that the dispute between the assessee and M/s.MMTC Ltd., is pending before the Hon'ble Arbitrator. The Tribunal took note of the order dated 20.11.2017, passed in Crl.O.P.NO.21243/2014 and Crl.R.C.No.1191/2015 and in our opinion, rightly, held that the outcome of arbitration proceedings will have a great bearing on the quantum of reconciliation difference for which the assessee if at all is liable. The Tribunal opined that a addition for differences in 13/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 accounting credit and debit notes, could not have been made for the impugned assessment years, as it will be crystalised only in the year in which the arbitration proceedings reaches a finality and the Revenue can take cognizance of the Arbitral Award in the year in which the arbitration is complete and proceed according to law. Therefore, the Tribunal set aside the addition made for credit and debit notes and the differences in reconciliation with M/s.MMTC Ltd.,. 11. The learned counsel appearing for the Revenue vehemently opposed the directions issued by the Tribunal, pointed out that in the event, this Court has to confirm the finding of the Tribunal, then the Court may exercise its power under Section 150 of the Act and issue appropriate directions and also relied on the recent decision of the Hon'ble Division Bench of this Court in T.C.A.No.788 of 2016 dated 18.09.2020 (Commissioner of Income Tax, Chennai. Vs., Emgeeyar Pictures Private Limited). The Tribunal, in it's considered view rightly deferred the proceedings under the Act to be commenced after the conclusion of the Arbitral proceedings, considering the nature of dispute between the assessee 14/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 and M/s.MMTC Ltd.,. We find that the order passed by the Tribunal meets the ends of justice and safeguards the interest of Revenue and no cause has arisen to invoke the powers under Section 150 of the Act. 12. The fourth issue is regard to the unexplained credit of Rs.30,00,000/- in the name of Smt.Pista Bai. The Assessing Officer while completing assessment vide orders dated 31.03.2014 made a addition of Rs.30,00,000/- on account of non filing of confirmation letter from Smt.Pista Bai called for under Section 142(1) of the Act. The assessee challenged the addition before the CIT(A), who before taking a decision called for a Remand Report which was furnished vide the Report dated 19.12.2017. The CIT(A) examined the issue and took note of the submission of the assessee that the debit entry in the books of the firm favouring Smt.Pista Bai to the extent of Rs.30,00,000/- was squared off with credit entry in the books of the limited Company and this fact was confirmed by the Assessing Officer in the Remand Report. Further the CIT(A) noted that the business of the assessee which was initially a Proprietorship concern had been taken over by the assessee from August 15/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 2011 and the assessee has explained the credit entry and accepting the explanation, the CIT(A) held that there is no reason for making any addition of amount which was a credit entry squaring off a earlier debit entry. 13. The Revenue was on appeal before the Tribunal on the said issue and after considering the manner in which the CIT(A) dealt with the issue, the Tribunal also verified the facts and noted that the transaction amounts received from Smt.Pista Bai were repayment of earlier advances of Rs.30,00,000/- given by the assessee, when the business was run as a Proprietorship concern and the latter transactions were reflected in the accounts of the Proprietorship concern. Thus it was held to be only a repayment of debt by a Debtor. Once the business was taken over by the assessee Company, any repayment of debt by a Debtor will not create a further credit, it will square off the debit. Therefore, the Tribunal found that there was no reason for interfering with the order passed by the CIT(A). 14. We find that the issue is fully factual and in the absence of any perversity in the approach of the Tribunal, this Court does not find any 16/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 grounds to disturb the factual finding recorded by the Tribunal while confirming the finding of the CIT(A). Therefore, we hold that the said issue does not raise any Substantial Question of Law for consideration. 15. In the result, these Tax Case Appeals are dismissed. Substantial Questions of Law nos.1 to 3 are answered against the Revenue and in favour of the assessee and insofar as Question of Law no.4, we find there is no Substantial Question of Law arising for consideration on the said issue and accordingly the same stands rejected. No costs. Consequently connected miscellaneous petitions are closed.

(T.S.S., J.) (V.B.S., J.)

25 .09.2020 Internet: Yes /No Index : Yes/No 17/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 T.S.SIVAGNANAM,J. And V.BHAVANI SUBBARAYON.,J. Sk To Principal Commissioner of Income Tax Central I No.108, Mahatma Gandhi Road, Chennai. Predelivery Judgment in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 25.09.2020 18/18 http://www.judis.nic.in